Camera-ready art of "Regional Outlook" (355Kb PDF file - PDF help or hard copy)
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In Focus This Quarter
Recent Trends Raise Concerns about the Future of Business Credit Quality--Commercial and industrial (C&I) lending is one of the largest and fastest-growing lending lines at insured institutions. Recent growth in C&I lending can be attributed to a strong U.S. economy, increased industrial merger activity, and a willingness of lenders to extend credit. While C&I credit quality remains relatively strong, signs of deterioration have recently begun appearing in C&I portfolios and in corporate bond defaults. These signs of weakness in commercial credit quality raise concerns because they are appearing during a period of economic strength. Business credit quality could deteriorate further in the event of an economic slowdown, higher interest rates, or a loosening of underwriting practices.
By Arlinda Sothoron, Alan Deaton
Local Industries in the Global Economy--The contribution of international trade to overall U.S. economic activity has been increasing for a number of years. Although the United States trades with many nations, most activity is concentrated in a few markets--Canada, Japan, and Mexico. Across a collection of industries, there is, however, considerable variation in both the level of exposure to export markets and the intensity of import competition. A number of industries are highly exposed to international markets, suggesting that economic conditions abroad are particularly important in any assessment of future revenue growth or profitability.
By Paul C. Bishop
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Regional Perspectives |
| Atlanta--Strong economic growth in Atlanta Region urban areas may be driving a resurgence in de novo banks, which have greater innate risks early in their life cycle. |
Boston--The Boston Region's economy continued to expand in 1999 but showed signs of slowing. Insured institutions reported healthy financial conditions, and the Region's credit risk profile showed no material adverse trends.
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| Chicago--Although the Region's economy remains healthy, job growth has slowed. Agricultural concerns are centered in Illinois. Commercial and industrial loans are growing rapidly, and rising interest rates may dampen profitability of residential real estate lenders. |
Dallas--Record levels of government payments are helping to maintain net farm income above the decade average. NAFTA's effect on job growth has been marginally positive. |
| Kansas City--Population continues to decline in a significant number of the Region's rural counties; as a result, institutions in those areas likely will continue to have difficulty growing loans and core deposits within their markets. |
Memphis--Many insured financial institutions are changing asset compositions to improve yields; some may be accepting greater levels of credit risk and market sensitivity in the process.
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| New York--The Region's economy is healthy, although employment growth has slowed. Over the past five years, noninterest income has increased to 50 percent of operating income and has offset the effect of lower net interest margins on bank earnings. |
San Francisco--The San Francisco Region's economy continues to outperform that of the nation; however, economic and banking conditions differ between urban and rural areas. Strong economic growth in urban areas has helped drive merger and acquisition and de novo activity to the highest level in the past decade. |
