U.S. bank industry posts highest earnings since 2006

The U.S. banking industry's third-quarter earnings were the highest for any quarter since 2006 as revenue growth picked up and banks set aside less money to guard against losses, according to data released on Tuesday by the Federal Deposit Insurance Corp.

The FDIC quarterly report showed the industry earned $37.6 billion in the third quarter - up $2.3 billion, or 6.6 percent, from a year earlier.

That was the industry's highest quarterly total since the third quarter of 2006, the FDIC said.

And while banks again reduced the amount of funds they set aside in case of losses, revenue growth contributed more to the earnings boost in the third quarter, bucking a recent trend, FDIC Chairman Martin Gruenberg said.

"Loan growth is becoming more established," Gruenberg said. "Banks continue to clean up and strengthen their balance sheets."

The report is an encouraging sign that the banking industry is slowly but surely healing after the 2007-2009 financial crisis, although some bigger banks are cutting jobs to cope with persistent pressures, including an industry-wide decline in trading volume.

Net operating revenues rose $4.9 billion, or 3 percent, from a year earlier, the FDIC said. Much of the increase came from asset sales, particularly loan sales.

Banks reduced the amount set aside for losses from loans by $3.8 billion, or 20.6 percent, compared with a year earlier.

Lending also picked up during the quarter, led by commercial and industrial loans. The FDIC said it was the fifth time in the last six quarters that loan balances have risen.

Loan growth remains modest, Gruenberg said, adding that the FDIC hopes banks will be able to boost revenue in the future by expanding lending even more.

BANKS WARY OF THE CLIFF

The FDIC chairman said the year-end fiscal cliff, in which a number of tax cuts will expire and government spending cuts will kick in if Congress does not prevent it, could hurt banks if it slows the U.S. economic recovery.

Lawmakers and the White House are trying to hash out a deal to prevent the fiscal cliff that would include agreeing to a different deficit-reduction package, but they have yet to agree on the details.

"Uncertainty about the nation's fiscal situation and conditions overseas could still present challenges for the U.S. economy and the banking industry going forward," Gruenberg said.

James Chessen, chief economist at the American Bankers Association, told reporters on Tuesday that Congress could reduce some of the uncertainty facing banks by extending a financial crisis-era temporary deposit insurance program that is set to expire at the end of 2012.

The program, aimed at business holders of transaction accounts, has already been extended by lawmakers once. Bank groups, including the ABA, want Congress to give the program another two years.

"Why introduce another element of uncertainty at the end of this year when there's so much that businesses are dealing with and will deal with because of the results of the fiscal cliff or new taxes or healthcare costs?" Chessen said.

Gruenberg said the FDIC thinks banks are in a good enough liquidity position to manage if Congress does not renew the program, but the decision is up to lawmakers.

(Reporting by Emily Stephenson; Editing by Andrea Ricci, Karey Wutkowski and Jan Paschal)