The FDIC today said that the banking industry remained resilient entering 2021, despite the extraordinary challenges of the pandemic. In its annual risk review publication, the agency said that the banking sector in 2020 was helped by strong capital and liquidity levels and “was a source of stability to the economy.”
Banking industry balance sheets remained strong in 2020, the agency said, but banking income declined substantially as FDIC-insured banks reported a 36.5% decline in income between 2019 and 2020, “primarily driven by a sharp increase in provision expense during the first half of the year.”
Bank liquidity in 2020 was supported by a record increase in deposits, according to the report, as deposits increased 22.6% between 2019 and 2020. The FDIC noted that the “strong liquidity and capital levels at the start of the year should mitigate potential asset quality deterioration across loan portfolios.” The low interest rate environment presents earnings challenges to banks, but liquidity positions remain strong as deposits grew rapidly in 2020, the FDIC said.
The FDIC noted that credit risk also remains heightened, as “institutions with elevated levels of credit exposure to affected sectors are potentially more vulnerable to market disruptions and could present risk management challenges.”
