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The FDIC’s latest quarterly banking profile showed a significant drop-off in net income at US banks to close out 2023. Some of that decline can be chalked up to sizeable provisions that may eventually be claimed as profit in the future if credit losses are not as intense as banks currently expect. Domestic deposit growth showed signs of rebounding for the first time in seven quarters and unrealized losses narrowed to their smallest sum since Q2 2022. 

Though the FDIC’s list of problem banks expanded by eight to a near three-year high of 52, emergency liquidity assistance in the form of the Bank Term Funding Program (BTFP), launched last March, will conclude today. This is a positive sign that the Federal Reserve feels confident enough in the banking system to wean it off of advances. Some volume of demand for emergency capital may remain and switch over the discount window.

Related ETF: SPDR S&P Bank ETF (KBE)

Per the Federal Deposit Insurance Corp’s (FDIC) most recent quarterly banking profile, net income for the 4,587 FDIC-insured commercial banks and savings institutions in the US was recorded at $38.4 billion in Q4, down -43.9% from the prior quarter. Full-year 2023 saw banks rake in $256.9 billion, declining by only -2.3% from the previous year. That performance was recorded in spite of the worst year of bank failures in US history, in terms of total assets. Three of the four largest depository collapses in US history occurred last year amid the five banks that entered receivership throughout the whole year – the largest annual figure since 2017.

The two primary catalysts which set off the collapse of First Republic Bank, Silicon Valley Bank (SVB), and Signature Bank were declining deposits and surging unrealized losses on available for sale securities and held-to-maturity (HTM) assets.

After peaking in April 2022, Federal Reserve data shows the US banking sector shouldered a decline of as much as -$981.0 billion worth of total deposits in just over a year’s time. Throughout the fourth quarter of 2023, the FDIC said domestic deposits held across all US commercial banks rose for the first time in nearly two years, increasing by $186.9 billion. However, the increase resulted from a surge in time deposits, while the balance of noninterest bearing accounts continued to slide for a seventh straight quarter. Total deposits counted in the banking profile were equivalent to about $18.813 trillion at the end of the year, down -2.1% from the close of 2022.

Deposits are typically the cheapest source of funding for banks and, without a material increase in cash held in checking accounts, banks may have a difficult time re-expanding their…

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