As of year-end 2009, the FDIC identified 702 banks as "problem institutions," representing about 9% of all institutions reporting to the FDIC and the highest number of problem banks since 1993, according to the FDIC’s latest banking report.
On February 23, 2010, the FDIC released its Quarterly Banking Profile for the fourth quarter 2009, which can be found here. The FDIC’s February 23, 2010 press release describing the report can be found here.
The FDIC defines "problem institutions" as those with "financial, operational or managerial weaknesses that threaten their continued financial viability." Problem institutions are ranked as either 4 or 5 on the FDIC’s 1 to 5 scale of "risk and supervisory concerns." The FDIC does not publicly identify the problem institutions by name.
The 702 problem institutions at year end (out of 8,012 reporting institutions) represent the largest number of problem institutions since 1993. The 702 institutions also represented combined assets of $402.8 billion. The year end number of problem institutions is 27 percent greater than the 552 problem institutions as of the end of 3Q09. The 2009 year end figures compare to the 252 problem institutions, representing $159 billion in assets as of the end of 2008.
Given that the "problem institution" category tracks banks with "financial viability" concerns, it is hardly surprising that the increase in the number of problem institutions has been accompanied by a growing number of failed financial institutions. There were 140 bank failures in 2009, and there have already been 20 bank failures already in just the first seven weeks of 2010. The number of bank failures so far this year suggests that we may have at least as many if not slightly more bank failures this year compared to last year.
The FDIC’s report comes on the heels of the recent report of the Congressional Oversight Panel (about which refer here), in which the watchdog committee warned that coming commercial mortgage woes could further damage many lending institutions.
But not all of the banking news is bad. FDIC Chairman Sheila Bair is quoted in the FDIC’s press release as saying that the FDIC sees "signs of improving performance in the industry, " although basically that means that the pace of deterioration has slowed, not necessarily that the negative trends have been reversed.
Whatever else that might be said, the continued increase in the number of problem institutions as 2009 progressed suggests that we can expect to continue to see growing numbers of failed financial institutions as 2010 unfolds.
A Business Week article about the FDIC’s report can be found here, and a New York Times report can be found here.