Troubled assets continue to threaten banks

A bank regulator arrives to close Midwest Bank on May 14, 2010 in Melrose Park, Illinois.

From the peak a couple of years ago, when bank failures totaled 157, the number that went belly up this year was down to 51. But that's still more than normal. Is trouble still lurking in financial vaults? 

"I think it's continuing problems. I don't think it's new loans they're putting on their books, but I think it's banks that had troubled assets or non-performing assets that are still a drain on the operations of the banks," says Randy Dennis heads DD&F consulting, which advises troubled banks.

Regulators have held out hope those bad loans might recover some value, but it's still not happening in some of the hardest-hit places.

"Things are improving somewhat across the country, but I don't know that I would say we're having a robust recovery," says Dennis.

"The economy just isn't growing strong enough to save those banks," says financial industry consultant Bert Ely. According to Ely, as time drags on, regulators could start feeling more pressure to put what he calls the "zombie banks" out of their misery.

"Given that the regulators do seem to be dragging their feet, you know, if they have a change in attitude, we may see more failures next year," he says.

Ah, if only those old bad loans could be forgot, and never brought to mind.

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.

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