FDIIffOEUL OEl'OSIT INSURANCE COll'OUTION
FOR REI.EASE tJroN DELIVERY
(12:45 p.m. EST)
NEWS RELEASE
PR-39-88 (2-24-88)
BANKS POST LOWEST PROFITS SINCE GREAT DEPRESSION;
FDIC'S SEIDMAN PREDICTS 1 88 WILL BE A BETTER YEAR
Banking industry profitability during 1987 was at the lowest level
recorded since the Great Depression, but the industry's perfonnance is
expected to improve during 1988, according to Federal Deposit Insurance
Corporation Chainnan L. William Seidman. Profits should return to more
normal levels in 1988, Mr. Seidman said.
In remarks delivered today to the Conference Board in New York, Mr.
Seidman reported that the banking irrlust:cy errled. 1987 with a net profit of
only $3.7.billion, or a return on assets of .13 percent, the lowest rate
in the history of the FDIC. In 1986, the banks earned .64 percent on
assets. This lackluster performance was principally due to the
establishment of sizable loan loss reserves relating to loans to Latin
America and to loans to real estate borrowers in the Southwest.
In addition, "profitability of commercial banks has been dropping
steadily since 1979, and the industry's asset growth rate--at eight
percent--is far behind other competitors in the financial services
industry," he said. "If the industry had not set aside reserves of $37
billion on problem loans, including those to less developed countries,
profits from operations would have been about the same as the $13.3
billion reported in 1986. Hopefully, 1988 will be the year this downward
trend in bank profits will be reversed."
-more-
FEDERAL DEPOSIT INSURANCE CORPORATION. 550 Seventeenth SL NW.. Washinoton. D.C. 20429 • 202-898-6996
FOR REI.EASE tJroN DELIVERY
(12:45 p.m. EST)
NEWS RELEASE
PR-39-88 (2-24-88)
BANKS POST LOWEST PROFITS SINCE GREAT DEPRESSION;
FDIC'S SEIDMAN PREDICTS 1 88 WILL BE A BETTER YEAR
Banking industry profitability during 1987 was at the lowest level
recorded since the Great Depression, but the industry's perfonnance is
expected to improve during 1988, according to Federal Deposit Insurance
Corporation Chainnan L. William Seidman. Profits should return to more
normal levels in 1988, Mr. Seidman said.
In remarks delivered today to the Conference Board in New York, Mr.
Seidman reported that the banking irrlust:cy errled. 1987 with a net profit of
only $3.7.billion, or a return on assets of .13 percent, the lowest rate
in the history of the FDIC. In 1986, the banks earned .64 percent on
assets. This lackluster performance was principally due to the
establishment of sizable loan loss reserves relating to loans to Latin
America and to loans to real estate borrowers in the Southwest.
In addition, "profitability of commercial banks has been dropping
steadily since 1979, and the industry's asset growth rate--at eight
percent--is far behind other competitors in the financial services
industry," he said. "If the industry had not set aside reserves of $37
billion on problem loans, including those to less developed countries,
profits from operations would have been about the same as the $13.3
billion reported in 1986. Hopefully, 1988 will be the year this downward
trend in bank profits will be reversed."
-more-
FEDERAL DEPOSIT INSURANCE CORPORATION. 550 Seventeenth SL NW.. Washinoton. D.C. 20429 • 202-898-6996
-2-
Mr. Seidman noted. that the irrlustcy's poc>r performance in recent years
was due, in part, to increased competititon from less regulated
competitors in the financial services industry and localized economic
conditions, particularly in the Southwest and the Farm Belt.
Banks in the Southwest are expected to have another tough year due to
depressed energy markets, Mr. Seidman said. However, he pointed out that
farm banks are on the rebound as economic conditions in the farm belt
continue to improve. Furthennore, the sizable reserves established last
year by large institutions for their loans to less developed countries
likely will have been a one-time occurrence. "With a continuation of the
nation's economic expansion, aggregate profitability of all banks will
move to normal levels during 1988," he said •
. Mr. Seidman said there is a chance Congress will enact some form of
legislation that will help banks compete in the marketplace, and the
outlook for the U.S. economy is positive. Even if Congress doesn't act,
recent court decisions have established new opportunities for banks and
this trend will continue.
"Almost all of the major indicators--inflation, GNP, unemployment,
industrial output, business confidence, manufacturing capacity
utilization, the federal budget deficit, interest rates, productivity and
retail sales-are dem:mstrating trends that bode well for continuation of
a healthy expansion of of the nation's economy, at least over the near
term," Mr. Seidman said.
"Americans still need to save more, and the government must learn to
live within its income, but for banking 1988 certainly looks to be a much
improved year," he commented.
###
Mr. Seidman noted. that the irrlustcy's poc>r performance in recent years
was due, in part, to increased competititon from less regulated
competitors in the financial services industry and localized economic
conditions, particularly in the Southwest and the Farm Belt.
Banks in the Southwest are expected to have another tough year due to
depressed energy markets, Mr. Seidman said. However, he pointed out that
farm banks are on the rebound as economic conditions in the farm belt
continue to improve. Furthennore, the sizable reserves established last
year by large institutions for their loans to less developed countries
likely will have been a one-time occurrence. "With a continuation of the
nation's economic expansion, aggregate profitability of all banks will
move to normal levels during 1988," he said •
. Mr. Seidman said there is a chance Congress will enact some form of
legislation that will help banks compete in the marketplace, and the
outlook for the U.S. economy is positive. Even if Congress doesn't act,
recent court decisions have established new opportunities for banks and
this trend will continue.
"Almost all of the major indicators--inflation, GNP, unemployment,
industrial output, business confidence, manufacturing capacity
utilization, the federal budget deficit, interest rates, productivity and
retail sales-are dem:mstrating trends that bode well for continuation of
a healthy expansion of of the nation's economy, at least over the near
term," Mr. Seidman said.
"Americans still need to save more, and the government must learn to
live within its income, but for banking 1988 certainly looks to be a much
improved year," he commented.
###