Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, September 23, 1994 TAG: 9409240052
SECTION: BUSINESS PAGE: A7 EDITION: METRO
SOURCE: ASSOCIATED PRESS
DATELINE: WASHINGTON LENGTH: Medium
``The banking system is stronger now than it has been in many years,'' said Greenspan, leading a delegation of five senior regulators before the Senate Banking Committee.
The five, whose agencies oversee all of the nation's federally insured deposit-taking institutions - banks, savings associations and credit unions - painted the rosiest picture of the financial system in years.
Coinciding with the hearing, the Federal Deposit Insurance Corp. reported the country's 10,715 commercial banks earned $11.2 billion in the April-June quarter, up 8.5 percent from the same period a year ago.
It was the second-best quarter ever recorded, just short of the $11.5 billion earned in the third quarter last year. Commercial banks based in Virginia reported second-quarter earnings of $197 million, compared with $203 million in the corresponding period of 1993.
Less than two years ago, bank failures numbered in the hundreds, the FDIC's bank-insurance fund was in the red and presidential candidate Ross Perot was accusing the Bush administration of hiding a looming crisis that would dwarf the savings-and-loan debacle.
During the first half of this year, only four banks, two savings institutions and 30 credit unions failed. And the industry's capital, which acts as a cushion against loss, is at its highest level in 30 years.
``Indeed, the pace of progress in the 1990s has been most remarkable and much faster than one could have reasonably expected a few years ago,'' Greenspan said.
The 2,240 savings banks and savings-and-loan associations earned $1.9 billion in the second quarter, up 6.4 percent from a year ago, the FDIC said.
The more than 12,000 credit unions recorded net income of $1.7 billion in the first half of this year, down 12 percent from the first half of 1993.
At the end of June, the FDIC listed 433 banks and savings institutions, with $113 billion in assets, as troubled. That's down from 1,305 with $740 billion in assets two years ago. There were 318 troubled credit unions with $1 billion in assets at the end of June, down from 608 with $3.4 billion in assets 18 months earlier.
Greenspan cautioned banks against going too far in reducing reserves against future losses, and the other regulators also warned against complacency.
``The mistakes of overlending during the 1980s should not be forgotten,'' said Andrew C. Hove Jr., acting head of the FDIC.
The S&L industry all but collapsed in the late 1980s, requiring a $100 billion-plus taxpayer bailout, and commercial banking teetered on the brink. Credit unions weathered the period relatively well.
Analysts attribute the industries' rebounds to the Federal Reserve's moves to cut interest rates before, during and after the 1990-91 recession and to the lower loan losses that came from the subsequent improvement in the economy as a whole. But economic growth has begun to slow since the Fed began nudging rates higher in February.
``The economy is doing well, no question about it. There's fairly solid underlying growth,'' Greenspan said. ``The rate of growth is slowing from the earlier period of exuberant growth. ... It's still unclear the extent to which the rate of diminishment is proceeding.''
Reflecting higher interest rates, certificates of deposit at banks rose by $7.3 billion, ending a string of 13 consecutive declines. Lending grew by $57.6 billion, the largest increase since 1986.
Banks set aside $2.8 billion to cover bad loans, a drop of $1.5 billion from a year earlier.
by CNB