On bank failures, 'Don’t Ask, Don’t Tell' still rules

The year just about to end hasn’t been a great one for US banks. The Federal Deposit Insurance Corporation (FDIC) has had to participate in the closure of 157 banks in 2010, out of the roughly 7,800 banks and savings associations with deposits insured through the FDIC.

Few of the bank failures in 2010 have been front-page news, outside their immediate communities. If a New York- or Los Angeles-based bank were to fail, that would be one thing – the implications for economic confidence in general are clear.

But bank failures in places like Lino Lakes, MN, or McCaysville, GA or Batesville, AR (which all saw small local banks close last Friday) just don’t get much attention or analysis.

It’s as if the MSM has collectively decided not to ask many questions about why, two years into the Great Recession, small banks continue to fail.

And as for whether Washington, or the state governments, could be doing more to help these banks keep their doors open long enough to repair their balance sheets – no one seems to be able to tell.

On community bank failures, beyond reassuring nervous customers that the FDIC will protect their bank deposits, “Don’t Ask, Don’t Tell” seems to suit the MSM just fine.

One of the best ways that the MSM could improve its coverage of bank failures would be to focus more on how failures affect local entrepreneurs who had borrowed money from failed banks. The FDIC even has a handy pamphlet that touches on some of the relevant issues.

Looking at bank failures from the perspective of borrowers, particularly entrepreneurs, raises important questions that reporters could explore, such as:

How many entrepreneurs who have borrowed money from a failed bank find it hard to identify a suitable replacement lender? That is – how many are tagged (fairly or unfairly) as shady customers of the failed bank, and shunned when they go out to seek new loans?

And how many of these entrepreneurs are forced to sell assets in order to raise capital as a result, because they cannot find a replacement lender? What does this mean for efforts to spark a US economic recovery?

Finally – to end on a positive note, since it’s almost Christmas – how often does a bank failure benefit local entrepreneurs?

For example, if a local community bank is badly run, and it is taken over by a healthier bank as part of an FDIC-assisted process, how often does the new bank’s entry into the market result in local entrepreneurs finding it easier to get loans?

With the MSM’s “Don’t Ask, Don’t Tell” position on bank failures, readers and viewers are not getting the whole story.

This needs to change.

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