Trepp: Dramatic Drop in Bank Failures
- Apr 06, 2011
CMBS and commercial mortgage information provider Trepp L.L.C. reported earlier this month that only three U.S. banks failed in March 2011. That is the slowest monthly pace since December 2008, which also saw three bank failures.
Amongst the small group of failed banks in March, commercial real estate loans comprised $44 million, or 55 percent, of the total $80 million in non-performing loans. In addition, commercial mortgages were responsible for $27 million, or 34 percent, of the total, while construction and land loans comprised $16 million, or 21 percent, of the non-performing pool.
Coming in second was the residential real estate loan category, which had $29 million in non-performing loans, or 36 percent of the balance. Of the rest, consumer and other loans comprised $4.1 million, or 5 percent of the total, with commercial and industrial loans responsible for $3.3 million, or 4 percent of the total.
The three failures took place at The Bank of Commerce in Illinois, Legacy Bank in Wisconsin and First National Bank of Davis in Oklahoma. According to Trepp, Illinois has shown itself to be particularly prone to bank failure, with 40 closures since the start of the current cycle in late 2007.
With the pace of failure slowing – the total failed bank count for the quarter was 26, the lowest quarterly count since the second quarter of 2009 – it’s tempting to believe that there are fewer troubled institutions on the horizon. However, Trepp warns that is not the case. “The number of banks on the Watch List remains large,” the report asserted, “and banks are spending more time on the list. While the pace of closures has slowed, distress at many banks remains high, and these banks will still be in a position of heightened risk until they either boost capital, improve performance, or both.”
So it may not be time for the industry to stop holding its collective breath. Instead, it may be best to proceed with caution – and take a sigh of relief once the pace of bank failures shows itself to be consistently slower.