Regional U.S. bank hard hit

In a move by financial regulators to safeguard bank deposits, the Federal Deposit Insurance Corporation (FDIC) is closely monitoring the financial situation in the United States of America. Exposed to the weakening California real estate market, Franklin Bank, a regional Texas bank in Houston has also failed. It was acquired by another Houston bank called Prosperity Bank, acquiring $850 million of the banks less riskier 5.1 billion assets. It also secured $3.7 billion of the banks deposits.

Ravaged by sub-prime mortgages and the inability of borrowers to pay back the money they were lent on mortgages, the bank became paralyzed. In 2007 Franklin Bank had lost more than 75% of its value. With 16% of its sub-prime mortgages in California, the bank is hard hit. It was dabbling with risky deals and assets have made it pay a very big price now.

More and more collapses are expected on the way among the nation’s 8,400 banks. The US mortgage crisis, which has seen more than three million homes foreclosed since the crisis began in late 2006, has crimped shut credit flow world-wide and prompted unprecedented global government interventions in the private sector.[1] It is not surprising that banks are going through a rough period. This was a crisis waiting to happen and was in the making with banks exercising greediness and being too lenient lending too much money in risky assets over the past 15 years. It is time the banks learnt a lesson and I hope do not repeat their mistakes.