The Federal Deposit Insurance Corporation (FDIC) announced the closing of three small banks this week, bringing this year’s total to 80 nationwide. Banks, both large and small, have been closing at a rapid pace, most unable to recover from the financial disaster wrought by the 2008 recession. In 2010, the agency shut down a total of 157 banks, costing billions of dollars in insured losses to the federal government. Officials say that the pace of bank closures has slowed for the time being, but that the economic pressure caused by these closures is still palpable.
This year, failing banks have cost more than $1 billion in insured losses. When a bank fails, the agency is responsible for refunding up to $25,000 of a depositors money and must cover the fees associated with transferring the old accounts to new, more financially stable banks. The massive financial pressure caused by failing banks has not gone unnoticed by lawmakers as they look for ways to bolster the economy through new laws and regulations.
Spurred by a tide of failing banks, federal legislators are exploring new regulations that would limit the freedom with which financial institutions use money. The idea is to rein in on alleged corruption in the industry and help protect banks from future troubles, but potential regulations in this regard may end up having an effect on the insurance industry as well. New regulations on banks mean that insurers must draft new policies that account for differentiating risks depending on the institution.