Rise in America’s ‘problem banks’

Press, 24 October 1984, Page 32

Rise in America’s ‘problem banks’

NZPA-AFP Washington The number of problem banks under scrutiny by American Federal banking authorities has risen sharply to a record 797 banks, or 5.4 ger cent of all the country’s Meanwhile, a study by the accountancy firm, Peat, Marwick and Mitchell, has forecast that through mergers, one-third of America’s banks will have ceased to exist within five to seven years. The report also said that many banking premises would be occupied only by computer equipment. American banking activity is supervised by three agencies, the Federal DeStsit Insurance Corporation, e Controller of the Currency, and the Federal Reserve Board. These agencies place banks under surveillance in relation to several criteria. Among the most important of these is what the FDIC considers an unduly high level of. problem loans, which usually means loans

on which interest payments are in arrears. Mr William Isaac, the chairman of the FDIC, said that the number of such banks was now twice as high as at the end of the 1973-75 recession, and now accounted for 5.4 per cent of the registered 14,750 commercial banks. He also said that the number of banks under surveillance was increasing, although at a slower rate. In 1976 the number of banks under surveillance totalled 385 or 2.6 per cent of the total. That figure fell at the end of the 19705. The recession of 1981-82 pushed up the figure, which rose from 389 at the beginning of 1983 to 642 early in 1984 and 721 on August 1, 1984. Mr Isaac said the recent increase did not reflect tighter examination procedures. He also said the problems of the Continental Illinois Bank, which was effectively nationalised in July after a huge withdrawal of deposits,

had not been a factor in the increase.

Most of the problem banks were small banks, the FDIC chairman said, adding that the increase had, been caused simply by the economic environment. “A decade or more of accelerating inflation, followed by two back-to-back recessions, and extremely high and volatile interest rates” had taken their toll on banks. The Peat, Marwick and Mitchell report, presented at the opening in New. York of the annual conference of the American Bankers’ Association, also said that by 1990, between 10 and 20 major chains of financial services retailers would be established across the United States. In the premises shared by several banking organisations, customers would have the use of automatic money distributors, night safe deposit boxes, machines for opening an account, video screens, and a wide range of other services.