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FDIC chair: Some banks 'reaching for yield' as nonbank competition heats up

While the Federal Deposit Insurance Corp. released a report outlining the sustained period of economic growth and a healthy outlook for banks, the regulator is watching the heated competition for deposits among community banks.

FDIC Chair Jelena McWilliams told reporters the regulator has observed banks "reaching for yield" in a competitive environment for deposits, pushing up interest rates on certificates of deposits, savings accounts and other products and services.

McWilliams said community banks, which have seen more competition from nonbanks and online banks, should be cognizant of how they are managing deposit portfolios and be aware of "overreach" with those products.

"For community banks in particular, you're looking at an environment that they just need to be very smart about their underwriting practices," McWilliams told reporters during a press conference.

Financial technology companies and digital-only banks have been expanding their reach and are increasingly threatening to swallow traditional banks' retail and commercial deposits.

The FDIC's quarterly banking report, released May 29, showed bank net income growth of 8.7% year over year to $60.7 billion. The report also highlighted community banks' net income, which saw a 10.1% increase in net income over the past year.

Despite the positive trends underpinning the report, McWilliams urged banks to keep the "longer horizon in mind."

"Just because times are good now — I think the economy is doing well — doesn't mean that this will continue forever," she said.