Bank Failures: Predictions And Relativity

Predicting the number of bank failures during a crisis seem to be a fad.

Last year private equity savant Wilbur Ross forecasted 1,000 bank closures (Reuters).

Last week, Meredith Whitney projected 300 bank failures (Bloomberg) and now another private equity investor John Kanas in an interview in CNBC sees 1,000 bank closure over the next 2 years. (HT: Paul Kedrosky)




Nonetheless, John Kanas makes a noteworthy observation on the asymmetric policy approach by the Obama administration in rescuing of the big banks (financers of big corporations) at the expense of smaller banks (mom and pop enterprises), ``Government money has propped up the very large institutions as a result of the stimulus package... There's really very little lifeline available for the small institutions that are suffering."


While there have been 81 bank closures (CNN) todate out of a total of 8,195 FDIC insured banks (about 1% of US banks) where the FDIC have now raised the number of troubled banks to 416 (Marketwatch), this is far from the episodes of bank failures during the great depression (9,146) and the S&L Crisis (2,935) as shown in the chart from Professor Mark Perry.

In short, bank failures should be seen in a relative perspective.