Reporting from Washington — The number of banks at risk of failing rose at the end of September to its highest level since the savings and loan crisis peaked in 1993, but the industry's health continues to improve, the Federal Deposit Insurance Corp. said.
The agency's so-called problem list consisted of 860 financial institutions at the end of the quarter, two years after the financial crisis hit the nation. That's up from 829 at the end of June, the agency said Tuesday. The latest figure amounts to about one out of eight FDIC-insured banks.
At the end of September a year earlier 552 banks were on the list, the FDIC said in its quarterly banking profile.
The FDIC does not release the names of the problem banks, and all of them don't end up failing. During the last quarter, 41 banks failed in the U.S., bringing the total this year to 127, the agency said.
Still, the industry's overall financial outlook was better in the third quarter. Total profit was $14.5 billion, up from $2 billion for the same period last year. It was the fifth straight quarter of year-over-year increases, the agency said.
"The industry continues making progress in recovering from the financial crisis," FDIC Chairman Sheila C. Bair said. "Credit performance has been improving, and we remain cautiously optimistic about the outlook."
Industry profit was down from the $21.4 billion reported in the second quarter, but the FDIC said that was largely because of $10.4 billion in write-downs by Bank of America.
Bair said a two-year period of shrinking loan portfolios appeared to be ending after they declined by just 0.1% in the third quarter. Also, banks lowered the amount of money they kept in reserves for loan losses for the first time since 2006, though the ratio of reserves to total loans remained "very high," the FDIC said.
"Many large banks have had sizable reductions in their loan portfolios over the past couple of years, but in the third quarter such reductions were notably absent," Bair said. "I hope we are close to seeing genuine increases in loan balances again."
James Chessen, chief economist for the American Bankers Assn., said the report "reaffirms that the banking industry is indeed regaining its footing" and should open the door to more lending.
"Asset quality has improved, loan losses have declined and banks continue to increase their capital levels," Chessen said.
"As economic conditions improve, banks will be in a strong position to look for new lending opportunities and meet loan demands in their communities," he said.