The Bankwatch

Tracking the consumer evolution of financial services

US Regional Banks listed as “problem” increasing, but still much less that 1980’s

As the IndyMac failure is taken care of, attention is turning to the next round, and the focus is squarely on the smaller regional US banks. The good news is that this is not expected to be as bad as the rates of failure that occurred in the late 80’s early 90’s and that is based on the record of non-performing loans at Banks. Currently there are 90 Banks noted in the ‘problem’ category.

The key will be the strength of the economy, maintenance of employment levels, and continued ability to maintain debt payments.

FT.com / Companies / Financial services – Failure raises concern for regional banks

Analysts also have drawn up possible “who’s next” lists. Richard Bove, a banking analyst at Ladenburg Thalmann, said one way to determine which banks were most vulnerable was to look at the non-performing assets of an institution – including loans that are 90 or more days past due – and divide them by outstanding loans.

A ratio above 5 per cent suggests danger, and seven banks – including IndyMac – fell into this category, according to his analysis. But Mr Bove said that the system is “not anywhere near the danger” that existed during the savings and loans crisis in the late 1980s and 1990s.

Indeed, many experts have dismissed comparisons with that period when more than 1,000 institutions failed. The present number of so-called “problem” banks, which rose from 76 to 90 in the first quarter, is well below the record levels seen during the former crisis when one in 10 banks was in that category.

But regulators and analysts do expect more bank failures. John Bovenzi, chief operating officer of the ­Federal Deposit Insurance Corporation, said: “I don’t expect there will be large bank failures. There will be small bank failures.”

Written by Colin Henderson

July 15, 2008 at 11:31

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