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By Matthew Quinn
The Federal Deposit Insurance Corp. on Friday shuttered four more banks, including two based in California and one each in Illinois and Texas.
Twenty banks have been closed so far this year and 188 since the current cycle of failures started in 2007.
The most recently failed banks held $3.4 billion in deposits and $4.2 billion in assets. The estimated losses to the FDIC were elevated at $1.1 billion, or 25 percent, compared to the 2009 loss rate of 21 percent ($36.4 billion in losses on $171.9 billion in assets), according to research from Keefe, Bruyette & Woods.
La Jolla Bank Federal Savings Bank was the largest failure with $3.5 billion in assets. It accounted for $882.3 million of the losses absorbed by the FDIC. The regulator sold the bank's operations to OneWest Bank, which was formed last year by a group of investors after they purchased the remains of IndyMac from the FDIC.
Relative to the industry, the four failed banks had a higher concentration in construction loans at 20.8 percent of total loans compared to an average of 8.4 percent for the industry, KBW said. On the liability side, they relied slightly more heavily on time deposits with 58.7 percent of total deposits, compared to the industry average of 50.2 percent.
It's not unusual for smaller banks to carry riskier balance sheets in order to make up for the cost of funds disadvantage they have relative to big banks. The bank bailout, which almost solely benefited large banks, has only increased that divide. According to research from Dean Baker of the Center for Economic Policy, the spread between big banks' (1.15 percent) and smaller banks' (1.93 percent) cost of funds is 0.78 percent.
The pre-2008 spread in big and small banks' cost of funds was 0.49 percent.
Of course even the largest banks remain under pressure from loan losses, particularly from commercial real estate. A recent Congressional report warned that Citi, B of A, J.P. Morgan, and Wells Fargo may have to raise fresh
capital after bringing bad assets onto their books.
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