WASHINGTON — The banking industry lost $26 billion in the fourth quarter — the first quarterly loss in two decades, the Federal Deposit Insurance Corp. said Thursday.
The loss was a dramatic turnaround from the $575 million profit reported in the year-earlier period. Four large institutions accounted for half of the total loss, but the FDIC said the industry's troubles are clearly widespread.
Banks and thrifts had a negative return on assets of 0.77%, the worst showing since the second quarter of 1987. The industry's income for all of 2008 was $16 billion, the lowest level since 1990.
The agency said the ratio of federal reserves to insured deposits in the Deposit Insurance Fund dropped to 0.40%, a sharp decline from 0.76% in the third quarter, and there were signs more failures were already on their way. The agency said institutions on its "problem" list rose by 81, to 252, in the fourth quarter. Assets held by those banks jumped 37%, to $159 billion.
FDIC staff are expected to recommend at a board meeting Friday that the agency institute a special assessment on all banks to help restore the DIF, which held just $18.9 billion at yearend.
Like previous quarters, the pressure on earnings was tied mostly to a high level of loss provisions. The industry set aside $69.3 billion to cover bad loans in the quarter, more than two times the provisioning a year earlier. Fourth-quarter provisions represented over half - 50.2% - of net operating revenue. Provisions have not absorbed so much since the second quarter of 1987, when the proportion was 53.2%.
While large banks accounted for a large proportion of losses, the FDIC also reported distress in the community bank sector.
Nearly 32% of institutions reported a net quarterly loss. While net interest income rose 4.9% from a year earlier to $97 billion, and the average net interest margin increased 2 basis points to 3.34%, the agency said improvement was "confined mostly to larger institutions." Lower margins were suffered by 56% of institutions, and they declined 19 basis points from a year earlier to 3.66 for institutions with less than $1 billion in assets. That is the lowest quarterly margin for that sector since the second quarter of 1988.