Featured Product

    FDIC Publishes Risk Review Report for 2019

    October 28, 2019

    FDIC published the updated Risk Review for 2019, providing a summary of the risks that ultimately may affect FDIC-insured institutions and the Deposit Insurance Fund of FDIC. The 2019 report summarizes conditions in the U.S. economy, financial markets, and banking industry. The report presents key risks to banks in two broad categories: credit risk and market risk. Among the credit risk areas discussed are commercial real estate, energy, housing, leveraged lending and corporate debt, and nonbank lending. Market risks discussed in the report include interest rate risk, deposit competition, and liquidity.

    Much of the discussion focuses on risks that may affect community banks. As the primary federal regulator for the majority of community banks in the United States, FDIC is well-positioned to discuss risks that may affect the U.S. banking system, and community banks in particular. The report reveals that the FDIC-insured institutions performed well in 2018. The strong financial condition of banks contributed to a declining number of institutions on the Problem Bank List and no bank failures during the year.  Loan growth has slowed over the past three years, particularly in real estate-related portfolios. In addition, agriculture loan noncurrent rates are rising amid low commodity prices and farm incomes. Still, banks held more and higher-quality capital than they did during the financial crisis, in part because of post-crisis regulatory capital requirements. 

    In terms of credit risk, after ten years of economic growth, loan performance metrics at FDIC-insured banks remain strong. However, institutions with concentrations of credit have greater exposure to market sector changes. Competition among lenders has increased as loan growth has slowed, posing risk management challenges. Market demand for higher-yielding leveraged loan and corporate bond products has resulted in looser underwriting standards. By lending to nondepository financial institutions, banks are increasingly accruing direct and indirect exposures to these institutions and to the risks inherent in the activities and markets in which they engage. Bank lending to nondepository financial institutions, which is primarily driven by noncommunity banks, has expanded seven-fold since 2010 and now exceeds USD 400 billion. The report also shows that short-term liquidity at smaller banks has declined in recent years, potentially reducing these institutions’ ability to manage a future downturn. A turn in the credit cycle could be detrimental to institutions with lean liquidity positions.

    Furthermore, consolidation within the banking industry accelerated in 2018. The pace of net consolidation rose in 2018 for the first time since 2015 and remains relatively high by historical standards. Net consolidation is primarily driven by voluntary inter-company mergers. In 2018, 230 charters were merged out of existence and seven were acquired by credit unions. Consolidation activity was partially offset by new chartering activity: eight newly chartered and insured institutions were established in 2018, the most since 2010. Community banks continue to report lower consolidation rates than noncommunity banks. When acquisitions have occurred, community banks have typically been acquired by other community banks.

     

    Related Link: Risk Review for 2019

     

    Keywords: Americas, US, Banking, Risk Review, Credit Risk, Market Risk, Liquidity Risk, Interest Rate Risk, FDIC

    Featured Experts
    Related Articles
    News

    Regulators Fine Goldman Sachs for Risk Management Failures

    FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).

    October 23, 2020 WebPage Regulatory News
    News

    Canada Hosts International Conference of Banking Supervisors

    BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.

    October 22, 2020 WebPage Regulatory News
    News

    FCA Proposes More Measures to Help Insurance Customers Amid Crisis

    FCA proposed guidance on how firms should continue to seek to help customers who hold insurance and premium finance products and may be in financial difficulty because of COVID-19, after October 31, 2020.

    October 21, 2020 WebPage Regulatory News
    News

    EBA Issues Opinion to Address Risk Stemming from Legacy Instruments

    EBA issued an opinion on prudential treatment of the legacy instruments as the grandfathering period nears an end on December 31, 2021.

    October 21, 2020 WebPage Regulatory News
    News

    ESRB Publishes Non-Bank Financial Intermediation Risk Monitor for 2020

    ESRB published the fifth issue of the EU Non-bank Financial Intermediation Risk Monitor 2020 (NBFI Monitor).

    October 21, 2020 WebPage Regulatory News
    News

    HM Treasury Publishes Policy Statement Amending Benchmarks Regulation

    HM Treasury announced that the new Financial Services Bill has been introduced in the Parliament.

    October 21, 2020 WebPage Regulatory News
    News

    APRA Initiates Action Against a Bank for Liquidity Compliance Breach

    APRA announced that it has increased the minimum liquidity requirement of Bendigo and Adelaide Bank for failing to comply with the prudential standard on liquidity.

    October 21, 2020 WebPage Regulatory News
    News

    PRA Consults on Implementation of Certain Provisions of CRD5 and CRR2

    PRA published the consultation paper CP17/20 to propose changes to certain rules, supervisory statements, and statements of policy to implement elements of the Capital Requirements Directive (CRD5).

    October 20, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Rule to Reduce Impact of Large Bank Failures

    US Agencies adopted a final rule that applies to advanced approaches banking organizations and aims to reduce interconnectedness in the financial system as well as to reduce contagion risks associated with the failure of a global systemically important bank (G-SIB).

    October 20, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Rule on Net Stable Funding Ratio Requirements

    US Agencies (FDIC, FED, and OCC) adopted a final rule that implements the net stable funding ratio (NSFR) for certain large banking organizations.

    October 20, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6004