Friday, June 18, 2010

This Week in Bank Failures

With banks making less of a profit from loans, it is inevitable that they should increase their fees for routine services. This is likely to include account maintenance fees for routine checking accounts. Many of use are likely to pay a monthly fee just for the privilege of making deposits, writing checks, and paying with a debit card. The fee may be high enough to cover banks’ costs in providing those services.

There are indications, however, that Bank of America, and perhaps several other very large banks, are planning to charge maintenance fees that are several times the cost of providing basic services to consumers. It makes sense from the banks’ point of view, as they are continuing to take enormous losses on bad loans on commercial real estate, and need to make up the money somehow. But it may not make much sense from the customer’s point of view, and the likely result is an acceleration of the move-your-money movement, with consumers willing to to undertake some inconvenience in order to save themselves several hundred dollars a year in monthly fees. This, then, may be followed by mass branch closings at banks that have the highest operating costs.

This isn’t anything for Bank of America to worry about. It has managed its consumer offerings so poorly that it would barely notice if it shuttered its branches and its consumer operations entirely. But some other large banks that try to follow Bank of America’s lead might find themselves insolvent from the loss of deposits if customers depart too quickly.

Tonight’s one bank failure was Nevada Security Bank, with four locations in the Reno-Carson City area. Another office, in Sacramento, California, operated under the name Silverado Bank. The bank had $480 million in deposits and a similar amount in assets. Most of the bank’s loan portfolio was in real estate loans, many of them in the Sacramento area. The bank had been operating since 2001.

Umpqua Bank is taking over the deposits and purchasing the assets. Umpqua Bank has many outstanding real estate development loans in Nevada, and will now have its first branch locations in the state.