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US faces further bank failures

The FDIC is reporting fewer failed banks but economic data suggest there are more to come.

The final figures released before Sheila Bair, chairman of the Federal Deposit Insurance Corporation, relinquishes her role in early July point to a slight recovery for the US banking sector. In its first-quarter report released in May, the corporation announced that it expected the FDIC fund, which is used to protect depositors, to be back in the black by the end of June – the first time in seven quarters. At the end of the first quarter the fund had a negative balance of $1 billion, compared with a negative balance of $7.4 billion at the end of 2010.

The bank failure rate also appears to be slowing according to the data. In 2010, 152 banks failed but in the first quarter there were 26 failures, indicating that the peak has passed. The report, which covers 7,574 lenders in the US, also showed that the banking industry posted a $29 billion profit in the first quarter – its best quarterly result since the start of the crisis.

But the problems are far from over despite the fairly positive report. Troubled banks still account for 12% of the nation’s total (rising by four to 888 in the first quarter) and with a lack of economic data pointing to sustained upward momentum it is likely that more banks will be forced to close their doors.

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