Bad loans are causing more and more serious problems for U.S. banks, according to a new analysis of Federal Deposit Insurance Corp. data that points to another wave of bank failures.
U.S. banks registered a 149 percent increase in troubled assets from December 2007 to December 2008, and 163 banks ended last year with more troubled loans than capital, according to an analysis by MSNBC.com and the Investigative Reporting Workshop at American University in Washington, D.C. That's up from only 13 banks that found themselves in such an upside-down position a year earlier.
Wendell Cochran, an associate professor at American University, set up a Web site with more details called banktracker.investigativereportingworkshop.org. Cochran wrote that although most banks remain reasonably strong, "it is clear that a year-long, and deepening, recession has taken its toll on many banks, especially those that are deeply involved in real estate lending."
The information is detailed enough to let customers look up the troubled asset ratio for their own bank and decide whether or not to shift their money elsewhere. The FDIC currently insures deposit accounts up to $250,000 -- but an individual or business holding more than that in a single account could lose money in a bank failure.
Some examples: BankUnited in Coral Gables, Fla., an epicenter of the housing crash, boasts a remarkable ratio of 251.6, which means the bank has 2.5 times as many troubled assets as capital. Vineyard Bank in the housing-depressed area of Rancho Cucamonga, Calif. has a similar ratio of 213.1.
Meanwhile, banks in areas like Missouri (Scottrade Bank, ratio of 0) and Utah (CIT Bank, ratio of 1.1) that never experienced a wildly inflated housing bubble are in fine shape. (The journalists devised the ratio by summing loans past due 90 days or more, foreclosed properties owned by the bank, and so on, and divided the total troubled assets by the bank's capital and loan loss reserves.)
These data sketch a picture of banks that are struggling under a growing weight of bad loans, bad mortgages, and -- perhaps soon -- an increasing number of bad credit card loans and bad auto loans as well.
FDIC head Sheila Bair told CBS News recently that: "We are funded by insurance premiums that are assessed on banks. So, no it's not taxpayer money." On the other hand, Sen. Christopher Dodd, the Democratic chairman of the Banking Committee, has proposed allowing the FDIC to borrow as much as $500 billion in taxpayer money from the U.S. Treasury.
Perhaps those dollars would eventually be paid back. But with a popped real estate bubble that shows no sign of re-inflating anytime soon, and more bad loans on the horizon, another wave of bank failures would make that much less likely