Biggest Bank Failure of the Year So Far

Tim Cavanaugh | August 15, 2009

Another handful of banks have taken the Friday powder, bringing the total number of 2009 failures to 77. Among the dead was the largest bank to go under this year. The Federal Deposit Insurance Corp. reports that Colonial BancGroup Inc. of Montgomery, Alabama has been liquidated, dying with about $25 billion in assets.

Resistance Is Futile Dept: The remains of Colonial now become part of the Naughty 19, as Winston-Salem, N.C.-based BB&T Corp. takes over its assets, branches and other operations.

To get an impression of relative bank sizes, and to understand why even an FDIC chairwoman so determined to fight the too-big-to-fail trend that she'd drive a tractor into a hail of bullets like Duke Wayne in The Fighting Seabees still has no choice but to participate in this kind of giganticization, chew over this:

Colonial had $25,000,000,000 in assets. At the time of the Stress Test results, the smallest of the Naughty 19, State Street Bank & Trust Co., had about $70,000,000,000. Consider how the TARP saved all banks with officers listed in Burke's Peerage. Remember the thesis that the Troubled Asset Relief Program was all a ruse to avoid embarrassing Citigroup. Citigroup, also at the time of the Stress Test (which it failed), had $1,633,800,000,000. Anpther Stress Test failure, Wells Fargo & Co., had $1,082,300,000,000.

So that means that if there were a just God and these two rotten, bloated banks were allowed to fail, the FDIC would need to dispose of $2,716,100,000,000 in assets. Instead of lining up one BB&T as it did for today's liquidation of Colonial, it would have to line up 109 BB&Ts.

Good thing we're not letting banks get too big to fail anymore.

Comments

|8.15.09 @ 2:56AM|#

Remember, if called by an anthper, don't anther.

Lemon-Colored Character|8.15.09 @ 7:20AM|#

an FDIC chairwoman so determined to fight the too-big-to-fail trend that she'd drive a tractor into a hail of bullets like Duke Wayne in The Fighting Seabees

Racist

Tricky Prickears |8.15.09 @ 8:16AM|#

So, what you're saying is, the government is providing the means for a hostile takeover of Colonial by BB&T Corp?

|8.15.09 @ 8:31AM|#

Let us all gripe, complain, piss & collectively moan about the ruse of the TARP. And let us all gripe, complain, piss & collectively moan about the FDIC proceeding with the majority of failures as it should do...and another company ticker heads into the dustbin.

It can not be both ways..or can it? One actually works (it is not named TARP) and is largely the byproduct of the since deceased William Seidman, he of the RTC and resolving the S&L debacle. This method costs you & me less in upfront costs to the FDIC insurance fund.

Colonial wasn't a hostile takeover...it were a takedown of a company that failed to raise new sources of capital (which it was allowed to do within a set time frame). For the record, BBT had paid back their TARP "govt equity/investment" I doth believe.

Solve the "rest" of the failures today...solve the TBTF issue over a 2-5 year period.

Cue the scene out of "Blazing saddles"...harrumph harrumph harrumph harrumph

|8.15.09 @ 8:44AM|#

And for the "Kudlows" of the world...the steepest yield curve won't help financial institutions that will continue to fail...or in the example of Citigroup not fail but an existence of slow death. Hard to see any true US economic recovery when financials are still in recovery mode themselves...

|8.15.09 @ 9:37AM|#

Wow, another one bites the dust. Whos gonna be next I wonder?

RT
www.online-anonymity.net.tc

Anonymous|8.15.09 @ 9:52AM|#

I see 000,000,000,000,000,000,000,000,000,000,000,000,000,000 and my eyes just glaze over.

I'm going to need some bread for that glazing, and then I think I'll take in a circus.

Stephen Smith|8.15.09 @ 11:12AM|#

I know you're writing out the full number to give us a sense of the scale, but it just makes them difficult to read, and isn't terribly useful without a sense of the total amount of currency in circulation or some other measure of monetary supply.

|8.15.09 @ 11:31AM|#

"Consider how the TARP saved all banks with officers listed in Burke's Peerage."

The link offered (http://www.reason.com/blog/show/133952.html) does not support that statement/argument.

hmm|8.15.09 @ 11:33AM|#

Good thing we're not letting banks get too big to fail anymore.

That's a little misleading. There is an assumption in that statement that it is possible to become too big to fail. Which shouldn't be true. The story of A.P. Giannini's start comes to mind every time someone says something is too big to fail. After the 1906 earthquake in SF he dug the money he had out of what was left of his bank and set up a loan office on a corner. Making loans on people's word alone.

There is always and will always be people willing to take the risk. There may be some place for government to facilitate the purchases of assets being liquidated, but the current way P&A is run is a sham.

It can not be both ways..or can it? One actually works (it is not named TARP) and is largely the byproduct of the since deceased William Seidman, he of the RTC and resolving the S&L debacle. This method costs you & me less in upfront costs to the FDIC insurance fund.

Seidman did do the damn near impossible, but the method of P&A used to sell the good assets just facilitated the growth of institutions that later became too big to fail. The RTC portion of his stood alone is actually something government did that I agree with. The part I don't agree with is how the good assets were sold.

The FDIC is creating its own problem. Couple P&A with the Fed and CoC increasing barriers to enter the banking market and you have a consolidation of the industry. Instead the FDIC, Fed, and CoC should be promoting new thrift institutions or the sale of P&A assets to new banks.

I still get the feeling the desire within the regulation sector of banking is to drive banking to a Canadian style of system.

Invisible Finger|8.15.09 @ 12:03PM|#

I still get the feeling the desire within the regulation sector of banking is to drive banking to a Canadian style of system.

The goal, as ever, is to allow more and more leverage. That means fewer, larger banks.

|8.15.09 @ 2:15PM|#

The anonymity bot has impressed me today. I hope it doesn't turn into Skynet.

|8.15.09 @ 2:24PM|#

I still get the feeling the desire within the regulation sector of banking is to drive banking to a Canadian style of system.

Wouldn't necessarily be a bad idea, considering that Canadian banks (with no restrictions on branch banking or on separating investment banking) didn't fail now, didn't fail during the S&L crisis, and didn't fail during the Depression.

So, what you're saying is, the government is providing the means for a hostile takeover of Colonial by BB&T Corp?

No, generally when a firm, such as Colonial, is bankrupt to the point of having to enter liquidation, we don't call it a hostile takeover.

There are certainly possibilities in bankruptcy for the government to organize a sweetheart deal and try to block other bidders from participating, like with Merrill Lynch, but "hostile takeover" is a poor phrase.

Anonymous|8.15.09 @ 2:31PM|#

Wouldn't necessarily be a bad idea, considering that Canadian Soviet banks (with no restrictions on branch banking or on separating investment banking) didn't fail now, didn't fail during the S&L crisis, and didn't fail during the Depression.

T,FTFY.

|8.15.09 @ 2:45PM|#

It is a shame an alternate source for finance / banking needs outside of for-profit (in theory, at least) banks & thrifts is not in place. Something like a co-op, where members are also the owners and enjoy marginally better interest rates on deposit / loan products...

YES there is...a natural person credit union is an option. The services will have more limitations, such as ATM on each corner or a branch in the bestest locations. There exist some very, very big ones like Navy Federal or State Employees North Carolina. Typically, but not always, their balance sheets have healthier capital levels too.

24AheadDotCom|8.15.09 @ 3:44PM|#

I'll bet Reason would have only good things to say about this FDIC program from five years ago. After all, some forms of shady behavior are OK, just as long as they serve "libertarian" ends.

P.S. In case anyone replies to this, their responses will almost assuredly be ad homs, thereby conceding my points and showing the childish, anti-intellectual nature of libertarians.

Tricky Prickears |8.15.09 @ 3:54PM|#

but "hostile takeover" is a poor phrase.

Well, it was tongue in cheek.

But somebody correct me if I'm wrong. Don't the larger banks benefit the most when the Fed continues to pump assets into the system, regardless if it is low interest rates or cold hard cash thus facilitating a consolidation of the industry that way? Or is that what hmmm was referring to?

The biggest problem I have with credit unions is that very few if any offer business accounts. I closed my account with BoA, switched to TD Bank when they were Commerce Bank, and now I'm getting hit with a $25/month fee. I'm considering the smaller Sun National Bank, NJ.
There was a recent start-up Capital Bank of NJ

|8.15.09 @ 3:56PM|#

You're a big booger, 24ahead. Feel better now?

And I'm not even a libertarian, just someone who loves tweaking a twit now and then. I could tell you needed it. No need to thank me. Consider it a public service. Hmmm, that makes me wonder, is there really any such thing as true selflessness?

|8.15.09 @ 4:01PM|#

Rob,
Great Ogden Nash reference!

Tricky Prickears |8.15.09 @ 4:03PM|#

I'll bet Reason would have only good things to say about this FDIC program from five years ago. After all, some forms of shady behavior are OK, just as long as they serve "libertarian" ends.

Damn, how did I know that would have something to do with illegal aliens?

jasno|8.15.09 @ 4:15PM|#

I know you're writing out the full number to give us a sense of the scale, but it just makes them difficult to read, and isn't terribly useful without a sense of the total amount of currency in circulation or some other measure of monetary supply.

I disagree - I think terms like 'billion' and 'trillion' might get lost on the average reader. Having the numbers laid out like that helps drive home the point that it's a lot of money.

In fact, after I saw it, I was struck by the idea that maybe all media outlets should place the full number in parentheses whenever talking about government dollars. Maybe it would finally sink in to people.

hmm|8.15.09 @ 5:06PM|#

Wouldn't necessarily be a bad idea, considering that Canadian banks (with no restrictions on branch banking or on separating investment banking) didn't fail now, didn't fail during the S&L crisis, and didn't fail during the Depression.

Higher adequacy ratios, better regulation (they have in house independent regulators that actually work with financial decisions), and a generally more conservative banking philosophy is what made the difference in Canada. Of their 9 or so banks all but one or two had a significantly higher than required capital adequacy ratio. Canadian banks survived in part due to regulation, but more importantly due to banking philosophy. Many US banks survived because of the same reason. Too many people put the emphasis on the regulation and not the actions of the bankers.

It's all about the attitude.

|8.15.09 @ 7:00PM|#

Writing "PS" in something you don't sign is pretentious, Lonewacko. If this concedes your points, so be it.

|8.15.09 @ 7:12PM|#

This Alabama bank died with $25B in "assets."

Would someone please explain to me how when I deposit my money in a bank, it is counted as the bank's asset?

If I borrow money from the bank, it's called my liability.

If the bank borrows money from me (via my deposits) why is it considered their asset?

|8.15.09 @ 7:26PM|#

Would someone please explain to me how when I deposit my money in a bank, it is counted as the bank's asset?

It's not. Money you have on deposit is one of the bank's liabilities. The banks assets are things like loans outstanding, real estate owned, etc.

-jcr

hmm|8.15.09 @ 7:26PM|#

Demand deposits are not a borrowing per se. You can demand the entire amount anytime you want. They are deposits. CDs or time deposits are borrowing. (there are huge gray areas here, those are the basics, for instance NOW accounts) The cost of debt that a bank needs to service is considered a liability to them, the amount you make on a CD or time deposit. They service that dept by loaning what they borrowed from you at a higher percentage than the cost of capital to them. What I think you are inquiring about is call fractional reserve banking. Where banks are not required to hold all of your money, your demand deposit, but instead loan a large portion of your money out and hold a percentage. They do this on the basic assumption not everyone will want their money at one time.

That is a rough idea.

Look into:
Fractional Reserve Banking
Regulation Q
Regulation D
NOW accounts
Demand accounts
Certificates of Deposit
Time deposits

That should cover most of it.

Matthew|8.15.09 @ 7:28PM|#

Koblog: Your deposits are NOT considered bank assets. Deposits are liabilities for the bank. Bank assets are loans that the bank has made. If the bank has too many bad loans, then assets will fall below deposits and the bank is in trouble.

hmm|8.15.09 @ 7:32PM|#

Bank Balance Sheet (from bank point of view)

Owe to others = liability

Owed to you = Asset

Owed to shareholders(profit&Retained earnings) = Equity


I think he is looking at funds available to loan as an asset. Which they sort of kind of are in a sense. LoL That is why I think he is talking about fractional reserve more than just accounting standards of assets and liabilities. The actual cash flow if you will.

|8.15.09 @ 9:24PM|#

Shut the fuck up, Lonewacko.

|8.15.09 @ 9:32PM|#

Damn, how did I know that would have something to do with illegal aliens?

OMG, libertarians support activites that are illegal, but shouldn't be. Whoda thunk?

Naughty 19 (Geithner Sucks)|8.16.09 @ 2:09PM|#

"We've got a job for your mother, Geithner!"