Banks in trouble highest since 1994
Getting on the FDIC's troubled list doesn't mean a bank will fail. It does mean the problem banks face financial difficulties or management problems that threaten their existence. FDIC Chairman Sheila Bair told CNN, "There is no question that this is one of the most difficult periods we have encountered during the FDIC's 75 years of operation." Historically, only 13% of the banks that get on the list actually fail.
There's no need to panic though even if your bank is on the list. Up to $250,000 of individual accounts are fully insured by the FDIC provided your bank is insured by the FDIC. If you're not sure, call to check. If you do have more than $250,000 on deposit with a bank, you may need to shift assets into another type of account or another bank. Talk with you banker to be sure your assets are fully insured.
The FDIC doesn't release the list of troubled banks, but it did give a total of assets in trouble: $159 billion, which is up from $116 billion during the previous quarter. As you can tell by these numbers, the FDIC is working with smaller banks. In fact, Bair has indicated that the FDIC could face a "resource issue" if it attempted to deal with the failure of one of the major banks. So far, the Treasury Department has given $200 billion in aid to banks and more is expected to flow once the stress tests are done.
The banking industry is facing record loses. In the last quarter of 2008 banks lost $26.2 billion -- the largest net loss in 25 years for insured institutions. Most of these loses are from trading activity or massive writedown from loan losses. Banks set aside $69.3 billion in funds for future loan loses. That's more than double the levels a year ago. Obviously banks are finally dealing with the truth of falling house prices. Hopefully now that they've dealt with that truth they will be more willing to work with people to modify loans and help people keep their homes rather than drive them into foreclosure.
Lita Epstein has written more than 25 books including "The 250 Questions You Should Ask to Avoid Foreclosure."