416 Banks Make The "Problem" List

Written By Brian Hicks

Posted August 27, 2009





Here are some more “green shoots” for you.

You see, despite the monster rally in the financials of late, the underlying fundamentals in the banking business are getting worse—-not better.

And the truth is 300 banks could be seized by the FDIC this year, which is something of a problem since their piggy bank is nearly empty.

In fact, the FDIC’s insurance fund has been so depleted by the ongoing debacle that analysts warn it could sink into the red by the end of this year.

That has happened only once before, during the savings and loan crisis of the early 1990s, when the FDIC had to borrow $15 billion from the Treasury and repay it later with interest. Today it appears the outcome will be much worse.

From Bloomberg by Alison Vekshin entitled: ‘Problem’ Banks Rise to 15-Year High on Bad Loans, FDIC Says

“The U.S. added 111 lenders to its list of “problem banks” in the second quarter, a 36 percent increase that pushed the group to a 15-year high.

A total of 416 banks with combined assets of $299.8 billion failed the Federal Deposit Insurance Corp.’s grading system for asset quality, liquidity and earnings, the most since June 1994, the Washington-based FDIC said in a report today. Regulators didn’t identify companies deemed “problem” banks.

“For now, the difficult and necessary process of recognizing loan losses and cleaning up balance sheets continues to be reflected in the industry’s bottom line,” FDIC Chairman Sheila Bair said in a statement.

Regulators have taken over 81 banks this year, including Guaranty Financial Group Inc. in Texas and Colonial BancGroup Inc. in Alabama. Twenty-four banks collapsed in the second quarter as the pace of failures accelerated amid the worst financial crisis since the Great Depression.

The surge in failures prompted the agency to charge the industry an emergency fee in the second quarter to raise $5.6 billion to replenish its insurance fund, which fell to $10.4 billion as of June 30 from $13 billion in the previous quarter, the agency said. An $11.6 billion increase in loss provisions for bank failures caused the decline in the fund, the FDIC said.

FDIC-insured banks reported a net loss of $3.7 billion in the second quarter, compared with a $5.5 billion gain in the first quarter. The loss, the second quarterly one the industry has reported in 18 years, was driven by increased expenses for bad loans, the FDIC said.”

Needless to say, this is a disaster waiting to happen.

And when its all said and done, we will have borrowed ourselves into oblivion.

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