One December 31, 2010, the FDIC reported that there were 7,657 insured depository institutions in the United States. This was 355 less than the 8,012 institutions that were in existence on December 31, 2009. (157 banks were officially closed by the FDIC in calendar 2010.)
This is up from the 293 institutions that dropped out of the industry in 2009. In the fourth quarter of 2010, the number of insured depository institutions in the United States dropped by 104 depository institutions. The number of banks on the FDIC’s list of problem banks rose from 860 to 884 at the end of the year.
The FDIC does not list how many of these problem banks went out of business in the fourth quarter of 2010 or were acquired by or merged into other institutions during this period. But, the picture is not quite as rosy as New York Times columnist Eric Dash reports this morning:
And only 24 lenders were added to the government’s list of troubled banks, the smallest increase since the financial crisis erupted in late 2007.
Most of the banks leaving the banking industry were on the smaller size.
Furthermore, the list of problem banks does not include many other banks that are facing serious problems but have not yet qualified to be put on the FDICs list of problem banks. Need I mention the name of Wilmington Trust Bank, a bank that was considered by almost everyone as a bank that was doing OK? Then came the news of its sale last November.
The problem list is a proxy for the number of institutions that are severely stressed, but does not include all that are still experiencing questionable futures. These latter banks have just not crossed the statistical threshold to be considered “problem banks.” Still 12% of the banking system is on the problem list.
I have been arguing for more than a year now that the actions of the Federal Reserve have been aimed at keeping things calm in the banking industry so that the FDIC can close or arrange acquisitions for troubled banks in an “orderly” fashion. This, I believe, has been one of the reasons that the Fed’s target interest rates have been kept near zero for such a long time. It is also part of the reason for the Fed’s second round of spaghetti tossing, or, quantitative easing (QE2).
The FDIC has needed the calmest environment possible to oversee a dramatic reduction in the number of banks in the banking system. As reported above, the banking system has almost 650 fewer banks in existence now than were in the banking system on January 1, 2009. That is a reduction of almost 8% of the banking institutions that existed at that time.
The other fact that does not bode well for the smaller banks in the country was just reported by the Associated Press: the profits of the big banks represented 95% of all bank profits in the fourth quarter of 2010. The big banks earned $20.6 billion of the $21.7 billion in profits earned by the banking industry as a whole. That is, only about 1.4% of the 7,657 banks noted above with assets of more than $10 billion saw these earnings.
And, bank lending. Bank lending continues to drag. I reported in my post of February 21, 2011:
Bank lending was abysmal over the past 6-week period and the last 14-week period. Since the end of the year, loans and leases at the largest 25 domestically chartered banks in the United States dropped dramatically by about $50 billion, much of this coming in consumer lending although loan amounts were down across the board. Loans and leases held roughly constant in the eight weeks that preceded December 29 at these large banks.
In the rest of the banking system, the declines in the loan portfolio came primarily before the end of the year. After falling by about $60 billion in November and December, loans at these institutions rose slightly in the first six weeks of 2011. Notable decreases came in both residential lending and in commercial real estate loans, each declining by a little more than $20 billion over the last 14-week period.
My question still remains: "Why should the commercial banks be lending?” A large number of the banks have balance sheets that are not in very good shape, interest rates are abysmally low, and there are still quite a few sectors of the economy, housing, commercial real estate, consumer loans, state and local governments, that are experiencing serve financial difficulties themselves.
Having $1.2 trillion of excess reserves in the banking system is not justification for the banks to be lending…especially the smaller banks. If the banks don’t lend right now they avoid the possibility of putting another bad loan on their balance sheets. In that way they can focus on their existing bad loans.
Some people looking for “green shoots” in the banking industry claim that they have found them. Unfortunately, I have not yet found a lot to raise my spirits.