Friday, April 22, 2011

This Week in Bank Failures

Bank failures have struck across most of the United States, but not everywhere. Nine states have not hosted a bank failure in the last ten years:

  • Alaska
  • Delaware
  • Hawaii
  • Maine
  • Montana
  • New Hampshire
  • North Dakota
  • Rhode Island
  • Vermont

An additional two states have had no bank failures in the last five years:

  • Connecticut
  • Tennessee

These states are, for the most part, not adjacent to each other, nor do they seem to have much in common, aside from the presence of most of the New England states. This suggests to me that the recent pattern of failure in banking is more easily considered and defined than the pattern of success. In other words, the banking industry probably has a textbook for failure, and banking executives who do things by the book and keep up with the latest trends are maximizing their chances of failure.

This also means that it is fair to look for lingering systemic failures in the U.S. banking system. The textbooks may be wrong, or the regulations, or something in the sales culture. The technology may be leading banks in the wrong direction, or the accounting conventions may be failing to highlight whole categories of risks. Probably just two or three systematic errors are responsible for most of the recent bank failures, and these are more likely to be identified by studying the failures than by celebrating the successes.