Nation’s Banks Post Loss of $744 Million in Quarter

Third World loan losses at big New York banks and souring real estate markets in the Northeast and Arizona pushed commercial banking into the red last summer for the first time in more than two years, the government said Wednesday.

The nation’s 12,824 banks lost $744 million in the July-September quarter, off sharply from $7 billion in profits in the second quarter and $7.3 billion in the first three months of the year, the Federal Deposit Insurance Corp. said.

For the first nine months, banks earned $13.7 billion, almost $5 billion less than in the same period of 1988.

The third-quarter loss was the first negative quarter since banks lost $10.6 billion in the April-June period of 1987. That loss was also caused by large banks writing off developing country debt.

Meanwhile, FDIC Chairman L. William Seidman issued a new and more pessimistic assessment of prospects for the insurance fund backing bank deposits up to $100,000 per account, drawing criticism from Congress.

He said the fund will shrink between $250 million and $500 million this year to about $13.8 billion, posting the second decline in its history. The fund declined by about $4 billion in 1988 when bank failures hit a post-Depression record of 221. This year, bank failures should top 200 but miss breaking last year’s record, he said.

In September, Seidman had predicted that his fund would break even or post a slight loss. Rep. Frank Annunzio (D-Ill.), chairman of the House Banking subcommittee on financial institutions, said the new estimate shows that the FDIC should be more aggressively regulating commercial banks.

“Bill Seidman should have spent more time doing his job at the FDIC instead of running around the country telling everyone what a bad job Danny Wall was doing,” Annunzio said.