By Joanna Chung in Washington and Francesco Guerrera in Pittsburgh
August 27 2009 20:38
The number of US banks at risk of failure is at a 15-year-high while the fund protecting depositors is at its lowest level since 1993, according to figures that highlight the spread of the crisis to the lower reaches of the financial system.
The Federal Deposit Insurance Corporation, a banking regulator, on Thursday said the number of “problem banks” had risen from 305 to 416 during the second quarter. The FDIC does not name the lenders on the “problem list” but said that total assets of that group had increased from $220bn to $299.8bn in the three months through June.
That relatively low figure suggests that after hitting large institutions which traded complex securities, the financial crisis and the recession are taking a toll on smaller banks that lend to businesses and consumers.
Sheila Bair, the FDIC chairman, said on Thursday that while earlier losses in the industry were related to troubled residential loans and complex mortgage-related assets, there were now problems with more conventional types of retail and commercial loans that have been hit hard by the recession. “These credit problems will outlast the recession by at least a couple of quarters,’’ she said.
The FDIC’s total asset figure indicates that Citigroup is not on the “problem list”, in spite of fears among executives and investors that its financial problems and regulators’ concerns over the management team could prompt an inclusion. Citi declined to comment.
Thursday’s news of a sharp fall in the FDIC’s deposit insurance fund, which insures up to $250,000 per depositor in each bank, underscored the problems faced by regulators when contemplating the rescue or wind-down of institutions with trillions of dollars on their balance sheets.
The agency said its fund had fallen to just $10.4bn from $13bn in the quarter, the lowest level since March 1993 when the US was in the middle of the savings and loans crisis. The fund has been depleted by bank failures: regulators have shut 81 banks this year.
“In many important respects, financial markets are returning to normal,’’ said Ms Bair. “Combined with the positive economic news in recent weeks, we’re hopeful that this will lead to a moderation in credit problems in coming quarters. But, as our report shows, cleaning up balance sheets is a painful process that takes time.’’
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