FDIC's Problem Banks List Balloons

Banks and thrifts insured by the Federal Deposit Insurance Corp. recorded their second-lowest level of earnings since 1991 during the most recent quarter, while the number of banks noted on the FDIC's "problem list" jumped 30%, according to new data published Tuesday.

According to FDIC quarterly figures, insured commercial banks and savings institutions posted a profit of just $5 billion in the second quarter, the second-lowest quarterly total in 17 years and 86.5% less than the industry earned in the second quarter of 2007. Nearly 18% of all insured institutions were unprofitable last quarter, just about double the amount of unprofitable banks in the same period the prior year.

"By any yardstick it was another rough quarter," for bank earnings, FDIC chairman Sheila Bair said in a statement to the press that was also Webcast. With the exception of the fourth quarter, "[i]t was the worst quarter for bank earnings since 1991."

The number of financial institutions on the "problem list" rose 30% to 117 during the second quarter, according to the FDIC. Assets of the so-called problem institutions jumped nearly three-fold to $78.3 billion.

About $32 billion of the problem assets came from failed thrift IndyMac Bancorp, which was seized by FDIC regulators in July and renamed IndyMac Federal Bank, the regulators said. The FDIC is currently initiating loan modification plans to delinquent borrowers.

As the housing market deteriorates and the credit crisis continues to expand, taking assets including mortgages, credit cards and auto loans down with it, banks such as Washington Mutual (WM Quote) and even JPMorgan Chase (JPM Quote) have been feverishly building their loan-loss reserve levels. Provisions for loan losses by FDIC-insured banks totaled $50.2 billion -- more than four times the total provision in the year-ago period, according to the data.