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Wednesday, February 3, 2010

Banks Continue to Build Capital

FDIC-insured banks have continued to build their capital buffers through the financial crisis. Increased capital and reserves ensure stability despite increased loan delinquencies, a result of high unemployment. Equity capital – the core financial support banks use to back loans – rose to over $1.46 trillion at the end of the third quarter 2009. Additionally, banks had reserved over $220 billion to cushion against loan losses. Added together, capital and reserves made for a buffer of $1.68 trillion, pushing capital ratios to their highest levels in 19 years.

This is not the first recession banks have successfully navigated. More than 62 percent of the industry has been in business for more than 50 years, and over 30 percent for more than a century. Of the over 8,000 FDIC-insured banks in the US, 96 percent, holding over 98 percent of the industry’s assets, were classified as “well capitalized” in the third quarter, the highest regulatory designation. Banks are not only prepared, but also experienced in weathering downturns and leading recoveries.

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