Oh banking industry, as you fall apart like Communist Russia, what skeletons will we find in your rubble? As with the smaller states of the USSR, it looks like the regional banks are in trouble. ANB Financial and Fremont General are featured in this CNN Money commentary.

The author says the FDIC should shut down banks, instead of allowing the Fed to bail them out. Agreed. The FDIC can step in when they determine there is not sufficient capital to support the bank. ANB Financial and Fremont General granted a few too many questionable loans, and now they’re in trouble.

As 2008 progresses, there will be many articles featuring small banks. My local area has dozens of these types. Some specialize in just construction financing and other troubled industries. This is going to be the biggest shake down of the banking trade since the savings and loan fiasco of the late 1980s. Its fascinating to speculate on how the two may be related:

As traditional institutions blew up in the late 80s, investors went looking for something new to put their money in. This funded the tech bubble of the 90s. Tech burst and investors found real estate. The blew that in half the time it took for the tech sector to burst, taking banks with them. Of course now it looks like the heard has found commodities.

But I digress. A couple of weeks ago, I traveled to my bank’s corporate headquarters for a business unit gathering. During this time the CFO of our bank was a guest speaker. He fielded questions from our unit about where the company and industry is headed. His feelings were of the same as the CNN Money writer: a lot of banks (big and small) are going to fall.

This is partly why all the big banks are raising new capital he told us. All the big players, Citi, Wachovia, JP Morgan, Bank of America, US Bancorp, WaMu, and others are doing this. They are expecting to buy up these smaller failing banks at big discounts to stimulate their own growth. If you’ll remember, I said this a month ago. The big banks all talk to eachother in a kind of “round table of financial big-wigs” so everyone seems to be on board with the plan.  Will we see big mergers too?

So if you do your banking with a smaller institution it would be proactive to investigate them with at least a Google News search. If it ends up in trouble you might end up with JP Morgan cards when you would prefer WaMu. I would prefer you switch to my bank, I just can’t tell you which bank that is…

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categories: banking, business, investing