The U.S. banking industry’s second quarter profits fell by 70 per cent from a year ago, the FDIC said Tuesday, as low interest rates and the economic turmoil of the COVID-19 pandemic weighed heavily on big and small banks alike.
Total bank profits across 5,066 insured institutions were US$18.8-billion, compared with profits of US$62.5-billion in the same period a year ago. This was the second consecutive quarter of steep profit declines as banks set aside billions to cover potentially bad loans back in April.
Most of the profit decline is tied directly to the pandemic. Banks are now facing tens of billions of dollars of loans that appeared healthy in March, but are now in forbearance or deferral because those borrowers can no longer pay. Further, the Federal Reserve has slashed interest rates to near zero once again to stimulate the economy, which limits what money banks can charge for loans.
Bank profits were bolstered slightly by the Paycheck Protection Program, the US$480-billion stimulus program for small businesses who needed help covering payroll in the first months of the pandemic. That program came in the form of bank loans, and each bank took a small fee for each application they processed.
Despite tumbling profits, the FDIC said it did not see any systemic issues in the industry. Banks have taken in record deposits in the quarter – a sign of consumer confidence in the bank industry – and the FDIC’s “troubled bank list” remains unchanged from last quarter.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.