Markers of Change

Some of the most significant news in the Federal Deposit Insurance Corp.’s Quarterly Banking Profile ranks dead last in the lengthy list of news nuggets highlighted in the introduction. It has to do with bank failures.

It’s not a surprise that the subject typically ranks low in the report, since there’s plenty of good news to tout upfront. As the media will surely promote, net income rose by more than a third over the year-ago quarter, non-interest income rebounded, large-denomination deposit balances surged, loan losses improved across all loan categories and, in big picture terms, full-year earnings turned out to be the second-highest ever. For the record, it’s not all rosy—there’s been a reduction in equity capital, which can be attributed to the decline in securities value. It as economic reports go, it seems positive overall.

This is why the news of banks going under needs to be seen in context. According to the report, which analyses the last quarter of 2012, eight insured institutions failed during this period. That’s the smallest number of failures in a quarter since the second quarter of 2008.

That’s fully four and a half years ago, but it’s significant for another reason. As the Business Cycle Dating Committee of the National Bureau of Economic Research pointed out late that year, this was around the time the recession took hold.

There’s other news related to this area: The new FDIC reports states that the number of insured commercial banks and savings institutions reporting financial results actually fell from 7,181 to 7,083 and 88 institutions were merged into other banks. The number of institutions on the FDIC’s “Problem List” fell for the seventh consecutive quarter, this time from 694 to 651, and the assets in them declined from $262 billion to $233 billion

But then there’s this nugget: The year 2012 also marks the first in FDIC history in which absolutely no new reporting institutions were added.

It’s easy to attribute too much importance to a single report; three months from now the news might be very different either way. In fact, as this blog noted at the time, the FDIC report from two quarters ago fit into the narrative of ‘cautious optimism.’

As this new snapshot in time reveals, we still have reason to be cautiously optimistic. There is no question that for many different reasons—economic contraction and (hopefully) expansion, changing consumer and other market expectations, the evolving role played by technology in everything from the back end infrastructure to custom mobile applications—we’re in a time of transition, and we’re going to stay that way.

The banking industry has long been associated with gradual change, and that seems like an anachronism in a time of technology-fueled rapid upgrades and instant gratification. It’ll be interesting to see how many failures and other trends might be in the FDIC quarterly profile a year from now. Any predictions?


Written by Staff