Closing Banks

Closing Banks
The FDIC is closing banks at a faster rate than in a very long time. Georgia probably has seen more banks close at any time since Billy Sherman took his walk from Atlanta to Savannah in 1864.

The FDIC’s list of problem or troubled institutions is now at 305. At least, it was at 305 when the list came out earlier this month but that was for the period ending March 31st. The total number of institutions on the list could have dropped 301 with last Friday’s closings or it could have gone higher as well.

Should this matter to me if I have less than the deposit insurance limit on deposit in a bank?

Simple answer is yes.

As banks close, consumer and business choices for financial institution service providers decline. Economics will tell you that users of a particular service benefit when there is vigorous competition.

After a closure and sale, the initial condition is relatively unchanged. The new, acquiring bank needs tellers and new accounts staffers to handle the routine transactions. It is simpler to use the staff on site than to go out and recruit a completely new staff.

Decision makers, like managers and loan officers, will be among the first to leave, usually within the week after the closure. They stay around long enough to complete a turnover process so some new decision maker. The new decision maker doesn’t know you, doesn’t know about your business, doesn’t know about plans, and doesn’t know about the local community, in many cases, will be responsible for you and your account.

This change affects the business customer more than anyone else.

This process is occasionally referred to relationship rebuilding.

It can be a long and painful process.

The new bank may suspend or curtail any borrowing arrangement you have. Alternatively, it may not renew the borrowing arrangement on the same terms as before, remember, it doesn’t know you. The new bank may require considerably more documentation and paperwork than before.

For many consumers, these may not be significant burdens. Consumers can always change institutions since most banks tend to avoid dealing with consumers or use a non-personal delivery method. Consumers have become accustomed to indifferent service. Most consumers have very little, if any, loyalty to any one bank or savings and loan.

Yes, I know changing automatic deposits and billings can be a problem. Changing these transactions is like going on a walk and have a small pebble fall into your shoe. You can either stop for a few minutes and remove the pebble or continue to endure the discomfort as you walk with the pebble in your shoe.

Most consumers will sit down and take the pebble out so they have less discomfort in their lives.

Remember the FDIC list of problem banks?

This is a list of banks that are more likely than not to either close or be merged with another, larger institution in the near future.

Even so, one should not be alarmed unless you live in a small town with only one bank. Setting that issue aside for a moment, one has to remember that there are about 8,200 federally insured banks and savings and loans in the country as of March 31st. That means you still may have a choice.

I’ll have some ideas and thoughts on what a small business person might want to do to insulate him or herself from potential trouble in a couple of days.


Be well and stay happy.