Bank Profits Set Record in 3rd Quarter : Finance: Strong earnings are a relief to regulators. But consumer advocates complain of the gap between what banks charge and pay.
The nation’s commercial banks earned a record $8.5 billion in the third quarter, despite an increase in troubled real estate loans in California and other western states, the government said Thursday.
The quarterly report by the Federal Deposit Insurance Corp. was cheered by most bankers and brought sighs of relief from regulators, who shrank their estimates of the number of banks that will have to be closed after strict new capital regulations take effect next week.
But news of the record profits was jeered by consumer advocates, who said banks are recovering losses from bad loans they made in the 1980s by charging too much for credit cards and paying too little on deposits in the ‘90s.
“Banks are paying 3% on savings accounts and charging 18% or 20% on credit cards,” complained Michelle Meier of Consumers Union, the Washington-based nonprofit advocacy group that publishes Consumer Reports magazine.
Chris Rick, a spokesman for the American Bankers Assn. in Washington, replied that many banks recently have cut their rates on credit cards and other types of consumer loans. Mortgage rates, he added, are near their lowest level in two decades.
The FDIC’s report marked the third consecutive quarter of record profits for the nation’s 11,590 commercial banks. Analysts said the banking industry, with $24.1 billion in profit for the first nine months of 1992, almost certainly will surpass the record $24.9 billion in profit it earned in 1988.
Banks “are now better positioned to make loans and bolster future economic growth,” acting FDIC Chairman Andrew C. Hove Jr. said.
Given the improved profit figures, Hove said, more banks should be able to meet the tightened regulatory standards that take effect Dec. 19.
The FDIC originally had estimated that about 40 institutions with $15 billion in assets could be put out of business by the new rules, which require closer scrutiny of undercapitalized banks and require regulators to close ailing institutions more quickly.
Now, Hove said, the agency believes that about two dozen banks with $7 billion in assets are likely candidates for seizure.
The otherwise cheery report was tempered by an FDIC analysis that showed banks in the West--especially in California--having more trouble than lenders in most other parts of the country.
The agency said the amount of foreclosed properties held by western banks grew to $5.2 billion in the third quarter, up $582 million from the second quarter. In California, 9.2% of all real estate loans are considered troubled by the FDIC.
