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Recent bank failures



FRBSF April 11, 1986 WEEKLY LETTER Recent Bank Failures The number of bank failures in the U.s. has increased steadily over the past several years. It reached 120 in 1985 - far more than in any other year since the Great Depression. In addi- tion, the Federal Deposit Insurance Corporation continues to rate more than 1100 banks as "problem" banks based on its assessment of their capital, assets, management, earnings, and liquidity (CAMEL rating). These figures seem to indicate that the rise in bank failures that began in 1982 has not yet run its course. This Letter examines recent trends in bank failures, their causes, and ways in which failures are resolved by bank regulators. Recent experiences Until 1981, bank failures in the post-World War II era averaged about six per year and, except for the occasional failure of a very large bank (e.g., Franklin National in 1974), were not a source of great concern to most observers. Since 1982, however, the number of bank failures has grown rapidly, rising from 10 in 1981 to the post- Depression record level of 120 in 1985 (see chart). The assets of banks that failed in 1985 amounted to $9.1 billion, or nearly three times the $3.3 billion 1984 level (a figure that excludes the Continental Illinois rescue). More than half of the 1985 total was due to the failure of a single New York savings bank (Bowery Savings Bank, assets of $5.3 billion). Except for the assets of this organization and one other sizable savings bank (also in New York), the total volume of assets in failed banks in 1985 was nearly identi- cal to that in 1,984. In all, the assets of failed banks in 1985 represented less than one-half of one percent of total U.S. bank assets. Banks that failed in 1985 generally were smaller than those that failed in 1984. The smaller aver- age size offailed banks in 1985 mainly reflected the greater concentration of bank failures within farmbelt states, where banks tend to be relatively small. For the year, the average size failed bank held $28 mill

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