Number of 'problem' banks jumps 30%, FDIC says
The Federal Deposit Insurance Corp.’s latest quarterly report on U.S. banks paints a picture of an industry under serious stress.
Some of the highlights from the report released today, covering 8,451 banks:
--- The number of institutions on the FDIC's "problem list" rose to 117 at the end of June from 90 at the end of March, a 30% increase. More worrisome for the FDIC, assets of the problem banks rose to $78.3 billion from $26.3 billion, a 200% jump. The data include IndyMac Bancorp, which had $32 billion in assets when it failed in July.
"More banks will come on the list as credit problems worsen," FDIC Chairwoman Sheila Bair said at a news conference in Washington.
The FDIC doesn't release the names of the banks on its list, which is based on a 1-to-5 rating system that judges capital levels, earnings power, management strength and other factors. If a troubled institution can't fix its problems or sell itself -- and becomes insolvent -- the FDIC takes control. The government has seized nine insolvent banks this year, including IndyMac.
--- As banks set aside $50.2 billion in the second quarter to cover potential loan losses, the industry’s total earnings dived to $5 billion in the period, down 86% from a year earlier and the lowest quarterly total since 1991. The plunge in earnings has caused many banks to slash dividend payments to shareholders.
--- At the end of June, the percentage of the industry's total loans that were 90 days or more past due was 2.04%, up from 1.39% at the start of the year and the highest level since the third quarter of 1993. The percentage has risen for nine straight quarters.
--- In one example of how the credit crunch may be filtering down, the total of bank loans outstanding to small businesses and farms rose just 3.4% in the 12 months ended June 30, compared with a 7.9% rise in the previous 12 months.
--- Total assets of FDIC-insured banks fell by $68.6 billion during the quarter, the first time the total has declined since the first quarter of 2002. "The reduction in assets was driven by a few large institutions, although almost 40% of all insured institutions reported lower assets at the end of June compared to the end of March," the FDIC said.
Bottom line: The banking business is shrinking, and that process isn’t likely to halt any time soon. And a shrinking banking industry will make it harder for the economy to get back on a decent growth track, because credit is the lifeblood of the economy.
Photo: FDIC Chairwoman Sheila Bair. Chip Somodevilla / Getty Images