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Number of Banks at Risk of Failure Rises to 11 Percent of Insured Institutions

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Banks posted their largest quarterly profit in nearly three years. That's the purported 'good news' from the FDIC's Quarterly Banking Profile released this morning. But a quick look at the key driver of the year-over-year change in quarterly earnings shows the main driver is a decline in loan loss provisions.

Banks set aside $51.3 billion in provisions for loan and lease losses in the first quarter, a $10.2 billion (16.6 percent) decline from a year earlier. Is that a sign of improving credit quality? No. Only about a third of the institutions insured by the FDIC reported year-over-year declines in loss provisions. The majority of the overall reduction was concentrated among large banks and 60 percent of lenders actually increased their loan reserves. 

Meanwhile, the number of institutions on the FDIC's so-called "problem banks" increased to the highest level since 1992. Overall, credit remains tight for anyone who needs it, loose for anyone who doesn't, and overall lending fell 1.4 percent.

FDIC Chairman Sheila Bair, speaking this morning at a briefing on bank-industry earnings, noted that two out of every three banks are profitable, which is one way to look at it; the other being that an incredible number of banks -- one out of three -- still are not, even after extraordinary fiscal and monetary stimulus. Bair added, in a rather puzzling twist of logic, that bank lending won't return until consumer confidence returns, essentially blaming the lack of available credit and bank lending on a lack of consumer confidence.
POSITION:  No positions in stocks mentioned.