WASHINGTON (Reuters) - U.S. banks kept a lid on costs and booked higher interest income in the second quarter, boosting profits by 10.7 percent on the year-ago period, the Federal Deposit Insurance Corporation (FDIC) said on Tuesday.
The $48.3 billion in profits during the second quarter indicate the U.S. banking sector is in good health, said FDIC chairman Martin Gruenberg, but he warned some lenders might be taking on too much risk as they try to chase higher returns.
“The bottom line is the industry remains in pretty good shape and is a source of strength and stability for the economy,” Gruenberg, whose term is due to expire in November, said during a news briefing in Washington.
The average return on assets was 1.14 percent, the highest in ten years, while loan growth slowed for a third consecutive quarter, the U.S. banking regulator said.
The number of problem banks fell to 105 from 112, the lowest since the financial crisis, but many banks are locked into long-term loans at near-record high levels and could be stung by a quick uptick in interest rates, said Gruenberg.
“This is a stage of the recovery where there is a temptation to reach for yield, and we are seeing a change in the interest rate environment as well. So this is a stage in the cycle where interest rate risk, credit risk and liquidity risk really could evidence themselves,” he added.
The FDIC appraisal of the banking sector came through its regular snapshop of the industry, the quarterly banking profile.
During the same briefing, Gruenberg said the FDIC was open to reviewing the so-called Volcker Rule, a key post-financial crisis reform that bans banks from speculative trading, but said he could not comment on the timing of any potential review.
The Office of the Comptroller of the Currency earlier this month became the first of the major U.S. banking regulators to solicit feedback on potential changes to the way the rule is implemented.
Reporting by Patrick Rucker and Michelle Price; Editing by Jeffrey Benkoe and Meredith Mazzilli