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Regional Outlook

Camera-ready art of "Regional Outlook" (267Kb PDF file - PDF help or hard copy) In Focus This Quarter Economic Conditions and Emerging Risks in Banking--This article provides an overview of economic conditions and banking industry trends, with a primary focus on potential risks to insured depository institutions. Economic Developments--Low interest rates, dormant inflation, and rising stock markets have all contributed to a generally positive near-term outlook for the U.S. economy. Trends Affecting Banking Lines of Business--Although credit conditions appear strong, risks exist in the major banking lines of business. Consumer Lending--Continued high consumer loan loss rates raise questions about how lenders will fare under less favorable economic circumstances. Commercial Lending--Corporate loan growth accelerated in 1998 even as the corporate sector showed signs of stress. Commercial Real Estate and Construction Lending--Selected metropolitan markets are experiencing rapid commercial development despite declining indicators of demand. Agricultural Lending--Falling commodity prices threaten U.S. farm operators. Funding and Interest Rate Risk--Intense competition and the changing term structure of interest rates have presented challenges for banks and thrifts. Indicators of Industry Performance--Weaknesses appear to be developing for banks with certain types of exposures, and the dispersion in performance among insured institutions is increasing. By the Analysis Branch Staff                                                      Regional Perspectives Atlanta--The Region's economic growth continued to outpace that of the nation while commercial bank and thrift returns remained strong in the fourth quarter, but earnings momentum may be slowing. Boston--The Region's economy steadily expanded in 1998, while financial institutions remained healthy. Some institutions increased their risk exposures to compensate for the effect on earnings caused by narrowing margins. Chicago--Because robust economic growth may be unsustainable and financial institutions saw a decline in performance during 1998, economic and financial sectors warrant careful monitoring in 1999. Dallas--The Region's states have benefited from long economic expansions strengthened by consumer spending, but slower growth is expected in 1999. Kansas City--The Region's 1,355 farm banks continued to report good financial results at year-end 1998, as the effects of a downturn in the farm economy are not yet widely evident in financial performance. Memphis--Slowing global economies have led to lower prices for many commodities that are important to the Region, particularly in the agricultural sector, as 1999 forecasts suggest a second consecutive year of declining farm income. New York--The Region's savings banks continue to underperform commercial banks, while credit card banks remain vulnerable to growing consumer debt levels and other industry trends. San Francisco--The Region's technology manufacturing slowdown presents challenges for communities with significant technology employment exposures. A Publication of the Division of Insurance Regional Outlook Information