US bank profits up despite 'problem' lenders

The Federal Deposit Insurance Corporation (FDIC) said the number of institutions on its “problem list” rose more than seven percent to 829 in the second quarter from 775 in the first three months of the year.

The number of problem banks was the highest since March 31, 1993, when there were 928, the FDIC said in a report.

American banks were among the worst hit by the financial crisis that stemmed from a home mortgage meltdown and plunged the world's largest economy into recession in December 2007.

The crisis peaked in the later part of 2008 with the collapse of Lehman Brothers in the largest bankruptcy in history.

Forty-five insured banks failed during the second quarter, the FDIC said.

FDIC-insured commercial banks and savings institutions reported an aggregate profit of US$21.6 billion in the second quarter, an improvement from the US$4.4-billion loss the industry posted in the same period in 2009.

“This is the best quarterly profit for the banking sector in almost three years,” said FDIC chairman Sheila Bair, noting that nearly two out of every three banks were reporting better year-over-year earnings.

As long as economic conditions remain supportive, most institutions should maintain profitability and increase their capacity to lend, she said.

But Bair stressed, “without question, the industry still faces challenges.

“Earnings remain low by historical standards, and the numbers of unprofitable institutions, problem banks and failures remain high.”

The banking sector is gaining strength, with most asset quality indicators moving in the right direction, she said.

The FDIC insures deposits at the nation's 7,830 banks and savings associations and promotes the safety and soundness of these institutions by identifying and addressing risks to which they are exposed.

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