Rise In Banks At Risk For Going Under
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Mr. Greenspan said he did see signs of a modest recovery in U.S. job creation this year, but unemployment could remain at an undesirable level for some time.
The number of “problem” U.S. banks, or the banks the Government sees at risk for declaring bankruptcy, jumped 27 % during the fourth quarter of 2009 to 702 banks – the highest level since 1993, according to a government report released Tuesday. There were 76 banks on the list by the end of the fourth quarter in 2007. Analysts say this is evidence that the financial sector’s recovery is still shaky and weak.
The Federal Deposit Insurance Corp (FDIC) said the financial industry overall recorded a profit of $914 million for the last quarter of 2009, but said the rise in profits was mostly tied to the largest banks.
FDIC Chairman Sheila Bair said the profit was a huge improvement over the $37.8 billion loss the industry reported in the fourth quarter of 2008.
“It’s not that this was a strong quarter. It’s simply that everything was so bad a year ago,” Bair said in a statement.
Former Federal Reserve Chairman Alan Greenspan said Tuesday during his address to the Credit Union National Association conference that the U.S. economic recovery was “extremely unbalanced”.
“It’s really an extraordinarily unbalanced system because we’re dealing with small businesses who are doing badly, small banks in trouble, and of course there is an extraordinarily large proportion of the unemployed in this country who have been out of work for more than six months and many more than a year,” Greenspan said.
Mr. Greenspan said he did see signs of a modest recovery in U.S. job creation this year, but unemployment could remain at an undesirable level for some time:
“The reason why the unemployment rate is going to be sticky is that as soon as employment starts picking up, a lot of the people who have not been seeking jobs are going to come back into the labor force, and they will keep the official unemployment rate in the 9 percent area, something like that.”
Analysts have pointed to the unemployment rate as a deceiving statistic, citing its failure to include “discouraged workers” gives a false picture to the reality of joblessness.
The last underemployment rate released at the end of 2009 was 17.3%. As the job market picks up, more people will begin to search for work, bringing those persons into the category of “unemployed” because they are actively seeking a job, the precise statistical anomaly to which Mr. Greenspan was referring.
Meanwhile, the FDIC has faced difficulty covering deposits they pledged to protect. The agency’s fund that covers deposits is its deposit insurance fund. Last fall was the first time since 1991 the FDIC’s fund fell into the red. The deficit reached $21 billion in the fourth quarter of 2009, the FDIC’s largest deficit on record.
According to early predictors, the FDIC expects to seize as many financial institutions, or possibly more, than seized in 2009. 2010 has seen 20 banks shut down so far. Last year 140 banks went under.
The FDIC has worked to reduce its fund deficit. Ms. Bair said the end of 2010 should bring a more stable environment:
“Assuming we don’t have a significantly more adverse scenario than most people think, I think we will be in good shape this year and we will start seeing the deposit insurance fund balance go back up toward the end of the year.”
The Americano/Agencies
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