Profits improve but so does number of ‘problem’ banks, FDIC says

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Two years after the financial crisis hit, the number of banks at risk of failure is still rising, reaching 860 as of the end of September, but the industry’s health continues to improve, the Federal Deposit Insurance Corp. said Tuesday.

The agency’s so-called ‘problem list’ of financial institutions increased from 829 at the end of the second quarter, the highest number since 1993, and now contains about one out of eight FDIC-insured banks. At the same point last year there were 552 banks on the list, the FDIC said in its quarterly banking profile.

The FDIC does not release the names of the problem banks, and all of them don’t end up failing. From July through September, 41 banks failed in the U.S., bringing the total this year to 127, the FDIC said.

Still, the industry’s overall financial outlook was better in the third quarter. Total profit was $14.5 billion, up from $2 billion for the same period last year. It is the fifth straight quarter of year-over-year increases, the FDIC said.

‘The industry continues making progress in recovering from the financial crisis,’ FDIC Chairman Sheila C. Bair said. ‘Credit performance has been improving, and we remain cautiously optimistic about the outlook.’

Industry profit was down from the $21.4 billion reported in the second quarter, but the FDIC said that was largely because of $10.4 billion in write-downs by Bank of America.

Bair said a two-year period of shrinking loan portfolios appeared to be ending after they declined by just 0.1% in the third quarter. Also, banks lowered the amount of money they kept in reserves for loan losses in the third quarter for the first time since 2006, although the ratio of reserves to total loans remained ‘very high,’ the FDIC said.

‘Many large banks have had sizable reductions in their loan portfolios over the past couple of years, but in the third quarter, such reductions were notably absent,’ Bair said. ‘I hope we are close to seeing genuine increases in loan balances again.’

-- Jim Puzzanghera