Bank profits rebound as loss set-asides ease

Banks across the U.S., including the Eleventh Federal Reserve District, appear to be recovering from the financial crisis that began in mid-2007. The news is welcome because a healthy banking sector spurs economic growth by providing financing for businesses to expand investment spending and for consumers to purchase goods and services. ; Data for 2010 show strong profit growth, with banks across the nation rebounding from a net loss in 2009 and those in the Dallas-based Eleventh District almost doubling their profits. There was also good news regarding asset quality: Problem loans are starting to moderate. And there are indications that the banking industry has grown more efficient, supporting more operations at lower cost. ; However, concerns linger about the sustainability of profits because the recent improvement can be attributed almost entirely to a reduction in what banks set aside to cover future loan losses. Banks refer to this as their provision expense, and it usually falls as asset quality improves. But there is a limit to how far it can decline and contribute to profitability.