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Approaching 100

In Economy on October 22, 2009 at 9:51 PM

FDIC-insured bank failures now approach a record in 2009.

According to Federal Deposit Insurance Corporation (FDIC) numbers, available through their website, banking failure statistics, comprising thrifts and commercial banks, account for 99 institutional failures in this year alone. The yearly figure, in effect, now hearkens back to the most previous period in which the century mark was pivotally breached, 1992.

In 1992, 179 institutions were placed into FDIC possession, a term sometimes referred to as receivership. However, unfortunately, that number in no way eclipsed the largest number of bank failures on record in the U.S. The record for most bank failures in a single year belongs to 1989, tallying 531 failed.

That 1992 phase in American banking history saga represented the latter ending transition of the “Savings & Loan Crisis,” or “S&L Crisis,” an era where savings banks billed the public an estimated $132.1 billion in socialized dollars. Many of that generation recall the Resolution Trust Corporation (RTC), formed by government in 1989 in order to liquidate much of the wrecked and ruined thrift assets of the many failed institutions. Many are also likely familiar with the political-banking scandal referred to as “The Keating 5” episode.

The below graphic tracks banking failures over time, since 1934 onward; the FDIC was formed in 1933, so data is portrayed only over this 76-year time period.

It is interesting to note that, even in the wake of “The Bank Holiday,” organized by President Franklin Roosevelt in 1933, the U.S. endured a significant swelling in failure numbers culminating around 1937, evidenced on the far left side of the graph. Roosevelt was able to explain the reasoning behind the Bank Holiday intervention clearly by radio broadcast; you can listen to the broadcast here.

As you move further left to right on the graph, you begin to realize that really no other instance in U.S. banking history managed to flare up quite like the bulging mass of banking failures noted in 1989.

What is happening now in 2009 is quite dismal as well. Indeed the year is not even over yet, and already we are aimed at crossing the 100 level.

Time will tell if 2009 represents a step in the right or wrong direction, a shifting upward like an earlier data point in the S&L Crisis or a shifting downward like a latter data point in a crisis having peaked and passed.

From a skewness perspective, unfortunately, the current banking failure cycle resembles, more so, the 1937:Q2 cycle period, with its right-skew, as opposed to the 1990:Q3 cycle period, with its left-skew. If this skew trend continues to coalesce, then the FDIC is certainly in for another monumental, troubled ride here onward.

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