Troubled Banks at Lowest Level Since 2008

Troubled Banks at Lowest Level Since 2008

Bauer’s newly released star-ratings show continued progress by U.S. Banks and Credit Unions. As we reported last week, banks rated 5-Stars or 4-Stars, and therefore recommended, now represent 73% of entire industry while recommended credit unions now represent 76.5%. That’s even higher than the levels of 70.5% and 73.1% (respectively) at the end of 2007.

At the other end of the spectrum, the number of banks rated 2-Stars or below (Troubled or Problematic) currently represent 7% of total banks while just 3.3% of all U.S. CUs fall into that category. On the surface, that’s considerably higher than the 2% that each claimed six years ago. However, if you look at the assets represented by those problem institutions, less than 1% of each industry is affected. At their peak, assets in U.S. banks rated 2-Stars or below represented over 14.5% of the industry assets (4Q’08) and credit unions rated 2-Stars or below represented nearly 8% of total assets (4Q’09). At less than 0.9% now, that is a huge improvement.

The number of institutions continues to decline as both industries consolidate. And consolidate they have. At the close of 2007 there were 8,525 banks with average assets of $1.5 billion. Today, there are just 6,773 banks but average assets have ballooned to $2.2 billion.

During that same time-frame, 8,268 CUs with average assets of just $93 million have transformed into 6,685 CUs with average assets if $161 million.

Assets aren’t the only thing growing. Bank deposits have grown by a third in the past six years. Bucking that trend are Jumbo CDs, which are now close to 2003 levels. This too shall pass.