WASHINGTON — The number of troubled institutions jumped 27% during the fourth quarter, to 702, the Federal Deposit Insurance Corp. said Tuesday.
Assets at such firms also increased, though not by as much, rising 16% to $402.8 billion. Banks on the agency's "problem" bank list are at their highest level since the second quarter of 1993.
The agency's "Quarterly Banking Profile" also noted a continued drop in the Deposit Insurance Fund, which fell to a deficit of $20.8 billion by yearend. The agency's ratio of reserves to insured deposits fell another 23 basis points to -0.39%, due in part to a 1.8% growth in insured deposits to $5.4 trillion.
FDIC Chairman Sheila Bair emphasized that the agency still has plenty of resources at its command, noting that it had $66 billion to handle upcoming failures. Much of the FDIC's cash resources are not counted as part of the Deposit Insurance Fund because they include $46 billion in prepaid premiums from the banking industry.
"The FDIC's resources to protect insured depositors are strong," Bair said in remarks prepared for delivery.
Bair added that the number of problem banks and the rising level of bank failures "tend to lag behind economic recovery."
The industry made a slight profit of $914 million in the fourth quarter, a dramatic improvement from a year earlier, when banks lost $37.8 billion. Still, earnings were nearly $2 billion less than in the third quarter.
Total earnings of $12.5 billion during all of 2009 were more than double their level in 2008, but were "well below historical norms," the FDIC said.
"As we have said before, recovery in the banking industry tends to lag behind the economy, as the industry works through its problem assets," Bair said.
The agency said the year-over-year earnings improvement in the fourth quarter was due mostly to improvement at the largest banks, but there were also signs for a "broader" improvement.
"For the first time in three years, more than half of insured institutions reported year-over-year improvement in net income," the FDIC said.
While President Obama has been encouraging banks to lend more, total loans fell by 7.5% during 2009, the largest full year decline since 1942.
Bair attributed the decline to several factors, including weaker demand and tighter lending standards. But she pinned much of the drop on the largest institutions, which received most of the government's help during the financial crisis.
"Large banks were responsible for 90% of the decline in loan balances this quarter," Bair said. "These banks have been significantly cutting back on lines of credit to consumers and small businesses."
Despite growth in loan losses for the 12th consecutive quarter, the agency cited some signs that asset deterioration was slowing. While total noncurrent loans rose 6.6% in the quarter to $391 billion, noncurrent commercial and industrial loans dropped by 7.7%, and noncurrent construction and development loans fell by 2.7%.
Overall, 5.37% of all loans were noncurrent at the end of the year, which is the highest in the 26 years that such data has been available. Noncurrent loans were driven by mortgages, which rose by 14.9%, or by $23 billion.
Noninterest income in the quarter totaled $62 billion, which was 53% higher than a year earlier. Meanwhile, trading revenues totaled $2.8 billion in the quarter, which was $12 billion higher than in the fourth quarter of 2008.
The industry's average net interest margin fell by 2 basis points to 3.49%, but that was still 16 basis points higher than in the fourth quarter of 2008.
The average return on assets in all of 2009 grew just 6 basis points from 2008 to 0.09%.