U.S. commercial banks swung to impressive profits in the second quarter of 2010, up to $21.6 billion from a loss of $4.4 billion a year ago, largely because banks have reduced the amount of money they set aside to deal with losses from bad loans, the Federal Deposit Insurance Corp. announced today. The banking sector hasn’t seen such high earnings since 2007, before the utter disaster that rent banks asunder in 2008.
But before we get all misty-eyed about U.S. banks’ performance, earnings haven’t yet met historical norms, and worse, FDIC Chairman Sheila Bair says, “the numbers of unprofitable institutions, problem banks and failures remain high.” The total number of banks that made the FDIC’s “problem list” of endangered banks climbed to 829 from a previous count of 775, the highest count of problem banks since 1993.
Likewise, anyone hoping that banks would start lending out money to help get the economy chugging again was disappointed. Outstanding loans have fallen 7.5 percent over the past two years.
Therer were other bright spots. Bair was careful to point out that the banking sector is improving, and quarterly loan loss provisions fell 40 percent year over year to $40.3 billion (although that’s still higher than the FDIC would like). Industrywide total loan-loss reserves also shrunk 4.5 percent. Writeoffs of uncollectable loans dropped less than 1% to $214 million, the first decline since the fourth quarter of 2006.
In any case, Bair said the FDIC is in a good position to handle additional bank failures.