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FDIC Chair McWilliams Sounds Cautionary Note Amid Positive Industry News

The FDIC reported the number of institutions on its “problem bank list” fell to 60 in 2018 from 71, the lowest level since 2007. 2018 was also the U.S. banking sector’s first casualty-free year since 2006. Nevertheless, FDIC Chair Jelena McWilliams said the current lack of bank failures is “not the new normal,” and further noted: “When you go from a relatively long period with no bank failures, things can only go worse from here.”

In the current report, community banks reported another positive quarter, with net income of $6.8 billion, as well as a 29.4 percent increase in net income to $26.1 billion in 2018. U.S. bank profits more than doubled in the fourth quarter of 2018 to $59.1 billion, largely due to one-time charges from the 2017 tax law. For the entirety of 2018, banks reported a 44 percent jump in net income to $236.7 billion, which included the benefits of a lower tax rate. McWilliams noted:  “While results this quarter were positive, the extended period of low interest rates and an increasingly competitive lending environment continue to lead some institutions to ‘reach for yield’. With the recent flattening of the yield curve, new challenges for institutions in lending and funding may emerge.”

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