22 bank failures this year -- and it's only March

Regulators shut down banks in Nevada and Washington on Friday, marking the 21st and 22nd failures this year of federally insured banks. The Federal Deposit Insurance Corp. was appointed receiver of Carson River Community Bank, based in Carson City, Nev. and Rainier Pacific Bank in Tacoma, Wash. Carson River Community Bank had $51.1 million in assets and $50 million in deposits as of Dec. 31. Rainier Pacific Bank had $717.8 million in assets and $446.2 million in deposits as of Dec. 31. The FDIC said that Carson River's deposits will be assumed by Reno, Nev.-based Heritage Bank of Nevada. Carson River's lone branch will reopen Monday as an office of Heritage Bank. Heritage Bank will purchase $38 million of the assets. The FDIC and Heritage Bank agreed to a loss-share agreement on $28.5 million of Carson River Community Bank's assets. Rainier Pacific's deposits will be assumed by Umpqua Bank in Roseburg, Ore. Rainier Pacific's 14 branches will reopen during normal business hours as offices of Umpqua Bank. Umpqua Bank will purchase $670.1 million of Rainier Pacific's assets. The FDIC will retain the rest. The FDIC and Umpqua Bank agreed to a loss-share agreement on $578.1 million of Rainier Pacific's assets. The pace of bank seizures this year is likely to accelerate in coming months, FDIC officials said this week. As the economy has weakened, with unemployment rising, home prices tumbling and loan defaults soaring, bank failures have accelerated and sapped billions of dollars out of the federal deposit insurance fund. It fell into the red last year, hitting a $20.9 billion deficit as of Dec. 31. Carson River Community bank's failure will cost the FDIC's insurance fund about $7.9 million. Rainier Pacific's failure will cost the insurance fund about $95.2 million. Banks have tightened their lending standards. U.S. bank lending last year posted the steepest drop since World War II, as the volume of loans fell $587.3 billion, or 7.5%, from 2008, the FDIC reported this week. The number of banks on the agency's confidential "problem" list jumped to 702 in the fourth quarter from 552 three months earlier, even as the industry squeezed out a small profit. Banks earned $914 million, compared with a $37.8 billion loss in the fourth quarter of 2008, at the height of the financial crisis. Still, nearly one in every three banks reported a net loss for the latest quarter. The 140 bank failures last year were the highest annual tally since 1992, at the height of the savings and loan crisis. They cost the insurance fund more than $30 billion. There were 25 bank failures in 2008 and just three in 2007. The FDIC expects the cost of resolving failed banks to grow to about $100 billion over the next four years. The agency mandated last year that banks prepay about $45 billion in premiums, for 2010 through 2012, to replenish the insurance fund. Depositors' money — insured up to $250,000 per account — is not at risk, with the FDIC backed by the government. Apart from the fund, the FDIC has about $66 billion in cash and securities available in reserve to cover losses at failed banks. Banks have been especially hurt by failed real estate loans, both residential and commercial. Banks that had lent to seemingly solid businesses are suffering losses as buildings sit vacant. As development projects collapse, builders are defaulting on their loans. Smaller banks are more vulnerable to the losses than their bigger Wall Street counterparts, because commercial real estate makes up a larger portion of their portfolio. If the economic recovery falters, defaults on the high-risk loans could spike. Many regional banks hold large concentrations of these loans. Banks face as much as $300 billion in losses on loans made for commercial property and development, according to a recent report by the Congressional Oversight Panel, which monitors the government's efforts to stabilize the financial system. President Barack Obama recently promoted a $30 billion plan to provide money to community banks if they boost lending to small businesses. The program, which must be approved by Congress, would use money repaid by banks to the $700 billion federal bailout fund. But many lawmakers want the $30 billion sent directly to the federal Small Business Administration. It would then decide which businesses should get loans.