FDIC: National Edition Regional Outlook, Third Quarter 1999

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Regional Outlook

National Edition Map Camera-ready art of "Regional Outlook" (284Kb PDF file - PDF help or hard copy)

In Focus This Quarter
Falling Prices in Commodities and Manufacturing Pose Continuing Risks to Credit Quality --Falling prices are causing problems for a wide range of commodity industries—a collection of agricultural, mining, and manufacturing industries that produce standardized products and face global competition, mostly on the basis of price. Firms in these industries have experienced slow or negative profit growth even as they reduce payrolls to cut costs. There are signs that these trends are contributing to higher credit risk for insured institutions. The effects of these problems on local economies and community banks could grow if low prices persist. By Richard A. Brown and Alan Deaton
Shifting Funding Trends Pose Challenges for Community
Banks --Several long-term trends are making it more difficult for some institutions to economically fund asset growth with deposits in today's marketplace. As a result, traditional measures of liquidity and liability composition for commercial banks reflected record-low levels of deposit funding at year-end 1998. The need to augment lagging deposit growth to meet loan demand has led many community banks to seek more wholesale funding sources, particularly borrowings. If the trend toward greater reliance on nondeposit funding continues, liability management may become more important and more challenging for community banks that have historically relied upon deposits for funding and net interest revenues for profitability. By Allen Puwalski and Brian Kenner

Regional Perspectives

Atlanta--Agricultural and industrial commodity price declines are having an adverse effect on some Atlanta Region producers. Borrowings are becoming a popular source of funding for many banks in the Region.
Chicago--Economic and banking conditions remain healthy despite some weakness in the manufacturing sector. Institutions are diversifying funding sources to supplement weak core deposit growth.

Kansas City--Although a recurrence of the 1980s agricultural crisis is not expected, concerns persist concerning low commodity prices, farm banks' risk tolerance, and the future of federal farm programs.

New York--Employment growth in the Region is strong, although some key industries face increased risk because of competition and reduced export demand. Financial institutions report generally solid performance; however, the range of profitability among institutions continues to widen.
Boston--The Region's labor market showed slower growth through May 1999, but increased factory output helped mitigate the pace of manufacturing job losses. Institutions with high concentrations in commercial and commercial real estate loans have experienced steep declines in net interest margins as a result of elevated refinancing activity.
Dallas--Economic and banking conditions remain generally healthy with the exception of the oil and agriculture industries, which face continued stress. Commercial banks are enjoying a low cost of funding thanks to a favorable deposit structure.

Memphis--The Region's economy continues to underperform that of the nation. Financial institutions report generally favorable conditions, although net interest margins continue to decline, in part because of changing funding trends.

San Francisco--The Region's economy continues to outperform that of the nation despite continued weakness in the manufacturing and agricultural sectors. Increased credit demand has forced some insured financial institutions to rely increasingly on alternative funding sources.

Regional Outlook Information
Return to Regional Outlook main page

Last Updated 8/25/1999

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Regional Perspectives
*Atlanta--Agricultural and industrial commodity price declines are having an adverse effect on some Atlanta Region producers. Borrowings are becoming a popular source of funding for many banks in the Region. Chicago--Economic and banking conditions remain healthy despite some weakness in the manufacturing sector. Institutions are diversifying funding sources to supplement weak core deposit growth. Kansas City--Although a recurrence of the 1980s agricultural crisis is not expected, concerns persist concerning low commodity prices, farm banks' risk tolerance, and the future of federal farm programs. New York*--Employment growth in the Region is strong, although some key industries face increased risk because of competition and reduced export demand. Financial institutions report generally solid performance; however, the range of profitability among institutions continues to widen.	*Boston--The Region's labor market showed slower growth through May 1999, but increased factory output helped mitigate the pace of manufacturing job losses. Institutions with high concentrations in commercial and commercial real estate loans have experienced steep declines in net interest margins as a result of elevated refinancing activity. Dallas--Economic and banking conditions remain generally healthy with the exception of the oil and agriculture industries, which face continued stress. Commercial banks are enjoying a low cost of funding thanks to a favorable deposit structure. Memphis--The Region's economy continues to underperform that of the nation. Financial institutions report generally favorable conditions, although net interest margins continue to decline, in part because of changing funding trends. San Francisco*--The Region's economy continues to outperform that of the nation despite continued weakness in the manufacturing and agricultural sectors. Increased credit demand has forced some insured financial institutions to rely increasingly on alternative funding sources.
*Regional Outlook Information* *Return to Regional Outlook main page*