Bank Earnings Fall; FDIC May Increase Insurance Premiums

Reprinted from the CCH Federal Banking Law Reporter.

Commercial banks and thrifts insured by the Federal Deposit Insurance Corp. reported net income of only $5 billion in the second quarter of 2008, $31.8 billion less than in last year's second quarter, according to the FDIC. The earnings report was the second lowest since 1991, with only the earnings in the fourth quarter of 2007 being less. According to the FDIC, the main reason for the drop in earnings was increased provisions by banks for loan losses.

The agency also said that its list of problem banks rose to 117, as opposed to 90 banks only three months before. The number of banks on the list was said to be the largest since mid-2003. Additionally, total assets of these institutions increased from $26 billion $78 billion, including $32 billion from IndyMac Bank F.S.B., which was placed into receivership in July.

Deposit Insurance Fund

FDIC Chairman Sheila C. Bair said that the agency will consider a plan to replenish the Deposit Insurance Fund in October that probably will include an increase in insurance premium rates. She added that the agency also will consider changes that will shift the assessment burden farther onto banks that engage in "high-risk behavior." The Deposit Insurance Fund balance has experienced a large drop due to added loss reserves for IndyMac and other failed banks, falling to $45.2 billion from $52.8 billion at the end of the first quarter. The reserve ratio fell to 1.01 percent and, under the Federal Deposit Insurance Reform Act of 2005, the FDIC must develop a plan to bring the ratio up to at least 1.15 percent within five years.

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