The U.S. banking sector suffered a huge drop in profits in Q4 2023 as firms paid large fees to help recover costs incurred by the handful of bank failures earlier in the year, the Federal Deposit Insurance Corporation said in its Quarterly Banking Profile released Thursday.
For the 4,587 commercial banks and savings institutions insured by the FDIC, Q4 net income fell 43.9% from the prior quarter to $38.4B, due in part to a combination of higher noninterest expense, lower noninterest income and higher provision expense.
The agency attributed some 70% of the sequential decline to specific, non-recurring expenses at large banks, primarily expenses related to the FDIC’s special assessment. In the spring of last year, such lenders were ordered to shoulder much of the cost for recouping the U.S.’s deposit-insurance fund after regulators used it to refund both insured and uninsured depositors in failed banks Silicon Valley Bank and Signature Bank.
There were some positive developments in the report. For instance, bank deposits advanced 1.1% in Q4 vs. Q3, marking the first quarterly increase in the last seven quarters. Additionally, unrealized securities losses fell 30% to $477.6B, the lowest level since Q2 2022, helped by easing losses on residential mortgage-backed securities.
Banks could see further relief on such holdings, as the Federal Reserve “can and will begin [to start cutting interest rates] over the course of this year,” provided disinflation continues, Chair Jerome Powell said in a Senate hearing earlier.
In all, “the banking industry has shown resilience after a period of liquidity stress in early 2023,” FDIC Chairman Martin Gruenberg said in a statement.
Even so, there are “significant downside risks” facing banks, he warned, including “ongoing economic and geopolitical uncertainty, continuing inflationary pressures, volatility in market interest rates, and emerging risks in some bank commercial real estate portfolios.”
Biggest U.S. banks: Citigroup (C), Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC), Goldman Sachs (GS), Morgan Stanley (MS).