August 28, 2009 - 5:07am
According to Thursday report released by the Federal Deposit Insurance Corp problem banks in the United States increased more than 1/3 to 416 in the second quarter of 2009. Meantime, the regulators claim that there are signs of stabilization in the industry.
The report showed that the industry dropped back to a $3.7 billion loss in the second quarter, after reporting a $7.6 billion profit in the first quarter, primarily due to costs associated with rising levels of bad loans and falling asset values.
According to FDIC Chairman Sheila Bair the source of the banking industry's problems had migrated from residential loans and complex mortgage-related assets to more conventional types of retail and commercial loans that have been hit hard by the recession.
Still, she mentioned a smaller quarterly increase in troubled loans and decreases in the volume of some delinquent loan categories, as a possible turning point in the quality of assets that have weighed heavily on banks' balance sheets.
"While challenges remain, evidence is building that the U.S. economy is starting to grow again," Bair said.
The report revealed that the combined assets of the 416 "problem" institutions rose to $299.8 billion from $220 billion at 305 banks in the prior quarter. The agency's deposit insurance fund, that safeguards up to $250,000 per account at roughly 8,100 institutions, dipped 20 percent in the second quarter to $10.4 billion. The drop in the fund was chiefly caused by an $11.6 billion boost in money the FDIC set aside for expected bank failures.
On the other hand, Bill Fitzpatrick, an analyst at Optique Capital Management, said he expects the number of problem banks will keep rising.
"These are smaller institutions but they hold a lot of commercial real estate loans and that market will continue to deteriorate," Fitzpatrick said.
Keefe, Bruyette & Woods analyst Jefferson Harralson said construction loan losses related to residential real estate and development were depressing banks.
"These numbers were fairly expected, and I expect we'll continue to see losses in construction," Harralson said.
The report showed that the industry dropped back to a $3.7 billion loss in the second quarter, after reporting a $7.6 billion profit in the first quarter, primarily due to costs associated with rising levels of bad loans and falling asset values.
According to FDIC Chairman Sheila Bair the source of the banking industry's problems had migrated from residential loans and complex mortgage-related assets to more conventional types of retail and commercial loans that have been hit hard by the recession.
Still, she mentioned a smaller quarterly increase in troubled loans and decreases in the volume of some delinquent loan categories, as a possible turning point in the quality of assets that have weighed heavily on banks' balance sheets.
"While challenges remain, evidence is building that the U.S. economy is starting to grow again," Bair said.
The report revealed that the combined assets of the 416 "problem" institutions rose to $299.8 billion from $220 billion at 305 banks in the prior quarter. The agency's deposit insurance fund, that safeguards up to $250,000 per account at roughly 8,100 institutions, dipped 20 percent in the second quarter to $10.4 billion. The drop in the fund was chiefly caused by an $11.6 billion boost in money the FDIC set aside for expected bank failures.
On the other hand, Bill Fitzpatrick, an analyst at Optique Capital Management, said he expects the number of problem banks will keep rising.
"These are smaller institutions but they hold a lot of commercial real estate loans and that market will continue to deteriorate," Fitzpatrick said.
Keefe, Bruyette & Woods analyst Jefferson Harralson said construction loan losses related to residential real estate and development were depressing banks.
"These numbers were fairly expected, and I expect we'll continue to see losses in construction," Harralson said.