Current Bank Failures and Related Issues

citibank branch
Creative Commons License photo credit: TheTruthAboutMortgage.comIf you are keeping up with the current economic problems, you are well aware that many banks are in deep trouble. In fact, the Federal Deposit Insurance Corp. has reported a huge leap in problem banks. They have identified 76 banks that are in trouble. As you can imagine, this has a lot of people scared. Not only those who have their money in these institutions, but also those who are worried that their bank is next in line.

Of course, consumers should realize that not all of these banks are doomed. Last year, only three banks failed when the list of those in danger was 50. That being said, the FDIC is looking to hire help in anticipation that more banks will fail in 2008.

Which banks are most likely to fail? Experts agree that smaller institutions are more likely to fail than those that have a global reach. One of the main reasons for this stems from recent real estate issues. Smaller banks often times extend construction loans to homebuilders and developers. Unfortunately, many of the homes that were built are not worth nearly as much as the original estimate. In turn, these builders and developers are finding it difficult to repay the money to the bank. Matt Anderson, a partner at Foresight Analytics, a research company, said, ?The demise of smaller lenders probably won’t have as noticeable impact on the national level, but in a lot of local markets around the U.S. it will be felt.

As you can see, the current bank failures are related to the real estate crisis in many cases. So until the real estate industry gains solid traction, it is safe to say that small banks will continue to struggle; especially those that are greatly involved with construction loans.

For now, consumers will continue to keep a close watch on their money and particular institutions due to the rising number of troubled banks. Regulators are expecting approximately 200 bank failures within the next two years. Obviously, this is going to affect many people in the United States alone.