Number Of Troubled Banks Grew In The Second Quarter
The Federal Deposit Insurance Corp. stated that it’s list of troubled banks grew by 30% to 117 in the second quarter.
Regulators are adding to the list as bank assets, liquidity and other fiscal measures weaken. Nine banks have failed this year, including California-based mortgage lender IndyMac Bancorp Inc., which the FDIC is running as a successor institution, IndyMac Federal Bank FSB.
It’s a difficult time for the banking sector, lower earnings and difficulties in raising capital are the primary concerns. The disintegration of the mortgage securitization market has put a major crimp in the originate to distribute business model.
Troubled banks are having to offer high interest rates on certificates of deposit(CD) in order to attract new capital. Just a few months before the FDIC took control of IndyMac, it had one of the highest CD rates in the country.
Many experts feel the banking sector needs to consolidate but with the investment firms having their own problems it will probably continue to be slow on the merger’s and acquisitions front. One thing currently in their favor is that the yield curve is relatively steep at the moment but in order to take advantage of that they need to start lending.
The Fed has tried it’s best to inject liquidity into the system but banks haven’t followed through. Like other firms in the financial services sector they have been forced to hoard capital in order to deal with writedowns while at the same time attempt to de-leverage their balance sheets.
They do have a little more time to get their houses in order. With the commodities market retreating and inflationary pressures losing some of it’s steam, it’s unlikely that the Fed will raise rates until sometime next year.
