The reluctance of businesses to hire and invest in new equipment has been a significant drag on the economy's progress since the 2001 recession ended. The banking industry, though, has continued to do well and credit quality continues to improve despite a climate of subpar economic growth. However, as signs have pointed to accelerating U.S. economic activity during the third quarter of 2003, long-term interest rates have risen sharply. The recent increase in interest rates may raise certain concerns for some insured institutions, including reduced refinancing demand; asset-extension risk; reduced valuation of mortgage-backed securities and other securities holdings; and more difficulty generating low cost, core deposits, as households seek greater yields than those offered by bank deposits.
By Risk Analysis Staff
conditions persist among many segments of the commercial real estate sector
in most major Southeastern markets. However, because property valuations
have not declined, loan quality at insured institutions has weakened only
ChicagoInformation technology advancements
have improved access to banking services in the Chicago Region and across
the nation. Layered security can mitigate vulnerabilities arising from
increasingly complex computer systems.
DallasThe Region's rural economy
is showing signs of life despite a prolonged slump in the agricultural
and manufacturing sectors, but recovery is not assured.
Kansas CityContinuing weakness in the
aircraft manufacturing sector could begin to have an adverse effect on
insured institutions headquartered in the Wichita metropolitan statistical
area when extensions to unemployment benefits expire.
New YorkDespite ongoing job losses,
the Region's insured institutions are performing well, and asset quality
remains favorable. Earnings could suffer from a continued weak economy
or from interest rate risk inherent in increasing concentrations of long-term
San FranciscoDeclining tax revenue
could prompt layoffs in the state and local government sector, contribute
to municipal bond downgrades, and constrain the volume of municipal deposits,
potentially pressuring the asset quality and liquidity of insured institutions.