The FDIC has reported today, the number of problem U.S. banks and thrifts on an official watch-list rose sharply to 416 in the second quarter of 2009 from 305 in the prior quarter, as the industry recorded a $3.7 billion loss.

The previous quarter banks were reporting a profit of $7.6 Million in profits, but as the struggling housing market swung into the second quarter, profits also swung in a negative direction, primarily due to costs associated with rising levels of bad loans and falling asset values.

Analysts point to the continuing housing slump and a deterioration of commercial real estate, as well as losses in the new construction sector for this downturn. They continue to predict more banks to falter as we move forward.

Ironically, we still hear that our economy is improving.  Tell that to Middle America.  With hundreds of thousands of new foreclosures coming on the market, there seems to be no end in sight.

The industry did show some improvement. Net interest margins, or a bank's cost of funding, improved at a majority of institutions. Overall capital levels also improved. The industry reported that on average, the leverage capital ratio increased during the quarter to 8.25 percent from 8.02 percent.

 

The combined assets of "problem" institutions rose to $299.8 billion from $220 billion. Problem banks are troubled institutions whose regulatory rating has been downgraded due to issues related to liquidity, capital levels, or asset quality.