Bank Consolidation

The financials have taken a huge hit thanks to the government takeover of IndyMac Bancorp. This marks the second largest bank failure in the history of the U.S. and is also causing much concern among the smaller regional banks putting downward pressure on their shares. Today on CNBC they showed images of a "modern" bank run with people lining up outside the IndyMac branches waiting to get their money. I thought bank failures were a thing of the past, but the credit crisis has struck down another victim and will continue without consolidation within the banking industry. The Federal Deposit Insurance Corporation which insures deposits up to $100,000 nationwide, has a watch list of 90 banks that could potentially fail, but the bad news is that IndyMac wasn't on that list. One can only speculate on which bank is next but there was a major scare that National City was going to be next until they halted trading and released a statement claiming that they had sufficient capital to back their deposits. The major problem for the banks is that all the money they receive in deposits is immediately thrown out of the door in loans, but with these loans not being paid on time the bank is left with no money to pay back their customers or finance anything else the company wishes to do. There is a solution to the problem though and that involves M&A activity in the banking sector. It could come in a number of ways... maybe a merger between two banks that would fail alone but survive together, maybe a large bank acquiring another small commercial bank that will broaden its portfolio among others. The 90 bank list doesn't include any investment banks, however they too are under pressure after the fallout of Bear Stearns. Look at Lehman Brothers for example. Shares have been blasted in the last week of trading and many experts say the only way to save the bank is for it to become part of another. The lack of liquidity and capital in the market is changing the game for banks. No longer can they just throw money around and be rewarded. Only the smart and lean banks will make it through the storm.