Bank Failures on Pace This Year to Surpass 2009 Tally

FDICPropelled by a still unfolding commercial real estate loan crisis, bank failures this year are on pace to surpass last year’s tally of 140, with 26 institutions seized so far this year by the Federal Deposit Insurance Corp.
Regulators shut or turned over to other institutions banks in Maryland, Illinois, Florida and Utah this week, pushing the number of U.S. failures to 26 for 2010. FDIC Chairwoman Sheila Bair has said she expects the number of bank failures in 2010 to exceed the 140 closures in 2009.  That was the highest number in nearly two decades.
And her prediction seems to be holding up as souring residential and commercial real estate loans – much of them written during the height of the financial crisis – will be faltering well into this year.
This lag is reflected in recent findings by the Federal Reserve that saw more than one-fourth of lenders surveyed continued to report tightening of underwriting standards, while none reported easing of standards, in January of this year.
On Feb. 26, Martin J. Gruenberg, FDIC vice chairman, testified on lending conditions before the U.S. House Committee on Financial Services and Committee on Small Business.
Gruenberg noted that the “most prominent area of risk for rising credit losses at FDIC-insured institutions” during the next several quarters continues to be in commercial real estate.  
“FDIC-insured institutions still hold the largest share of commercial mortgage debt outstanding, and their dollar volume exposure to commercial real estate loans stands at a historic high,” Gruenberg said.
As of December 31, 2009, commercial real estate loans totaled almost $1.8 trillion, or 24.9 percent of total loans and leases, he said.
“In terms of concentrations of credit, commercial real estate at FDIC-insured institutions represented 133 percent of total risk-based capital, lower than the 151 percent seen one year earlier, but still significantly higher than levels at the beginning of the decade,” Gruenberg said.
The number of U.S.-insured banking institutions on the government’s “Problem List” jumped more than a quarter percent to 702 at the end of the fourth quarter, compared to the previous quarter, and total assets of these lenders grew 16 percent to $402.8 billion, according to the FDIC.
U.S. banks will pay more than $45 billion before year’s end to cover premiums through the next three years, under an agency plan approved Nov. 12 to replenish the fund.
The FDIC’s Deposit Insurance Fund’s net worth decreased by $12.7 billion during the fourth quarter. The fund balance of “negative $20.9 billion” as of December 31 is covered by a $44 billion contingent loss reserve that has been set aside to cover estimated losses, the FDIC has said.

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