But Taylor Cautious On Industry Outlook
WASHINGTON - Profits at commercial banks jumped by 36% in the first quarter, to a record $7.6 billion, the Federal Deposit Insurance Corp. said Wednesday.
The report documented just how strong the widely reported industry rebound was in the quarter. Return on assets jumped to 0.88% from 0.66% a year ago. And 93% of the nation's 12,000 banks turned a profit.
Still, FDIC chairman William Taylor played down the results. telling the Senate Banking Committee that he remained cautious about the industry's outlook.
Gains Called Temporary
Mr. Taylor said that unusually low interest rates and onetime gains on the sale of securities were largely responsible for the industry's strong showing.
"These results belie the continued existence of underlying difficulties," he said.
The wide spreads between deposit and loan rates are a "temporary condition," he added, warning that "a sudden change to a less-favorable interest rate environment could produce problems."
In answer to question from the committee, Mr. Taylor acknowledged that his bearish attitude was not shared by all of his colleagues.
There is, he said a "great discussion" within the agency about whether to reduce its current estimate that banks holding $168 billion in assets will fail during 1992 and 1993. So far, failures are way behind that pace. About 25% of the way through the period, the agency has reached 10% of its projection - $16.7 billion in assets have been seized.
Mr. Taylor said he was reluctant to alter the forecast because, as banks venture into a new areas like investments in securities derivatives, interest-rate savings become more threatening.
Committee Chairman Donald W. Riegle picked up on Mr. Taylor's remark, saying he was worried that banks were straying from their traditional lending business in favor of riskier markets.
"I don't think banking should be given a license to go out and hunt for new business activities that may carry with them a risk profile that is incompatible with running a federally insured system where taxpayers have to stand behind it," the Michigan Democrat told Mr. Taylor.
Others Also Cautious
Mr. Taylor appeared before the Senate Banking Committee with Joh LaWare, a Federal Reserve Board governor, and Steve Steinbrink, acting Comptroller of the Currency, to report on the condition of the banking industry.
The other regulators agreed with Mr. Taylor that it was too early to conclude that the banking industry has left its problems behind.
Mr. LaWare said his biggest worry was consumer loans. As banks battle each other for consumer business, Mr. LaWare said, he is concerned that underwriting standards will be reduced.
Sen. Alphonse D'Amato, R-N.Y., said he was "fed up" with banks that are buying Treasury securities rather than making loans. Calling the regulators' explanation that loan demand is slack "nonsense," Mr. D'Amato said he knew lots of people who want, but cannot get, loans.
Mr. LaWare suggested that these people are the same ones who defaulted on their last loans.
The first-quarter profits of $7.6 billion surpassed the previous record of $7.3 billion set in the first quarter of 1989.
Earnings were bolstered by an average net interest margin of 4.31% - the highest in three years. That helped raise net interest income by $2.8 billion from the level a year ago.
Another key factor: gains from securities sales. Those gains increased by $682 million.
Assets grew $5.3 billion, to $3.4 trillion, in the first quarter as banks bought $19 billion in government securities and $8.3 billion in mortgage-backed securities.