Martin Gruenberg, Chairman of the US Federal Deposit Insurance Corporation (FDIC), made assessments on the banking profile of the first quarter of 2023.
Stating that the recent banking stress has increased the deposit outflow from the banking system, Gruenberg stated that total deposits decreased for the 4th consecutive quarter.
Gruenberg stated that total deposits decreased by 2.5 percent compared to the previous quarter in the first quarter of this year, to $ 18.7 trillion, which is the biggest decrease since 1984 when data began to be collected.
Stating that the decrease in uninsured deposits due to the increase in insured deposits was effective in the said decline, Gruenberg noted that uninsured deposits decreased by 8.2 percent in the first quarter of this year, while insured deposits increased by 2.5 percent in the same period.
Bank bankruptcies negatively affected the profit of the sector
Gruenberg stated that the net profit of the banking sector increased by 16.9 percent compared to the previous quarter to $79.8 billion in the first quarter of this year, but the profit level remained roughly the same when accounting gains from bankruptcy acquisitions were excluded.
Emphasizing that the banking sector has proven to be quite resilient despite the recent period of stress, Gruenberg said that despite the flat trend in the sector’s net income in the first quarter, it is still high, asset quality metrics are positive and the sector is well capitalized.
Pointing out that the results for the first quarter of this year included the effects of the stress that started in early March, especially for earnings, for only a few weeks, Gruenberg said that the more permanent effects of the industry’s response to stress may not fully emerge until the results of the second quarter.
Banking sector faces significant downside risks
Gruenberg warned that the banking sector faces significant downside risks from the effects of inflation, rising market interest rates, slowing economic growth and geopolitical uncertainty.
Pointing out that these risks have the potential to weaken credit quality and profitability, Gruenberg pointed out that this could lead to tighter underwriting, slower loan growth and higher provisioning expenses.
Taking these risks into account, Gruenberg stressed that the FDIC will focus on monitoring the state of the banking sector and taking appropriate supervisory measures, including the effects of recent bank failures on liquidity.