How does the FDIC make money

Small and medium-sized bank failures in America are mounting. The state deposit insurance FDIC has now closed another seven institutes. As a result of the financial crisis, 106 US banks failed this year. That is more than in almost 20 years. Last year only 25 banks were closed; in 2007 there were three.

The number of breakdowns is likely to continue to rise. The red list of endangered institutions of the FDIC (Federal Deposit Insurance Corporation) included 416 banks in the summer - at the beginning of the year there were 252. Only three of the now closed banks reside in Florida, a state that has been particularly hard hit by the real estate crisis: Hillcrest Bank Florida, Partners Bank and Flagship National Bank. The other four are from Illinois (First Dupage Bank), Michigan (Riverview Community Bank), Wisconsin (Bank of Elmwoood), and Georgia (American United Bank). The largest bank (Elmwood) had total assets of $ 327 million, the smallest (Partners) of only $ 66 million. In all seven cases there were other institutes that took over the business.

Big burdens on small banks

The wave of bankruptcies shows how divided the financial sector is now, not just in the US. With highly speculative deals, the investment banks are making almost as good earnings as they were before the crisis. Institutions like Goldman Sachs and Deutsche Bank report high profits. On the other hand, all banks that conduct normal lending business and deal with consumers and small businesses suffer. This is particularly true of the nearly 8,200 small and medium-sized regional banks with which most Americans have their accounts. These institutes correspond in their role to the German savings banks and cooperative banks. The defaults at the US banks are increasing because many customers can no longer service their loans.

The worst losses are currently occurring in commercial real estate. Shopping centers have to close because of the recession, office space is empty, hotel chains are applying for bankruptcy protection. Such loan defaults are a particular burden for smaller banks. Institutions with total assets of less than ten billion dollars typically have an above-average proportion of commercial real estate on their books, said Matthew Anderson, an analyst at Foresight Analytics at Bloomberg. The head of the FDIC, Sheila Bair, had emphasized at a hearing in the Senate that commercial real estate represented the greatest risk for the financial sector for "several quarters".

The FDIC fully insures customer deposits at banks up to $ 250,000. The FDIC reserves are therefore heavily damaged by the bankruptcies. Even if buyers can be found, the authorities often have to bear part of the banks' legacy issues. Sheila Bair therefore asked to be able to collect contributions from the banks several years in advance.

Banks whose deposits are insured by the FDIC reported combined losses of $ 3.7 billion in the second quarter, compared with a profit of $ 7.1 billion in the first quarter. Richard Bove, an analyst at Rochdale Securities, also expects an "extraordinarily negative" third quarter. More than 60 percent of all institutes would report losses, he told the information service Market Watch.

President Barack Obama urged banks to lend more to smaller businesses. So they could thank the taxpayers for saving them. A number of medium-sized companies would have problems getting money despite all the efforts of the government. "These are the very taxpayers who stood by America's banks in a crisis, and now is the time for banks to support creditworthy small businesses."