As of the end of the first quarter 2010, the number of troubled banks reached 775, up from 305 for the same period last year.
I have written numerous times that we haven’t seen the worst of the banking crisis. I believe that now more than ever. There are still too many commercial mortgage loans that are ripe for default and the high unemployment rate in the
Some credit unions are also at risk but there is no recent data on how many credit unions that have been in the business lending marketplace are at risk. Only about 30% of all credit unions make business loans of any kind and most are very small loans.
The banking industry as a whole remains paralyzed in the area where they should be most active.
As a young commercial banking professional back in the early 1990s I learned a lesson. “The first loss is the least” was the mantra my mentor used to repeat several times a month. What that means is it is almost never a good idea to keep extending credit to a company that is having trouble. Yet that is exactly the approach many banks have taken over the last few years.
The real problem stems from a overly aggressive lending environment during the 2005-to-2007 timeframe. Banks were all trying to ride that last wave of the nearly 10-year expansion. Mature stable companies had stopped borrowing money for the most part as the economy reached its peak, so commercial bankers took on bigger risks. The really bad thing was that because there was so much competition to make a risky loan by mid-2007, loans were being made at below-market rates to less-than-credit-worthy customers.
If this sounds like what happened in the residential mortgage market, it is because it is nearly identical to the sub-prime mortgage meltdown.
So if you are a company that has loans with a bank that may be headed for takeover, there isn’t much you have to do at this point.
If you are a depositor with a bank that is potentially troubled, you should find out if your bank is participating in the unlimited Transaction Account Guarantee program. If they are, you don’t need to move your money because the fed will make good all your non-interest-bearing deposits. I wrote a detailed column about this issue a week ago.
If you are a depositor and your bank is not healthy, the FDIC still has its temporary $250,000 deposit insurance program that is protecting you. If you regularly keep over $250,000 in deposits I would move them to a bank that is providing unlimited transaction account guarantees on your deposits.
EXTRA: If you have questions for Sam regarding business financing, the credit market, and similar issues, please send an e-mail. Your questions will be recorded and Sam will answer the best ones in his Ask the Expert podcast show.