Commercial Real Estate Loans Drive More Banks Onto FDIC's “Problem List”

Over 700 banks in the US are distressed according to the FDIC, the largest number since 1993. The latest additions to the “problem list” are largely resulting from commercial real estate loans gone sour. The FDIC anticipates bank difficulties continuing to worsen in 2010 before there’s any chance of the situation beginning to improve.

According to MarketWatch:

“Based 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.

“‘This year, the losses are going to be heavily driven by commercial real estate, we’ve known for some time and we have been projecting that,’ FDIC Chairwoman Sheila Bair told reporters. ‘The 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.’

“Bair 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.”

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… an all-time record low for the fund. You can read more details about situation in MarketWatch coverage of how about 10 percent of all FDIC-insured banks are “troubled.”