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Fewer problem banks in 2011

By David McMillin · Bankrate.com
Saturday, August 27, 2011
Posted: 12 pm ET

Here's some news that will make financial executives and savings account holders cheer together: Fewer banks are set to fail this year.

According to a quarterly report released by the FDIC, the list of problem banks is smaller for the first time in nearly five years. Problem banks are FDIC-insured institutions that lack the necessary capital to protect against risks. While the names of the institutions are confidential, the size of the list can provide a barometer for the health of the banking industry.

Here are a few additional highlights from the FDIC's press release:

  • Bank failures are down: 48 banks failed in the first six months of 2011 versus 86 in the first six months of 2010.
  • Lending is up: Loans and leases increased by $64.4 billion in the second quarter of 2011.
  • The value of the Deposit Insurance Fund is positive for the first time in two years.

While the U.S. banking industry appears to be getting back on track with more deposits and more lending, don't call it a comeback just yet.

The numbers show there is a long way to go before we return to a sense of stability. "The FDIC's most recent report includes 865 problem banks in the second quarter of 2011, which is a slight improvement from the 888 problem banks in the first quarter of this year. However, in March 2008, the problem list only included 90 institutions.

The Deposit Insurance Fund's surge back into the black is good news for checking and savings account holders at the nation's more than 7,500 FDIC-insured institutions. Since this fund is the money used to cover bank failures, a positive figure seems essential in order to achieve the FDIC's original mission "to restore public confidence in the nation's banking system."

Still, the FDIC's efforts to reassure the American public must compete with loud headlines of an increasingly volatile stock market, troubling housing reports and massive layoffs at one of the country's financial giants.

Does the report give you any greater confidence in the US banking industry? Or are these numbers simply not enough to reassure you of your bank's safety?

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