FDIC: Problem Banks Up 50% in Fourth Quarter

The nation's banks lost $26.2 billion in the last three months of 2008, the first quarterly deficit in 18 years, as the housing and credit crises escalated.

The Federal Deposit Insurance Corp. said Thursday that U.S. banks and thrifts also more than doubled the amount they set aside to cover potential loan losses, to $69.3 billion in the fourth quarter from $32.1 billion a year earlier.

Regulators said there were 252 banks in trouble at the end of 2008, up from 171 in the third quarter.

The FDIC also said that for all of last year, the banking industry earned $16.1 billion, the smallest annual profit since 1990.

Rising losses on loans and eroding values of assets "overwhelmed" banks' revenues in the fourth quarter, the FDIC said. More than two-thirds of all banks and thrifts turned a profit in that period but their earnings were outstripped by large losses at a number of major banks.

FDIC Chairman Sheila Bair, reaching for a silver lining in the dismal picture, noted that total bank deposits increased in the October-December period by $307.9 billion, or 3.5 percent -- the largest rise in 10 years. Deposits in domestic bank offices rose $274.1 billion, or 3.8 percent.

"Public confidence in the banking system and deposit insurance is demonstrated by the increase in domestic deposits during the fourth quarter," Bair said in a statement. "Clearly, people see an FDIC-insured account as a safe haven for their money in difficult times."

But Bari said even the healthiest banks should consider temporarily suspending or cutting dividends during the credit crisis to preserve capital, the head of the Federal Deposit Insurance Corp said Thursday.

Bair said it was unfortunate that some banks paid dividends in 2008 despite being unprofitable. At a news conference to release bank industry results and trends for the fourth quarter of 2008, she urged all banks to review their dividend policies.

The Office of Thrift Supervision, meanwhile, announced a loss of $3 billion in the fourth quarter and a record $13 billion annual loss for savings and loans last year.

The FDIC now believes U.S. bank failures will cost the deposit insurance fund more than $40 billion over the next four years amid the ravages of rising unemployment and falling home prices that have sent loan defaults soaring.

Fourteen federally-insured institutions already have failed this year, extending a wave of collapses that began in 2008 -- when regulators shut down 25 U.S. banks. Last year's tally was more than in the previous five years combined and up from only three bank failures in 2007.

The failures sliced the amount in the deposit insurance fund to $18.9 billion as of Dec. 31, from $52.4 billion a year earlier.

The FDIC on Friday will propose raising the insurance premiums paid by U.S. banks and thrifts. That will follow a plan to rebuild the deposit insurance fund put in place in October that increased average premiums to 13.5 cents for every $100 of banks' deposits from 6.3 cents.

U.S. banks and thrifts in the third quarter suffered a 94 percent drop in profits to $1.7 billion, from $27 billion in the same period in 2007. The institutions wrote off $27.9 billion in loans as uncollectible during the July-September quarter.

-- Reuters contributed to this report.

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