Banks are showing stronger signs of pulling out from the deep economic recession of the past few years, but one glaring sign of those troubled times remains: fear of lending.
Federal Deposit Insurance Corporation Chairman Sheila Bair says lending needs to increase for the economy to recover.
The nation's 7,657 banks increased profits considerably from a year ago, reaching 21.7 billion dollars in the fourth quarter of 2010. A stark contrast compared to a net loss of 1.8 billion dollars a year ago.
Most of the increase was attributed to big banks putting aside less capital to guard against loan losses. Banks remain fearful of getting burned again as they set aside 31.6 billion dollars for fourth-quarter losses.
"Cleaning up balance sheets, however, is only a first step," Bair said. "Now, we are looking to the industry to take the next step, and begin to build their loan portfolios."
More
loans could be in the offing as bank-loan balances keep declining, falling 13.6 billion dollars in the fourth quarter.
Credit card loans did head higher in the fourth quarter by 18 billion, or 2.6 percent, but that was largely due to the robust holiday shopping season. Many see that as a positive economic sign since consumer spending is a key component to reigniting economic growth.
Besides being burned by residential housing and commercial real estate loans, banks have maintained that one reason they are not lending more is due to the weak economy, but experts say with the economy showing glimmers of recovery around us, that fear should subside.
Still, some
banks remain in financial limbo according to the FDIC. So far in 2011, 18 banks with 8.2 billion dollars in assets have failed. In 2010, 157 banks with total assets of 92 billion failed, reaching an 18-year high after 140 banks failed in 2009 with total assets of 169.7 billion dollars.
As credit and loan balances shrink this year, FDIC officials believe the worst of the banking crisis is behind us. "The long-term health of both the (banking) industry and our economy will depend on a responsible expansion of bank lending," says Bair.