Q2 2022 Update: Unofficial Problem Bank list Decreased to 52 Institutions; Search for “Whale” Continues

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 June 30, 2022. Since the last update at the end of March 2022, the list decreased by two to 52 institutions after an addition and three removals. Assets decreased by $6.1 billion to $54.4 billion, with the change primarily resulting from a $6.1 billion decrease from updated asset figures through March 31, 2021. A year ago, the list held 65 institutions with assets of $51.8 billion. Added during the second quarter was St. Landry Bank and Trust Company, Opelousas, LA ($324 million). Removals during the quarter because of unassisted mergers included First National Bank of Muscatine, Muscatine, IA ($368 million); Lincoln 1st Bank, Lincoln Park, NJ ($261 million); and First National Bank in Fairfield, Fairfield, IA ($154 million).

With the conclusion of the second 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, 1,784 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 1,732 institutions have transitioned through the list. Departure methods include 1,022 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 23.1 percent of the 1,784 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 June 21, 2022, the FDIC released first 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 $173 billion. The FDIC list had a material $119 billion increase in assets during the first quarter of 2022. None of the prudential banking regulators – FDIC, Federal Reserve, and OCC – have publicly released an enforcement action detailing the large institution added. 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 nearly six months since that enforcement action was issued, so it is unknown what constitutes “reasonable time.”

Regulators still haven’t disclosed the “whale” (that added close to $120 billion to problem assets).