The 19 largest U.S. banks may now be off the critical list thanks to billions of dollars in government support, stage-managed stress tests, and a raft of equity issues floated into the rather suspicious-looking doubling in financial stocks over the past two months. But what about the 8,000 or so smaller banks in the United States?
When you are not too big to fail, you are well, allowed to fail. The Federal Deposit Insurance Corp. closes your doors. So the list of failed regional banks keeps growing. According to the FDIC, there were three banks shuttered in 2007, another 25 in 2008, and 32 more in just the first 18 weeks of 2009.
As the list gets longer, warns the May 20 issue of Standard and Poors The Outlook, it could have negative consequences for investors in smaller banks — specifically, holders of exchange-traded funds such as the iShares Dow Jones US Regional Banks ( IAT) and SPDR KBW Regional Banking ( KRE).