The numbers tell it all:
Problem banks for 2009, 702.
Problem banks in December of 2008, 252.
Bank failures rising.
The question is, are these problems a result of bank examiners forcing banks to charge loans off, or are the problems a result of true operating losses of the industry because of bad management? Do these failures represent a failure of the community and economy or a failure of good management? Do these failures represent a failure of the regulators to help in difficult times, or a failure of banks to service their communities?
Bankers remember well the 1987-89 fiasco when bank examiners were encouraged to charge loans off in mass, artificially causing thousands of bank failures, and paving the way for the giant banks, (who created the current financial crisis), to buy small banks out and increase market share.
The Federal Deposit Insurance Corporation announced Tuesday that it had added 450 institutions to its list of problem banks in 2009. FDIC officials hinted that more problems are yet to come.
The number of classified problem banks rose to 702 at the end of 2009, compared to 252 at the beginning of the year. Both the number of troubled institutions and their total assets are at the highest level since 1993, putting enormous strain on the government-administered insurance fund that protects customer deposits.
The F.D.I.C. does not disclose which banks it thinks will fail.
With banks failing in growing numbers, the F.D.I.C. said its insurance fund fell deeper into the red, ending 2009 with a deficit of $20.9 billion. That position was nearly $38.1 billion weaker than a year earlier. The bulk of that decline reflects funds that the F.D.I.C. is setting aside as reserves for future losses.
In its annual report on the banking industry, the agency suggested 1/3 of the the nation’s 8,100 lenders lost money in the last quarter of 2009. Many banks are on the edge, particularly if they have to charge off their big problem commercial loans, or recognize all of the bad credits in their portfolios. Bad loans escalated in the final months of 2009 — the 12th consecutive quarterly increase — albeit at a slower pace.
One banker told us: "We have stopped making real estate loans, because of examiner pressure. We now make loans of less secure types of collateral. The bank regulators are making a bad situation worse, because they won't help us. One thing they could do, is buy bad loans from banks and let the banks gradually work out these problems over time."
But of course the bank regulators are not that creative or practical. Like they have done in the past, they will put enough pressure on the banks, that banks will stop lending, and this will make the recession horribly worse and the banks will suffer more and so will their customers. This creates a negative death spiral for the economy and it is made worse by bank regulatory actions.
Bank Consultant, BBAR Inc., reminds us that regulators can either work with banks, or they can close down their lending process by intimidation, bad ratings or even tougher "moral suasion". But the sad part is that a terrible recession, results. The Obama people have been working hard to encourage banks to lend and to get this economy back up again. Regulators are fighting it every step of the way.