The overall health of the US banking industry improved in the first quarter as net income set a two-year-high of $18 billion, but the largest firms enjoyed a disproportionate share of the gains. The Federal Deposit Insurance Corp provided a mixed picture of the recovery of the bank industry on Thursday, with small institutions still feeling the strains of tough credit conditions, but with a slower rate of deterioration.
The number of US "problem banks" increased about 10 percent during the quarter to 775 - a smaller jump than the 27 percent rise during the fourth quarter. Bank failures and consolidation drove the number of US insured banks down below 8,000 - the first time in the FDIC's 76-year history.
"There are encouraging signs in the first-quarter numbers," FDIC Chairman Sheila Bair said in a statement. "Industry earnings are up. More banks reported higher earnings, and fewer lost money." The improvement in earnings was largely due to a reduction in the amount of money that banks set aside for anticipated loan losses. However, the bulk of that reduction was concentrated among a few of the largest banks, the FDIC said.
In a sign that the FDIC does not anticipate further huge losses to the insurance fund due to bank failures, the agency reported a $145 million increase to the fund balance. That is the first such increase in two years. In the first quarter, the FDIC set aside $3 billion in additional provisions for expected bank failures, compared with $17.8 billion in the prior period.
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