The U.S. government insurance fund used to safeguard bank deposits dropped to a balance of negative $8.2 billion in the third quarter, the first time since 1992 that it had a negative balance, the Federal Deposit Insurance Corp said on Tuesday.
However, the FDIC has access to cash through a plan to have the banking industry prepay three years of assessments, and also has the option to tap a $500 billion line of credit with the Treasury Department.
The agency said in its quarterly banking report the decline in the insurance fund was due to 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 percent during the third quarter 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 due to 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. Industrywide, banks set aside $62.5 billion to cover deteriorating loans during the quarter, a 7.1 percent 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.
So far this year, 124 U.S. banks have failed, the highest annual level since 1992.
(Reporting by Karey Wutkowski)