US lenders fear worst after two more fail

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The Independent Online

American bank executives are braced for another volatile and dangerous week after the collapse over the weekend of two more regional lenders.

First National Bank of Nevada and First Heritage Bank NA in California were taken over by the banking regulator after running short of money on Friday.

The Federal Deposit Insurance Corporation, which seized their assets, appeared last night to have averted a customer panic, with no reports of queues at branches. More US banks – seven in total – have failed so far this year than did in the whole of the previous four years, and it is just two weeks since the country's third-biggest banking collapse ever. That failure, of IndyMac, triggered scenes reminiscent of a run on the bank as customers queued for their cash.

Unlike in the IndyMac case, the FDIC has sold the customer accounts of the two latest casualties to another regional player, Mutual of Omaha Bank, which guarantees all deposits.

Analysts believe hundreds more banks could still fail. On Saturday, a housing bill aimed at stemming the tide of foreclosures was passed by Congress, and it is expected to be signed by President Bush this week.

While the bill may provide relief to struggling homeowners, and includes provisions for the federal government to prop up mortgage giants Fannie Mae and Freddie Mac, it is light on measures to help the regional banking system. A rally in financial sector stocks early last week was reversed on Thursday and Friday.

Attention is likely to focus once more on the performance of Washington Mutual shares, which lost a third of their value last week. The banking giant said it had cash and liquid assets of $50bn and was well able to fin-ance its lending operations.

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