BankUnited Fails

Troubles in the banking industry are not over and are just beginning for many regional banks.

While the large banks have access to government loans and private capital, many of the regional banks must deal with the problem of becoming extinct. The latest victim is BankUnited FSB which is the 34th US bank failure this year alone. The total now exceeds the number of bank failures in the previous 2 years combined. BankUnited FSB (BKUNA) was officially closed and seized by the FDIC yesterday.

This is the largest bank failure this year, only surpassed by the failures of IndyMac Bank and Washington Mutual last year. BankUnited was purchased by a combination of different private equity groups.

Comments

[Moon Kil Woong:]

Thanks for covering this. Although few keep track of smaller regional banks they are more the meat and potatoes of the US economy that global gambling houses like Citibank. Even though I'm against bailouts since s we can see bankruptcy works. I'd support their bailout long before the top 19 largest US financial institutions (now all banks in one form or another except AIG who's trillions in derivatives probably qualifies it for a top spot).

I lament the demise of smaller banks because their suffering is usually directly corrilated to the suffering experienced by the people of the locality they serve. I really wish the Fed and Treasury talked about real people and the real economy, not the artifical spread of risk they manage for their select financial clients.

May 22 10:02 AM

[The Aft Deck:]

Shows how much of a sideshow the stress tests were, what is the real state of America's banking sector, how many more BankUniteds are there?

May 22 10:46 AM

[Erik B.:]

I disagree with the previous poster's characterization of the community banks. While I agree gambling houses like Citibank deserve the ire of the American public, many "meat and potato" community banks took part in the boom and are now paying the price and deserve to be objects of disdain as well. The reason BankUnited is failing is the result of poor lending policies in the residential mortgage market. Clearly they were trying to ride the easy money train and created too much exposure to one area. Many regional banks are about ready to hit the wall, in part because of the crazy environment in which they found themselves, but this would've been easily avoided if they themselves had followed the basics of banking which says to manage credit exposure. Instead of keeping real estate to a limited percentage of total lending, many of these banks saw access to cheap money and poured it into commercial and residential real estate in an effort to grow their balance sheet rapidly. The fact is, the nation is over-banked as cheap money resulted in the founding of new banks, resulting in ever increasing competition among banks to lend. In the long term, as the strong community banks survive and the "evil" big banks recover with the help of the beloved government, margins will improve and the system will be healthier. All said, we need more regulation so this doesn't happen again.

May 22 10:51 AM

[Erik B.:]

Hi AMP. I agree, capital is expensive but banks aren't borrowing at the Fed window as that is a sign of major weakness so money really isn't cheap. After the fact regulation can be subject to the whims of the political process . I'd like to think the government could take its time and come up with some rational guidelines like a stricter licensing process for mortgage brokers and stricter oversight of the credit process at fannie mae. Maybe I'm foolish to believe that is possible. :)

On May 22 08:03 PM ampsucker wrote:

> as for cheap money, it's never been cheaper. fed bank loan rate
> still 0 - .25%.
>
> it's the capital that's hard to come by.
>
> i disagree that more regulation is what is needed. it is the "after
> the fact" regulation that causes us problems.
>
> a decision needs to be made. either regulate up front and take the
> hit to the free enterprise system or don't regulate at all including
> after the problems arrive. right now the government is trying to
> jump in to solve problems when they should just accept the fact it
> is too late to regulate and let the chips fall where they may.<br/>
>
> just my humble opinion.
>
> amp
>
> amp

May 23 11:18 AM

[marketman54:]

Eric, they are no different than the big banks. All of these institutions are leveraged beyond reason with poor asset portfolio's.

What makes you think Citi, Bank of Am., Wells Fargo, and any other that holds residential and commercial real estate loans are in any better shape?? We don't know, there is no clarity, there is no public information for anyone.

You watch, the big boys will fold as easily as the regionals soon. Regulation won't help the situation we have now.


On May 22 10:51 AM Erik B. wrote:

> I disagree with the previous poster's characterization of the community
> banks. While I agree gambling houses like Citibank deserve the ire
> of the American public, many "meat and potato" community banks took
> part in the boom and are now paying the price and deserve to be objects
> of disdain as well. The reason BankUnited is failing is the result
> of poor lending policies in the residential mortgage market. Clearly
> they were trying to ride the easy money train and created too much
> exposure to one area. Many regional banks are about ready to hit
> the wall, in part because of the crazy environment in which they
> found themselves, but this would've been easily avoided if they themselves
> had followed the basics of banking which says to manage credit exposure.
> Instead of keeping real estate to a limited percentage of total lending,
> many of these banks saw access to cheap money and poured it into
> commercial and residential real estate in an effort to grow their
> balance sheet rapidly. The fact is, the nation is over-banked as
> cheap money resulted in the founding of new banks, resulting in ever
> increasing competition among banks to lend. In the long term, as
> the strong community banks survive and the "evil" big banks recover
> with the help of the beloved government, margins will improve and
> the system will be healthier. All said, we need more regulation so
> this doesn't happen again.

May 23 03:26 PM