- Associated Press - Tuesday, May 24, 2011

WASHINGTON (AP) — The number of U.S. banks at risk of failing made up nearly 12 percent of all federally insured banks in the first three months of 2011, the highest level in 18 years.

That proportion is about the same as in the October-December quarter last year, though the increase in the number of banks on the Federal Deposit Insurance Corp.’s confidential “problem” list is slowing. The FDIC added only four banks to its list in the January-March quarter. That brought the total to 888 from 884. Banks on the list are deemed by examiners to have very low capital cushions against risk.

The industry reported its highest earnings as a group in the January-March quarter, $29 billion, since before the financial crisis hit more than three years ago. But only a small fraction of the 7,574 federally insured banks — the 1.4 percent with assets exceeding $10 billion — drove the bulk of the earnings growth. They are the largest banks, such as Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co.

The big banks accounted for about $24.4 billion of the total industry earnings in the first quarter.

The amount that banks set aside for possible losses on loans declined by more than half last quarter, to $20.7 billion from $51.6 billion in the year-earlier quarter. But many banks pulled in less revenue in the latest quarter than a year earlier. And overall net revenue declined 3.2 percent to $5.5 billion. It was just the second time in 27 years that the industry reported less revenue than in the year-earlier quarter.

FDIC Chairman Sheila Bair said some of the revenue decline likely was due to new rules that limit banks’ charges for overdrafts on checking accounts. Still, she said, the financial overhaul enacted last year wasn’t the root cause.

“I think it’s a broader problem with the economy,” Bair said.

Forty-three banks have failed so far this year, though the pace has slowed from last year, when 157 banks failed. That was the most in a year since 1992 at the height of the savings and loan crisis.

Fewer bank failures allowed the FDIC’s deposit insurance fund, which fell into the red in 2009, to strengthen in the January-March quarter. Its deficit narrowed to about $1 billion from $7.4 billion in the October-December period. Bair has said the agency expects the fund to turn positive this year.

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