Number of Problem Banks Doubles over the Past Year

| July 31, 2010

Bill McBride of Calculated Risk tracks an unofficial list of problem banks and has seen their number more than double over the past year from 389 (with $276 billion in assets) on August 7, 2009 to 808 (with $415 billion in assets) today.

The official list maintained by the FDIC–which is not made public–uses the CAMELS (Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk) rating system to categorize troubled banks. The unofficial list is compiled “using publicly announced formal enforcement actions, and also media reports and company announcements that suggest to us an enforcement action is likely,” and has historically understated their numbers (the official tallies are shown at the red data points on the graph above). It is also worth noting that outright bank failures are removed from the list, so they are no longer part of the tally.

Note the persistent character of the uptrend on the graph above. The failures also continue to pile up, with 108 banks being closed by the FDIC so far this year. Below are the five most recent failures announced last week.

If the economic recovery is strong and self-sustaining, as many analysts continue to insist, why is the bank situation continuing to worsen at such a rapid pace? At this rate, the problem list will eclipse the 1,000 mark by the end of the year. This is simply one more data trend that suggests our economy remains in a fragile state.

Category: Commentary, Market Update

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