Below is a statement by ABA's Chief Economist, James Chessen, on the FDIC's release of the Quarterly Banking Profile.
“It was another strong year for the banking industry, which showed significant improvement in every category from strong loan growth to improving asset quality. A strong banking system and a growing economy go hand in hand. Going forward, there are questions as to how the sequester will impact the banking industry. All businesses, including banks, will suffer if the economy slows dramatically because of sequestration. It will increase uncertainty, making businesses more reluctant to borrow and consumers more reluctant to spend.”
Business Loans Grow for Tenth Consecutive Quarter
“Bank lending is spurring economic growth. Business lending posted strong year-over-year growth at 12 percent. It marks the tenth consecutive quarter of business lending growth. Even more promising is the broad-based increase in most loan categories, with real estate and auto loans continuing to rise as consumers become more confident in their finances. Whether businesses continue to seek loans will largely depend on whether there is greater policy certainty surrounding taxes, healthcare costs and government regulations.”
Bank Earnings Grow in Challenging Environment
"It’s not unusual to see fourth quarter earnings come in below previous quarters. The real story is the 37 percent year-over-year gains, which is a significant uptick in a challenging economic environment. At the same time, low interest rates and other factors will continue to present challenges for banks’ top line revenue growth.”
Record Inflow of Deposits
“Deposits continue to flow into U.S. banks as customers seek the safety of our country’s institutions during a period of economic uncertainty. Businesses accelerated dividend payments in anticipation of higher tax rates in 2013, which no doubt contributed to elevated deposit rates. The steady increase in deposits is not a one-quarter event, but has been a noticeable trend since the recession began, reflecting continued confidence in our nation’s banking system.”
Capital Continues to Grow
“Bank capital continues to grow and remains near record levels. Bank capital rose by $63 billion over the course of last year and is 25 percent higher than 2008 levels. Regulators have categorized over 97 percent of banks as well-capitalized, which means their capital levels are at least 25 percent higher than minimum standards.
“Total industry capital is now over $1.6 trillion, providing an important buffer for any economic challenges that could arise. Adding reserves banks have set aside for possible loan losses, there is a total buffer protecting the industry of almost $1.8 trillion.”
Problem Loans Stable, Failures Continue to Decline
“While problem loans continue to show signs of improvement, we expect the pace of improvement will slow. Reserve positions are now more reflective of a normal banking environment and future losses will undoubtedly be lower. Problem loans remain somewhat elevated because of our slow-growing economy and persistently high unemployment. Bank failures have slowed dramatically, reflective of a rapidly improving industry. Banks, not taxpayers, are solely responsible for all of the FDIC’s expenses, paying nearly $12.4 billion in premiums over the last year.”