By Yali N’Diaye
WASHINGTON (MNI) – The Federal Deposit Insurance Corp. is clearly
concerned about the potential impact of the eurozone crisis on growth in
the United States, the agency’s chief economist said Thursday.
Still, FDIC Chief Economist Richard Brown indicated to MNI he is
sticking to his forecast for the U.S. economic expansion.
When asked whether he had revised down his forecasts for the U.S.
economy, he said said, “No. The U.S. economy continues to expand and
that’s our outlook.”
That being said, “We are viewing the situation in Europe as a risk
that we are monitoring,” Brown added.
Developments in the eurozone are “probably the area of greatest
concern today in terms of the potential course of the economy,” FDIC
Acting Chairman Martin Gruenberg said earlier during a press conference
following the Quarterly Banking Profile release.
Noting the “relatively limited” overall exposure of U.S. banks to
Europe, his concerns are more focused on the macroeconomic effects of
potential significant financial difficulties across the Atlantic, and
“potential contagion effects that could impact U.S. institutions.”
“I think the biggest concern is the macroeconomic impact of a
decline in European economies, and the impact on the U.S. economy,”
Gruenberg said.
And on the economic front, Brown later told MNI that “All the data
recently show a weaker economic performance in peripheral countries in
the euro zone and increasingly in the core countries as well.”
“Those are the types of concerns in terms of economic activity that
have repercussions for global trade, trade with Asia, and eventually,
external trade with the U.S.,” he said.
Thursday, Markit EMU Flash Manufacturing PMI declined to 45.0 in
May from 46.9 in April, with deteriorations in France and in Germany.
In Germany, the May Ifo business sentiment index fell more than
expected to 106.9, its lowest level since November, from 109.9 in April.
Meanwhile, Insee reported a deteriorating sentiment in the French
manufacturing sector.
In the U.S., however, “The economy is expanding,” Brown said,
adding, “we are worried more about the macroeconomic repercussions
coming back from Europe.”
But for now, “U.S. exports continue to expand,” he commented. “In
fact, U.S. exports to Europe continued to expand in the first quarter,”
although “more so to the core countries.”
Indeed, when looking at exports to peripheral countries, “there is
already some weakening because these economies are so weak ,” Brown told
MNI.
“So that gives some reason for the sort of caution that Acting
Chairman Gruenberg has expressed.”
Therefore, the FDIC is watching developments “closely.”
So far the U.S. banking system has been able to continue to
strengthen despite ongoing political, economic and financial volatility
in the euro zone.
Earlier Thursday, the FDIC reported commercial banks earnings of
$35.3 billion in the first quarter, up $6.6 billion from a year ago, and
the highest reading since the second quarter of 2007.
Indicators of asset quality also improved, and the number of
problem banks declined further to 772 at the end of the first quarter
from 813 at the end of 2011.
Bank failures also continued to decline, which, combined with
assessment revenue continued to drive the Deposit Insurance Fund balance
higher, rising to $15.3 billion at the end of the quarter from $11.8
billion at the end of last year.
However, loan balances were down $56.3 billion in the first
quarter, with Gruenberg cautioning not to draw conclusions based on data
from just one quarter. That being said, he found such data
“disappointing,” adding, “We will continue to watch these indicators
closely.”
** MNI Washington Bureau: 202-371-2121 **
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