NEW YORK (CNNMoney.com) — The governments list of troubled banks
swelled in the first quarter, climbing to its highest level in nearly
15 years, regulators said Wednesday.

The Federal Deposit
Insurance Corp. said that the number of lenders on its so-called
"problem bank" list jumped to 305 during the first three months of
2009, from 252 in the fourth quarter of last year. This is the highest
level of troubled institutions since 1994.

"Banks are making good
efforts to deal with the challenges they’re facing, but todays report
says that we’re not out of the woods yet," FDIC Chairman Sheila Bair
said in a statement.

Banks deemed troubled by regulators
typically face difficulties with their finances or have operational or
management issues that pose a threat to their existence.

Lenders
that land on the list are considered the most likely to fail, although
few actually reach that point. On average, just 13% of banks on the
FDICs problem list have failed.

Regulators never disclose the
names on the list out of fear that depositors at those institutions may
prompt a so-called "run on the bank."

They do, however, provide
the number of assets controlled by those institutions. In the first
quarter, that number climbed to $220 billion, up from $159 billion as
of the end of last year.

The sharp increase in asset size for troubled banks could be attributed to the inclusion of BankUnited (BKUNA),
a Florida-based lender which oversaw nearly $13 billion in assets.
Regulators shuttered the thrift last Thursday, and immediately sold
much of its assets to a group of private equity firms.

So far
this year, 36 banks have failed, including BankUnited. It is widely
expected that many more banks will fail this year as banks of all sizes
cope with rising loan losses as a result of the ongoing recession.

Even
as the pace of failures quicken, it would be hard to match what
happened during the savings & loan crisis two decades ago. More
than 1,900 financial institutions went under during 1987-1991, peaking
with the failure of 534 banks in 1989.

In the event of a failure, the FDIC fully insures individual accounts up to $250,000 for single accounts.

But
the recent uptick in bank failures has taken a toll on the fund the
FDIC uses to backstop consumer and corporate bank accounts.

In
the first quarter, the value of the deposit insurance fund fell $4.3
billion, or 24.7%, leaving it with just over $13 billion.

Hoping
to offset that decline, the agency announced a one-time assessment fee
on all U.S. banks last week. This is expected to generate $5.6 billion
for the fund.

Bair said Wednesday she would not rule out another
assessment later this year, adding that she expected the fund to
continue to decline in the coming months. She was quick to point out,
however, that the FDIC did not plan on tapping its credit line to the
Treasury Department, which was recently upped from $100 billion to as
much as $500 billion through 2010.

Despite
setting aside $61 billion for future loan losses, the more than 8,200
firms that make up the nations banking industry managed to stay
profitable in the first quarter.

The FDIC said banks collectively
reported a net profit of $7.6 billion, compared to a loss of $26.2
billion in the fourth quarter of 2008.

Regulators speaking at
Wednesdays event warned that loan deterioration remained their chief
concern for the banking industry, particularly in areas like commercial
real estate and loans made to businesses.

The percentage of loans
and leases where borrowers were behind on payments climbed from 2.95% a
quarter ago to 3.76% in the first quarter, representing its highest
level since 1991.

One bright spot, however, was banksability to
raise capital. Even though the bulk of that came from the Treasury
Departments Troubled Asset Relief Program, or TARP, banks managed to
raise a combined $82.1 billion in the first quarter.

Bair also
tamped down recent speculation that banks would be able to bid on their
own assets by selling them into the Treasurys Public-Private
Investment Program. That program was unveiled earlier this year as a
way for banks to rid themselves of toxic loans and securities stuck on
their books.

She acknowledged that regulators were considering
allowing some lenders to bid on other banksassets, but that there
still remained a lot of hesitancy on behalf of both buyers and sellers
to participate in the program given the threat of additional
legislative restrictions on participants.

"There are a couple of
factors that are still at play here as we try to develop the structure
and look for the launch of the program," she said.