07.30.2010
10.18.2013 replaced reported broken link with PDF

108 Bank Failures in 2010

original article written by Net Advisor™

As of Friday 07-30-2010. There are now 108 bank failures in 2010 with 5 closings today, and and a total of 22 failed banks in July alone. This matches the record number of bank failures since April 2010 when 22 banks failed that month.

FDIC Enters Into the Securities Business
The FDIC announced today that it is getting into the securitization business. This is fancy language for saying that the FDIC is going to package failed bank loans and instruments and sell them as Collateralized Debt Obligations (CDOs), or Collateralized Mortgage Obligations (CMOs), or the similar.

“Securitization involves packaging up loans and other assets into a security, and then selling it to institutional investors such as pension funds and hedge funds. The securities are sliced into different tranches offering different risks and rewards.”

— Source: MarketWatch (PDF)

Just the note of irony is that this is exactly what the Obama Administration had been blaming “Wall Street” for the last two years and using “Financial Reform” as the mantra for change that is supposed to save America from future financial crises.

“We’ll make our financial system more transparent by bringing the kinds of complex, back room deals that helped trigger this crisis into the light of day. We’ll prevent banks from taking on so much risk that they could collapse and threaten our whole economy,” Obama said.”

— Source: Reuters

I’d be in Vegas all day long taking long term bets that there is no piece of legislation that will be able to prevent any future economic or other crisis. However if ones wants to start reducing the deficit and get state and federal spending under control, then that move could greatly alleviate that future crisis.

There is nothing inherently illegal in packaging or securitizing securities. It’s the political irony that has to make people laugh. It’s OK if the government does it, but if “Wall Street” does it, that’s not OK.

FDIC Guaranteeing It’s New Failed Bank Derivative Portfolios
The FDIC is making the so far $400 million worth of securities sold even more attractive by guaranteeing the securities if held to maturity (Source: MarketWatch PDF). If the FDIC is guaranteeing the investment as they say they are, then why not take the most risky tranches for the highest yield? Who would bother taking the low yield if the same guarantees are in place, unless they are the last to come to the table and get some?

What is also interesting is that only one major U.S. bank (Bank of America Merrill Lynch) was involved in underwriting the deal. A foreign firm, RBS Securities, a unit of Royal Bank of Scotland was the lead underwriter, and Deutsche Bank was a co-Underwriter with Merrill (Source: MarketWatch PDF).

See the other bank failures and history on our Bank Failure Tracker

(Chart Data Source: FDIC)

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