50-60 U.S. Banks Expected To Fall This Year

The number of U.S. bank failures is expected to drop this year to about 50 to 60 institutions as the industry continues to patch itself back together following the recent financial crisis, a top regulator said on Tuesday.

The number of failed banks dropped to 92 in 2011 from 157 in 2010.

So far this year 16 banks have failed and Federal Deposit Insurance Corp acting Chairman Martin Gruenberg said his agency now projects the year-end total will be about 50 to 60 lenders.

“The trend is becoming pretty clear,” he told a small business lending conference in Washington.

Next week the FDIC board is scheduled to meet to discuss the state of the insurance fund it uses to cover the cost of bank failures. The FDIC insures individual deposits up to $250,000 and is the chief regulator of community banks.

When a bank fails the FDIC is charged with liquidating its assets and settling its debts. The agency often tries to find another bank to take over a failed institution’s assets and deposits to minimize the cost to the FDIC insurance fund, which is made up of fees charged to the industry.

In recent quarters the FDIC has reported that the industry as a whole is getting stronger with profits on the rise. Much of that improvement, however, has been due to banks setting aside less to cover losses rather than through increased lending.

Lending to businesses did pick up in the fourth quarter of 2011, according to a report released by the FDIC in February. [ID: nL2E8DS51B]

Community banks, many of which have less than $1 billion in assets, have had the most trouble keeping their doors open following the 2007-2009 financial crisis due in large part to their exposure to the troubled commercial real estate market.

Gruenberg has said that his agency is stepping up its efforts this year to better understand the problems facing community banks and what regulators can do to help the industry, Reuters reported.