There are signs that bank profitability could be waning.
The banking industry may be resilient, but it is showing signs of stress, according to a report from the Federal Deposit Insurance Corp. on Thursday.
There are signs that profitability could be waning. Initially, the Federal Reserve’s push to raise interest rates over the last year and a half was a boon for banks, as it allowed them to earn more on interest-earning assets. But eventually, higher rates mean that banks feel pressure to pay their depositors, and they see other funding costs creep up as well. Accordingly, net interest margin at banks fell three basis points to 3.28% in the June quarter from the first three months of the year.
This caused problems within the sector this spring when depositors, in search of higher yields, yanked money from some banks, forcing them to crystallize those losses. While deposit outflows continued for the fifth straight quarter, the pace “moderated substantially” from the first three months of the year, FDIC Chairman Martin Gruenberg said Thursday.
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