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Published: Tuesday, 8/31/2010

Bank profits rise, so do troubled institutions


WASHINGTON - A mixed picture of U.S. banks emerged Tuesday as the industry posted its highest quarterly earnings in nearly three years while the number of troubled institutions grew by more than 50.

Banks overall made $21.6 billion in net income in the April-to-June quarter, the Federal Deposit Insurance Corp. said. It was the highest quarterly level since 2007 and was led by the largest institutions. The industry lost $4.4 billion in the second quarter of 2009.

But the number of banks on the FDIC's confidential "problem" list grew by 54 in the quarter - up to 829 from 775 in the first quarter. Most banks that have failed this year have been smaller or regional banks.

The drop in bank lending stemming from the financial crisis showed signs of leveling off, the data show. Total lending fell by $107.5 billion, or 1.4 percent from the first quarter. It posted the steepest drop since World War II - 7.5 percent - in 2009 from the year before.

FDIC Chairman Sheila Bair said lending standards are easing for some types of credit. She said the recovery is starting to be reflected in banks' higher earnings and better quality of loans, with fewer defaults and delinquencies.

For the first time since late 2006, banks overall set aside less to cover losses on loans than they had a year earlier, the FDIC said. Total reserves fell by $11.8 billion, or 4.5 percent.

The FDIC, which issues deposit insurance backed by the federal government, expects U.S. bank failures to cost the fund around $100 billion through 2013. Last year the agency mandated that banks prepay about $45 billion in premiums, for 2010 through 2012, to help replenish the fund.

Last year, regulators shut down 140 federally insured, failed institutions. It was the highest annual number since 1992, when the savings-and-loan crisis peaked. Last year's failures extended a series of collapses that began in 2008, triggered by loan defaults.

The pace of collapses this year exceeds last year's. So far in 2010, 118 banks have failed, triggered by mounting losses on commercial loans.

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