The FDIC's list of "problem" banks - those whose weaknesses "threaten their continued financial viability"- stood at 860 as of Sept. 30, the highest since 1993. Historically, about a fifth of banks on the watch list end up failing.
Bank failures have left the FDIC insurance fund in the red, but the agency predicts that it will have more than enough money to meet the anticipated cost of failures through 2014.
As the financial crisis of recent years recedes, the FDIC has been predicting that 2010 will be the high-water mark for bank implosions.
"Going forward, the FDIC looks to see fewer failures," agency spokesman Greg Hernandez said.
Some industry observers agreed.
"I think we're over the hump of the problem but far from the end," banking consultant Bert Ely said.
Gary B. Townsend, president of Hill-Townsend Capital, said the industry is not just out of the woods, "we are far beyond the woods."
By one measure, the trouble is already abating. On average, the banks that failed this year were much smaller than those that failed last year.
The banks that failed this year had assets totaling $92.1 billion, a decrease of 45.7 percent from the $169.7 billion in assets of the banks that failed in 2009.
"These are very small institutions," Townsend said. "The total assets that they represent is insignificant compared to the financial system as a whole. It's quite manageable."
Well gosh, that's nice. If that one-fifth rule holds true, there will be 172 bank failures in 2011. Sure the banks are smaller, and there's a reason for that: these are the banks below the "Too Big To Fail" line, community and regional banks. They are getting snapped up by the megabanks, while the taxpayer foots the bill for the rest of the mess.
The forced consolidation by FDIC attrition of the industry will continue in 2011. Fewer banks means less competition, means higher lending costs to the customer.
The community bank is on the endangered species list.
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