FDIC Quarterly Report on Banks

The FDIC noted that indicators of asset quality continued to deteriorate during the fourth quarter, although the pace of deterioration slowed for a third consecutive quarter. Insured banks and thrifts charged off $53.0 billion in uncollectible loans during the quarter, up from $38.6 billion a year earlier, and non-current loans and leases increased by $24.3 billion during the fourth quarter. At the end of 2009, non-current loans and leases totaled $391.3 billion, or 5.37 percent of the industry's total loans and leases.

As expected, the number and total assets of institutions on the FDIC's "Problem List" continued to rise. At the end of December, there were 702 insured institutions on the "Problem List," up from 552 on September 30. In addition, the total assets of "problem" institutions increased during the quarter from $345.9 billion to $402.8 billion. Forty-five institutions failed during the fourth quarter, bringing the total number of failures for the year to 140, the highest annual total since 1992.

The Deposit Insurance Fund (DIF) balance – the net worth of the fund – decreased by $12.7 billion during the fourth quarter. The fund balance of negative $20.9 billion (unaudited) as of December 31 reflects a $44 billion contingent loss reserve that has been set aside to cover estimated losses. Just as banks reserve for loan losses, the FDIC has to set aside reserves for anticipated losses to the DIF from insured institution failures. Combining the fund balance with this contingent loss reserve shows total DIF reserves of $23.1 billion.

The agency also collected three years of assessments on banks in advance at the end of 2009, along with banks' fourth quarter assessments, which brought in roughly $46 billion of capital to help handle failed institutions.

Bair reiterated that she expects 2010 to be the peak year for bank failures. "The pace is probably going to pick up this year and for the total year it will exceed where we were last year," Bair said.

The agency may require banks to pay additional assessments to cover losses to the fund if bank failures expand in greater numbers than anticipated by the agency.