Bank Failure Rate in the U.S.

Unbalanced Bank Bailouts

August 3, 2009

For the past couple of weeks it has been astonishing to watch the bank failure rate in the U.S. This week there are even more of them, and the pace of the closures has been picking up dramatically.

On Friday, July 31, the FDIC shut down banking operations at five institutions in five states: First State Bank of Altus, in Altus, Oklahoma; Integrity Bank in Jupiter, Florida; Peoples Community Bank in West Chester, Ohio; First BankAmericano in Elizabeth, New Jersey; and Mutual Bank in Harvey, Illinois.

These five closings were on top of seven other ones the previous week. And together, the two-week total was only half the number of closings for the month.

More disturbingly, the 24 bank closings in July alone were part of a broader trend. There were 40 failures altogether in the May-July 2009 period, compared with just 5 failures in the equivalent three-month period in 2008.

The problem here is not just that there's an increasing number of banks that are failing. The real challenge is the degree of inequity in how failing financial institutions are being handled. Why is it that there is federal money on hand to guarantee the survival of big banks who happen to have board connections with the Treasury Department, while there's not enough money to bail out smaller banks who are struggling to serve local communities?