by Calculated Risk on 4/09/2010 10:25:00 PM

This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for April 9, 2010.

Changes and comments from surferdude808:

This week the Unofficial Problem Bank List stands at 682 institutions with assets of $364 billion compared with 683 institutions with assets of $361 billion last week. There are seven removals including one failure -- Beach First National Bank ($602 million), and six unassisted mergers that have happened during the first quarter. However, two of the unassisted deals were just a combination of weak affiliates as the survivor is still on the list. For example, on March 1, 2010 Community Banks of Northern California merged with its sister bank Community Banks of Colorado ($1.7 billion), which is subject to a formal enforcement action by the Federal Reserve.

There are six additions this week with aggregate assets of $3.3 billion. Additions include PremierWest Bank, Medford, OR ($1.5 billion Ticker: PRWT); First Commercial Bank of Florida, Orlando, FL ($669 million); and Cornerstone Community Bank, Chattanooga, TN ($530 million Ticker: CSBQ.OB)

We have updated the transition matrix for the first appearance of the Unofficial Problem Bank List on August 7, 2009. (see below) Back then, the list had 389 institutions with assets of $276.3 billion. Subsequently, 296 institutions or 76 percent still remain open with an outstanding formal enforcement action.

Approximately 24 percent or 93 institutions have been removed from the initial list. The majority of the removals have occurred through failure (70 institutions or 75 percent of removals). Other removals are for action termination or a return to healthy status (16 institutions or 17 percent of removals) and unassisted mergers (7 institutions or 7.5 percent of removals).

So far, the failure rate for institutions on the initial list is approximately 18 percent (70 institutions/389 institutions). This failure rate is higher than the historical 13 percent rate mentioned by the FDIC and frequently cited by the media (see links):

From CNNMoney: Banks at risk of going bust tops 700
From CNNMoney: Bank 'problem' list climbs to 552
Video: Problem Bank List Growing (listen to analyst quoting FDIC historical rate)

We have long suspected that the often cited historical failure rate of 13 percent for institutions on the problem bank list was a bit misleading for the current crisis because it is most likely derived from a long time series that includes non-crisis periods. Thus, the FDIC historical metric cannot be used to estimate how many institutions on the problem bank list during this crisis will fail. Already, the failure rate is 18 percent, which is five percentage points above the historical rate. Moreover, it can only go higher for institutions on the initial list. Therefore, anyone that continues to cite this statistic, especially to downplay the magnitude of having 700 institutions on the official list, is badly misinformed.

Interestingly, in an interview with Time Magazine, FDIC Chairman Shelia Bair is now citing a higher failure rate of 23 percent for institutions on the problem bank list. In addition, Chairman Bair sounds more sanguine on the outlook for failures and predicts they peak in 2010 at a rate not much higher than 2009. See comments from a Time Magazine interview published April 9, 2010: FDIC's Sheila Bair on Bank Failures and Too-Big-To-Fail

Time: We saw 140 bank failures in 2009; another 41 so far this year. Is the worst behind us?

Bair: I think we'll go above the 2009 level, but that bank failures will peak this year. The institutions by asset size might be a little smaller, but there will be more of them. But it's important that people understand that the number of bank failures is still a very small percentage of the overall number of insured institutions in the country — and obviously their insured deposits are protected.

Time: How many banks are on your watch list right now?

Bair: There are about 700 right now, but most of these banks will not fail. Historically, about 23% of banks that go on the list actually fail. One of the reasons we put them on the troubled bank list is so that they can get some extra supervisory attention and...get nursed back to health.

Unofficial Problem Bank List
Change Summary
		Number of Institutions	Assets ($Thousands)
Start (8/7/2009)		389	276,313,429
Subtractions
	Action Terminated	16	(2,932,948)
	Unassisted Merger	7	(988,349)
	Failures	70	(120,826,006)
	Asset Change		(12,544,845)
Still on List at 4/02/2010		296	139,021,281
Additions		387	222,013,694
End (4/02/2010)		683	361,034,975
Interperiod Deletions1
	Action Terminated	0	-
	Unassisted Merger	5	1,184,165
	Failures	38	39,300,874
	Total	43	40,485,039
1Institution not on 8/7/2009 or 4/02/2010 list but appeared on a list between these dates.