U.S. banks are coming off their most profitable year since 2006, a sign that many have put the financial crisis behind them.
The surge in bank earnings came largely because banks suffered fewer losses _ not because they took in more money. The slow recovery, record-low interest rates and weak demand for loans left bank revenue mostly flat for the year.
The Federal Deposit Insurance Corp. said Tuesday that bank earnings rose in the October-December quarter to $26.3 billion.
And for the entire year, earnings rose to $119.5 billion. That's 40 percent higher than the previous year and the most since 2006.
Banks with assets exceeding $10 billion accounted for almost all of the earnings growth last year. While they make up just 1.4 percent of U.S. banks, they accounted for more than 83 percent of the earnings.
Those banks include Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. Most of them have recovered with help from federal bailout money and record-low borrowing rates.
A key reason for the higher earnings is that the banks, especially the largest ones, had set aside huge reserves to offset potential losses in the aftermath of the financial crisis and recession. When the losses from the businesses weren't as deep in 2011, the banks were able to take large profits just from releasing those reserves.
The basic banking businesses of making loans, financing business plans and investing were hurt by the slow economic recovery and volatile financial markets.
Still, banks are on much firmer ground today. Most of them have stronger balance sheets to withstand an economic downturn or a potential global financial shock. They are also better positioned to take advantage of the credit and financial needs of consumers and businesses.
Many of the largest banks complained last year that new regulations mandated by Congress have hurt their ability to make money and moved to charge new fees to make up the difference.
The effort sparked a backlash among consumers and fueled anti-Wall Street protests. Ultimately, the big banks dropped plans to charge customers for using their debit cards. But other fees have remained.
The number of banks on the FDIC's confidential "problem" list fell in the fourth quarter to 813, or around 11 percent of all federally insured banks. That compares with 844 troubled banks in the previous quarter.
"The industry is now in a much better position to support the economy through expanded lending," said Martin Gruenberg, acting chairman for the FDIC. "However, levels of troubled assets and problem banks are still high. And while the economy is showing signs of improvement, downside risks remain a concern."
So far this year, 11 U.S. banks have failed. That's far below the 92 banks that shuttered last year and the157 that closed in 2010 _ the most for one year since the height of the savings and loan crisis in 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. As companies shut down during the recession, they vacated shopping malls and office buildings financed by those loans.
Bank failures cost the FDIC's deposit insurance fund an estimated $7.9 billion last year, down sharply from $23 billion in 2010. In the fourth quarter, fewer failures allowed the insurance fund to strengthen. The fund, which turned from deficit to positive in the second quarter of 2011, had a $9.2 billion balance as of Dec. 31, according to the FDIC. That's nearly 18 percent higher than at the end of the previous 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.
AP Business Writers Pallavi Gogoi and Christina Rexrode contributed from New York to this report.