More banks
 will fail, say regulators

By Bob Keefe

The Atlanta Journal-Constitution

The banking business is getting better but still faces major threats because of bad commercial real estate loans and other problems, top banking regulators said Wednesday.

As a result, it will remain tough for businesses and consumers to get loans, and many more banks, particularly smaller community banks like those that make up much of Georgia’s banking industry, will fail, regulators told a Senate banking subcommittee.

“There will be more failures,” said Sheila Bair, chairman of the Federal Deposit Insurance Corp., suggesting there could be as many as 100 more bank failures next year and that banks could post more than $100 billion in losses over the next five years.

“It will continue at a pretty good pace over the rest of this year and next.”

The FDIC has shut down nearly 100 banks nationwide because they didn’t meet federal capital requirements and has put another 416 on its watch list of troubled institutions. Georgia has had 24 bank failures, more than any other state. Most have been small community banks.

While many of the nation’s biggest banks were propped up by the federal Troubled Asset Relief Program (TARP), community banks have generally struggled through the recession with relatively little government help.

Community banks are about to face even bigger woes, regulators said, because the same sorts of problems that decimated residential real estate are spreading to commercial real estate.

“The greatest challenge facing many banks ... is the continued deterioration in commercial real estate loans,” U.S. Comptroller of the Currency John Dugan said in prepared remarks.

Apartment complex vacancy rates, for instance, hit a 23-year high in September, according to federal officials. Shopping center vacancies hit a 17-year high, and office vacancies are increasing in almost every metro area in the country. Those problems, regulators said, are filtering down to community banks.

Federal Reserve Governor Daniel Tarullo suggested Congress and the White House should consider temporary programs to make federal dollars available for community banks, which in turn could be loaned to small businesses.

Bair agreed, saying, “Community banks are still in there trying to make loans, but I think some additional capital support would be really helpful,” she said.

Several members of the Senate Subcommittee on Financial Institutions indicated they support such programs. With Congress working on other major issues, however, quick action is unlikely.