Could up to 300 more banks fail as a result of the worsening debt crisis?
*Reuters, by Jonathan Stempel, July 13, 2008
“More U.S. banks may fail after the collapse of mortgage lender IndyMac Bancorp Inc, straining a financial system seeking stability after years of lending excesses.
More than 300 banks could fail in the next three years, said RBC Capital Markets analyst Gerard Cassidy, who had in February estimated no more than 150.
Banks face pressure as credit losses once concentrated in subprime mortgages spread to other home loans and debt once-thought safe. This has also led to investor worries about the stability of mortgage finance companies Fannie Mae and Freddie Mac; IndyMac is not related to either.
While analysts decline to speculate about which banks might fail, several smaller lenders and even larger ones appear to have elevated levels of soured loans relative to their sizes.
‘You have to look at companies with the greatest exposure to the highest-risk assets, which include construction loans and exotic mortgages,’ Cassidy said. ‘The final nail in the coffin for any depository institution would be a funding crisis where it is unable to gather deposits at reasonable cost, or wholesale funding markets are cut off.’
The Federal Deposit Insurance Corp (FDIC) seized IndyMac on Friday after a bank run in which panicked customers withdrew more than $1.3 billion of deposits in 11 business days.
This followed comments on June 26 by U.S. Sen. Charles Schumer questioning the Pasadena, California-based thrift’s survival. Some withdrawals also followed IndyMac’s July 7 decision to fire half its work force and halt most mortgage lending.”
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