Banking Industry: Sicker, More Concentrated

Courtesy of James Kwak of Baseline Scenario

The rapid bounce-back of some of the big banks (notably Goldman and JPMorgan) has overshadowed (at least on the front pages of major newspapers) the continued plight of the banking sector as a whole.Calculated Risk highlights the FDIC’s Quarterly Banking Profile, which lists 702 problem banks with over $400 billion in assets — the highest year-end figures on both metrics since 1992, as the savings and loan crisis was tailing off.

A few other summary points from the report:

Profits are small — actually, nonexistent except at larger banks: “The average return on assets (ROA) for all four of the asset size groups featured in the Quarterly Banking Profile was better than a year ago, although only the largest size group—institutions with more than $10 billion in assets—had a positive average ROA for the quarter.”
Bank balance sheets continue to get worse, with net charge-offs increasing for the twelfth consecutive quarter.
Lending continues to fall: “Total loan and lease balances declined for the sixth consecutive quarter in a row.” Total bank balance sheets fell by 5.3 percent — “the largest percentage decline in a year since the inception of the FDIC.”
Concentration is increasing, with 319 banks vanishing due to mergers or failure in 2009.

See also the Washington Post article, where Sheila Bair blames the large banks: “Bair said that the vast majority of the decline was the result of lending cutbacks by the largest banks, which have tightened qualification standards and increased the proportion of money that they hold in reserve against unexpected losses.”

Undoubtedly many small banks are cutting back on lending because losses are eating into their capital and forcing them to contract. But I think what frustrates Bair is that the larger banks — which are more profitable (in part by charging higher fees) and which enjoyed more government support — are also cutting back.