WASHINGTON DC, USA – US banks earned more from July through September than in any other quarter over the past six years. The increase is further evidence that the industry is strengthening four years after the 2008 financial crisis.

The Federal Deposit Insurance said that the banking industry earned US$37.6 billion ($3.4 trillion) in the third quarter yesterday, up 6.6 per cent from US$35.3 billion in the third quarter of 2011.

About 57 per cent of the banks reported improved earnings, which allowed them to set aside less for losses on loans. And the number of troubled banks fell to the lowest level in three years.

For the second straight quarter, loans to consumers increased in most categories, including home mortgages and auto loans. That suggests banks are becoming less cautious, which could help the broader economy. More lending leads to more consumer spending, which drives roughly 70 per cent of economic activity.

Still, the increase in consumer lending was “relatively modest” and regulators would like to see more of it, FDIC Chairman Martin Gruenberg said.

“This was another quarter of gradual but steady recovery,” he said. “Overall, the news is encouraging, but continuing downside economic risks remain.”

Gruenberg said banks are worried about what will happen with the “fiscal cliff”. That’s the name for automatic tax increases and spending cuts that will kick in next month unless President Barack Obama and congressional lawmakers reach a deal by then to avert them

For the first time since 2009, the biggest contributor to the earnings was increased revenue rather than reductions in what banks set aside for loan losses, the FDIC said.

Revenue increased three per cent in the third quarter from the same quarter a year ago, after showing sluggish growth in previous quarters. A large part of the increase came from sales of loans to other institutions. That shows continued weakness in other sources of revenue, such as interest on loans, Gruenberg said.

Banks with assets exceeding US$10 billion drove the bulk of the earnings growth in the July-September period. While they make up just 1.5 per cent of US banks, they accounted for about 82 per cent of the earnings.

Those banks include Bank of America, Citigroup, JPMorgan, and Wells Fargo. Most of them have recovered with help from federal bailout money and record-low borrowing rates.

The number of banks on the FDIC’s confidential “problem” list fell in the third quarter to 694, or around 9.6 per cent of all federally insured banks. That compares with 732 troubled banks in the second quarter.

So far this year, 50 banks have failed. That’s far below the 92 banks that shuttered last year and the 157 that closed in 2010 — the most for one year since the height of the savings and loan crisis in 1992.

— AP