By Karey Wutkowski

WASHINGTON (Reuters) - The government-run fund that safeguards U.S. bank deposits tumbled to a negative balance of $8.2 billion in the third quarter, as the number of problem banks surged by a third to 552.

It was the first shortfall since 1992 when the Federal Deposit Insurance Corp was dealing with the failure of hundreds of small savings institutions known as thrifts.

The depleted insurance fund and the sharp rise in troubled institutions underscored the current fragility of the U.S. banking system and the continued weight of bad commercial and residential real estate loans on their balance sheets.

Although the FDIC still has $23.3 billion of cash resources to handle bank failures, its insurance fund balance veered into the red due to an additional $21.7 billion the agency set aside in the third quarter for future bank failures.

The number of banks on the FDIC's "problem list" was the most since 1993.

The FDIC will soon get an infusion of $45 billion through a plan to have the banking industry prepay three years of assessments.

While those extra funds will boost the FDIC's cash on hand, accounting rules will stop the FDIC from including all the money immediately in the fund balance.

"While bank and thrift earnings have improved, the effects of the recession continue to be reflected in their financial performance," FDIC Chairman Sheila Bair told reporters in a briefing.

Noncurrent commercial real estate loans, which rose 19.2 percent during the quarter, increasingly are becoming a driver of the banking industry's woes.

The 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 after a $4.3 billion loss last quarter. Bair said the earnings improvement was counterbalanced by the largest decline in loan balances on record, indicating that banks are still tight-fisted with credit.

"We need to see banks making more loans to their business customers," Bair said.

Loan balances dropped by 2.8 percent or $210.4 billion -- the largest percentage drop since 1984. The tight credit comes as the Obama administration is launching programs to encourage community banks to increase lending to small businesses.

LOANS CONTINUING TO SOUR

Jeff Davis, an analyst at FTN Equity Capital Markets, said the banking industry is largely off the bottom, but credit problems are going to continue to dominate the sector for a while. "There's a lot of wood to chop right now," he said about credit issues.