US Banks Show Across-the-Board Gains in FDIC Report

(Bloomberg) -- Net income at US banks rose more than 13% in the third quarter as money in the bedrock deposit insurance fund ticked higher and the number of problem banks went down, according to the Federal Deposit Insurance Corp.

The $9.4 billion gain in net income from the prior quarter to $79.3 billion was led by lower provision expenses and higher net interest income, the FDIC said in its quarterly assessment of the banking industry. The deposit insurance fund’s balance grew by $4.8 billion to $150.1 billion, while the tally of problem banks getting extra scrutiny from regulators fell to 57 from 59, the agency said.

“Asset quality metrics remained generally favorable despite weakness in certain portfolios, which we are monitoring closely,” Travis Hill, the agency’s acting chairman, said in a statement. Hill cited unrealized paper losses on bank holdings, a concern left over from the industry’s 2023 turmoil, which he said declined but remain elevated.  

Unrealized losses on securities dropped almost 15% from the prior quarter and 7.4% from a year earlier to $337.1 billion. The number of institutions insured by the agency declined by 42 to 4,379 after four were sold to uninsured institutions and 38 firms merged or consolidated with other lenders. 

Hill said during a news conference that the agency is working on new bank-merger guidance that would outline a more open stance to tie-ups between banks and other types of firms. Industry observers have been pushing for bank regulators to spell out how and in what cases bank acquisitions could occur by private equity firms and crypto buyers. 

The FDIC insures depositors against losses caused by a bank failure for up to $250,000 for each type of account a customer holds. The agency has been rebuilding its deposit insurance fund or DIF since 2020, when a surge in deposits pushed the reserve ratio below the level required by law. 

The fund became a point of contention because the pot is filled and re-filled by healthy banks kicking in quarterly fees, but the FDIC said in May that the DIF is poised to reach its legal target ratio by the end of 2025 — about three years ahead of schedule.

(Updates with comments on bank mergers in fifth paragraph.)

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