Bank Regulation

FDIC: US Banks See Chargebacks Soar, Profits Tank Due To Pandemic

U.S. bank profits took a hit of 69.6 percent in profits in the first quarter of the year compared to the same time last year, according to Reuters.

The profits only hit $18.5 billion as the coronavirus pandemic continued to cause lenders to write off delinquent debt and horde billions to prevent more losses later on. According to the Federal Deposit Insurance Corp. (FDIC), over half of all banks ended up reporting a decline in profits, and 7.3 percent of lenders were unprofitable — the largest number since 2010. In addition, the total number of problem banks the FDIC was watching rose for the first time since 2011, with 54 firms in the first quarter, up from 51.

The new report by the FDIC, the first government report since the pandemic largely shifted every aspect of life, found that banks had set aside 280 percent more money than the previous year, totaling $38.8 billion, Reuters wrote.

FDIC Chairman Jelena McWilliams, calling the organization “born out of a crisis,” said it had been able to service clients “effectively,” though.

Banks saw a $1.2 trillion jump in deposits from the previous quarter as many investors cashed out of the stock market, and loan balances also jumped as companies tapped credit lines, with a 15.4 percent increase in commercial and industrial loans.

Banks like Chase and Wells Fargo have set about tightening the reins on their lending practices, looking to minimize the risk during the times of economic uncertainty. They’ve opted to focus for now on clients they already know, rather than take on new ones.

That could mean consumers could end up turning to nontraditional lenders for the time being, PYMNTS reported. Buy now, pay later firm Afterpay and other, similar services have seen huge upticks in activity since the pandemic started, as people look for ways to utilize credit without falling into old traps or high debt with the traditional banks, according to Afterpay CEO Anthony Eisen.

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