Some perspective on the current bank crisis

There's little doubt that we're going to see more bank failures. IndyMac is merely the tip of the iceberg. While it's hard to predict how big that iceberg is, experts say as many as 150 out of the 7,500 banks nationwide could fail over the next year or so. That constitutes a legitimate crisis in my view.

But let's give it some perspective. Between 1980 and 1994, about 1,617 banks insured by the Federal Deposit Insurance Corporation were either shuttered or received federal assistance. That averages to about 115 a year. That stretch represents what appears to be the most troubled period in the industry since the 1930s.  

It was in this period that the biggest failure, Continental Illinois, occurred. Industry-wide, the problems were multi-pronged: farm economy woes, commercial real estate problems, third-world debt problems, and so on. It was also during this period that the savings-and-loan crisis arose and abated. At the peak, 118 S&Ls out of about 4,500 failed in a three-year run (an average 40 per year), costing the government $3.5 billion to resolve.  

So if 150 banks were to fail over the next year, it would appear to be above the failure levels of previous crises. Of course, if we had that many failures every year for three years or so, it would qualify as one of the most severe crises ever. Hopefully, it will not come to that. - Jim