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The Geographic Distribution and Characteristics of U.S. Bank Failures, 2007-2010: Do Bank Failures Still Reflect Local Economic Conditions?

2010; Federal Reserve Bank of St. Louis; Volume: 92; Issue: 5 Linguagem: Inglês

10.20955/r.92.395-415

2163-4505

Craig P. Aubuchon, David C. Wheelock,

Economic Theory and Policy

The financial crisis and recession that began in 2007 brought a sharp increase in the number of bank failures in the United States.This article investigates characteristics of banks that failed and regional patterns in bank failure rates during 2007-10.The article compares the recent experience with that of 1987-92, when the United States last experienced a high number of bank failures.As during the 1987-92 and prior episodes, bank failures during 2007-10 were concentrated in regions of the country that experienced the most serious distress in real estate markets and the largest declines in economic activity.Although most legal restrictions on branch banking were eliminated in the 1990s, the authors find that many banks continue to operate in a small number of markets and are vulnerable to localized economic shocks.(JEL E32, G21, G28, R11) Federal Reserve Bank of St. Louis Review, September/October 2010, 92(5), pp.395-415.fewer than four banks failed per year.Bank failures were much more common in the 1980s and early 1990s, however, including more than 100 commercial bank failures each year from 1987 to 1992.As percentages of the total number of U.S. banks and volume of bank deposits, the failures of 2007-10 approach the failures of the 1980s and early 1990s (Figures 1 and2). 2 The bank failures of the 1980s and early 1990s were concentrated in regions of the country that T he financial crisis and recession that began in 2007 brought a sharp increase in the number of failures of banks and other financial firms in the United States.The failures and near-failures of very large financial firms, such as Bear Stearns, Lehman Brothers, and American International Group (AIG), grabbed the headlines.However, 206 federally insured banks (commercial banks, savings banks, and savings and loan associations, hereafter "banks")-or 2.4 percent of all banks in operation on December 31, 2006-failed between January 1, 2007, and March 31, 2010. 1 Failed banks held $373 billion of deposits (6.5 percent of total U.S. bank deposits) as of June 30, 2006; Washington Mutual Bank alone accounted for $211 billion of deposits in failed banks.The recent spike in bank failures followed a period of relative tranquility in the U.S. banking industry.Between 1995 and 2007, on average 1 The 206 failures include only banks that were declared insolvent by their primary regulator and were either liquidated or sold, in whole or in part, to another financial institution by the Federal Deposit Insurance Corporation (FDIC).This total does not include banks, bank holding companies, or other firms that received government assistance but remained going concerns, such as the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), Citigroup, and GMAC.2 Figures 1 and 2 include data for both commercial banks and savings institutions but exclude another 747 savings institutions (with $394 billion of total assets) that were resolved by the Resolution Trust Corporation between 1989 and 1995 (Curry and Shibut, 2000).