Economy Watch: U.S. Banks Are Healthy

By Dees Stribling, Contributing Editor

According to the Federal Deposit Insurance Corp. on Wednesday, American banks had their best-ever quarter during the first quarter of this year. Improvements in non-interest income, plus reductions in loan loss provisions, outweighed declining net interest income and helped goose industry earnings to an all-time high of $40.3 billion in 1Q 2013.

First-quarter net income for the industry was $5.5 billion or 15.8 percent higher than in first quarter 2012, as a reduction in expenses for litigation costs and proceeds from a legal settlement boosted earnings. Half of all insured institutions reported year-over-year improvement in quarterly earnings, the lowest proportion since fourth quarter 2009.

The FDIC also reported that the number of problem banks declined for an eighth consecutive quarter, from 651 to 612. Total assets of “problem” institutions declined from $233 billion to $213 billion. Mergers absorbed 55 institutions during the quarter, and four institutions failed. That’s the smallest number of quarterly failures since the second quarter of 2008.

World growth still sluggish

The Organisation for Economic Cooperation and Development, in its twice-yearly Economic Outlook, predicted on Wednesday that the world economy would grow 3.1 percent this year, and then accelerate to 4 percent growth in 2014. The estimate is a bit gloomier than the last Economic Outlook, published in November 2012, which predicted 3.4 percent growth in 2013 and 4.2 percent in ’14.

The United States is still the driver of much global growth, according to the OECD. The U.S. economy, it predicts, will expand 1.9 percent this year. Next year, the organization thinks things will be better: a 2.8 percent growth rate, which would be the highest rate since 2005 if it happens.

The euro-zone, by contrast, still can’t catch a break. The OCED says it will be mired in recession again this year, contracting 0.6 percent. Next year, things are more hopeful, at least according to the OCED: the zone will grow again, though only by 1.1 percent.

In Asia, the Economic Outlook foresees 1.6 percent growth for Japan, which isn’t bad considering that country’s long slog. China’s economy is predicted to grow only 7.8 percent this year—practically a recession in Chinese terms, which has been experiencing double-digit growth as a matter of course for years.

Wall Street dropped on Wednesday, with the Dow Jones Industrial Average down 106.59 points, or 0.69 percent. The S&P 500 lost 0.7 percent and the Nasdaq was off 0.61 percent.