SMALL AND MIDSIZE BANKS STRUGGLE DUE TO REAL ESTATE DOWNTURN

How many banks of failed in the past four years in the United States? Four. How many are analysts saying might fail soon? Up to 50 according to this New York Times article.

Fortunately, we handle bank failures very well in the United States. How do I know? My bank was one of the four that failed and it was closed for one weekend, during which time I had access to all of my money because ATM and debit card transactions were not shut off. The bank closed on Friday evening and on Monday morning another bank had taken over, after the Office of Thrift Supervision intervened.

BRITISH GOVERNMENT TAKES CONTROL OF TROUBLED BANK

The British government announced today that it is taking control of Northern Rock, the ailing mortgage lender it propped up with $107 billion in loans and guarantees last year.

From The New York Times:

The government rejected two takeover proposals for the lender, which ran into trouble last year because of a money shortage that followed a subprime mortgage crisis in the United States. The government was forced to shore up the company with about £55 billion, or $107 billion, in loans and guarantees.

“The government has completed its review of the two detailed proposals received,” Alistair M. Darling, chancellor of the Exchequer, said at a news conference in London on Sunday. “But in current market conditions, we do not believe that they deliver sufficient value for money for the taxpayer. The government has therefore decided to bring forward legislation to take Northern Rock into a period of temporary public ownership.”

The Virgin Group under Richard Branson and the current management of Northern Rock had both submitted takeover proposals to the government’s adviser, Goldman Sachs, before a deadline earlier this year. Both suggested repaying the loans partly by issuing new shares. Mr. Darling said on Sunday that neither proposal had met all of the government’s objectives of securing financial stability, depositors’ money and taxpayers’ funds.

Under the government ownership plan, the taxpayers’ outstanding loans to Northern Rock will be repaid in full with interest, Mr. Darling said. The private sector alternatives did not meet this test, he said.

U.S. ONLINE-ONLY BANK FAILS

From the Sunday Times of London:

NETBANK, a pioneering internet-based bank, has been shut down by US regulators in the biggest American banking collapse for 14 years.

The bank’s failure, revealed late on Friday night, comes as financial groups are still reeling from the fallout of America’s sub-prime mortgage crisis and recent freeze in credit markets.

NetBank is the largest US bank to fail since the savings-and-loans crisis in the early 1990s. The bank, based in Georgia and launched in the late 1990s, had $2.5 billion in assets and was seen as a leading inter-net-only savings bank. The Office of Thrift Supervision, which regulates American lenders, blamed the bank’s demise on thumping loan losses and poor underwriting standards.

NetBank’s problems were made worse by its decision to expand into sub-prime mortgages, leaving it exposed to the meltdown in the US housing market.

ING, the Dutch bank, is taking over NetBank’s customers and $1.5 billion in insured savings deposits. It paid just $15m for the savings book.