FDIC Confirms Good News, Bad News for U.S. Banks
If you've skimmed the financial headlines during the last several months, you've probably come away with the impression that large banks are making near-record profits, and small banks are being closed at a pace of three or four per week.
The FDIC has released its comprehensive report on the industry for the third quarter, and it confirms that fairly positive assessment: Banks are indeed making a great deal of money, and the rate of failures is holding fairly steady. "Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported an aggregate profit of $14.5 billion in the third quarter of 2010, a $12.5 billion improvement from the $2 billion the industry earned in the third quarter of 2009. This is the fifth consecutive quarter that earnings have registered a year-over-year increase," the agency reported.
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Net income at 63% of the banks improved in the third quarter compared to the same period a year ago. Almost 18% reported losses. The FDIC insures deposits at the nation's 7,760 banks and savings associations.
The FDIC also reported that "Total assets increased by $163 billion (1.2%) during the quarter. Investment securities holdings increased by $113.7 billion (4.5%). Assets in trading accounts rose by $86.9 billion (12.8 %)." The figures show a very modest recovery in the industry. A drop in loan loss provisions was another indication that the worst is probably behind the sector.
One sign that bank failures have slowed is that the FDIC's liquid resources changed very little from the second quarter and stood at $43.7 billion. Another good sign is that while there was a rise in the number of "problem banks" -- those that the FDIC is particularly concerned might fail -- from 829 to 860, the total assets of problem institutions fell from $403 billion to $379 billion. A total of 41 insured banks failed during the third quarter, which brought the number of failures for the year to 127. Some industry analysts expected the aftershocks of the credit crisis to push that figure much higher.
