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Bank Failures Remain a Serious Problem

Not too long ago, a rash of bank failures would have been huge news. Now it seems they are part of the “new normal.”

Ninety-two banks have been closed already this year (compared with fewer than 30 for all of last year), and more than 400 are being watched closely by the government for potential problems.

The agency responsible for cleaning up the mess of failed banks is the Federal Deposit Insurance Corporation (FDIC), and as I mentioned in this week’s Investor Brief e-letter, I had the chance to talk one-on-one with the head of the FDIC, Sheila Bair.

(You can watch the interview here.)

Now that I’ve returned from the Fortune Most Powerful Women Summit, where I talked with Bair, I thought I would share some additional observations with you.

First, I got a strong sense that the FDIC will eventually have to go to the Treasury Department for more money, though Bair wouldn’t confirm that at this point. The FDIC absorbs the losses of these failed banks at significant cost. For example, just last Friday, three more banks were closed at a combined estimated cost of $2 billion.

On CNBC.com now:

Bair told me the FDIC has $32 billion set aside for the next 12 months and then reserves of $10.4 billion beyond that. Time will tell whether that is enough.

Second, and along the same lines, I think it’s likely that the FDIC will have to charge higher premiums to member banks to help offset the ongoing costs of failures.

Sheila Bair has to strike a very delicate balance here. On the one hand, she needs to make sure the reserve fund is adequate. Insurance fees are one way to replenish it. On the other hand, insufficient capital is the problem to begin with, and higher premiums will squeeze the banks even more.

The FDIC is one busy agency these days. If you look on its website, there is a list of banks that have failed since October 1, 2000. Not surprisingly, most of that list – 145 banks in all – comes from failures in 2008 and 2009, and it promises to grow longer.

This is also in keeping with the recent news that Moody’s continues to believe many banks will struggle. The company recently said that it does “not believe asset quality deterioration for the U.S. banking industry has reached its peak, and we therefore anticipate multiple quarters of losses for a large number of rated banks.”

You’ve heard it before, but here’s a friendly reminder: Make sure your bank accounts are FDIC-insured. Most are, but it never hurts to verify. With more failures all but assured, you don’t want to take any unnecessary chances.

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Questions? Comments? Write toinvestoragenda@cnbc.com

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