FDIC warns of downside risks as bank earnings decline and cash hoarding increases

The US banking industry is facing significant downside risks from inflation and high interest rates, which could weaken profitability and credit quality, according to FDIC Chair Martin Gruenberg. The FDIC's report on the second quarter showed a decline in deposits for the fifth consecutive quarter, putting pressure on banks to raise funding costs. Concerns about a weakening market for commercial real estate also pose challenges to the industry. While there were signs of increased resiliency, such as a decrease in the number of banks on the FDIC's "problem" list, the direction of bank profitability, measured by the net interest margin, is a cause for concern.