WASHINGTON - Barring the unexpected in the next three weeks, this will be the first year without a bank failure in the Federal Deposit Insurance Corp.'s history.
And the 18-month stretch since the last failure, back in June 2004, is the longest since 1945.
Credit quality, low interest rates, a growing economy, high capital, and consolidation are all considered factors behind the trend.
"It's been a perfect storm for bankers, part of which is their own navigation and part of which is luck," said L. William Seidman, a former chairman of the FDIC.
But how much longer the good times can last is uncertain. Some banks are treading water after Hurricane Katrina, and many say the credit cycle has peaked.
Today's market is the opposite of the one in 1989, when 534 banks and thrifts failed and the FDIC's problem list topped 1,500. The agency grappled with failures through the early 1990s, but only once since 1994 have failures hit double digits - 11 banks and thrifts failed in 2002.
Low interest rates and the growing economy have benefited banks; loan default and chargeoff rates have been extremely low the last several years. The FDIC said in its recent quarterly report on the industry's performance that just 0.74% of loans were noncurrent as of Sept. 30. On average, banks and thrifts held $1.63 for every dollar of bad loans.
Banks earned a record $34.6 billion in the third quarter.
James Wilcox, a professor at the University of California, Berkeley's Haas School of Business, said a major reason banks are healthier now is because they are holding more capital.
According to the FDIC, on Sept. 30 the industry held nearly $1.1 trillion of equity capital, for an average equity-to-assets ratio of 10.25%. The FDIC's problem list now includes 68 banks and thrifts - the lowest number since the agency started the list 35 years ago.
"The more capital you hold, the less likely it is that you will go down," Mr. Wilcox said.
More than 90% of all banks and thrifts are considered "well capitalized" and "well managed" by regulators.
"The whole idea of being well capitalized in order to have all the advantages has had a tremendous effect," Mr. Seidman said. If a bank or thrift wants to expand, "if it wants to branch, if it wants to use brokered deposits, it has to have a lot more capital."
Ross Waldrop, the chief of the FDIC's banking statistics division, cited consolidation as a big factor behind the slowdown in failures. There are 8,854 banks and thrifts now, compared with nearly 12,000 in 1995. (That number peaked in 1984, when there were 17,914 banks and thrifts.)
"From a purely statistical standpoint, if you have twice as many institutions, the odds of any one failing may be twice as great," he said.
Internal fraud, the most consistent component in recent bank failures, has also been conspicuously absent lately. But Mr. Wilcox said that will probably change when the credit cycle goes down and some desperate bankers try to mask losses.
"Fraud tends to get detected when things go really, badly wrong," he said. "Sometimes fraud can go undetected for a long time if everything is going really well in the bank."
Interest rates are expected to continue rising next year, eating into profit margins, and fierce competition may be leading some banks to make riskier loans.
"There is a huge amount of competition taking place. Because of that competition, do you see banks basically deciding to take on a little bit more risk to get the next deal?" asked Keith Leggett, a senior economist at the American Bankers Association. "That is going to be the key point" affecting the industry's future health and failure rate.
In fact, in its third-quarter report, the FDIC said net chargeoffs rose 24.7% from the second quarter and 12.1% from a year earlier, to $8.3 billion.
