The FDIC also revealed that the list of problem banks reached 829 during the 2nd quarter of 2010.  This is 54 higher than the 775 banks on the list in the 1st quarter.

The FDIC Chairman, Sheila Bair says, “Particularly given economic uncertainties we believe that all banks should continue to exercise caution and maintain strong reserves. The high level of troubled loans reflects the ongoing challenges that many banks face.”

Senior regulators say they are seriously considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors, The New York Times’s Stephen Labaton reports. That would enable the fund, which is rapidly running out of money because of a wave of bank failures, to continue to rescue the sickest banks.

The plan, strongly supported by bankers and their lobbyists, would be a major reversal of fortune.

A hallmark of the financial crisis has been the decision by successive administrations over the last year to lend hundreds of billions of taxpayer dollars to large and small banks.

Read more..

Federal Deposit Insurance Corp Chairman Sheila Bair said on Friday that the agency would meet at the end of the month to discuss options to rebuild the fund, which has been significantly drained by a sharp increase in bank failures.

“We are carefully considering all our options, including borrowing from Treasury,” Bair said, referring to the agency’s $500-billion line of credit with the Treasury Department. She was speaking at a global finance conference in Washington.

Read more…

Put simply, the problem for banks is bad loans. Institutions have been hit by one type of problem loan after another, says Keefe, Bruyette & Woods (KBW) analyst Frederick Cannon. First, it was bad residential real estate loans, including the notorious subprime mortgages. The biggest bank failure of the crisis occurred on Sept. 25, 2008, when the FDIC closed down Washington Mutual and arranged for it to be bought by JPMorgan Chase (JPM). Another big failure was on July 11, 2008, when the FDIC, at a cost of $10.7 billion, took over IndyMac, a specialist in risky, so-called Alt-A residential loans.

Mortgage problems persist, but banks specializing in loans to developers have been hit hard in 2009. KBW data show that, of banks that have failed since 2007, an average of 28.8% of loans outstanding were construction loans, compared to 9.8% for the industry as a whole. At Corus, which failed on Sept. 11, 88% of its lending was construction loans. “This year is dominated by construction lenders,” Cannon says.
Good for the Survivors

The next problem for banks is likely to be commercial real estate and other commercial and industrial loans, Cannon says. A healthy banking industry is a key ingredient to an economic recovery. Small businesses especially rely on bank financing, which has been hard to get recently.

Full story

Three more oversight reports released last week criticized the supervision of failed banks.

The Federal Deposit Insurance Corp.’s inspector general evaluated the March failures of the $325 million-asset FirstBank Financial Services in McDonough, Ga., and the $262 million-asset Corn Belt Bank and Trust Co. in Pittsfield, Ill., and the February failure of the $127 million-asset Sherman County Bank in Loup City, Neb.

In all three reports, the FDIC’s watchdog said that while the agency provided regular supervision of the institutions, its actions could have been timelier to address problems.

In the case of Corn Belt, the inspector general “concluded that more proactive supervisory action may have influenced” the bank’s “board and management to constrain its excessive risk taking and to take more timely and effective action in response to examiner concerns.”

Read more…

“Guaranty Financial Group Inc. will probably fail after loan losses and writedowns left it “critically” short of capital.

Austin-based Guaranty, the second-largest publicly traded bank in Texas, reported that it couldn’t raise the capital from its shareholders, and won’t be eligible for help from federal officials so it’s looking for a buyer, according to a regulatory filing.

“…The company believes that it is probable that it will not be able to continue as a going concern,” the filing shows.”

If Guaranty Financial does fail, it will be largest bank to do so this year.

“Last we heard from the FDIC, there were 117 banks on its secret “troubled” list, which matches pretty well with my list of banks with incredibly high Texas ratios. If we add up the deposits for those troubled banks, we get a value of $76 billion. So, the FDIC has $20 billion to cover 76 billion dollars of deposits in banks that are on the brink of collapse. Things are looking pretty bleak for the FDIC.

So how many of those 117 banks would it take to fail in order for the Deposit Insurance Fund to completely dry up? The answer could be as low as three. For example, if Westernbank of Puerto Rico, BankUnited, and Ocean Bank go under, and mind you they each have Texas ratios over 110, the Deposit Insurance Fund will be completely bankrupt. In fact, if a slightly larger bank, like AmTrust (which has a Texas ratio of 86) goes under, it would only take one of the other three to bring the Deposit Insurance Fund to the brink of collapse.

Don’t worry, folks. Your money is safe, and the FDIC has everything under control.”

“As credit conditions continue to tighten, the Icelandic Financial Supervisory Authority took control of yet another bank on Thursday, this time the nation’s largest bank, Kaupthing. Although authorities maintain that deposits at the bank will be guaranteed, the financial institution follows failures from Glitnir bank and Lansdsbanki just days ago.”

According to Paulson the world’s financial markets remain severely strained and a “quick fix” is not likely.

Here’s a safe bet for uncertain times: A lot of banks won’t survive the next year of upheaval despite the US government’s $700 bil lion plan to restore order to the financial industry. The biggest question is how many will perish and how they will be put out of their misery — in outright closures by regulators scrambling to preserve the dwindling deposit insurance fund or in fire sales made under government pressure. Enfeebled by huge losses on risky home loans, the banking industry is now on the shakiest ground since the early 1990s, when more than 800 federally insured institutions failed in a three-year period. That was during the clean-up phase of a decade-long savings-and-loan meltdown that wound up costing U.S. taxpayers $170 billion to $205 billion, after adjusting for inflation.