Due to more than 80 bank failures nationwide this year, the federal government’s deposit insurance fund took a significant hit, but a banking industry leader in Iowa says the state’s residents have little to fear. The Federal Deposit Insurance Corporation, or F.D.I.C., saw the fund drop more than ten-billion dollars, or about 20%.
John Sorenson, president and C.E.O. of the Iowa Bankers Association, says Iowa hasn’t seen a bank failure in nearly a decade. “Iowa banks, on the whole, remain strong, and I think in a very good position to serve our communities, especially during this particular recessionary period,” Sorensen says.“If you look at the numbers closely, Iowa banks outperformed the rest of the country and 88% of our institutions were profitable through June 30 of this year.” During the first six months of the year, Iowa banks saw 195-million dollars in profits, which is down 27% from a year ago. Sorensen relates that to “stress” in real estate loans, particularly in construction and land development, but not so much on the consumer side.
“Overall, Iowans can take comfort in the fact our industry is strong,” Sorensen says. “If you graded us on a curve, compared to the rest of the country, I think we’d get an ‘A’ and it’s also important for consumers to keep in mind that the FDIC continues to provide deposit insurance, so up to $250,000, you are covered should there be a bank failure.”
He says Iowa weathered the national financial storm better than other states. In 2008, Sorensen says the agricultural economy performed very well, as did Iowa’s manufacturing sector for at least part of the year, since exports were still very strong. “Obviously, we’ve been impacted now a little more severely during the first part of 2009 in both of those circumstances,” Sorensen says. “We didn’t participate in the sharp increases in land values and house prices that they saw in other parts of the country. Iowa’s always been more stable and frankly, I’d like to think we have more responsible lenders than in other parts of the country.”
The FDIC report released Thursday said the number of banks deemed to be “in trouble” in the U.S. rose from around 300 to 416 at the end of the first quarter. This year, 81 banks have failed nationwide. Reports earlier this week said Sioux City-based Vantus Bank is at risk of failing and would be the first in Iowa to do so since 2000.
Analysts say problems at Vantus stem from the recession and big loans it made to Regency Homes, Iowa’s largest homebuilder, which went out of business last year. On Vantus, Sorensen would only say the discussions are ongoing and that bank’s fate isn’t yet known.