The 10th American bank this year went bust at the weekend in the US state of Georgia, a day before the central bankers’ central bank, the Bank of International Settlements, warned that the credit crunch will be with us for a while yet.

The inaptly-named Integrity Bank of Alpharetta, Georgia, was closed by US regulators, led by the Federal Deposit Insurance Corp. Integrity had $1.1 billion in assets.

The bank was taken over by the regional giant, Regions Financial Corp of Alabama, but the failure will still cost the main US bank regulator, the FDIC, upwards of a quarter of a billion dollars to meet insurance claims: the FDIC insurers all US bank deposits up to $US100,000. The shares traded at 4 cents in over-the-counter trading in US stockmarkets Friday afternoon, down from $US14 at the start of 2007.

Overnight the BIS warned that the conditions which gave us the credit crunch will persist “for some time” as financial institutions struggle to raise cash.

The bank warned in its latest quarterly report that spread between bank lending and the key indicator, the so-called libor/overnight interbank swap spread “remains elevated”. The spread was 0.78% last Friday, only down marginally from 0.81% a week earlier. That compares to an average 0.08% in year up to July 31, 2007, on the even of the birth of the crunch.

In central banking jargon, the BIS said:

The term structure of Libor-OIS spreads suggests the interbank market pressures are expected to continue for some time.

At the same time, bids for US dollar funds at auctions conducted by the European Central Bank and Swiss National Bank continued to be high.

That’s something we have seen in recent weeks as the various Term Auction Facilities run by the trio of central banks continue to pump tens of billions of dollars a day into the various banking systems. In the US alone the TAF is $US150 billion and commercial banks are borrowing over $US17.5 billion a day from the Fed.

The Fed now also offers 84-day loans to commercial banks under the TAF, on top of the 28- day loans. In total, the Fed has provided almost $US1 trillion of emergency loans to banks and investment banks.

So it shouldn’t come as a surprise that the FDIC has 117 banks on its endangered, or is that now 115 or 114 after the most recent failures?

Since 2000, the FDIC has now closed 37 banks (including Integrity). The regulators shut 11 banks in 2002; and this year is getting close to that level, in only 8 months.

Peter Fray

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