There have been a number of heartening signs lately that the recession is not only slowing but may even, technically, be over. This week alone confirmed the advance estimate from the Bureau of Economic Analysts that GDP in the second quarter fell by only 1%, from the Census Bureau that orders for big-ticket items increased 4.9% in July, from Standard & Poor’s that the Case-Shiller Home Price Index showed price rises in 18 of 20 cities that the index tracks, and from the Conference Board that even consumer confidence has rebounded after several months of decline.
However, there is one area of the economy that remains significantly weak: the banking sector. On August 27, FDIC Chairman Sheila Bair released the agency’s Quarterly Banking Profile, which revealed a mixed picture of the industry but certainly indicated that it remains troubled. For instance, Bair said that FDIC-insured commercial banks and savings institutions lost an aggregate of $3.7 billion in the second quarter, compared to the $4.8 billion in profits reported by those institutions in the second quarter of 2008. Indicators of asset quality continued to worsen during the second quarter, the FDIC said, though net interest margins improved.
However, the number of institutions sitting on the FDIC’s “Problem List” rose to 416 with total assets of $299.8 billion as of the end of June, compared to 305 on March 31, bringing the number of banks on the list–which suggests that a bank is at a high risk of insolvency–to its highest level since June 30, 1994.