More banks on problem list, but FDIC says failures will diminish

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The number of banks on regulators’ ‘problem list’ rose from 860 at the end of the third quarter of 2010 to 884 in the fourth quarter, meaning one in every nine U.S. banks and thrifts is considered to be at risk of collapse.

Nonetheless, failures are expected to decline in 2011 compared with last year, and the industry’s provisions for losses on loans are much lower as the worst of the financial crisis drifts into the past, the Federal Deposit Insurance Corp. says.

In its quarterly report on the banking industry, released Wednesday, the FDIC said the more than 7,600 commercial banks and savings institutions that it insures turned an aggregate profit of $21.7 billion in the fourth quarter.

That compared with a $1.8-billion loss in the fourth quarter of 2009. It was the sixth straight quarter of year-over-year improvements in bank results.

FDIC Chairwoman Sheila Bair said 62% of U.S. banks and thrifts reported improved profits, with community banks continuing to struggle more than larger banks.

‘Overall, 2010 was a turnaround year,’ Bair said.

Bank regulators don’t release the names of individual banks on the problem list, just a quarterly tally of their numbers. Most problem banks eventually raise new capital, get their losses under control and do not fail.

Fourth-quarter assets at problem institutions increased to $390 billion from $379 billion in the third quarter, but were less than the $403 billion reported at year-end 2009.

Thirty insured institutions failed during the fourth quarter, bringing the total for 2010 to 157. That followed 140 failures in 2009, 25 in 2008 and three in 2007. No banks failed in 2005 or 2006.

The FDIC has said it expects the number of failures to decline this year. Its satellite office in Irvine, set up to handle failed banks in the Western U.S., will close next year, the agency said this month.

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-- E. Scott Reckard