The recession we find ourselves in combined with the mortgage crisis and rampant problems in the financial industry have led to a subsequent problem: Bank closures. The weight of all of these problems combined is just too much to bear for many financial institutions in the U.S.

The last step for banks before they go belly up due to pressure from the FDIC is to sell in the hopes of maintaining some level of service for their customers and to retain some measure of increased stability to the financial industry and the U.S. economy as well. One tactic that the government has pursued in the wake of bank closings is to promise to absorb the losses from bad loans in order to make them more saleable to potential buyers. With depleted capital and uncollected loans, even this move isn’t enough to attract buyers in many cases.

Adding to the problem of these failed banks is the fact that many of these government seized financial properties exist in rural areas with little or no growth prospects and depositors that are likely to run for the hills once banks lower their interest rates in an attempt to stay afloat. What some speculators hoped would be a market where investors could bail out banks with the potential to make money or properties which had good depositors and merely suffered from being overextended on failed loans, has in reality been a market glutted with tanked banks that have no chance of being turned around.

Of the 124 banks which have failed so far this year, most of the ones which have been seized by the FDIC are of poor quality and offer little value to potential buyers. None of them, unfortunately, are turn-key operations that can be purchased and immediately set into motion as revitalized properties.

Instead of working merely to shield depositors as the FDIC’s stated mission promises, they are continuing to collect an almost insurmountable inventory of banks which have no hopes of being purchased amidst steadily declining opinions of them. To make them more attractive, their next move may be to bundle groups of banks together in a desperate attempt to make them more palatable to buyers.

FDIC spokespeople disagree that there is an issue with unsalable banks and point out that about 95% of seized banks have in turn been sold by federal regulators. While they admit that some banks which have fallen under their control have garnered few bids for purchase, they still profess to have a great deal of success in selling off these troubled financial institutions.

There is still hope however, as some financial corporations such as People’s United, the largest bank in New England, and U.S. Bancorp, another behemoth, continue to purchase banks from the FDIC seizure and sales program nationwide. In a nod to the true tenants of capitalism, bad banks will fail and good ones will survive. Only time will tell which of these troubled financial institutions will find renewed life under new ownership and which ones will fail to become revitalized after government seizure and sale.

written by REI Circle (www.reicircle.com)