FDIC: List Of 'Problem' Banks Grows

Many of the nation's largest banks have recovered and are making money again. But hundreds of smaller banks still have big problems. The FDIC released its "problem banks" list on Tuesday — and the total number on that list increased to 860.

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Here in the U.S., the number of banks on the government's problem list has gone up again. In a report card released today, the FDIC says it now has 860 institutions on its official watch list. That's the most since 1993. NPR's Tamara Keith reports.

TAMARA KEITH: Robert Klingler is an attorney who represents community banks at the law firm Bryan Cave. And just this past Friday, one of the banks he works with failed. He's seen the same thing happen to more than 15 clients already this year.

Mr. ROBERT KLINGLER (Attorney, Bryan Cave): That day is generally the hardest professional day in that banker's life.

KEITH: So far this year, nationwide, 149 banks have been taken over by the FDIC. Klingler says most of the failed banks are small, community banks that didn't get involved in the kinds of risky subprime mortgages that were the trademark of the financial crisis.

Instead many made loans to real estate developers, building homes and shopping malls, and the recession hit those loans, too.

Mr. KLINGLER: We've had banks that survived the Great Depression but couldn't make it through the Great Recession, and each one is a traumatic event.

KEITH: But Klingler and others are quick to point out that just because a bank is on the FDIC's watch list, it doesn't mean it's going to fail. The FDIC's chief economist, Richard Brown, says the number of banks on the list may be growing, but the situation is actually improving.

Mr. RICHARD BROWN (Chief Economist, Federal Deposit Insurance Company): We've worked through a lot of the problems.

KEITH: He says the banks in the most trouble have already failed. A lot of those that remain should be able to work through their challenges.

Mr. BROWN: There's a winnowing through the problem banks, and the worst ones are failing now, and we think that next year, we'll see failure rates that are lower.

KEITH: In fact, Paul Merski, chief economist for the Independent Community Bankers of America, says banks large and small are doing better. The FDIC's report card says in the third quarter, banks earned $14.5 billion in profits.

Mr. PAUL MERSKI (Chief Economist, Independent Community Bankers of America): Profitability is up. Losses are down. Asset quality or the quality of the loans on the banks' books have been improving slightly, as well.

KEITH: With all this talk of banks in trouble, it's worth noting, since the FDIC was created 75 years ago, depositors haven't lost a penny on insured deposits despite hundreds of bank failures.

Tamara Keith, NPR News, Washington.

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