Earnings of banks in US hit highest level in over 4 years

By Derek Kravitz, AP

WASHINGTON–U.S. bank earnings rose over the summer to their highest level in more than four years, while the number of troubled banks fell for the second straight quarter, federal regulators reported Tuesday. The Federal Deposit Insurance Corp. (FDIC) said the banking industry earned US$35.3 billion in the third quarter. That’s up from US$23.8 billion in the same period last year. More than 60 percent of banks reported improved earnings. The better earnings and fewer troubled banks suggest that the industry is steadily improving from the depths of the 2008 financial crisis. “Bank balance sheets are stronger in a number of ways, and the industry is generally profitable, but the recovery is by no means complete,” said Martin Gruenberg, FDIC’s acting chairman. The FDIC also said there were 844 banks on its confidential “problem” list in the quarter, or roughly 11.5 percent of all federally insured banks. That was down from 865 in the April-June period, which was the first quarter in five years to show a decline. Banks with assets exceeding US$10 billion drove the bulk of the earnings growth. They made up 1.4 percent of all banks but accounted for about US$29.8 billion of the industry’s earnings in the third quarter. Those are the largest banks, such as Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. Most of these banks have recovered with help from federal bailout money and record-low borrowing rates. FDIC officials said the industry continues to struggle with flat growth in loans. Banks’ loan balances increased US$21.8 billion in the third quarter. That was a modest gain, but it marked the second straight quarter in three years that there has been growth in balances, the FDIC said. “After three years of shrinking loan portfolios, any loan growth is positive news for the industry and the economy,” said Martin Gruenberg, FDIC’s acting chairman. Still, lending is well below healthy levels. So far this year, 90 banks have failed. That’s down from the 157 banks shuttered last year — the most for one year since the height of the savings and loan crisis in 1992 — and 140 in 2009. Last year’s bank failures cost the FDIC’s deposit insurance fund an estimated US$23 billion. But in the July-September quarter, fewer failures allowed the insurance fund to strengthen. The fund turned positive in the second quarter and had a US$7.8 billion balance as of Sept. 30. The FDIC is backed by the government, and its deposits are guaranteed up to US$250,000 per account. Apart from its deposit insurance fund, the agency also has tens of billions in loss reserves.