Wednesday, November 24, 2010

The Non-Monetary Costs of Bank Failure

Bank Failures – It’s More than Money

By Michele Yates on Nov 8 2010
Bank Failures – It’s More than Money
Michele Yates - Scottsdale Banker

The FDIC closed 4 banks in 3 states on Friday, that brings the total for 2010 to 143. That is a record high for the last decade.
K Bank of Randallstown, Md., which had $538 million in total assets and $500 million in deposits was closed. Western Commercial Bank of Woodland Hills, CA was shut down. Pierce Commercial Bank of Tacoma, WA, was closed and the FDIC was appointed receiver and sold the failed bank’s total deposits. First Vietnamese American Bank in Westminster, CA was closed.  The cost to the FDIC insurance fund is $245.5 million.
There are other costs and consequences to these bank failures.
When these banks are closed by the FDIC and their assets acquired by other institutions many, if not most of the employees at the closed bank are out of a job. Since 20% of the people in the US are unemployed or underemployed almost everyone knows the cost in emotions losing a job brings. Then there is the cost to the economy. People without jobs have much less to spend on anything. Whether it’s necessities or that once in a while splurge, someone else’s paycheck will be effected.
That brings it around to the cost to business owners. People buying less certainly effects businesses and its owners. There are ancillary costs also. When a bank is closed the credit lines a business had with that bank do not automatically transfer to the acquiring bank, in fact in most cases that business owner is out of luck and the credit line is gone.
One of the most serious costs is that of relationships. A business owner or depositor may have built a relationship with the people at that bank. Balance sheets, Income statements and all the other necessary documents are always important to the people at the bank. But, when a customer can look their banker in the eye the numbers become more real and help and support for that customer can be more confidently given.
Relationships at a bank flow in both directions. Excellent bankers will give advice, connect people and even pull together other professionals such as lawyers, CPA’s, and even a Business Coach to help and support a business owner who could use such a “Power Team,” to build their business.
Even though the FDIC says that no depositor has ever lost a penny, up to the insured amount, when these banks are closed there is loss. The loss is on both sides, the customer as well as the bank and it’s people.
Michele Yates
Scottsdale Banker

Resource:  Michele Yates has been a banker for over 20 years. Currently she is the Assistant Vice President and Banking Center Manager at the Scottsdale branch of a National Bank. Through her service and leadership on non-profit organizations and tireless networking she has developed a great many relationships and friendships throughout the Phoenix Valley. She calls on those relationships to connect, assist and help her wide and deep network.