The country's banks and savings institutions, facing mounting losses from the real estate market, chalked up their first quarterly loss in eighteen years in the fourth quarter of 2008, the Federal Deposit Insurance Corp. (FDIC) said.
The $26.2 billion deficit -- the first aggregate net loss for the industry since 1990 -- compared with a profit of $575 million in the fourth quarter of 2007. Return on assets (ROA) also fell to near-historic lows. The combined ROA for the industry was a negative 0.77 percent, compared with 0.02 percent a year earlier. That was the worst result since 1987.
According to the FDIC's Quarterly Banking Profile, although two-thirds of the banks that it regulates were profitable in the fourth quarter, a small number of large banks contributed the majority of the overall losses.
Overall, the FDIC report describes a banking industry reacting to significant stresses in the overall economy. While consumer deposits reached a ten-year quarterly high -- suggesting general confidence in the banking system and an improved savings rate -- banks continued to take large charge-offs on non-performing loans. Insured institutions charged off $37.9 billion of troubled loans, more than twice the $16.3 billion that was charged-off in the fourth quarter of 2007.
As a result of non-performing loans, banks also saw a decline in their reserve coverage ratio. This measure of the industry's balance of reserves to noncurrent loans fell from 83.9 percent to 75.0 percent, the lowest level since the third quarter of 1992.
The FDIC's Deposit Insurance Fund reserves, a critical measure of the agency's ability to insure customer deposits, also fell in the fourth quarter. It stood at $18.9 billion at the end of the year, down from $34.6 billion on Sept. 30. On Friday, the FDIC announced that it was imposing a one-time "emergency special assessment" and increasing regular fees on banks in order to replenish its reserves.
Despite these problems, however, the FDIC reported that nearly 98 percent of all insured institutions, representing almost 99 percent of industry assets, met or exceeded the highest regulatory capital standards.
The $26.2 billion deficit -- the first aggregate net loss for the industry since 1990 -- compared with a profit of $575 million in the fourth quarter of 2007. Return on assets (ROA) also fell to near-historic lows. The combined ROA for the industry was a negative 0.77 percent, compared with 0.02 percent a year earlier. That was the worst result since 1987.
According to the FDIC's Quarterly Banking Profile, although two-thirds of the banks that it regulates were profitable in the fourth quarter, a small number of large banks contributed the majority of the overall losses.
Overall, the FDIC report describes a banking industry reacting to significant stresses in the overall economy. While consumer deposits reached a ten-year quarterly high -- suggesting general confidence in the banking system and an improved savings rate -- banks continued to take large charge-offs on non-performing loans. Insured institutions charged off $37.9 billion of troubled loans, more than twice the $16.3 billion that was charged-off in the fourth quarter of 2007.
As a result of non-performing loans, banks also saw a decline in their reserve coverage ratio. This measure of the industry's balance of reserves to noncurrent loans fell from 83.9 percent to 75.0 percent, the lowest level since the third quarter of 1992.
The FDIC's Deposit Insurance Fund reserves, a critical measure of the agency's ability to insure customer deposits, also fell in the fourth quarter. It stood at $18.9 billion at the end of the year, down from $34.6 billion on Sept. 30. On Friday, the FDIC announced that it was imposing a one-time "emergency special assessment" and increasing regular fees on banks in order to replenish its reserves.
Despite these problems, however, the FDIC reported that nearly 98 percent of all insured institutions, representing almost 99 percent of industry assets, met or exceeded the highest regulatory capital standards.
published February 27, 2009, 0 Comments
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