Bank, CU Failures Decline

Regulators Say Pace Points to Fewer Closures in 2011
Bank, CU Failures Decline
On July 11, the National Credit Union Administration announced the liquidation of Vensure Federal Credit Union of Mesa, Ariz. And although it was the fifth institution to be closed since July 8, such announcements are far less frequent in 2011 than they have been in recent years.

Federal regulators won't speculate about how many more financial institutions may close in 2011, but they do say bank and credit union failures aren't expected to exceed what we saw in 2010.

So far, 66 institutions have closed this year. That total includes 51 banks and 15 credit unions. By mid-July last year, 100 institutions had failed. In all of 2010, 176 institutions - 157 banks and 19 credit unions - failed.

"So far, the pace of failures in 2011 is behind that of a year ago," says David Barr of the Federal Deposit Insurance Corp. "We expect there to be fewer failures this year."

For credit unions, the story is a little different. NCUA spokesman David Small says the year-to-date failure rate is "on par" with what the industry faced in 2010. Twelve NCUA-regulated credit unions have so far closed, including Vensure FCU, and seven have been conserved.

Market Leveling?

Christie Sciacca, a director with global economic advisory firm LECG who spent 13 years at the FDIC overseeing bank-rescue projects, estimated in January that between 125 and 150 banks, thrifts and credit unions would go down in 2011. [See 2011: More Bank Failures Expected.]

Sciacca predicted the margin of failures between 2010 and 2011, when compared with failures reported between 2009 and 2010, would move in a positive direction. In 2009, bank and credit union closures totaled 171. Sciacca pointed to increased consumer spending and an improving employment rate as indicators.

"Consumers are confident enough to have increased their borrowing a bit," he said. But, "the numbers suggest a slow recovery."

That market recovery also is reflected in a leveling off of the FDIC's "problem" banks list, which has only added four institutions since the end of 2010 - the fewest additions between quarters since 2008, when the economic crisis began. As of March, 888 FDIC-insured institutions, totaling $397.3 billion in assets, were listed as being troubled. Comparatively, at the end of 2010, 884 institutions, totaling $390 billion in assets, made the list. At the end of 2009, the total was 702, with $402.8 billion in assets.

Sciacca also notes that industry consolidation may have been just what the market needed, insight supported by SNL Financial's June report, "One Bank's Failure Is Another Bank's Gain."

According to SNL, between January 2009 and May 2011, stock prices for the publicly traded U.S. institutions that bought failed-banks outperformed the SNL Bank and Thrift Index shortly after acquisition. On average, failed-bank buyers outperformed the market within days, weeks and months after the deals were announced.

Sciacca says that consolidation improves efficiency and opens doors for institutions to enhance consumer services. "Companies are always looking to be more efficient," he said. "One way to do that is to leverage infrastructure by acquiring and merging."

About the Author

Tracy Kitten

Tracy Kitten

Director of Global Events Content and Executive Editor, BankInfoSecurity & CUInfoSecurity

Kitten was director of global events content and an executive editor at ISMG. A veteran journalist with more than 20 years' experience, she covered the financial sector for 10+ years. Before joining Information Security Media Group in 2010, she covered the financial self-service industry as the senior editor of ATMmarketplace, part of Networld Media. Kitten has been a regular speaker at domestic and international conferences, and was the keynote at ATMIA's U.S. and Canadian conferences in 2009. She has been quoted by, ABC News, and MSN Money.

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