‘Problem’ Banks Rose 46% in Third Quarter, FDIC Says (Update1)
By Alison Vekshin
Nov. 25 (Bloomberg) -- The Federal Deposit Insurance Corp. said banks categorized as “problem” institutions increased 46 percent in the third quarter to the highest level in 13 years as the credit crisis battered the financial industry.
The FDIC identified 171 problem banks as of Sept. 30, up from 117 in the second quarter and the highest since December 1995, the regulator said today in its quarterly report
. The agency doesn’t disclose the banks’ names.
“We’ve had profound problems in our financial markets that are taking a rising toll on the real economy,” FDIC Chairman Sheila Bair
said at a news conference in Washington. “Today’s report reflects these challenges.”
The number of troubled banks has mushroomed amid souring real-estate loans in the worst housing slump since the Great Depression. Twenty-two lenders have failed this year including Washington Mutual Inc.
, whose September collapse was the biggest in U.S. history.
Banks are rated by regulators based on measures including asset quality, earnings and liquidity. They are ranked on a numerical scale, 1 being the highest and 5 the lowest. A bank with a rating of 4 or 5 is designated a problem.
Third-quarter earnings among U.S. banks and thrifts fell 94 percent to $1.73 billion from $28.7 billion in the same quarter a year ago, driven by higher provisions for loan losses, the FDIC said. It was the lowest net income reported since the fourth quarter of 2007, the agency said.
“Declining asset quality is the main reason for the weakness in earnings,” said Bair, 54. The erosion was concentrated in residential mortgages and construction and development loans, she said.
The banking industry wrote off $27.9 billion in loan losses at the end of September, an increase of 157 percent from the $10.9 billion reported in the third quarter a year earlier.
Funds set aside to cover loan losses increased to $50.5 billion, more than triple the $16.8 billion reported in the year- earlier quarter.
“Many institutions are aggressively growing their reserves,” Bair said. “But overall reserve growth continues to lag behind the growth in troubled loans.”
Loans 90 days or more overdue jumped 13.1 percent to $184.3 billion from $162.9 billion in the second quarter, the FDIC said.
“We anticipate that a challenging credit environment will persist for some time to come,” Bair said.
Lenders deemed problem institutions had assets of $115.6 billion at the end of the third quarter, an increase from the $78.3 billion in the second quarter and the first time since 1994 that assets of the companies exceeded $100 billion, the FDIC said. Most problem banks will not fail, Bair said today.
The FDIC is a bank regulator that insures deposits at 8,384 institutions with $13.6 trillion in assets.
To contact the reporter on this story: Alison Vekshin
in Washington at email@example.com
Last Updated: November 25, 2008 11:25 EST