Although the U.S. banking industry continues to post strong earnings,
banks should heed economic warning signals and scrutinize lending and
strategic decisions that are based on a continuation of robust
economic growth, according to analysts at the Federal Deposit
Insurance Corporation (FDIC).
The FDIC analysts report in the most recent editions of Regional
Outlook that the effects of Asia's economic crisis are becoming
increasingly evident in key sectors: oil, chemicals, agriculture and
manufacturing. Although most market analysts remain optimistic about
U.S. banks' direct lending exposure in the Asian nations, the FDIC
report said that the indirect effects of the Asian economic crisis
"could potentially affect small and large institutions in all areas of
Banks in all areas continue to report strong earnings and capital
positions, but the FDIC analysts cautioned that, taken together, the
potential weaknesses in some markets and easing of underwriting
standards could pose problems for banks if the economy falters. These
findings, and others, are discussed in the eight quarterly Regional
Outlook publications prepared by the FDIC's Division of Insurance.
Among the FDIC's findings around the country:
The prospects for agriculture have dimmed in several regions. In the
Dallas Regional Outlook, analysts report that losses resulting from
the drought are estimated at over $2 billion for producers in Texas
and Oklahoma, and the total economic impact of the drought-induced
agricultural loss in these two states alone is estimated at $7
billion. Texas, the analysts note, produces about 25 percent of the
nation's cotton. Cotton growers have been hardest hit among the
state's agricultural producers.
In the Kansas City Regional Outlook, analysts report that the
Region's agricultural producers expect bumper crops, but low commodity
prices for wheat, soybeans, corn and hogs have dimmed farm income
prospects. The banks in the Kansas City Region have significant
exposure. Within the Region, there are 1,381 insured banks, most with
assets under $100 million, that have 25 percent or more of more of
their portfolio in farm loans.
In the Regional Outlook for the Chicago Region, analysts also report
significant exposure to agriculture-related problems. The Region's
farm banks do have strong capital positions, but since 1993 there has
been a steady reduction in reserves for loan losses at farm banks.
Agricultural problems and low oil prices may cause some stress for
banks in the Memphis Region, analysts there report. In Louisiana, low
prices are forcing independent producers to reduce drilling activity.
The state's rotary rig count stood at 200 at the end of June, down
from the November 1997 peak of 274.
Construction lending is expanding in the San Francisco Region due to
a boom in some real estate markets. Although the level of
construction activity remains below the peak levels reached before the
1990-91 recession, the Region's community banks-institutions with less
than $1 billion in assets-reported construction loan activity grew a
robust 28 percent between the first quarter of 1997 and the first
quarter of 1998.
The effects of the Asian economic crisis and increasing international
competition are threatening to slow the recovery of the pulp and
allied products industry in the Atlanta Region, analysts report in the
Atlanta Regional Outlook. The pulp and allied products industry is a
major employer in the Region's rural areas. Recently, the industry
began to emerge from a lengthy period of slow growth. But with nearly
60 percent of the industry's growth over the past decade attributable
to shipments to foreign markets, Asia's problems and the strong U.S
dollar may dampen continued expansion.
Tight labor markets may constrain economic activity in the Boston
Region. Analysts in the Boston Regional Outlook also report that
several states in New England are showing record home sales, but the
lack of housing inventory and buyer bidding wars may be artificially
inflating comparables in some residential markets.
In the New York Regional Outlook, analysts note that money center
banks have relatively low direct exposure in the most troublesome
Asian markets. They said a greater concern is the spread of economic
problems to Latin America and the volatility that global instability
brings to the U. S. stock market.
In all eight editions of the Regional Outlook analysts discuss issues
related to collateralized loan obligations. They also assess emerging
payments system issues for both small and large banks.