FDIC’s swollen problem bank list could lead to more levies, pressure on lending.
The US Federal Deposit Insurance Corporation’s job is getting a lot harder. Despite the economic rebound in the fourth quarter, the number of banks on its “troubled” list swelled to 702 from 552 in the third quarter—representing a nearly threefold increase over the course of 2009 to the highest level since 1992.
While FDIC managed to collect some $46 billion of new capital from banks by forcing them to prepay three years of their insurance premium obligations, that’s only 11 percent of the total assets of the troubled banks on its list. Given banks have already prepaid normal obligations, FDIC may be forced to raise premiums or exact other fees to buttress its Deposit Insurance Fund if those institutions cannot be managed into stable orbits. Such additional costs would probably impact corporate treasurers’ access to and terms of credit, especially among middle-market borrowers that depend on smaller lenders.
The insurance issue is a significant headache for bank treasurers also, since they saw large influxes of deposits during the crisis, which are very interest rate sensitive. Calculating the appropriate insurance on what might turn out to be hot money, which could flow out of the banks when rates start to rise, adds another wrinkle to their job.
Granted, the FDIC’s quarterly report didn’t paint an entirely grim picture. Insured banks eked out a slim profit of just shy of $1 billion—a marked improvement on the $38 billion loss in the year-earlier period. But loan quality continued to deteriorate, with non-current assets rising to 5.37 percent, the highest level ever.