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Bank failures rise to 100 for year

| Saturday, Oct. 24, 2009

WASHINGTON — Bank closings for the year hit 100 on Friday when regulators shut down Partners Bank in Florida. Financial institutions nationwide have collapsed under the weight of soured real estate loans and the Great Recession.

The Federal Deposit Insurance Corp. took over Partners Bank, a small bank in Naples, with $68.7 million in assets and $63.4 million in deposits. Stonegate Bank, based in Fort Lauderdale, Fla., agreed to buy the deposits and assets of Partners Bank.

The 100 failures are the most in a year since 1992 at the height of the savings-and-loan crisis. They have cost the federal deposit insurance fund about $25 billion so far this year, and hundreds more bank failures are expected to raise the cost to around $100 billion through 2013.

Depositors' money is not in danger. The FDIC is backed by the government, and deposits are guaranteed up to $250,000 per account. But the deposit insurance fund has fallen into the red.

The 100 bank failures this year compare with 25 last year and three in 2007. It's the highest number in a year since 1992 during the savings-and-loan crisis, when 120 institutions collapsed. Closures peaked during that crisis in 1989, when 534 banks were shuttered.

The most severe financial crisis since the 1930s has hit banks large and small. With unemployment rising, consumer spending slack and businesses shuttered, experts say up to 400 more banks could fail in the next couple of years.

Banks have been especially hurt by failed real estate loans. Banks that had lent to seemingly solid businesses are suffering losses as buildings sit vacant. As development projects collapse, builders are defaulting on their loans.

The 100 failures may not fully reflect the depth of banks' travails. Many more banks — perhaps hundreds — are so weak they could have been shut down already, experts say. Many vulnerable banks are in limbo. Regulators have threatened to close them unless they shore up their balance sheets, but the recession has made it difficult to raise capital or sell assets.

The number of banks on the FDIC's confidential "problem list" jumped to 416 at the end of June from 305 in the first quarter. That's the most since June 1994. About 13 percent of banks on the list generally end up failing, according to the FDIC.

Last month, for example, regulators seized Corus Bancshares Inc., a major Chicago-based lender that made construction loans nationwide, specializing in condominium, office and hotel projects. The bank has staggered for weeks under the weight of bad real estate loans.

The closure of Corus Bank, one of the largest banks to fail this year, will cost the FDIC $1.7 billion.

Many of the banks that have failed since the pace accelerated late last year have been small community banks, with less than $1 billion in assets. Failures have been especially concentrated in Georgia, California and Illinois.

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