Bank "Danger List" Tops 400

(AP)
The country's overall economic outlook may be brightening, but things aren't nearly as rosy in the banking industry.

The number of troubled banks on federal regulators' "problem list" grew to 416 by the end of June – more than a 33 percent increase from March's total of 305 – according to a Wall Street Journal report ($) Friday.

That means a full 5 percent of U.S. banks, holding just under $300 billion, are in danger of failing in the eyes of the Federal Deposit Insurance Corp. – the government entity created during the Great Depression that insures individual bank deposits up to $100,000.

It's been a rough year for small and midsize banks. Last June, there were just 117 banks, accounting for $78.3 billion in deposits, on the FDIC's danger list. In the ensuing 12 months, regulators have closed 81 financial institutions, according to the report.

"It's a continuation of the deterioration across the industry," Gerard Cassidy, a bank analyst at RBC Capital Markets, told the Journal. "We think there are hundreds of failures to come."

The turmoil has increased the strain on the FDIC as well. The agency's insurance fund, responsible for the protection of $6.2 trillion in deposits, to $10.4 billion by the end of June.

The swelling number of at-risk banks may pave the way for the country's banking giants to get even bigger, potentially that forced the government to plow $700 billion into a bailout package for the financial industry.

JPMorgan Chase, Bank of America and Wells Fargo each control 10 percent of the country's deposits, according to the Washington Post. Together with Citigroup, those three banks account for half the country's mortgages and two-thirds of credit card issuances. With so many smaller banks still in danger of collapse, the giants are "chomping at the bit" to snap them up, Ed Najarian, head of bank research at International Strategy & Investment Group Inc., told the Journal.

The FDIC also reports that the credit crunch is continuing, with many banks building up cash reserves instead of lending. Limited cash infusions into small businesses slow job growth, causing a ripple effect on the entire economic recovery.

And bad loans continue to pile up. Banks lost $3.7 billion last quarter and bad loans outnumber cash reserves by a ratio of nearly 3 to 2, according to the Journal. That's the worst amount since the savings and loan crisis in 1991.
  • Daniel Carty

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