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FDIC'S Deposit Insurance Fund Balance Falls Into Negative Territory

The U.S. government insurance fund — used to safeguard bank deposits — dropped to a balance of negative $8.2 billion in the third quarter, according to market reports.

This is the first time since 1992 that the fund had a negative balance, the Federal Deposit Insurance Corp. (FDIC) said on Tuesday.

In its quarterly banking repor, the agency said that the decline in the insurance fund was a result of an additional $21.7 billion the FDIC set aside in the third quarter for expected bank failures. At the end of the second quarter, the FDIC's insurance fund had $10.4 billion.

The number of banks on the FDIC's "problem list" rose 33% during 3Q09 to 552, the highest level since 1993.

The U.S. banking industry as a whole managed to post a profit for the quarter of $2.8 billion as a result of growth in operating revenues and a rebound in securities values. Last quarter, the industry lost $4.3 billion.

High loan loss provisions continued to weigh on bank earnings, the FDIC said. Industry wide, banks set aside $62.5 billion to cover deteriorating loans over the quarter, a 7.1% decrease from the prior quarter.

"The credit adversity we have been discussing for some time remains with us, and we expect that it will be at least a couple more quarters before we see a meaningful improvement in that trend," FDIC Chairman Sheila Bair said in a statement.

Bair said she was optimistic that if the banking industry addresses its problems head-on, it will see signs of improvement in earnings and lending in 2010.
     

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