Overall, the banking industry continued to improve in the first quarter of 2014, although banks did see their noninterest income decline due to reduced mortgage activity and a drop in trading revenue, according to the FDIC’s Quarterly Banking Profile for 1Q14. The latest Quarterly Banking Profile can be found here and the FDIC’s May 28, 2014 press release about the report can be found here.
As the banking industry overall continues to improve, the number of “problem institutions” continues to decline as well. (A “problem institution” is a bank that the FDIC ranks as a 4 or a 5 on its scale of financial stability. The agency does not release the names of the banks its regards as problem institutions.) In the first quarter of 2014, the number of problem institutions declined for the twelfth straight quarter, from 467 at the end of the fourth quarter 2013, to 411 at the end of the first quarter (representing a decline of 12%). The number of “problem” banks now is less than half the post-crisis high of 888 at the end of the first quarter of 2011.
Though the number of problem institutions continues to decline, the problem institutions still represent about 6.1% of all reporting institutions. Moreover, as positive as the decline in the number of problem banks may be, by and large the problem banks are not improving themselves out of the “problem” status – the likelier explanation for the declining number of problem institutions is that they are simply being absorbed by other more stable banks, or that they are simply failing. Along those lines, the FDIC reports that mergers absorbed 74 banks during the first quarter.
In addition, even though we are now well over five years peak of the credit crisis, banks are continuing to fail. According to the report, five banks failed during the first quarter of 2014, compared to four bank failures during the first quarter of 2013. Three more have failed so far during the year’s second quarter, bringing the total for the year to date to eight, compared to 24 for the full year of 2013.
In addition to releasing the latest Quarterly Banking Profile, the FDIC also recently updated the information on its website regarding its failed bank litigation activity. The latest update, as of May 23, 2014, shows that the FDIC has now filed 96 lawsuits against the former directors and officers of 95 failed banks. The agency has already filed twelve lawsuits during 2014, but only three since mid-March. Interestingly, the FDIC’s website also states that of the 96 lawsuit that it has filed, 24 have settled. The number of settlements seems to have accelerated recently.
The likelihood is that the agency will continue to file additional lawsuits in the months ahead. The website discloses that it has authorized lawsuits connection with 138 failed institutions against 1,115 individuals for D&O liability. These figures are inclusive of the 96 D&O lawsuits the agency has filed naming 742 former directors and officers.