Two Small Banks Leadoff December Failures

After 3 weeks of calm in the banking sector, 2 more banks have fallen to Fed Friday's axe. On Nov. 25th, The Bank Blog reported that the number of problem banks had risen in the new forecasts. The relatively lower rankings of the first two firms to fail this month appear to be consistent with that prediction.

70th ranked Paramount Bank of Farmington Hills, MI failed with approximately $252.7 million in total assets and $213.6 million in total deposits. Level One Bank (4763rd) also of Farmington Hills has agreed to nearly all deposits.

The closing of 145th ranked Earthstar Bank of Southampton, PA highlights how banking problems may be spreading further down the list then previously anticipated. Earthstar had approximately $112.6 million in total assets and $104.5 million in total deposits when closed. OTS regulated Polonia Bank of Huntingdon Valley, PA has agreed to assume all deposits.

Previous failures were isolated to the weakest 1.5% of all commercial banks. On the previous list a bank at the same rank as Earthstar would have had a roughly 23% chance of facing closure in the subsequent year. Now, that level has increase to 40%. While most banks remain sound, this suggests that there are more borderline banks then previously thought and that there is likely to be a higher number of failures for some time to come.