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Bank Failure Fiasco
What is happening to the banking system? Is my money safe? These are some very important questions that everyone needs to as since we can now add First National and First Heritage to the list already including such notables as Bear Stearns, ANB Financial National Association, and IndyMac. Banks are going under at an alarming rate, and no one seems to be paying attention. A rash of bank runs and bank failures in 1907 marked the beginning of the push towards the Federal Reserve Act of 1913 but bank runs at least denote that people are paying attention.
First National Bank of Nevada and First Heritage Bank of California turned belly up most recently as Washington forced them close. Reports on the First National situation site unsafe lending practices, and Reports on First Heritage site non-capitalization as the causes for the banks being forced to close. Combining the assets of the two failed lenders, we have a combined value more than $3.6 billion dollars. The closures coming less than two weeks after the failure of IndyMac, creates an aura of suspicion reminiscent to the banking debacles of 1907 where the large national banks buried state banks to eliminate competition. Seems that one hundred years must be the time span to tolerate new entities springing up in the banking market.
Mutual of Omaha Banks received the assets of both failures due to a sale from a division of the US Treasury, the Federal Deposit Insurance Company. Luckily depositors were FDIC insured, so their money stayed safe during the transfer of ownership to Mutual of Omaha. In contrast to the lines of panicked depositors outside IndyMac, their were no lines outside the doors of these latest failures. One wonders if it was apathy or lack of knowledge that prevented a run on the banks. If the government is going to begin hushing up the failures, we may be in a full blown depression before anyone realizes what has happend. First National held $3 billion dollars in deposits. With that kind of capital on the books, how far in the hole must they have been in bad mortgages to be insolvent. First Heritage held a comparatively smaller deposit load of only $233 million. Questionable lending practices across the entire lending industry have sparked a credit bust that is going to drive failures continually for quite a while, so banks with good capitalization will be safer than heavy lenders. This is especially true with heavy mortgage lenders.
Mutual of Omaha kept First National and First Heritage accounts steady to the point of having ATM access over the weekend and keeping Check Systems from barring checks written by the account holders. This particular failure went smoothly, but how long can this continue? Each federal bail out of defunct banks adds billions of dollars to the already flooded money supply. Inflation adjusts accordingly, and we see the value of the dollar depress even further. In the instances when private citizens get into financial trouble, do we see the government stepping up to bail us out? No, we do not. I guess if they did, we would transfer ownership of our ‘person’ to the FDIC instead of the IRS.