Last August I wrote a post talking about this study that said 416 banks were in trouble. It seems that the news is much worse about six months later, as the prediction now is that 702 banks, which is one out of every 11 banks in the country, are in trouble. That also includes a couple of big banks, my whipping boys Citigroup and Bank of America; isn’t that a shame?

To what are they attributing all this bad news? The three main criteria are finances, operations and management. We all understand the finances part; if banks don’t have enough money to conduct business, that’s obviously not good. Operations is where we look at the specific areas that banks might be having major problems with, such as mortgage debt, credit card debt, and loan defaults. Management also speaks for itself, although I wonder how the FDIC evaluates the competency of management.

A statistic that came out said that usually only 13% of banks on the watch list end up being seized, as they usually will find ways to extricate themselves out of their difficulties, even if it’s just to merge with another bank. That’s good news if you ask me. Something they didn’t talk about, though, is if some of the banks that are on this list are those who invest heavily in commercial real estate. That’s still a major worry as well.

So far this year, 20 banks have been closed, putting it on the same pace as last year, but FDIC Chairman Sheila Bair believes the number of banks being closed will escalate as the year goes on. That’s bad news, but maybe this is what’s needed to reign in banks across the board. Seems to be a long process in fixing things, doesn’t it?

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