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Business Title: `Problem' Banks in U.S. Soar by 27% as FDIC Insurance Fund Deficit Widens Feb. 23 (Bloomberg) -- U.S. “problem” lenders climbed to the most in 17 years, and the Federal Deposit Insurance Corp. fund protecting customers against bank failures extended its deficit into a second quarter, the agency said. The FDIC included 702 banks with $402.8 billion in assets on the confidential list as of Dec. 31, a 27 percent increase from 552 banks with $345.9 billion in assets at the end of the third quarter, the regulator said today. The agency said the deposit insurance fund had a deficit of $20.9 billion. “Consistent with a recovering economy, we saw signs of improvement in industry performance,” FDIC Chairman Sheila Bair said in a statement. “But as we have said before, recovery in the banking industry tends to lag behind the economy, as the industry works through its problems assets.” Regulators are closing banks at the fastest pace in 16 years, seizing 20 lenders through seven weeks this year after shutting 140 institutions in 2009 amid loan losses stemming from the collapse of the home and commercial mortgage market. A total of 28 banks failed in 2007 and 2008 combined. The insurance fund deficit widened to $20.9 billion from $8.2 billion in the previous quarter, when the account posted its first negative balance since 1992. The FDIC last year required banks to prepay three years of premiums, raising about $46 billion for the fund on Dec. 30, the agency said today. The agency also has the authority to tap a $500 billion credit line with the Treasury Department. Banks reported combined net income of $914 million in the quarter and $12.5 billion for 2009 and $4.5 billion in 2008. The industry reported a net income of $100 billion in 2007. Assets Decline Industry assets declined 5.3 percent to $731.7 billion for the year, the largest annual decline since the inception of the FDIC, the agency said. Provisions for loan losses set aside by banks fell 14 percent to $61.1 billion in the fourth quarter from the year- earlier quarter, the FDIC said. The Washington-based agency insures deposits at 8,012 institutions with $13.1 trillion in assets. The insurance fund is maintained to reimburse customers for deposits of as much as $250,000 when a bank fails. The FDIC may gain power in the overhaul of the financial regulatory system. House and Senate lawmakers are considering expanding the agency’s authority to wind down systemically important, non-bank financial institutions, such as insurer American International Group Inc., which contributed to the collapse of the financial system in 2008. Bair has requested the power to deal with the failing firms. The House passed a bill giving Bair the new authority while in the Senate, Banking Chairman Christopher J. Dodd, a Connecticut Democrat, is drafting the language of its bill. Dodd could release a draft bill as early as this week, Kirstin Brost, his spokeswoman, said last week.
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