Bank Losses Mount in Q4; FDIC Hikes Deposit Insurance Premiums

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation reported Thursday a collective loss of $26.2 billion in the fourth quarter of 2008, a decline of $27.8 billion from the $575 million that the industry earned in the fourth quarter of 2007 — and the first quarterly loss recorded by the U.S. banking industry since 1990. Rising loan-loss provisions, losses from trading activities and goodwill write-downs all contributed to the quarterly loss, as banks continued to repair their balance sheets, the FDIC said. However, the FDIC said more than two-thirds of all insured institutions were profitable in the fourth quarter, but their earnings were simply overshadowed by large losses at a number of big banks. Nonetheless, troubled loans still battered the industry’s viability. Insured institutions charged off $37.9 billion of troubled loans in the fourth quarter of 2008, up two-fold from the $16.3 billion charged off in the fourth quarter of 2007. At the end of 2008, a total of 2.93 percent of all loans and leases were noncurrent — the highest level for the industry since 1992. Twelve FDIC-insured institutions failed during the fourth quarter, while over the course of 2008, a total of 25 insured institutions failed. Much more ominously, the FDIC’s “Problem List” grew from 171 to 252 institutions in the fourth quarter, the largest number since mid-year 1995; HousingWire’s sources have consistently said the number of troubled banks is likely much higher than the disclosed total. As the number of “problem” banks continue to climb, the FDIC said Friday it would impose a special assessment on insured institutions of 20 basis points, effective the second quarter of this year. The change comes in addition to an amended restoration plan for the FDIC’s deposit insurance fund that extends plan horizon to seven years “in recognition of the current significant strains on banks and the financial system and the likelihood of a severe recession,” the FDIC said. “Deposit insurance remains a good value,” said FDIC chairman Sheila Bair. “Public confidence in the FDIC guarantee has helped assure a stable source of funding for banks in these troubled times.” Bankers immediately responded to the increase, suggesting that further insurance premiums would further constrain lending activity at banks. “The premium increases announced today by the FDIC are very significant and will pose an extra burden on every bank,” Edward Yingling, president and CEO of the American Bankers Association, said in a press statement. “The additional premium charge will make it more challenging for banks of all sizes to meet the credit demands of their local communities.” Write to Kelly Curran at kelly.curran@housingwire.com.