Friday, March 8, 2013

This Week in Bank Failures

When all the layoffs in the United States in February were added up, the banking industry was the leading source of layoffs. It is a measure of an industry that has belatedly realized it grew too large.

U.S. stress test results are out, with one giant bank failing the test. The bank that would likely be in financial difficulty in a mild national recession is Ally Financial, whose Residential Capital mortgage division is in bankruptcy. At the other end of the scale, Citibank’s balance sheet is so improved it is planning a $1 billion stock buyback.

What if the Fed had to face its own stress test? It would fail from all the distressed assets it holds. To avoid calling attention to its weak balance sheet, the Fed will not want to sell off its assets quickly. More than any commercial bank, the Fed can afford to be patient. It may also be better off financially, just by saving on transaction costs, if it holds most of its distressed securities until they mature.

At closing time tonight came word of the closing of Frontier Bank in Georgia. State banking regulators closed the bank based in LaGrange, Georgia, with nine locations and $224 million in deposits. HeritageBank of the South is assuming the deposits and purchasing the assets.