Weak Banks Will Fail

Industry analysts predict that many smaller hometown banks will fail over the next 18 months. During the economic downturn which has caused by falling home prices and decreased savings among the middle class.

By: James R. Lindamood

It would appear that the US is in the middle of an economic downturn that will last for at least 18 months. This downturn, which many fear may turn into a recession, may kill off hundreds of the weaker banks in the country. In an interview with Barron's, leading economist and NYU professor Nouriel Roubini says that these weaker banks may not have the customer base and financial strength to weather the financial storm. Many of these banks will be small, independent hometown banks, which have traditionally been the lenders of choice for many rural customers.

With government assistance on the horizon for many of the larger financial service institutions, Roubini believes that taxpayers may be the ones paying the price, to the tune of 1 to 2 trillion dollars. Banks go bankrupt because of increasing losses from the housing bubble collapse, and because they have only been decreasing their number of their subprime loans. It appears that the next looming crisis may be from standard loan borrowers who are finding it difficult to make their payments.

This, along with the fact that US consumers are saving less and spending a greater percentage of their income on transportation and food, is amounting to a growing number of standard mortgages entering the default stage. Roubini places much of the blame on the Federal Reserve, which failed to anticipate that the mortgage crisis would extend beyond the sub-prime market.