Profits fell 29 percent at the nation's commercial banks during the third quarter, and Federal Deposit Insurance Corp. Chairman L. William Seidman said yesterday that bank failures would cost the FDIC's insurance fund $4 billion this year.

As recently as September, Seidman estimated that the fund would lose only $3 billion in 1990. He said the additional losses will come from a combination of larger than expected losses at failing banks and from some additional bank failures.

Seidman blamed the weak earnings and insurance fund losses on the deteriorating economy and on depressed values for real estate. Commercial banks are especially sensitive to the real estate downturn. Real estate loans now make up 30.6 percent of commercial bank assets, up from just 18.8 percent as recently as the end of 1984, the FDIC said.

Overall, banks earned $3.75 billion during the third quarter, down from $5.3 billion in the second quarter.

Bank problems were concentrated among the nation's biggest institutions, those with more than $1 billion in assets, the FDIC said. And banks in the Northeast are suffering most from the real estate slowdown. In that region, the amount of loans that are not up to date increased by 10 percent during the third quarter, while foreclosed real estate grew to more than three times the level of a year earlier.

"There is little prospect of a near-term improvement in the Northeast as the national economy slows," the FDIC said, "and there are signs that banks in other areas east of the Mississippi River are feeling the pinch from worsening asset quality."

Seidman also criticized the industry for continuing to pay big dividends instead of retaining earnings to buttress banks' capital positions. Commercial banks paid out 80 percent of their earnings in the form of dividends to stockholders, the FDIC said. "I think that with capital problems in the industry, that's an awfully high number," Seidman said.

Banks have 73 cents in reserves for each dollar of noncurrent loans, down from 83 cents a year earlier, the FDIC said.

Deteriorating bank earnings will make it necessary to raise more money for the bank insurance fund, but Seidman and bank industry officials stressed that the money would be raised through higher insurance premiums paid by banks -- not from American taxpayers.

Seidman also raised the possibility that the FDIC would borrow money in the event of a "liquidity problem." Such a step would be unprecedented and Seidman said it was "not a concern at the moment. It will not mean taxpayer money. It will mean the banks will have to pay more."

The FDIC has already raised deposit insurance premiums paid by banks by more than 60 percent from 12 cents per $100 of deposits in 1990 to 19.5 cents next year. Seidman said further increases are likely. "Nothing in these figures is very encouraging about keeping the premium level where it is," he said.

Bank industry officials said banks would not shirk their responsibility. "The banking industry has indicated very forcefully that it intends to take responsibility for the recapitalization" of the insurance fund, said Thomas Ludley Ashley, head of the American Bank Holding Association, "so that there is no suggestion that the fund will be obliged to be recapitalized by the Treasury or the U.S. taxpayers."

In its report, the FDIC said the number of commercial banks on its "problem list" remained about the same at 1,006. But the FDIC said that at the current pace, the number of commercial bank failures for the full year will fall below 200 for the first time since 1986. During the first nine months of the year, there were 134 commercial bank failures, down from 162 the year before.

One reason for the big drain on the FDIC insurance fund has been the dismal performance of savings banks covered by the fund. There are 479 savings institutions insured by the FDIC and they hold 10 percent of all fund-insured deposits. During the third quarter, the savings banks lost $771 million.

Overall, the savings bank industry lost $1.2 billion during the first nine months of the year; 35 percent of all savings banks lost money.

Mark Riedy, president of the National Council of Savings Institutions, said yesterday that while "the numbers clearly are bad," they reflect the recession and "cycles, thank God, do have their way of turning." Riedy said that savings banks are "community banks" and that many are in the ailing Northeast. "This is an economic problem," he said, "not a political problem."

Riedy added, however, that the fourth quarter would probably be even worse and that the first half of next year could be "just as bad, if not worse."

In testimony yesterday, Timothy Ryan, director of the Office of Thrift Supervision, the agency responsible for the cleanup of failed thrifts, said that declining real estate values are further weakening the nation's troubled thrift industry. Even thrifts that were healthy up to now are running into trouble, he said.

The pace of thrift closures, Ryan said, which had leveled off to about five a week, will triple in the coming months. Of 2,437 thrifts that remain, at least 600 are likely to be taken over by the government. Ryan said that 80 of those are now insolvent and should be shut down as quickly as regulators can process the paperwork.

"Deterioration in economic conditions, especially in real estate, is adversely affecting the prospects for recovery of many institutions," Ryan told a congressional panel.

Ryan said the OTS is seeking to raise thrift capital requirements from 3 percent to 4 percent or higher.

Staff writer Susan Schmidt contributed to this report.