Problem banks expand 30%

U.S. Says Banks on 'Problem List' Rose 30% in Quarter


Aug. 26 (Bloomberg) -- The U.S. Federal Deposit Insurance Corp. said its `"problem list'' of banks increased 30 percent in the second quarter to the highest total in five years as more commercial real-estate loans were overdue.

"Quite frankly, the results were pretty dismal, and we don't see a return to the high earnings levels of previous years any time soon,'' FDIC Chairman Sheila Bair said at a news conference in Washington.

The deposit insurance fund fell 14 percent to $45.2 billion and the reserve ratio, or balance divided by insured deposits, was 1.01 percent. The FDIC is required to shore up the fund when the ratio falls below 1.15 percent.

It’s worth noting that not every bank on the problem list will fail, and not every failure will be on the list. To my knowledge, IndyMac was not on the list prior to failing. But the trend here tells us something meaningful; a 30% increase in problem banks in one quarter says we’re still in the early stages of this credit crisis.

Also, I have always thought that the 1.15% “coverage ratio” was better suited to trouble-free times than to any period of instability. It simply will not take much in the way of bank troubles to wipe out that FDIC fund. What will be interesting will be to see the approach the FDIC takes to securing more funds. Will they hit up all banks equally, nail the bad banks a bit more, or tap the taxpayer? Each of these routes has very different pros and cons.

This is a companion discussion topic for the original entry at