Commercial real estate loans drive more banks onto FDIC鈥檚 'problem list'
Over 700 banks in the US are distressed according to the FDIC, the largest number since 1993. The latest additions to the 鈥減roblem list鈥� are largely resulting from commercial real estate loans gone sour. The FDIC anticipates bank difficulties continuing to worsen in 2010 before there鈥檚 any chance of the situation beginning to improve.
According to MarketWatch:
鈥淏ased on the result, roughly one in 11 of the approximately 8,000 U.S. banks are on this list, with regulators expecting a significant expansion in the number of failures throughout 2010, boosted in large part by increased losses on commercial real estate sustained by mid-sized and smaller banks. See more on analyst expectations for 2010 bank failures.
鈥溾�楾his year, the losses are going to be heavily driven by commercial real estate, we鈥檝e known for some time and we have been projecting that,鈥� FDIC Chairwoman Sheila Bair told reporters. 鈥楾he pace is probably going to pick up this year and for the total year it will exceed where we were last year. Overall, the banking system is challenged but stable, but is performing its credit extension role.鈥�
鈥淏air said it takes longer for losses on commercial real estate to work through the system because frequently borrowers may have cash reserves and can continue to make good on payments for a while, even as a downturn expands.鈥�
The Deposit Insurance Fund that the FDIC uses to protect member banks maintained a negative balance again in the fourth quarter, this time with a $20.9 billion loss鈥� an all-time record low for the fund. You can read more details about situation in MarketWatch coverage of how听
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