11 Bank Failures in '11

The ongoing economic volatility took its toll on a few more banks last week. On Friday, four more were padlocked by U.S. regulators. These banks were based in Oklahoma, Wisconsin, Colorado and New Mexico. This takes the total number of bank failures to 11 so far in 2011, following 157 in 2010, 140 in 2009 and just 25 in 2008.

While the bigger banks benefited greatly from the various programs launched by the government, many smaller banks continue to struggle. Tumbling home prices, soaring loan defaults and a high unemployment rate continue to overshadow such institutions.

With the industry absorbing bad loans offered during the credit explosion, the banking system is exposed to some severe problems. This is aggravating the risk of bank failures.

The failed banks are:

• Camargo, Oklahoma-based The First State Bank, with total assets of about $43.5 million and total deposits of about $40.3 million as of September 30, 2010.

• Stoughton, Wisconsin-based Evergreen State Bank, with about $246.5 million in total assets and $195.2 million in total deposits as of September 30, 2010.

• Louisville, Colorado-based Firs Tier Bank, with total assets of about $781.5 million and total deposits of about $722.8 million as of September 30, 2010.

• Taos, New Mexico-based First Community Bank, with total assets of about $2.31 billion and total deposits of about $1.94 billion as of September 30, 2010.

These bank failures represent another blow to the Federal Deposit Insurance Corporation (FDIC) fund meant for protecting customer accounts, as it has been appointed receiver for these banks.

The FDIC insures deposits in 7,760 banks and savings associations in the country as well as promotes the safety and soundness of these institutions. When a bank collapses, the FDIC reimburses deposits of up to $250,000 per account.

Though the FDIC has managed to shore up its deposit insurance fund during the last few quarters, the outbreak of bank failures has tested its limits. As of September 30, 2010, the fund remained in the red with a deficit of $8 billion despite adding $7.2 billion during the quarter.

The failure of The First State Bank is expected to be dearer by about $20.1 million for the FDIC, while Evergreen State Bank will cost about $22.8 million. The other two banks, FirsTier Bank and First Community Bank will cost FDIC about $242.6 million and $260.0 million, respectively.

Oklahoma City, Oklahoma-based Bank 7 has agreed to assume assets and deposits of The First State Bank.

McFarland, Wisconsin-based McFarland State Bank has agreed to assume assets and deposits of Evergreen State Bank.

The FDIC created the Deposit Insurance National Bank of Louisville (DINB) to provide FirsTier Bank’s depositors access to their insured deposits. Notably, DINB will remain open until February 28, 2011.

Minneapolis, Minnesota-based U.S. Bank, National Association, the lead bank of U.S. Bancorp ( USB - Analyst Report ) , has agreed to assume assets and deposits of First Community Bank.

In the third quarter of 2010, the number of banks on FDIC's list of problem institutions grew to 860 from 829 in the previous quarter and 552 in the year-ago quarter. This is the highest since the savings and loan crisis in the early 1990s.

Increasing loan losses on commercial real estate are expected to result in hundreds of bank failures in the next few years. Going by the current rate of bank failures, the FDIC is likely to feel a $52 billion pinch over the next three years.

The failure of Washington Mutual in 2008 was the largest in the U.S. banking history. It was acquired by JPMorgan Chase & Co. ( JPM - Analyst Report ) . The other major acquirers of failed institutions since 2008 include U.S. Bancorp and BB&T Corporation ( BBT - Analyst Report ) .