The FDIC List Of “Problem Banks” Rises With No Audit In Place

The FDIC issued its report for the fourth quarter of 2010.

The number of institutions on the FDIC’s “Problem List” rose from 860 to 884. Total assets of “problem” institutions increased to $390 billion from $379 billion in the prior quarter, but are below the $403 billion reported at year-end 2009.

The agency also had some good news. Firms insured by the fund had profits of $21.7 billion in the last quarter of 2010. That compares to a loss of $1.8 billion in the same quarter a year ago.

The balance of the Deposit Insurance Fund (DIF) also improved to a deficit of $7.4 billion. The worst appears to be behind the agency which had to take insurance money in advance in 2008 from banks which  it insured so it would not become insolvent. “As we have repeatedly stated, we believe that the number of failures peaked in 2010, and we expect both the number and total assets of this year’s failures to be lower than last year’s,” Chairman Sheila Bair said.

There have been several members of Congress who want the books of the Federal Reserve audited. They think taxpayers should know how the Fed lends its money and spends its resources. They want to know how many bad loans, loans on which the Fed is unlikely to collect, the agency has on its books.

These members also wanted to know which large banks got money during the credit crisis. The Fed did eventually release those numbers. Fed Chair Ben Bernanke said that if the data had been released too soon Wall St.’s confidence in some financial firms would have been shattered.

There has been surprisingly little interest in reviewing the books of the FDIC although it has shuttered over 200 banks in the last two years. It is unclear to outsiders exactly why these institutions were closed. It is also something of a secret about which firms are on the “problem” institutions list. The exposure the FDIC has because of the nature of the banks in peril may be such that a number of failures would do little to draw down the fund. But, there is no assurance of that.

The Congress takes most of the FDIC’s statements at face value. There is some danger there. An audit of the FDIC could be done by an independent auditor. The names of the “troubled” firms could remain confidential. Blair’s concern is that if the list were made public that there would be a run on these banks. That is fair enough as was Bernanke’s concern about the information that the Fed had on larger banks

A great deal of what the government does is in secret. There is nothing wrong with that per se. But, what taxpayers may have to pay for bank closures is not so much of  secret to keep the information away from an audit and certain members of  Congress.

Douglas A. McIntyre