Bank Business Loan Charge-Off Rates Returning to 2007 Levels, Bank Failures Lowest Since 2008

The two charts above provide some evidence that the U.S. banking sector is recovering from the effects of the Great Recession and financial crisis of 2008-2009.

Charge-off rates for all commercial banks are displayed in the top chart, and show that:

a. Business loan charge-off rates, at 0.73% in Q3, are the lowest in 14 quarters (since 0.71% in 2008 Q1) and have now almost returned to the pre-recession levels.

b. Real estate loan charge-off rates fell in Q3 for the seventh consecutive quarter to 1.41%, the lowest quarterly rate since 2008 Q3.

Annual bank failures are displayed in the second chart and show that:

a. Bank failures through mid-November of this year are at 90 institutions, and will likely be the lowest since 2008, and down significantly from 157 last year, and 148 in 2009.

b. Compared to the nearly 3,000 banks that failed during the S&L crisis, the 425 bank failures since 2008 are relatively small in comparison.

Although there is more progress ahead necessary to completely restore the health of the U.S. banking system to its pre-recession level, there is lots of evidence that confirms that the worst is definitely behind us.

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