Troubled banks rise to highest level in 18 years

WASHINGTON -- The number of banks at risk of failing made up nearly 12 percent of all federally insured banks in the final three months of 2010, the highest level in 18 years.

The Federal Deposit Insurance Corp. said Wednesday that the number of banks on its confidential "problem" list rose to 884 in the October-December quarter, up from 860 in the previous quarter. Those are banks rated by examiners as having very low capital cushions against risk.

Twenty-two banks have failed so far this year. And more banks are at risk, even as the FDIC reported the industry's highest earnings as a group since the financial crisis hit three years ago.

Only a small fraction of the 7,657 federally insured banks -- about 1.4 percent with assets of more than $10 billion -- are driving the bulk of the earnings growth. They are the largest banks, including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo.

The big banks accounted for about $20.6 billion of the industry earnings of $21.7 billion in the fourth quarter. The total earnings compared with a net loss of $1.8 billion in the same quarter of 2009. The agency said bank earnings were buoyed in the latest quarter by reduced charges for soured loans.

Most of the big banks have recovered with help from federal bailout money and record-low borrowing rates. On the other side, many smaller banks are struggling.

Last year, 157 U.S. banks were brought down by the soured economy

and mounting loan defaults. That was the most in one year since 1992, the height of the savings and loan crisis. They were mostly smaller or regional banks. The failures compare with 25 in 2008 and three in 2007. They cost the federal deposit insurance fund an estimated $21 billion in 2010.

Smaller and regional banks depend heavily on making loans for commercial property and development -- sectors that have suffered huge losses. Companies shut down in the recession, vacating shopping malls and office buildings financed by the loans.

Overall, banks' net income reached a three-year high of $87.5 billion in 2010. That contrasted with a loss of $10.6 billion in 2009.

Loan balances declined at a majority of U.S. banks in the October-December quarter, falling by $51.8 billion, or 0.4 percent, from the July-September quarter.