FDIC chief: Banks still in fear of ‘fis­cal cliff’

Banks

Austin American-Statesman - - BUSINESS - Con­tin­ued from B The num­ber of trou­bled banks con­tin­ues to fall.

nomic ac­tiv­ity.

Still, the in­crease in lend­ing to con­sumers was “rel­a­tively mod­est” and reg­u­la­tors would like to see more of it, FDIC Chair­man Martin Gru­en­berg said.

“This was an­other quar­ter of grad­ual but steady re­cov­ery,” he said. “Over­all the news is en­cour­ag­ing, but con­tin­u­ing down­side eco­nomic risks re­main.”

Gru­en­berg said banks are wor­ried about what will hap­pen with the “fis­cal cliff.” That’s the name for au­to­matic tax in­creases and spend­ing cuts that will kick in next month un­less Pres­i­dent Barack Obama and con­gres­sional law­mak­ers reach a deal by then to avert them.

For the first time since 2009, the big­gest con­trib­u­tor to the earn­ings was in­creased rev­enue rather than re­duc­tions in what banks set aside for loan losses, the FDIC said.

Rev­enue in­creased 3 per­cent in the third quar­ter from the same quar­ter a year ago, af­ter show­ing slug­gish growth in pre­vi­ous quar­ters.

A large part of the in­crease came from sales of loans to other in­sti­tu­tions. That shows con­tin­ued weak­ness in other sources of rev­enue, such as in­ter­est on loans, Gru­en­berg said.

Banks with as­sets ex­ceed­ing $10 bil­lion drove the bulk of the earn­ings growth in the July-Septem­ber pe­riod. While they make up just 1.5 per­cent of U.S. banks, they ac­counted for about 82 per­cent of the earn­ings.

Those banks in­clude Bank of Amer­ica Corp., Cit­i­group Inc., JPMor­gan and Wells Fargo & Co. Most of them have re­cov­ered with help from fed­eral bailout money and record-low bor­row­ing rates.

The num­ber of banks on the FDIC’s con­fi­den­tial “prob­lem” list fell in the third quar­ter to 694, or around 9.6 per­cent of all fed­er­ally in­sured banks. That com­pares with 732 trou­bled banks in the sec­ond quar­ter.

So far this year, 50 banks have failed. That’s far be­low 92 banks shut­tered last year and 157 closed in 2010 — the most for one year since the height of the sav­ings and loan cri­sis in 1992.

In the third quar­ter, the de­cline in bank fail­ures al­lowed the in­surance fund to strengthen. The fund turned from deficit to pos­i­tive in the sec­ond quar­ter of 2011 and had a $25.2 bil­lion bal­ance as of Sept. 30, ac­cord­ing to the FDIC. That com­pares with $22.7 bil­lion at June’s end.

The FDIC is backed by the government, and its de­posits are guar­an­teed up to $250,000 per ac­count. Apart from its de­posit in­surance fund, the agency also has tens of bil­lions in loss re­serves.

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