157 bank failures in 2010

Deposits.com reports on bank closures for 2010.

This year ended with 157 bank closures which was 17 more than failed last year. The number bank failures grew considerably when the financial crisis began in 2008. The number of failures went from 3 in 2007 to 25 in 2008. It's hard for me to remember the days before 2008 when bank failures were rare.

Depositors with large savings have a little less to worry about in terms of bank failures. The FDIC $250K coverage limit became permanent when the Dodd-Frank Wall Street Reform and Consumer Protection Act became law in July. This same coverage limit also applies to NCUA-insured credit unions.

The higher coverage limit was nice, but it didn't make a difference for the vast majority of bank failures this year. In these cases the FDIC was able to find buyers for the failed banks that assumed all regular deposits.

So, what's the impact on consumer depositors?

The main issue for depositors when banks fail is the loss of the high interest rate on their existing CDs. By law the acquiring banks are allowed to lower the interest rates on existing CDs. Many of the acquiring banks did make use of this allowance. The depositors are free to close the CDs without a penalty, but in today's interest rate environment, it's impossible to replace those CDs with new ones with the same high rates.

Here's to a better 2011! Read the full report, Review of the 2010 Bank Failures and Their Effects on Depositors

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