FDIC Says 702 Banks Now in Danger of Collapse

In the wake of the worst financial crisis since the Great Depression, the government agency that insures bank deposits announced today that 702 banks are on the brink of failure, the most in the last 17 years.

The Federal Deposit Insurance Corporation, in its report for the fourth quarter of 2009, said 702 banks are on their so-called "Problem List" as of the end of last year, a 27 percent increase from the end of the third quarter. Both the 702 banks and their combined $402 billion in assets are the highest since the second quarter of 1993.

In the first two months of this year, 20 institutions have already collapsed. In 2009, 140 banks were taken over by federal regulators as the economic downturn took its toll on banks nationwide.

The signs of stress in the financial sector were widespread in the agency's report. Total industry assets dropped by $137 billion during the fourth quarter and by $731 billion for the year overall, a 5.3 percent decline that is the steepest for a calendar year since the FDIC was formed in 1933.

Loan losses continued to rise, soaring to $53 billion during the fourth quarter, the 12th consecutive quarter of increased losses and a 37 percent year-over-year increase. With non-current loans and leases up $24.3 billion during the fourth quarter to the highest level in the FDIC's history, the losses appear likely to continue for some time to come.

More than one in four banks were unprofitable last year, the highest ratio in the last 26 years, the agency said.

Signs of Hope?

But despite all the dismal statistics about the health -- or lack -- of the nation's banks, there were some signs that the outlook may be getting brighter.

Banks managed to post a slight profit of $914 million during the fourth quarter of last year -- a small number considering the industry's size, but a massive improvement from the $37 billion in losses posted during the fourth quarter of 2008. For 2009 overall, total net income was $12.5 billion, mostly thanks to bigger banks.

Another positive sign for the industry is that during the fourth quarter banks set aside less money to cushion against future losses: the year-over-year drop was the first in over three years.

Banking Lags Economy

"Consistent with a recovering economy, we saw signs of improvement in industry performance," FDIC chief Sheila Bair said in a statement. "But as we have said before, recovery in the banking industry tends to lag behind the economy, as the industry works through its problem assets."

The agency's deposit insurance fund, battered by the recent rash of bank failures, fell to $20.9 billion as of the end of the fourth quarter. To bolster the fund, the FDIC is now making banks prepay three years' worth of fees, a move expected to bring in about $45 billion. As Bair has emphasized on numerous occasions, most recently in a video message to consumers earlier this week, insured depositors have never lost a penny in the agency's history.

The FDIC's full fourth-quarter breakdown can be found at www.fdic.gov

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