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As Banks Fail, Strong Institutions Become More Visible

The Federal Deposit Insurance Corporation has seized banks on 20 out of 28 Fridays this year, bringing the total to 52 bank failures in 2009, nearly double the amount in 2007 and 2008 combined.

According to some industry experts, it's just the tip of the iceberg.

"We expect to see dramatic stress in commerical real estate markets over the next two to three years and we also expect to see the housing markets remain under significant stress for the next couple years," Walter J. Mix III, the former Commissioner of Calif. Dept. of Financial Institutions, said.

Mix said the government should create rules to allow for more private capital to flow into banks. The survivors will be those strong banks that have stuck to their knitting throughout the past credit cycle.

There are more than 300 banks already on the FDIC's protection list, and some expect that number to increase over the next couple years.

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"You don't need to worry as a depositer. One of the things the government has been very effective at is stabilizing the deposit base," KBW Co-Director of Research Fred Cannon said. "As a tax payer though, you got to be careful. The cost of these failures is at tremendous levels. On average the FDIC is saying that they;re going to lose about $0.30 of every dollar of assets of these failed banks."

There have been 17 banks, however, that stand to profit from the failures of other banks. BB&T Corp, US Bancorp, First Financial Bancorp, and Pacwest Bancorp are among those bank stocks that Cannon likes.

These companies were more cautious during the boom years and have the necessary capital and management expertise, according to Cannon. Most of the banks that will fail are not household names.

"The banks that are failing are those one that got a little bit too carried away, didn't have the capital, started lending money out of their core markets and got into trouble. The basic business model of community banking isn't broken," Cannon said.

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