FDIC Troubled Bank List Grows By 46% - Is Your Bank Safe?

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 |  Includes: C, WMIH
by: TraderMark

Editor's note: This article originally was given the inaccurate headline by SA editors 'FDIC Troubled Bank List Grows To 46% - Is Your Bank Safe?' and has been corrected.

As I wrote recently, I don't see much value in the FDIC Troubled Bank List considering two quarters ago it was missing IndyMac Bank - which went on to the largest bank failure at that time, and then last quarter [Aug 26: FDIC "Troubled Bank" List] it missed Washington Mutual (NYSE:WM) which was the largest S&L in the USA, and effectively failed. Further, this list does not have Citigroup (NYSE:C) which is being supported by the US taxpayer. So this whole list is measurably suspect. However, the one point of use is in the pace of degradation... granted its from one bad data set to another bad data set but we now have a 46% increase quarter over quarter.

Is your bank on the list? Well of course you won't know because banks are about trust and if your bank is on this list, it would cause a run on the bank. But don't worry about it - you are FDIC insured up to $250K per account. Don't worry if the FDIC has enough money... if not, they will raise fees on the banks to get more funds. What's that? How can you raise rates on banks that are imploding and hence can't afford to pay higher rates? Good point - well one scheme is for the banks to get money from the government [TARP] and then give it back to the government (FDIC insurance fund) - haha - it almost would be laughable if it were not so pathetic. I have an even better idea! Print more money out of thin air to fund the FDIC! Works for everything else! Just add it to the tab - $8 Trillion and counting.

Bloomberg

  • The Federal Deposit Insurance Corp. said banks categorized as “problem” institutions increased 46 percent in the third quarter to the highest level in 13 years as the credit crisis battered the financial industry. The FDIC identified 171 problem banks as of Sept. 30, up from 117 in the second quarter and the highest since December 1995, the regulator said today in its quarterly report. The agency doesn’t disclose the banks’ names.
  • Lenders deemed problem institutions had assets of $115.6 billion at the end of the third quarter, an increase from the $78.3 billion in the second quarter and the first time since 1994 that assets of the companies exceeded $100 billion, the FDIC said (that's a complete joke - Citigroup with its $3.2 trillion should be on this list - oh wait, we "solved" that problem) The 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.
  • Still, banks that don't make the list can end up collapsing anyway — the two biggest bank failures over the past year, Washington Mutual Inc. and IndyMac Bancorp, had not been on the FDIC's list of troubled banks. Wachovia Corp., which nearly failed before it got bought by Wells Fargo & Co. in October, had not been on the list, either. (yes I forgot about the shotgun marriage of Wachovia - so many failures, and bailouts - I am losing track)
  • Banks are rated by regulators based on measures including asset quality, earnings and liquidity. They are ranked on a numerical scale, 1 being the highest and 5 the lowest. A bank with a rating of 4 or 5 is designated a problem.
  • “Many institutions are aggressively growing their reserves,” Bair said. “But overall reserve growth continues to lag behind the growth in troubled loans.” Loans 90 days or more overdue jumped 13.1 percent to $184.3 billion from $162.9 billion in the second quarter, the FDIC said (holy! Uncle Ben to the presses! $200 Billion in US dollar bills needed!) "The latest loss provisions absorbed a third of the industry's net operating revenue," according to the FDIC.
  • Bair continued that while many large institutions continue to post losses "due to weaknesses in their portfolios," the FDIC is "now seeing losses spread to a growing number of smaller institutions." (that's ok, they are not too big to fail - we should just give their assets to well run companies like Citigroup - that strikes me as fair)

About that insurance? Remember as part of the Citigroup bailout...err handout... err assistance [Details on Citigroup Bailout] the FDIC is on the hook for $9 billion...

  • 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.

Again, please don't worry - if we cannot raise fees on banks to pay for their own failures, we always have your grandchildren's fund aka the Great Printing Press. Helicopter Ben stands at the ready. Look for

the FDIC to borrow from the US Treasury for insurance funds by this time next year.