FDIC's "Troubled Bank List" Grabs National Attention

For the past few months, I have been writing about the latest failed banks in the United States, including New South Federal Savings Bank, the State Bank of Aurora, Sun West Bank, First National Bank in Savannah, and most recently, Williamsburg First National Bank in South Carolina. Today, a CNN.com contributor highlights the Federal Deposit Insurance Corporation's (FDIC's) dreaded list, and notes the increasing number of financial institutions on it.

In the article, "Problem Bank List Climbs to 829," Hibah Yousuf notes that the list of troubled banks is at the highest level it has been since 1993. The FDIC does not disclose to the general public the names of those banks on its "Problem" list for fear that depositors will suddenly withdraw their funds from the bank (informally called making a "run on the bank"), ultimately causing it to fail.

While not all banks reported as "troubled" actually end up failing, the odds are definitely against them and a high percentage of them actually do.

Just this year alone, 118 banks across the nation have failed, their assets taken over by stronger, better-capitalized, opportunistic financial institutions. Most of these transactions have been FDIC-assisted through loss-share programs, in which the Insurance Corporation agrees to absorb a portion of the assuming bank's loss on a specified pool of assets in order to maximize asset recoveries and minimize losses to the federal fund.

The FDIC typically does not disclose the reasons a bank fails (or, more accurately, is closed by the FDIC). However, many bank analysts suspect that the myriad of real estate loan losses (both residential and commercial) have contributed heavily to the failures.

While the number of banks on the "problem list" continues to increase, the good news is that the rate of increase is slowing. Additionally, we don't have to worry right now about not having enough financial institutions to meet our banking needs-as of June 30, 2010, there were almost 7,000 commercial banks reporting their financial position to the FDIC.

The entire CNN.com article can be found at the link below:

http://money.cnn.com/2010/08/31/news/companies/fdic_problem_bank_list/index.htm?source=cnn_bin&hpt=Sbin.

For more information on the FDIC's Failed Bank List, visit their site at http://www.fdic.gov/bank/individual/failed/banklist.html.