FDIC Bank Failure Watch List: Leading or Lagging Indicator?

The FDIC produces the FDIC bank failure watch list every Friday at 7:00p.m. As of April 24th there were 29 failed banks in 2009. There were only 25 failed banks in 2008! If this trend holds true we should have 85 to 90 bank failures in 2009! A 350% increase in bank failures in 2009 over 2008.

Analysis on FDIC Bank Failure Watch List

I suppose that isn’t really a surprise given the turmoil in the banking system. My question is whether the bank failure watch list is a leading or lagging indicator of the economy. If you look further back into previous years you see that 2007 had only three failed banks; and 2005 through 2006 had no banks failing. Should we have seen a stock market top with so few failed banks insured by the FDIC? If the banks are doing so well does that indicate easy money? Should we have been reducing our exposure to the stock market?

Now the trends are going the other way. It is time to ask: Should we buy stocks when the bank failures peak? When we no longer have an increase in the number of banks failing does that indicate that the economy is bottoming out?

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FDIC Bank Failure Watch List

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FDIC Bank Failure Watch List

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