The Federal Deposit Insurance Corp. said Tuesday the list of banks it considers to be in trouble shot up nearly 50% to 171 during the third quarter — yet another sign of escalating problems among the institutions controlling Americans’ deposits. The 171 banks on the FDIC’s “problem list” encompass only about 2% of the nearly 8,500 FDIC-insured institutions. Still, the increase from 117 in the second quarter is sharp, and the current tally is the highest since late 1995. “We’ve had profound problems in our financial markets that are taking a rising toll on the real economy,” said FDIC Chairman Sheila Bair in a statement, adding that Tuesday’s report “reflects these challenges.”
Nationally, banks have been wounded by the crash of the sub-prime mortgage market and then problems created from the aftermath from the FHA mortgage lending spectrum. As the FDIC report indicates, the number of hindered institutions is increasing at an alarming pace, a trend that has already begun to reshape the banking industry. The FDIC said total assets held by troubled institutions climbed from $78.3 billion to $115.6 billion — a figure that suggests that the nation’s top 20 banks aren’t on the list, even though they are getting slammed, too, by the growing credit crisis. The FDIC does not reveal the names of the institutions it deems troubled.
According to Hayden Mcbride, a California FHA mortgage lender, “When Mortgage banks like this go down it’s like dropping a bomb in the lending community.” Mcbride continued, “The remaining lending companies tighten their guidelines each time a bank goes down and after a while the mortgage loan products no longer meet the consumer’s demands.” “Clearly the mortgage lenders are out of touch with the reality of Joe the homeowner.” With more and more mortgage lenders providing loan modifications, the refinance market is clearly staggering.
Nine banks failed in the third quarter, decreasing the FDIC’s deposit insurance fund to $34.6 billion from $45.2 billion in the second quarter. This quarter, the pace appears to be picking up — nine banks have already failed since September 30, including Downey Savings and Loan Association, based in Newport Beach, Calif. “To some extent, a bank failure is a regulatory failure,” Ely said. Regulators, if they address bank problems early on, can convince a troubled bank to sell off assets, raise capital or find a buyer, he said. “My hope is they’re moving faster on these problems.”
James Chessen, chief economist at the American Bankers Association, said in a statement that the banking industry as whole, however, “remains well-positioned to meet the credit needs of local communities.” Since last year, bank lending to businesses has risen by more than 8%, while bank lending to individuals has risen by nearly 7%, he said. The U.S. government has been guaranteeing and buying more and more types of debt in an effort to keep the financial system functional. Late Sunday, Citigroup Inc. got a government backstop for $306 billion worth of mortgage loans and other assets. On Tuesday, the Federal Reserve agreed to buy up to $600 billion in mortgage-backed assets.
