Tags: bank | collapse | risk

Research Firm: 600 Banks in Danger of Collapse

Monday, 23 Nov 2009 03:16 PM

By Dan Weil

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Research firm Foresight Analytics says 600 U.S. banks risk failure thanks largely to soured real estate loans — if they don’t fix their balance sheets soon.

That number represents four times the total of banks that already have failed in the past two years.

Foresight Analytics estimates that about 2,200 of the country’s 8,100 banks have taken risks well above the level that usually sparks greater attention from management and regulators, The New York Times reports.

Those 2,200 institutions range from the smallest to major regional banks.

Banking regulators admit that in many respects they were asleep at the switch when it came to restricting banks’ excessive risk taking.

“We all could have done a better job,” Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation (FDIC) told The Times.

While policy makers look at restricting risky loans to prevent future crises, many bankers say such moves would hurt them and the economy as a whole by stanching the reviving flow of credit.

Former FDIC chairman William Isaac is one expert worried about over-regulation.

“Right now, bankers don’t need to be told it is a dangerous world,” he told The Times. “They need to be told there will be a tomorrow.”

Former Fed Chairman Paul Volcker said in a recent speech that the bailouts have encouraged banks to continue their risky practices.

The attitude is, “They rescued us once, won’t they rescue us again?” he said.

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