Bank Failure Friday Claims Three More

Three banks failed Friday, bringing this year’s total to 84.

You can see our complete list of those failed banks here.

The three banks were all relatively small: Bradford Bank of Maryland ($452 million in assets), Mainstreet Bank of Minnesota ($459 million in assets) and Affinity Bank of California ($1 billion in assets). Manufacturers and Traders Trust Company (M&T) of Buffalo, N.Y., agreed to assume Bradford's deposits, Minnesota's Central Bank agreed to assume Mainstreet's, and Pacific Western Bank of San Diego agreed to assume Affinity's. The cumulative cost to the Federal Deposit Insurance Corporation for the three failures is forecast to be $446 million.

It was a comparatively quiet week compared with the last two weeks, when two large banks, Texas’ Guaranty Bank and Alabama-based Colonial BancGroup, went down, costing the FDIC about $5.8 billion.

Earlier this week, the FDIC announced that the balance of its reserve fund was $10.4 billion as of June 30. As you can see from the graph below, that’s the lowest it’s been since the savings and loan crisis.

But that doesn’t mean a failure costing $11 billion would put the fund in the red. Much like a bank does (or is supposed to), the FDIC builds reserves in expectation of future losses -- in this case, bank failures. As of June 30, before those two large failures mentioned above, the FDIC had $32 billion in such reserves.

That said, the FDIC is bracing for many more failures. Its list of sick banks, produced quarterly, has grown to 416 -- nearly four times what it was at the same time last year. In case its loss reserves don’t prove large enough, FDIC officials have said they’re considering a special assessment on banks to boost the fund on top of a recent fee increase.

If the FDIC were to go into the red, it could borrow from the Treasury Department (up to $500 billion) and then pay back the loan over time, as happened in the early '90s.

Follow @paulkiel