Each week Crikey has been charting the weekly casualty toll among America’s banks — five here, seven there, one or two elsewhere. Most Fridays after 5pm US time, the Federal Deposit Insurance Corp posts the names of the latest fatalities.

We’ve previously reported on Colonial BancGroup, Alabama’s second-largest listed bank, which has been staggering towards failure, strangled by nearly $US2 billion of dud loans.

The four other banks to fail on Friday were in Arizona (2), Pennsylvania and Nevada.

On Friday, Colonial sank and was split up and sold off by the FDIC in the biggest failure so far this year — it was one of five more banks to fail, which took the total so far this year to 77.

Six months ago, the failure of such a large bank would have sent tremors through financial markets. But they hardly blinked Friday when news leaked that Colonial was trying to sell part of itself to a rival bank.

That eventually happened and was announced after trading, but the share prices of major American banks didn’t flinch. That’s a major positive and an indicator of how sentiment and confidence has improved in the US banks.

Colonial BancGroup’s failure is expected to cost the deposit insurance fund an estimated $US2.8 billion and pushes the amount of losses for the key regulator to just over $US18 billion, which is now more than last year. It has been boosted by losses from the failures of Washington Mutual and IndyMac banks.

The May closing of struggling Florida Savings and Loan BankUnited FSB (IndyMac and Washington Mutual were also S&Ls) is expected to cost the insurance fund $US4.9 billion, the second-largest hit since the financial crisis began. The costliest was the July 2008 seizure of IndyMac Bank, which the FDIC will lose an estimated $US10.7 billion.

Rival bank BB&T agreed to assume all of Colonial’s deposits, which totalled about $US20 billion at the end of June, the FDIC said. Colonial had $US25 billion in assets at the end of June and that makes it bigger than BankUnited Financial, which had less than $US13 billion in assets.

Colonial is being investigated by the Securities and Exchange Commission for possible breaches of US laws. Earlier this month, it was raided by FBI agents, along with a group of privately-owned mortgage originators in Florida and a couple of other states.

Colonial was a big player in what’s called “warehouse lending”, which provides short term finance to independent mortgage bankers. At the height of the US subprime mortgage selling boom, these independents accounted for an estimated half of all originations from the sector.

In 2007, warehouse financing was worth some $US200 billion, now it’s down to $US25 billion, with a quarter of that coming from Colonial. That has now disappeared and despite other banks contributing funds, the pool will shrink again, making mortgages in the US south much harder to get.

CountryWide Financial Services will be biggest player in this segment. It was taken over by Bank of America as it hit the wall and staggered towards failure.

Peter Fray

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