WASHINGTON (Reuters) - U.S. bank profits fell 36.5% in 2020 from the prior year as banks set aside massive amounts to guard against potential losses, but the industry showed signs of strengthening in the fourth quarter as the economy begins to recover from the pandemic, a regulator reported on Tuesday. The industry posted $147.9 billion in profits in 2020, a sharp decline from record 2019 profits, according to the Federal Deposit Insurance Corporation. Bank profits rose 9.1% in the fourth quarter, however, to $59.9 billion compared with the previous year as firms shrank how much cash they set aside to guard against losses. FDIC Chairman Jelena McWilliams said the new data showed that despite falling profits, banks proved their resilience amid the COVID-19 pandemic. Testifying separately before Congress, Federal Reserve Chairman Jerome Powell said the central bank was still debating whether to reinstate stricter capital requirements on banks. The Fed eased some leverage restrictions for larger banks in April, with that relief set to expire at the end of March. Industry groups are already pressing for extending the relief. Top groups, including the American Bankers Association and the Securities Industry and Financial Markets Association, said in a letter on Tuesday the Fed should extend the relaxed standards as soon as possible. They said the relief had helped banks play a “pivotal role” in stabilizing markets by continuing to lend during the downturn. The new data shows the wild swings the banking industry went through in 2020, as firms scrambled to set aside billions of dollars to guard against the economic toll of the pandemic, only to begin digging out from those losses in the second half of the year. The profit growth posted by banks in the fourth quarter was primarily due to shrinking reserves against potential losses. The FDIC said so-called provision losses fell by 76.5% in the end of 2020 compared with the end of 2019 to $3.5 billion, the lowest level since 1995. The FDIC noted a looming challenge for banks was the persistent low-rate environment. Banks have seen their interest income shrink for five straight quarters, and the average net interest margin remained at record lows in the fourth quarter. (This story corrects provision loss figure in paragraph 9)