Big Banks Banking Big Bucks

Woo-hoo! The FDIC Quarterly Banking Profile is out! OK, maybe it's not as newsworthy as a three-team trade sending Carmelo Anthony to the Knicks or Lindsay Lohan in court, but it belongs on the regular reading list for Fools following the banking sector.

The headline numbers show a bank recovery in progress. Banks earned $21.7 billion in the last quarter of 2010 compared to a loss in the year-ago quarter. Full-year earnings were $87.5 billion -- the highest since 2007. The report also includes some bad news. The Federal Deposit Insurance Corp. troubled bank list has grown to 884 banks from 702 a year ago, but the assets of that category did decline.

Assets and earnings are very concentrated in the nation's biggest banks. Nearly 80% of bank assets are held by the 107 (out of 7,600-plus) institutions with more than $10 billion in assets. Those same banks earned 95% of the total bank earnings for the quarter. Just the four biggest banks, JPMorgan (NYSE: JPM  ) , Wells Fargo (NYSE: WFC  ) , Citigroup (NYSE: C  ) , and Bank of America (NYSE: BAC  ) , were responsible for nearly 40% of all bank earnings for the quarter -- and that's with Bank of America reporting a loss. JPMorgan alone pulled in more than one out of every five dollars earned by FDIC-insured banks last quarter.

The "over $10 billion club" also scored much, much higher than their smaller cousins in return-on-assets and return-on-equity measures. In addition, bigger banks are less likely to have reported losses than smaller banks. Only 13% of the biggest banks reported losses while nearly 30% of banks with less than $100 million in assets lost money for the quarter.

Whether it's regulations, better access to the Federal Reserve, a different service mix, efficiencies of scale, or Green Bay's run to win the Super Bowl, big banks are recovering while smaller banks are still struggling. Based on the FDIC report, policies to end "too big to fail" are failing. As an investing takeaway, bank investors may want to consider that the big banks as a group are performing much better than the little guys.

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Fool contributor Russ Krull owns shares of Wells Fargo and Citigroup, but has no position in any other stocks mentioned. The Fool owns shares of Bank of America, JPMorgan Chase, and Wells Fargo. The Fool owns shares of Bank of America and JPMorgan through a separate Rising Stars account. The Fool is also short Bank of America. The Fool's disclosure policy is big, but not too big to fail.


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