Magazine article American Banker

FDIC's Insurance Fund Hit Milestone as 2Q Earnings Grew, Agency Says

Magazine article American Banker

FDIC's Insurance Fund Hit Milestone as 2Q Earnings Grew, Agency Says

Article excerpt

Byline: Lalita Clozel

U.S. banking earnings rose 1.4% in the second quarter from a year earlier to $43.6 billion driven largely by interest-related income while the Deposit Insurance Fund hit a key trigger that will affect industry premiums.

The Federal Deposit Insurance Corp.'s Quarterly Banking Profile reported that the industry's net interest income rose 4.8% year over year, to $113.5 billion. Loan balances grew by $181.9 billion, or 2.2%, from the first quarter, with total assets growing by $240.6 billion, or 1.5%. However, the average net interest margin stayed nearly stagnant, growing by just one basis point from a year earlier to 3.08%.

But another noteworthy detail in the report was news that the DIF -- the agency's ratio of reserves to insured deposits -- exceeded the all-important 1.15%, reaching 1.17%. The ratio was the highest in eight years. Going past the 1.15% benchmark -- the statutory minimum before the crisis -- will trigger several modifications in banks' assessment rates starting in the third quarter as the fund builds up to a new statutory minimum of 1.35%.

The industry overall will see their regular assessment rates cut by about one third overall, according to FDIC estimates. Banks with under $10 billion in assets will begin to collect credits for future assessments as large banks will be responsible for bearing the costs of pushing the ratio higher, a key requirement of the Dodd-Frank Act.

Meanwhile, the industry's positive report card was also driven in part by a $981 million year-over-year decline in expenses for litigation reserves at a few large banks. …

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