FRIDAYS ARE THE WORST DAY FOR BANKS

If you are a banker, you must dread Fridays.

Friday has morphed into a bad day for the banking industry for two reasons. First, it is the end of the business week. For most people that's good news but for bankers it could mean the end of business altogether. Second, the end of the day on Friday has come to represent the end of the weekly news cycle. Thus anyone, anywhere who has bad news to announce typically saves it until late Friday which is a time when a lot fewer people are paying attention to news. Most folks are just happy to get to the weekend and the news be hanged.

So savvy public relations experts make the announcements that they do not want people to hear late on Friday when almost no one is interested. The weekend also tends to be a time when Americans are focused on family, leisure and non-work related activities. That way, news that is out late Friday is pretty much lost in the distractions of each weekend.

The connection between Fridays and banks is illustrated by the accompanying article. It is but one Friday's example of what occurs most every Friday in the dark of the night. That is the time when Federal bank regulators choose to announce the closing of banks across the country that have failed. The business day is over, the weekend is upon us, those banks are not going to be open on Saturday or Sunday and the 48+ hours between the announcement and the start of the next business week gives officials the time to reassure depositors that their money is safe.

During our current economic woes, this has proven to be a very effective method to prevent Depression like runs on banks. It is not the sole reason for a lack of panic, but it is a good one that has been wisely played. In the vast majority of instances, these Friday seizures involve small regional banks and not the industry's huge players. However, the same methodology has been applied in the case of big banks as well.

Panic and fear lead to chaos, all of which is the enemy of a civilized society. That's why FDR famously said, "We have nothing to fear but fear itself", relative to the economic implosion of the Great Depression. Would his wisdom was residing in the White House today. Our current President unwisely, and it appears for political reasons, uses fear mongering language like "catastrophe" to drive the herd of public opinion to support partisan legislation he wants passed. In the process, naturally, he encourages the kind of unease that leads to panic.

The routine developed and deployed by Federal bank regulators avoids stampeding the herd. The Depression was seriously deepened by panic driven bank runs. That has not happened this time around which has proved to be a very good thing.

However, beware of the Friday news cycle. It often carries very bad news about banks.


Four U.S. Banks Seized, Bringing Total for Year to 13
By Margaret Chadbourn

Feb. 13 (Bloomberg) -- Banks in Florida, Illinois, Nebraska and Oregon were shut by state regulators, boosting the toll of failed institutions to 13, as a worsening economy and slumping housing market pushes home foreclosures to records.
Riverside Bank of the Gulf Coast in Cape Coral, Florida; Sherman County Bank in Loup City, Nebraska; Corn Belt Bank and Trust Co. of Pittsfield, Illinois; and Pinnacle Bank of Beaverton, Oregon were closed by state regulators today. The Federal Deposit Insurance Corp. was named receiver.
TIB Bank of Naples, Florida, will buy Riverside’s $424 million in deposits, except $142.6 million in brokered deposits, for a 1.3 percent premium. Heritage Bank of Wood River, Nebraska, will pay a 6 percent premium for Sherman County’s $85.1 million in deposits. Carlinville National Bank of Carlinville, Illinois, will assume Corn Belt’s $234.4 million deposits for a 1.75 percent premium. Washington Trust Bank of Spokane, Washington, assumed Pinnacle’s $64 million of deposits.
Regulators seized six banks in January, the highest monthly toll since 1993. State and federal agencies shuttered 25 banks last year, matching the combined total for 2001-2007, as home foreclosures soared and bank profits tumbled.
The Obama administration is seeking to jolt the economy with a bank rescue using $350 billion from the Troubled Asset Relief Program, a $787 billion stimulus package and a plan to stem foreclosures. The U.S. will subsidize interest-rate reductions to help borrowers avoid losing their home, said a person briefed on the proposal, costing $50 billion.
U.S. Response
Treasury Secretary Timothy Geithner outlined the bank rescue and pledged to remove illiquid assets from banks’ balance sheets and spur lending. Private investors have expressed an interest in joining the government in the fund, Lawrence Summers, director of the National Economic Council, said on Bloomberg Television’s “Political Capital with Al Hunt.”
The FDIC, other bank regulators and Congress are taking steps to help banks avoid losses. Legislation that would more than double deposit insurance coverage is being considered by Congress. The House Financial Services Committee unanimously approved a measure Feb. 4 that would raise coverage to $250,000 per depositor per bank, from $100,000.
Congress also may extend the FDIC’s line of credit with the Treasury to $100 billion from $30 billion to replenish the deposit fund. The FDIC said bank failures through 2013 may cost the fund more than the $40 billion estimated in October.
Cost of Closing Banks
Today’s bank closings will cost the Deposit Insurance Fund a total of $341.6 million, the FDIC said. On Dec. 16, the FDIC doubled premiums it charges banks to replenish its reserves, which had $34.6 billion as of the third quarter. The Washington- based agency oversees 8,384 institutions with $13.6 trillion in assets.
The FDIC classified 171 banks as “problem” in the third quarter, a 46 percent jump from the second quarter, and said industry earnings fell 94 percent to $1.73 billion from the previous year. The agency doesn’t identify problem banks by name. A new report may be released this month.
As many as 1,000 U.S. banks may fail in the next three to five years from mounting losses on commercial real-estate loans, RBC Capital Markets analysts have said, almost double the one- year tally at the height of the saving-and-loan collapse. Most of the failures will probably occur at banks with less than $2 billion in assets.
More than 250,000 foreclosures were filed in January, the 10th straight month of a quarter-million filings, RealtyTrac Inc., the Irvine, California-based provider of real estate data, said in a statement this week.
Washington Mutual Inc., the biggest savings and loan, sold its assets to JPMorgan Chase & Co. Sept. 25 after customers drained $16.7 billion in deposits in less than two weeks. Wachovia Corp., the sixth-biggest bank, was pushed by regulators to sell itself to Wells Fargo & Co. for $11.7 billion.

To contact the reporter on this story: Margaret Chadbourn in Washington at mchadbourn@bloomberg.net.

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