America's Banks are Financially Baked - Crispy and Risky

Financially crispy, and unfortunately risky. That is the blunt truth regarding the US banking industry.

The unfortunate and scary reality of the matter is that out of the nearly 8,000 banks that are FDIC insured almost 830 of them are on the "oh crap" list that is kept by the FDIC.

That is a little more then 1 out of every 10 banks, or more specifically 11%.


By "oh crap" I am implying that they have been flagged by the FDIC as a potential credit risk. This does not mean that they have or will fail, nor does this mean that they are even likely to fail. It just means that they are seen as having an unfavorably high level of risk compared to the typical FDIC insured banking firm. If you are one of those that want nothing to do with finance (you must be lost) please note that "risk" always exist. There is a risk that you will find and lose a suitcase full of money today.

They all will continue to be insured by the FDIC. Your money is safe (besides it's just paper we can print as much as we want, what it is, or will be, worth is the only risk) up to the insured limit.


Bank Failures


Almost 120 banks have failed year to date. 140 banks failed last year. if we stay on this pace then we should have 300 bank failures in two years time by Christmas of 2010.

I just love the holidays don't you?

Another big event or lack of event reported by the FDIC is that there have been zero new FDIC insured banking firms over the last quarter. I am not sure but that may very well be a first.

Loan Origination

Though default rates have eased for the first time since 2006 or something crazy like that, banks are still not lending. The only loans that are really being originated are car loans.

This is no good. I have no more to say on that end.

How about some brighter numbers...

One glimmer of hope is that in terms of profitability, things are headed in the right direction. For instance during the second quarter these 7,800 banking institutions collectively profited by 21.6 billion dollars which is 25 billion dollars better then last years second quarter results.

As of now 80% of banks are profitable.

Back to the bad news...

But then again that means that 1 in 5 banks are operating at a loss.

During the first three months of 2010 total assets held by banking institutions decreased by 135 billion dollars.

The bottom line of all this is in line with the a previous and recent post on this finance blog that discussed the current state of the US economy.

Things are kinda... almost... could be improving. However there is room to worry.

The most bothersome notion from all this is that I, and some other folks who know a thing or two about finance and all that other god awful subject matter, see a very close, and very scary ledge, or rather cliff, running parallel to the narrow road of recovery that are hybrid economy car is traveling.

All we can do is pray that it is not a Toyota.

(I made a funny)

(I like Toyota)

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