Here’s a report by Michael J. Panzner at Financial Armageddon on the increase in "problem" banks.
Note: Michael J. Panzner is starting another blog, When Giants Fall – the name of his new book.
Problem Institutions: Breaking Out
It seems like an eternity, but it was less than two years ago when a near decade low 50 FDIC-insured financial institutions were deemed to be at risk of failure. Only 21 months later, the number has more than tripled — and appears headed far higher still. In "’Problem’ Banks Rose 46 Percent in Third Quarter, FDIC Says," Bloomberg gives us the salient details from the FDIC’s latest Quarterly Banking Profile.
The Federal Deposit Insurance Corp. said banks categorized as "problem" institutions increased 46 percent in the third quarter to the highest level in 13 years as the credit crisis battered the financial industry.
The FDIC identified 171 "problem" banks as of Sept. 30, up from 117 in the second quarter and the highest since December 1995, the regulator said today in its quarterly report. The Washington-based agency does not make public the banks’ names.
"We’ve had profound problems in our financial markets that are taking a rising toll on the real economy," FDIC Chairman Sheila Bair said in a news release. "Today’s report reflects these challenges."
Troubled institutions have increased in number amid souring real-estate loans in the worst housing slump since the Great Depression. Twenty-two lenders have failed this year including Washington Mutual Inc., whose September collapse was the biggest in U.S. history.
Third-quarter earnings among U.S. banks and thrifts fell 94 percent to $1.73 billion from $28.7 billion in the same quarter a year ago, driven by higher provisions for loan losses, the FDIC said. It was the lowest net income reported since the fourth quarter of 2007, the agency said.
The industry wrote off $27.9 billion in loan losses at the end of September, an increase of 157 percent from the $10.9 billion reported in the third quarter a year earlier.
Funds set aside to cover loan losses increased to $50.5 billion, more than triple the $16.8 billion reported in the year- earlier quarter.
Loans 90 days or more overdue jumped 13.1 percent to $184.3 billion from $162.9 billion in the second quarter, the FDIC said.
‘Problem Bank Assets’
Lenders deemed "problem" institutions had assets of $115.6 billion at the end of the third quarter, an increase from the $78.3 billion in the second quarter and the first time since 1994 that assets of "problem" institutions exceeded $100 billion, the FDIC said.
Banks are rated by regulators based on measures including asset quality, earnings and liquidity. They are ranked on a numerical scale, 1 being the highest and 5 the lowest. A bank with a rating of 4 or 5 is designated a "problem" institution.
The FDIC is a bank regulator that insures deposits at 8,384 institutions with $13.6 trillion in assets.
For those who like pictures with their words, below is a graph I put together using data from the FDIC website:
