Why the FDIC's problem bank list is not a great indicator of what banks will fail

Once banks are placed on the the FDIC's problem bank list they will often merge or receive capital injections. Capital injections will often come from the banks owners and directors to protect their multi-million dollar investment. In other not so legal actions, banks will sometimes receive forbearance from a member of Congress directing the primary regulator to step back as was seen with the Keating Five. Those who have worked with the FDIC say that they have never placed much trust in the problem bank list as an indicator of what banks will ultimately fail. Once a bank is put on the problem bank list, in most cases the FDIC puts the failing banks out for bid to healthy banks. Even with the FDIC requiring the bidding banks to sign a disclosure to prevent public panic, the banking community is fairly aware of who was placed on the list.

Looking at a bank stock, bond and credit default swap pricing is most likely to give a better idea of if a bank will ultimately fail.