Number of Failed Banks Reaches 37 for 2010

Regulators have shut down seven more banks as the effect of bad loans on the financial industry continues. This has taken the total number of collapsed banks to 37 this year.

According to analysts, the major reason for continuing failure of U.S. banks is that the effects of bad loans that were made at the height of the housing bubble is still present in the system. Many existing banks still have a huge amount of bad debts on their books and it is a struggle for survival for most of them.

Along with subprime loans, bad commercial real estate loans are also seen a key contributing factor to the failure of banks. The commercial real estate market took a major hit as companies started folding at the peak of the recession.

The most prominent name in the latest list of collapsed banks is Advanta Bank, owned by Pennsylvania based Advanta Corp. The Federal Deposit Insurance Corp., or FDIC, had been trying to find a buyer for Advanta for some time now but it had failed to do so. As the last resort, the FDIC had to shut the bank down and it would now be refunding its depositors. Depositors are insured up to $250,000 and they would soon start receiving checks for their refunds. Advanta Bank had about $1.6 billion in assets.

Advanta’s credit card division, which specialized in credit cards for small businesses, had already ceased operations last year and the parent company had filed for bankruptcy. The closing of the bank was expected and it was just a matter of time before its assets were liquidated if it failed to find a buyer.

Other major banks that were closed or sold along with Advanta included Appalachian Community Bank in Georgia, which had assets of about $1 billion, Bank of Hiawassee with assets of about $350 million, and American National Bank from Ohio with assets of about $70 million.

The number of “problem” banks has now reached its highest level in the last 17 years, and the rate at which banks are failing has also hit a new high for almost two decades. It has been estimated that at this rate the number could well exceed the number of failed banks last year, which stood at 140. The spotlight is also on FDIC’s own finances, as it has to bear the burden of refunding the deposits of failed banks.