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Business

US banking returns to profit, but insurance fund in red, says FDIC

Text by News Wires

Latest update : 2009-11-25

The US banking sector returned to profit in the third quarter, but the government insurance fund went into deficit for first time since 1992.

AFP - The US banking industry returned to profit in the third quarter, but the government insurance fund went into deficit for the first time since 1992, regulators announced Tuesday.
  
The Federal Deposit Insurance Corp. said commercial banks and thrifts earned a collective 2.8 billion dollars in the third quarter.
  
This came after a collective 4.3 billion dollar loss in the second quarter, and the profit was well above the 879 million dollars the industry earned in the same period in 2008.
  
But the sector is still feeling the effects of the deep financial crisis triggered by a collapse of the US housing market and global credit crunch.
  
"Today's report shows that, while bank and thrift earnings have improved, the effects of the recession continue to be reflected in their financial performance," said FDIC chairman Sheila Bair.
  
More than 26 percent of all insured institutions reported a net loss in the latest quarter, and total loan balances declined by the largest percentage since quarterly reporting began in 1984, the FDIC said.
  
As projected in September, the FDIC's deposit insurance fund balance fell below zero for the first time since the third quarter of 1992.
  
The fund balance of negative 8.2 billion dollars reflects a 38.9 billion dollar contingent loss reserve that has been set aside to cover estimated losses over the next year.
  
The FDCI report showed total loans and leases declined by 210.4 billion dollars, or 2.8 percent, during the quarter.
  
Loans to commercial and industrial borrowers declined by 6.5 percent, residential mortgage loan balances fell by 4.2 percent, and real estate construction and development loans dropped 8.1 percent.
  
"There is no question that credit availability is an important issue for the economic recovery," Bair said.
  
"We need to see banks making more loans to their business customers. This is especially true for small businesses that rely on FDIC-insured institutions to provide over 60 percent of the credit they use."
  
The FDIC noted that 124 banks had failed so far this yer, and the number on the "problem list" grew to 552,the highest number in 16 years.
  
"For now, the credit adversity we have been discussing for some time remains with us, and we expect that it will be at least a couple of more quarters before we see a meaningful improvement in that trend," Bair said.
  
"Despite the challenges, I am optimistic that if we address these problems head-on, we will see clear signs of improvement in bank earnings and lending in 2010
  
The FDIC noted that it has 23.3 billion dollars of cash and marketable securities on hand. It has moved to bolster its position by approving a measure on November 12 to require insured institutions to prepay three years' worth of deposit insurance premiums -- about 45 billion dollars -- by the end of 2009.
  
"This measure will provide the FDIC with the funds needed to carry on with the task of resolving failed institutions in 2010, but without accelerating the impact of assessments on the industry's earnings and capital," Bair said.
  
 

Date created : 2009-11-25

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