Banking industry regulator Federal Deposit Insurance Corp. released a new tally of at-risk banks which places the total at 702 banks, or nearly one in every eleven FDIC-insured banks. The banks on the list for the fourth quarter 2009 have assets totaling nearly $403 billion. This is the highest amount of troubled banks since 1993, but for obvious reasons the actual names of banks on the list are kept secret. Last year was one of the worst in the history of the US banking system as 140 banks were seized by regulators, and another 20 have failed already this year. The latest data out of the FDIC suggests that this year may in fact be as bad or possibly even worse than last year.
Even though more banks are at risk these days, the FDIC is less able to accommodate than any time in its history. Because of all the funds needed last year, FDIC’s coffers are running a deficit for the first time since the aftermath of the savings and loan crisis in 1991. The red-ink totals a record shortfall of $21 billion in the deposit insurance fund as of the fourth quarter. FDIC Chairman Sheila Bair is confident that the fund should be able to cover any further deterioration this year, “assuming we don’t have a significantly more adverse scenario than most people think.” I guess we should hope and pray that we don’t get hit with the dreaded double dip, or else the regulator itself may need a bailout.
The FDIC insures depositors for up to $100,000 held at a single bank, so any amount in excess of that at a failed institution is lost. With the number of at-risk banks at this high a level, it would be wise for anyone with a large amount of funds concentrated at any one bank to strongly consider diversifying their exposure.
The report does contain a silver lining as the banking industry was able to report a moderate profit of $914 million in the fourth quarter, which is certainly better than the $32.1 billion lost during the fourth quarter of 2008. Furthermore, the report stated that more than half of FDIC-insured banks saw improvement to net income as well as net interest margins. But as the chart suggests, the credit crisis is still a threat to a great number of financial institutions. If the economy continues to show improvement over the coming quarter, this list may begin to shrink and the FDIC fund will replenish itself. However, if there is a double dip this year, financial stocks would clearly be extremely hard hit and the FDIC may be next in line for a government bailout.