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Number of troubled lenders continues to mount, hitting its highest level since June 1994, FDIC reports. Deposit insurance fund falls by 20%.

August 27, 2009: 10:11 AM ET


NEW YORK (CNNMoney.com) -- The number of institutions on the government's so-called "problem bank" list surpassed 400 in the latest quarter, climbing to its highest level in 15 years, according to a government report published Thursday.

The numbers, published as part of a broader survey on the nation's banking system by the Federal Deposit Insurance Corporation, revealed that the number of banks at risk of failing climbed to 416 during the second quarter.

The FDIC, which insurers bank deposits, has been hit by a wave of relatively large and costly failures as of late, prompting concerns about the size of the agency's insurance fund. To that end, the FDIC reported that the fund decreased by $2.6 billion, or 20%, during the quarter to $10.4 billion.

The number of banks under scrutiny by regulators has moved steadily higher since the recession began in late 2007.

A year ago, the number of banks on the FDIC's watch list was 117. At the end of this year's first quarter, the number stood at 305.

FDIC chairman Sheila Bair said she expected the trend to continue.

"We expect the number of problem banks will remain elevated even as the economy begins to recover," she said Thursday.

The names of the banks on the list are never made available to the general public by regulators out of fear that depositors at those institutions may prompt a so-called "run on the bank."

Regulators indicated that the number of assets controlled by those institutions, however, climbed to $299.8 billion in the latest quarter, up from $220 billion in the previous period.

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Over the years, the problem bank list has been viewed as a telling, albeit backwards-looking, barometer on the overall health of the nation's banking industry.

Still, few of the lenders that are on the list actually reach the point of failure. On average, just 13% of banks on the FDIC's problem list have been seized and shuttered by regulators.

So far this year, 81 banks have failed, and dozens more are expected to follow as banks cope with continued losses in real estate and various consumer loans.