Big Trouble in Little Banking?
The FDIC published a new report about the state of the banking industry. Aside from bailout money going directly into the pockets of executives at large banks, the industry doesn't look too healthy.
-- 702 banks are now on the FDIC's "troubled" list, up 180% from the beginning of 2009
-- 140 banks failed in 2009, the highest number in 17 years. How we doing in 2010? Well, 20 banks have failed so far...
-- The 8,000+ insured banking institutions managed to generate a collective profit of $914 million in Q4 2009. While better than the $37 billion loss in Q4 2008, those profits were concentrated in the largest banks, meaning pretty much every other bank lost money.
-- Yearly profit was $12.5 billion, down from $100 billion in 2007. Banks are increasingly turning to "noninterest income" to bolster their bottom line. What is "noninterest income"? Well, more than half of it is coming from banks making trades on Wall Street instead of, I don't know, making loans.
-- Net charge-off rates for bad loans hit 2.89 percent for the year. This is the highest rate in the 26 years of collecting net charge-off data.
-- The value of loans and leases more than 90-days past due increased 6.6% to $391.3 billion. This represents 5.37 percent of all loans or leases outstanding and, again, is the highest level in the 26 years of collecting data.
-- The value bank assets (outstanding loans) decreased by nearly $732 billion last year, meaning loans are being paid off. Unfortunately, it seems that this is heavily concentrated in business loans, not personal or residential loans. Even worse, credit card debt grew another $29 billion.
Now that the Fed is starting to ratchet up interest rates and tightening credit, experts predict this will put more strain on banks since it cuts off an easy source of income for them. So that means more banks are likely to fail or turn to risky "noninterest income" to meet the earning demands of investors. Either way, it should be an interesting year.