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Monday, October 03, 2022

Q3 2022 Update: Unofficial Problem Bank list Decreased to 51 Institutions; Search for "Whale" Continues

by Calculated Risk on 10/03/2022 03:56:00 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 September 30, 2022. Since the last update at the end of June 2022, the list decreased by one to 51 institutions after an addition and two removals. Assets decreased by $2.9 billion to $51.5 billion, with the change primarily resulting from a $2.2 billion decrease from updated asset figures through June 30, 2021. A year ago, the list held 59 institutions with assets of $54.9 billion. Added during the third quarter was Unity National Bank of Houston, Houston, TX ($246 million). Removals during the quarter because of action termination included Southwestern National Bank, Houston, TX ($884 million) and Amory Federal Savings and Loan Association, Amory, MS ($74 million).

With the conclusion of the third 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, 1,785 institutions have appeared on a weekly or monthly list since then. Only 2.9 percent of the banks that have appeared on a list remain today as 1,734 institutions have transitioned through the list. Departure methods include 1,024 action terminations, 411 failures, 280 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 1,785 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 September 8, 2022, the FDIC released second 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 40 institutions with assets of $170 billion. In its 2022 first quarter release, the FDIC list had a material $119 billion increase in assets. Since that release, none of the prudential banking regulators – FDIC, Federal Reserve, and OCC – have publicly released an enforcement action detailing an enforcement action against a large institution. The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) passed by Congress in 1989 requires publication of enforcement actions. See “Supervisory Enforcement Actions Since FIRREA and FDICIA,” published by the Federal reserve Bank of Minneapolis for further details. Prior to FIRREA, enforcement actions were not published by the prudential banking regulators. Section 913 of FIRREA requires public disclosures of enforcement actions. Section 913(2) does allow a delay in the enforcement action publication if “exceptional circumstances” exist. The prudential regulator must make a written determination that publication “would seriously threaten the safety & soundness of an insured depository institution.” The prudential regulator “may delay the publication of such order for a reasonable time.” The section does not define “a reasonable time.” It has been more than six months since that enforcement action was issued, so it seems the primary regulator considers this a “reasonable time” before it informs the public of a large, troubled institution.
Regulators still haven't disclosed the "whale" (that added close to $120 billion to problem assets).