Struggling banks give FDIC ‘heartburn’

May 30, 2008 @ 2:42 pm

By Andrew Coen

The U.S. banking industry had one of its most negative quarters in recent memory and its struggles are likely to continue for the remainder of the year, the Federal Deposit Insurance Corp. warned.

Commercial banks and savings institutions insured by the FDIC reported a net income of $19.3 billion in the first quarter, a 46% decline from the year-ago period, according to the regulator.

Loan-loss reserves increased 18%, or $18.5 billion, for the largest quarterly increase in more than two decades.

The coverage ratio, which measures a company’s ability to cover debt obligations, fell for the quarter from 93 cents to 89 cents in reserves for every $1 of non-current loans, the lowest level since 1993.

“This is a worrisome trend,” Sheila C. Bair, chairwoman of the FDIC, said in a statement. “It's the kind of thing that gives regulators heartburn.”

Given the financial troubles forecasted for the rest of the year, Ms. Bair said the FDIC is urging the financial services firms it regulates to make sure they have enough reserves to cover expected losses.

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