Bank earnings improving.Sixty-two percent of banks reported improvement in earnings in the fourth quarter of 2010 compared to a year earlier, the FDIC reported. Average return on assets rose to 0.65 percent, from negative 0.06 percent a year ago. The number of banks on the FDIC's problem bank list (those with CAMELS ratings of 4 and 5) increased to 860 at the end of the year, representing assets of $390 billion. At year-end, the Deposit Insurance Fund had a balance of negative $7.4 billion, compared to negative $8.0 billion at the end of the third quarter. "We expect the DIF will turn positive in 2011," FDIC Chairman Sheila Bair said. Total insured deposits increased by 14.8 percent during the quarter, reflecting additional, temporary coverage of non-interest bearing transaction accounts authorized by the Dodd-Frank Act. .KC Fed President says TBTF remains a problem.Federal Reserve Bank of Kansas City President Thomas Hoenig called for the break-up of the nation's largest financial institutions. Speaking Feb. 23 at the Women in Housing and Finance conference in Washington, D.C., Hoenig said: "We must break up the largest banks, and could do so by expanding the Volker Rule and significantly narrowing the scope of institutions that are now more powerful and more of a threat to our capitalistic system than prior to the crisis." Hoenig said he does not believe the Dodd-Frank Act will resolve the too-big-to-fail problem and called for "Glass-Steagell type limitations on the activities of those organizations that are otherwise too big to fail." Asking what should be done with organizations that are too big to effectively supervise, he answered: "For me, the answer is firm: they must be broken up." .Bank failure in Illinois.The Illinois Department of Financial and Professional Regulation – Division of Banking closed the Valley Community Bank in St. Charles, Ill., on Feb. 25. First State Bank, Mendota, Ill., purchased the failed bank's $123.8 million in assets and $124.2 million in deposits in a transaction facilitated by the FDIC. Valley Community Bank had five branches. No loss-sharing agreement is mentioned in the FDIC press release. The FDIC estimates the resolution will cost the Deposit Insurance Fund $22.8 million. It was the 23rd bank failure this year, and the second one in Illinois. Thirty-nine banks have failed in Illinois since the financial crisis of 2008. .Loan modification program results modest so far.About one in four homeowners who sought help from the Home Affordable Modification Program succeeded in lowering their monthly mortgage payments. HAMP is the program started by the Obama administration designed to help homeowners avoid foreclosure. An analysis performed by the Wall Street Journal showed that 680,000 homeowners out of 2.7 million who applied actually obtained lower payments. The White House launched HAMP in 2009 but strict eligibility requirements have limited its effectiveness, critics say. The program has used about $1 billion in taxpayer funds, far less than the $75 billion the program initially was estimated to cost. The program offers payments to more than 100 mortgage servicers across the country if they successfully complete loan modifications.
