US regulator's 'problem bank' list grows as industry profits dip

Recasts with additions to 'problem bank' list, Gruenberg comments in paragraphs 1-4

By Pete Schroeder

WASHINGTON, Dec 12 (Reuters) - A top U.S. bank regulator added two banks with combined assets of roughly $84 billion to its so-called "problem bank" list in the third quarter, while overall industry profits dipped 8.6%, the regulator said.

The Federal Deposit Insurance Corporation typically does not identify firms that are added to the list, which includes banks that have received particularly low confidential scores from bank supervisors. FDIC Chairman Martin Gruenberg said the overall level of problem banks, now totaling 68 firms, is "not atypical." But he added it is a "consequential development" for individual firms that comes with added scrutiny.

"We certainly pay close attention, especially to the individual institutions that may be having heightened supervisory issues relating to the downgrades," he said at a press conference.

The addition of larger firms to the problem bank list happened roughly a year and a half after the abrupt failure of Silicon Valley Bank kicked off broader turmoil in the banking sector, which led to the failure of two other regional firms and aggressive intervention by regulators to shore up the system.

On Thursday, the FDIC reported quarterly profits for the banking sector were down slightly after banks enjoyed a one-time surge in the prior quarter.

The slightly lower profits were primarily due to the fact that banks reported one-time gains on equity security transactions in the second quarter. But those missing funds were partially offset by strong net interest income and growing revenue, the regulator said in its quarterly profit report. Bank profits were up slightly when compared with first-quarter numbers.

"The banking industry continued to show resilience in the third quarter. Net interest income and the net interest margin increased substantially this quarter," Gruenberg said in a prepared statement.

There were some signs of caution in the latest figures. The ratio of past-due or non-accrual loans in the commercial real estate sector ticked up to 2.07%, the highest level recorded since 2013, as borrowers continue to grapple with high levels of office vacancies following the COVID-19 pandemic.

Overall though, the latest FDIC report suggests stability in the banking sector. Net interest income rose by $4.5 billion in the quarter, the net interest margin was up for banks of all sizes, and deposits rose 1.1% to $194.6 billion. Unrealized losses on securities fell 29%, as overall interest rates fell.

(Reporting by Pete Schroeder; Editing by Chizu Nomiyama and Paul Simao)

((Pete.Schroeder@thomsonreuters.com; 202-310-5485;))