by Calculated Risk on 4/03/2023 04:21:00 PM

The FDIC's official problem bank list is comprised of banks with a CAMELS rating of 4 or 5, and the list is not made public (just the number of banks and assets every quarter). Note: Bank CAMELS ratings are also not made public.

CAMELS is the FDIC rating system, and stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk. The scale is from 1 to 5, with 1 being the strongest.

As a substitute for the CAMELS ratings, surferdude808 is using publicly announced formal enforcement actions, and also media reports and company announcements that suggest to us an enforcement action is likely, to compile a list of possible problem banks in the public interest.

DISCLAIMER: This is an unofficial list, the information is from public sources only, and while deemed to be reliable is not guaranteed. No warranty or representation, expressed or implied, is made as to the accuracy of the information contained herein and same is subject to errors and omissions. This is not intended as investment advice. Please contact CR with any errors.

NOTE: I'm no longer updating the spreadsheet.

Here are the quarterly changes and a few comments from surferdude808:

Update on the Unofficial Problem Bank List through March 31, 2023. Since the last update at the end of December 2022, the list decreased by three to 46 institutions after three removals. Assets decreased by $1.7 billion to $49.3 billion, about one-third of the drop was because of a $787 million decline from updated asset figures through December 31, 2022. A year ago, the list held 54 institutions with assets of $60.9 billion. Removals during the quarter because of action termination included Carver Federal Savings Bank, New York, NY ($713 million) and The City National Bank of Colorado City, Colorado City, TX ($237 million). First Savanna Savings Bank, Savanna, IL ($9 million) found its way off this list through a voluntary merger.

With the conclusion of the fourth quarter, we bring an updated transition matrix to detail how banks are transitioning off the Unofficial Problem Bank List. Since we first published the Unofficial Problem Bank List on August 7, 2009 with 389 institutions, 1,789 institutions have appeared on a weekly or monthly list since then. Only 2.6 percent of the banks that have appeared on a list remain today as 1,743 institutions have transitioned through the list. Departure methods include 1,031 action terminations, 411 failures, 282 mergers, and 19 voluntary liquidations. Of the 389 institutions on the first published list, only 3 or less than 1.0 percent, still have a troubled designation more than ten years later. The 411 failures represent 23 percent of the 1,789 institutions that have made an appearance on the list. This failure rate is well above the 10-12 percent rate frequently cited in media reports on the failure rate of banks on the FDIC's official list.

On February 28, 2023, the FDIC released fourth quarter results and provided an update on the Official Problem Bank List. While FDIC did not make a comment within its press release on the Official Problem Bank List, they provided details in an attachment that listed 39 institutions with assets of $47 billion. These figures were notable lower from last quarter when the FDIC said the Official Problem List had 42 institutions with assets of $164 billion. Hence during the quarter, the large unknown depository was removed. The $116 billion decline in assets provides some clues as to that unknown depository. At December 31, 2022, there were three depositories -- UBS Bank USA ($121 billion); USAA Federal Savings Bank ($111 billion); and First-Citizens Bank & Trust Company ($109 billion). Since First-Citizens Bank & Trust Company, it was likely not them as they are a SEC registrant and an enforcement action would be considered a material event requiring disclosure. Given that the parent of UBS Bank just acquired Credit Suisse, would they have been approved to complete that acquisition with a troubled subsidiary? Emergencies do cause the authorities to approve transactions that would not be permitted in stable periods. USAA Federal Savings Bank appears to be owned by its policyholders; if so, then it would not be subject to SEC disclosure rules. A few names, some details on their circumstances, we will let you handicap who the unknown whale was.

Since we last checked in with, there has been another banking sector dislocation event. There have been three bank failures – Silvergate Bank, Silicon valley Bank, and Signature Bank. Some common risk characteristics of the failed banks include a deposit base that was mostly uninsured (“hot money’), lack of diversification (industry, business line, and customer concentrations), and poorly managed liquidity position (illiquid securities that could not be sold). The large volume of uninsured deposits triggered runs at other depositories, forcing a systemic risk declaration to protect the uninsured depositors at Signature Bank and Silicon Valley Bank. Hearings this past week on the Hill exposed failures in the supervisory process and regulatory framework. Informed readers here know that before a bank fails, the risks should be identified by regulators and a corrective program be in place. In short, the bank should be operating under a formal enforcement action before it goes belly up. That was not the case here, as all three banks went straight to failure bypassing the desired orderly resolution. These failures messy and very disorderly. Hopefully, some prudent reforms are put in place to prevent a re-occurrence.

A couple of comments: Regulators never disclosed the "whale" that added close to $116 billion to problem assets to the official problem list but has now been removed from the official list.  And none of the recently failed banks had formal enforcement actions prior to failure.