The pace of bank failures is accelerating. This past Friday night the FDIC took control of four more banks, representing the largest number of bank closures yet on a single date and bringing the year to date total to 13 — including ten just in the last three weeks alone.


On February 13, 2008, the FDIC announced that it had taken control of Riverside Bank of the Gulf Coast, of Cape Coral, Florida, which previously had assets of $539 million (about which refer here); Sherman County Bank of Loup City, Nebraska, which previously had assets of $129.8 million (refer here); Corn Belt Bank and Trust Co. of Pittsfield, Illinois, which had assets of $271.8 million (refer here); and Pinnacle Bank of Beverly, Oregon, which had assets of $73 million (refer here).


The geographic distribution of these banks, including the presence of three banks outside the most challenged real estate markets in California and Florida, together with the fact that these are smaller community banks, are both particularly troublesome notes.


The FDIC has now taken control of 34 banks just since July 1, 2008. (The FDIC’s failed bank list can be found here.) The accumulated effect of these regulatory actions is starting to strain the agency, as detailed in a February 14, 2009 New York Times article entitled "Failed Banks Pose Test for Regulators" (here). The article states that the agency is in the midst of a "military-style buildup as it undertakes one of the greatest fire sales of all times." The FDIC is, according to the article, "struggling to deal with a miserable stew of failed real estate projects, vacant land, boarded-up houses and loans to defunct or bankrupt businesses."


In all likelihood, the situation will only get worse for some time to come. To be sure, we are a long way from the dark days of 1989, when regulators took control of 534 lenders (including 327 savings and loans). But we could be headed in that direction.


According to a February 9, 2009 Bloomberg article (here), an RBC Capital Markets analyst has predicted that as many as 1,000 U.S. banks may fail in the next three to five years. The analyst said that most of the failures will probably occur at banks with less than $2 billion in assets as their commercial loans default.


Both the analyst’s emphasis on smaller banks and on the banks’ exposure to commercial loans are particularly disturbing observations. By and large, the worst (or at least the most public) consequences from the credit crisis have been concentrated among the largest banks and have arisen from problems involving residential real estate lending. The expansion of the meltdown’s ill effects to a wider variety of financial institutions and other types of credit could have serious implications – and not just for the threatened banking institutions, but for the economy as a whole.


In any event, the four bank closures this past Friday night is the most yet on a single day as part of the current wave of bank failures. The seven banks closed so far in February already represent the highest monthly total yet. Unfortunately it appears that many of these kinds of records will be established and broken in the weeks and months ahead.


Motley Fool, commenting (here) on the FDIC’s practice of announcing bank closures on Friday evening, observed that "evidently the U.S. head-in-sand department has decreed that all such unpleasant announcements should be made when the least people will read them." The Fool might be right; the FDIC could in fact be worried about what might happen if people were to focus too closely on the accumulating number of bank failures. It may or may not be a real concern (yet) that depositors might lose confidence in the banking system, but the FDIC might well have that possibility in mind.


Conduct Unbecoming of a Gentleman: As described in a February 13, 2009 Las Vegas Sun article (here), Station Casino bondholders have sued the company and certain of its directors and officers, as well as certain related entities, alleging that the company’s debt-reduction plan is unfair to some of the company’s bondholders.


While the claims themselves may seem commonplace, the bondholders’ complaint (here) displays a rather unusual literary flair. Among other things, in what is effectively a prologue, the complaint quotes Count Leo Tolstoy as having said: "A gentlemen is a man who will pay his gambling debts even when he knows he has been cheated." Perhaps even more flamboyantly, the complaint then goes on to state that the defendants are "not acting Gentlemanly."


Shocking bevior, indeed.


Hat tip to Courthouse News Service for the Station Casino complaint.