829 Banks Make Problem Bank List in Q2

The Federal Deposit Insurance Corporation revealed earlier today in their "Quarterly Banking Profile" that there were a total of 829 institutions on their "problem bank list" at the end of Q2, up from 775 in Q1.

There were a total of 7,830 "reporting institutions" in Q2 (6,676 commercial banks, 1,154 savings institutions), meaning that approximately 10.6% of all FDIC-Insured institutions (not including insured branches of foreign banks) were on the "problem bank list" at the end of Q2.

The FDIC also revealed that the 829 "problem" institutions had total assets of $431 billion.

What is the "problem bank list"?

The "problem bank list" is a list of the FDIC-insured banking institutions that the FDIC (Federal Deposit Insurance Corporation) deems to be troubled. These are institutions that, in the FDIC's opinion, must address certain pressing issues in order to avoid the possibility of failing.

Every 12-18 months, FDIC-insured institutions are examined by the FDIC. The FDIC examiners assign each bank a rating of 1-5 after completing their audit - 1 is the best possible score that a bank can receive, while 5 is the worst.

A bank that receives a rating of 4 or 5 will be included on the "problem bank list". A number of different factors, including capital levels, total number of delinquent loans and risk management policies are used in determining a bank's final "grade".

A bank that receives a poor rating will be told what they must do to remedy the situation.

The identity of the banks on the "problem bank list" aren't made available to the general public. This is done to prevent "bank runs", as people may rush to withdraw their savings if they happened to find out that their bank was included on the "problem bank list". This policy angers many people, as evidenced by some of the comments left on this site.

--

According to the FDIC, a total of 118 banks have failed so far this year. By the time that 2010 is over, 2009's total of 140 failed banks should easily be topped.

--

Inclusion on the "problem bank list" doesn't necessarily mean that a bank is destined to fail. Also, a bank doesn't necessarily have to be included on the "problem bank list" before it fails - for example, in 2008, some banks deteriorated so quickly that they failed before ever appearing on the "problem bank list".

--

In 2006, an average of just 50 banks appeared on the "problem bank list", with a grand total of zero failing that year. This goes to show you just how far we have come in four years.

Source: FDIC.gov - Federal Deposit Insurance Corporation

Filed under: The Economic Meltdown