ABA releases statement on FDIC second-quarter bank earnings report
Published: August 31, 2010
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The following statement was released on Aug. 31 by James Chessen, American Bnakers Association chief economist.
“Today’s report indicates that the banking industry continues to regain its strength, though the fragile economy still presents significant challenges. Banks have increased their capital levels and set aside strong reserves to cover problem loans that typically result from high levels of unemployment and business failures. Problem loans are down, allowing banks to put losses behind them and look for new lending opportunities as the economy improves.
“The decrease in loans outstanding is not unexpected given the still weak economy and the regulatory uncertainty that has been hovering over the industry for nearly two years. Decreased loan levels are in large part due to very low demand from businesses and consumers. Businesses are still reluctant to take on new debt without having hard evidence that consumers are willing to buy their products. The economic outlook is still cloudy, which makes a prudent approach to credit a necessity.
“Banks added another $27 billion in equity capital in the second quarter and total industry capital is now just short of $1.5 trillion. When added to the more than $250 billion in reserves banks have set aside to cover losses, this makes for a total buffer of roughly $1.75 trillion against losses. In addition, the capital-to-assets ratio – a key measure of financial strength – continues to improve and is at the highest level in decades. In fact, 95.6 percent of banks – holding over 98.8 percent of the industry’s assets – are classified as ‘well capitalized,’ which is the highest regulatory designation possible.
“The increase in the number of banks on the list of troubled institutions is not surprising given some parts of the country are still mired in the recession. The banking industry is committed to maintaining the strength of the deposit insurance fund and all costs of the FDIC are borne by the industry, not taxpayers. Each depositor is fully insured up to $250,000, and in the 75-year history of the FDIC no depositor has ever lost a penny of insured deposits.
“Navigating the ups and downs of the economy is nothing new to banking. The vast majority of banks have been in business for more than 50 years, and one of every three banks has served its local community for more than a century. Through good times and bad, it is this philosophy of building long-term relationships with customers that has made banks successful.”
