FDIC: Number of problem banks fell to 865 in Q2

The number of troubled banks tracked by the Federal Deposit Insurance Corp. fell in the April-June quarter, the first quarterly drop in five years. But growth in bank earnings slowed, a sign that the financial industry is feeling the effects of a weak economy.
The FDIC said Tuesday that there were 865 banks on its confidential "problem" list in the second quarter, or roughly 11.5 percent of all federally insured banks. That was down from 888 in the January-March quarter and the first decline since mid-2006. Those are banks considered to have low capital cushions against risk.
The FDIC also said the banking industry earned $28.8 billion in the second quarter, up from $20.9 billion in the same period last year. That marked the eighth straight quarter that earnings rose from the previous year. But it was the smallest gain in the past seven quarters.
While the industry as a whole has continued to show signs of improvement, many banks are still struggling.
So far this year, 68 banks have failed. That's down from the 157 banks that shuttered last year, which was the most in a year since 1992.
Most of the banks that have struggled or failed have been small or regional institutions. These banks depend heavily on loans for commercial property and development — sectors that have suffered huge losses. As companies shut down during the recession, they vacated shopping malls and office buildings financed by those loans.
All of the banks that have failed this year have been smaller banks.
Still, large banks are less profitable than they were before the 2008 financial crisis. As a result, many are shrinking their staffs.
Bank of America Corp. said last week that it is cutting 3,500 jobs. That follows layoffs announced this summer at Goldman Sachs Group Inc., Bank of New York Mellon Corp., State Street Corp. and other financial institutions.
Many of the banks are posting profits right now. Their layoffs indicate permanent structural changes rather than temporary cuts in response to a weak economy.
U.S. banks employ about 2.09 million people, down from 2.21 million in early 2008, according to data compiled by the Federal Deposit Insurance Corp. The average salary in the finance and insurance industry was $84,516 last year, according to the Bureau of Labor Statistics. Though that's far higher than the overall private-sector average of $46,451, the finance salaries are shrinking while other salaries are growing.
The average salary in finance and insurance fell $436 from 2007 to 2010, not adjusted for inflation. The average salary in all private-sector jobs rose $2,089.
In recent weeks, stocks of big U.S. banks have been rocked by fears that the impact of the government-debt crisis in Europe could spread to the U.S. financial system.
U.S. banks are sturdier, however, holding more capital now than they did before the financial crisis that struck in 2008. And they have limited direct exposure to the riskiest European countries, Portugal, Ireland, Italy, Greece and Spain.
Last year's bank failures cost the FDIC's deposit insurance fund an estimated $21 billion.
The FDIC is backed by the government, and its deposits are guaranteed up to $250,000 per account. Apart from its deposit insurance fund, the agency also has tens of billions in loss reserves.