While many Americans may bemoan smaller income tax refunds this season, the new federal tax law is proving to be a windfall for U.S. banks, which saw their profits surge 44 percent to a record $236.7 billion last year, according to federal regulators.
Even without the tax overhaul, America's financial institutions still would have generated a record $207.9 billion in 2018, but the tax changes enacted in late 2017 lowered their effective tax rate last year, helping banks net an extra $28 billion in profits, the Federal Deposit Insurance Corporation reported on Thursday.
Lower taxes and higher operating revenue helped drive the banking industry's strong results, FDIC Chairman Jelena McWilliams said in a news release, which also noted an ongoing decline in the number of "problem banks."
An extended period of low interest rates and a competitive lending environment has some institutions perhaps stretching too far for higher yields, McWilliams said in prepared remarks. She urged banks to maintain underwriting discipline and credit standards.
Even as banks and other businesses benefit from the tax bill, more Americans disapprove of the new tax rules than approve, according to Gallup. Critics say the biggest beneficiaries of the sweeping tax overhaul , while middle-class families on average are receiving modest cuts of as little as 1 percent and many ordinary taxpayers have seen this filing season.
Under the new tax law, the corporate income tax rate was slashed from 35 percent to 21 percent, but some big banks pay even less. JP Morgan Chase and Wells Fargo projected their effective tax rate would decline to 19 percent this year, a decline of one-third from their tax rate in 2016.
The agency said its list of troubled banks fell to 60 from 71 during the fourth quarter, the lowest count of problem banks since early 2007, and that no bank failed in 2018, a first since 2006, a year ahead of the financial crisis.
Still, the positive trend is unlikely to last, McWilliams warned.
"Things can only get worse from here," the FDIC told a videotaped news conference. "It's not lost on us that it's been a while since we had the last bank failure. And while I would like to believe this is the new normal, it's not."