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Executive Summary Economic Conditions and Emerging Risks in ...

Source: www.fdic.gov
Topic: Economic Conditions

Sort Desciption: Economic Conditions and Emerging Risks in Banking ..... mortgage credit stress in addition to local economic or housing market conditions. ...

Content Inside: Federal Deposit Insurance Corporation 1 November 2 2006 Executive Summary Economic Conditions and Emerging Risks in Banking Report to the FDIC Board of Directors November 2 2006 This report summarizes emerging risks among FDIC-insured financial institutions. It was prepared by staff and management of the Risk Analysis Branch of the FDIC Division of Insurance and Research (DIR) in collaboration with other FDIC Divisions. The report combines the perspectives of FDIC economists financial and risk analysts examiners and case managers working through the FDIC Risk Analysis Center. The report also includes input from the six FDIC regions through their Regional Risk Committees. Bank Performance. The financial health of the banking industry remains very good overall. Industry earnings are at record-high levels capital is historically high and loan performance remains at record-strong levels. The number of institutions on the Problem Financial Institution List remains near historical lows and there has not been an insured financial institution failure in more than two years. Still two negative trends in the industry bear monitoring: (1) the narrowing of the net interest margin (NIM) to a 15-year low and (2) the performance of small institutions (under $100 million in assets) which have underperformed relative to the rest of the industry due to higher expense ratios and a limited ability to generate noninterest income. U.S. Economy. As the economy enters a sixth year of expansion U.S. economic growth appears to be slowing significantly and is expected to remain at a rate below its long-run average over the next year. Several economic leading indicators have been signaling weakness but none are strongly signaling recession. A leading cause of moderating U.S. growth is the slowing U.S. housing market (see below) but exports nonresidential construction and the corporate sector remain areas of strength. Inflation remains above the Federal Open Market Commit ...

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