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The National Edition Regional Outlook, Third Quarter 2001

Camera-ready art of "Regional Outlook" (567Kb PDF file - PDF help or hard copy) A Message to Our Readers The FDIC community extends its deepest sympathy to the families, friends, and co-workers of the victims of the attacks on September 11, 2001. The articles in this edition of the Regional Outlook were prepared before the tragic events of September 11. We will assess the implications of these events in future issues of the Regional Outlook. The public can rest assured that deposit insurance is in full force--money is safe in an FDIC-insured account. In Focus This Quarter Slowing Economy Reduces Demand for U.S. Office Space--A slowing economy has contributed to softening in many U.S. office markets during the first half of 2001. The office vacancy rate has recorded the largest six-month increase in the past 20 years. A combination of trends--a substantial drop in demand for office space and an uptick in construction activity in some markets--has led to this slackening. This article reviews recent developments in U.S. office markets and describes demand-side and supply-side trends that have contributed to the recent weakness. It notes the role played by the changing fortunes of high-tech firms in a number of U.S. metro areas and how this situation has contributed to large increases in the volume of space available for sublease. Finally, the article focuses on the local construction and commercial real estate loan exposures of FDIC-insured banks and thrifts that have the task of managing their risks under changing market conditions. By Thomas A. Murray Regional Perspectives Atlanta--An analysis of banking markets in the Region's nonmetropolitan counties suggests that community banks facing strong competition may exhibit a heightened risk profile but face different challenges, depending on the structure of the local economy. Boston--Effective fraud risk management tools and appropriate levels of fidelity insurance may help reduce the possibility of fraud and minimize losses at insured institutions as the economy slows. Chicago--The sluggish economy is pressuring insured institution asset quality while mid-year imbalances in the Region's manufacturing and commercial real estate sectors temper the economy's near-term growth prospects. Dallas--The potential for declining levels of off-farm income during a slowing economy and reduced government payments could weaken many agricultural producers' ability to repay existing debt or acquire new loans. Kansas City--Recently, farmland values appear to be supported increasingly by government payments. The timing and amount of these payments are uncertain, making assessment of borrower creditworthiness and collateral protection difficult. Memphis--A slowing economy is contributing to earnings erosion and adversely affecting consumer and construction credit quality among the Region's insured institutions. New York--The Region's counties have not benefited equally from the economic expansion, and this has contributed to differences in performance and credit risk profiles among insured institutions. San Francisco--Softness in the Region's high-tech manufacturing and lumber sectors, emerging weakness in the tourism industry, and increasing competition could weaken insured institutions' commercial and industrial loan quality. Regional Outlook Information Return to Regional Outlook main page