The number of problem banks in the US continued to soar in last year’s fourth quarter, hitting their highest level since 1993, according to a regulatory report released on Tuesday.
The findings by the Federal Deposit Insurance Corp suggest that, although the US economy is on the mend, the financial industry, bedevilled by souring residential and commercial real estate loans, will take longer to recover.
The FDIC said 702 banks were considered troubled at the end of 2009, up from 552 three months earlier. Problem assets totalled $402.8bn (£260bn) in the final period, compared with $345.9bn in the third quarter. By contrast, Lehman Brothers listed $639bn in assets at the time of its bankruptcy filing in September 2008.
No longer confined to Wall Street, the financial crisis has cascaded over to regional and community banks that are feeling a disproportionate amount of the pain. “The great recession has very much become a Main Street problem,” said Richard Brown, the FDIC’s chief economist.
Although bank earnings showed a slight improvement in the fourth quarter, totalling $914m against a $37.8bn loss in the year-ago period, they still remain below historical highs. Any improvement in earnings, the FDIC said, was concentrated among the largest institutions.
For the full year, banks earned $12.5bn, up from $4.5bn in 2008 but far below the $100bn recorded in 2007.
Loan losses jumped for the 12th consecutive quarter to total $53bn, an increase of 37 per cent over the year-ago period. On an annualised basis the rate of losses accounted for in the quarter was the highest in more than two decades.
Losses rose in all significant categories, including residential mortgage loans and credit card debt. One of the fastest growing categories for uncollectable debt was commercial real estate.
Banks with high levels of construction loans continue to be especially vulnerable. Last weekend the FDIC announced four bank failures and each had a higher concentration of construction loans than the industry average, according to Keefe, Bruyette & Woods, the research firm.
Although the level of bank failures is alarming, it pales against the troubles of the savings and loan crisis. At the height of that meltdown, in 1987, some 2,165 banks were considered troubled and problem assets totalled $833bn.
But the full weight of the current crunch has yet to be felt. The FDIC took over 140 banks in 2009 and analysts expect more to follow. The FDIC said on Tuesday it set aside another $17.8bn in the fourth quarter for bank failures. It expected total bank failures to cost $100bn from 2008 to 2013.
Banks that remain most vulnerable are in Arizona, Nevada, California and Florida as well as the upper Midwest.
Get alerts on Banks when a new story is published