The beginning of the new year finds industry observers once again reflecting upon the role of failures in the banking landscape. As 2013 begins, the pace of bank failures has slowed substantially, but still remains stubbornly above pre- recession levels.
There were 51 bank failures nationwide in 2012, down from 92 in 2011, 157 in 2010, and 140 in 2009. As recently as 2005 and 2006, however, the nation had full calendar years without a single instance of bank failure... thus even 2012's reduced pace of receiverships remains high.
The key question, of course, is what 2013 might bring in terms of bank failures. Most industry sources estimate failure numbers below 2012's total, but still well above historical norms.
Factors affecting the potential bank failure rate in 2013 include:
- For the first time in three years, the number of banks on the FDIC's confidential "problem" institution list has dropped below 700. At 694, the number of troubled institutions remains large (approximately 10% of the nation's 7,181 chartered financial institutions), but is below levels seen during the height of the recession. The peak occurred in 2010, when the FDIC's problem bank list included 884 institutions. By way of contrast, however, the problem bank list never rose above 150 in the dozen years prior to the most recent recession.
- The real estate markets are gradually showing recovery. However, it remains unclear whether recovery activity will be robust enough to prevent the failure of some long-troubled banks, particularly those with exposure to markets where real estate recoveries are lagging.
- As was the case in 2012, the size of many troubled institutions is smaller than that of those banks that failed earlier in the cycle. These smaller distressed banks often find attracting recapitalization partners — whether financial or strategic buyers — more challenging than for larger competitors with more substantial core deposit franchises.
For banks interested in acting as assuming institutions, the result of these factors may be continued opportunities for growth through FDIC-assisted transactions in 2013. One key to successfully assuming failed bank assets from the FDIC is remaining well-informed regarding current trends in FDIC-assisted transactions, including those with or without loss-share coverage.© 2014 Schiff Hardin LLP