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July 4, 2009 2:47 PM   Subscribe

Failed bank takeovers by the FDIC continue to increase at an alarming rate in 2009 (7 this past thursday, 52 so far in 2009) Here's an interview with a bank CEO who bought a failed bank for some insider info into how the process of buying failed banks works (this is the bank he bought). Via calculated risk. Previously
posted by jourman2 (8 comments total) 4 users marked this as a favorite

 
Note well: Those comparing number of bank failures and rate of bank failures to the S&L crisis should remember than banks of today are much larger (and fewer) than they were in the S&L crisis era. So simple comparison of numbers (there were vastly more failures in the S&L crisis) isn't a useful comparison.
posted by eriko at 3:09 PM on July 4, 2009


Not sure if this was mentioned in the previous thread, but This American Life did a show in March that followed FDIC and bank employees through a failure/takeover. Interesting and insightful.
posted by aparrish at 4:11 PM on July 4, 2009


This last round of banks were pretty small. The one the bank CEO's company bought was like $80 million in deposits. That's pretty tiny. It was young too. It could be that many of the failures we are seeing now are banks that sprang up AFTER the S&L crisis, and didn't have enough time to diversify and get big enough to survive the recession of today, so they're being taken down and sold off to larger banks that are doing okay. It's like many of these failing banks are tender, young green shoots of banks, but the weather is just too harsh for them to survive right now to see adulthood. Economic 'climate change' is upon them.
posted by jamstigator at 6:21 PM on July 4, 2009


Interesting article in the NYT on some of the failures.

They go under due to 'hot money.' Money that is stashed there by larger investment firms like Goldman Sachs, then used to fund local investments. Except that when the local investments (real estate, construction, etc) went bad, the banks were in the red when the hot money moved on to the next small bank.

From the article:

The 79 banks that have failed in the United States over the last two years had an average load of brokered deposits four times the national norm, according to an analysis performed for The New York Times by Foresight Analytics, an industry research firm based in California. And a third of the failed banks, the analysis shows, had both an unusually high level of brokered deposits and an extremely high growth rate — often a disastrous recipe for banks.

Moral of the story - don't lend out other people's money.
posted by infinitefloatingbrains at 7:10 PM on July 4, 2009


Moral of the story - don't lend out other people's money.

Huh? That's the entire point of a bank. The real moral of the story is that a bank needs to offer something to its retail depositors besides high yields. Customer service, ATMs, extra branch hours, mortgages, etc, etc. Wells Fargo has done well because it sees itself more as a retailer than a bank, and therefore its cost of deposits is among the lowest in the industry. And those deposits are sticky too.

Banks that funded themselves with brokered CDs have more in common with hedge funds than they do with traditional George Bailey-style banks.
posted by mullacc at 7:53 PM on July 4, 2009


(George Bailey ran a building-and-loan, i.e. an S&L. Pre-Garn-St.-Germain, that is.)

Note that this week's takeovers included several Illinois banks -- but they were all owned by the same investment group. "Rock River Bank, A Campbell Group bank, is a part of a family of privately owned companies providing quality financial products and services. The family includes Rock River Bank, Founders Group Inc., six independent community banks serving markets throughout the State of Illinois, and Legacy Bank in Scottsdale, Arizona. " Seems very S&L-crisis-ish to me.
posted by dhartung at 10:11 PM on July 4, 2009


Wells Fargo has done well because it sees itself more as a retailer than a bank ...

i know little about money & less about banking. my impression of wells fargo, though, is that it's less of a customer service paragon than it is a bloodsucking predator. that's just my impression, though.
posted by msconduct at 5:31 AM on July 5, 2009


these banks are all doomed with their own consolidation. just another federal reserve scheme, yeah.
posted by the aloha at 2:27 PM on July 5, 2009


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