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FDIC just released the third quarter report which indicated that the problem banks have increased to 171! This is a shocking news to all of us. Maybe your bank will be on the list of problem banks. Although FDIC increased the insured amount to 250k, consumers are still feeling scared and uncertain about the American’s banking industry.

It’s very obvious that the banking industry is getting worse. The number of problem banks has increased from 117 to 171. The banks are taking steps to tighten the loan applications to minimize the losses. Provisions for loan losses continue to be high.

In the report, FDIC indicated:

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported net income of $1.7 billion in the third quarter of 2008, a decline of $27.0 billion (94 percent) from the $28.7 billion that the industry earned in the third quarter of 2007.

Nine FDIC-insured institutions failed in the third quarter, the most since the third quarter of 1993. The failures included Washington Mutual Bank, with assets of $307 billion. The FDIC’s “problem list” grew during the quarter from 117 to 171 institutions, the largest number since the end of 1995. Total assets of problem institutions increased from $78.3 billion to $115.6 billion.

Problems still exist in the banking industry:

Higher levels of troubled loans, in both consumer and commercial portfolios, led to increased provisions for loan losses in the quarter.

Charge-offs and noncurrent loans are still increasing. Insured institutions charged off (removed from their balance sheets because of uncollectibility) $27.9 billion in troubled loans in the third quarter. The annualized net charge-off rate of 1.42 percent was the highest quarterly average since 1991.

Community banks are also facing increased stress. Community banks — those with total assets of under $1 billion — are beginning to exhibit stresses similar to those facing the industry as a whole.

Higher loss provisions for bank failures were primarily responsible for a decline in the fund balance to $34.6 billion at September 30th from $45.2 billion at June 30th.

The full press release can be accessed from here.