U.S. bank failures keep decreasing

Automobiles pass JPMorgan Chase in New York City. The FDIC says fewer U.S. banks are at risk nationwide of failure for a variety of reasons: an improved economy, healthier loan portfolios, low interest rates, higher bank account fees, and a wave of mergers. ASSOCIATED PRESS Enlarge

WASHINGTON -- Fewer U.S. banks are failing than at any time since the financial crisis erupted in 2008. The healthier bank industry is helping sustain an economy slowed by lackluster hiring, weak manufacturing, and Europe's debt crisis.

Banks have benefited from low interest rates, higher account fees, and more mergers. The recovery from the financial crisis has helped too. It means more people and businesses can take out and repay loans.

Banks remain cautious about lending and the rebound has yet to drive a robust recovery from the recession that officially ended three years ago. But the gains have let the banks gradually make more loans and keep the economy from slowing more. Bank loans rose at a 2.1 percent annual rate in 2012's first three months and at a 4.6 percent rate since, Federal Reserve data show.

Signs of industry improvement:

Banks are making more money. In 2012's first three months, industry earnings hit $35 billion, up from $29 billion in 2011's first quarter. It was the best showing since 2007.

Fewer banks are considered failure risks. In January through March, the banks on the Federal Deposit Insurance Corp.'s "problem" list fell for a fourth straight quarter. The list consists of banks at risk of failure and numbers 772 as of March 31, or 9.5 percent of U.S. banks.

Bank failures are down. In 2009, 140 failed. In 2010, more banks failed -- 157 -- than in any year since the savings-and-loan crisis of the 1980s and early '90s.. In 2011, 92 failed. This year, regulators closed 31 in 2012's first half. For the full year, they're on pace to shut down 60. That's more than normal, but the pace shows sustained progress.

Less fear of loan losses. The money banks must set aside for possible loan losses fell nearly a third in the January-March quarter compared with a year earlier. Their loan portfolios have grown safer as more customers have repaid on time. FDIC figures show loan losses have fallen seven straight quarters. And the proportion of loans with payments overdue by 90 days or more has dropped eight straight quarters.

Consider San Francisco-based Wells Fargo & Co., the fourth-largest U.S. bank. Its net income in the first quarter was $4.25 billion. That was up from $3.76 billion in 2011's first quarter and $2.5 billion the year before. Wells' delinquent loans dropped as more borrowers repaid loans.

The main reason for the big fall in bank closings has been a stronger economy. Employers have added nearly 1.8 million jobs the last year; that means more people and businesses have money to repay loans.

Also strengthening the banks:

Record-low interest rates. They've enabled banks to pay almost nothing to depositors and on money borrowed from other banks or the government. Yet they charge their borrowers much higher rates. They're taking an average of 16 percent on credit cards, 5.7 percent on home equity loans, 3.8 percent on auto loans, and 3.6 percent on 30-year, fixed-rate mortgages.

More bank mergers. Fifty-one bank mergers occurred in the first quarter, according to SNL Financial. That's up from 39 in 2011's first quarter. Some weak banks agreed to be bought to avoid failing, said Robert Clark, SNL Financial senior analyst.

Higher capital levels. Banks upped capital, their cushion against risk. They raised it by nearly 4 percent in the first quarter, according to the FDIC. That raised the industry average ratio of capital to assets to 9.2 percent, matching the record-high ratio of 2011's second quarter.

The industry's rebound began in 2009 with the biggest U.S. banks, thanks to taxpayer bailout aid. Small and midsize banks have taken longer to rebound. They had high-risk real estate loans used to develop malls, industrial sites, and apartments. Many of those loans weren't repaid. As the economy strengthened, fewer loans soured, and many smaller banks have recovered.