Texas has the 2nd highest number of banks in the nation, behind Illinois. In 2002, Texas had 718 insured banks; bank assets totaled $211.8 billion.
Banking was illegal in the Texas Republic and under the first state constitution, reflecting the widespread fear of financial speculation like that which had caused the panic of 1837. Because both the independent republic and the new state government found it difficult to raise funds or obtain credit without a banking system, they were forced to borrow money from merchants, thus permitting banking functions and privileges despite the constitutional ban. A formal banking system was legalized during the latter part of the 19th century.
Between 1986 and 1989, the number of bank closings in Texas rose from 26 per year to 134, or 64.7% of all US bank closings. By 1993, the number of failed banks fell to 10. In 1994 and 1995, no banks failed, but in 1996, there were 2 banks closed. In 1997, 98% of the 445 banks in the state banking system were in good condition. The statistics for the national banks in Texas paralleled state banking system numbers.
In 2002, the state's insured banks were performing well, in part due to lower funding costs. Texas banks reported the highest-level of commercial real estate (CRE) loans as of September 2002. However, Texas's metropolitan areas had high office vacancy rates, exposing banks to high risk. Residential foreclosures as of September 2002 were at a 30-month high, and the per capita bankruptcy rate was at an all-time high as well.
Although the Texas agricultural economy had been weak for several years, farm banks performed well in 2002 due to significant government support.