FDIC 'Problem' Banks Increased 27% in Q409

By the end of 2009, 702 banks made the “Problem List” for the Federal Deposit Insurance Corp. (FDIC), a marked increase of 27% from 552 at the end of Q309. Additionally, the total amount of assets of insured institutions increased $137.2bn to $13.7trn in Q409. Bank investments in mortgage-backed securities (MBS) also increased by $44.8bn, overall, to $1.4trn. The FDIC issues the list based on liquidity, asset quality and capital levels. The FDIC does not, however, publicly list the brand names of financial institutions so as not to negatively impact retail business. The FDIC does provide the total amount of assets on the list. And for Q409, that total increased 16% to $402.8bn from $345.9bn in the previous quarter. “Consistent with a recovering economy, we saw signs of improvement in industry performance," said FDIC chairman Sheila Bair. "But as we have said before, recovery in the banking industry tends to lag behind the economy, as the industry works through its problem assets.” In Q409, 45 banks failed, bringing the total for 2009 to 140 – the highest total for any year since 1992. FDIC resources, which include cash and marketable securities, swelled to $66bn at the end of 2009 from $23bn in September. In November, the FDIC required institutions to prepay quarterly insurance assessments for more than three years, resulting in an infusion of $45bn to the FDIC. The Deposit Insurance Fund (DIF), from which the insurance against bank failures is paid out, dropped by $12.7bn in Q409. The FDIC set aside $44bn in loss reserves to cover estimated losses. The total amount of insured deposits grew 13.5% in the quarter to $641.3bn, which reflects the temporary increase in the standard maximum amount from $100,000 to $250,000. But while some banks continue to struggle, others are showing signs of profit. Commercial banks and institutions reported $914m in profit in Q409, a $38.7bn improvement from losses in Q408, for example. James Chessen, chief economist at the American Bankers Association (ABA), said the FDIC report is proof the banking industry is in a well-fortified financial position to meet challenges ahead in 2010. "Banks added another $5bn in equity capital in the fourth quarter and total industry capital is now just short of $1.5trn. When added to the $227bn in reserves banks have set aside to cover losses, this makes for a total buffer of roughly $1.7trn against losses," Chessen said. "In addition, 95.5% of banks – holding over 98.6% of the industry’s assets – are still classified as ‘well capitalized,’ which is the highest regulatory designation possible." Write to Jon Prior.

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