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Camera-ready art of "Regional Outlook" (219Kb PDF file - PDF help or hard copy)
Regional Perspectives
Region's Economic and Banking Conditions--Economic growth showed modest signs of cooling in 2000. Insured institutions reported stable conditions overall, but income and credit quality trends were not as favorable at larger banks.
Liquidity and Funding--Core deposits have not been sufficient to fund loan and other asset growth; as a result, insured institutions have increasingly turned to alternative funding sources. These sources are more costly than core deposits and could encourage institutions to seek a higher-yielding, higher-risk asset mix to preserve interest margins. Also, increased use of noncore funding could limit liquidity and raise interest-rate risk.
By the Boston Region Staff
In Focus This Quarter
Emerging Risks in an Aging Economic Expansion--This article focuses on the potential risks of current economic conditions to insured depository institutions. Although the current conditions may appear to be ideal, some imbalances are emerging: rising energy prices, tight labor markets, a less robust stock market, a large trade deficit and strong U.S. dollar, rising household debt burdens, increased corporate leverage and rising potential default risk, and, in some metropolitan areas, overheated housing and commercial real estate markets. At the same time, aggregate risk within the banking industry appears to have risen, as evidenced by softening profitability, growing reliance on noncore funding, heightened levels of interest rate risk, and increasing concentrations in traditionally higher-risk loan categories. A confluence of these trends could heighten the vulnerability of some insured institutions.
By the Division of Insurance Staff
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