Could Your Bank Be Closed By The Feds? (C)(IMB)(BAC)(NCC)

The most important financial lifeline for most small businesses and consumers is their bank. More often than not these banks are regional or local. They are easier to approach and tend to give better service than large money center banks like Citigroup (C) which have thousands of branches.

The failure of the big bank IndyMac (IMB) has lead analysts to ask how many of the nation’s 7,500 banks could go under. The New York Times reports that "the troubles are growing so rapidly at some small and mid-size banks that as many as 150 out of the 7,500 banks nationwide could fail over the next 12 to 18 months."

That number may be very, very low. During the S&L crisis which began in the late 1980s, about 1,000 banks failed. There is not reason to believe that the current mortgage failure rate and consumer credit default rate will not cause hundreds of banks to go under due to lack of adequate capital. Several large regionals like NCC (NCC) have been forced to raise billions of dollars. NCC’s shares are down almost 90%.It is still an open question whether NCC makes it, even with a huge cash infusion.

The FDIC insures most bank deposits, but if failures increase sharply, its workload will be overwhelming.

The local bank, which looked like the "safe" bank when companies like Bank of America (BAC) were writing down huge mortgages losses is not so safe any more

Douglas A. McIntyre.