News: U.S. bank profits fell 36.5% in 2020 on pandemic concerns – FDIC.
WASHINGTON (Reuters) – U.S. banks’ profits declined 36.5% year over year in 2020 as banks set aside massive amounts to hedge potential losses. However, the industry showed signs of strengthening in the fourth quarter as the economy began to recover from the pandemic. A regulator reported on Tuesday.
According to the Federal Deposit Insurance Corporation, the industry posted $ 147.9 billion in profit in 2020, a significant decrease from the record profit of 2019.
However, bank profits rose 9.1% to $ 59.9 billion year over year in the fourth quarter as companies made less cash available to hedge against losses.
FDIC Chair Jelena McWilliams said the new data showed banks have demonstrated resilience in the face of the COVID-19 pandemic, despite falling profits.
Jerome Powell, chairman of the US Federal Reserve, testified separately before Congress that the central bank was still debating whether to reintroduce stricter capital requirements for banks. The Fed eased some leverage restrictions on larger banks in April, with that relief expected to expire in late March.
Industry groups are already pushing for the relief to be expanded. Top groups, including the American Bankers Association and the Securities Industry and Financial Markets Association, said in a letter Tuesday the Fed should extend the relaxed standards as soon as possible.
They said the relief helped banks play a “central role” in stabilizing markets by continuing to lend during the downturn.
The new data shows the wild swings the banking industry went through in 2020, as companies put billions of dollars aside to protect themselves against the economic fallout from the pandemic and only began to reverse those losses in the second half of the year.
Bank earnings growth in the fourth quarter was mainly driven by the decline in reserves against potential losses. According to the FDIC, so-called provision losses fell by 76.5% to $ 3.5 billion in late 2020 compared to late 2019, the lowest level since 1995.
The FDIC noted that a looming challenge for banks was the persistent low interest rate environment. Bank interest income has declined for five consecutive quarters, and average net interest margin remained at record lows in the fourth quarter.
(This story corrects the loss of provision in paragraph 9)
Reporting by Pete Schroeder; Arrangement by Marguerita Choy and Peter Cooney
Original Source © Reuters