Friday, June 12, 2009

This Week in Bank Failures

The U.S. Treasury announced this week that it has adopted rules on the return of TARP funds, and 10 banking giants are rushing to return the money to the Treasury:

  • American Express
  • Bank of New York Mellon
  • BB&T
  • Capital One
  • Goldman Sachs
  • JPMorgan Chase
  • Morgan Stanley
  • Northern Trust
  • State Street Bank
  • U.S. Bank

These mega-corporations collectively are still relying on a staggering amount of government aid, but now, none of that aid is coming in the form of capital. That gives the banks more financial flexibility, so that they can take more risks, but it increases the chance that they will run out of money later this year or next as the economy worsens. And Congress, already under worse budgetary stress than the banking system is, will not be in any position to help at that point. But at least no one will be able to put any of the blame on Washington should some of these banks go under.

Kitsap Bank, which acquired the deposits of the failed Westsound Bank, has decided it won’t need a TARP loan in connection with that transaction. It had applied for a small TARP loan, but interest rates have fallen since the TARP program was announced, and it can more easily borrow money elsewhere now. To cut costs, Kitsap Bank is about to close one of the former Westsound branches, and may be closing most of the rest in the fall.

South America did not experience much of the real estate bubble that hit banks in the north, but banks there are nevertheless under stress from the decline in the world economy. Argentina’s central bank has temporarily banned dividends from banks in that country. The restriction is likely to be lifted as soon as the economy starts to improve, but is necessary as a precaution now, officials there are saying.