The FDIC issued a final rule that prevents banks that are less than well-capitalized from soliciting deposits at interest rates that significantly exceed prevailing rates. The new regulation, which takes effect Jan. 1, 2010, permits insured institutions that are less than well-capitalized to offer the “national rate” plus 75 basis points.


“The subjectivity in our current rule is allowing some weak banks to drive up costs for the rest of the industry,” said FDIC Chairman Sheila Bair in a press release.


The “national rate” is defined, for deposits of similar size and maturity, as a simple average of rates paid by all depository institutions and branches for which data are available. If the FDIC determines that the national rate published on the FDIC’s Web site does not represent the prevailing rate in a particular market, as indicated by available evidence, the prevailing rate in that market, plus 75 basis points, will apply.


The rule applies to a small minority of insured institutions. In the first quarter of 2009, 248 banks were less than well-capitalized, out of more than 8,200 banks nationwide. The final rule is available at



  FDIC-insured institutions reported an aggregate profit of $7.6 billion in the first quarter of 2009, according to data in the Quarterly Banking Profile. Earnings were down 61% from the $19.3 billion posted in the prior-year period, but were sharply improved from the $36.9 billion loss reported in the fourth quarter of 2008.


Rising loan-loss provisions continued to depress earnings. Institutions set aside $60.9 billion for loan losses—$23.7 billion more than they set aside in the prior-year period. Almost two-thirds (65.4%) of all institutions increased loan-loss provisions in the first quarter. Reserve building raised the ratio of reserves to total loans to an all-time high of 2.5% by the end of the first quarter. Earnings were aided by increases in noninterest income activities including earnings from trading revenues ($7.6 billion more than a year earlier), servicing fees ($2.4 billion) and realized gains on securities and other assets ($1.9 billion).


During the quarter, 21 institutions failed, the most since the fourth quarter of 1992. The number of insured banks and thrifts on the FDIC’s “Problem List” increased from 252 to 305, and total assets of problem institutions rose from $159 billion to $220 billion. “Problem” institutions are those institutions with financial, operational or managerial weaknesses that threaten their continued financial viability.


The Quarterly Banking Profile is available at



  The Office of Thrift Supervision reported that the nation’s thrifts nearly reached breakeven in the first quarter of 2009, posting aggregate losses of $47 million, a vast improvement from losses of $5.4 billion in the fourth quarter of 2008. That translates to an improvement in return on assets (ROA) from −1.82% to −0.02%.


Overall, 74% of thrifts posted a profit in the quarter, up from 65% in the previous quarter. Loan-loss provisions declined to $5.8 billion from $9.3 billion in the prior quarter. Capital remained strong as 96.5% of all thrifts, holding 95.8% of all thrift assets, remained “well-capitalized” by regulatory standards.


However, the number of problem thrifts—those with composite examination ratings of 4 or 5 on a scale of 1 to 5 with 1 being the best rating—rose to 31 from 26 in the previous quarter. The level of troubled assets also continued to rise—to 3.35% of assets, up from 2.54% in the previous quarter and 2.06% in the prior-year quarter. The dollar amount of troubled assets ($41 billion) reached a record high. The ratio of troubled assets, though, is below the record of 3.86% in the first quarter of 1991. Troubled assets include noncurrent (90 days or more past due or in nonaccrual status) loans and repossessed assets.


The profile of troubled assets has changed substantially since 1990, when commercial real estate loans represented 68% of troubled assets. Last quarter, mortgages on one-to-four family residential properties comprised 81% of troubled assets.


More information is available at



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