Lack of Bank Closures = Bad

As there have been no bank closures by the FDIC, we cannot provide an update of the Bank Closure Report this week. Instead, we will therefore take a moment to point out that it's a very bad thing indeed to see no bank closures this week.

During the Savings & Loan Crisis, the collapse of the S&L banks was greatly exacerbated by inaction on the parts of the regulators. The Federal Savings and Loan Insurance Corporation, which was the Federal regulator of the S&L banks, was eventually rendered insolvent by its lack of proactive closings of insolvent institutions.

To put it bluntly, it looks that the FDIC is continuing to head toward a similar fate. According to our data, any bank closed by the FDIC at this point will be insolvent to the tune of 25% of total assets... and that number is rising, not falling. The insolvency in the U.S. banking system is pervasive and destructive, and the longer the FDIC does not aggressively cleanse the system, the worse the eventual implosion of the system will be.

As a public service, and in closing, we've developed an honest and realistic method of rating the nation's banks, called The Frugal Scotsman's Bank Rating System. It is a 1 to 5 scale, where 5 is the 'best,' and 1 as the worst. It goes as follows:

5: Salvageable.
4: Cross your fingers.
3: Pray hard.
2: The tellers are holding the doors for the regulators.
1: Your money is already gone.