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August 28th, 2009

‘Problem Banks’ Grow — Higher Costs for Consumers?



Another 111 lenders have been added to the Federal Deposit Insurance Corporation’s (FDIC) “problem bank” list. That bring the nation’s ‘problem bank’ list to a grand total of 416, the most in about 15 years. The institutions on the problem list represent nearly $300 billion in assets that the FDIC is responsible for insuring if they do indeed fail.

Eighty-one banks have failed so far in 2009, and the experts say there are more to come. The increase in failures has already prompted the FDIC to increase certain fees that they charge banks in order to raise additional funds:

The surge forced regulators to charge banks an emergency fee to raise $5.6 billion for its insurance fund, which fell to $10.4 billion as of June 30 from $13 billion in the previous quarter, the agency said. The total was the lowest since the savings-and-loan crisis in 1993.

An $11.6 billion increase in loss provisions for bank failures caused the decline in the reserve fund, the FDIC said. If the fund is drained, the FDIC has the option of tapping a line of credit at the Treasury Department that Congress extended in May to $100 billion, with temporary borrowing authority of $500 billion through 2010.

However, FDIC Chairman Sheila Bair said that the corporation is unlikely to tapped the Treasury’s line of credit. Just as they did before, if bank failures continue to rise and the ‘problem bank’ list grows even larger, the FDIC will likely increase their fees. You can bet that if banks are being charged higher fees, those added costs will just as quickly be passed along to their customers.

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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