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More banks will fail, analysts predict

October 7, 2008 by  

Bank failures have consumers and businesses worriedCongress’ approval of a $700 billion rescue package for financial institutions will not prevent more banks from failing in the coming year, analysts have suggested.

An Associated Press report suggests that the coming months could bring the most uncertainty that banks have seen since the savings and loan crisis of the 1990s.

Stanford Financial analyst Jeret Seiberg told the news agency that many banks are carrying construction loans and other deteriorating assets that will not be relieved by the bailout.

In addition, the AP points out that banks have grown larger in the past couple of decades, which could mean that even if fewer banks fail, the financial consequences could be just as great.

Joseph Mason, an economist who teaches at Louisiana State University, said that lenders are set to pay for their risky behavior.

"We just had a big party where people and businesses overborrowed," he commented. "We had a bubble and now we want to get back to normal. Is it going to be painless? No."

Last month, Washington Mutual was seized by the FDIC in what has been described as the largest bank failure in U.S. history. It seems that more casualties could be on the way.
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