Each depositor insured to at least $250,000 per insured bank

• On January 16, experts from around the country gathered at a FDIC-sponsored symposium, History of the Eighties – Lessons for the Future, to examine the causes of the crisis in the savings & loan and the banking industry during the 1980s and early 1990s.
• On January 29, the FDIC became the first federal banking agency to issue examination procedures on electronic banking and associated risks to its staff. The FDIC also provided the examination guidance to financial institutions, assisting them in the early development of their electronic banking systems.
• On April 28, the FDIC announced a series of seminars to educate bankers about its new examination procedures for the sale of non-deposit investment products, such as mutual funds and annuities.
• On May 9, the Federal Financial Institutions Examination Council issued guidance on the activities necessary for insured financial institutions to make computer systems capable of recognizing dates in the Year 2000 and beyond. Unless the computers were capable of distinguishing 2000 from 1900, the institutions faced substantial risks from faulty accounting and recordkeeping to system shutdowns.
• On June 1, Andrew C. Hove, Jr., became Acting Chairman of the FDIC for the third time, succeeding Ricki Helfer, who left the Corporation after more than two and a half years.
• On July 30, Acting Chairman Hove told Congress that FDIC-supervised banks are generally aware they face serious disruptions if their computer systems are not modified to handle transactions starting January 1, 2000. The FDIC monitored the situation closely and took supervisory and enforcement action, if banks did not address the problem.
• On November 17, the FDIC and the Georgia Department of Banking and Finance jointly issued cease and desist orders against three affiliated Georgia banks in the government’s first enforcement actions to address Year 2000 compliance in the banking industry.
• On November 21, the only commercial bank failure of 1997 occurred, marking 1997 as the first year since 1972 with only one commercial bank failure. In 1997, there were no insured savings institution failures, the first year without a thrift failure since 1959.
• At year-end, the FDIC had approved two applications for banks that plan to operate solely through the Internet or other electronic means.

The U.S. economy roared forward during 1997, as GDP advanced by a whopping 6.5 percent, and unemployment fell by 60 basis points to 4.7 percent. The number of employed persons rose by 2,833,000 or 2.2 percent. While new home sales increased a healthy 6.5 percent, housing starts was virtually unchanged. Office vacancy rates provided the biggest news in the real estate sector during 1997, plummeting by 230 basis points from 12 percent to 9.7 percent. The discount rate remained unchanged at 5 percent, and the 30-year mortgage rate fell by 63 basis points to 7.51 percent.^20-1
It was a good year for commercial banks as returns on equity and assets increased. In fact, the return on assets reaching another new high. Due to the strong economy, bank loans increased by 8.25 percent, and loan losses remained low. Although banks earned lower rates on interest earning assets and paid more for liabilities, increased efficiency and higher fee income offset these costs. Stock prices overall matched those of the broader market. Although in the fourth quarter, stock prices were ‘buffeted’ because of concerns over economic problems in Asia.

Banks earned $59.2 billion; this is up 12.75 percent from 1996. Assets grew by 9.25 percent; the fastest growth in more than a decade. Total bank equity grew by10.25 percent. Securities that had been unchanged for last couple of years, expanded 8.75 percent. Non-interest income passed the $100 billion mark to $105.7 billion (up $10.5 billion in 1996). The net interest margin declined to 4.21 percent (from 4.27 percent in 1996). This is the fifth consecutive year it has declined. Net interest income as a percentage of average assets declined 6 basis points because of a decline in net interest margin. Non-interest income increased by 5 basis points.

Commercial and Industrial loans expanded by 12.25 percent. This is the second largest increase in 17 years. Non-current loans fell by $659 million. Commercial real estate loans increased by more than 9.75 percent. Home mortgages secured by first liens also expanded by 8.75 percent.

Bank core deposits grew 4.5 percent and savings accounts continued to expand rapidly because of the increased use of ‘sweep’ programs. In June, most of the remaining legal restrictions on interstate mergers were removed and many bank holding companies combined subsidiary banks that had been operating in different regions. Mergers accounted for 599 commercial banks absorptions, and 190 of these were in interstate mergers. By the end of the year, the largest 100 banks accounted for two-thirds of bank assets.

An Asian financial crisis primarily affected the trading income of the ten largest banks in America. The Asian crisis began when the Thai baht dropped sharply and the Thai authorities no longer defended the baht’s peg to the dollar. In response, other East Asian economies experienced downward pressure on their currencies and equity prices and there was an upward pressure on interest rates. The crisis quickly spread to Korea and other countries as markets in Thailand, Indonesia, and Korea were turbulent through 1998.^20-2

At end of 1997, there were 10,950 financial institutions in the United States and 92 institutions on the problem bank list.^20-3 Table 20-3 shows the number and total assets of FDIC insured institutions, as well as their profitability as of the end of 1997.

The BIF grew to $28.3 billion by December 31, 1997. BIF-insured deposits grew at a comparable rate and the fund’s reserve ratio totaled 1.38 percent. The balance of the SAIF increased to $9.4 billion, and SAIF-insured deposits grew at a slightly slower pace, to $690 billion at the end of 1997. As a result, the reserve ratio of the SAIF edged upward to 1.36 percent. The near-term prospects for both insurance funds remained quite favorable, and investment income was expected to be sufficient to meet expenses.
The Corporation continued to shrink the size of its workforce in 1997 due to a further decline in workload. Total FDIC staffing in 1997 fell by approximately 14.8 percent. Staffing for the Division of Resolutions and Receiverships (DRR), which liquidates the assets of failed institutions, fell by over 39.9 percent during the year. Chart 20-2 shows the staffing levels for the past five years.