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Fast Facts: Student Loans

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The Federal Deposit Insurance Corporation (FDIC) isn’t supposed to make news. It’s the safety net beneath the high-flying trapeze act that the financial world can sometimes be—unquestionably vital but decidedly unglamorous. Since its launch almost 80 years ago, not a single depositor has lost money through a bank failure, yet no one seems to talk about it much.

Still, its role as the consumer safeguard at some 8,000 institutions nationwide gives the agency a ringside view into the industry a whole. That’s why its reports, such as its recent announcement on the second quarter of 2012, deserve attention.

The topline items fit nicely into the current narrative around the economy, which typically goes by the cliché ‘cautious optimism.’ The numbers are clearly up: Commercial banks and savings institutions insured by the FDIC collectively reported aggregate net income of $34.5 billion for the period. That’s a significant jump of $5.9 billion over the $28.5 billion in profits the industry reported in the second quarter of last year.

The gradual progress is also evident in that this is the 12th straight quarter in which earnings have registered a year-to-year increase. In other good news, the money is flowing out too, with an uptick in consumer loans in most categories, the fourth time in the last five quarters that this has happened.

However, there might be even better news in the bad news (you read that right). It’s hard to discount the nearly $6 billion in losses incurred by JPMorgan Chase this year through a bet that went awry. However, the reality is that without that single blow, this industry-wide report would look a lot healthier.

The news that 40 banks have failed so far this year is sobering, yet that represents a steep decline from recent times—92 went under last year and 157 in 2010 (the highest since the S&L debacle of 1992). That trend should hold for a while. The list of ‘problem’ banks (it’s surely not fun to be on any list with this tag) continues to shrink, to 732 from 772 in the first quarter of this year.

This has in turn helped replenish the insurance fund’s own coffers. After turning from red to black at this time last year, the Deposit Insurance Fund (DIF)has had a balance of $22.7 billion as of June 30, compared with $15.3 billion at the end of March.

It’s not that all the news is good: total revenue 0.8 percent over the second quarter last year. Still, the rise is the profitability measure—average return on assets, or ROA—spiked from 0.85% in the year-ago quarter to 0.99% this year. That’s a very decent increase.

“Most institutions are profitable and are improving their profitability,” said FDIC Acting Chairman Martin J. Gruenberg. “All of these trends are consistent with the moderate pace of economic growth.”

After the past couple of years, that almost sounds like cheerleading.


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James W. Gabberty

Gabberty is a professor of information systems at Pace University in New York City. An alumnus of the Massachusetts Institute of Technology and New York University Polytechnic Institute, he has served as an expert witness in telecommunication and information security at the federal and state levels and holds numerous certifications from SANS & ISACA.

Marisa Mann

Marisa Mann brings over 15 years of experience in consulting and financial services industries to the Solstice team, working on large scale enterprise initiatives across many technologies, including specializing in the digital space – Internet and mobile. Mann is passionate about mobile and the endless possibilities for the enterprise, delivering business value through strong brand recognition and driving to excellence in the consumer experience. Prior to Solstice, Mann worked at JP Morgan Chase, Diamond Management and Technology Consultants, Washington Mutual, Inc, and Accenture.

Brad Strothkamp

Zachary Ehrlich

25-year-old writer, and as a native San Franciscan, I am unreasonably loyal to Bank of America, if only for their superhero-like origin story, involving the 1906 earthquake and Italian fruit vendors.