WASHINGTON - The Federal Deposit Insurance Corp. (FDIC) boosted reserves more than 2,000% during the second quarter to cover the costs of bank failures. FDIC said it was reserving $10-billion during the second quarter after the number of banks and thrifts on its "problem list" increased by more than 30% to 117. As a result of the enormous loan loss provision the FDIC's reserve ratio declined 18 points to 1.01%. That, in turn, should mean higher premiums in 2009 for banks and thrifts insured by the FDIC.
Once the ratio falls below 1.15%, the FDIC is required by law to establish a plan to return the fund to its minimum level within five years. FDIC Chairman Sheila Bair said the agency would consider such a plan in October-and she indicated that riskier institutions would pay more than others.
Meanwhile, the FDIC released quarterly data showing that during the second quarter bank profits declined 87% over one year earlier, to $5-billion, and charge-off rates hit marks not seen since the savings-and-loan crisis of the late 1980s and early 1990s. During a press conference, Bair said, "we don't see a return to the record high earnings levels of previous years anytime soon. ...We don't think this credit cycle has bottomed out."
FDIC reported that while only 27 institutions joined the troubled bank list, the growth in assets at those banks and thrifts was more dramatic, $52 billion.
The list does include IndyMac, which accounted for $32 billion of the increase in troubled bank assets. The other $20 billion indicates that some other large institutions have been added to the list. "More banks will come on the list as credit problems worsen, and the assets of problem institutions will also continue to rise," Bair said. Other data released by FDIC for the second quarter:
* The average bank's ROA dropped 106 basis points from a year earlier, to 0.15%.
* Nearly 18% of all institutions were unprofitable in the quarter, compared with only 9.8% a year earlier.
* Net chargeoffs nearly tripled, to $26.4 billion in the second quarter from a year earlier.
* The annual rate of chargeoffs was 1.32% of total loans, the highest since the fourth quarter of 1991. A year earlier the rate was only 0.49%.
The amount of noncurrent loans and leases that were noncurrent rose for the ninth consecutive quarter, increasing by $26.7 billion. Increases occurred in all the major loan categories in the second quarter.
* Capital growth was relatively slow, with banks adding $10.6 billion to their regulatory capital in the second quarter - the smallest increase in almost five years. During the quarter 60% of banks reported declines in their total risk-based capital ratios.
* Total assets at banks and thrifts dropped by $69 billion. The asset reduction, the first in eight years, was driven by a few large institutions, the FDIC said.(c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com/ http://www.sourcemedia.com/
