Credit crunch hasn't hit bottom, FDIC says

Banks will continue to feel the pain of the credit crisis, according to the FDIC.

“We haven’t seen the trough of the credit cycle yet,” Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corp., told The New York Times in an interview.

Her negative forecast for the industry followed a Tuesday report from the FDIC revealing plummeting insured-bank and thrift earnings during the second quarter.

Net income for those institutions hit $5 billion, down 86.5% from the comparable period in 2007 — the lowest earnings for the industry in nearly17 years.

Furthermore, the FDIC may have to borrow from the Department of the Treasury to get through the next wave of bank failures.

Although Ms. Bair would not rule out the possibility of tapping the Treasury for a short-term line of credit, she said that the FDIC is unlikely to do so in the “near term.”

Some 117 institutions are on the FDIC’s “problem list,” up from 90 at the end of the first quarter, and more banks will be added to the list as credit problems continue to worsen, she said in a statement.

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