FDIC ANALYSTS EVALUATE ECONOMIC CONDITIONS, EMERGING RISKS IN BANKING
FOR IMMEDIATE RELEASE PR-27-99 (5-14-99)
Media Contact: Stephen Katsanos (202) 898-8669
The economy continues to provide a favorable environment for banks
and thrifts, but there are areas of concern that analysts at the Federal
Deposit Insurance Corporation (FDIC) continue to monitor.
FDIC analysts semiannual evaluation of economic conditions and
emerging risks in banking was released today in the second quarter edition
of the Regional Outlook, available on the Internet at www.fdic.gov
The report cites several areas including subprime and high loan-to-value
consumer lending, higher levels of leveraged commercial lending, the
potential for localized overbuilding in commercial real estate markets
and stress in the agricultural sector where problems could develop
even while national economic conditions remain favorable and the banking
industrys overall performance is strong.
In addition to the discussion of overall trends in the
economy and in banking lines of business, each of the eight
editions of the Regional
Outlook includes a review of banking and economic activity
in the states in each FDIC Region. Analysts in these regions
report generally strong economic conditions but note trends
and business sectors of potential concern. Among the findings
Agricultural lenders, especially in the Chicago, Dallas, Kansas City
and Memphis Regions, are described as entering a difficult period as
the farm sector is squeezed by a combination of low commodity prices
and the continued phase-out of government payments to farmers. While
banks have yet to report significant declines in asset quality, continuing
weakness in commodity prices may result in significant stress on bank
The high technology manufacturing sector of the San Francisco Region
has weakened following the Asia crisis. This slowing could affect metro
areas with concentrations of these jobs that had previously experienced
strong growth in their commercial real estate markets.
Although energy prices have begun to rebound, areas of the Kansas City,
Memphis and Dallas Regions have seen job losses in the energy sectors
related to lower worldwide energy demand and weaker commodity prices.
Nevertheless, the effects of lower energy prices on the economies of
oil-producing states are far less than experienced during the 1980s.
The Atlanta economy remains strong, but the number
of unprofitable institutions has been edging higher, due to an increasing
number of new charters and larger banks with restructuring and merger-related
expenses. In addition, some community banks with high exposure to the
consumer sector are operating in or near areas with high rates of personal
bankruptcy, which could imply higher credit risk should the economy
Analysts in the Boston Region reported a solid economic environment,
but also noted pressures on insured institutions to maintain earnings
by increasing their risk profiles.
For the New York Region, economic growth remains strong. However, the
region's future remains more closely linked to the strength of the stock
market than the rest of the nation.
Outlook for each FDIC region and the National Edition
are available on the Internet via the World Wide Web at
copies of the Regional
Outlook are available from the FDIC's Public Information
Center (800-276-6003 or (703) 562-2200). To subscribe to the
Regional Outlook, contact the Center.
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Congress created the Federal Deposit
Insurance Corporation in 1933 to restore public confidence in the
nation's banking system. The FDIC insures deposits at the nation's
10,461 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.
FDIC press releases and other information are available
on the Internet via the World Wide Web at www.fdic.gov and may also be obtained through the FDIC's Public Information Center
(800-276-6003 or (703) 562-2200).