Despite all the talk about good economic news, the plight of the US banks highlights the fundamental crisis confronting the world's biggest economy. And it's getting worse.
According to a Federal Deposit Insurance Corporation (FDIC) statement , the number of "problem" banks and bank failures has almost tripled in the last 12 months. There are now more than 400 and the list is growing. Bad loans are increasing with fewer able to repay and that's pushing up the amount of reserves banks have to aside which is hitting their earnings.
And the big problem is that more people with conventional loans are struggling to stay afloat. "While the early losses were related to residential loans and complex mortgage-related assets … where the crisis really began … we're now seeing problems with more conventional types of retail and commercial loans that have been hit hard by the recession,'' FDIC chairman Sheila Bair said.
This is going to get worse. As reported here, analysts predict the number of US bank failures will quadruple as lenders struggle with bad loans. Chairman and Chief Executive Officer at BankUnited, John Kanas has predicted we will see 1000 more bank failures over the next two years.
Rising unemployment will continue to drive the problem because consumer spending has long been the engine of the US economy. With that gone, the problems will continue for some time.
We can expect to see hundreds of more US banks going out of business.
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