FDIC: Now 552 "Problem Banks" -- Highest in 16 YearsThe number of institutions on the FDIC's "Problem List" is now 552 - the highest level in 16 years -- the Federal Deposit Insurance Corporation (FDIC) announced this week.
At the end of September, there were 552 insured institutions on the "Problem List," up from 416 on June 30. This number may be compared to the 153 failed financial institutions thus far in 2009 . Of that number, 124 are banks, and 29 are credit unions.
The 552 troubled banks represent the largest number of "problem" institutions since December 31, 1993, when there were 575 institutions on the list. The FDIC says total assets of "problem" institutions increased during the third quarter from $299.8 billion to $345.9 billion, the highest level since the end of 1993, when they totaled $346.2 billion.
FDIC Chairman Sheila Bair says "For now, the credit adversity we have been observing for some time remains with us, and we expect that it will be at least a couple of more quarters before we see a meaningful improvement in that trend."
Bair remains upbeat, despite the challenges facing the industry. "I am optimistic that if we address these problems head-on we will see clear signs of improvement in bank earnings and lending in 2010."
The FDIC's Deposit Insurance Fund (DIF) balance, the net worth of the fund, fell below zero for the first time since the third quarter of 1992, and this was projected to happen back in September. The fund balance of negative $8.2 billion as of September already reflects a $38.9 billion contingent loss reserve that has been set aside to cover estimated losses over the next year. The FDIC has to set aside reserves, just as banks reserve for loan losses. The FDIC has set aside reserves for anticipated closings over the next year. When the fund balance is combined with this contingent loss reserve, the result shows total DIF reserves at a positive balance of $30.7 billion.
Chairman Bair distinguished the DIF's reserves from the FDIC's cash resources, which stood at $23.3 billion of cash and marketable securities. Earlier in November, to further bolster the DIF's cash position, the FDIC Board approved a measure to require insured institutions to prepay three years worth of deposit insurance premiums, about $45 billion, at the end of 2009.
The banks that end up on the problem list are considered the most likely to fail because of difficulties with their finances, operations or management. Yet historical records show that only 13 percent of the banks on the troubled list end up failing.