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FDIC to check money center banks are solvent

'Golden age of banking' over, says FDIC

By Darla Mercado
August 22, 2007

The Federal Deposit Insurance Corp., the insurer of bank deposits, today said that it was watching credit markets and eyeing the balance sheets of the large U.S. banks.

A second quarter report of the FDIC-insured institutions revealed that problematic real estate loans continued to pile up.

The "tremendous golden age of banking" for U.S. financial institutions had ended, at least temporarily, said FDIC chairman Sheila Bair in a statement.

"Everybody is being challenged in this current environment," she said.

Leases and loans that were at least 90 days late grew by $6.4 billion, an increase of 10.6%.

Late loans and leases have been climbing for the past five quarters, hitting a total of $66.9 billion for the quarter ending June 30, the FDIC said.

Late residential mortgage loans hit a total of $27.5 billion at the end of the quarter, having gained $3.1 billion in the period.

“The subprime market is still a major concern,” said FDIC chairman Ms. Bair.

"But I want to emphasize that the banking industry’s fundamentals remain strong. The situation highlights the need for banking regulators to remain vigilant in enforcing sound risk management practices.”

Still, higher expenses from bad loans reduced quarterly earnings for the institutions: Net income was $3.6 billion, which is $1.3 billion less than last year’s level.

Insured banks also set aside $11.4 billion in loan-loss provisions during the period—the most since the fourth quarter of 2002—some 75.3% higher than the amount set aside for the second quarter of 2006.

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