Colonial BancGroup headquartered in Montgomery, AL with 346 branches in Alabama, Florida, Georgia, Nevada and Texas was seized by the Federal Deposit Insurance Corporation on Friday, August 14, 2009.  With $25 billion in assets, it is by far the largest bank to fail in 2009 and is the 6^th largest failure in US history.

BB&T Corp, a North Carolina Bank, has agreed to buy $22 billion of Colonial's assets, as well as its deposits and branches, leaving the remaining approximately $3 billion in assets in the hands of the FDIC with hopes this money may eventually help pay back $2.8 billion to the Deposit Insurance Fund that guarantees depositors funds up to $250,000.

The FDIC Trust Fund has taken a HUGE hit in 2009 covering losses from 77 bank failures so far in 2009, four of which occurred as recently as last Friday.  The fund paid out $35.1 billion in 2008 and after a $4.3 billion decline in the first quarter of 2009; the funds remaining assets totaled only about $13 billion.

Winston-Salem, NC based BB & T has 1,500 branches across the Southeast and approximately $150 billion assets.  As a major regional player, BB & T has been the beneficiary of the high incidence of bank failures in its market area.  It is reported BB & T and the FDIC will share losses on $15 billion of Colonial’s assets, a common occurrence since last year’s financial meltdown.

Home buyers and folks looking to refinance their mortgages will probably be faced with higher rates as a result of Colonial’s failure.  The lender played a significant role in “warehouse lending”, a business of providing temporary financing to mortgage brokers and non-bank lenders.  Warehouse lending used to be a major source of funds for home loans, but many of the companies that provided this funding are no longer in business.

As dire as the banking crisis appears to be, history helps to put the current calamity in perspective.  Since 1934, there are only two years, 2005 & 2006, with no bank failures.  There were three failures in 2007 making the 2005-2007 period the only three year period since 1934 with only three bank failures.  At the peak of the savings and loan crisis in 1988 and 1989, over 1000 banks failed.  This was more than 2 failures per day for two consecutive years!  With a total of 25 failures in 2008 and 77 for 2009 ytd, the situation may not be as desperate as it first appears.