Accelerating Bank Failures

From Bloomberg:
Georgia’s Community & Southern Bank picked up $800 million in deposits as it acquired three of the six U.S. banks that collapsed this week, bringing the year’s failure count to 125.

Banks in Georgia, New Jersey, Ohio and Wisconsin were closed by regulators, according to statements posted yesterday on the website of the Federal Deposit Insurance Corp., which was named receiver. This week’s failures cost the agency’s deposit- insurance fund $347.6 million.

“Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship in order to retain their deposit insurance coverage,” the FDIC said in each of the statements.

Banks are failing at a faster pace than last year, which saw the most failures since 1992, as real estate values remain depressed and economic recovery stays sluggish. Regulators closed 140 banks last year. The FDIC’s list of “problem” banks climbed to 829 lenders with $403 billion in assets at the end of the second quarter, a 7 percent increase from the 775 on the list in the first quarter, the FDIC said last month.


As we continue to go forward in this long recession we can expect to see increasing numbers of bank failures.
To date, depositors have not taken a significant hit since FDIC has been bailed out and changed their premium collection structure in an attempt to remain solvent itself for the next two or three years.
It is enlightening to note some of the wording coming from FDIC.
When one sees a phrase like "Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship" we see the worry hidden behind the reassuring words.
No need to panic everyone, the FDIC is always on duty.
In a deflationary period, where we continue to move down Exter's pyramid, we continue to see a decline in real estate values which make up a large portion of bank balance sheets.
This continuous drain on bank balance sheets puts a choke hold on lending, reinforcing the restrictions on advancing more credit.
The weakness of fractional reserve banking has been uncloaked.
And the zombie banks will continue to demand more cash and bailouts to continue operating.
Eventually, sovereign resources, whether from the FDIC or from more direct intervention will run dry.
Only then will we see the zombies allowed to die a natural death, and see a renewed banking system replace the dysfunctional current one.