WASHINGTON – ”Problem” banks climbed to the highest level in 17 years during the fourth quarter of 2009, signaling failures may accelerate in 2010, the Federal Deposit Insurance Corp. said Tuesday. In addition, bank lending declined by the largest amount in 68 years.

The FDIC included 702 banks with $402.8 billion in assets on the confidential ”problem” list as of Dec. 31, a 27 percent increase from 552 banks with $345.9 billion in assets at the end of the third quarter. ”Problem” banks account for 8.7 percent of all U.S. lenders.

”The growth in the number and assets of institutions on the problem list points to a likely rise in the number of failures,” FDIC Chairman Sheila Bair said Tuesday.

Regulators are closing banks at the fastest pace since 1992, seizing 20 lenders through seven weeks this year after shutting 140 institutions in 2009 amid loan losses stemming from the collapse of the home and commercial mortgage market. A total of 28 banks failed in 2007 and 2008 combined.

Meanwhile, industry lending fell as banks sought to emerge from the Great Recession. Loans dropped 7.5 percent in 2009, the largest annual decline since 1942, Bair said.

The lending fall-off reflects tightened standards imposed on borrowers, combined with a drop in consumer demand, the FDIC said. Larger institutions accounted for 90 percent of the lending retreat.