In her statement at the Quarterly Banking Profile press conference last week, Sheila Bair, Chairman of the FDIC, indicated that the number of institutions on the FDIC’s “problem list” had increased. As of June 30, 2009 there were 416 institutions on this list which, according to a press release from the FDIC, is up from 305 on March 31, 2009. Noting that the banking industry and bank failures tend to be lagging economic indicators, Chairman Bair stated that the FDIC expects “the numbers of problem banks and failures to remain elevated, even as the economy begins to recover.” There have been 84 bank failures so far this year.
The discussion of problem banks was part of a larger presentation by the FDIC on the status of insured depository institutions and the condition of the Deposit Insurance Fund (DIF). Insured depository institutions “reported an aggregate net loss of $3.7 billion in the second quarter of 2009.” However, these negative earnings primarily stem from one-time losses and other items totaling $4.1 billion, with the same institutions reporting aggregate net operating income during the quarter of $424 million.
The total reserves of the FDIC’s DIF were $42.4 billion as of the end of the second quarter. Of this amount, $32 billion has been earmarked by the FDIC as a “contingent loss reserve” in anticipation of future bank failures. “To the extent that the FDIC has already reserved for an anticipated closing, the failure of an institution does not reduce the DIF balance.”