Bank Failures And A Salutary Example Of Federal Regulation

Yesterday the FDIC announced the failure of three more banks, bringing the total number of bank failures this year to 123.  The 123 failures this year compare to 25 failures last year and three failures in 2007; there have been more bank failures this year than in any year since 1992.  The cost to the FDIC fund for the failures this year has exceeded $28 billion, and is one of the reasons the FDIC is looking to banks to prepay fees to help cover bank failure costs over the next few years.

The FDIC website has lots of information about the bank failures, including a list of all the institutions that failed this year and a guide for depositors who wake up to find that their bank has failed.  If you review the list of bank failures, you will note that they occur in week-long intervals.  That is because the FDIC typically announces bank failures on a Friday, after determining whether a healthy bank will assume some or all of the assets and liabilities of the failed institution.  The weekend then allows the FDIC to sort things out, so that commerce can proceed and accurate information can be made available to all affected parties the following Monday.  This weekend no doubt will see hectic activity at the offices of all three failed banks.

Conservatives often complain about government regulation, but I think the FDIC, its role, and the calming effect of federal insurance of bank deposits should be regarded as an inspired example of the salutary role federal regulations can play under the right circumstances.  Messy bank failures are, for the most part, handled quickly and discreetly.  As the story about funding linked above indicates, the regulated banks that benefit from the FDIC’s guarantees pay fees to defray the costs of the regulatory regime to the government.  And, the reality of federal support and insurance has had a calming influence on depositors that has avoided the panicky runs on banks that were seen during the Great Depression (and memorably depicted in It’s A Wonderful Life).  Without such insurance and depositor confidence, how would consumers react to alarming news stories about a dramatic spike in bank failures throughout the nation?

Of course, the fact that banks are failing says something negative about our economy, but it mostly says something negative about the bankers who ran the banks.  The traditional stereotype of the conservative, cautious, boring banker has long since been overtaken by extraordinarily aggressive practices by banks in their residential and commercial lending areas, in their issuance of credit cards and other forms of consumer credit, and in their general business operations, growth plans, and mergers.

Grampa Neal, who epitomized the traditional conservative model of a hard-headed banker who wanted collateral and protection before he made a loan, would no doubt cringe in horror at the lax practices of modern banks.  If the current crisis causes banks to return, even slightly, to more conservative lending practices that reject hyper-risky loans, that would be a good thing.

Electronic Christmas Cards

Every year I choose from among the firm’s holiday cards and then individually write, address, and mail the cards to clients. I send the cards as a personal expression of appreciation and good will, with a handwritten note and signature. I occasionally get Christmas cards where the “sender’s” name is embossed on the card and there is no sign that the card has even been seen, much less touched, by a human being. What is the point of such cards? If you can’t take a few moments to write a message expressing your thanks or extending your good wishes for the holiday season and the coming year, what is the point of sending a card in the first place?

This year the firm is strongly encouraging all attorneys to send electronic cards, because they are “greener.” I want to support the firm’s efforts to be environmentally sensitive, so for the first time I will be sending out electronic cards this year. I have to admit, though, that I am having some doubts. Although you apparently can type a personal message with your card, I am not sure it conveys the same degree of holiday cheer as a paper card. Greetings that you can send out with a few keystrokes and a tap of the “send” button don’t seem as meaningful as holiday wishes that are handwritten, hand-addressed, licked, stamped, and put in the mailbox. Will the people who get the electronic cards feel like they have gotten short shrift?

Readers: What do you think?