Number of Problem Banks in America Nears 1,000

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The financial crisis seems to be far from over for the nation’s smaller banks.

Two and a half years after the bankruptcy of Lehman Brothers, the number of banks that are still facing serious financial problems continues to rise, and is now nearing the four digits. According to Calculated Risk, the number of banks in the U.S. that are in danger of failing hit 985 last week, the highest level since the beginning of the financial crisis. That’s up from 935 at the beginning of the year, just three months ago. When Calculated Risk began compiling its list of troubled banks back in mid-2009, the number of banks in trouble in the US was just under 400. In a little less than two years, nearly 600 additional banks have slipped into the danger zone. (That’s on top of the few hundred that have actually failed.) And that number appears to be getting bigger.

The good news is that unless you live in the town where they reside, most of the banks that are slipping into trouble now are ones that most of us have never heard of. The latest additions to Calculated Risk’s list include Plumas Bank of Quincy, Calif.; Country Bank of Aledo, IL; and First Financial Bank, Bessemer, AL. Plumas Bank is the largest and is actually publicly traded. But it has just under $500 million in loans and other assets. For comparison, Citigroup, one of the banks in major trouble at the beginning of the downturn, had just over $2 trillion in assets at the beginning of the downturn.

So why are so many small banks still in trouble? First of all they didn’t get the full backing of the U.S. government to pull them out of trouble like the large banks did. Second, a number bigger percentage of the loans at small banks are commercial loans. And while the big banks have had a lot of trouble refinancing mortgages, that’s nothing compared to what it takes to refinance a commercial property. Developers would rather cut and run than refinance a loan that is well under water. It’s not like a homeowner who fights to stay in the house that they live. What’s more commercial loans are often based on rents, and with few companies spending money on expansions, and consumer spending growing but still relatively weak, retail and office space rents are still way down.

So while the earnings at the big banks look a lot better than they did back in 2008, the large and still growing list of banks across the U.S. that are still in trouble is a reminder that the financial sector, and intern the economy, is far from recovered.