Newspaper article THE JOURNAL RECORD

Commercial Banks Reort Record Quarter Profit

Newspaper article THE JOURNAL RECORD

Commercial Banks Reort Record Quarter Profit

Article excerpt

WASHINGTON (AP) _ Commercial banks earned record profits for the third consecutive quarter, the government said Thursday, but much of the good news was based on interest-rate conditions not expected to last.

The nation's 11,590 commercial banks earned $8.5 billion in the July-September period, up from $7.9 billion in the second quarter and $7.6 billion during the first three months of the year, the Federal Deposit Insurance Corp. said.

The industry, with $24.1 billion in earnings for the first nine months of 1992, almost certainly will surpass the old annual record of $24.9 billion, set in 1988.

But much of the improvement is attributable to the wide gap between the short-term interest rates banks pay on deposits and the long-term rates they earn on securities and loans.

Many economists predict the gap, at it's widest in half a century, will narrow as the economy picks up and banks are forced to pay more to keep deposits.

"When rates move up there's a very good chance banks will be hurting," said Boston College finance professor Edward J. Kane. "Interest rate risk for most institutions is going to start to be a threat instead of a friend."

But other private analysts and FDIC officials played down the problem and said nearly every measure of the banking industry is looking better.

"It looks like a good picture," said economist Paul Getman of Regional Financial Associates in West Chester, Pa. "This is the most optimistic I've been in three years. The worst is behind us."

Acting FDIC Chairman Andrew C. Hove Jr. said banks now are "better positioned to make loans and bolster future economic growth." Loans outstanding increased by $3.7 billion to a total of $2.04 trillion in the third quarter, the first gain in a year and a half. …

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