The number of financial institutions on the Federal Deposit Insurance Co. (FDIC) “Problem List” of banks climbed to 775 in Q110, up from 702 at the end of 2009 and 552 in Q309. The FDIC monitors problem banks in danger of failing. The 775 banks account for $431bn in assets, up from $403bn in Q409. The list has grown to its largest total since the summer of 1993, when 793 banks made the list, totaling more than $467bn in assets. While the FDIC does not reveal which banks are on the list, chairman Sheila Bair said the majority of these problem banks do not fail. So far in 2010, the FDIC and other regulators shut down 72 banks. By contrast, over the same period in 2009, 31 banks failed. At the end of Q110, the amount of cash held by the FDIC fell to $63bn, down from $66bn at the end of 2009. In November, the FDIC required most institutions to prepay roughly three years worth of deposit insurance premiums equaling nearly $46bn at the end of 2009. The FDIC increased the balance of the Deposit Insurance Fund (DIF) for the first time in two years. It grew to a negative $20.7bn balance in Q110 from a negative $20.9bn in Q409. But commercial banks and savings institutions insured by the FDIC did report $18bn in total profits for Q110, up from $5.6bn in Q409. Although it’s still well below historical norms, it’s a sign that balance sheets are beginning to improve. More than 52% of institutions reported increases from a year ago, and 18% reported losses for the quarter, down from 22% last year. Bair said the $18bn is more than three times more than banks earned a year ago, and it’s the best quarterly earnings for the industry in two years. “There will be more failures, to be sure. The banking system still has many problems to work through, and we cannot ignore the possibility of more financial market volatility,” Bair said. “But the positive signs I’ve outlined today suggest that the trends continue to move in the right direction.” Write to Jon Prior.

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