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Updated Thursday, February 25, 2010 11:36 am TWN, By Jim Puzzanghera, Los Angeles Times

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No. of banks in danger of failure highest since '93

WASHINGTON -- The number of banks in danger of failing shot up to 702 at the end of last year, the highest level since 1993, as the industry continues to struggle in its recovery from the so-called Great Recession, the Federal Deposit Insurance Corp. said Tuesday. The large number of “problem institutions” -- up from 552 at the end of September -- comes after 140 banks failed in 2009, a level not seen since the savings and loan crisis in 1990. Not all banks on the problem list fail, and FDIC Chairwoman Sheila Bair noted that the vast majority of the approximately 8,000 banks with insured deposits are healthy.

“Overall, I think the banking system is challenged but stable,” Bair said Tuesday. Still, Bair said she expected bank failures to peak this year as the industry's recovery lags the overall economy and a wave of commercial real estate foreclosures is anticipated. So far this year, 20 banks have failed. The FDIC has estimated that expected bank failures from 2009 to 2013 will cost it about US$100 billion.

The industry's problems are taking a toll on the FDIC fund that covers most insured deposits. The balance of that fund, which is paid for by banks, dropped by US$12.6 billion in the fourth quarter to end 2009 with a negative balance of US$20.9 billion. As a percentage of total insured deposits at U.S. banks, it is the lowest level on record, the FDIC said.

But Bair said that figure is deceiving because it does not include billions of dollars already set aside for expected losses from bank failures. Taking that money into account, the Deposit Insurance Fund has a positive US$23.1 billion balance. To replenish the fund, the FDIC ordered banks to prepay three years of premiums by the end of 2009. Bair stressed the federal government stands behind the fund, so customers should not be worried about whether their deposits will be covered.

Although the industry had a rough fourth quarter of 2009, posting only a slight profit of less than US$1 billion, it was a huge improvement over the last three months of 2008 during the height of the financial crisis. Back then, banks posted a collective US$26.2 billion loss.

“It's not that it was a strong quarter but just that everything was so bad a year ago,” Bair said of the industry's fourth-quarter performance.

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