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San Francisco Regional Outlook - Second Quarter 1998

Camera-ready art of "Regional Outlook" (575Kb PDF file - PDF help or hard copy)

In Focus This Quarter

Gain-on-Sale Accounting Can Result in Unstable Capital Ratios and Volatile Earnings - The accounting for transferring and servicing financial assets causes asset sellers, particularly high-growth lenders, to recognize significant noncash income related to retained economic interests in the sold assets. This is true whether a company securitizes its own assets or sells its assets as a conduit to another securitizer. Values are often driven by management assumptions about future performance of the sold assets. Major writedowns of gain-on-sale assets by some finance and mortgage companies underscore the importance of careful scrutiny of these assumptions by banks and their supervisors. By Allen Puwalski

How Will the Expansion End? - Analysts are now focusing on when and how the current expansion will end. Although no one can accurately predict when a recession will begin, two possible scenarios have emerged. Each scenario has important implications for lenders as they prepare for the possibility of slower economic growth or recession. By Paul C. Bishop

Trends Affecting the Allowance for Loan and Lease Losses - In today's environment, in which loan availability is abundant, growth is strong, and competition is fierce, some industry leaders and regulators have expressed concern about the loosening of underwriting standards and greater risk in bank loan portfolios. At the same time, the allowance for loan and lease losses (ALLL) relative to total loans at many insured institutions is declining. As the economic expansion reaches an advanced age, an important question for insured institutions is whether their ALLLs adequately reflect the risks associated with changing industry practices. By Andrea Bazemore

Regular Features

Regional Economy - The San Francisco Region continued to grow faster than the nation in 1997, and it is expected to do so again in 1998 . . . the ill effects of the Asian crisis pose risks to some sectors . . . more than half of the Region's exports go to Asia and more than three-quarters of those exports are concentrated in high tech, aerospace, and agriculture. By Gary C. Zimmerman

Regional Banking - Regional BankingBanks and thrifts in the San Francisco Region posted their strongest performance in more than a decade . . . farm lending faces risks from the loss of federal price supports and weakened demand from Asia . . . some new banks are concentrating their lending in high-risk real estate lending. By Catherine I. Phillips-Olsen, Roger Stevens

A Publication of the Division of Insurance

Regional Outlook Information

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