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'Marketplace' Report: Broke Banks


From NPR News, this is Day to Day. Profits in the banking industry are plunging. Now, there's word that the FDIC, that's the institution that insures banks, may need some help of its own. Marketplace's Bob Moon is here now. Bob, first tell us about these latest law suits for the banks. How bad is it?

BOB MOON: Well, Madeleine, this is the way the head of the Federal Deposit Insurance Corporation put it at her news conference. Quite frankly, the results were pretty dismal. Well, that may be an understatement. She was talking about the banking industry, which saw profits plunge 86 percent in the most recent quarter of the year.

Now today, we have this data from the U.S. office of thrift supervision that shows savings and loans lost 5.4 billion dollars in the second quarter, and they set aside a record amount, 14 billion dollars, to cover expected losses from bad mortgage and other loans. The FDIC reported yesterday that, combined, banks and thrifts it insures did set aside more than 50 billion dollars to cover losses, and that's also a record. By way of comparison, these thrifts that reported those losses of more than 5 billion dollars were in the reg of 627 million dollars during the previous quarter, and a year ago, they were reporting net profits of nearly 4 billion dollars.

BRAND: So a startling turnaround. Any sign, though, that this is the bottom, and that things might be improving?

MOON: So far, nine U.S. banks have failed this year, and most analysts don't see any indication that either the housing market or the credit crisis have hit bottom yet. In fact, there's a respected company based in the U.K., it's called Begbies Traynor. It specializes in insolvency issues and corporate rescue and recovery, and that firm has just issued a research note suggesting there could be - get this, an average of 100 small banks failing in the U.S. each year for the next three years, and their note calls that far from inconceivable.

The data released yesterday by the FDC - by FDIC, by the way, showed 117 banks and thrifts are now considered to be in trouble, and the FDIC warned that conditions will worsen, although it did say a majority of U.S. banks will be able to weather the storm. 98 percent still have an adequate stock pile of money by the regulator's standards.

BRAND: Well, let's talk more about the FDIC. It, obviously, is the insurer of banks of deposits up to 100,000 dollars, but with all these banks in trouble, is the FDIC in trouble?

MOON: Well, at this point, the FDIC hasn't had to borrow any money from the treasury, but its chairwoman says she won't rule out that possibility. It would be a temporary means of covering the cost of quickly reimbursing depositors and then would be paid right back to the treasury once the bank's assets would be liquidated.

BRAND: Thank you, Bob. That's Bob Moon of public radio's daily business show, Marketplace. Transcript provided by NPR, Copyright NPR.