Troubled Banks Now At 552 As FDIC Fund Sinks Into the Red

Troubled Loans Continue To Pummel U.S. Banks

The government insurance fund that protects more than $4.5 trillion of U.S. bank deposits slipped into the red at the end of September, after fifty banks collapsed during the third quarter.

The deposit insurance fund dropped by $18.6 billion during the third quarter of 2009 to negative $8.2 billion, as the Federal Deposit Insurance Corp. set aside $21.7 billion in provisions for additional bank failures. This is the second time in the agency's history that the balance has fallen into negative territory.

The FDIC has already called on the industry to prepay $45 billion in assessments at the end of the year that will be set aside to cover the cost of bank failures in 2010.

Troubled loans continued to pummel U.S. banks. Loan-loss reserves topped $60 billion for the fourth quarter in a row, damping profits. Meanwhile, banks charged off a net $50.8 billion during the third quarter, an 80.5% jump from the third quarter of 2008. The industry's annualized net charge-off rate rose to 2.71%, the highest since records began in 1984.

Though noncurrent loans continued to climb during the quarter, the rate of growth of such loans slowed for the second quarter in a row. Noncurrent loans increased by 10.5% to $366.6 billion during the third quarter.

Smaller banks, particularly those with large exposures to the faltering commercial real estate sector, accounted for many of the institutions on the FDIC's problem list, said FDIC Associate Director for Large Bank Supervision John Corston. The FDIC doesn't disclose the names of banks that make the list.

FDIC Deputy Director of Financial Risk Management Diane Ellis declined to estimate the likely toll on the FDIC's deposit-insurance fund in the fourth quarter. The $45 billion in prepaid industry assessments won't affect the fund's balance, she said.

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