FDIC report reveals distressed conditions at nation’s banks.  The most recent quarterly report from the Federal Deposit Insurance Corporation (FDIC) shows that rising defaults and fears of future losses have resulted in persistent impediments to the flow of credit and an historic downsizing of the banking industry.  In the first quarter, 21 insured institutions failed – the largest quarterly total since 1992 -- and another 50 were absorbed through mergers.  While the number of bank failures is small relative to the Savings & Loan crisis, the size of deposits among these banks mirrors the scale of that crisis. (See Chart) The size of FDIC’s Problem List, the set of banks with significant financial challenges, increased to 305 institutions comprising some $220 billion in assets.  Almost 60 percent reported increases in charge-offs (uncollectible loans and leases) over the past year.  Additionally, the share of loans more than 90 days past due increased from 2.95 percent in the fourth quarter of 2008 to 3.76 percent, the highest rate since 1991.  Because this rate continues to rise, banks are stockpiling reserves as they anticipate the charge-off rate to persist at high levels into the future.  Reflecting this trend, the ratio of bank reserves to total loans reached an all-time high of 2.50 percent and may help to explain why banks have been leery about relaxing credit standards.

Distressed sales, excess supply still weighing on home prices.  The Census Bureau reported that new single-family home sales in April increased 0.3 percent to an annualized sales pace of 352,000 units, almost 34 percent below last April’s rate.  With sluggish sales and an unsold inventory of new houses around 300,000, the months of supply figure – essentially, the time it would take to sell off the glut of unsold homes – remains highly elevated at 10.1 months; in the late 1990s, it was more common to see a months’ supply figure of 4 to 5 months.  This large supply overhang continues to weigh heavily on prices; the median sales price for a new home was $209,700 in April, nearly 15 percent lower than in April 2008.  The median sales price of an existing home has declined just as much over the past year, but this has been due to the large composition of distressed sales in the total monthly figure.  The National Association of Realtors reported that almost half of April’s sales were considered distressed, either foreclosure sales by banks or short sales, which almost certainly results in a heavily discounted sale price.  Though existing single-family home sales increased 2.5 percent, the median sales price is under $170,000, roughly on par with prices at this time in 2003.

Consumer spending falls for a second straight month.  Provisions of the American Recovery and Reinvestment Act helped to boost real disposable personal income in April (+1.1 percent), but consumers seemed reluctant to spend as personal consumption expenditures declined (-0.1 percent) for a second straight month.  The Federal Additional Compensation Program, which increased weekly unemployment benefits by $25, raised transfer payments by $11.8 billion (seasonally adjusted annual rate) in April, while the Making Work Pay Credit reduced personal current taxes by $49.8 billion (seasonally adjusted annual rate).  The personal savings rate for April was 5.7 percent, up from 4.5 percent in March and the highest recorded level since February 1995.