US banking sector back to profit, insurance fund in red: FDIC

WASHINGTON: The US banking industry returned to profit in the third quarter, but the government insurance fund went into deficit for the first time since 1992, regulators announced on Tuesday.

The Federal Deposit Insurance Corp. said commercial banks and thrifts earned a collective 2.8 billion dollars in the third quarter.

This came after a collective 4.3 billion dollar loss in the second quarter, and the profit was well above the 879 million dollars the industry earned in the same period in 2008.

But the sector is still feeling the effects of the deep financial crisis triggered by a collapse of the US housing market and global credit crunch.

"Today's report shows that, while bank and thrift earnings have improved, the effects of the recession continue to be reflected in their financial performance," said FDIC chairman Sheila Bair.

More than 26 per cent of all insured institutions reported a net loss in the latest quarter, and total loan balances declined by the largest percentage since quarterly reporting began in 1984, the FDIC said.

As projected in September, the FDIC's deposit insurance fund balance fell below zero for the first time since the third quarter of 1992.

The fund balance of negative 8.2 billion dollars reflects a 38.9 billion dollar contingent loss reserve that has been set aside to cover estimated losses over the next year.

The FDCI report showed total loans and leases declined by 210.4 billion dollars, or 2.8 per cent, during the quarter.

Loans to commercial and industrial borrowers declined by 6.5 per cent, residential mortgage loan balances fell by 4.2 per cent, and real estate construction and development loans dropped 8.1 per cent.

"There is no question that credit availability is an important issue for the economic recovery," Bair said.

"We need to see banks making more loans to their business customers. This is especially true for small businesses that rely on FDIC-insured institutions to provide over 60 per cent of the credit they use."