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

    BoE Clarifies Approach to Treatment of Payment Holidays on Form PL

    BoE published a statistical notice (Notice 2020/9) explaining the approach for treatment of payment holidays on the profit and loss return or Form PL.

    August 11, 2020 WebPage Regulatory News
    News

    BoE Provides Reporting Update on Form AS and Form FV

    BoE updated the known issues document for the statistical reporting Forms AS and FV.

    August 10, 2020 WebPage Regulatory News
    News

    FED Announces Capital Requirements for Large Banks

    FED announced individual capital requirements for 34 large banks and these requirements go into effect on October 01, 2020.

    August 10, 2020 WebPage Regulatory News
    News

    SRB Publishes Guidance on Implementation of Bail-In Tool

    SRB published a set of documents to give operational guidance to banks on implementation of the bail-in tool.

    August 10, 2020 WebPage Regulatory News
    News

    BIS Publishes Update on G20 TechSprint Initiative

    BIS published an update on the G20 TechSprint Initiative, which was launched in April 2020 and aims to highlight the potential for technologies to resolve regulatory compliance (regtech) and supervisory (suptech) challenges.

    August 10, 2020 WebPage Regulatory News
    News

    OSFI Provides Update on Implementation of IFRS 17 in Canada

    OSFI published a letter that provides an update on the milestones for the implementation of the IFRS 17 standard on insurance contracts.

    August 07, 2020 WebPage Regulatory News
    News

    EBA Provides Clarity on Implementation of Guidance on COVID Reporting

    EBA updated the report on the implementation of selected COVID-19 policies.

    August 07, 2020 WebPage Regulatory News
    News

    FSI Note Discusses Challenges Associated with COVID Relief Measures

    The Financial Stability Institute (FSI) of BIS published a brief note that examines the supervisory challenges associated with certain temporary regulatory relief measures introduced by BCBS and prudential authorities in response to the COVID-19 pandemic.

    August 06, 2020 WebPage Regulatory News
    News

    BCBS Consults on Principles for Operational Risk and Resilience

    BCBS is consulting on the principles for operational resilience and the revisions to the principles for sound management of operational risk for banks.

    August 06, 2020 WebPage Regulatory News
    News

    BoE Updates Template and Definitions for Form ER

    BoE updated the reporting template for Form ER as well as the Form ER definitions, which contain guidance on the methodology to be used in calculating annualized interest rates.

    August 05, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5650