FDIC Reports Troubled Banks at a 16 Year High

Driven by expanding problems in the commercial real estate sector (CRE), the number of distressed banks in the US rose to 702 at the end of 2009, the highest level in 16 years, according to the Quarterly Banking Profile (pdf.) report released by the Federal Deposit Insurance Corporation (FDIC). Furthermore, the report notes that US banking sector continues to consolidate at a rapid pace.

The number of insured commercial banks and savings institutions reporting financial results declined by 87 during the fourth quarter. Only three new charters were added during the quarter, while 43 institutions were absorbed by mergers and 45 institutions failed.

For the full year, the number of reporting institutions fell from 8,305 to 8,012. Only 31 new charters were added in 2009, the smallest annual total since 1942. Mergers absorbed 179 institutions during the year, and 140 insured institutions failed. This is the largest number of bank failures in a year since 1992.

The number of institutions on the FDIC’s “Problem List” rose to 702 at the end of 2009, from 552 at the end of the third quarter and 252 at the end of 2008. Total assets of “problem” institutions were $402.8 billion at yearend 2009, compared with $345.9 billion at the end of September and $159.0 billion at the end of 2008. Both the number and assets of “problem” institutions are at the highest level since June 30, 1993.

One in eleven banks in the country are now deemed in trouble by the FDIC. The regulatory body now expects a quickening pace of bank failures driven by defaults in the CRE sector.

"This year, the losses are going to be heavily driven by commercial real estate, we've known for some time and we have been projecting that," FDIC Chairwoman Sheila Bair told reporters in a press conference. "The pace is probably going to pick up this year and for the total year it will exceed where we were last year. Overall, the banking system is challenged but stable, but is performing its credit extension role."

Bair said it takes longer for losses on commercial real estate to work through the system because frequently borrowers may have cash reserves and can continue to make good on payments for a while, even as a downturn expands. "Tenants may be in longer-term leases, but those leases eventually come due and they don't renew or they renew at significantly reduced rental rates," she said.

So far in 2010, the FDIC has seized, closed or merger 20 banks. In 2009, 140 banks failed, the largest number in 17 years.

Tags: US Banking Sector, Commercial Real Estate Sector, Sheila Bair, fdic (all tags)

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