Consumer Car Buying Advice Blog

Looking at the bank failure data from the FDIC proves that the jury may still be out on whether or not the economy is on its way to a recovery.

Data manipulation

Here at Auto Credit Express, we realize that looking at just one set of data – or even the entire economic landscape, for that matter – is certainly not a scientific way to determine if we are on the way to recovery in our current economic crisis. Even when you look at one particular data set, it really depends upon how it’s “sliced and diced” that will lead to one conclusion or another. On the other hand, examining certain facts can be very intriguing and that’s what leads us to today’s topic: the bank failure data supplied by the FDIC.

FDIC bank failure data

I’m sure you’ve seen the signs when you walk into your local bank proclaiming that its deposits are insured by the FDIC. Reading more closely, you’ll see that your deposits are covered up to $250,000. Technically, the basic amount of insurance is actually $250,000 per depositor, per insured bank.

What this means is that in the event of a bank failure (when a bank is unable to meet its obligations to depositors), the FDIC pays insurance to the depositors up to this $250,000 limit. In addition to protecting depositors in a bank failure, the FDIC also assumes the role of “Receiver” in that it assumes the responsibility of ascertaining the assets of the failed bank and settling any debts.

As part of this process, the FDIC also publishes a list on its web site of banks that have failed. Looking at this list, you can generally get a feeling for the overall economy as reflected in the number of banks that have failed in a particular month and year.

Interpreting the data

The web site lists Federally insured banks that failed from October of 2000 through March 20th of this year. Assembling this data on a quarterly basis and placing it on a line graph, the results are as follows:

FDIC Bank Failures 2000-2009

There were a total of 73 bank failures between January off 2000 and March of 2009. This works out to an average of 1.35 failures per month. From July of 2004 through the end of January in 2006, the FDIC lists no bank failures. 2007 saw a total of three bank failures and then all bets were off. In 2008, the feds recorded 25 failures and in 2009, a total of 20 banks have gone under through the 20th of March – that isn’t even through the first quarter of the year, an alarming rate by any stretch of the imagination.

The end of the tunnel

From the perspective of the first graph, the light at the end of the current tunnel is probably that of the locomotive headed our way. But if the data is “sliced” a different way (and if you assume that all the data from March has been reported), you might find a reason to head into the light. For if you look at a graph that covers January, 2008 through March 20th of this year, it paints a slightly different picture:

FDIC Bank Failures 2008 through 3/20/2009

The Bottom Line

Here at Auto Credit Express, we don’t mean to portray this data as any type of indication of where the economy is headed – we’re not that smart and we’re not afraid to admit it. Certainly the bank failure rate since the beginning of 2008 has been alarming and everyone should be concerned about those statistics. But as the second graph suggests, it will be interesting to follow the failure rates over the next few months to see how these numbers reflect the health of the overall economy. It may also tell us if we’re on the right track.

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