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Tickers in this Article: FMT, BSC, WFC
With the financial sector riddled with problems from the credit crisis, many are waiting for a casualty in the U.S. banking industry. The collapse of Bear Stearns (NYSE:BSC) fueled expectations, but we still have not seen a commercial bank shuttered. That may soon change.

The Wall Street Journal
reported over the weekend that the Federal Deposit Insurance Corp (FDIC) ordered California-based Fremont General (NYSE:FMT) to shore up capital or shutter its banking business.

A New Inning
Baseball season is kicking off, as is a new inning in the credit crisis. Big stress on the banking sector usually results in some bank failures. This time around we are not likely to see the failure of a big bank that would have an impact on the broader stability of the financial system. The Fed and U.S. government has been pretty clear that something of that magnitude will not be allowed, but we can easily see the collapse of some of the regional banks around the U.S. The first casualty may be Fremont.

The FDIC gave a rare threat to Fremont, whose division Fremont Investment and Loan was once heavily active in the subprime market. Fremont has to shore up capital for its operations or face the consequences. Regulators have given the company 60 days to raise new capital or sell its banking subsidiary. If the company does not meet the requirements, Fremont will face a seizure of its assets, which would make it the biggest U.S. bank collapse in the last two decades. (To begin your research on the stock, check out Analyzing A Bank's Financial Statements.)

Your Deposits Are Safe
Regulators can change the terms of the ultimatum if improvement in the company is being made. Fremont was forced to shut down its subprime lending in March of 2007 and its shares have been ugly ever since. The stock traded at over $13 last June, and is now in the 50-60 cent range.

I wouldn't be surprised to see the pressure from the FDIC to ramp up across the U.S. and a few significant closures of regional banks, either outright collapses or buyouts from bigger more stable banks. Wells-Fargo (NYSE:WFC) might be in stable condition, with $25 billion in cash on hand to scoop up some deals when opportunity knocks. But even if your regional bank fails, don't panic. Remember that as long as your bank is FDIC insured, your deposits are protected up to $100,000 and certain retirement accounts are even insured up to $250,000. (For related reading, see Are Your Bank Deposits Insured?)

The Bottom line
The news of the FDIC giving its ultimatum to Fremont General shows that we may soon see the first casualty in the U.S. banking system. Fremont has been weak since March of 2007 when it announced that it would need to shut its subprime lending unit, and this directive from the FDIC may be the last straw. This could signal that many more reports like this are on the way. We will see what happens, and remain grateful that we have FDIC insurance.

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