Banking & Finance

How Many US Banks Will Fail? A Bailout Stretching To Infinity

95129cThe FDIC seized three more banks and sold their assets: Downey Savings and Loan, PFF Bank & Trust, and Community Bank of Loganville. The agency now has 117 banks on its list of endangered institutions.

Many experts think the FDIC list is much too short and that it is a form of “window dressing” to keep the public from getting panicky. That is almost certainly true. If residential and mortgage failures pick up and consumers default on more and more of their obligations, the actual number of banks which fail could rise sharply between now and the beginning of 2009. New York University Professor Nouriel Roubini predicts that the head count of banks taken over by the agency will go well into the hundreds.

According to The Wall Street Journal, “Three more banks failed Friday as government officials scramble to contain the spreading financial turmoil, marking the highest volume of bank failures in one day since the Savings and Loan crisis.”

One of the most significant problems is that the FDIC is running low on money to cover assets in failed banks. That means it will have to go to the Treasury for more capital. Treasury has that money, but it is fair to question what happens when more billions of dollars get added to the $700 billion already earmarked for a massive financial bailout.

The government will just have to print more money. As long as the Japanese and Chinese governments will buy that Treasury debt, the bailout could go on forever.

Douglas A. McIntyre