117 banks in trouble, FDIC says

WASHINGTON — The number of troubled U.S. banks leaped to the highest level in about five years and bank profits plunged by 86 percent in the second quarter, as slumps in the housing and credit markets continued.

Federal Deposit Insurance Corp. data released Tuesday show 117 banks and thrifts were considered to be in trouble in the second quarter, up from 90 in the prior quarter and the biggest tally since mid-2003.

The FDIC also said that federally insured banks and savings institutions earned $5 billion in the April-June period, down from $36.8 billion a year earlier. The roughly 8,500 banks and thrifts also set aside a record $50.2 billion to cover losses from soured mortgages and other loans in the second quarter.

"Quite frankly, the results were pretty dismal," FDIC Chairwoman Sheila Bair said at a news conference, but they were not surprising given the housing slump, a worsening economy, and disruptions in financial and credit markets.

The majority of U.S. banks "will be able to weather" the economic and housing storms, with 98 percent of them still holding adequate capital by the regulators' standards, Bair said.

Total assets of troubled banks jumped from $26 billion to $78 billion in the second quarter, the FDIC said, with $32 billion of the increase coming from IndyMac Bank, which failed in July — the biggest regulated thrift to fail in the United States.

"More banks will come on the (troubled) list as credit problems worsen," Bair said. "Assets of problem institutions also will continue to rise."

Nine FDIC-insured banks have failed so far this year, compared with three in all of 2007. More banks are in danger of collapsing this year, Bair and other FDIC officials said, and they expect turbulence in the banking industry to continue well into next year.

IndyMac's failure and others in the quarter reduced the federal deposit insurance fund from $53 billion to $45 billion. Bair said the agency will raise insurance premiums paid by banks and thrifts to replenish its reserve fund and bolster depositors' confidence.

The $50.2 billion set aside to cover loan losses in the April-June period was four times the $11.4 billion the banking industry salted away a year earlier. Nearly a third of the industry's net operating revenue went into building up reserves against losses in the latest quarter, according to the FDIC.

Except for the fourth quarter of 2007, the earnings reported Tuesday were the lowest for the banking industry since the final quarter of 1991, the agency said.