What is the FDIC Watch List?

The Federal Deposit Insurance Corporation (FDIC) watch list is a list of FDIC-insured banks which appear to be struggling. When banks land on the watch list, the FDIC monitors them closely, with the goal of preventing failure and being ready to swing into action if necessary. The contents of the FDIC watch list are not available to the public.

Like other agencies in the financial industry, the FDIC has a complex rating system which it uses to assess the health of banks. The ratings consider issues like liquidity, total funds on deposit, bank policies, and so forth, with the goal of determining how sound and safe a bank is. Using this rating system, the FDIC can compile a list of banks which appear to be tipping dangerously close to failure.

The contents of the watch list are kept private due to concerns about a run on the bank. If the FDIC watch list were to become public, the concern is that depositors and investors would descend on the bank to demand their funds on deposit, and this would push the bank into failure. However, numerous other institutions publicly rate banks and other financial businesses, and their ratings are often similar to the FDIC's. To get an idea of which banks are on the watch list, people can try checking other bank ratings, such as Veribank or BankRatings.

A bank can work its way off the watch list in one of two ways: failing, or improving its finances so that it is no longer viewed as an at-risk bank. Ideally, the FDIC would prefer that banks not fail, because bank failures tend to upset consumer confidence, and they require payouts of cash in FDIC settlements, or an FDIC-mediated takeover. As a result, the institution pushes banks on the FDIC watch list to improve their financial positions by changing policies, jettisoning unprofitable units, and so forth.

Although the FDIC watch list is not public, the number of banks in the list is publicly available, as is the list of failed banks. The FDIC maintains a complete list of failed banks at its website, www.fdic.gov, along with lots of other statistical information on the financial industry and its member banks. Typically, the list is under 50, although in 2008, well over 100 banks were listed on the FDIC watch list, reflecting the throes of an economic crisis which was devastating the American economy and financial industry.