The American Bankers Association has released a statement regarding the Federal Deposit Insurance Corp.’s bank earnings report, which revealed that net income increased 6.6 percent year-over-year in the third quarter.
“The third quarter was another strong one for the banking industry, with solid earnings, higher capital levels, lower losses and stable asset quality signifying an industry that continues to gain strength,” the ABA said. “At the same time, continuing uncertainty surrounding the fiscal cliff is already slowing economic activity and businesses are hesitant to borrow. Decisions made in the month ahead will have a profound impact on our economic path and the outlook for all businesses—banks included.”
Additionally, the ABA said that business loans had enjoyed double-digit growth, increasing by 13.5 percent year-over-year.
“In addition, loan growth has become more broad-based, with an uptick in real estate lending and auto loans signaling that consumers have become increasingly more confident in their finances,” the ABA said.
The FDIC report also revealed that industry profits are at a six-year high, with 57.5 percent of banks reporting earnings increases from $34.4 billion in the previous quarter.
“Strong business loan growth, aggressive cost controls and recaptured reserves have helped banks maintain earnings in a challenging environment,” the ABA said. “Reserves have declined because loan losses were less than expected and future losses will be undoubtedly lower. Low interest rates continue to squeeze margins and put significant pressure on traditional banking. Extremely low rates and regulatory pressure on non-interest income will continue to challenge banks’ top line revenue growth.”
Bank capital also increased, and the ABA said that it “remains near record levels.”
“It’s important to remember that bank capital has increased throughout the financial crisis and is now 25 percent higher than 2008 levels,” the ABA said. “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 not 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.”
The ABA said that it is pressuring Congress to extend the FDIC’s Temporary Account Guarantee program for two more years.
“Customers value the protection of FDIC insurance and balances in TAG accounts continue to increase,” the ABA said. “In today’s uncertain environment, security of deposits is trumping yield for businesses. A temporary extension will take at least one piece of uncertainty off the table for businesses at year-end.”