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In less than two months, regulators have seized 14 banks. Experts think many more banks will collapse before the financial crisis is over.

NEW YORK (CNNMoney.com) — If it’s Friday, there must be a bank failing somewhere across the country.

For six consecutive weeks, industry regulators have seized control of a bank after the market closed on Friday, bringing the total number of failed banks so far this year to 14.

To put that into perspective, 25 banks failed in 2008, suggesting that the rate of failures is quickening as the economic crisis deepens.

“We’ll have a banner year [of failures] this year,” said Stuart Greenbaum, retired dean and professor emeritus at the Olin Business School at Washington University in St. Louis.

At the current rate, nearly 100 institutions — with a combined $50 billion in assets — will collapse by year’s end.  The latest is Oregon’s Silver Falls Bank, which was closed by U.S. regulators Friday.

With more consumers and businesses likely to default on loans as the recession drags on, some industry observers think the pace of bank failures could accelerate further.

Gerard Cassidy, managing director of bank equity research at RBC Capital Markets, upped his expectations for bank failures earlier this month, warning that he anticipates 1000 institutions could fail over the next three to five years.

“The sooner the bank regulators can shut down the troubled banks, the faster the industry will get back on its feet, in our view,” he wrote.

Still, the current crop of bank failures hardly comes close to what happened during the savings & loan crisis two decades ago  More than 1,900 financial institutions went under during 1987-1991, peaking with the failure of 534 banks in 1989.  And many experts are quick to draw distinctions between the two eras.

During the last crisis, many savings and loans were coping with an inability to adapt to higher interest rates, while many banks were significantly undercapitalized to deal with losses.

“That is not our problem here,” noted Ann Graham, a professor of law at Texas Tech who spent part of her career as a litigator for the FDIC and Texas’ Department of Banking during the 1980s.

Instead, she said the main problem now is that banks have been stuck with assets in their loan and investment portfolios that have quickly soured.

It’s also worth remembering that when banks fail, they don’t close down for good. The Federal Deposit Insurance Corp. guarantees deposits up to $250,000 in single accounts. Also, the FDIC often is able to find a willing buyer for the failed bank immediately, which means little, if any, disruption for the failed bank’s customers.

Still, regulators face a crisis of significantly larger proportions today that promises to keep the nation’s banking industry strained for some time.

Even though the overwhelming majority of the banks that have gone under since the beginning of 2008 are smaller community banks, there have been two notable big bank failures.

Last year, the California-based mortgage lender IndyMac failed. That was followed by the collapse of savings and loan Washington Mutual, the largest bank failure in history. The FDIC seized WaMu and immediately sold its banking operations to JPMorgan Chase.

Several experts fear the potential for another large bank failure. While the U.S. government has repeatedly said it will not allow major institutions to fail, namely Citigroup  and Bank of America , some embattled regional banking giants may be too far gone to save.

“Conceivably, we’ll see some larger names fail as we go forward,” said Frank Barkocy, director of research with Mendon Capital Advisors, a money management firm that invests primarily in financial stocks.

Regulators have indicated they are gearing up for tougher times. In addition to requesting an increase in its borrowing authority from the Treasury, the FDIC has maintained that it expects its deposit insurance fund to suffer $40 billion in losses through 2013. Last summer’s collapse of IndyMac wiped out $8.9 billion from the fund.

Fearful of drawing down the fund any further, banking authorities may attempt to broker more assisted acquisitions like JPMorgan Chase’s purchase of Washington Mutual, where the purchaser acquires the deposits and a portion of the failed bank’s bad assets.

“The [FDIC's] incentive is not to have a bank failure at all,” said Jack Murphy, a long-time partner at the law firm Cleary Gottlieb Steen & Hamilton, who previously served as general counsel for the agency. “If it is possible to have a private market solution, that is ideal.”

Next week, regulators are expected to provide a better glimpse of the health of the banking sector, when the FDIC presents its quarterly banking profile for the fourth quarter of 2008.

One highlight of the report will be the agency’s so-called “problem bank” list. That number is expected to climb from 171, where it stood at the end of the third quarter.

Some have charged that the list is hardly reliable, given that only a fraction of the banks that are included ever actually reach the point of collapse.

Nevertheless, a big jump in the number of banks on the problem list could serve as an indicator that there will many more Friday failures to come this year.

‘A privately held banking system is the correct way to go’

WASHINGTON – The White House is standing by the private banking system. White House press secretary Robert Gibbs was asked Friday about speculation that the Obama administration may seek to nationalize two financial bellwethers, Citigroup Inc. and Bank of America Corp.

Gibbs responded that the administration continues to “strongly believe that a privately held banking system is the correct way to go.” Along with that, he said, the government must ensure that banks are sufficiently regulated.

Said Gibbs: “That’s been our belief for quite some time, and we continue to have that.”

Shares of Bank of America , Citigroup and Wells Fargo & Co fell more than 20 percent after Senate Banking Committee Chairman Christopher Dodd said the nationalization of some banks could be needed “at least for a short time,” according to a Bloomberg report. Their decline contributed to dragging the major stock indexes lower.

In response, Bank of America spokesman Robert Stickler said “We see no reason to nationalize a bank that is profitable, has strong capital and strong liquidity and is lending actively.”

When asked about nationalization, Citigroup spokesman Jon Diat said in an e-mailed statement that the bank’s capital base is “very strong” and its Tier-1 capital ratio is “among the highest in the industry.”

The statement from the White House appeared to calm some of the market’s jitters. Shares were off their lows of the day, although they were still down on worries about the global economy.

Paul Volcker looks toward President Barack Obama while speaking Feb. 6 about his role as an economic adviser. The Treasury has collected $813 million in fees in its bailout of the money-fund market.

At least one government bailout seems to be working — and even boosting the coffers of the Treasury Department.

In mid-September, money-market mutual-fund investors were jolted after the $63 billion Reserve Primary Fund fell below a $1 net-asset-value level because it held commercial paper issued by Lehman Brothers Holdings Inc., which filed for bankruptcy.

Investors began pulling money from other prime funds, which are a key source of funding for U.S. companies. It became harder for companies to raise money for their daily working needs, threatening to cripple the entire financial system.

Within days, the Treasury took the unprecedented step of insuring assets in money-market funds to thwart massive withdrawals. Simultaneously, the Federal Reserve announced a liquidity facility to finance purchases of asset-backed commercial paper held by money funds.

This allowed funds to hold this paper without worrying that withdrawals by investors would force them to sell into an illiquid market.

It worked. Money-fund assets began climbing and are now close to hitting a record $4 trillion, $450 billion more than in mid-September. These funds also are more comfortable in buying commercial paper and asset-backed securities.

These measures “provided huge amounts of confidence in a market that was sorely lacking in that,” says Deborah Cunningham, money-fund manager at Federated Investors Inc.

In the case of the money-fund bailout, the government could even make money. To insure money funds, the Treasury charged them 0.01% to 0.022% of their assets. It has collected $813 million in such fees, and the agency hasn’t paid any claims yet.

One reason for the success of the money-fund bailout is that the problems were relatively simple and contained. Money funds held high-quality and short-term assets, so the risk of guaranteeing them wasn’t high for the government. It also helps that no other financial giants have followed Lehman into bankruptcy.

In contrast, the situation with troubled mortgage assets held by banks is much more complex, posing a greater risk of loss to the government. Despite launching the Troubled Asset Relief Program to bail out banks, the government is still trying to figure out exactly how to value and acquire distressed assets.

Still, the money-fund bailout highlights the need for swift and decisive action when the government intervenes in a failing market. In contrast, the changing emphasis of TARP has confused investors and undermined confidence in the rescue plan.

Treasury Secretary Timothy Geithner recently proposed a plan to buy toxic bank assets, which was the original idea when TARP was announced. “We could have done this in October, when we first got the chance,” says Milton Ezrati, senior economist at money-management firm Lord Abbett & Co.

More recently, the Federal Reserve has been trying to figure out how to make a program work that would help finance longer-term asset-backed paper. The Term Asset-Backed Securities Loan Facility, or TALF, has some similarities to the liquidity facility for money funds. But it is directed toward different investors, like hedge funds, and will lend them money to buy student, auto and other asset-backed loans.

As cash flows into money funds again, debate is swirling over their future: Should such funds keep capital reserves and be regulated like banks? Or should they operate more or less as they did before the Reserve Primary Fund broke the buck?

“If they are going to talk like a bank and squawk like a bank, they ought to be regulated like a bank,” Paul Volcker, head of President Barack Obama’s Economic Recovery Advisory Board, said recently.

The Investment Company Institute, a fund-industry trade group, has opposed such a move.

Money funds were born in the early 1970s as a higher-yielding alternative to bank deposits. The early money funds invested in Treasury bills and bank certificates of deposit. To boost yields, they later began investing in high-yielding assets such as commercial paper and asset-backed securities.

The Reserve Primary Fund started buying commercial paper in 2006. By 2008, commercial paper comprised half its portfolio, including a $785 million investment in Lehman paper. When Lehman filed for bankruptcy, the Reserve fund’s net asset value fell by three cents, and investors began fleeing.

As panic spread, investors pulled out nearly $350 billion from prime money funds in just two weeks in September. A good chunk went into government and Treasury-oriented money funds, but a net $123 billion left money funds altogether, according to the Investment Company Institute.

On Sept. 19, the government guaranteed money-fund assets, and money soon began flowing back into them. Since November, nearly $230 billion has moved into prime funds, also partly because yields on Treasury-money funds have declined close to zero.

Meanwhile, managers of some prime funds who had been investing heavily in government securities in the fall started inching back into commercial paper. They have also started to increase the maturity of the investments they buy.

“We’re able to invest in a more typical fashion,” says Robert Litterst, manager of Fidelity Cash Reserves fund, the largest retail-oriented money-market fund. Vehicles such as the $150 billion JPMorgan Prime Money Market Fund and the Federated Prime Obligations fund were among those that bought more asset-backed paper after the Federal Reserve announced its liquidity facility.

Some money managers continue to hold large positions in government securities. Vanguard Prime Money Market Fund is nearly half in Treasurys and agency securities, up from just 10% in early 2007. Amid the recession, “your gut tells you, this is not the time to take a lot of risk,” says manager David Glocke.