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New FDIC Data: 117 Banks on Problem List


The FDIC released its Quarterly Banking Profile for the second quarter. As expected, the financial condition of many banks have worsened. This AP article has a summary of the report. And here's the FDIC press release. Some interesting excerpts from the press release:

The FDIC's "problem list" grew to 117 institutions from 90 at the end of the first quarter. That is largest number on the list since the middle of 2003. Total assets of problem institutions increased from $26 billion to $78 billion, with $32 billion coming from IndyMac Bank, F.S.B., Pasadena, CA, which failed in July. "More banks will come on the list as credit problems worsen," Chairman Bair added. "Assets of problem institutions also will continue to rise."

The FDIC's Deposit Insurance Fund reserve ratio fell. Due to a significant increase in loss reserves, including reserves for failures that have occurred since June 30th, the DIF balance fell to $45.2 billion at the end of the second quarter, down from $52.8 billion at the end of the first quarter. While insured deposits rose only 0.5 percent during the quarter, the decline in the fund balance caused the reserve ratio to fall to 1.01 percent as of June 30th from 1.19 percent one quarter earlier. Because the reserve ratio is now below 1.15 percent, the Federal Deposit Insurance Reform Act of 2005 requires the FDIC to develop a restoration plan that will raise the reserve ratio to no less than 1.15 percent within five years.

The DIF restoration plan "likely will include an increase in the premium rates that banks pay into the fund," she said. "And we'll be proposing changes to the current assessment system that will shift a greater share of any assessment increase onto institutions that engage in high-risk behavior to encourage and reward safer behavior."

The FDIC won't say which banks are in its problem list. However, based on the total assets of these institutions, we know which banks are NOT on the list. The total assets is $78 billion with $32 billion coming from IndyMac Bank which failed in July. That leaves $46 billion for the other problem banks. Below are banks that can't be on the list since their assets are over $46 billion. However, it should be noted that IndyMac failed and it was not on the problem list at the end of the first quarter.
The following banks are under $46 billion in assets, however, with a total of 117 banks on the problem list, there are probably not too many banks with assets between $10 to $20 billion on the list.
Thanks to the readers who notified me of this latest news.

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Anonymous   |     |   Comment #1
Lol...The FDIC fudges numbers as bad as the crooked banks.
Jim   |     |   Comment #2
I'm confused by this press release...

End of Q1, which I assume means end of Jan 1st - March 31st, Indymac wasn't on the list and they had $52.8B in the FDIC pot.

In Q2, which I assume to be April 1st-June 30th, Indymac was added to the magic fecal roster.

By the end of Q2, so June 30th, "the DIF balance fell to $45.2 billion at the end of the second quarter, down from $52.8 billion at the end of the first quarter."

One would think the decline in reserves was due to bank failures eating into the pot, like the roughly $8B they say Indymac took. But Indymac didn't fail until July, so why would the June 30th (end of Q2) fund level be so low, even after they added reserves in anticipation of future failures (after June 30th), which is what I assume they mean when they say "Due to a significant increase in loss reserves, ..., the DIF balance fell to $45.2 billion at the end of the second quarter"

I read that as "we added a lot of money, and it only went down to $42B instead of way lower if we didn't add a lot of money."

Or do they mean...

"Due to a significant increase in loss [lost?] reserves, including reserves for failures that have occurred since June 30th, the DIF balance fell to $45.2 billion at the end of the second quarter, down from $52.8 billion at the end of the first quarter."

So "due to Indymac, we're down to $45B"?

But that wouldn't be until after June, so why say that was the end of the second quarter? Maybe they knew they were going to do Indymac a few weeks after Q2 ended and they already subtracted its cost in anticipation, so that's how they talk about losses after June 30th. This must be what they tried to say in too few words to be clear.

Or are they actually saying, in a round about way, that they had $45B at the end of Q2, and now that Indymac failed in July (Q3), they're probably down to $37B?

Anyway, whatever they have left, if one of the "too big to fail" boys goes down, the FDIC would break and I guess the taxpayers would get to bail that out, too. For example, IndyMac's $32B in assets ate $8B out of the pot (so 25% of the $32B). 25% of WaMu is over $75B, which would break the FDIC... and then much like the illogical people withdrew their money from Indymac AFTER it had been taken over, I suppose there'd be a huge bank run/panic of everything when FDIC broke (even if the gov't promised to print up a storm and bail out the whole mess). So, we're one bank away from exposing the whole fractional reserve banking fraud and a banking system collapse? Hmm... too big to fail, indeed.
Anonymous   |     |   Comment #3
Anybody think that Pentagon Fed Credit Union will go under? My thinking is no because their clientele is mostly GIs & gov't workers that get a steady paycheck from Uncle Sam. Anybody have a differing thought on this?
Anonymous   |     |   Comment #4
Pentagon swears up and down it was never in the sub prime lending business, even though they have a pretty substancial real estate operation...but from first hand experience,I know more military and ex military people who are lousy at paying bills and who have filed for bankruptcy than any other group...Remember, most aren't lifers and that steady paycheck isn't forever. Makes me wonder....
Anonymous   |     |   Comment #5
Before everyone panics over the impending collapse of the world financial system, a little historical perspective is needed. Take the time to read the following to find out what really happened when a bank that was "too big to fail" actually failed:

Remember that even financially sound banks have a stake in preventing bad banks from failing.
jim at Blueprint for Financial Prosperity
jim at Blueprint for Financial Prosperity   |     |   Comment #6
"Remember that even financially sound banks have a stake in preventing bad banks from failing."

... which is why Bank of America bought Countrywide. Did you know that IndyMac was originally created to buy mortgage loans from Countrywide that were too big for Freddie/Fannie?
Anonymous   |     |   Comment #7
I think the reasoning about FDIC and its operations posted here is flawed.

FDIC does not operate like that as described in this review.

First the numbers are not correct do to the fact that FDIC repossesses all of the assets of the Bank like:
Real estate, investments, bonds, commercial paper, stocks, reserves held at other banks and many other not disclosed investments the bank has.

Second, $46 billion are reserved only for payout of the difference of total assets minus obligations to depositors only. Which means the FDIC does not wait until obligations are bigger than the assets, but the bank is closed at the discretion of FDIC when the balance is bellow or above that ratio. In other words, FDIC can actually make profit when the bank is closed.

Third, the stock holders of the bank and all unsecured creditors are being wiped out without compensation.
FDIC can actually make more money closing banks than receiving the insurance the banks are paying to FDIC.

I would not exclude any bank on the list do to the fact that total assets of the bank has nothing to do with solvency or soundness of the bank. Therefore, * Wachovia: $671 billion (FDIC source)
* WaMu: $307 billion (FDIC source)
* National City: $151 billion (FDIC source)
* KeyBank: $98 billion (FDIC source)
Anonymous   |     |   Comment #8
Your analysis of the FDIC making money doesn't take into account the actual cost of closing a bank.

It's a lot cheaper to help a bank stay afloat than to close it.
Anonymous   |     |   Comment #9
FDIC cost is only administrative and the deference of all assets minus obligation.
In many cases the assets are above the liabilities to depositors.
In IndyMac case, the FDIC may actually end up making money or the losses will ne much lower when all of the current assets or the whole bank is resold.
FDIC indirectly makes an investments by paying out depositors and then recovers what ever assets, investments and real estate there is.
FDIC never waits for the liabilities to overshadow the assets.
The comment by poster at:
7:35 AM, August 27, 2008, makes sense.
Banking Guy
Banking Guy   |     |   Comment #10
The problem list refers to the FDIC's problem list of 117 banks. The only thing the FDIC discloses about these banks is their total combined assets ($78 billion which includes $32 billion from IndyMac). As I mention in the post, my list of banks and their assets can be used to know what banks are not on this FDIC list.

As I mentioned, IndyMac failed and wasn't on the FDIC problem list at the end of the first quarter.
Anonymous   |     |   Comment #11
The Banks are much smarter these days and they know how to play the system and avoid the dreaded FDIC take over.

Why do you see all those CDs, savings and MM accounts offered at high rate. One reason is that all deposits by customers at a bank create liability to the bank, which it turns out FDIC hates that.

The money of the depositors are invested in treasury bills by the banks and the books appear to be in balance even though the banks liabilities are way above the FDIC ratio limits. Banks operating at a loss are turn off for FDIC but the limits are met.

Banking Guy, any bank can fail including Citi bank. Your reasoning about FDIC is off and the amounts stated has nothing to do with bank failures.

Wamu has over one trillion worth of its own real estate as assets operating off the books. Their liabilities in bad loans is in billions and other liabilities are close to FDIC limits, so they can not be excluded.
Jim   |     |   Comment #12
If I'm reading that correctly, it just means that WaMu and the other big banks are not on the Q2 list... they may very well be on the Q3 list as we speak.
Anonymous   |     |   Comment #13
Jim, Banking Guy and others.

The reason for the 117 Banks being on the list is for the following reason:

Once a Bank is notified that they are bellow the safety ratio of assets vs liabilities, that bank can not file for bankruptcy to unload the bad debt, since FDIC are taking a priority creditor position at the bank.

That list has nothing to do with insolvency, but only as a notice of violation of Federal Banking Laws.
Any bank can be put on the FDIC list for 90 days and then is reviewed again.

If a bank fails to comply with FDIC requirements, that bank is being taken over. WAMU, WACHOVIA, KEYBANK, NATIONAL CITY and others could be on the list, since it is a internal list and is not allowed to be published for obvious reasons.

The billions held as security payout to depositors by FDIC has nothing to do with the size of the banks on the list.
FDIC can and will recover most of the money from the assets and real estate held by the banks after the take over or simply the bank will be assumed by other bank and there is no loss to FDIC at all.

A bank can be worth a trillion dollars. If FDIC decides to take over the bank at a cost to taxpayers or no cost at all if there are enough assets to recover from the take over, FDIC can do it to any bank, whether on the list or not.

FDIC will not take over a Bank that is too far gone into red, but will let it go under bankruptcy proceedings. Depositors will be given time to withdraw the money while the banks trade assets with the FEDERAL RESERVE WINDOWS to raise the capital for depositors payout.

Many banks are using the FED window these days for the obvious reasons stated above. If there is fraud at the bank, FDIC can strip all bonuses, stocks and other incentives paid out to their management for the prior year and recover most of the depositor losses.

I would not trust or believe third parties comment about FDIC or the infamous list of 117 banks.
As far as I'm concerned, the list can be 100,000 banks and is still irrelevant who or what is on that list. FDIC will always find the funds to pay the depositors and will always have some left for future rainy days.
Anonymous   |     |   Comment #14
To the previous poster. Well said.

I agree for the logic and reasons applied.

Also FDIC said:

"FDIC Weighs Tapping Treasury as Funds Run Low
Federal Deposit Insurance Corp. (FDIC) Chairman Sheila Bair said yesterday that her agency might have to borrow money from the Treasury Department to see it through an expected wave of bank failures."

Forget the FDIC list, money will be printed no matter who is or not on the list.
Jim   |     |   Comment #15
Yes, sometimes the FDIC doesn't lose money on a takeover, and sometimes they do...

"The Federal Deposit Insurance Corp said on Tuesday it now expects IndyMac's failure in July to cost its insurance fund $8.9 billion, compared with the previous expected range of $4 billion to $8 billion."
source: http://www.reuters.com/article/americasMergersNews/idUSN2637860820080826

And even if they use up their pot, they can just ask the Treasury...

---- quote ---
The FDIC may have to borrow money from the Treasury Department to handle an expected wave of bank failures coming down the road, according to the Wall Street Journal.

It would not be surprising if this were to occur, according to Chris Whalen, managing director of Institutional Risk Analytics. In an interview with CNBC, Whalen said the FDIC needs a backstop. (To listen to the full interview, watch the video.)

"They need about a half a trillion dollars in borrowing authority, and they need a vehicle to own these banks while we triage them and sell them."

Whalen added that he expects big bank failures might be on the way.
---- end quote ---
source: http://www.cnbc.com/id/26421989

And more from Whalen... on NBR...

"CHRISTOPHER WHALEN, MANAGING DIRECTOR, INSTITUTIONAL RISK ANALYTICS: We've got an estimate of 110 banks, $850 some odd billion in assets, failed by next year. So that's less than 10 percent of the industry. It's a severe crisis. It's much worse than the early '90s and I think the variable is how long do we continue to see loss rates go up."

source: http://www.pbs.org/nbr/site/onair/transcripts/080826a/

So yes, printing will "save the day" (and hidden tax us, as usual) if needed, but there still might be the odd panic.

On the other hand, there are many deflationary factors (like housing, and the credit crunch itself), so it's hard to say what will happen.
Banking Guy
Banking Guy   |     |   Comment #16
@Anon 2:32 PM:

This was from the FDIC press release:

Total assets of problem institutions increased from $26 billion to $78 billion

Wachovia, WaMu and the other big ones have assets far above this. Are you saying the FDIC's definition of assets in the above sentence is not really the current assets of the institutions?

Of course, as we learned from IndyMac, the list doesn't mean much. This San Fran Chronicle article looked into why IndyMac wasn't on the first quarter problem list of 90 banks:

In May, the FDIC reported that for the quarter ended March 31, the list had 90 companies with $26.3 billion in combined assets.

IndyMac, which by itself had $32 billion in assets at the end of March, was obviously not on the list, a fact confirmed by the FDIC after its failure. The FDIC says it was added in June.
Anonymous   |     |   Comment #17
Banking Guy, to answer your question about the problem assets reported by FDIC, please note that this info is not released to the general public.

I work for brokerage company and as far as I know, those assets reported by FDIC are deposits in problem bank's accounts held by customers.

Those numbers that FDIC throws out are not the assets of the banks on the list, but customer deposits at banks on the watch list.

I hope this clears some confusion about the assets reported by FDIC, since FDIC only cares about the customers money and not the assets of the banks.

The $78 billion mentioned by FDIC are customers deposits (assets) in trouble.
Anonymous   |     |   Comment #18
Integrity Bank of Georgia just failed. It had over 1 billion dollars in assets.
Anonymous   |     |   Comment #19
See this site for the 'UNOFFICIAL' Troubled Bank List as of 6/30/2008:


Comments regarding the safety of Pentagon Federal Credit Union reflect needless worry. According to the Chairman, James F. Quinn, PenFed does not hold any CMOs, nor so they have any subprime mortgages in their portfolio. Their loss rates are half of their peers in the credit union industry and a tiny fraction of those in the financial services industry as a whole. Despite a national trend toward higher loan delinquencies and losses, PenFed is an industry standout for low delinquencies and losses. No, I don't work for PenFed but I do have accounts with them, for many years as a matter of fact, and have the highest confidence in their safety.
Anonymous   |     |   Comment #20
I believe that Wamu, WB, National City, and Keybank are still in play. The total asset figure you quote is that of their *total* assets (which includes loans, real estate, etc). The only assets that the FDIC is worried about are depository assets. From the FDIC link you provided:

Wachovia = $25.5 billion
Washington Mutual = $5.2 billion
National City = $7.4 billion
Keybank = $2.3 billion

So this qualifies all of these institutions to fall onto the FDIC list.
Anonymous   |     |   Comment #21
OK... I made a mistake (see previous post)... I was looking at the wrong items... I should be looking at "Deposits held in domestic offices", which is what the FDIC cares about... those values are:
Wachovia $398 billion
Wamu $188 billion
National City $98 billion
Keybank $61 billion

In this way, they probably are not on the list (yet).