2010 will experience 200 bank collapses

As against 140 failures in 2009, 2010 is expected to experience 200 bank collapses. It will make a record. Already the cost suffered by FDIC is ten times more than the S&L crisis of the 80’s.

Testifying before the Financial Crisis Inquiry Commission, the chairperson of FDIC Bair blamed the Federal Reserve, then under Greenspan, for generating the housing bubble with its low interest rates during 2000, that was subsequently followed by the crisis. She accused the entire Washington group for permitting such risks under a “shadow banking system”. She also made no bones about stating that without drastic fundamental reforms the crisis would be repeated. Bair carefully documented each of her observations corroborated by hard facts.

Under Bernanke the Federal Reserve is following a similar policy of low interest rates. Secondly within the span of only the last two years Washington has encouraged the spawning of similar shadow banking activities – something that outweighs the functioning of all the previous years. Thirdly it has been made clear that despite all the talk, chatter and hype there is no chance of introducing these sweeping changes – the banking lobby has seen to that.

Without fundamental changes a repeat is inevitable. But without a repeat the political will to bring real change will not revive. Meanwhile the after-shocks of the debt crisis continue to plague the nation. In 2009 the total number of failures of financial entities totaled 171; it included 140 banks. These banks are much larger than those of the 80s and thus caused greater losses.

The big banks are still making losses with money taken from the taxpayers. The trading profits of the jumbo investment banks are creating another obvious bubble.

The best guard for the consumer is not to take high risks again so soon after the crisis, despite tempting offers from interested parties. It is safer to do business with banks that are not under a cloud – lists available online. Timing is an important factor in the world of finance.