The FDIC said Tuesday that the number of banks on the agency’s so-called “Problem List” has risen to 829, up from 775 at the end of the first quarter of 2010.
The number of troubled institutions now under the FDIC’s watchful eye is the highest it’s been since March 1993, when there were 928 and the savings and loan crisis was in full swing. It’s a dire comparison, but the FDIC notes that the second-quarter additions represent the smallest net increase in “problem” banks since the first quarter of 2009.
During the April-to-June quarter of this year, 45 insured institutions went under. The failed-bank tally for the year currently stands at 118.
The FDIC does not release the names of the banks on its watch list, for fear that the stigma attached would cause a run on those banks. The agency says a “vast majority” are able to get back on their feet.
The total assets of “problem” institutions declined from $431 billion to $403 billion, despite the increase in the number of names on the list.
The elevated number of bank closings since the nation’s housing crisis and recession set in have severely depleted the FDIC’s deposit insurance fund, but the agency said Tuesday that the fund’s balance has increased for the second quarter in a row.
The net worth of the fund improved from negative $20.7 billion at the end of March to negative $15.2 billion during the second quarter. The FDIC explained that the improvement stemmed primarily from assessment revenues and from a reduction in the contingent loss reserve, which covers the costs of expected failures. The reserve declined from $40.7 billion to $27.5 billion during the quarter.
The FDIC’s liquid resources – cash and marketable securities – stood at $44 billion at the end of the second quarter, a decline from $63 billion at the end of Q1. The decline in cash balances reflects previously anticipated outlays, primarily related to three bank failures in Puerto Rico on April 30th, according to the agency.
“As we expected,” FDIC Chairman Sheila Bair said, “demands on cash have increased this year. But our projections indicate that our current resources are more than enough to resolve anticipated failures.”
More banks may be deemed as “problem,” but the FDIC says the banking sector overall enjoyed its best quarter since the start of the recession.
Commercial banks and savings institutions insured by the FDIC reported an aggregate profit of $21.6 billion in the second quarter of 2010, a $26 billion improvement from the $4.4 billion net loss the industry posted in the second quarter of 2009. This is the highest quarterly earnings total since the third quarter of 2007.
Chairman Bair says the Q2 results are evidence that the banking sector “is moving along the road to recovery.”
“Nearly two out of every three banks are reporting better year-over-year earnings,” Bair said. “As long as economic conditions remain supportive, most institutions should maintain profitability and increase their capacity to lend.”
The primary factor contributing to the year-over-year improvement in quarterly earnings was a reduction in provisions for loan losses. While quarterly provisions remained high, at $40.3 billion, they were $27.1 billion (40.2 percent) lower than a year earlier.
The FDIC also noted signs of improvement in asset-quality trends as the amount of loans and leases that were noncurrent (90 days or more past due or in nonaccrual status) fell for the first time since the first quarter of 2006. Insured banks and thrifts charged off $49 billion in uncollectible loans during the quarter, down $214 million (0.4 percent) from a year earlier.
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