It seems like just yesterday the government was bailing out the banks. No need now. The banking system is very profitable. The most profitable of the banks may surprise you.

The Federal Deposit Insurance Corp. reports that profits at U.S. banks now top $100 billion annually, compared with $12 billion in losses just three short years ago. The quality of bank lending is also improving. Bad-debt allowances dropped to 1 percent of assets from more than 2 percent three years ago.

The same FDIC report shows that for the first time in more than three years, Idaho banks are profitable, earning $21.5 million for the 12 months ending Sept. 30, 2012. However, this is attributable in part to the fact that two money-losing institutions in the state closed and merged with other banks. The remaining Idaho banks are in good shape, with loan-loss allowances at the national average and equity capital above the average.

Basic banking - borrowing short and lending long - is bringing profits back to the system. By taking in deposits at low interest rates and then lending that money out for longer terms at higher rates, banks make good money, as long as they keep bad debts to a minimum.

The FDIC reports that U.S. banks are paying on average about one-half of 1 percent on deposits and short-term borrowings and earning 3.5 percent on their lending, for a net interest margin of 3 percent. This profitable margin has held up since the recession in 2009.

Banks no longer need bailouts, but they face formidable competition. The Federal Reserve and the U.S. Department of Education are now the most profitable banks in the land.

The Fed is very good at borrowing short and lending long. Using currency with no interest rate and the low-interest reserve accounts of U.S. banks, the Fed buys long-term assets, such as mortgage-backed bonds, currently earning 2 to 4 percent.

Do this enough times and you can earn a tidy profit.

In 2012, the Federal Reserve reported a profit of near $90 billion, almost as much as all U.S. commercial banks combined. Over the past three years the Fed has sent the U.S. Treasury nearly $250 billion from its operations.

It turns out the Department of Education is also running a profitable banking operation. As of 2011, Americans had more than $1 trillion in student loans outstanding, of which about $850 billion is owed to the government itself. The interest rate on most of these loans is more than 6 percent.

Since the federal government currently borrows short-term funds at less than 1 percent, it is earning a 4 to 5 percent margin on student loans, amounting to more than $30 billion a year before administrative costs and loan losses. Only about 1 percent of student debt is in default, close to the average for all bank lending.

The Fed and the Education Department are sure to keep up these profitable businesses, but watch out. If rates rise, the net interest margin goes away fast, and the value of these banking assets will fall even faster.

Let's hope they don't need the next bailout.

Peter R. Crabb, professor of finance and economics at Northwest Nazarene University in Nampa. prcrabb@nnu.edu