Two more banks failed yesterday, Northville, Mich.-based Main Street Bank and Eldred, Ill.-based Meridian Bank bringing the total number of failed banks in 2008 to 15. Both were relatively small banks in terms of assets and deposits. Main Street Bank had $98 million in total assets and $86 million in total deposits as of Tuesday and Meridian had $39.2 million in assets and $36.8 million in deposts as of Sept. 25.

Main Street Bank

All of Main Street's deposits were assumed by Monroe, Mich.-based Monroe Bank & Trust, the FDIC said. All depositors of Main Street Bank, including any with deposits in excess of the FDIC's insurance limits, will automatically become depositors of Monroe Bank & Trust, and they will continue to have uninterrupted access to their money. Therefore, there is no need for customers to change their banking relationship to retain deposit insurance. Depositors who already have accounts at Monroe Bank will have their Main Street deposits seperately insured for 6 months. That means if you had $250,000 at Main Street and $250,000 at Monroe, for six months you'll have $500,000 of insurance coverage.

The FDIC estimates that the cost to its Deposit Insurance Fund will be between $33 million and $39 million.

Meridian Bank

According to the FDIC press release, Meridian Bank had total assets of $ 39.18 million in total assets and $ 36.88 million in total deposits as of September 25, 2008. National Bank will purchase approximately $7.55 million of Meridian's assets. All depositors of Meridian Bank, including any with deposits in excess of the FDIC's insurance limits, will automatically become depositors of National Bank, and they will continue to have uninterrupted access to their money. Depositors will still be insured with the new institution. Therefore, there is no need for customers to change their banking relationship to retain deposit insurance.

The FDIC estimates that the cost to its Deposit Insurance Fund will be between $13 million and $14.5 million.

Things to Note About These Bank Failures

There are several points to note about these failures:

• The takeover was done on a Friday, as usual and was done quickly and efficiently.
• Customers still have access to their money via ATMs and the banks will be open for business on Monday under their new ownership.
• All deposits, even those in excess of the FDIC insurance limits of $250,000 were protected.

The FDIC is doing everything it can to reassure the public and it stands behind the banks. Policy makers in Washington have been talking about insuring all deposits and with these smaller banks, it appears the FDIC has already taken that approach. If the size and number of failures mount (as is expected to happen), the FDIC will not be able to continue extending coverage to all deposits without formal authority and funding from Congress.

Downey Financial, a $12.8 billion asset bank and PFF Bank & Trust, a $3.7 billion asset bank were both taken over by the FDIC and then quickly given to US Bankcorp. Deposit holders will not lose any money although it is expected that the FDIC will have to spend about $2 billion in the deal. A smaller third bank, Community Bank of Loganville, Georgia, was also closed and its $611.4 million of deposits taken over by Bank of Essex in Tappahannock, Virginia.

These closing represent the 21st, 22nd, and 23rd closings this year. Downey Financial is the second largest closing this year, trailing only the $30 billion failure of Indymac last summer.

As economic conditions deteriorate, we can expect bank failures to accelerate.

From Bloomberg:

“The restructuring or consolidation of the U.S. banking industry has probably just begun,” said Neil Katkov, senior vice president of Celent, a Boston-based financial research firm. “There’s a whole world of potential mergers and acquisitions that will continue to emerge like these one."

He continued: “We’ll probably see more regional and community banks get into trouble."

If the pace of these closings accelerate, the FDIC will deplete the $40 billion it currently has set aside to insure bank failures.

Although it is highly unlikely the government would allow the FDIC to become insolvent, there are several things you can do to protect yourself:

1. Don't just rely on FDIC insurance. Look at a bank's Bauer rating (meaure of its safety and soundness) to determine its health. BestCashCow also provides health and safety information on all banks issuing savings accounts and certificates of deposits.

2. Look at a bank's stock price. The stock price is a forward looking measure of what the market thinks of a bank's stability and future prospects.

3. Make sure your money is FDIC insured. Limits vary depending on whether you have a joint account and POD (Payable Upon Death) beneficiaries. In many cases a joint account can receive $250,000 in coverage per person and an additional $250,000 in coverage for each POD beneificiary.

4. Be conscious of the timeperiod and term of your deposit. The increase to $250,000 FDIC insurance is only in effect until December 31, 2009 at which point it reverts to $100,000. If you open a CD above $100,000 it may be covered now, but the amount in excess of $100,000 won't be on January 1, 2010.

It doesn't look like things are getting any better for the banks.

"Citigroup Inc., Merrill Lynch & Co. and UBS AG may post further writedowns of $10 billion on their debt holdings after the two biggest bond insurers were stripped of their AAA rankings, according to Oppenheimer & Co. analyst Meredith Whitney."

Whitney correctly predicted that Citicorp would cut its dividend last October.

What does this mean? Pain from the credit crunch is still impacting financial institutions.