PYMNTS MonitorEdge May 2024

Financial Institutions’ Net Income Drops 43.9% Amid FDIC’s Special Assessment

Financial institutions’ net income dropped 43.9% in the fourth quarter of 2023.

The net income of commercial banks and savings institutions insured by the Federal Deposit Insurance Corp. (FDIC) totaled $38.4 billion in the fourth quarter of 2023, down $30 billion from the previous quarter, the FDIC said in a Thursday (March 7) press release.

Their net income for the full year was down 2.3%, or $6 billion, compared to 2022, according to the release.

The quarter-to-quarter drop was driven by nonrecurring, noninterest expenses at large banks, as well as higher provision expense and lower noninterest income, per the release.

The FDIC said in the release that “it is estimated that 70 percent of the decrease in net income was caused by specific, nonrecurring, noninterest expenses at large banks. These expenses include the special assessment, goodwill impairment, and legal, reorganization and other one-time costs.”

The special assessment was the one ordered by the FDIC to replenish its deposit insurance fund after the costs incurred by the bank failures in the spring of 2023, Reuters reported Thursday.

The FDIC said in May 2023 that America’s biggest banks would pay $15.8 billion in a special assessment over two years so the FDIC could recoup its losses after its rescue of the failed banks.

Ninety-five percent of the cost will be paid by 113 banks that have at least $50 billion in assets, while banks with less than $5 billion in assets are exempt from the extra fees.

In January, Citigroup attributed its net loss of $1.8 billion for the fourth quarter in part to this special assessment.

FDIC Chairman Martin J. Gruenberg said in the Thursday press release that the banking industry has shown resilience after the period of liquidity stress it faced at the time of the bank failures.

“Full-year net income remained high, overall asset quality metrics were favorable, and the industry’s liquidity was stable,” Gruenberg said.

At the same time, the industry faces several challenges, including economic and geopolitical uncertainty, inflationary pressures, market interest rate volatility and stress on some banks’ commercial real estate portfolios, he added.

“These issues, together with funding and earnings pressures, will remain matters of ongoing supervisory attention by the FDIC,” Gruenberg said.