Remarks by
Martin J. Gruenberg,
Acting Chairman,
FDIC to the
American Banker Regulatory Symposium,
Washington, DC
September 14, 2012
It is a pleasure to take part in the American Banker Regulatory Symposium. In my
remarks, I will touch briefly on three topics: the condition of the banking industry, an
overview of the progress being made by the FDIC and the Federal Reserve on the
resolution plans or so-called “living wills,” and the FDIC's community banking initiatives.
Condition of the Banking Industry
We released the second quarter results for FDIC-insured commercial banks and
savings institutions in our Quarterly Banking Profile on August 28th. While the second
quarter results are new, the story they tell is not. The data show the banking industry
continues to make gradual but steady progress in recovering from the financial crisis
and severe recession that followed. Since that time, the industry has undergone a
difficult process of balance sheet repair, by bolstering capital, reducing problem assets,
and improving liquidity. We have also seen a declining trend in the number of bank
failures and problem banks, and there are some encouraging signs of a return to loan
growth. Overall, insured depository institutions are in a position to contribute in
important ways to economic growth.
Insured institutions reported $34.5 billion in net income in the second quarter of 2012, a
$5.9 billion increase over the same period last year. This is the twelfth quarter in a row
that earnings have been higher than a year earlier. Moreover, almost two out of every
three institutions are reporting better earnings results than a year earlier, and the
number of unprofitable institutions is returning to pre-crisis levels. At the same time,
indicators of asset quality continue to show signs of steady improvement, although
levels remain elevated. Noncurrent loan balances have declined for nine consecutive
quarters, while quarterly net charge-offs have fallen from year-earlier levels for eight
quarters in a row.
Problem banks declined for a fifth consecutive quarter, from 772 to 732, and now stand
at the lowest level since the end of 2009, but remain high by historical standards. A
total of 41 banks have failed so far this year, compared to 68 failures at this point last
year. The Deposit Insurance Fund balance turned positive as of second quarter 2011,
and continues to grow – it is up to $22.7 billion at June 30, from $15.3 billion at March
31. The reserve ratio now stands at 0.32 percent.
One key element of industry conditions is loan growth. After posting three quarters of
positive growth to close out 2011, loan balances declined in the first quarter of this year,
Martin J. Gruenberg,
Acting Chairman,
FDIC to the
American Banker Regulatory Symposium,
Washington, DC
September 14, 2012
It is a pleasure to take part in the American Banker Regulatory Symposium. In my
remarks, I will touch briefly on three topics: the condition of the banking industry, an
overview of the progress being made by the FDIC and the Federal Reserve on the
resolution plans or so-called “living wills,” and the FDIC's community banking initiatives.
Condition of the Banking Industry
We released the second quarter results for FDIC-insured commercial banks and
savings institutions in our Quarterly Banking Profile on August 28th. While the second
quarter results are new, the story they tell is not. The data show the banking industry
continues to make gradual but steady progress in recovering from the financial crisis
and severe recession that followed. Since that time, the industry has undergone a
difficult process of balance sheet repair, by bolstering capital, reducing problem assets,
and improving liquidity. We have also seen a declining trend in the number of bank
failures and problem banks, and there are some encouraging signs of a return to loan
growth. Overall, insured depository institutions are in a position to contribute in
important ways to economic growth.
Insured institutions reported $34.5 billion in net income in the second quarter of 2012, a
$5.9 billion increase over the same period last year. This is the twelfth quarter in a row
that earnings have been higher than a year earlier. Moreover, almost two out of every
three institutions are reporting better earnings results than a year earlier, and the
number of unprofitable institutions is returning to pre-crisis levels. At the same time,
indicators of asset quality continue to show signs of steady improvement, although
levels remain elevated. Noncurrent loan balances have declined for nine consecutive
quarters, while quarterly net charge-offs have fallen from year-earlier levels for eight
quarters in a row.
Problem banks declined for a fifth consecutive quarter, from 772 to 732, and now stand
at the lowest level since the end of 2009, but remain high by historical standards. A
total of 41 banks have failed so far this year, compared to 68 failures at this point last
year. The Deposit Insurance Fund balance turned positive as of second quarter 2011,
and continues to grow – it is up to $22.7 billion at June 30, from $15.3 billion at March
31. The reserve ratio now stands at 0.32 percent.
One key element of industry conditions is loan growth. After posting three quarters of
positive growth to close out 2011, loan balances declined in the first quarter of this year,
driven largely by seasonal effects. However, the second quarter has brought renewed
growth of over $100 billion, particularly in commercial and industrial loans. This is
certainly an encouraging development. We will see if the trend in loan growth gains can
be sustained.
We are particularly focused on a return to prudent loan growth for a couple of reasons.
First, the improvement we have seen in industry earnings over the past two years has
been largely driven by lower loan-loss provisions – a trend that cannot go on forever. At
some point, future earnings gains will have to be based to a greater extent on increased
lending, consistent with sound underwriting. Second, we know that a return to greater
lending is a necessary condition for a growing economy.
To summarize: the banking industry continued to make gradual but steady progress
toward recovery in the second quarter. Levels of troubled assets and troubled
institutions remain high, but they are continuing to improve. After declining in the first
quarter, loan balances once again expanded in the second quarter – extending a
positive trend that began in 2011. Most institutions are profitable and are improving their
profitability. All of these trends are consistent with the moderate pace of economic
growth that has occurred over the past year. The continuing improvement in the
industry is likely to be tied to the future performance of the economy
Implementation of the Dodd-Frank Act: Title I Resolution Plans
Prior to and during the recent financial crisis, the FDIC’s resolution authority was limited
to insured depository institutions. The FDIC did not have the authority to place either
the parent company of the bank or the non-bank affiliates within the holding company
into receivership The FDIC also lacked the authority to resolve large, non-bank
financial companies, such as Lehman Brothers Holdings Inc. These limitations proved
to be a significant constraint on the ability of the government to manage and respond to
severe problems at these firms without serious disruption to the financial system and
economy.
Title II of the Dodd-Frank Act fills these important gaps in FDIC authority. Title II
enables the FDIC to resolve the insured depository institution, its parent holding
company and any affiliate as well as other non-bank systemically important financial
institutions (SIFIs). The FDIC has been working over the past two years to develop the
strategic and operational capability to carry out this new authority.
It is important to recognize, however, that in addition to providing the Title II authorities
to the FDIC, the Dodd-Frank Act, in Title I, requires bank holding companies with more
than $50 billion in assets and other firms designated as systemic to develop their own
resolution plans, these are the so-called “living wills.” These firms are required to
demonstrate how they could be resolved under the bankruptcy code without disruption
to the financial system and the economy.
growth of over $100 billion, particularly in commercial and industrial loans. This is
certainly an encouraging development. We will see if the trend in loan growth gains can
be sustained.
We are particularly focused on a return to prudent loan growth for a couple of reasons.
First, the improvement we have seen in industry earnings over the past two years has
been largely driven by lower loan-loss provisions – a trend that cannot go on forever. At
some point, future earnings gains will have to be based to a greater extent on increased
lending, consistent with sound underwriting. Second, we know that a return to greater
lending is a necessary condition for a growing economy.
To summarize: the banking industry continued to make gradual but steady progress
toward recovery in the second quarter. Levels of troubled assets and troubled
institutions remain high, but they are continuing to improve. After declining in the first
quarter, loan balances once again expanded in the second quarter – extending a
positive trend that began in 2011. Most institutions are profitable and are improving their
profitability. All of these trends are consistent with the moderate pace of economic
growth that has occurred over the past year. The continuing improvement in the
industry is likely to be tied to the future performance of the economy
Implementation of the Dodd-Frank Act: Title I Resolution Plans
Prior to and during the recent financial crisis, the FDIC’s resolution authority was limited
to insured depository institutions. The FDIC did not have the authority to place either
the parent company of the bank or the non-bank affiliates within the holding company
into receivership The FDIC also lacked the authority to resolve large, non-bank
financial companies, such as Lehman Brothers Holdings Inc. These limitations proved
to be a significant constraint on the ability of the government to manage and respond to
severe problems at these firms without serious disruption to the financial system and
economy.
Title II of the Dodd-Frank Act fills these important gaps in FDIC authority. Title II
enables the FDIC to resolve the insured depository institution, its parent holding
company and any affiliate as well as other non-bank systemically important financial
institutions (SIFIs). The FDIC has been working over the past two years to develop the
strategic and operational capability to carry out this new authority.
It is important to recognize, however, that in addition to providing the Title II authorities
to the FDIC, the Dodd-Frank Act, in Title I, requires bank holding companies with more
than $50 billion in assets and other firms designated as systemic to develop their own
resolution plans, these are the so-called “living wills.” These firms are required to
demonstrate how they could be resolved under the bankruptcy code without disruption
to the financial system and the economy.