WASHINGTON (Reuters) – U.S. bank profits were down 70% from a year prior in the second quarter of 2020 on continued economic uncertainty driven by the coronavirus pandemic, a regulator reported Tuesday.
Bank profits remained small as firms build up cushions to guard against future losses and business and consumer activity dropped, according to the Federal Deposit Insurance Corporation. Bank deposits climbed by over $1 trillion for the second straight quarter, and the regulator said the industry has “very strong” capital and liquidity levels.
Tuesday’s report marks the second straight quarter that banks have seen their profits reduced to a fraction of record levels they experienced in 2019. The FDIC similarly reported a 70% decline in profits in the first quarter of 2020, although industry profits were actually up slightly in the second quarter.
Banks continued to set aside huge amounts of cash to guard against future loan losses — in the second quarter firms reported a 382% increase from a year prior in how much they had reserved for potential credit losses.
The FDIC reported that the level of loans that are more than 90 days past due had risen 16% in the last quarter, driven primarily by mortgages and small business loans.
The FDIC said banks were buoyed by an uptick in commercial and industry loans, thanks in large part to the over $480 billion in forgiveable loans banks issued under the Paycheck Protection Program, a major part of Washington’s attempt to help small businesses weather the pandemic.
With economic activity grinding to a halt in many parts of the country, banks reported their second straight quarter of over $1 trillion in new deposits. The “unprecedented” influx of funds actually meant the deposit insurance fund run by the FDIC dropped below its legal minimum ratio of 1.35 percent. FDIC Chairman Jelena McWilliams said in a statement she expects that fund, which banks pay into, will return to sufficient levels in the coming months without having to charge the industry a higher percentage to boost it.
(Reporting by Pete Schroeder; Editing by Chizu Nomiyama)
