The Federal Deposit Insurance Corporation (FDIC) has already closed 124 banks to date and with that record number of bank failures, you would think that they’d be about done already. But there’s more to come yet. The agency said Tuesday that the number of ‘problem banks’ that have made it to their list has reached 552, the highest level in 16 years.
Improved Bank Earnings
On the one hand, banks and thrifts across the country collectively have reported third quarter earnings amounting to $2.8 billion. This is an enormous improvement from the $4.3 billion loss the industry saw for the second quarter of this year. Despite the big gains however, problems continue to hound financial institutions as past due loans reach its highest level in 26 years.
“Today’s report shows that, while bank and thrift earnings have improved, the effects of the recession continue to be reflected in their financial performance,” said FDIC Chairperson Sheila Bair, in a statement.
Problem Banks on the Rise
The last time the FDIC saw this many number of banks for close supervision was in 1993 when 575 banks were on the watch list. The 552 banks currently on the problem list have assets totaling to $345.90 billion. As of June 30 this year, that list still had 416 banks on it with $299.80 billion in assets.
As early as the third quarter of 2009, economists have seen some hopeful indications of a recovery in the offing but fifty banks failed in that quarter alone.
Deposit Insurance Fund in the Red
The mounting number of bank failures has also posed a huge concern for the FDIC as the agency saw its deposit insurance go into the red area for the first time since 1991. As of the end of the third quarter, the fund was $8.2 billion in deficit. The fund was in a similar deficit in 1991, when it carried a negative balance of more than $7 billion.
Because of this setback, the federal agency has been forced to implement extreme measures to prepare for more bank failures that are expected to come in 2010. Earlier this month, the FDIC announced that it would be collecting three years worth of premiums from banks upfront. This move would allow the agency to raise some $45 billion that would help build up the insurance funds for the time being.
No Worry for Consumers
If the bigger picture is taken into consideration however, even the 3-year advance premiums to be assessed on banks would still not suffice as an estimated $100 billion is said to be needed to secure all bank failures expected through 2013.
Depositors need not have to worry about the security of their $250,000 insurance per account though, in the face of the huge costs that the FDIC will have to cover in the next few years. If the situation calls for it, the FDIC still has the option of tapping a credit line with the US Treasury Department.