U.S. Bank Profits Plummet 44% in Q4 Amid Large Firms Covering Failed Bank Costs

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In the final quarter of 2024, the U.S. banking sector witnessed a staggering 44% decline in profits, as major firms grappled with hefty fees to offset losses from several bank failures earlier in the year, according to the Federal Deposit Insurance Corporation (FDIC).

Nearly 70% of the quarterly profit slump was attributed to specific, non-recurring expenses at large banks, notably a special assessment fee imposed by the FDIC to replenish its deposit insurance fund. Despite the decline, annual bank profits for 2023 were down by 2.3% to $257 billion, yet remained above pre-pandemic levels.

The FDIC mandated the fee payment to recover losses incurred by its insurance fund due to the failures of Silicon Valley Bank and two other major firms. Amid this backdrop, the latest FDIC report presented a mixed outlook for the banking industry.

On a positive note, bank deposits saw a 1.1% increase in the fourth quarter, marking the first uptick in nearly two years. Additionally, unrealized losses on securities, which had previously burdened some bank balance sheets, decreased by 30.2% to their lowest level since the second quarter of 2022.

FDIC Chairman Martin Gruenberg cautioned about the lingering risks from inflation, market interest rate volatility, and geopolitical uncertainty. He highlighted the importance of monitoring certain loan portfolios, particularly office space and other types of commercial real estate loans, for potential deterioration.