The Federal Deposit Insurance Corp released the quarterly banking industry profile report this morning. This FDIC report provides a summary of financial results for all FDIC insured institutions. This morning’s report indicated some encouraging numbers for the bank industry. Unfortunately, these encouraging numbers will not help those placing their investments or savings in banks since the report does not cover the dreadful CD rates at banks.

Sheila Bair, the FDIC Chairman, said “The banking sector is gaining strength. Earnings have grown, and most asset quality indicators are moving in the right direction…”

As most investors in bank interest bearing products are aware, CD rates at banks have fallen dramatically in the past year. Coincidentally, the banking industry’s quarterly earnings for the second quarter of 2010 came in at $21.6 billion or the highest level in 2 1/2 years. This figure is up significantly from the year ago loss of $4.4 billion and also represents the highest quarterly earnings measured by the FDIC report since the third quarter 2007.

While the banking industry is clearly improving due to fewer loan losses, the net income of the banks was also dramatically improved due to lower bank rates on CDs, savings accounts and money market accounts. The FDIC report showed that the “net interest margins at almost 60 percent of institutions (58.6 percent) improved from a year earlier, as average funding costs fell more rapidly than average asset yields.”

As a result of the lower bank rates on depositor funds, deposit balances in banks declined for the quarter. The report conclude that, “Interest-bearing deposits in domestic offices were down by $45.4 billion (0.7 percent), while noninterest-bearing domestic deposits increased by $20.8 billion (1.4 percent).” This is second quarter in which deposit balances of FDIC insured banks have dropped.

All of the pain in the banking industry is not over however. The proportion of banks that reported quarterly net losses encompassed 20 percent of the banks. The number of money losing banks is down from more than 29 percent a year earlier but is still a strong indication that more bank failures are sure to come before the year ends. The number of banks and financial institutions reported as being on the FDIC’s “Problem List” was 829 for this quarter.

The FDIC Quarterly report provides a summary of the most current financial results on the banking industry. The report covers data for all FDIC insured commercial banks and savings institutions. The number of FDIC insured banks and financial institutions covered by the most recent report was 7,830.

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