THE BASIS POINT

26 Failed Banks in 2011

Twenty-six banks have failed in 2011. Friday the FDIC closed Advantage National Bank Group (IL) assuming all the deposits (liabilities) of the Bank of Commerce (IL). Which brings up the question, “Do regulators see trends in problem banks?” Generally speaking, regulators see some key characteristics they frequently find in these institutions, none of which be themselves is usually capable of bringing a bank down, but when combined with others cause concern. These include strong growth, concentrations of credit (particularly CRE and construction & development), out-of-area lending, dominant management, failure of board oversight, heavy reliance on wholesale funding (brokered deposits), minimal balance sheet liquidity, and a lack of knowledge of complex investments. Healthy banks, on the other hand, are urged to focus on sustainable growth, supported by core deposits. Easier said than done.

Here is a story from NYT with a slightly different take on the mortgage meltdown: instead of his lender, this mortgage borrower was jailed for mortgage fraud.