Monday, September 24, 2012

America's Profitable Banks - The Rich Get Richer

The Federal Deposit Insurance Corporation (FDIC) recently released their second quarter 2012 Quarterly Banking Profile for U.S.-based commercial banks and savings institutions insured under the FDIC umbrella.

In the second quarter of 2012, these federally insured institutions reported aggregate net income of $34.5 billion, up $5.9 billion or 17 percent from the same period a year earlier.  The share of institutions reporting improved year-over-year net income reached 62.7 percent with only 10.9 percent showing a loss, down from 15.7 percent one year earlier.  This is the twelfth quarter in a row that the banking industry has registered a year-over-year increase in net income.  Here is a bar graph showing the quarterly net income for the banking sector over the past four years:

Since the first quarter of 2010, it's been good to be a banker!  Aggregate profits are just off their peak of $35.2 billion in the third quarter of 2011 but well up from their losses of nearly $37.8 billion in the fourth quarter of 2008 alone, the year that American taxpayers stepped up to the plate to bailout the banking system.

Of the 7246 banks and savings institutions currently covered by the FDIC, only 732 are considered to be "problematic", down from 772 in the previous quarter and down from the eight year peak of 884 at the end of 2010.  This is the lowest number of problem banks since the end of 2009.  Here is a bar graph showing the dropping number of "problem" institutions:

While the number of "problem" institutions is dropping, albeit slowly, you will note that even at current levels, the number of "problem" banks is up over 1100 percent from its average annual level of 65 between 2004 and 2007 and has only dropped 17 percent from its peak value.  This suggests that if part 2 of the Great Recession becomes entrenched in the economy, the banking sector could see new record levels of failure.  

Fifteen insured institutions failed during the second quarter with another nine failing thus far in the third quarter, bringing the annual total for 2012 to forty thus far.  This is the lowest number of problem banks since the end of 2009.  At this point last year, there had been 68 failures.  Here is a graph showing the number of failures since 2009 in red:

Here is a bar graph showing the rapid growth in the size of the assets of "problem" institutions since the beginning of the Great Recession:

Again, while the assets of "problem" institutions have dropped by 30 percent from the peak of $402.8 billion at the end of 2009, the number is still up 1700 percent from its 2004 to 2007 average level of $16.4 billion.

There is no doubt that, when measured in terms of net income, the banking sector as a whole looks very healthy.  What is of some concern is the dramatically elevated levels of both "problem" institutions and the assets of these institutions.  We are now three full years into the post-Great Recession recovery and yet significant parts of the banking sector are still under stress.  This could prove to be a big problem for American taxpayers when the banking sector comes hat-in-hand looking for another bailout if the Eurozone influenza crosses the Atlantic.

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