More U.S. Banks on the Brink: FDIC

Aug. 27, 2009 — -- There are more banks are on the brink of failure today than there have been in 15 years, according to a new report from the Federal Deposit Insurance Corporation. And the agency's basic insurance fund for deposits has dwindled to around $10 billion after a record 81 banks have failed already this year.

As of June 30, the FDIC's "problem list" had 416 institutions with a combined $300 billion in assets, up from 305 institutions at the end of the first quarter, the agency said.

The summary of how banks and thrifts performed during the second quarter revealed more alarming statistics. During the period, the 8,195 commercial banks and savings institutions insured by the FDIC lost a total of $3.7 billion, an $8.5 billion plunge from the $4.8 billion in profits compared with a year earlier. Over 28 percent of institutions had losses during the quarter, up from 18 percent last year.

The bad news doesn't end there: Never before in the 26-year history that such data has been recorded have insured institutions suffered a higher amount of write-downs or dealt with a higher percentage in past-due loans and leases.

Institutions charged off a record $48.9 billion in uncollectible loans during the quarter, up from $26.4 billion a year ago. Loans and leases at least 90 days late rose by $40.4 billion to a new high of $332 billion, or 4.35 percent of the industry's total loans and leases, according to the agency.

Total assets, the FDIC said, declined by $238 billion during the quarter. The deteriorating quality of loans, said the agency's chairman Sheila Bair, was "by far" the biggest drag on earnings, with insured institutions stockpiling their reserves for protection. Institutions set aside a total of $66.9 billion for loan losses during the quarter, a 32 percent increase from a year ago.

"While challenges remain, evidence is building that the U.S. economy is starting to grow again. Banking industry performance is – as always – a lagging indicator. The banking industry, too, can look forward to better times ahead. But, for now, the difficult and necessary process of recognizing loan losses and cleaning up balance sheets continues to be reflected in the industry's bottom line," Bair said in a statement.