Why are banks still failing?
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Tess Vigeland: Five more bank failures were announced over the weekend. The news made a relatively small splash, which might say something about how far the economic meltdown has come.
Last year there were 25 bank failures across the land, just eight months into this year, there are 77 more. Many analysts are worried that a struggling Texas bank could be next on the list. Federal regulators were asking for buyout bids by today for Guaranty Financial.
We asked Marketplace’s senior business correspondent Bob Moon to find out why bank failures are rising at this point in the financial crisis.
BOB MOON: Remember all those toxic assets we haven’t been talking so much about lately? They’ve never really gone away, and they’re still dragging down many of the nations’ banks.
Brace yourself. Penn State professor John Mason says, this is going to be a lingering problem.
JOHN MASON: We’re in the period where we’re working these assets off. It can be a relatively orderly process, but it takes time.
Notice how vaguely he worded that? Mason says, “it takes time” is the best he can do. He points out the American economy didn’t work off all its bad loans from the Depression era until after the Second World War.
Mason says at least we have an idea now how many banks are on the critical list. He’s got his fingers crossed, though, that businesses and homeowners can afford to keep making the payments, that many banks on the brink are desperately counting on.
MASON: It’s the unidentified things now that you worry about. You don’t want any major bomb to drop.
That’s why it’s critical for regulators to move swiftly to put “zombie banks” out of their misery. So says banking consultant Bert Ely, who sees that as a key lesson learned during the Savings and Loan crisis of the 1980s.
BERT ELY: It is far better for all concerned that insolvent and failing banks be closed sooner rather than later. A failing bank is much more like a fresh-caught fish than a fine red wine — it does not get better with age.
The negative fallout of all the lingering trouble and doubt was underscored today by the Treasury Department. It reported lending by the biggest banks getting government rescue money fell for a fifth consecutive month in June. Which only puts a bigger drag on the economy.
I’m Bob Moon for Marketplace.
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