Home > Industry Analysis > Research & Analysis > Regional Outlook




Regional Outlook


Camera-ready art of "Regional Outlook" (505Kb PDF file - PDF help or hard copy)


In Focus This Quarter

Merger and Acquisition Activity in the U.S. Banking Industry: Trends and Rationale--The size and value of recent mergers and acquisitions (M&A) in the banking industry have received much attention, yet the activity is a continuation of a longer-term trend and is one aspect of a broader national and global wave of business mergers. For banks, deregulation, competitive pressures, market valuations, synergistic opportunities, technology, globalization, and managerial incentives are among important drivers of the trend. By identifying the rationale and incentives for bank M&A activity, industry participants can better understand and evaluate the risks and challenges facing merged institutions.

By Steven E. Cunningham, John F. Sherman

Risks and Challenges for Consolidating Institutions-- M&A activity creates significant challenges for bank managers, including combining management teams, integrating technology, realizing the benefits of diversification, and maximizing operating economies. As premiums paid in bank M&A deals have escalated, some industry observers have questioned whether the promised benefits of the transactions can be realized. Institutions in the process of integrating an acquired entity may be especially vulnerable to a downturn in the economy.

By John F. Sherman

Industry Consolidation Presents Unique Risks and Challenges for Community Banks--Industry consolidation has created competitive challenges for small banks and highlights traditional obstacles related to operating scale and scope. Aside from merging with or selling to competitors, some small banks are addressing consolidation challenges by outsourcing business functions, expanding the use of nondeposit funding sources, partnering with other banks and nonbanks, capitalizing on personalized service, and focusing on niche markets. While these adaptive strategies may help community banks meet the challenges of industry consolidation, they potentially complicate these institutions' operations and risk profiles.

By Steven E. Cunningham

Regional Perspectives

Region's Economic and Banking Conditions--Economic growth in the San Francisco Region continues to outperform the nation...several factors have begun to slow growth...including the ongoing effect of the Asian crisis...and a series of economic shocks in the summer that have dampened consumer expectations...despite the slower job growth, the Region's insured financial institutions are reporting strong earnings and solid asset quality.

Consumer Credit Portfolios Face Challenges--A recent spurt in household spending was supported partly by the restructuring of existing debt...and the assumption of additional debt...such actions have had implications for not only credit quality but also the composition of loan portfolios in the Region's institutions...in this environment, lenders may want to continue monitoring not only underwriting standards, growth in their consumer portfolios, and gain-on-sale assumptions but also pricing and reserve levels for subprime loans.

By Catherine I. Phillips-Olsen, Gary C. Zimmerman, Millen L. Simpson


A Publication of the Division of Insurance

Regional Outlook Information


Last Updated 7/26/1999 insurance-research@fdic.gov