FYI: An Update on Emerging Issues in Banking 

Large and Small Companies Exhibit Diverging 

Bankruptcy Trends

January 31, 2002 

Recent bankruptcy trends for publicly traded companies are markedly worse than for 

smaller companies, according to an FDIC report issued today. Today's Bank Trends 

report, entitled "Large and Small Companies Exhibit Diverging Bankruptcy Trends," 

concludes that credit quality will remain a key issue for the banking industry this year. 

For most FDIC-insured institutions, the outlook for 2002 depends on the extent to 

which weakness in the corporate sector trickles down to smaller businesses and 

consumers. 

A total of 257 publicly traded companies filed for bankruptcy last year, representing a 

new record and a 46 percent increase over the prior year's record of 176 filings (see 

Chart 1).1 Bankruptcies among publicly traded companies began to run counter to 

the trend of declining business bankruptcies around 1997. Analysts at 

BankruptcyData.com indicate that the number of bankruptcy filings by publicly traded 

companies was distributed fairly evenly across industry sectors in 2001. The telecom 

industry was disproportionately represented, however, accounting for 36 of the 257 

filings, or 14 percent. The assets entering bankruptcy by industry tended to be more 

concentrated, with 33 percent of public company assets entering bankruptcy in 2001 

related to the energy sector. 

[D]

A number of factors could be driving this divergence in bankruptcy rates. First, profits 
at larger firms have declined more dramatically than overall corporate profits. Second, 

larger firms seem more likely to have been disproportionately affected by weakness in 

foreign markets and imports made cheaper by a strong dollar. Finally, a dramatic 

increase in leverage at larger firms compared to smaller firms, encouraged by easy 

access to capital, has also played an important role. 

Stress in the corporate sector has been reflected in other measures of corporate 

credit quality. Standard & Poor's reports that 211 bond issuers defaulted on $115.4 

billion in debt in 2001, posting the highest default volume on record, both in terms of 

the dollar volume and number of defaults.2 There were 3.6 times as many 

downgrades as upgrades in 2001among speculative-grade issuers rated by Moody's 

Investors Service, while downgrades outnumbered upgrades by 2.3 to 1 among 

investment-grade issuers.3 Bank Call Report data also reflect the fact that financial 

trouble has appeared more quickly in credits to larger firms. Since the second quarter 

of 2000, large commercial banks have experienced higher and more rapidly rising 

loss rates on commercial and industrial (C&I) loans than small commercial banks (see 

Chart 2). 

[D]

For the full Bank Trends report, entitled "Large and Small Companies 

Exhibit Diverging Bankruptcy Trends," go to: 

http://www.fdic.gov/bank/analytical/bank/index.html

1 Data on publicly traded bankruptcy filings provided by BankruptcyData.com.

2

Standard & Poor's. "Record Corporate Defaults in 2001; Improvement Seen by Year's End."

January 14, 2001. (http://www.standardandpoors.com/ProductsAndServices/

 RiskManagementSolutions/ResearchAndRiskManagement/

Articles/011402_corpdefault.html) 3 Moody's Investors Service. "U.S. Corporate Rating 

Downgrades Exceed Upgrades in 2001; Since 1991." Moody's Credit Perspectives, Volume 5, 

Number 2, January 14, 2002. Worst Fall