Banking industry is solid

To the editor,
In spite of negative headlines regarding challenging economic conditions, failed banks and the ongoing credit crisis, the banking industry is solid and strong. The industry — which includes traditional federally insured, federally regulated depository institutions, your local commercial bank, thrift or savings bank — is well-regulated and even profitable.
To date, only five of the nation's 8,500 banks have failed in 2008. To match the 1989 peak in federal financial institution closings, 529 more banks would have to fail by the end of this year — a prospect analysts say is highly unlikely. Since 1995, 10 or fewer banks have failed every year, and this year should follow that trend.
Despite a slowing economy, banks in the United States posted $19.3 billion in earnings in the first quarter of 2008. While the banks’ earnings that quarter were lower than earnings in previous quarters, the returns remain noteworthy.
Additionally, the banking industry's capital is at historic highs. Banks use their capital and loan loss reserves as a buffer against any potential operating losses. As of March 2008, the industry held $1.36 trillion in capital, plus $120.9 billion in reserves, for a total buffer of $1.48 trillion. Banks are well positioned to continue helping their communities grow and prosper.
The upper Midwest is fortunate to have an especially robust and strong banking industry. This region has limited exposure to the ‘boom-bust’ geographic areas that have been the source of many of the banking industry’s most pressing problems.
Despite a few highly-publicized bank failures, today’s U.S. banking system receives solid backing in the form of FDIC insurance. FDIC is the Federal Deposit Insurance Corporation. It came out of the Great Depression — following a run on banks — as a way to prevent a crisis in the future. Subject to certain conditions, single and joint accounts are separately insured, and revocable trusts generally provide $100,000 of coverage per beneficiary. Additionally, all bank depositors can have insurance coverage in excess of the basic limits of $100,000 per institution, with an additional $250,000 per institution for IRAs.
Banks and thrifts capitalize the insurance fund through FDIC insurance premiums. Currently, the FDIC insurance fund contains more than $52 billion in assets and earns an additional $2.5 billion in interest annually to protect depositors like you.
Additionally, federal and state banking regulators closely monitor the financial health of every bank. When needed, regulators actively work to improve the health of banks that are struggling.
History proves that the U.S. economy is cyclical in nature — enduring both boom and bust cycles. Know that during this cycle, your local bank remains open for business, doing what it does best: helping meet clients’ needs and building healthy communities.
Gary Bigler
International Falls, MN