ECONOMIC OUTLOOK

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The FDIC list of "problem banks" contains 245 banks, as of April 30, 1982.

A commercial bank with less than 5% equity is graded "yellow." In addition, a commercial bank that is losing money gets a yellow tag. (None of the top 50 had an operating loss during the reporting period covered by the Veribanc study.) Veribanc has also devised a set of criteria for putting commercial banks into the "red" category, but none of the top 50 is currently affected.

The Federal Home Loan Bank Board applies a similar test to S&Ls. The Board defines an S&L as "failing" if its net-worth-to-assets ratio falls below 3% or if, at its present rate of operating loss, the institution would reach zero net worth within a year. Veribanc awards a "red" in either case.

Before November 1980, the FHLBB used a 5% standard to identify "failing" S&Ls. Then the board changed its rule to 4%, and in January 1982 reduced it again to 3% — the minimum allowed by statute.

Veribanc classifies as "yellow" any S&L with a net-worth ratio of more than 3% but less than 5%. Also, if an S&L is running a loss (regardless of its net worth), Veribanc assigns a "yellow."

YELLOWS AND REDS

All 50 savings and loans rated either yellow or red, with 18 receiving the red (failing) designation. While none of the largest commercial banks was tagged red, 31 earned a yellow caution flag.

Forty-six of the 50 biggest S&Ls operated at a loss during the latest reporting period, which ended December 31, 1981. For each money-losing institution, Veribanc calculates how many months the S&L has before it exhausts its net worth (assuming the present loss rate continues).

An S&L with zero net worth is technically insolvent — broke. If they continue to lose money at the present rate, 13 of the top 50 (with assets of $37 billion) will reach insolvency within two years from now.

Several of Veribanc's "red" S&Ls have already begun merger proceedings, and one, Fidelity Savings and Loan, has been taken over by the Federal Savings and Loan Insurance Corp. It's reasonable to expect that federal regulators will force other "red" S&Ls into shotgun marriages over the coming year.

If your bank or S&L doesn't appear on the accompanying tables, you can order a similar report on any federally supervised institution by sending $20 to Veribanc (Dept. TMEN, P.O. Box 2963, Woburn, Massachusetts 01888). Furnish the full name and address of the institution, and enclose a stamped, self-addressed envelope.

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