Five Years After the Banking Crisis, Hundreds of Problem Banks Still Struggle

While many banks have completely recovered from the banking and financial crises of over six years ago, the number of banks classified as “Problem Banks” by the FDIC has remained stubbornly high.

A milestone of sorts was reached recently when, after five years, the number of banks on the FDIC’s Problem Bank List finally declined below the 400 mark.  According to the recently released FDIC Quarterly Banking Profile, as of June 30, 2014 there were 354 problem banks, a decline of 113 banks from a 2013 year end total of 467.

Although the FDIC does not publicize the names of the banks classified as “problem banks” for fear of causing a run on the banks involved, an unofficial problem bank list of troubled banks can be found at Problem Bank List.

Although the banking industry as a whole is reporting robust profits many smaller banks have never been able to fully recover from the banking crisis due to lingering bad loans, the inability to raise additional capital, and the high costs of complying with costly new banking rules under the Dodd-Frank Act.

The historic low for the Problem Bank List was reached in the third quarter of 2006 with 47 banks.  The number of banks currently on the FDIC’s Problem Bank List remains at historic highs. In the decade prior to the banking crisis that began in 2008, the average number of problem banks was less than 100.  Problem Banks now account for 5.7% of the 6,185 banking institutions insured by the FDIC.

Although large in number, problem banks currently represent little threat to the banking system.  Total assets held by problem banks amount to only $110 billion or an average of about $310 million per bank, a fraction of the $15.2 trillion in total assets held by all FDIC insured institutions.

The number of problem banks has now declined for 13 consecutive quarters and is far below the peak of 888 problem banks reached during the first quarter of 2011.  With a continuation of the current economic recovery, expect the number of problem banks to continue to decline.