The number of troubled banks tracked by the Federal Deposit Insurance Corp. fell in the April-June quarter, the first quarterly drop in five years. But growth in bank earnings slowed, a sign that the financial industry is feeling the effects of a weak economy.
The FDIC said Tuesday that there were 865 banks on its confidential "problem" list in the second quarter, or roughly 11.5 percent of all federally insured banks. That was down from 888 in the January-March quarter and the first decline since mid-2006. Those are banks considered to have low capital cushions against risk.
The FDIC also said the banking industry earned $28.8 billion in the second quarter, up from $20.9 billion in the same period last year. That marked the eighth straight quarter that earnings rose from the previous year. But it was the smallest gain in the past seven quarters.
Banks with assets exceeding $10 billion drove the bulk of the earnings growth. They made up 1.4 percent of all banks but accounted for about $23.4 billion of the industry's earnings in the second quarter.
Those are the largest banks, such as Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. Most of these banks have recovered with help from federal bailout money and record-low borrowing rates.
"Banks have continued to make gradual but steady progress," FDIC Acting Chairman Martin Gruenberg said at a news conference. But he noted that the industry revenues haven't been growing. "In the last two quarters, revenues were lower than a year earlier," he said.
Gruenberg and other FDIC officials said the industry continues to struggle with flat growth in loans. Banks' loan balances increased $64 billion in the second quarter. That was a modest gain, but it marked the first time in three years that there has been growth in balances, the FDIC said.
So far this year, 68 banks have failed. That's down from the 157 banks that shuttered last year, which was the most for one year since 1992.
Most of the banks that have struggled or failed have been small or regional institutions. They depend heavily on loans for commercial property and development _ sectors that have suffered huge losses. As companies shut down during the recession, they vacated shopping malls and office buildings financed by those loans.
Still, large banks are less profitable than they were before the 2008 financial crisis. As a result, many are shrinking their staffs.
Swiss bank UBS AG said Tuesday that it is cutting 3,500 jobs worldwide as part of an effort to save 2 billion Swiss francs ($2.5 billion) annually by the end of 2013.
Bank of America said last week that it is cutting 3,500 jobs. Goldman Sachs Group Inc., Bank of New York Mellon Corp., State Street Corp. and other financial institutions have also announced layoffs this summer.
Many of the banks are posting profits right now. Their layoffs indicate permanent structural changes rather than temporary cuts in response to a weak economy.
U.S. banks employ about 2.09 million people, down from 2.21 million in early 2008, according to data compiled by the FDIC. The average salary in the finance and insurance industry was $84,516 last year, according to the Bureau of Labor Statistics. Though that's far higher than the overall private-sector average of $46,451, the finance salaries are shrinking while other salaries are growing.
The average salary in finance and insurance fell $436 from 2007 to 2010, not adjusted for inflation. The average salary in all private-sector jobs rose $2,089.
In recent weeks, stocks of big U.S. banks have been rocked by fears that the impact of the government-debt crisis in Europe could spread to the U.S. financial system.
U.S. banks are sturdier, however, holding more capital now than they did before the financial crisis that struck in 2008. And they have limited direct exposure to the riskiest European countries, Portugal, Ireland, Italy, Greece and Spain.
Last year's bank failures cost the FDIC's deposit insurance fund an estimated $21 billion. But in the April-June quarter, fewer failures allowed the insurance fund to strengthen. The fund turned positive in the second quarter, showing a $3.9 billion balance as of June 30. That compared with a $1 billion deficit in the first quarter.
The FDIC is backed by the government, and its deposits are guaranteed up to $250,000 per account. Apart from its deposit insurance fund, the agency also has tens of billions in loss reserves.