US bank failures this year have surpassed a bleak milestone of 100 as regulators shut down banks in Georgia, Florida, South Carolina, Kansas, Nevada, Minnesota and Oregon. The seven bank seizures announced Friday bring to 103 the failures so far in 2010.
The pace of bank closures this year is well ahead of that of 2009, which saw a total of 140 banks shuttered amid the recession and mounting loan defaults. That was the highest annual tally since 1992, at the height of the savings and loan crisis.
The pace has accelerated as banks' losses mount on loans made for commercial property and development. Many companies have shut down in the recession, vacating shopping malls and office buildings financed by the loans. That has brought delinquent loan payments and defaults by commercial developers.
By this time last year, regulators had closed 64 banks. The number of bank failures is expected to peak this year and be slightly higher than the 140 that fell in 2009. Twenty-five banks failed in 2008, the year the financial crisis struck with force, and only three succumbed in 2007.
The growing bank failures have sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, and its deficit stood at $20.7 billion as of March 31. The number of banks on the FDIC's confidential "problem" list jumped to 775 in the first quarter, from 702 three months earlier, even as the industry as a whole had its best quarter in two years.
A majority of institutions posted profit gains in the January-March quarter. But many small and midsized banks are likely to continue to suffer distress in the coming months and years, especially from soured loans for office buildings and development projects.
The FDIC expects the cost of resolving failed banks to total around $60 billion from 2010 through 2014. The agency mandated last year that banks prepay about $45 billion in premiums, for 2010 through 2012, to replenish the insurance fund.
Depositors' money insured up to $250,000 per account is not at risk, with the FDIC backed by the government. That insurance cap was made permanent in the financial overhaul legislation signed this week by President Barack Obama.