More US banks face survival struggle (Roundup)

May 27, 2009, 17:02 GMT

Washington - The number of US banks threatened by collapse jumped dramatically in the first quarter with a 21 per cent increase in 'problem' lenders, a US government agency said Wednesday.

The Federal Deposit Insurance Corporation's head Sheila Bair said the increase - reportedly the worst change in 15 years - showed 'the banking industry still faces tremendous challenges.'

The FDIC put 305 banking institutions on its 'red list' of endangered firms. During the first quarter, 21 FDIC-insured banks failed, the largest number since the last quarter of 1992, the FDIC said.

From January to late May, a total of 36 banks, many of them regionial firms, have been closed down. In all of 2008, the total was 25. The US is in the midst of the worst recession since the 1930s, triggered by the crisis in mortgage lending and foreclosures.

The FDIC, which guarantees bank deposits, said that the firms it insures reported a net income of 7.6 billion dollars in the first quarter, a decline of 11.7 billion, or 61 per cent, from the same period in 2008.

'Banks are making good efforts to deal with the challenges they're facing, but today's report says that we're not out of the woods yet,' Bair said. 'As I see it, we're now in the cleanup phase for the banking industry.'

Offering a bit of good news for the banking sector, the Bank of America Corp said Wednesday it has raised nearly 26 billion dollars since the US government's stress test earlier this month.

The amount puts the bank about 76 per cent on its way to meeting a government mandate that it raise 33.9 billion dollars in private capital to ensure its survival of another dip in the US economy.

In other developments, a panel of top economists forecast an end to the country's deep recession by late 2009 with possible growth of 1.2 per cent in the year's second half. The National Association of Business Economists (NABE), which surveyed 45 economists, said the US economy had shown some signs of stabilizing but would still recover more slowly than in past downturns.