Remarks by
Martin Gruenberg, Chairman,
Federal Deposit Insurance Corporation
to the
Exchequer Club, Washington, DC
May 15, 2013
Good afternoon. I appreciate the invitation to speak here today.
In my remarks I would like to focus on three keys areas of focus for the FDIC. The first
is a brief overview of the current state of the banking industry. The second is a
discussion of the progress that the FDIC has made on our Community Banking
Initiative. The last topic that I intend to address is our work in implementing the new
authority provided to the FDIC to resolve systemically important financial institutions,
particularly as it relates to the progress being made on international coordination on
resolution planning efforts.
Overview of the Banking Industry
Let me begin with an overview of the banking industry.
We have now seen three consecutive years of gradual but steady improvement in the
financial condition of the banking industry in the United States following the financial
crisis. Industry net income has now increased on a year-over-year basis for 14
consecutive quarters. Annual income for the industry in 2012 was just over $141 billion
– the highest level of annual earnings since 2006 and the second highest ever.
We now have seen 10 consecutive quarters of improving credit quality for the industry.
Delinquent loans and charge-offs have been steadily coming down now for over two
years. Importantly, loan balances for the industry as a whole have now grown for six out
of the last seven quarters. In the fourth quarter of last year, loans grew by nearly $120
billion. The largest single category for growth was in commercial and industrial lending,
but we also saw increases in consumer loans, farm loans, and even real estate loans.
These positive trends have been broadly shared across the industry, among large
institutions, mid-size institutions, and community banks. So I think it is fair to say that we
continue to see a gradual but steady recovery in the U.S. banking industry that has now
been sustained over three years.
The internal indicators for the FDIC also have been moving in a positive direction over
this period. We had 51 banks fail in the United States last year, down from 92 failures in
2011 and 157 in 2010. If present trends hold, it is likely that we’re going to see
substantially fewer bank failures this year. The problem bank list at the FDIC –
institutions that had our lowest supervisory CAMELS ratings of 4 or 5 – peaked in March
Martin Gruenberg, Chairman,
Federal Deposit Insurance Corporation
to the
Exchequer Club, Washington, DC
May 15, 2013
Good afternoon. I appreciate the invitation to speak here today.
In my remarks I would like to focus on three keys areas of focus for the FDIC. The first
is a brief overview of the current state of the banking industry. The second is a
discussion of the progress that the FDIC has made on our Community Banking
Initiative. The last topic that I intend to address is our work in implementing the new
authority provided to the FDIC to resolve systemically important financial institutions,
particularly as it relates to the progress being made on international coordination on
resolution planning efforts.
Overview of the Banking Industry
Let me begin with an overview of the banking industry.
We have now seen three consecutive years of gradual but steady improvement in the
financial condition of the banking industry in the United States following the financial
crisis. Industry net income has now increased on a year-over-year basis for 14
consecutive quarters. Annual income for the industry in 2012 was just over $141 billion
– the highest level of annual earnings since 2006 and the second highest ever.
We now have seen 10 consecutive quarters of improving credit quality for the industry.
Delinquent loans and charge-offs have been steadily coming down now for over two
years. Importantly, loan balances for the industry as a whole have now grown for six out
of the last seven quarters. In the fourth quarter of last year, loans grew by nearly $120
billion. The largest single category for growth was in commercial and industrial lending,
but we also saw increases in consumer loans, farm loans, and even real estate loans.
These positive trends have been broadly shared across the industry, among large
institutions, mid-size institutions, and community banks. So I think it is fair to say that we
continue to see a gradual but steady recovery in the U.S. banking industry that has now
been sustained over three years.
The internal indicators for the FDIC also have been moving in a positive direction over
this period. We had 51 banks fail in the United States last year, down from 92 failures in
2011 and 157 in 2010. If present trends hold, it is likely that we’re going to see
substantially fewer bank failures this year. The problem bank list at the FDIC –
institutions that had our lowest supervisory CAMELS ratings of 4 or 5 – peaked in March
of 2011 at 888 institutions. By the end of last year the number of problem banks had
fallen to 651, which marks another substantial improvement.
Meanwhile, the Deposit Insurance Fund, which was more than $20 billion in the red at
its low point just three years ago, is now almost $33 billion in the black. By law, the
FDIC is required to build up the reserve ratio for the Deposit Insurance Fund to 1.35
percent of insured deposits by 2020. We are now at over 0.4 percent, and we are very
much on track to meet this statutory requirement.
Digging out of the aftermath of the financial crisis we went through, followed by the
deepest recession since World War II, has been an enormous challenge for the banking
industry. The economic recovery, I think it is fair to say, has been slow and modest thus
far, with economic growth right around the two percent mark.
Our sense is that if we can maintain even that modest level of growth, the industry will
continue to work its way out of the aftermath of this crisis and the ensuing recession.
We still have elevated levels of problem loans and problem banks here in the U.S., and
more work to do in repairing balance sheets, but we have now sustained a positive
direction for an extended period of time. I think the improvement in bank balance sheets
points to the real possibility of a more virtuous cycle for the financial system going
forward.
We expect to release updated numbers for the first quarter of 2013 at the end of this
month.
FDIC Community Banking Initiatives
I would next like to discuss our efforts at the FDIC over the past year or so to focus on
the important role of – and particular challenges faced by – community banks.
Over the past few years, a great deal of attention has been placed on the large,
complex financial institutions that really were at the heart of the crisis. But the crisis and
the recession have clearly had significant consequences for community banks that are
still very much in evidence. As the lead federal supervisor for the majority of community
banks in the United States, we at the FDIC felt we had a particular responsibility coming
out of the crisis not just to carry out our supervisory responsibilities, but to try to take a
careful look at what’s happened to community banks in the United States over the
longer term and the role they play in our financial system.
Comprehensive research covering the community banking is critical, in my view, to
formulating policies that are well-informed as to the particular challenges community
banks have faced and the trends that will shape the sector in coming years.
Our Research Division assembled 27 years of banking data and developed a new
research definition of the community bank that is based not just on size but on the
characteristics that define community banking, namely: traditional relationship lending,
fallen to 651, which marks another substantial improvement.
Meanwhile, the Deposit Insurance Fund, which was more than $20 billion in the red at
its low point just three years ago, is now almost $33 billion in the black. By law, the
FDIC is required to build up the reserve ratio for the Deposit Insurance Fund to 1.35
percent of insured deposits by 2020. We are now at over 0.4 percent, and we are very
much on track to meet this statutory requirement.
Digging out of the aftermath of the financial crisis we went through, followed by the
deepest recession since World War II, has been an enormous challenge for the banking
industry. The economic recovery, I think it is fair to say, has been slow and modest thus
far, with economic growth right around the two percent mark.
Our sense is that if we can maintain even that modest level of growth, the industry will
continue to work its way out of the aftermath of this crisis and the ensuing recession.
We still have elevated levels of problem loans and problem banks here in the U.S., and
more work to do in repairing balance sheets, but we have now sustained a positive
direction for an extended period of time. I think the improvement in bank balance sheets
points to the real possibility of a more virtuous cycle for the financial system going
forward.
We expect to release updated numbers for the first quarter of 2013 at the end of this
month.
FDIC Community Banking Initiatives
I would next like to discuss our efforts at the FDIC over the past year or so to focus on
the important role of – and particular challenges faced by – community banks.
Over the past few years, a great deal of attention has been placed on the large,
complex financial institutions that really were at the heart of the crisis. But the crisis and
the recession have clearly had significant consequences for community banks that are
still very much in evidence. As the lead federal supervisor for the majority of community
banks in the United States, we at the FDIC felt we had a particular responsibility coming
out of the crisis not just to carry out our supervisory responsibilities, but to try to take a
careful look at what’s happened to community banks in the United States over the
longer term and the role they play in our financial system.
Comprehensive research covering the community banking is critical, in my view, to
formulating policies that are well-informed as to the particular challenges community
banks have faced and the trends that will shape the sector in coming years.
Our Research Division assembled 27 years of banking data and developed a new
research definition of the community bank that is based not just on size but on the
characteristics that define community banking, namely: traditional relationship lending,