Regulator Warns US Bank Failures Could Rise Above "Historical Norms"

US bank failures could rise above "historical norms" as a weakening economy puts pressure on badly underwritten loans, particularly in commercial real estate, according to a bank regulator.

In an interview with the Financial Times, John Dugan, who oversees about 1,700 national banks as comptroller of the currency, said the growing problems for lenders follow a period of almost four years in which no institution regulated by his agency had failed.

"We're going to have some more bank failures that will come back more to historical norms and may go above that with time," he said. "That is a natural consequence of the economy going from historically exceptionally benign credit conditions to something that is more normal to something you would get in a downturn."

Mr Dugan's comments come as US banks report big spikes in reserves for expected losses on consumer and small business loans, reflecting the spread of the credit crisis from Wall Street to the broader economy.

Yesterday, Atlanta-based SunTrust said profit fell by nearly half to $283.6m as provisions rose 10-fold to $560m. Ohio's Fifth Third bank said profits fell 19 per cent to $292m as provisions rose to $544m from $84m last year.

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