Weiss, FDIC Figures Show Banking Industry the Healthiest in Years

Financial stocks have done very well since Donald Trump was elected for a number of reasons. But one of them is paramount: The U.S. banking industry has been on the mend since the 2008 financial crisis and, based on our safety ratings and figures from the Federal Deposit Insurance Corporation (FDIC), it keeps getting healthier.

First, let’s talk about the government data. The FDIC maintains a list of institutions called “Problem Banks”. According to the agency, “Problem” institutions are those institutions with financial, operational, or managerial weaknesses that threaten their continued financial viability. Federal regulators assign an undisclosed composite rating to each bank, based upon an evaluation of financial and operational criteria.

Banks on the FDIC problem list reached a 10-year high in 2010, with 884 banks considered problematic. But by the end of 2016, the tally dropped to 123 banks. That’s a staggering 86.1% decline over the last six years!

While the FDIC doesn’t release its ratings, we do – and the FDIC’s problem banks can be compared to Weiss Ratings’ weakest banks, or those rated “E”. These banks demonstrate what Weiss considers to be significant weaknesses that could negatively impact depositors and creditors, even in a favorable economic environment.

Back in 2010, the Weiss count of weakest banks hit a 10-year high, with 449 of them receiving an “E” Weiss Safety Rating. Since then, this number has declined 83.1%, falling to 76 banks in 2016.

The graph below indicates that, historically, the number of banks on the Weiss’ weakest list has been lower than on the FDIC problem list. This is mainly due to different criteria being applied. However, both Weiss and FDIC figures show a significant improvement over the last ten years.

(Click here to see all Weiss’ E rated banks. The FDIC does not publish the Problem Bank list.)

Of course, the overall number of active federally insured banks has also declined significantly. There were over 8,600 FDIC banks in the country in 2006, a number that has been reduced sharply through mergers or failures to 5,900 banks in 2016.

But even if you assess the figures on a percentage basis, you still find that the banking industry has shown significant improvement in financial safety and stability. In the graph below, you can see the percentage of problem and weakest banks in the industry.

According to the FDIC, a hefty 11.5% of the nation’s banks were problematic in 2010 and, according to Weiss Ratings, 5.9% were very weak. These percentages declined quite a bit by 2016, dropping to the lowest levels since the Great Recession.

A significant stabilizing of the banking industry followed the implementation of the Dodd-Frank Act, although it is not without numerous critics. Signed into law in 2010, it regulates and monitors the financial industry to ensure there is no repeat of the banking industry collapse.

One last note: While the banking industry is currently in its best shape in nearly a decade, even in the good times, there are banks that struggle and can trigger a domino effect if left unmonitored. So Weiss Ratings will continue monitoring the industry, aiming to identify any red flags before it’s too late.

Be sure to check out Weiss’ bank safety ratings and add your bank to the Watchlist, so we can notify you about any changes in your bank’s rating.

Think safety,

Remi Lukosiunas

Money and Banking Edition, By Remi Lukosiunas, Financial Analyst Remi Lukosiunas, a Financial Analyst, joined Weiss Ratings in 2014 with a financial services background in internal audit and the credit union industry. Remi conducts banking, credit union, insurance and investment research. He has also written extensively on stocks and investing using ratings as a guide. Remi is a graduate of Florida State University with a degree in multinational business.