Fallout: The Financial Crisis

FDIC sees more banks closing doors

John Dimsdale Aug 26, 2008
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Fallout: The Financial Crisis

FDIC sees more banks closing doors

John Dimsdale Aug 26, 2008
HTML EMBED:
COPY

TEXT OF STORY

KAI RYSSDAL: We got the minutes of the most recent Federal Reserve meeting this afternoon. There wasn’t anything terribly newsworthy in there.

The same cannot be said for the nation’s banking industry. Today the Federal Deposit Insurance Corporation warned of more bank failures. The FDIC says the number of banks on its trouble list is up. And bank earnings dropped 80 percent from a year ago. Marketplace’s John Dimsdale reports from Washington.


JOHN DIMSDALE: FDIC Chairman Sheila Bair couldn’t put any positive spin on bank performance in the second quarter.

Sheila Bair: By any yardstick it was another rough quarter for bank earnings. But these results were not unexpected as the industry coped with financial market disruptions, the housing slump, worsening economic conditions and the overall downturn.

Bank profits dropped from nearly $40 billion last year to $5 billion. One reason, according to the Milken Institute’s James Barth, banks are having to shore up their reserves to cover the growing number of problem loans.

James Barth: As institutions try to set aside more funds to cover losses, that results in a decline in earnings.

But Jeff Davis with FTN Midwest Securities wonders whether regulators who require more of a capital cushion are getting a little too heavy-handed.

Jeff Davis: The worry among investors is that the regulators, in their effort to get ahead of this curve, they will make the situation worse by forcing banks to call loans and dump assets on the market.

Often, when banks call in bad loans, they have to put foreclosed properties up for sale. Selling such assets in the current down market, Davis says, only hurts banks’ bottom lines.

Adding to the industry woes, the growing number of bank failures is straining the insurance fund that covers deposits of less than $100,000. Chairman Bair says this October the FDIC will consider raising the fees that banks pay to keep the FDIC insurance fund solvent.

In Washington, I’m John Dimsdale for Marketplace.

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