New recession worry: Bank failures

Construction loan problems threaten spike in smaller bank failures and add to worry over credit crunch.

By Chris Isidore, CNNMoney.com senior writer

March 3 2008: 4:14 PM EST

Recession Watch 2008

• Job losses: Worst in 5 years
• Consumer confidence lowest on record
• House Democrats vow new push on economy
• Service sector improves, but still weak
• Bank regulators: ‘Asleep at the switch’

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NEW YORK (CNNMoney.com) — As if the economy wasn’t already fighting enough strong headwinds, the risk of capital shortfalls and outright failure of the nation’s banks is rising.

The Federal Deposit Insurance Corp., the federal agency that backs bank deposits, last week reported the biggest jump in “problem institutions” it has seen since the savings and loan crisis of the late 1980s. While the extent of the problem is still low by historic standards, it identified 76 banks as in trouble - a 52% increase from a year ago.

FDIC Commissioner Sheila Bair among regulators set to testify Tuesday at a Senate Banking Committee hearing on the state of the banking industry.

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Tags: Bank failures