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May 28, 2009    

Problem banks soar in the US

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by Kay Murchie
Problem banks soar in the US

The Federal Deposit Insurance Corporation (FDIC) has announced that in the first quarter of 2009, the number of problem banks in the US soared 40% to a 15-year high.

The FDIC said the number of banks with financial difficulties in the three-month period soared to 305, which represents the highest number since 1994 and follows on from the 252 reported during the October to December period last year.

According to the FDIC, challenging conditions continue within the industry and during the three-month period, higher revenues and lower borrowing costs at the nation’s largest banks led to the industry earning a $7.6 billion (£4.7 billion) profit.

However, this figure was more than 60% below the $19.3 billion earned in the same period last year.

Sheila Bair, FDIC Chairman, believes the “cleanup phase” is starting for the banking industry.

In a statement, James Chessen, chief economist of the American Bankers Association, said: The first-quarter results show “that banks are continuing to work through the problems presented by a difficult economy. While earnings were down from a year ago, they are the highest they have been in four quarters, and two out of every three banks increased their assets in the first quarter.”

Under US law, the FDIC insures consumer bank deposits and has the capacity to take control of struggling banks. The FDIC expects US bank failures to cost the deposit insurance fund a total of $70 billion over the next four years.

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Tags: 15-year high, FDIC, Federal Deposit Insurance Corporation, problem banks, Q1, soar,