October 20, 2020

DealBook: As Bank Woes Ease, F.D.I.C. Fund Nears Positive Territory

After three years of small financial institutions falling like dominoes, bank troubles are easing, and the development is expected to help push the government-administered insurance fund that protects depositors into positive territory next month.

Only four lenders were added to the government’s list of so-called problem banks in the first quarter, bringing the total to 888 from 884, the Federal Deposit Insurance Corporation said on Tuesday. That is the smallest increase since the financial crisis began and one of the clearest signs yet that the banking industry is returning to health.

The F.D.I.C. fund that is used to protect depositor, which slipped into the red for the first time in September 2009, is now expected to be replenished by the end of June.

The agency offered a relatively upbeat assessment for the nation’s 7,574 lenders in its quarterly report card released on Tuesday. Sheila C. Bair, the F.D.I.C. chairwoman said in a statement that the industry showed “continuing signs of improvement.”

Still, she underscored that banks still had plenty of work ahead as they contended with an anemic economy, still-fragile housing market and the possibility of interest rate shocks in the months ahead.

“The process of repairing bank balance sheets is well along, but is not yet complete,” Ms. Bair said during one of her last news conferences as F.D.I.C. chairwoman. Earlier this month, she announced that she would step down at the end of her five-year term in early July.

The banking industry posted a $29 billion profit in the first quarter, a 67 percent increase from the $17.4 billion it reported in the period a year earlier, and its best quarterly result since the start of the crisis.

The bulk of those gains came as the nation’s biggest lenders set aside less money to cover loan losses or drew down their reserves. Smaller banks, those with assets under $1 billion, continue to add money to their reserves.

Over all, the industry remains under pressure from sluggish revenue growth, held back by a slowdown in mortgage lending, weaker trading results and increased regulation of credit and debit card fees.

Revenue for the group was about 3 percent lower than in the period a year earlier. It is only the second time in 27 years that the industry has reported a year-over-year decline in revenue.

To be sure, there have been some signs that the credit spigot is starting to open. Consumers are feeling better about the economy. Banks have been gradually easing their lending standards. While many loans were to overseas borrowers and foreign banks, there has been a modest uptick in corporate lending, according to recent reports.

“We made face the risk of the pendulum swinging too far back in other direction, with banks having incentives to substantially relax lending standards in the pursuit of scarce loans,” Ms. Bair warned in her remarks

Federal policy makers are trying to strike a balance between prodding the banks to lend more to revitalize the economy, while urging them to keep more capital on hand in case of another financial storm.

The number of bank failures appears to have topped out at 157 in 2010, the highest level since the nation’s last severe recession in 1992. But despite the hundreds of institutions on the government’s list of problem banks, not all will be destined to disappear.

There were just 26 failures in the first quarter, and F.D.I.C. officials have said they expect bank seizures — both in terms of the size of the institutions and their number — to be lower this year.

That also bodes well for the restoration of the F.D.I.C. insurance fund. At the end of March, it carried a negative balance of $1 billion. That is a sharp improvement from a negative balance of $7.4 billion at the end of 2010.

Ms. Bair has said that the agency should be able to replenish the account through higher insurance premiums and a special assessment imposed on the banking industry. The agency also expects the cost of resolving troubled banks to be lower in the near future.

“Barring unforeseen circumstances,” Ms. Bair said, the federal deposit insurance fund “balance at June 30 should turn positive, after seven quarters in the red.”

Article source: http://feeds.nytimes.com/click.phdo?i=172a9e0f0bb218daaedad1ceea92f68d

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