US bank earnings up, FDIC questions for how long

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US bank earnings continue to increase but the prospects for earnings growth are dimming as banks are having trouble boosting revenue. The Federal Deposit Insurance Corp said on Tuesday that the industry earned $28.8 billion in the second quarter, a $7.9 billion increase from a year before. That number is down slightly from the $28.9 billion in earnings recorded during the first quarter.
The agency again warned that earnings increases are mostly due to banks setting aside less to guard against losses from bad loans. “As the levels of loss provisions approach their historic norms, the prospects of earnings improvement from further reductions in provisions diminish,” FDIC Acting Chairman Martin Gruenberg said at a news conference on the release of the agency’s quarterly banking report. The industry set aside $19 billion during the second quarter to guard against losses, which is 53 percent less than a year ago, according to the FDIC.
Bank revenues continue to fall. During the second quarter net operating revenues fell $3 billion, or 1.8 percent, from the levels recorded a year ago, the agency said. In a positive sign for the industry, bank loan balances grew during the second quarter for the first time in three years, up $64.4 billion, or 0.9 percent. Gruenberg highlighted the increase but added a note of caution. “A significant portion of the overall growth in loans represented intra-company lending between related banks,” he said. “Lending activity still has a long way to go before it approaches more normal levels.”