The FDIC made it official today: The Deposit Insurance Fund is now in the black. It had gone negative in 2009, but during the second quarter of this year the fund went from negative $1 billion to positive $3.9 billion. During the quarter, the pace of bank failures slowed, easing pressuring on the fund. Also, the FDIC moved $3.5 billion from the reserve for projected losses to the DIF.
The FDIC also reported this morning that the number of banks on the FDIC’s problem list declined for the first time since third quarter 2006. The FDIC now says there are 865 problem banks in the country, compared to 888 three months ago.
The FDIC said on an aggrigate basis, the nation’s banks made $28.8 billion in the second quarter, a $7.9 billion improvement over second quarter 2010 results. This is the eighth quarter in a row that the industry recorded a quarterly earnings increase on a year over year basis. A big part of the improvement is the result of lower provisioning than a year ago. Sixty percent of all banks in the country reported higher earnings in the second quarter 2011 than in the second quarter 2010.
Click here to read the details from the FDIC.
Here are comments from James Chessen, chief economist for the American Bankers Association:
While economic headwinds remain, higher capital levels, increased liquidity and lower losses mark a turning point as the banking industry continues to gain strength. Additional improvement can be seen in fewer troubled institutions and in the deposit insurance fund returning to positive territory. These figures are clear indications that the worst has passed and the industry is returning to health.
Banks added $26.6 billion in equity capital during the second quarter and over $264 billion in capital since 2008 when the financial crisis took hold. Total industry capital is now more than $1.5 trillion. Banks also have set aside more than $207 billion in reserves to cover possible loan losses. Capital plus reserves gives a total buffer protecting the industry of more than $1.76 trillion. In addition, the industry capital-to-assets ratio – a key measure of financial strength – continues to remain very strong and ended the quarter at 11.3 percent, the highest level since 1938.
The fact that lending saw modest growth – the first increase in three years – is a positive as the economy continues to seek a way forward. Business lending improved slightly for the fourth consecutive quarter, but businesses remain reluctant to invest in new equipment or hire new workers due to uncertainty about the pace of economic growth. Loan demand remains weak due to the current soft patch in the economy and the lack of confidence is freezing current business expansion plans. The housing market continues to face an oversupply of existing homes and buyers remain hesitant during a climate of uncertainty.
Asset quality is improving, as noncurrent loans reported sizeable declines, the fifth consecutive quarter of improvement. In every loan category, the level of delinquent loans declined. In fact, non-current loans were down by $22.2 billion (6.5 percent) compared to last quarter. Banks are putting losses behind them and are building a portfolio of quality loans.
The number of banks on the FDIC’s list of troubled institutions has declined for the first time in more than four years, a turning point as the country continues to recover from the recession. In addition, the pace of failures declined for the fourth consecutive quarter, allowing the deposit insurance fund to recover more rapidly. The banking industry, which contributes about $14 billion a year in premiums, pays the full cost of the FDIC without any tax dollars. Banks are committed to maintaining the strength of the deposit insurance fund. Each depositor is fully insured up to $250,000, and there is full protection for non-interest bearing transaction accounts through the end of 2012. In the 78-year history of the FDIC, no depositor has ever lost a penny of insured deposits.
With recent volatility in the financial markets, FDIC-insured deposits at banks are proving to be a prudent choice for those who want to guarantee principal and interest are protected. More than $230 billion in new deposits flowed into banks in the second quarter and the third quarter will show strong deposit growth as well due to the stock market volatility.
Today’s report shows banks are well positioned to deal with the many challenges ahead as the economy slows once more. Banks have navigated these economic gyrations many times in the past. Nearly 5,000 banks – or 64 percent – have been in business for more than 50 years, and one out of three banks has served its local community for more than a century.