Problem bank list tops 400

Number of troubled lenders continues to mount, hitting its highest level since June 1994, FDIC reports. Deposit insurance fund falls by 20%.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By David Ellis, CNNMoney.com staff writer

chart_more_banks_more_problems.03.gif
Map
Where the banks are failing
Bank failures and foreclosures keep mounting

NEW YORK (CNNMoney.com) -- The number of institutions on the government's so-called "problem bank" list surpassed 400 in the latest quarter, climbing to its highest level in 15 years, according to a government report published Thursday.

The numbers, published as part of a broader survey on the nation's banking system by the Federal Deposit Insurance Corporation, revealed that the number of banks at risk of failing reached 416 during the second quarter.

The FDIC, which insurers bank deposits, has been hit by a wave of relatively large and costly failures as of late, prompting concerns about the size of the agency's insurance fund. To that end, the FDIC reported that the fund decreased by $2.6 billion, or 20%, during the quarter to $10.4 billion.

The number of banks under scrutiny by regulators has moved steadily higher since the recession began in late 2007. A year ago, the number of banks on the FDIC's watch list was 117. At the end of this year's first quarter, the number stood at 305.

FDIC chairman Sheila Bair said she expected the trend to continue.

"We expect the number of problem banks and failures will remain elevated even as the economy begins to recover," she said Thursday.

The names of the banks on the list are never made available to the general public by regulators out of fear that depositors at those institutions may prompt a so-called "run on the bank."

Regulators indicated that the number of assets controlled by those institutions, however, climbed to $299.8 billion in the latest quarter, up from $220 billion in the previous period.

Over the years, the problem bank list has been viewed as a telling, albeit backwards-looking, barometer on the overall health of the nation's banking industry.

Still, few of the lenders that are on the list actually reach the point of failure. On average, just 13% of banks on the FDIC's problem list have been seized and shuttered by regulators.

So far this year, 81 banks have failed, and dozens more are expected to follow as banks cope with continued losses in real estate and various consumer loans.

Gauging performance

As a group, banks lost $3.7 billion during the second quarter, hurt in large part by their decision to set aside money to insulate themselves against bad loans, according to Thursday's report.

In a sign of how much of a trouble spot the issue of credit remains for many lenders, the percentage of loans and leases where borrowers were behind on payments rose to 4.35%, the highest level since banks first started reporting that data to regulators in 1983. Last quarter, the delinquency ratio was 3.76%.

Bair suggested however, that banks might be turning a corner in that respect, citing improvement among some real estate-related loans and a drop in the number of loans more than 30 days past due.

"We're going to need another quarter or two to confirm a trend," she said.

Still, Bair indicated that the agency was bracing for more failures, adding that it would look to replenish the agency's depleted insurance fund. So far this quarter, there have already been two significant bank failures: Texas-based Guaranty and Colonial BancGroup of Alabama.

Bair said Thursday that regulators would likely impose a special assessment on banks sometime next month to help replenish the insurance fund. That's on top of another special assessment against banks earlier this year.

What remains uncertain, however, is whether such precautionary measures would prevent the FDIC from having to tap its $500 billion credit line from the Treasury Department, which was approved earlier this year.

Bair downplayed the idea, but did not rule it out altogether.

Regulators could levy even more assessments against banks to avoid using funds from the Treasury. But such a move could harm many of the banks that are trying to survive the current crisis, notes Frank Barkocy, director of research at Mendon Capital Advisors, a money manager that invests primarily in bank stocks.

Barkocy said that if higher fees "push others to the brink" then the FDIC might want to consider other options, such as money from the Treasury, instead.

--CNNMoney.com senior writer Jennifer Liberto contributed to this report. To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Sponsors
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.