FDIC problem bank list hits 416

Problem US banks and thrifts on an official watch list rose more than a third to 416.

Problem US banks and thrifts on an official watch list rose more than a third to 416 in the second quarter of 2009,as bad loans continued to bite,but regulators saw signs of stabilization in the industry.

The Federal Deposit Insurance Corp said on Thursday that the industry swung back to a 3.7 billion loss in the second quarter,after reporting a 7.6 billion profit in the first quarter,primarily due to costs associated with rising levels of bad loans and falling asset values.

8220;Banking industry performance is 8212; as always 8212; a lagging indicator,8221; FDIC Chairman Sheila Bair said.

She said the source of the banking industry8217;s problems had migrated from residential loans and complex mortgage-related assets to more conventional types of retail and commercial loans that have been hit hard by the recession.

But Bair pointed to a smaller quarterly increase in troubled loans and decreases in the volume of some delinquent loan categories,as a possible turning point in the quality of assets that have weighed heavily on banks8217; balance sheets.

8220;While challenges remain,evidence is building that the US economy is starting to grow again,8221; Bair said.

The combined assets of the 416 8220;problem8221; institutions rose to 299.8 billion from 220 billion at 305 banks in the prior quarter. Problem banks are troubled institutions whose regulatory rating has been downgraded due to issues related to liquidity,capital levels,or asset quality.

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The agency8217;s deposit insurance fund,that safeguards up to 250,000 per account at roughly 8,100 institutions,dipped 20 per cent in the second quarter to 10.4 billion.

The drop in the fund was chiefly caused by an 11.6 billion boost in money the FDIC set aside for expected bank failures.

Regulators have closed 81 banks so far this year,compared with 25 last year,and three in 2007. 8220;We expect the numbers of problem banks and failures will remain elevated,even as the economy begins to recover,8221; said Bair.

LINE OF CREDIT

Despite the low insurance fund balance,Bair said the FDIC does not expect to have to tap its 500 billion line of credit with the US Treasury Department 8220;at this time.8221;

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She also said the FDIC had not yet decided whether to charge banks another special assessment to replenish the fund,but said the agency8217;s board would meet toward the end of the third quarter to discuss the issue.

In May the FDIC voted to impose a 5.6 billion special fee the industry has to pay in the third quarter. It also gave itself the right to charge two more special fees in coming quarters.

Bill Fitzpatrick,an analyst at Optique Capital Management,said he expects the number of problem banks will keep rising.