* FDIC insurance fund fell to negative $8.2 bln balance

* Banking industry has Q3 profit of $2.8 bln

* FDIC's Bair optimistic earnings will improve in 2010

By Karey Wutkowski

WASHINGTON, Nov 24 (Reuters) - The U.S. government
insurance fund used to safeguard bank deposits dropped to a
balance of negative $8.2 billion in the third quarter, the
first time since 1992 that it had a negative balance, the
Federal Deposit Insurance Corp said on Tuesday.

However, the FDIC has access to cash through a plan to have
the banking industry prepay three years of assessments, and
also has the option to tap a $500 billion line of credit with
the Treasury Department.

The agency said in its quarterly banking report the decline
in the insurance fund was due to an additional $21.7 billion
the FDIC set aside in the third quarter for expected bank
failures. At the end of the second quarter, the FDIC's
insurance fund had $10.4 billion.

The number of banks on the FDIC's "problem list" rose 33
percent during the third quarter to 552, the highest level
since 1993.

The U.S. banking industry as a whole managed to post a
profit for the quarter of $2.8 billion due to growth in
operating revenues and a rebound in securities values. Last
quarter, the industry lost $4.3 billion.

High loan loss provisions continued to weigh on bank
earnings, the FDIC said. Industrywide, banks set aside $62.5
billion to cover deteriorating loans during the quarter, a 7.1
percent decrease from the prior quarter.

"The credit adversity we have been discussing for some time
remains with us, and we expect that it will be at least a
couple more quarters before we see a meaningful improvement in
that trend," FDIC Chairman Sheila Bair said in a statement.

Bair said she was optimistic that if the banking industry
addresses its problems head-on, it will see signs of
improvement in earnings and lending in 2010.

So far this year, 124 U.S. banks have failed, the highest
annual level since 1992.

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(Reporting by Karey Wutkowski)
((E-mail:karey.wutkowski@thomsonreuters.com +1 202 898 8374))