New Bank Failures : Is This News or Noise?

by | Aug 29, 2008 | Stock Market Comments

A story reported in the New York Times recently talked about the failure of Integrity Bank of Alpharetta, Georgia. The Times reported that integrity Bank was the 10th US Bank to fail so far in 2008.

And buried a little further in the story is the fact that another bank — Regions Bank — is assuming all of the insured — and uninsured — deposits held at Integrity Bank. Typically, when a bank failure is involved, the FDIC will step in and “broker a deal” between the failed bank and another bank willing to step into the fray. The surviving Bank is under no obligation to assume any uninsured deposits. So this is a very nice deal for the depositors of integrity Bank, in my opinion.

As a reminder, are you holding deposits at one particular bank that may exceed $100,000?
Why would you do such a foolish thing?

Integrity Bank closed Friday afternoon at 3 p.m., as usual and will open on Tuesday (because of the Bank holiday Monday) at 9 a.m. as Regions Bank branches. For many Bank customers, they will hardly notice the difference.

This is not a story. But it grabbed the headlines in the New York Times.

What kills me though, is the last line of the article in the Times: the number of bank failures has shot up this year amid continuing mortgage defaults. Way to stir the pot! In the typical media scaring everyone routine, the writer carefully crafts a closing line that will most likely get picked up on the news report elsewhere…which will further stir the pot.

Let’s put this in perspective. In the recession of the early 1990s, hundreds of banks failed. Hundreds! And, although the book is not completely written yet on this economic phase, it’s important to point out — to stress — Integrity Bank is just the 10th bank failure this year.

In the last few days, much has been written about the executives at Fannie Mae losing their jobs. Why is this news? Most companies would replace chief executives for continuing poor performance.

Years ago, I used to work with a manager who would always lament, “there are far too many retail brokers in this town. Something has to give — either this town doubles in size or we lose half of the brokers.”

You could apply the same thinking to the media: there are far too many reporters milling around with nothing to talk about. So they try to make stories where there aren’t any.