* NOVEMBER 24, 2009, 11:07 A.M. ET UPDATE: FDIC Deposit Insurance Fund Sinks To Negative Territory By Jessica Holzer Of DOW JONES NEWSWIRES WASHINGTON (Dow Jones)--The government insurance fund that protects more than $4.5 trillion of U.S. bank deposits slipped into the red at the end of September, after fifty banks collapsed during the third quarter. The deposit insurance fund dropped by $18.6 billion during the third quarter of 2009 to negative $8.2 billion, as the Federal Deposit Insurance Corp. set aside $21.7 billion in provisions for additional bank failures. This is the second time in the agency's history that the balance has fallen into negative territory. The FDIC has already called on the industry to prepay $45 billion in assessments at the end of the year that will be set aside to cover the cost of bank failures in 2010. Fifty U.S. banks failed in the third quarter, the largest quarterly total since 55 banks went bust during the second quarter of 1990. The FDIC's list of "problem" banks swelled to 552 at the end of September, its highest level in 16 years and up from 416 in June. Despite the turmoil in the industry, banks posted a modest $2.8 billion profit in the third quarter of 2009, as their securities portfolios recovered and banks with less than $10 billion in assets saw margins improve. Bank profits were more than triple the $879 million they earned in the third quarter of 2008 and improved from a $4.3 billion loss in the second quarter of 2009. Loan balances plummeted by $210.4 billion or 2.8%, the largest percentage drop on record as banks yanked back credit and saw reduced loan demand. Balances declined across all major loan categories, with commercial and industrial loans falling by $89.1 billion, or 6.5%. "There is no question that credit availability is an important issue for the economic recovery," FDIC Chairman Sheila Bair said in a press conference to announce the quarterly results. "We need to see banks making more loans to their business customers." Profits were damped by heavy provisioning for loan losses, as banks continued to grapple with bad loans. U.S. banks charged off a net $50.8 billion during the third quarter of 2009, an 80.5% jump from the third quarter of 2008. The industry's annualized net charge-off rate rose to 2.71%, up from 1.43% in the third quarter of 2008. That's the highest since records began in 1984. Meanwhile, noncurrent loans continued to climb during the quarter, but the rate of growth of such loans slowed for the second quarter in a row. Noncurrent loans increased by 10.5% to $366.6 billion during the third quarter.
What happens with the insurance money in years when very few banks go bankrupt? Is that profit for the FDIC? If let's say for a decade they had to bail out very few banks a red year shouldn't be such a problem, assuming the number of banks doesn't grow...