Slideshow Overlooked insights from FDIC's 4Q report card

Published
  • March 01 2017, 3:52pm EST
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Here we go again

Banks earned $171.3 billion in 2016, their highest annual earnings ever. While most indicators were positive in the Federal Deposit Insurance Corp.'s Quarterly Banking Profile, there were some signs of concern. Even this high earnings report may work against banks, hampering arguments that they desperately need regulatory relief even as they make record profits.

Durbin impact

Although the Durbin amendment, which capped interchange fees for debit card transactions, went into effect in 2011, such fees have continued to grow for banks until 2016. It's not clear why interchange fees fell by more than $500 million to $40.9 billion, but bankers are likely to pin at least some of the fault on the Durbin amendment, which they are trying to repeal.

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The number of banks

The overall number of banks fell below 6,000 for the first time in a century in 2015, and 2016 saw another 200 more taken from that total. With so few de novos joining, and the pace of M&A expected to pick up, the number of banks, particularly smaller institutions, is likely to continue to decline.

Interest rate hikes

Among the bigger shifts in the report was the market value of banks' securities portfolio. FDIC Chairman Martin Gruenberg noted during a briefing with reporters that the value of investment securities "exceeded the book value by almost $60 billion dollars at the end of the third quarter. By the end of the fourth quarter, these unrealized gains had reversed to nearly 20 billion dollars in unrealized losses."

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Loan growth

Banks continued to lend more during 2016, but not quite at the pace of a year earlier. Gruenberg noted that loan growth at community banks was stronger than the overall industry. Loan balances at community banks grew 8.3% in 2016, led by growth in commercial real estate loans, commercial and industrial loans and residential mortgages, he said.

Failure rate

Failures have fallen steadily since the early years after the financial crisis. Just five banks failed in 2016, down from eight in 2015.