checking

Could yours be the next bank to fail?

A caution sign with "Bank" and red lights in the background
Highlights
  • More than 95 percent of banks are considered well-capitalized.
  • Historically, most banks on the problem bank list do not fail.
  • The FDIC insures deposits up to $250,000 per depositor.

The FDIC's problem bank list grew in the fourth quarter of last year, increasing from 552 banks nationwide to 702. The agency does not disclose the names of the troubled banks.

But despite the increase, banking customers shouldn't worry too much about the safety of their own banks.

Most of the problem banks are small. Though the list is comprised of about 9 percent of the country's banks, they only hold about 3 percent of the total banking assets, says banking industry analyst Bert Ely, principal at Alexandria, Va.-based Ely and Co.

And the FDIC's list has been longer in the past.

"In 1987, there were over 2,000 institutions on the problem list, so historically we are much lower than the highs have been," according to Andrew Gray, spokesman for the FDIC.

"There are 8,000 insured institutions in the country, approximately, and over 95 percent are considered well-capitalized by regulatory standards so it is not quite as dire as some may predict," he says.

"The definition of a problem institution is what we call a four or five on our CAMELS ratings, which are supervisory ratings done by bank examiners. It's based on capital, assets, management, earnings, liquidity and sensitivity to market conditions," says Gray.

Commercial real estate could be the next bubble

Historically, most banks on the problem bank list do not fail. (Here is the list of failed banks so far in 2010.)

"Looking back 25 years, only about 15 percent on average do end up failing; most are acquired by healthier institutions or nursed back to health," says Gray.

Though the economy is recovering, the banking recovery will take longer, as banking problems tend to continue for a few years after the end of a recession.

The problems coming down the pike now involve commercial real estate.

"2010 is going to see a lot more in the way of loss recognition when it comes to commercial real estate and that will be a function of not just the recession but the unemployment rate," says Ely.

advertisement

Chad McCloskey, president of Newbury Park, Calif., financial consulting firm, Vivo Livre, agrees.

"Banks with a lot of exposure to commercial real estate might be facing a similar issue as those that failed due to securitized debt against the residential marketplace," he says. "There is over $1.4 trillion in commercial real estate to come due in the next three to four years. That bubble is the next to burst."

Show Bankrate's community sharing policy
          Connect with us
advertisement
CD & INVESTING NEWSLETTER

Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.

Ask Dr. Don

How can I find best savings options?

Dear Dr. Don, Where can I get the best and safest savings rates? I feel like I need to do a better job of saving and want to get a good return on my money. -- Walter Wonders Dear Walter, That's the kind of question... Read more

advertisement
Partner Center
advertisement

Connect with us