One in eight US banks at risk of failing

02/27/2011

The number of banks at risk of failing made up nearly 12 percent of all federally insured banks in the final three months of 2010, the highest level in nearly two decades, according to the Associated Press.

“The Federal Deposit Insurance Corp said Wednesday that the number of banks on its confidential “problem” list rose to 884 in the October-December quarter, up from 860 in the previous quarter,” according to the wire service. “Those are banks rated by examiners as having very low capital cushions against risk.”

Twenty-two banks have failed so far this year, including Easley-based CommunitySouth Bank and Trust, and five Palmetto State institutions have failed since 2009.

And even though the industry reported its highest earnings as a group since the financial crisis hit three years ago more banks are seen as being at risk.

Only a small fraction of the 7,657 federally insured banks are driving the bulk of the earnings growth. These are the nation’s largest banks, including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo.

“Most of the big banks have recovered with help from federal bailout money and record-low borrowing rates,” according to the Associated Press. “On the other side, many smaller banks are struggling.”

Smaller and regional banks depend heavily on loans made for commercial property and development sectors that have suffered huge losses, such as real estate. They’ve been badly hurt by companies that shut down in the recession, vacating shopping malls and office buildings financed by the loans.

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