This past weekend, the FDIC shut down banks in both Nevada and Washington. Carson River Community Bank in Carson City, Nevada and Rainier Pacific Bank in Tacoma, Washington bit the dust late Friday, with Carson River’s deposits being assume by the Heritage Bank of Nevada and Rainier Pacific’s deposits being assumed by Umpqua Bank in Roseburg, Oregon. In both cases, a portion of the closing bank’s assets will be retained by the FDIC, but a portion of the losses will also be absorbed by that entity.
According to reports by the Associated Press, the FDIC predicts that bank seizures will escalate in coming months thanks to a weakened economy, rising unemployment, “tumbling” home prices and “soaring” loan defaults.
A large number of these defaults are going to be highly problematic, since it is predicted that residential loan defaults will be dwarfed by commercial defaults this year, which could send innumerable small banks and a healthy number of large ones tumbling as billions of dollars in commercial loans are declared uncollectable and in default.
The answer? Well, the president believes that it lies in a plan to give 30 billion dollars to community banks, with the contingency that they loan that money out to small businesses. The program would be funded by money that has been repaid by banks already to the 700 billion-dollar bailout fund.
I tend to disagree. The Associated Press reports that “banks that had lent to seemingly solid businesses are suffering losses as buildings sit vacant.” So we loan the banks money so that they can loan out more money to companies that may or may not be able to turn a profit? It seems a little artificial.
Many lawmakers are advocating that the 30 billion not be channeled through the banks, but rather send directly to the federal Small Business Administration. While this does present some intriguing possibilities, it still feels like we’re propping up a tumbling structure. This is a painful correction, and it’s just now hitting the commercial market in a serious and dramatic manner. Should we really drag out the pain as long as possible? Maybe it would be better to let this correction take its course – even if it takes some banks along with it.
Your thoughts are welcomed in the comments area below.
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