More banks veer toward possible failure

WASHINGTON – The number of banks on a government “problem list” rose to 829 in the second quarter of this year, the Federal Deposit Insurance Corp. said Tuesday, a sign that bank failures may surpass last year’s 140 closures.

At the same time, however, banks overall reported strong income during the quarter, providing some grounds for optimism.

There have already been 118 bank closures this year through last Friday. The big number of problem banks – rising from 775 in the first quarter – suggests that more than 22 additional banks could fail before year’s end, exceeding last year’s tally.

The number of problem banks is the highest it’s been since March 1993, when 928 banks were under close surveillance for possible failure.

But FDIC Chairman Sheila Bair emphasized the bright side of the mixed message at a news conference. Citing rising earnings and strengthening credit quality, Bair said the outlook for banks was improving.

“This is the best quarterly profit for the banking sector in almost three years,” Bair said. “These results provide more evidence that the sector is moving along the road to recovery. … The levels of noncurrent loans and charge-offs are beginning to trend downwards.”

Banks and thrifts regulated by the FDIC reported an aggregate profit of $21.6 billion from April to June. That’s a lot better than the $4.4 billion net loss these institutions recorded in the second quarter of last year, but earnings remain below historical norms.

In another sign of modest improvement, only 20 percent of FDIC-regulated institutions reported losses in the second quarter, compared with 29 percent in the same period last year.