The number of banks that the Federal Deposit Insurance Corp. considered a "problem" continued to decline in the first quarter, but total assets of institutions with that designation increased sharply.
The assets of "problem" banks ballooned to $56.4 billion at March 31 from $13.9 billion at Dec. 31, 2017. The FDIC defines "problem" banks as those "with financial, operational or managerial weaknesses that threaten their continued financial viability."
"Problem" assets are at their highest level since June 30, 2015, when there were 228 "problem" institutions. According to the FDIC's quarterly banking profile, there were just 92 "problem" banks at March 31, the lowest total in a decade.

Recent reports indicate that Deutsche Bank AG's U.S. operations may be the main driver of that increase. The Wall Street Journal reported, citing anonymous sources, that the company's U.S. business was placed on the FDIC's "problem" list and that it was deemed to be in "troubled condition" by the Federal Reserve a year ago. Deutsche Bank Trust Co. Americas, which the company describes as its principal U.S. banking subsidiary, had $42.12 billion in assets as of March 31.
Deutsche also operates U.S. units DB USA Corp. and Deutsche Bank Trust Corp.
The German bank does not comment on specific regulatory actions, the company said in an emailed statement. The statement noted that Deutsche Bank Trust Co. Americas "has a very robust balance sheet as disclosed in our annual and quarterly regulatory filings" and that the ultimate parent, Deutsche Bank AG, is "very well-capitalized and has significant liquidity reserves."
"We have previously indicated that our regulators have identified various areas for improvement relating to our control environment and infrastructure," the company said in the statement. "We are highly focused on addressing identified weaknesses in our U.S. operations."
The FDIC declined to comment, and the Federal Reserve did not respond to a request for comment as of the time of publication.
Deutsche Bank's U.S. subsidiary did not participate in the quantitative portion of the 2017 CCAR process and passed the qualitative portion, with capital levels well in excess of the minimum requirements. This was the first year the unit, now under an intermediate holding company within the parent company, did not participate in the qualitative section of the review, which examines the modeling, processes, procedures and controls a company uses to perform the review.
The U.S. unit had struggled with that portion of the review in the two years prior, receiving two objections to its capital plan.
In 2015, the Federal Reserve highlighted issues with "risk-identification, measurement and aggregation processes; approaches to loss and revenue projection; and internal controls." The Fed noted in the 2016 results that there were "some" improvements in "certain" aspects of capital planning, but that there are "material" unresolved supervisory issues that undermine the overall capital planning process.
"The Federal Reserve determined that the assumptions and analysis underlying the capital plan of DBTC, and the capital adequacy process of DBTC, are not reasonable or appropriate," the regulator wrote. "In particular, the Federal Reserve identified deficiencies in the risk management and control infrastructure at DBTC, including risk measurement processes; stress testing processes; and data infrastructure."
Eleven U.S. banks and thrifts were undercapitalized as of March 31, an improvement from 12 at the end of 2017 and 21 in the year-ago quarter.
Manchester, Ga.-based F & M Bank and Trust Co. was the lone U.S. bank that shifted to undercapitalized status in the first quarter. It meets the minimum thresholds for the Tier 1 capital ratio, CET1 ratio and leverage ratio, but its 7.39% total risk-based capital ratio falls short of the required 8%. F&M has reported a net loss for five consecutive quarters.
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