While the condition of commercial banks continues to
improve overall, the number of "problems institutions" also continues
to grow, in both absolute and percentage terms, according to the FDIC's
latest report on the banking industry. The FDIC's Quarterly Banking
Profile, dated November 23, 2010 and reporting figures through September 30,
2010, showed that the FDIC now rates 860 banks as problem institutions, up 829
at the end of the second quarter.
The increased numbers of problem banks stands in contrast
to the overall tenor of the report. Tthe FDIC said that during the thing
quarter the banking industry was characterized by "resilient revenues and
improving asset quality." Year over year earnings improved for the fifth
consecutive quarter. Indeed almost two out of three institutions reported
higher net income than a year earlier.
Other signs are also positive. Quarterly provisions for
loan losses were at the lowest quarterly amount since the fourth quarter of
2008, net charge-offs were lower than both the previous quarter and the
year-earlier quarter, and industry assets continued to improve.
However, within this good news, some evidence of
continuing difficulties also emerged. One in five banks continues to be
unprofitable. The 860 institutions reported as problem institutions represent
more than 11 percent of all 7,780 insured institutions. In other words, the FDIC
ranks about one our of nine of all banks in the country as problem
(The FDIC considers a bank a "problem
institution" if it is ranked as either a "4" or a "5"
on the agency's 1 to 5 scale of supervisory concern. Problem institutions are "those
institutions with financial, operational, or managerial weaknesses that
threaten their continued financial viability." The FDIC does not publish
the names of the banks it considers to be problem institutions.)
The 860 problem institutions at the end of the third
quarter represent an increase of 308 problem institutions during the twelve
months since September 30, 2009, or about 56%. This increase is all the more
noteworthy given that 172 banks closed during that period and so fell off of
the problem list.
The number of problem institutions at the end of the
third quarter is the largest number of problem institutions since March 31,
1993, when there were 928.
the FDIC: Banks Improve, "Problem Institutions" Continue
to Increase in its entirety at the D&O Diary, a blog by Kevin LaCroix.