The list of “problem banks” drawn up by the US government last quarter was once again lengthened. The rise in interest rates and the increase in overdue commercial real estate and credit card loans made some banks in trouble.
The US Federal Deposit Insurance Corporation (FDIC) said on Thursday that the number of banks with financial, operational or management issues within its jurisdiction increased by 8, to a total of 52, accounting for 1.1% of the total number of banks regulated by the FDIC. The total assets held by these lenders increased by 12.8 billion US dollars to 66.3 billion US dollars in the last quarter.
Although the number of banks on the FDIC list is still relatively small compared to historical highs, it continues the growing trend that began at the beginning of last year. The FDIC believes that the banking sector remains strong and resilient in general.
Martin Gruenberg, Chairman of the Federal Deposit Insurance Company
According to the FDIC, the list of problematic banks was screened based on a key risk indicator known as CAMELS. The rating scale is 1-5, with 5 being the worst. The FDIC previously stated that the banks on the list scored 4 or 5.
The FDIC said that banks on the list will receive a tailor-made rectification plan and the competent supervisory authority will evaluate the rectification situation.
Overall strength
The FDIC said in its quarterly banking overview report that the 4,587 banks under its jurisdiction are generally in good financial condition. According to the FDIC, the banking sector's net revenue hit the $1 trillion mark for the first time since the FDIC began issuing an overview report.
FDIC director Martin Gruenberg said in a statement that “the banking industry continues to show resilience after experiencing a period of liquidity pressure in early 2023.” He added that the banking sector faces significant risks that could affect credit quality, profits and liquidity. Gruenberg also mentioned concerns about commercial real estate loans.
According to the FDIC, the bank's quarterly net profit fell 44% month-on-month. The agency blamed this mainly on expenses associated with the FDIC's so-called special assessment.
The FDIC currently estimates that the collapse of Silicon Valley Bank and Signature Bank last year caused a loss of 20.4 billion US dollars, which is 25% higher than the estimated 16.3 billion US dollars in November last year.
Unrealized losses
Despite the overall strength of the banking sector, commercial real estate and overdue credit card loans cast a shadow over the outlook for this year.
Gruenberg said that overdue payments for private commercial properties by non-owners reached the highest level since the first few months of 2014, and credit card delinquency rates have never been higher since the third quarter of 2011.
From a more positive perspective, Gruenberg said unrealized losses in the banking sector fell 30% to $478 billion, mainly benefiting from improvements in banks' holdings of mortgage-backed securities. Coupled with the increase in cash balances, there has been an improvement in banking liquidity. The FDIC said the total losses were the lowest since the second quarter of 2022, but they are still above historical levels.
Banks may breathe a sigh of relief in the next few months, as Federal Reserve Chairman Powell said at a Senate hearing that if inflation meets expectations, interest rate cuts can begin sometime this year.
Following the release of the aforementioned quarterly report, Gruenberg told reporters that he expected regulators to revise proposals requiring large banks to hold more capital. Powell said on Wednesday that he expects substantial adjustments to the capital reform and possibly a new proposal.
FAQs
The Federal Deposit Insurance Corporation (FDIC) is known for protecting depositors, but we do more to connect with and protect the public. The FDIC was created in 1933 in response to the thousands of bank failures during the Great Depression of the late 1920s and early 1930s.
What is the FDIC problem bank? ›
FDIC Problem Bank List is a confidential list, published by the Federal Deposit Insurance Corporation (FDIC) every quarter, of U.S. banks and thrifts that are on the brink of financial insolvency. Only institutions that are insured by the FDIC through the Deposit Insurance Fund are on the FDIC Problem Bank List.
What was the outcome of the FDIC? ›
Ultimately, the force of public opinion spurred Congress to enact deposit insurance legislation. The Banking Act of 1933, which created the FDIC, was signed by President Roosevelt on June 16, 1933. By almost any measure, the FDIC has been successful in maintaining public confidence in the banking system.
How does the FDIC address this problem of bank runs? ›
Alternatively, the FDIC may cover the deposits directly and send out checks for the funds held at the now-defunct bank. By law, once insured depositors are paid, uninsured depositors are paid next if there are additional funds available.
Can banks seize your money if the economy fails? ›
It indicates an expandable section or menu, or sometimes previous / next navigation options. Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.
What is the FDIC new deal? ›
The Banking Act of 1933 is signed into law by President Franklin D. Roosevelt. This law creates the Federal Deposit Insurance Corporation (FDIC), by far the most controversial element of the statute. The law puts in place a Temporary Fund that would be effective January 1, 1934, with a basic coverage level of $2,500.
Which banks are failing in 2024? ›
The news: Last Friday, Pennsylvania financial regulators seized and shut down Philadelphia-based Republic First Bank in the first FDIC-insured bank failure of 2024.
What is the FDIC failed bank list? ›
About the FDIC:
| Bank NameBank | CityCity | StateSt |
|---|
| First Republic Bank | San Francisco | CA |
| Signature Bank | New York | NY |
| Silicon Valley Bank | Santa Clara | CA |
| Almena State Bank | Almena | KS |
55 more rowsApr 26, 2024
Making sure your bank is FDIC-insured can help protect your money. FDIC insurance doesn't protect against all problems you might have with a bank, but it at least keeps you from losing the insured money you entrusted to it in the first place, as long as the bank is insured.
What impact does the FDIC have today? ›
The FDIC protects the money depositors place in insured banks in the unlikely event of an insured-bank failure.
Still, the FDIC itself doesn't have unlimited money. If enough banks flounder at once, it could deplete the fund that backstops deposits. However, experts say even in that event, bank patrons shouldn't worry about losing their FDIC-insured money.
Who did not benefit from FDIC? ›
Investment products that are not deposits, such as mutual funds, annuities, life insurance policies and stocks and bonds, are not covered by FDIC deposit insurance.
What is causing banks to fail? ›
Understanding Bank Failures
The most common cause of bank failure is when the value of the bank's assets falls below the market value of the bank's liabilities, which are the bank's obligations to creditors and depositors. This might happen because the bank loses too much on its investments.
Should I pull my money out of the bank? ›
Your money is safe in a bank with FDIC insurance. A bank account is typically the safest place for your cash, since banks can be insured by the Federal Deposit Insurance Corp. up to $250,000 per depositor, per insured institution, per ownership category.
What happens if I withdraw all my money from my bank account? ›
Unless your bank has set a withdrawal limit of its own, you are free to take as much out of your bank account as you would like. It is, after all, your money. Here's the catch: If you withdraw $10,000 or more, it will trigger federal reporting requirements.
What is the main goal of the FDIC? ›
The FDIC protects the money depositors place in insured banks in the unlikely event of an insured-bank failure.
What does the FDIC help prevent? ›
Q: What is the FDIC? A: The FDIC (Federal Deposit Insurance Corporation) is an independent agency of the United States government that protects bank depositors against the loss of their insured deposits in the event that an FDIC-insured bank or savings association fails.
What problem does the FDIC address? ›
The FDIC insures deposits; examines and supervises financial institutions for safety, soundness, and consumer protection; makes large and complex financial institutions resolvable; and manages receiverships.
Why is the FDIC still important today? ›
The FDIC helps maintain stability and public confidence in the U.S. financial system. One way we do this is by insuring deposits to at least $250,000 per depositor, per ownership category at each FDIC-insured bank.
