US 'problem' banks soar, lending drops

US 'problem' banks soar, lending drops

WASHINGTON - U.S. "problem" banks climbed to the highest level in 17 years, signaling failures may accelerate in 2010, the Federal Deposit Insurance Corp. said.


Meanwhile, bank lending had the biggest retreat in more than six decades even as the industry eked out a small profit, the regulator said Tuesday in a quarterly report.

The FDIC included 702 banks with $402.8 billion in assets on the confidential list of problem banks as of Dec. 31. "Problem" or "troubled" banks now account for 8.7 percent of all U.S. lenders, the highest number since the height of the savings-and-loan crisis in the early 1990s.

Big banks have been gradually recovering, many of them with help from federal bailout money. But distress for small and mid-sized institutions has continued and likely will persist in coming years.

Regional banks are especially vulnerable to losses on loans for commercial real estate, like stores and office complexes. These loans make up a disproportionate share of their business. Losses are growing as buildings sit vacant and builders default on their loans.

Such defaults could escalate the wave of failures that totaled 140 last year. So far this year, 20 banks have failed. By comparison, a total of 28 banks failed in 2007 and 2008 combined.

"The growth in the number and assets of institutions on the problem list points to a likely rise in the number of failures," FDIC chairman Sheila Bair said at a news conference. "Both the problem list and bank failures tend to lag behind economic recovery."

Regulators are closing banks at the fastest pace since 1992, amid loan losses stemming from the collapse of the home and commercial mortgage market. "The pace is going to pick up this year and is going to exceed where we were last year," Bair told reporters.

Banks showed "incremental" improvement in the fourth quarter, Bair said. Overall profit was $914 million, compared with a $38 billion loss in the year-earlier period. Net charge-offs on bad loans slowed for a third consecutive quarter, the agency said.

Meanwhile, idustry lending fell as banks seek to climb out of the worst financial crisis since the Great Depression. Loans fell 7.5 percent in 2009, the largest annual decline since 1942.

Bank failures pushed the FDIC's deposit insurance fund into the red last year. It was $20.9 billion in deficit as of Dec. 31, the agency reported. It expects further bank failures to cost the fund around $100 billion through 2013.

The agency required that member banks prepay about $45 billion in premiums last year, for 2010 through 2012, to help replenish the insurance fund.