Friday, August 26, 2011

This Week in Bank Failures

Concerns about capital and solvency continued to erode bank stocks in Europe and the United States this week. Meanwhile, a proposed settlement over fraudulent home foreclosures is in doubt as banks seem willing to defend their actions one by one in court.

With a hurricane expected to close government offices in Washington and shut down cities along the East Coast throughout the coming weekend, there were no bank closings announced tonight. It wouldn’t be easy to solve problems in the transfer of bank balances and branches with regulators in Washington not available over the weekend because of weather and related power failures. Bank closings that were pending will be able to wait a week, or two, with a holiday weekend coming a week from tonight.

After the hurricane passes, it is far from certain that the stock exchanges will be operating normally on Monday morning. At the same time, coastal flooding and widespread power outages will mean that some midsized banks will be unable to open any branches or offices on Monday, a situation many have not faced before. Regulators reiterated guidance on this topic today. Banking customers in affected coastal areas may need to have patience with banks on Monday, but if a midsized bank cannot partially open by Tuesday, it will be a sign of gaps in its continuity plan. Small banks that have branches in a limited geographical area are by nature more susceptible to the power outages and evacuations of a severe weather event, but can be expected to resume normal operations when power and roads are restored.