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LuckyOne

How Do We Reconcile Rising Numbers Of Problem Banks

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One of the drivers of the markets from their March lows was the results of the stress tests on banks done by the Fed / Treasury. We were given the impression that the banking system was in good shape and that drove the market higher.

How do we reconcile that "fact" with the fact that the number of problem banks on the FDIC's watch list grew by 36% in the second quarter to a 15 year high?

http://www.bloomberg.com/apps/news?pid=206...id=aKrqdLil0pGI

The U.S. added 111 lenders to its list of “problem banks†in the second quarter, a 36 percent increase that pushed the group to a 15-year high.

A total of 416 banks with combined assets of $299.8 billion failed the Federal Deposit Insurance Corp.’s grading system for asset quality, liquidity and earnings, the most since June 1994, the Washington-based FDIC said in a report today. Regulators didn’t identify companies deemed “problem†banks.

“For now, the difficult and necessary process of recognizing loan losses and cleaning up balance sheets continues to be reflected in the industry’s bottom line,†FDIC Chairman Sheila Bair said in a statement.

Regulators have taken over 81 banks this year, including Guaranty Financial Group Inc. in Texas and Colonial BancGroup Inc. in Alabama. Twenty-four banks collapsed in the second quarter as the pace of failures accelerated amid the worst financial crisis since the Great Depression.

The surge in failures prompted the agency to charge the industry an emergency fee in the second quarter to raise $5.6 billion to replenish its insurance fund, which fell to $10.4 billion as of June 30 from $13 billion in the previous quarter, the agency said. An $11.6 billion increase in loss provisions for bank failures caused the decline in the fund, the FDIC said.

FDIC-insured banks reported a net loss of $3.7 billion in the second quarter, compared with a $5.5 billion gain in the first quarter. The loss, the second quarterly one the industry has reported in 18 years, was driven by increased expenses for bad loans, the FDIC said.

Loan Losses

Funds set aside by banks to cover loan losses rose to $66.9 billion in the second quarter from $60.9 billion in the first quarter.

The FDIC insures deposits at 8,195 institutions with $13.3 trillion in assets. The agency is a state-bank regulator that insures bank customer deposits, helps find buyers for failing banks and liquidates lenders that have collapsed.

The agency this week approved new guidelines for private- equity firms that invest in failed banks to increase the pool of buyers beyond traditional lenders and reduce costs to the banking industry and taxpayers.

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One of the drivers of the markets from their March lows was the results of the stress tests on banks done by the Fed / Treasury. We were given the impression that the banking system was in good shape and that drove the market higher.

How do we reconcile that "fact" with the fact that the number of problem banks on the FDIC's watch list grew by 36% in the second quarter to a 15 year high?

http://www.bloomberg.com/apps/news?pid=206...id=aKrqdLil0pGI

did someone tell a fib

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Mark to myth and other devious little devices.

Don't worry, it won't last. ;)

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