Insured commercial banks and savings
institutions took advantage of lower interest rates to post record earnings
in 2001. The improvement in earnings was limited by rising expenses for
loan losses and sluggish growth in noninterest revenues as the U.S. economy
slid into recession in the second quarter.
Commercial banks reported $74.3 billion in net income in 2001, a 4.7
percent increase from the $71.0 billion they earned in 2000. The record
earnings were made possible by $4.5 billion in gains on sales of securities,
as lower interest rates caused the values of banks fixed-rate securities
to appreciate. If these gains and other nonrecurring items are omitted,
commercial banks earnings would have been $1.1 billion lower than
in 2000. The main source of weakness in operating earnings was record
expenses for loan losses. Banks set aside $43.1 billion in provisions
for loan losses in 2001, an increase of $13.1 billion (43.6 percent) from
the previous year. The average return on assets (ROA), a fundamental yardstick
of earnings performance, declined to 1.16 percent from 1.19 percent in
2000, as the industry registered its ninth consecutive year with an ROA
above the benchmark 1 percent level. Fewer than half of all insured commercial
banks44.1 percentreported higher ROAs in 2001.
As was the case in 2000, commercial
and industrial (C&I) loans at large banks remained the focus of asset-quality
concerns in 2001. Total loan losses for the year were $36.5 billion, up
$11.6 billion (47.1 percent) from 2000. Banks charged off $14.6 billion
in C&I loans during 2001, an increase of $6.4 billion (77.6 percent)
from the previous years total.
Insured savings institutions also benefited from lower interest rates
in 2001. Net income rose to a record $13.3 billion, from $10.7 billion
in 2000. Sales of securities yielded gains of $4.2 billion, a $3.4 billion
improvement over the previous year. The widening spread between short-term
and longer-term interest rates helped boost the industrys net interest
margin to 3.23 percent, from 2.96 percent in 2000. Lower interest rates
also stimulated mortgage refinancing activity in 2001, helping thrifts
grow their assets by 6.7 percent. As a result, net interest income increased
by $4.8 billion (15.2 percent) in 2001. The industrys ROA of 1.08
percent was the highest since 1946. The improvement in earnings was limited
by slow growth in noninterest income, which was only 3 percent higher
than in 2000, by a 12.5 percent ($3.3 billion) increase in noninterest
expenses, and by a $770 million (37.9 percent) jump in loan-loss provisions.
The performance gap between large and small savings institutions persisted
in 2001. The average ROA at savings institutions with less than $100 million
in assets was only 0.64 percent, and one out of every six of these small
thrifts posted a net loss for the year.
The FDIC administers two deposit insurance fundsthe Bank Insurance
Fund (BIF) and the Savings Association Insurance Fund (SAIF)and
manages the FSLIC Resolution Fund (FRF), which fulfills the obligations
of the former Federal Savings and Loan Insurance Corporation (FSLIC) and
the former Resolution Trust Corporation (RTC). The following summarizes
the condition of the FDICs insurance funds.
Deposit insurance assessment rates
remained unchanged from 2000 for both the BIF and the SAIF, ranging from
0 to 27 cents annually per $100 of assessable deposits. Under the assessment
rate schedule, 92.3 percent of BIF-member institutions and 90.3 percent
of SAIF-member institutions were in the lowest risk-assessment category
and paid no deposit insurance assessments for the first semiannual period
Source: Commercial Bank Call Reports and Thrift Financial Reports
Note: For more details, see BIF
Deposits insured by the FDIC moved
past $3.2 trillion in 2001, as the number of insured institutions fell
below the 9,700 mark for the first time. Insured deposits rose by 1 percent
during the fourth quarter bringing the growth rate for the full year to
5.1 percent. This was slower than the 6.5 percent increase for 2000; however,
the annual growth rate for 2001 was still the second-fastest in the past
15 years. Insured deposits of the 9,631 FDIC member institutions rose
by $156 billion in 2001, including a $40 billion increase (24 percent)
in insured brokered deposits. About 30 percent of the increase in insured
deposits was attributable to institutions whose brokerage affiliates sweep
cash management account balances into FDIC-insured deposit accounts.
During 2001, deposits insured by
BIF increased 4.7 percent, to $2.4 trillion. The BIF balance was $30.4
billion at year-end 2001, or 1.26 percent of estimated insured deposits.
This was down from the year-end 2000 reserve ratio of 1.35 percent as
deposits insured by BIF increased by $108 billion and the BIF fund balance
decreased by $536 million.
The reserve ratio of SAIF was 1.36
percent at year-end 2001, down from 1.43 percent at year-end 2000. The
balance of the SAIF was $10.9 billion on December 31, 2001. SAIF-insured
deposits were $802 billion at year-end 2001, having grown 6.2 percent
for the year. This was the highest growth rate of insured deposits since
the inception of SAIF in 1989.
The following tables show the number and
percentage of institutions insured by the Bank Insurance Fund (BIF)
and the Savings Association Insurance Fund (SAIF),
according to risk classifications effective for the first semiannual
assessment period of 2002. Each institution is categorized based on
its capitalization and a supervisory subgroup rating (A,B, or C),
which is generally determined by on-site examinations. Assessment
rates are basis points, cents per $100 of assessable deposits, per
1 BIF data exclude SAIF-member "Oakar"
institutions that hold BIF-insured deposits. The assessment rate reflects
the rate for BIF-assessable deposits, which remained the same through
2 SAIF data exclude BIF-member
"Oakar" institutions that hold SAIF-insured deposits.
The assessment rate reflects the rate for SAIF-assessable deposits,
which remained the same through 2001.
Despite the relatively rapid growth
of insured deposits, insured institutions continued to rely increasingly
on other funding alternatives. Insured deposits as a percentage of domestic
liabilities continued a steady, ten-year decline, falling to 50.9 percent
at the end of 2001, compared to 51.7 percent at the end of 2000. At year-end
2001 the ratio was 46 percent for institutions with total assets greater
than $1 billion, and 73 percent for smaller institutions.
During 2001, four FDIC-insured institutions failed. Three of those institutions,
with combined assets of $54 million, were insured by the BIF. The other
institution, with assets of $2.2 billion, was insured by the SAIF. Losses
for the four failures are estimated at $445 million. In 2000, there were
seven failures of insured institutions, with total assets of $408 million
and estimated losses of $40 million. The contingent liability for anticipated
failures of BIF- and SAIF-insured institutions as of December 31, 2001,
was $1.9 billion and $233 million, respectively.