By Pete Schroeder

WASHINGTON (Reuters] – The Federal Deposit Insurance Corporation announced Tuesday that U.S. banks’ profits increased by almost 90% due to the reduction in money saved for protection against credit losses.

FDIC stated that bank profits rose $132 million to $279.1 billion by 2021. This is an increase of $132 trillion compared with 2020. It said that the increase was due to rapid economic growth, and banks shrinking credit loss provision expenses which fell $163.3 million in 2021.

Banks built huge buffers in early COVID-19 times, which led to a rapid drop in credit losses. The FDIC stated that noncurrent loans balances fell 3% during the fourth quarter. This was despite the fear of losing money. Banks moved to reduce those reserves and use the funds in other areas.

FDIC reports that credit loss provisions were reduced by banks in all quarters. The FDIC reported that banks reduced their credit loss provisions in all four quarters of 2021, but the change was slower for the fourth quarter because they had already largely eliminated their pandemic-boosting cushioned.

The FDIC reported that banks made $63.9 billion more profits in the fourth quarter 2021 than they did in the 2020 quarter. This is 7.4% higher than the quarter in 2020. However profits fell slightly in the fourth quarter of 2021, down 8.1% owing to slower losses provisions reductions by banks.

According to the FDIC, most banks saw an increase in annual profits. The net interest income and noninterest income both increased between the third and fourth quarters.

Martin Gruenberg, FDIC Acting Chair, stated that “strong capital and liquidity levels were necessary to lend and prevent potential losses,” and the industry has continued to fulfill the nation’s credit requirements while dealing with the economic consequences of the pandemic. There are still challenges, however, such as increasing interest rates, geopolitical uncertainties, and a decrease in loan growth, which could adversely affect bank profitability and credit quality.

FDIC reported in its fourth quarter report that both bank assets and total loans balances increased, with loan growth occurring across many sectors. According to the FDIC, no banks were closed in the fourth quarter.