Though 2010 was a "turnaround" year for banks,
the number of problem institutions continued to increase during the year,
according to the FDIC's Quarterly Banking Profile for the fourth quarter of
2010. A copy of the FDIC's February 23, 2011 press release about the report can
be found here,
and the Quarterly Banking Profile itself can be found here.
The FDIC defines a problem institution as one the agency
has rated as a 4 or 5 on a 1 to 5 scale of ascending regulatory concern.
Problems institutions are those with financial, managerial or operational
weaknesses that threaten their continued viability. The FDIC does not publish
the names of the institutions that it defines as problem institutions.
Of the 7,667 institutions that were federally insured as
of December 31, 2010, the FDIC rated 884 as problem institutions, or about
11.5% -- or one out of nine -- of all banks in the country. These problems
banks represented $390 billion in assets. These year end 2010 figures compare
with the 702 banks rated as problem institutions at the end of 2009,
representing $402 billion in assets.
The year-end 2010 tally of problem banks is not only up
from the end of 2009, it is also up from the end of the third quarter of 2010.
There were 860 problem institutions as of September 30, 2010, representing $379
billion in assets.
Though the number of problem institutions has continued
to increase, the rate of increase has slowed. The FDIC noted in its press
release that the rate of increases in the number of problem institutions has
declined in each of the last four quarters.
The number of problem institutions as of the end of 2010
is the largest number of problem institutions since March 31, 1993, when there
The number of problems institutions has continued to grow
even as the number of bank failures has continued to mount, which has the
effect of reducing the number of institutions rated as problems. The 157 bank
failures in 2010 were the highest number of bank failures since 1992 (when 181
banks failed.) Though the FDIC stated in its press release that it expects 2010
to be the high water mark of the current bank failure wave, 22 additional banks
have failed already in 2011, putting this year's bank closure pace ahead of
Overall, however, the news in the Quarterly Banking
Profile was relatively good. The FDIC characterized 2010 as a
"turnaround" year, one in which the banking industry reported four
consecutive quarters of positive income. The industry's fourth quarter
aggregate profit of $21.7 billion represented a $23.5 billion increase from the
industry's $1.8 billion loss in the year prior quarter. Almost two thirds of
reporting institutions reported improvements in quarterly net income from a
year ago. Much of the improvement in earnings is attributable to reductions in
provisions for loan losses.
The DealBook blog's summary of the FDIC's report
can be found here.
More Investors Opting Out?: Luke
Green has an interesing February 23, 2011 post on his Risk Metrics Insights
about the number of large institutional investors that have opted out of the
$624 million Countrwide securities class action settlement. As many as 33 large
investors have opted out of the settlement, which has resulted in changes to
the class action settlement, including the reduction of the settlement amount
to $601.5 million. Many of the opt outs apparently have initiated separate
litigation, as well. Green notes that there are a host of arguments against and
in favor of opting out, but he nevetheless asks whether the willingness of
large investors to opt out possibly represents a larger trend.
D&O Case Law Survey: The
policyholder side coverage law firm Lowenstein & Sandler has published
a "Review of 2010 Case Law on D&O Insurance
Coverage," which can be found here.
The memo provides brief reviews of critical D&O insurance coverage
decisions from the past year.
other items of interest from the world of directors & officers liability,
with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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