100 More Banks Expected to Fail; Impact on Most Individuals Slight

Dr. Benton Gup, author of “Too Big to Fail: Policies and Practices in Government Bailouts,” is often sought by various media for comments on the current economic state of the United States.

So, it should come as at least a small source of comfort that Gup, professor of finance and the Robert Hunt Cochrane/Alabama Bankers Chair of Banking at The University of Alabama’s Culverhouse College of Commerce and Business Administration, expects that while another 100 or so banks will fail, you and I probably won’t feel too many direct effects.

“The financial crisis is centered on banks holding large amounts of subprime real estate loans that have defaulted,” Gup says. “The latest data reveal that almost 17 percent of the nation’s 8,451 FDIC- insured institutions were unprofitable in September. Four banks failed in the first nine months of 2008, and 25 additional banks failed in the last two months. The general expectation is that 100 banks or more may fail.” Okay, and the good news? “No bank in Alabama has failed … yet.

Against this background, Gup says, most people have little to fear from bank failures.

“The deposits and loans of the failed institutions are taken over by another bank, and it is almost like business as usual for depositors and most borrowers,” Gup said. “Those who have delinquent mortgage loans face some challenges. However, the Federal Deposit Insurance Corporation, or FDIC, has been working on a mortgage loan modification program to help borrowers and lenders avoid foreclosure.

“Equally important, Gup says, “the insurance on deposits, including money market deposit accounts, has been increased from $100,000 to $250,000.”