FDIC's 'problem bank list' spikes to highest level since Q3 2022

The Federal Deposit Insurance Corp. reported that total assets on its "problem bank list" rose by $15.8 billion to $82.1 billion in the first quarter.

The number of banks on the list rose to 63 from 52 during the same period. Still, problem banks make up 1.4% of total banks, which the agency said is "within the normal range for non-crisis periods" of 1% to 2%.

The total assets and number of banks on the list have been growing for the past three quarters now.

"We still have a historically high level of unrealized losses across the banking industry" in securities portfolios, Chairman Martin Gruenberg told reporters May 29. Supervisors are also focused on loans on banks' balance sheets and concentrations, he added.

The FDIC places a bank on the "problem bank" list if it has a CAMELS composite rating of 4 or 5. The CAMELS scale evaluates a bank's capital adequacy, asset quality, management, earnings, liquidity and sensitivity. The scale goes from 1 to 5, with 5 representing the worst status.

It is becoming much harder to receive a 1 rating as regulators zero in on capital, commercial real estate and governance, Jonathan Hightower, partner at Fenimore Kay Harrison LLP, said at S&P Global Market Intelligence's recent Community Bankers Conference.