FDIC Says Problem Banks Still Six Times Higher Than in 2007

The FDIC Quarterly Banking Profile for the fourth quarter of 2013 shows a continued reduction in the number of problem banks.  The total number of banks on the FDIC Problem Bank List decreased for the 11th consecutive quarter to 467 banks as of December 31, 2013 compared to 515 problem banks in the previous quarter.

Despite the favorable trend, the number of problem banks remains extremely elevated compared to the number of troubled banks prior to the financial crisis.  For the five year period 2003 to 2007 the problem bank list averaged only 75 banks per year.  The current number of 467 problem banks is 622% higher than in the easy lending years prior to the financial crash.

Problem Banks By Year

The currently high number of problem banks does not constitute a threat to the health of the overall banking system.  At December 31, 2013, a total of 467 or 6.86% of all 6,812 banks and savings associations insured by the FDIC were classified as “problem banks” but total assets held by problem banks amounted to only $152.7 billion or about 2.5% of all FDIC insured deposits.

Based on failed bank data for 2013 the ratio of FDIC losses to total assets of failed banks averaged slightly less than 20%.  If the same loss ratio applied to the banks currently classified as problem banks and every problem bank wound up failing, the loss to the FDIC would approximate a very manageable $30 billion.  The too big to fail banks that almost sank the financial system in 2008 continue to remain the future primary threat to the health of the financial system due to their overwhelming and unmanageable size.