Loan underwriting standards remained stable at a group of
2,001 FDIC-supervised institutions that were examined during a
12-month period ending in February. However, in just over 10
percent of the institutions reviewed, FDIC examiners reported
that underwriting standards were characterized by higher-than-
The review of loan underwriting practices, obtained through
a new examiner reporting system, is one of a number of recent
initiatives launched by the FDIC in an effort to gather data that
can be used to provide early warnings of potential loan problems
in the banking system.
"The results will help the FDIC monitor emerging risk in the
banking system that could ultimately trigger losses for the
deposit insurance funds," said FDIC Chairman Ricki Helfer. "The
report will also enable the FDIC to monitor underwriting trends
both across and within regions, and to direct our supervisory
efforts as needed."
The information gained can be of further use in allocating
examiner resources during pre-examination planning and in
identifying potential weaknesses in underwriting practices that
require further attention during onsite examinations.
During the first year of the program, examiners reported on
lending practices at just over 2,000 state-chartered institutions
for which the FDIC is the primary federal regulator. Most of the
banks were small, community-based institutions. Overall, those
institutions represented 17 percent of all FDIC-insured
institutions, 9 percent of total assets held by banks and thrifts
and 18 percent of the nation's commercial banks.
Fewer than 75 of the institutions reviewed were judged to
have lowered their standards over the past year, and the vast
majority -- 88 percent -- had not changed their practices from
the last examination. Nonetheless, 11 percent of the
institutions examined were reported to show either high risk or
"more-than-normal risk" in their lending practices.
When asked to report on specific practices, only a few areas
of concern emerged. For instance, nearly half of the
institutions failed to increase loan prices to reflect changing
conditions that resulted in higher levels of risk. The funding
of "speculative" construction projects was cited as a problem at
almost 14 percent of the institutions that were examined
nationwide. Also, examiners at about 10 percent of the
institutions noted some weaknesses in consumer loan underwriting.
The report was based on information developed by examiners
during the 12-month period ending in early February. All
institutions examined by the FDIC since last June were included
in the study. The study also included examinations conducted from
February to June in 11 states that were chosen primarily because
their institutions exhibited rapid loan growth or because they
featured highly competitive markets.
The FDIC plans to release its evaluation of loan
underwriting trends twice a year.
Congress created the Federal Deposit Insurance Corporation in
1933 to maintain public confidence in the nation's banking
system. The FDIC insures deposits at the nation's 12,000 banks
and savings associations and it promotes the safety and soundness
of these institutions by identifying, monitoring and addressing
risks to which they are exposed.