Bank Failures Forecast to Increase This Year

Includes: IAT, RKH, XLF
by: Bill Cassill

Has anyone seen the latest press releases from the FDIC on bank failures on July 2nd?

If you haven't seen it yet, you can catch it here. Calculated Risk also has a nice announcement on it as well. Those who have read previous posts of mine know that I like to do time series forecasting of future financial events. Well, bank failures are no different.

I actually created this forecast back in May using ARIMA. We can see that the forecast of 28 bank failures came in pretty close to the actual number of 24 for Q2. However, what is really disturbing is that we already have 7 new bank failures in the first 3 days of Q3. I'm predicting that we will have around 35 failures this quarter although at this rate, the actual number of failures may actually exceed forecast. I'm looking for around 125 failures for this year in total with another 230 banks going under next year. While this is a small number compared to the 8300 institutions chartered by the FDIC, the numbers are astronomically large when compared to the relative lack of failures in years past (usually much less than 10 in any given year from 2000 to 2007 with the exception of 2002 which had 11 failures).

If you are a U.S. based banking consumer, my recommendation is to keep your money under the FDIC insurance limit of $250K per individual in any one bank This number is different if you have a joint account with a spouse. You can check out the amount of insurance coverage you have by going here. Anyhow, be vigilant and your money should be safe.

Disclosure: no positions