The Truth Behind The FDIC's "Problem Bank Shrinking" Report

Tyler Durden's picture

From Peter Tchir of TF Market Advisors

The report that the FDIC list of problem banks fell to 865, the first decline in the number of problem banks since 2006 seems to have helped the market. 

In 2006 there were 50 problem banks and in 2007 there were 76.  So that puts 865 in some perspective.

The data also seems to be a bit misleading.  Did any banks actually move from the "problem" list to a better list?  If the entire 23 bank decline was from banks improving, that would be good.  But I don't think that is the case.  The number of insured banks declined from 7,574 to 7,513.  So the number of banks covered by the report declined.  And that makes sense since 22 failed and 39 were absorbed via mergers.  So the number of problem banks declined by 23, and 22 banks failed.  I assume once a bank fails it goes of the "problem" list since it is not covered by this report?  So at best, 1 bank moved off?  Yet of the 39 mergers, were those all of non problem banks?  I find that hard to believe.  I suspect that if the list was disclosed, we would find that not a single bank migrated from the "problem" list to a better list on its own.  And that some new banks were actually added to the problem list. 

They don't include a list of the names, or the migration, but I don't think this data is as compelling as the headline.

Source: FDIC