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Regional Outlook

Camera-ready art of "Regional Outlook" (434Kb PDF file - PDF help or hard copy) Letter from the Editor (below) In Focus This Quarter Credit Problems for U.S. Businesses Continue to Rise--Commercial loan quality indicators of insured banks have steadily worsened since 1998. Factors contributing to this deterioration include rising financial leverage in the corporate sector as well as weaknesses within certain domestic industries. Many market observers also have attributed the increase in problem commercial loans to a heightened appetite for risk and relaxed underwriting standards from 1996 to 1999. The apparent softening in economic conditions in recent months reduces prospects that business loan quality will improve any time soon. In the meantime, lenders, analysts, and supervisors continue to pay close attention to U.S. business lending conditions. Outlook for Three Industries Facing Uncertainty--Industries as diverse as telecommunications, health care, and textiles have been experiencing problems, despite the economic expansion that began nine years ago. Although the sources of their difficulties are quite different, these industries share some common concerns and challenges. Fierce competition characterizes their operating environment. Armed with a better grasp of the origins of stress in these industries, we will have a better basis for understanding the lending risks associated with a changing policy and economic environment in the years to come. By the Division of Insurance Staff

Regional Perspectives
Atlanta--Nearly one-fourth of the counties in the Atlanta Region report employment concentrations in industries that, according to an analysis of economic indicators, could be more vulnerable in the event of an economic downturn. Boston--Commercial loans as a percentage of the total portfolio of the Region's commercial banks rose steeply in the past three years, suggesting an increased risk profile. Chicago--Slower economic growth and rising exposure to traditionally higher-risk loan types suggest that the credit risk profile of the Region's insured institutions has increased. Dallas --Increasing oil prices have contributed significantly to the Region's boom-and-bust periods. However, as the local economies continue to diversify, the benefits of rising oil prices will diminish over time.		Kansas City--A review of community banks prior to the 1980s agricultural crisis shows that the relationship between the loan-to-asset ratio and the net interest margin frequently was an indicator of increased potential for failure. Memphis--In an increasingly competitive environment, a slowing economy will challenge the Region's insured institutions to meet earnings expectations and maintain sound asset quality. New York--As the economy has slowed, the Region's community banks have reported a shift into traditionally higher-risk, higher-yielding loan categories. San Francisco--Slowing in the Region's economy could limit consumers' financial flexibility, contribute to higher personal bankruptcy rates, and adversely affect subprime and specialty credit card lenders.

Letter from the Executive Editor To the Reader: The goal of the Regional Outlook is to provide useful risk-related information to bankers, banking agency staff, and other interested readers. To do this more effectively, the second quarter 2001 edition will have a new look. We will publish a single national edition that will provide an overview of economic and banking risks and discussions of these risks as they relate to insured institutions in each FDIC Region. We will tell the national story and, at the same time, alert the reader to specific trends and developments at the regional level. After considering our experience with this new format, we may adopt it permanently for the second and fourth quarters of each year. The first and third quarter editions will continue to feature in-depth coverage of the economy and banking industry in each Region. Trying new formats will help us find the right balance between regional coverage of specific topics and analysis of economic and banking issues that cut across regional lines. After you have read the next edition of the Regional Outlook, we would like to hear from you. Does this new approach provide a more effective vehicle for reporting on banking and economic trends? What other suggestions do you have for improving our presentation of risk-related information? Call us with your comments at (877) 275-3342 or (800) 925-4618 (TDD) or e-mail them to lnejezchleb@fdic.gov. Sincerely, George E. French Executive Editor

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