Definition
In American finance, the FDIC problem bank list is a confidential list created and maintained by the Federal Deposit Insurance Corporation which lists banks that are in jeopardy of failing. The list is closely monitored, and if problems continue with a listed bank, the FDIC takes control of the bank; it may then sell the problem bank to a stronger one, or liquidate the bank and pay off the depositors.
FDIC Problem Bank List
What is ‘FDIC Problem Bank List’
A list of commercial banks in the U.S. that are considered to be in financial difficulty. The Federal Deposit Insurance Corporation (FDIC) issues this problem list quarterly based on liquidity, capital levels and asset quality. Only institutions that are insured by the FDIC through the Deposit Insurance Fund (DIF) are included on the list. The actual names of the banks are not given, but the total assets are provided.
Explaining ‘FDIC Problem Bank List’
Problem institutions are chosen based on financial and operational criteria. The banks are given a ranking from one to five, with one being the most sound and five being the least. In order to be considered a four or five (a problem bank) the institution must have financial, managerial or operational weaknesses that threaten its continuing financial viability. The number of banks on the list are used to evaluate the strength of the financial industry as a whole. The banking industry is then used as a lagging indicator for the overall economy.
Further Reading
- A multivariate statistical analysis of the characteristics of problem banks – onlinelibrary.wiley.com [PDF]
- Establishing on-site bank examination priorities: An early-warning system using accounting and market information – www.jstor.org [PDF]
- Identifying" Problem" Banks: How Do the Banking Authorities Measure A Bank's Risk Exposure? – www.jstor.org [PDF]
- Troubled banks: Why don't they all fail – heinonline.org [PDF]
- Using accounting proxies of proprietary FDIC ratings to predict bank failures and enforcement actions during the recent financial crisis – journals.sagepub.com [PDF]
- Market discipline in regulating bank risk: New evidence from the capital markets – www.jstor.org [PDF]
- The federal deposit insurance corporation improvement act, bank internal controls and financial reporting quality – www.sciencedirect.com [PDF]
