Problem Bank List Balloons, FDIC Says

The Federal Deposit Insurance Corp.'s list of problem banks ballooned nearly 50% as banks profits nearly evaporated in the third quarter, as the credit crisis reached its boiling point, the agency said Tuesday.

Net earnings of commercial bank and savings institutions under the FDIC's protection totaled just $1.7 billion in the third quarter, down 94% from a year earlier, according to the FDIC's quarterly banking report, which was released Tuesday. The quarter was the second weakest, following the fourth quarter of 2007, since 1990, according to the agency.

There are roughly 171 banks, up from 117 institutions, with a combined total of $115.6 billion in assets under the FDIC's watch currently, according to the report. But FDIC Chairwoman Shelia Bair said at a press conference in Washington, D.C. that "most banks remain well-capitalized, profitable, and sound."

"It's not news to any of us that we've had profound problems in our financial markets that are taking a rising toll on the real economy," Bair said."[Tuesday's] report reflects those challenges. As we had expected industry earnings for the third quarter were substantially below the prior year."

Bair continued that while many large institutions continue to post losses "due to weaknesses in their portfolios," the FDIC is "now seeing losses spread to a growing number of smaller institutions."

Of the 22 failed institutions this year, nine of which occurred in the third quarter. The list includes Washington Mutual -- the largest failure on record -- which was seized by regulators in September. WaMu, which had $307 billion in assets, was sold to JPMorgan Chase (JPM Quote) for roughly $2 billion. Another 73 institutions were acquired, bringing the total number of firms protected by the FDIC to 8,384 as of Sept. 30.