The FDIC just released its periodic list of financially troubled banks. There are 117 listed banks, up from 90 last quarter, commanding $78 billion in assets, up from $26 billion. FDIC leaders say the report is unsurprising, noting that the credit crunch that began more than a year ago does not appear to be abating.
At least two profound problems contribute to the enduring credit crunch, of length and severity not seen since the Great Depression. The first is that the securities driving the crunch, including pools of sub-prime mortgage loans with complex features, are difficult to value. Investors continue to shun them. The second is that the US government’s efforts at building confidence despite those valuation difficulties have failed. Investors are not impressed with the government’s actions or plans to date. No solution to either problem appears on the horizon.