The Bankruptcy Cycle Continues: Two More Banks Go Under This Weekend

07/26/08 11:18AM EDT
The bankruptcy cycle continues to pick up momentum. This morning the Wall Street Journal reported that “Federal regulators shut down two national banks, First National Bank of Nevada, based in Reno, Nev., and First Heritage Bank of Newport Beach, California.”

These banks fall under FDIC protection, but don’t forget that insurance is generally only up to the first $100,000. The FDIC is basically a mutual insurance company. The FDIC has to fund any deficits by laying higher premiums on the banks that they continue to insure (i.e. premiums are going up).

This is what we have been pounding into the summer sand as of utmost importance to the US economic systems. Access to Capital is tightening as Cost of Capital is going to continue to rise.

I’ve attached the “Bankruptcy Cycle” chart that we used for our conference call on July 16th. We’ll re-run the data driving the chart on Monday, but the math is straightforward – 7 banks have now gone belly up in 2008 and 3 of the 7 had assets exceeding $1 Billion.

This is not good.
KM
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