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 The FDIC revealed that the number of banks on its "problem list" rose 30% during the second quarter of 2008. At the end of June, there were 117 banks on the agency's watch list, up from 90 at the end of March. As bad as those numbers are, they don't completely reveal the depths of the banking industry's problems.
FDIC Chairman Sheila Bair conceded that "more banks will come on the list as credit problems worsen" and the assets on the books of problem institutions "also will continue to rise." So it's a given the numbers will get even uglier as the year goes on.
The real question is how big are the institutions that were added to the watch list. No big bank appears to have been added to the problem list -- save for IndyMac Bancorp, which the FDIC seized in July. Excluding IndyMac's $32 billion in assets, the number of assets contained within problem banks rose from $26 billion to $46 billion. Nearly all of the banks added to the list are probably small. That would be good news because a failure by just a couple of large banks would deplete the fund, leading to a taxpayer bailout. Bair put as positive a spin as she could on the numbers. "By any yardstick, it was another rough quarter for bank earnings, but the results were not unexpected as the industry coped with financial market disruptions, the housing slump, worsening economic conditions and the overall downturn in the credit cycle," she said. Indeed, many institutions increased provisions for loan losses to account for increasing troubled loans, particularly in real estate. Loss provisions totaled $50 billion, more than quadrupling the $11.4 billion set aside during second-quarter 2007. Almost a third of the industry's net operating revenue was used to bolster loan-loss reserves. Bair also announced that the FDIC in early October will vote on a plan to replenish the agency's Deposit Insurance Fund, which has suffered a large drop due to expected expenses for working out IndyMac's troubled loan portfolio and other bank failures over the next few years. Banks will likely see their assessments for FDIC insurance double to 15 basis points of assessed deposits, predicted Stanford Financial Group analyst Jaret Seiberg. Even still, Bair said the expected wave of loan losses may require the FDIC to tap its credit facility with the U.S. Treasury to ensure that insured deposits at failed institutions are covered. - Bill McConnell Also see: FDIC increases problem banks to 117 More banks waste away IndyMac Bancorp files for bankruptcy Categories Deal Video
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