Banks With The Most Troubled Loans – How Many Are On The Problem Bank List?

Many More Banking Failures Likely

The FDIC will not reveal what banks are on their Problem Bank List but MSNBC has come up with a list of 294 banks that have very high troubled asset ratios of 90% or higher.  It’s probably a good bet that many of the institutions on the MSNBC list are also on the FDIC Problem Bank List.  MSNBC describes their methodology for inclusion on the list as follows:

These 294 banks in the U.S. had troubled asset ratios of 90 or higher at the end of the first quarter of 2009. The banks are ranked by that ratio, which is a measure of the stress placed on banks by loans. It compares loans that are not being paid on time, and property already acquired by the bank, against the bank’s capital and loan loss reserves. The typical bank in the U.S. has a ratio less than 12.

The ratios were calculated by msnbc.com and the Investigative Reporting Workshop at American University. The methodology is described at banks.msnbc.com.

The very high level of troubled assets at these institutions indicates a bank that is severely under reserved and under capitalized.  Some of the banks on the list have already been closed.  Banks on this list that cannot raise additional capital will in all probability also end up  being closed by banking regulators.

What is most shocking about this list is that these banks are still allowed to operate by regulators.  It has been suggested that until the FDIC is able to increase its staffing, it simply cannot handle the number of banking closures that seem inevitable based on the poor financial condition of many banks – see Is The FDIC Ready? This supposition is also supported by FDIC Chairman Bair’s statement that she expects many more banking failures – see Many More Bank Failures Expected.

To the average depositor who has accounts that are fully insured by the FDIC, the closure of any of these banks will not result in depositor losses.  Depositors with funds in any of these banks that exceed the FDIC deposit guarantee should probably take steps to reduce their deposit levels to gain full FDIC insurance coverage.   Depositors with funds in excess of the $250,000 insurance coverage are likely to be more sophisticated financially and have probably already taken steps to protect themselves.

Since it is often difficult for an individual to accurately assess a bank’s financial condition, MSNBC is doing a public service by publicizing these weak banks.  Some of the banks with the most troubled loans on the list will probably survive, but when it comes to protecting your savings, it is best to take no chances.

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