Copyright 2008 Gannett Company, Inc.All Rights Reserved USA TODAY
July 14, 2008 Monday FIRST EDITION
SECTION: MONEY; Pg. 1B
LENGTH: 367 words
HEADLINE: Banks at risk of failing almost double since 2006
BYLINE: Kathy Chu
Rising losses from bad mortgages and low capital levels are threatening the viability of a small, but growing, number of U.S. banks.
The Federal Deposit Insurance Corp. says 90 institutions, about 1% of those it insures, are on its list of "problem banks" at greater risk of failing. That's up from 50 at the end of 2006.
On Friday, IndyMac, a mortgage lender with $32 billion in assets, became the fourth-largest financial institution to be taken over by regulators, based on inflation-adjusted assets. During the housing boom, IndyMac was a leader in a type of loan that typically didn't require proof of income. IndyMac has laid off thousands of employees and sharply cut its mortgage lending in recent days.
IndyMac is the fifth institution to fail this year and likely won't be the last victim of the credit crisis.
"We are closely monitoring institutions that have made higher-risk mortgages," said FDIC Chair Sheila Bair. "There will be increased failures, but they will be within the range of what we can handle."
The "overwhelming majority of banks in this country are safe and sound," she later said. Others will be able to shore up their financial positions by raising capital to cover their losses, improving their earnings or the quality of their loans, regulators say.
Still, the entire banking system is under "an increasing and very high level of stress," says Mark Zandi, chief economist at Moody's Economy.com.
At the end of March, real estate loans that were delinquent or in default accounted for 25% of banks' available capital to cover such losses, Zandi says. By comparison, troubled loans made up less than 10% of banks' capital from 1995 through 2005.
John Reich, director of the Office of Thrift Supervision, blamed IndyMac's failure on comments made by Sen. Charles Schumer, D-N.Y. In a letter to federal regulators on June 26, Schumer, chairman of the Joint Economic Committee, expressed concern about the thrift's "financial deterioration."
After the letter was made public, IndyMac customers withdrew an average of $100 million a day, Reich says. On Sunday, Schumer said that the Office of Thrift Supervision was "asleep at the switch" in monitoring IndyMac's lending activities.
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