The latest FDIC Quarterly Banking Profile (QBP) shows another increase in the number of problem banks. The mortgage and debt crisis that began in 2007, along with continued weakness in the economy has resulted in a huge increase in the number of problem banks.
In 2007, the FDIC had a total of 76 institutions on its Problem Bank List. As of the latest Quarterly Banking Profile for the period ending March 31, 2011, the number of problem banks increased to 888. One sign of progress is that the increase in the number of problem banks is the smallest in three and a half years.
The FDIC notes that the number of problem banks is the highest since March 31, 1993, when a total of 928 banks were classified as “problem banks”. The problem of troubled institutions, however, is much more severe today than is was in 1993.
In 1993 the number of FDIC insured institutions totaled 12,676. By 2011, there was a dramatic contraction in the banking industry as a total of 5,157 banks disappeared, primarily through mergers or banking failures. At March 31, 2011, there was a total of only 7,575 FDIC insured institutions remaining. The current total of 888 problem banks represents a very substantial 11.7% of all insured institutions, far above the level of 7.3% reached during 1993.
The total assets of problem banks also increased modestly during the quarter from $390 billion to $397 billion.
Depositor protection of deposits is provided by the FDIC Deposit Insurance Fund which currently has a negative fund balance of $1 billion at March 31, 2011.
Despite a reduction in failed banks and a large increase in the assessment ratio on surviving banks, it is not expected that the FDIC insurance fund will turn positive until the end of June 2011. A weakening economy and further declines in real estate values could soon put new pressures on the insurance fund.
Contributing to worries about the ability of the Deposit Insurance Fund to adequately protect depositors is the fact that the current negative fund balance of $1 billion insures a massive $6.4 trillion dollars in depositor assets. The real backup to another crisis in the banking industry is the U.S. Treasury which has approval to provide up to $500 billion to the FDIC to address systemic risks to the banking system.