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Regional Outlook


Kansas City Map Camera-ready art of "Regional Outlook" (308Kb PDF file - PDF help or hard copy)


In Focus This Quarter

Falling Prices in Commodities and Manufacturing Pose Continuing Risks to Credit Quality --Falling prices are causing problems for a wide range of commodity industries—a collection of agricultural, mining, and manufacturing industries that produce standardized products and face global competition, mostly on the basis of price. Firms in these industries have experienced slow or negative profit growth even as they reduce payrolls to cut costs. There are signs that these trends are contributing to higher credit risk for insured institutions. The effects of these problems on local economies and community banks could grow if low prices persist. By Richard A. Brown and Alan Deaton

Shifting Funding Trends Pose Challenges for Community
Banks --Several long-term trends are making it more difficult for some institutions to economically fund asset growth with deposits in today's marketplace. As a result, traditional measures of liquidity and liability composition for commercial banks reflected record-low levels of deposit funding at year-end 1998. The need to augment lagging deposit growth to meet loan demand has led many community banks to seek more wholesale funding sources, particularly borrowings. If the trend toward greater reliance on nondeposit funding continues, liability management may become more important and more challenging for community banks that have historically relied upon deposits for funding and net interest revenues for profitability. By Allen Puwalski and Brian Kenner

Regional Perspectives

Agricultural Sector under Stress: The 1980s and Today --With prices for wheat, corn, soybeans, hogs, and cattle depressed again in 1999, many people are beginning to ask if the agricultural crisis of the 1980s is about to recur. However, today's economic environment differs from the one that led to the agricultural crisis of the 1980s. Interest rates are low and stable, farm debt levels are moderate, and real farmland values have been relatively stable throughout the 1990s. In addition, the Region's farm banks are reporting higher capital and loan loss reserve levels than in the 1980s, indicating that institutions today can better absorb an increase in loan losses. Although the Region does not appear to be entering a crisis period like that of the 1980s, several factors may pose significant risks to farm banks, including continuing low commodity prices, higher loan levels, and uncertainty regarding the future of federal farm programs.

By John M. Anderlik and
Jeffrey W. Walser

Regional Outlook Information
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Last Updated 8/25/1999 insurance-research@fdic.gov