Toxic loans threaten 150 banks

Lita Epstein

Since the beginning of 2009, 72 banks have failed; based on an analysis done by Bloomberg, 150 more are at risk. The culprit is all-too-familiar: according to the Bloomberg study, these endangered banks are in trouble because five percent or more of the loans they hold are nonperforming. That means the bank is no longer collecting interest on a loan or that the loan will not be paid in full. Yet, even with these statistics, many banks are resisting the FDIC Legacy Loan Program. Meanwhile, instead of trying to help banks in trouble, the FDIC is using the program to deal with the toxic assets of failed banks.

Based on Bloomberg's analysis, the 150 banks with nonperforming loans above five percent had combined assets of $193 billion, which is almost 15 times the size of the FDIC's deposit insurance fund at the end of the first quarter. The list of problem banks -- a confidential list developed by U.S. bank regulators -- had 305 members in the first quarter. Institutions on the problem list are not revealed for fear that doing so would cause a run on the bank and make the situation even worse.