In recent years the number of banks in the United States of America has been on the increase (Jones and Critchfield 2006). The community-based banks, banking corporations, and other banking institutions in the United States have been part of this transformation. From the Federal Deposits Insurance Corporation report, it is evident that the people of the United States have adequate access to banks. Through online banking, it can be assumed that all people can easily access their bank accounts. With the big number of banks in the USA, the people have a reliable banking system. For instance, there are 6,839 banking institutions with 83,320 branches (Federal Deposit Insurance Corporation Para. 5).
The banking institutions have been dropping for the last number of years. For instance, in1934 there were 14,146 banking institutions but recently there are 6,839 branches as per 200of this figure shows a two-fold decline in the number of banking institutions within the stipulated time. This shows that there has been a decrease in the number of banks. This can be attributed to the fact that there has been a reduction in the number of banks. The emerging trend shows that consolidation is continuing because the number of banking institutions has been reducing every year.
According to Jones and Critchfield (2006), merging and acquisition has been experienced in great numbers from 1984 to 2003. The reason for forming mergers is to reduce competition and act as a defensive mechanism. Acquisition and mergers are some of the methods of consolidations that have helped shape the banking industry in the United States. It is also true that this reduces the possibility of banks falling because there is the pooling of resources and proper management is necessitated. Although the government assists the banking sectors the failure rate of the banks is still high. This can be attributed to the fact that poor management and the recession that hits the banks. From the chart, it is clear that there has been a failure of 157 banking institutions. The banks that failed had a total asset of 92,084,987 units. In 1937 only there were 75 banks failures this can be said to have been caused by the great depression that hit across the US affecting the banking sector. Chicago Illinois, California and Florida were the states that were reported with the largest failure in 2010. the recent failures can be attributed to the economic crunch that hit the United States of America in 2007. This was because of the lending to real estate during the 2006 Boom and the unexpected collapse.
The Horizon bank was founded in 1873, Horizon in Michigan City, Indiana. It was stated by the early businessmen who sold sand to glass manufacturers, making a lot of money in the process. The Bank grew slowly and got its charter in April 1873. In the early 1930s during the great depression, it was able to remain insolvent and continue with its operations. The bank has been forming mergers with other banks to increase its capital base. In 1997, the institution adopted the name Horizon bank. Horizon Bank found in Bellingham Washington is one of the banks that reported failure in 2010. It was reported to be the first bank in 2010 to fail.
The report by the CNNmoney (2010) showed that the bank was forced and seized to the closure of its 18 branches. However the failure did not affect the customers’ deposits because the bank had been insured by the Federal Deposit insurance corporation. The FDIC had been covering the bank from the times of the great depression and has a total accounts cover of $250,000 (CNNMoney.com 210)
After being issued with a cease and desist order for its closure the FDIC gave various reasons why it was necessary to close the bank. According to Traders (2010), the FDIC -40-404B show that operating with policies and practices of management that are harmful to bank is likely to put the deposits of the customers at a huge risk. The report showed that the bank was operating with loans that were ranked as of poor quality. The FDIC noted that the capital base was low compared to the bank assets held (Traders 2010). It also noted that the bank directors had failed to adequately supervise the bank’s operations. This resulted in low bank earnings, poor loan valuations, and huge debts.
In 2009 the bank had total assets of $ 1.3 billion and a total of $ 1.1 billion as deposits (Palmer and Wutkowski 2010). After this report the bank was closed by the Washington State Department of Financial Institutions (Palmer and Wutkowski 2010). It was put under receivership on January 8, 2010. Other than that the Federal Deposit Insurance Corporation was the one that took the receivership it was also engaged in the assumption and purchase agreement with the WFSLA, in Seattle, Washington. It was also endorsed with the duty of assuming all the deposits that belonged to Horizon bank. According to CNNmoney.com (2010) on September 30th, 2009, the Washington Federal savings and Loan Associations (WFSLA) assumed the Horizons deposits. In 2010 the bank had assets of 1,188,956 and total deposits of 1,049,063.
Reports by Reuters January 8, 2010 show that the bank was to cost the FDICs insurance fund approximately $ 539.1 million. It also reported that the bank would be operational but strictly under receivership. According to Palmer and Wutkowski (2010) most of the community banks face pressure from the loans that are diminishing; because of they depended on real estate projects that have already declined. This has been a growing trend because in 2008 alone 25 banks were closed compared to 3 that were closed in 2007. The horizon bank faced a lot of losses from the real estate and construction, after the construction companies collapsed. This depleted a lot finances from the loans that had been advanced to them. Although the bank has failed customer continued to do deposits, withdraws were to be made through the use of ATMs, written checks or debit cards (CNNMoney.com 2010)
The FDIC put the bank under receivership because it was unable to financially operate in sound and safe manner. The DFI reported that the closure and the receivership were enhanced because the losses were enormous and the bank had inadequate capital base to continue its operations. The directors gave consent in writing that gave the FDIC the mandate to close the horizon bank. This is after they had received a cease and desist order, issued by the FDIC. Other reports as given in the Reuters January 10, 2010 show that the failure by the bank drained the agency but the agency is demanding to be paid. The FDIC note that the bank was operating with inadequate provisions of liquidity” (Traders 2010).These was reported to be the banking malpractices that the bank and its management had committed hence the hard decision.
In conclusion, the emerging trend indicates that consolidations of banks in USA are on increase. It is also evident that failure of banks in high because of the recession that led to loss of money by the real estate companies. The horizon bank in Bellingham Washington was put under receivership in January 10, 2011. The bank was reported to have made losses, thus making it incapable of providing safe and sound financial operations.
References
CNNMoney.com. Horizon Bank is the first to fail in 2010. Web.
Federal Deposit Insurance Corporation. Federal Deposit Insurance Corporation
Number of Institutions, Branches and Total Offices FDIC-Insured Commercial Banks United States and Other Areas. N. d. 2011. Web.
Jones, Kenneth and Critchfield, Tim. Consolidation in the U.S. Banking Industry: Is the “Long, Strange Trip” About to End?FDIC Banking Review. Web. 2006.
Palmer, Dound and Wutkowski, Karey. ‘UPDATE 1-Horizon Bank first U.S. bank failure of 2010’.
Traders, Rebel. Bank Failure – Horizon Bank of Bellingham, Washington. 2010. Web.