Wild swings: US bank profits sank 36.5% in 2020 as COVID raged

United States bank profits fell 36.5 percent in 2020 from the year prior as banks set aside massive amounts to guard against potential losses, but the industry showed signs of strengthening in the fourth quarter as the economy begins to recover from the COVID-19 pandemic, a regulator reported Tuesday.

The industry posted $147.9bn in profits in 2020, a sharp decline from record 2019 profits, according to the Federal Deposit Insurance Corporation (FDIC).

However, bank profits were up 9.1 percent in the fourth quarter to $59.9bn compared to a year prior as firms shrank how much cash they set aside to guard against losses.

FDIC Chairman Jelena McWilliams said the new data shows, despite falling profits, that banks proved their resilience amid the pandemic.

“The banking industry maintains strong capital and liquidity levels, which can mitigate potential future losses,” she said in a prepared statement.

The new data shows the wild swings the banking industry went through in 2020, as firms scrambled to set aside billions of dollars to guard against the economic toll of the pandemic, only to begin digging out from those losses in the second half of the year.

The profit growth posted by banks in the fourth quarter was primarily due to shrinking reserves against potential losses. The FDIC said so-called provision losses fell by 76.5 percent at the end of 2020 compared with the end of 2019 to $11.4bn, the lowest level since 1995.

The regulator noted a looming challenge for banks is the persistent low-rate environment. Banks have seen their interest income shrink for five straight quarters, and the average net interest margin remain at record lows in the fourth quarter.