November 24, 2009
In its regular quarterly report, the Federal Deposit Insurance Corporation (FDIC) reported that its insurance fund that protects depositors fell $8.2 into the red. It's the first time that has happened since the savings-and-loan crisis of teh 1990s.
So far this year, 124 banks have failed, with failures coming at an increasing pace as the year wears on.
Despite the deficit, however, FDIC officials said bank customers should be confident that their deposits are protected, since the bulk of the negative balance is an accounting protocol that reflects money set aside to cover future bank failures.
The report also found that commercial banks and savings institutions insured by the FDIC reported aggregate net income of $2.8 billion in the third quarter of 2009, but loan balances declined by the largest percentage since quarterly reporting began in 1984.
Quarterly earnings were more than three times the $879 million the industry earned a year earlier and represented an improvement over the industry's $4.3 billion net loss in the second quarter of 2009.More than 26 percent of all insured institutions reported a net loss in the latest quarter, up slightly from nearly 25 percent a year earlier.
"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 Chairman Sheila Bair.
With regard to the decline in loan balances, Bair said, "There is no question that credit availability is an important issue for the economic recovery. We need to see banks making more loans to their business customers. This is especially true for small businesses that rely on FDIC-insured institutions to provide over 60 percent of the credit they use."
Asset quality
The FDIC noted that indicators of asset quality continued to deteriorate during the third quarter; however, the pace of deterioration slowed for the second consecutive quarter. Both the quarterly net charge-off rate and the percentage of loans and leases that were noncurrent (90 days or more past due or in nonaccrual status) rose to the highest levels in the 26 years that insured institutions have reported these data.
Insured institutions charged off $50.8 billion in uncollectible loans during the quarter, up from $28.1 billion a year earlier, and noncurrent loans and leases increased by $34.7 billion during the third quarter. At the end of September, noncurrent loans and leases totaled $366.6 billion, or 4.94 percent of the industry's total loans and leases.
Problem list
The number of institutions on the FDIC's "Problem List" rose to its highest level in 16 years. At the end of September, there were 552 insured institutions on the "Problem List," up from 416 on June 30. This is the largest number of "problem" institutions since December 31, 1993, when there were 575 institutions on the list. Total assets of "problem" institutions increased during the quarter from $299.8 billion to $345.9 billion, the highest level since the end of 1993, when they totaled $346.2 billion.
"For now, the credit adversity we have been observing for some time remains with us, and we expect that it will be at least a couple of more quarters before we see a meaningful improvement in that trend," Bair added. "Despite the challenges, depending on the economy, I am optimistic that if we address these problems head-on we will see clear signs of improvement in bank earnings and lending in 2010."
