US Banks Resurgent

Banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported income of $37.6 billion in the third quarter, a 6.6 percent improvement over third quarter, 2011. This is the 13th consecutive quarter that earnings have registered a year-over-year increase. The other big news —  the decline in the number of banks on the FDIC’s “Problem List” from 732 to 694. This is the first time in three years that there have been fewer than 700 banks on the list

For the economy, this means more liquidity as loan balances posted their fifth quarterly increase in the last six quarters, rising by $64.8 billion . Loans to commercial and industrial borrowers increased by $31.8 billion (2.2 percent), while residential mortgages rose by $14.5 billion (0.8 percent) and auto loans grew by $7.4 billion (2.4 percent). The bad news? The nerves around the fiscal cliff may have caused home equity lines of credit to decline by $12.9 billion (2.2 percent), and real estate construction and development loans fell by $6.9 billion (3.2 percent). Remember that $2 billion of property construction and design would be eliminated if sequestration happens, cutting 66,500 jobs.

Still, the FDIC report is cause for optimism. Only 12 insured institutions failed during the third quarter. This is the smallest number of failures in a quarter since the fourth quarter of 2008, when there were also 12. An additional seven banks have failed so far in the fourth quarter, bringing the year-to-date total to 50. Through December 4, 2011, there had been 90 failures year-to-date.

“More than 55 percent of all banks reported loan growth,” Chairman Gruenberg noted. “Small banks are also increasing their lending, including their loans to small businesses.”

The complete Quarterly Banking Profile is available both here and at on the FDIC Web site.