What's the Government to Do with Failing Banks?

April 22 2009, 11:27 AM

The failure of northern Colorado'ss largest bank--New Frontier Bank--which federal officials took over last week, has left farmers who rely on loans at the start of the growing season anxious, according to the Greeley Tribune. Bank closures, of course, are a national problem, and bailing them out is expensive--even prolonging the recession, according to congressional testimony given yesterday by regional Federal Reserve Bank President Tom Hoenig. Insolvent banks, he said in a criticism of the federal government's $700 billion bank rescue package, "must be allowed to fail" (via the Denver Business Journal). Instead, the government must reform banking regulations so that when the recession ends, bad habits die, Hoenig says. The feds are preparing to reveal the results of tests to assess the nation's 19 largest banks, according to Reuters, which notes that so far this year 25 banks have failed--already matching 2008's closures.