After showing distinct signs of recovery earlier this year, bad loans surged in the third quarter, as did delinquencies. According to Moody's, as reported by the AP, this bodes ill for the banking industry over the next year or so. Indeed, the credit rater says U.S. banks have so far only reserved against 40 percent of the loan losses they are expected to take between 2008 and 2010. It's unclear why banks became less aggressive about setting aside loan loss reserves in the third quarter.

It almost seems like wishful thinking. It would seem that more reserving is fait accompli, but you never know, the economy may stage a stronger recovery and the unemployment rate could tick down. The industry almost seems like a near-pure play on the economy. All that acknowledged, there may be some short-term improvement in share prices. 

For more:
- here's an AP article

Related Articles:
How many banks will fail?
Update: Commercial real estate and bank failures
Bleak prognosis for Citi