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ORAL STATEMENT OF
L. WILLIAM SEIDMAN
CHAIRMAN
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C.
ON
THE FINANCIAL CONDITION OF FDIC-INSURED INSTITUTIONS
BEFORE THE
COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS
UNITED STATES SENATE
10 a.m.
May 21, 1987
Room SD-538, Dirksen Senate Office Building
Good morning, Mr. Chairman and members of the Committee.
I
appreciate this opportunity to address the condition of the banking
industry and its insurance fund.
v
We have submitted written testimony for the record.
Thus, my
remarks today will give the key conclusions based on the data
submitted.
Point 1 : The series of banking data provided by the FDIC and my
fellow regulators demonstrate both strength and weakness within the
industry. The system remains viable despite the record numbers of
problem and failed banks.
In one sentence, on average, the system
is adequately, but certainly not over capitalized, less profitable
than in previous years and becoming more efficient under the prod of
deregulation and increased competition.
Point 2 : The industry averages mask some unsettling trends. The
averages don’t reveal that results of banks west of the Mississippi
are at all time lows, while in the East banks are doing relatively
well.
I brought with me today final 1986 banking data (Tables A &
B) that will appear in the next issue of our new Quarterly Banking
Profile, a copy of which is attached to my statement.
This
publication, which we publish every three months, is the most timely
data available to this Committee on the condition of the banking
industry.
I apologize for not submitting the data in the attached
Tables A & B earlier, but they just became available.
2
I think these data reflect clearly the disparity among banks.
For
example, Table A shows the aggregate return on assets for the
banking industry was 0.64%, but this ranged from a negative 0.32%
for banks in the Southwest to a positive 1.02% for banks in the
Southeast.
Over 80% of the banks that lost money last year were
west of the Mississippi River.
Nonperforming assets represented
1.95% of total industry assets but the ratio ranged as high as 4.08%
in the Southwest and as low as 1.02% in the Southeast.
Table B shows the same data as Table A broken down by size rather
than geographic location.
among size groups.
A quick review shows major differences
Aggregate earnings of'small banks, those under
$100 million, are way down compared to other banks.
it also reflects differences in banking structure.
But, we believe
States in the
mid and Southwest tend to have fairly restrictive branching laws
which limit opportunities to diversify and reduce risk.
Incidentally, there are a number of ways to compute averages -- on
aggregates or units -- and, thus, you will note differences based on
the computation method used.
industry equity ratios.
Consider the difference between the
The unweighted average bank equity ratio in
Table IV of our written testimony is 8.18% while the dollar
aggregate ratio in our Quarterly Banking Profile is 6.2%.
Both ways
of computing the "average" give us important insights in evaluating
the system.
- 3 Point 3 : While most of the recent bank failures can be attributed
to weaknesses in well-defined sectors of the economy, it is clear
that asset portfolio risk in the system is increasing. Both net
charge-offs and nonperforming assets are increasing, even in areas
of the country that have a robust economic base.
Our experience in
liquidating failed bank assets also reflects decreasing asset
quality.
Our loss rate on assets received from banks that failed
during 1985 and the first half of 1986 showed an increase of over
75% since 1980 and now we are losing about 25% on every dollar.
If
failed banks located in the agricultural and energy sectors are
excluded, the increase is still 60%.
We see a variety of reasons for the increased risks in bank
portfolios.
First, private debt in the economy has increased
dramatically in recent years.
Overall in our economy -- both
consumer and corporate -- there is now about 40 cents more debt for
every dollar of income than there was just five years ago.
Between
1981 and 1985, corporate debt jumped from 30% of net worth to 47%.
Household debt reached a post-World War II high equal to 89% of
after-tax disposable income compared with 80% as the previous high.
Second, as the result of restrictive laws, banks have lost a chunk
of their traditional business.
This has forced banks to go further
out on the risk curve to maintain market share and profit margins.
Third, in a few large banks there is large exposure to LDC debt.
While the relative burden is decreasing, many of the large U.S.
- 4 banks still have significant exposure, especially to Latin American
countries.
In part, Citibank’s recent decision to add $3 billion to
reserves reflects this problem.
On this point, let me emphasize
that while asset risk has increased, the capital that is available
to cushion potential losses also has increased.
Point 4 : The FDIC insurance fund is solvent and our fund is sound
and viable.
However, our resources are beginning to show the
effects of the unprecedented number of bank closings.
The ratio of reserves to insured deposits is dropping.
As of
year-end 1986, the reserve declined to $1,12 per $100 of insured
deposits, from just under $1.20 a year earlier.
Assuming a normal
growth rate in insured deposits, about 200 bank failures this year
and, thus, no net increase to the fund, the ratio will drop to about
1% by year-end.
This is less than the 1.1% ratio below which
assessment rebates are precluded.
We will be fortunate to keep
reserves at the current level of $18.2 billion at the end of 1987.
We shall be immeasurably aided in our endeavors by the recognition
of our need to be free of OMB budgetary dictates which is granted us
by the Senate banking bill.
We thank you Mr. Chairman, Senator
Riegle and members of the Committee for recognizing this most
important aid to our ability to manage the fund.
- 5 Point 5 : Restructuring of the financial services industry is needed
now. The banking system and economic and competitive factors m
both national and international -- are changing with unprecedented
speed.
To date, the response to this evolution has been a
hodgepodge of ingenious private sector initiatives that test the
limits of existing legal frameworks.
The archaic system of laws
under which the banking industry operates has created an inefficient
system that is contributing to some of the disturbing trends in the
banking industry that are being discussed here today.
We believe that long-range financial services restructuring must be
undertaken soon.
We know that the issues are difficult and the turf
to be protected is lucrative.
However, the stakes for the stability
and competitiveness of our banking industry and, thus, our economy
is high.
We stand ready to assist the Congress in any way possible
in this very difficult undertaking.
Thank you.
k
I will be happy to respond to any questions.
TESTIMONY OF
L. WILLIAM SEIDMAN
CHAIRMAN
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C.
ON
THE FINANCIAL CONDITION OF FDIC-INSURED INSTITUTIONS
BEFORE THE
COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS
UNITED STATES SENATE
10 a.m.
May 21, 1987
Room SD-538, Dirksen Senate Office Building
Good morning, Mr. Chairman and members of the Committee.
I am pleased to
present the FDIC’s views on the condition of the banking industry and its
insurance fund.
At your request, the regulators already have submitted,
through the Federal Reserve, a variety of statistics.
My testimony today will
highlight those statistics by providing the FDIC’s overview of the financial
condition of FDIC-insured banks.
It also will respond to the specific
questions raised in your letter of invitation.
The entire financial services industry is undergoing a period of rapid
evolution.
This evolution is a challenge both to bankers and regulators.
is a challenge as great as any other time in history.
It
Perhaps the hardest job
falls to the Congress which has to determine how best to change the laws to
respond to these marketplace occurrences.
be done.
The issues are difficult.
Opinion is divided on what needs to
The turf to be protected is lucrative.
The stakes for the stability and competiveness of our economy are very high.
We hope that these hearings will provide information that will assist the
Congress in its deliberations.
As the repository of the Call Report data for
all U.S. banks, the FDIC stands ready to provide data or help in any other way
it can.
In this connection we call attention to our new Quarterly Banking
Profi1e on the banking system (See Appendix A) which provides the most current
information on the banking industry every three months and contains answers to
many of the questions raised by this Committee.
2
FAILED AND PROBLEM BANKS
The condition of the banking system has been better and in a number of areas
the trends are adverse.
levels.
As you are aware, bank failures are at record
In 1986, 138 FDIC-insured banks failed and another 7 received
financial assistance to avert failure.
Unfortunately, we have been setting
new records each year, as evidenced by Tables I and II of Appendix B which set
forth the number of failed and assisted banks for 1970 through 1986.
year is not expected to be an exception.
This
As of May 15th, there have been 78
failures and 3 assistance transactions, with several other assistance
transactions in process.
If the current pace continues, we can anticipate at
least 200 failures and assistance transactions this year.
It should be noted
that 87 percent of these failures were West of the Mississippi River and banks
in Texas and Oklahoma alone accounted for about half of all bank failures so
far this year.
As indicated in Table III of Appendix B, the number of problem banks also is
at a record level.
As of the end of the first quarter of 1987, there were
1,531 FDIC-insured problem banks with total deposits of $237 billion, up from
1,484 as of year-end 1986 and 1,140 at year-end 1985.
Of the 1,531 problem
banks, approximately 600 were agricultural banks and 150 were energy banks.
Eighty-five percent of the banks on the current problem list are West of the
Mississippi River and over 55 percent are in just 6 states.
In reviewing the
trend in the number of problem banks, it is important to note that there is
considerable turnover in the specific banks on the problem list.
For example,
3
in 1986, about 800 banks were added to the list, while around 350 were deleted
because of improved condition.
The current number of problem banks is a
record, but the rate of increase has slowed markedly.
In fact, the number in
recent months has been relatively stable.
We expect the number to increase
moderately during the balance of the year.
Our guess is that, barring any
adverse change in the economy, the number of problem banks will top out in the
next year.
As can be seen, the pattern of increases and decreases in the number of
problem banks correlates with economic conditions.
While much of the country
and most sectors of the economy now are experiencing relative prosperity, the
differences among areas are much wider than has been experienced
historically.
The areas West of the Mississippi River, with economies that
are largely based on agriculture and energy, have pockets of severe recession
or even depression.
Most of the FDIC’s problem banks today, and in the
foreseeable future, are located in these distressed regions.
As shown in
Table III, the vast majority of problem banks have deposits of under $300
million and most agricultural-and energy-sector banks are in this deposit-size
category.
Our quarterly bank statistics contained in Appendix A indicate
clearly the problems by geographic area.
Deficiencies in bank management and policy exacerbate the natural tendency for
banks to suffer from weaknesses in the economy.
Historically, inept or
abusive management has been the primary cause of problem banks.
However, the
downturn in agriculture and energy has been so severe and protracted that we
are past the time when we can simply point to management deficiencies as a
4
general cause.
Today, in the depressed areas of the country, many banks with
good records and acceptable management are having financial difficulties.
As
regulators, we are using new approaches in supervising these institutions.
Traditionally, when bank management was the primary cause of bank
difficulties, the FDIC initiated cease-and-desist actions or other formal
enforcement procedures.
These actions were designed to stop the unsafe and
unsound activities and institute corrective measures.
They also frequently
required the immediate infusion of new equity or new management.
This
approach was appropriate when management was at fault and is still followed
under those circumstances.
In fact, enforcement actions against state,
non-Federal Reserve members banks totalled 298 in 1985, 241 in 1985 and 75
through April of this year.
We believe that enforcement actions are often counterproductive when
management is acceptable, the bank’s problems are the result of adverse market
conditions, and the prospects for recovery are good, given a reasonable
economic cycle.
The FDIC seeks to work cooperatively with the management of
such banks in a joint effort to restore the financial stability of the banks.
The supervisory approach in these circumstances may include meetings with a
bank’s board of directors, informal agreements in the form of memorandums of
understanding or board resolutions detailing the bank’s commitments for
corrective action and ongoing correspondence with the bank to monitor its
progress.
5
Early last year the FDIC, along with other bank regulators, adopted a formal
policy of capital forbearance for banks in the agricultural and energy sectors
with severe capital problems.
If a bank is granted forbearance, the FDIC will
not use its cease-and-desist powers under the Federal Deposit Insurance Act to
require immediate restoration of adequate capital.
Rather, the bank develops
a plan for restoration over a reasonable period of time.
Banks qualify for
the program if they meet the definition of an agricultural or energy bank,
have acceptable management, have capital problems resulting from economic
factors, possess sufficient capital to protect against near-term insolvency -generally considered to be about 3 percent -- and have a business plan that
gives promise that the banks can survive.
successful on a limited basis.
This program has been reasonably
As of April 30, 1987, the FDIC had approved 70
of the 154 applications for capital forbearance.
Forty applications were
denied and the remainder are being reviewed.
We are in the process of improving the effectiveness of the program.
We
expect to expand the use of capital forbearance beyond agricultural and energy
banks to include other economically troubled sectors.
Our basic test for
forbearance will be geared to the survivability of the institution.
If it has
a reasonable chance for survival under foreseeable economic conditions then
arbitrary benchmarks will be avoided.
We expect to modify the program to
eliminate fixed capital requirements, to expand it to include any bank that
can demonstrate that its problems are primarily attributable to economic
problems beyond the control of management and to extend the deadline for
admittance.
6
In addition, the FDIC is considering the feasibility of a program similar to
the Net Worth Certificate program used for savings banks under the Garn-St
Germain Act.
This particular program, however, is in an earry stage of
consideration and, if instituted, would be used in a limited way for
appropriate cases where such use is likely to reduce insurance costs and
strains on the banking system.
The thrust of our supervisory efforts is to do whatever we can, consistent
with a safe and sound banking system, to limit our insurance losses by
permitting viable banks with acceptable management to survive the present
period of economic weakness.and to recover financial strength once the economy
improves.
This does not mean that the FDIC intends to allow insolvent banks
to continue operations; that every failing bank is viable and should be saved;
or that incompetent or abusive management will be tolerated.
There will be
failures -- unfortunately, many of them -- but we will continue to take
reasonable steps to reduce the number of failures and, thus, to lessen the
adverse impact on local communities and on our insurance reserves.
GENERAL ECONOMIC CONDITIONS
Before turning to a discussion of the indicators of financial condition, I
would like to make some general observations about the economy.
There are indications that the worst of the problems in some parts of the
agricultural sector may be over.
Land prices have reached levels where, with
a reasonable downpayment, farming operations can generate sufficient cash flow
7
for debt servicing.
There is still-a lot of available land and equipment
depressing the resale market, but those prices may be near the bottom.
Thus,
while we see little evidence of a rapid upturn, we should see a gradual
improvement in the condition of agricultural banks in upcoming years.
The energy economy also seems to have bottomed out, at least in terms of the
price of oil.
However, the secondary effects of the oil price decline are
still working through the economy and the normal lag time between economic
decline and a deterioration in the banking community has not yet run its full
course.
Are there other economic problems that will affect banks adversely?
really knows.
No one
Real estate of all kinds is a problem in certain areas, often
the same areas adversely affected by energy or agriculture.
For example,
office vacancies and depressed housing values in some major cities in the
Southwest are in part a reflection of over-optimism that preceded the energy
problems.
On several occasions, I have expressed concern over the level of U.S. private
debt -- both consumer and corporate -- much of which is owed to commercial
banks.
In all sectors of our economy debt is at or near record levels when
compared with ability to repay.
Overall in our society, there is now about 40
cents more debt for every dollar of income than there was just five years
ago.
Between 1981 and 1985, corporate debt jumped from 35 percent of net
worth to 47 percent.
Household debt has reached a post-World War II high
8
equal to 89 percent of after tax disposable income.
had never even reached 80 percent.
Prior to 1985, this ratio
Recent estimates are that debt service
absorbs nearly a third of monthly household income and, for many families,
more than half.
I would be more comfortable if household and business debt
levels could be returned to more normal levels.
No one knows how much private debt the economy prudently can carry.
It seems
obvious, however, that the higher the debt when compared with ability to
repay, the worse the effects of any economic downturn are likely to be -especially for the banking industry.
While there is little indication of a
near-term recession, our present recovery has gone on for an extended period
by historical standards and based on history will not last indefinitely.
FINANCIAL CONDITION OF THE INDUSTRY
With problem and failed banks at record levels, it is important to maintain
overall perspective.
Approximately 90 percent of insured banks are not
considered problems and failures last year represented only about 1 percent of
the total number of banks.
Indicators of the health of the banking industry
are mixed, as demonstrated by the selected performance and condition
indicators from our Quarterly Banking Profile. Overall the statistics show a
reasonably sound industry, but the averages mask a number of problems.
Capital - The banking system as a whole seems to be maintaining adequate
capital.
As shown in Table IV of Appendix B, aggregate primary capital of all
insured banks at year-end 1986 was $211 billion.
This represents an increase
9
of $82 bill ion .over 1981 when specific minimum capital ratios first were
mandated by the federal bank regulators.
The aggregate equity capital of
these institutions increased by $65 billion during the same period.
The ratio
of capital to assets -- the traditional measure of adequacy -- is higher among
small banks than large banks, but aggregate capital of banks in all size
categories exceeds the minimum ratio even with over 1,500 problem banks.
There has been considerable concern regarding banks’ exposure to off-balance
sheet risk.
This is one of the primary factors behind the regulators’ recent
proposal for a risk-based system of capital analysis.
Though the assessment
of capital adequacy may be affected by the information received as a result of
this proposal, the FDIC does not now have evidence indicating that the system
as a whole is in need of substantial increases in capital.
individual institutions may be required to increase capital.
However,
We strongly
support bringing off-balance sheet activity into better focus through improved
reporting and accounting techniques.
This will enable regulators, as well as
private industry analysts, to better and more consistently evaluate levels of
capital adequacy.
Some of what has appeared as new equity capital in banks may be the result of
so called double-leveraging by holding companies -- defined as equity
investments in subsidiaries as a percent of the holding company equity.
This
occurs when the parent company incurs debt and uses the proceeds to purchase
equity in its subsidiary bank(s).
concern.
Double-leveraging can be a cause for
Since the normal practice is to service this debt through dividends
from the banks, excessive payments can be a threat to the banks in the holding
10
company.
The FDIC analyzes double-leveraging, as well as other parent company
information, on a case-by-case basis during the examination of individual
banks.
We have seen a number of examples of bank holding company leveraging
for purchases of bank stock that have weakened the banks in the system.
This
is particularly evident in unit banking states such as Oklahoma and Texas.
Note the difference in double-leveraging by region as indicated in Table V in
Appendix B.
In addition to double leverage, many owners of independent banks also rely on
loans to finance their stock purchases.
Thus, the amount of tangible,
nonfinanced bank equity is much less than the apparent capital in a number of
states.
Earnings - If the level of bank capital is to remain adequate, banks must
prosper.
They must be sufficiently profitable to retain enough earnings to
maintain capital and to make the bank’s stock attractive to investors.
Table
VI of Appendix B indicates that on the average bank earnings have been
declining.
However, this kind of averaging can be misleading since it is
heavily weighted by the significantly poorer results of small banks west of
the Mississippi.
(See the chart "Return on Average Assets, East vs. West" in
our Quarterly Banking Profi1e .)
Return on equity in 1986 averaged 8.75
percent and return on assets 0.74 percent for insured commercial banks.
This
compares to levels five years ago of roughly 13 percent and 1 percent,
respectively.
Moreover, in 1986, nonrecurring items and gains from the sale
of securities amounted to nearly 25 percent of the total net income for
insured commercial banks.
11
Early results for the first quarter of 1987 indicate that earnings
deterioration is continuing.
The aggregate net income of the 26 largest bank
holding companies was down 16 percent or $342 million in the first quarter of
1987 when compared to the first quarter of 1986.
The drop can be attributed
in large part to the placement of large amounts of loans to Brazil into
nonaccrual status.
Even without the effect of the loans to Brazil, there was
a decline in earnings, partially attributable to shrinking interest margins.
The earnings for smaller banks continue under pressure from high levels of
loan losses and nonperforming assets.
Preliminary data indicate that about
15.5 percent of banks under $100 million in assets lost money in the first
quarter of 1987 or about the same as last year.
Of the banks in the $100
million to $1 billion category, between 7 percent and 10 percent had losses.
For the first quarter last year, 6.5 percent of these banks were unprofitable.
There have been a variety of developments in recent years that make
satisfactory earnings more difficult to achieve.
Among these are the poor
economic conditions in certain parts of the country, an increasing tendency of
the largest most creditworthy commercial loan customers to bypass banks and
access credit markets directly, and intensified competition for both loan and
deposit customers from nontraditional banking businesses.
In addition, bank
earnings will be affected adversely by recent tax reform.
In the face of
increasing credit problems, the elimination of the deduction for, and the
recapture of, bad debt reserves is particularly unfortunate.
12
Banks have been creative in developing new products and services to combat
these pressures.
Assets are being securitized and sold rather than held in
» portfolios -- a practice which frees up capital.
Significant fee income now
is generated by letters of credit and the swap market -- which have grown from
little or nothing to billions of dollars in a very short time.
As of year-end
1986, letters of credit and loan commitments alone amounted to $750 billion.
Despite these efforts, however, as evidenced by the statistics in Table VI,
the profitability of banking appears to be declining.
Banks located in markets with limited opportunities for diversification have
fared worse than the norm.
The problems of agriculture, energy and real
estate already have been discussed.
difficult time.
Banks serving these markets are having a
In fact, there were six states in 1986 -- Oklahoma, Texas,
Wyoming, Montana, Louisiana and Alaska -- in which the banking industry in the
aggregate lost money.
The FDIC believes that if the banking system is to remain adequately
profitable it must be allowed to pursue profit opportunities throughout the
financial services industry.
We believe these opportunities can be pursued in
a manner that is consistent with safety and soundness considerations if
appropriate safety surveillance is provided by the regulators.
Asset Quality - One of the results of the changing competitive climate has
been a marked increase in the volume of problem loans and loan charge-offs.
As noted in our Quarterly Banking Profile, net charge-offs to loans have
increased steadily from 0.56 percent in 1982 to 0.99 percent in 1986.
Despite
13
this increase, nonperforming assets continue to remain high at 1.96 percent.
As additional proof of deteriorating loan quality, FDIC losses on failed banks
have risen substantially to over 22 percent of total bank assets.
These
increased losses reflect the larger percentage of poor quality loans in failed
banks.
As you would expect, the asset quality problem is most pronounced in depressed
economic areas but, to a lesser degree, is reflected in the industry as a
whole.
The major recognized problem areas are agriculture, energy, real
estate and LDC debt.
While the agricultural and energy problems are common to
many banks, LDC debt is concentrated in a small number of institutions.
Nine
money-center banks recently accounted for 60 percent of the U.S. banking
system’s exposure to foreign debt and 65 percent of the exposure to Latin
American debt.
However, Latin American debt, as a percent of primary capital
at the nine money-center banks, has declined from 180 percent in 1982 to 100
percent in September 1986.
Even outside the recognized problem lending areas it appears that banks,
overall, have had to accept greater loan risk in order to maintain earnings
and loan volume.
It seems clear that the risk in the system has been
increased by deteriorating loan portfolio quality.
Limiting the losses that
result from this increased risk will be necessary to insure banks’ future
profitability.
Liquidity - Although one of the most important areas of banking, liquidity is
the most difficult to measure and the area most subject to rapid change.
14
Currently, liquidity throughout the system would appear to be adequate judged
by the satisfactory performance in recent years despite adverse economic
conditions.
But interest rates have been relatively low and funds plentiful.
Though individual cases can be found where brokered deposits perhaps have
increased the risk assumed by the FDIC in failing banks, experience has shown
that brokered deposits are not the problem that they were a few years ago.
As
of year-end 1986, brokered deposits held by reporting banks totalled $6.2
billion compared to $17.9 billion at year-end 1984.
Developments such as
securitization and broadened secondary markets which were not previously
available now also provide liquidity for many types of assets.
Liquidity,
however, is a creature of economic circumstance in which confidence is of the
utmost importance,
rf a recession occurred or if interest rates rose and
money became tight, today’s favorable liquidity position could change
markedly, particularly for our savings banks.
FDIC SUPERVISION
FDIC supervision is directed toward maintaining the safety and soundness of
the banking system and protecting the insurance fund against unnecessary
loss.
Much of our resources are now focused on marginal or problem banks.
The FDIC has a workload that is probably greater, and a role in the smooth
operation of our financial system that is more important, than at any other
time since the agency was created.
The FDIC currently employs 1,744 field bank examiners.
As indicated in
Table VII of Appendix B, this number is up sharply from recent figures, but is
15
low relative to the number of examiners we employed in 1978.
In that year our
field examination force reached a record high of 1,760 examiners, with 342
problem banks and 7 bank failures.
In contrast, as previously stated,
currently there are over 1,500 problem banks and a possibility of 200 or more
failures in 1987.
As indicated, only 1,744 FDIC examiners are employed to
handle this significantly more formidable environment.
It is clear that our
present number of examiners is insufficient to deal with our responsibilities
and the current level of problems in the bank system.
We estimate a force of at least 2100 examiners will be necessary to achieve an
acceptable examination frequency and scope.
Our goal is to conduct a safety
and soundness examination of satisfactory banks (CAMEL ratings of 1 or 2) once
every three years, marginal banks (CAMEL 3) every 18 months and problem banks
(CAMEL 4 or 5) every year.
Currently, we are averaging once every four years
for satisfactory banks, once every two years for marginal banks and about once
every 19 months for problem banks.
Some of our regions are more behind schedule than others.
In our Southwest
region, for example, we examined only 11 percent of the 1 and 2 rated banks
last year.
The pressures on our work force also have caused us to fall behind
in specialized exams such as those covering consumer compliance and trust
department operations.
Beginning in 1978, the FDIC purposely reduced its number of examiners.
We
believed that our regulatory responsibilities could be accomplished with less
of the traditional onsite examination, especially in satisfactorily rated
16
banks.
To supplement our reduced examination efforts, we used increased
offsite surveillance, brief visitations, reliance on state regulators where
appropriate, and increased market discipline.
Though this effort was
successful in the "old" banking industry, conditions have changed.
We are not
able to maintain even our more liberal examination schedule at the present
time.
Therefore, we have increased our staff and intend to continue to do so
subject only to budgetary constraints.
We are in the process of trying to increase the field staff by about 350
employees during the next year.
Because of the training period involved for
new employees, there is and will continue to be a considerable strain on our
experienced examiners in many parts of the country.
To alleviate this strain,
the FDIC is experimenting with supplementing our examinati'on force with
experienced certified public accountants who are hired on a per diem basis to
assist our examiners in specific examinations.
Early indications are that
this experiment will be reasonably successful and some help can be furnished
by this plan.
The current period is the most challenging and the need for effective safety
and soundness supervision (not increased regulation) the greatest in the
FDIC’s history.
than ever before.
We must adapt to a greater number of changes more quickly
Flexibility, creativity and innovation are absolutely
essential if the FDIC is to continue to be effective in its critical role.
In the face of this environment, and after 36 years of precedent to the
contrary, the Office of Management and Budget has asserted new and, we
17
believe, unfounded jurisdiction over the FDIC.
We applaud the Chairman, the
members of this Committee and the Senate for including in the banking bill a
provision expressly excluding the federal bank regulators from the
apportionment provisions of the Anti-Deficiency Act.
I would like to
reemphasize the importance of that legislation to the effective operation of
the Corporation.
ADEQUACY OF THE FDIC FUND
The FDIC insurance fund presently stands at about $18.2 billion and is
adequate to handle foreseeable problems in the banking system.
The fund,
however, is beginning to show some effects from the unprecedented number of
bank failures.
Our ratio of reserves to insured deposits is declining.
As of
year-end 1986, the reserve slipped to $1.12 per $100 of insured deposits, from
just under $1.20 a year earlier.
year.
Insured deposits grew about 8.7 percent last
If we project a similar growth rate for 1987 and assume no growth in
the $18.2 billion fund, then the projected ratio of the fund to insured
deposits will drop to about 1 percent.
Under the Federal Deposit Insurance
Act, when the ratio of the fund to insured deposits is below 1.1 percent, the
FDIC may not provide assessment rebates to insured banks.
Although the total reserves of the FDIC have increased every year, bank
failures are absorbing substantially all of our current income.
In 1986 the
fund grew by less than $300 million in the wake of 145 bank failures or
assisted transactions.
With the prospect of 200 or more bank failures in
1987, we will have difficulty breaking even in 1987.
We are confident that
18
our financial resources are adequate for our present responsibilities, but
insuring substantial amounts of deposits that now are FSLIC-insured certainly
would stretch our reserves.
Our estimates are that as many as 1,000 thrifts,
with deposits of $184 billion, could meet FDIC capital requirements and have
acceptable earnings.
If all those institutions converted to FDIC insurance,
our projected reserves to insured deposits ratio would decline by over
10 percent.
CONCLUSION
To conclude, I would like to underscore some of my opening remarks.
Banking
is experiencing and will continue to experience rapid and critical changes.
Currently, the government’s presence 'is a hodgepodge of state, regulatory and
court rulings.
This mixture, combined with ingenious private sector
initiatives, has resulted in an inefficient and archaic system.
Long-range
banking industry restructuring is overdue and should be undertaken to improve
competitiveness, reduce regulatory costs and provide increased safety and
soundness for the financial system.
The FDIC believes action is needed and we
will be happy to cooperate with you in any way we can to help achieve it.
Thank you.
I will be pleased to respond to any questions.
APPENDIX A
COMMERCIAL BANKING PERFORMANCE Commercial banks’ net income totalled $17.8 bil
lion in 1986, down 1.4 percent from the record
$18.1 billion reported in 1985, but still the second
highest total ever reported, according to prelimi
nary data Fourth-quarter net income was $3.8 bil
lion, up 7.7 percent from the fourth quarter a year
ago. Net operating earnings were down 16.3 per
cent in 1986, despite earning asset growth of near
ly 8 percent. For the full year, nonrecurring items
and gains from the sale of securities amounted
to $4.2 billion, or nearly one-fourth of bottom-line
net income.
Quarterly Net Income of FDIC-lnsured
Commercial Banks
Commercial Bank Net Interest Margins
1983— 1986
Basis Points
1983
1984
1985
1986
1984— 1986
5 Billions
6 -------— -----------------------
ou
FOURTH QUARTER, 1986
interest margins, which contracted 13 basis points
for the year, were hurt by the 12.6 percent growth
of nonperforming assets. Noninterest income made
a larger contribution to earnings in 1986, growing
nearly 16 percent. Noninterest expense grew rough
ly in line with assets, and as a result, net noninterest
expense declined to 1.85 percent of assets from 1.88
percent in 1985. Most of this improvement was cen
tered in the largest banks.
Loan-Loss Expense, Net Loan Charge-Offs and
Earnings Coverage of Loan Losses
1
2
3
4
1
2
1984
H
Securities & other
nonrecurring gains
3
4
1
2
1985
Q
3
4
Net operating income
During 1986, total bank assets, loans, deposits and
equity capital grew at almost identical rates. Weak
loan demand and lower interest rates caused banks
to adjust the composition of their balance sheets.
The need to increase high-yielding assets prompt
ed them to lengthen maturities in investment secu
rities portfolios and to emphasize mortgage and
consumer lending. While total loans grew 7.6 per
cent, real estate loans expanded a robust 17.2 per
cent and consumer loans increased 8.6 percent.
Commercial and industrial loans, in contrast, grew
only 4.0 percent, reflecting softness in demand and
heightened nonbank competition.
Falling interest rates also contributed to year-to-year
reductions in both interest income and expense. Net
1980— 1986
1986
• Earning» ara nat oparaling nam ing» Bator# loan io*» provm ona a no la ie »
Nora la d and right hand acala* ara not ratatad
Banks’ loan-loss expense continued to be a drag on
earnings. Provisions totalled $21.7 billion in 1986, up
over $4 billion from year-ago levels — a 22.7 percent
increase. They covered $16.3 billion in net loan
charge-offs, and still boosted loss reserves 23.6 per
cent during 1986. At year-end, the ratio of loss
reserves to nonperfomning assets stood at 50 per
cent, compared with 45 percent a year ago. Nonper
forming assets ended the year at 1.96 percent of total
assets, up from 1.87 percent in 1985.
The number of banks reporting losses (net income
less than zero) in 1986 climbed to 2,784, or nearly 20
percent of all insured commercial banks, compared
with 2,453 in 1985. In the fourth quarter, 4,354 banks
reported a net loss, down from 4,395 in the same
period of 1985. It should be noted that quarterly in
come and loss figures are affected by the fact that
many banks concentrate loan loss provisions in the
fourth quarter of each year.
Most (81.4 percent) of the unprofitable banks in 1986
were located west of the Mississippi. In general,
banks in the eastern part of the U.S; have had better
asset growth, better credit quality, higher profitabil
ity and fewer problem institutions or failures than
their western counterparts. The influences of agricul
tural problems on smaller banks and energy-related
problems on small and large banks in the west ac
count for much of these differences.
Distribution of Problem Banks
by Asset Size and Region
Percent of banks On size range and region)
---------—
2 5
----------------------------- ----- —-----------------
□
East {Total number ot banks » 6 165)
H
West (Total number ol banks » 8.037)
also hcXl the highest proportion of unprofitable banks
jn 1986 — 35 percent — while the West region had
the largest share of banks on the “ problem” list. The
Southeast, Northeast and Central regions had the
fewest troubled institutions, and showed improving
trends in this area.
Return on Average Assets, East vs. West
1982—1986
Percent
Continued growth in the number of “ problem” banks,
up 33 percent over 1985’s level to 1,457 at year-end,
suggests 1987 will see another substantial increase
in the number of bank failures. For the banking in
dustry, 1987 is likely to be marked by continued
credit-quality problems among commercial and realestate loans stemming from lingering weakness in
the agricultural and energy sectors. Beyond the
domestic portfolio, uncertainty has increased regard
ing LDC loans, although the level of exposure from
these loans has fallen relative to bank capital.
Numbers of Problem and Failed Commercial Banks
1981—1986
No. of problem banks
No of failed banks
500
Bank Asset Size Ranges (in S millions)
Includes commercial banks on the FDIC "Problem List" East/West separated by
Mississippi River
Banks in all three regions in the western half of the
nation have seen their income reduced by exception
ally high loan losses. In the West region, these loss
es have centered around real estate and
energy-related credits; banks in the Midwest region
have been squeezed by losses stemming from
depressed farm prices. The Southwest region has
also had sizable losses associated with commercial
real estate and agricultural problems, but loans to
the energy sector have had the greatest negative im
pact. Despite the highest charge-off rate of any
region in 1986, Southwest banks still were left with
the highest level of nonperforming assets — over
four percent of total assets — at year-end. Sixty-two
of the 144 commercial banks that failed or received
assistance in 1986 were in the Southwest. The region
NOTE Number of problem banks represents those on the FDIC "ProDiem List
as of the beginning ot the year
Deteriorating domestic credit quality in general, as
well as uncertainties surrounding LDC loan ex
posure, call for a guarded earnings outlook for 1987.
It should be noted, however, that the banking ind'!°
try has continued to augment its capital position.
During 1986, total primary capital increased by 9.2
percent to $208 billion, the highest level ever. The
ratio of primary capital to assets now stands at 7.04
percent, up from 6.97 percent a year ago.
US COMMERCIAL BANKING INDUSTRY QUARTERLY PROFILE
Aggregate Condition and Income Data, FDIC-lnsured Commercial Banks
Preliminary
4th Qtr
1986
CONDITION DATA
........
uumeauu UIIIUC ucywouo ...........................
INCOME DATA
Prelim.
Full Year
1986
Full Year
1985
(dollar figures m millions)
% Change
85:4-86:4
4th Qtr
1985
3rd Qtr
1986
14,181
1,562,433
14,306
1,568231
14,404
1,561.698
-1.5
0.0
$2,938.400
514,001
600,871
335,441
31,686
272,750
1,754,749
28,701
1,726,048
463,644
367,249
381,459
$2,801,855
486,839
572084
326,102
34204
263,913
1,683,142
27252
1,655,890
450,889
343,163
351,913
$2730.498
438,426
577,738
308,930
36,107
269,581
1,630,782
23216
1,607,566
451,700
303.381
367,851
7.6
17.2
4.0
8.6
-122
12
7.6
23.6
7.4
2.6
21.1
3.7
$2,938,400
532211
1,748,603
358,809
16,888
99,394
182,495
$2801,855
446,555
1,713,022
339243
16,500
107,012
179,523
$2,730,498
471,340
1,646,436
320,366
14,659
108,497
169200
7.6
12.9
62
12.0
152
-8.4
7.9
57,526
750,935
2529,385
409,015
1,967.019
313,795
58,749
745,697
2385,749
416,106
1,834,817
324,760
51,090
728.546
2325,024
405,474
1,795.932
321,8a
12.6
3.1
8.8
0.9
9.5
-2.5
% Change
Prelim.
4th Qtr
1986
4th Qtr
1985
% Change
Total interest income...................
Total interest expense.....................
Net interest income.....................
Provisions for loan losses...............
Total noninterest income.................
Total noninterest expense...............
Applicable income taxes.................
Net operating income .................
Securities gains, net.........................
Extraordinary gains, net...................
Net Income................................
$237,661
142,691
94,970
21,738
35,869
90,094
5,397
13,610
3,927
270
17,807
$248,210
157,300
90,910
17,717
31,037
82,320
5,644
16,266
1,567
224
18,057
-4.3
-9.3
4.5
227
15.6
9.4
-4.4
-16.3
150.6
20.5
-1.4
$57,655
33,451
24204
6,621
9,834
24,052
554
2811
9a
57
3,812
$62,479
38.758
23,721
6,146
8,702
22161
959
3,157
386
-5
3,538
-7.7
-13.7
2.0
7.7
13.0
8.5
-422
-11.0
ia .6
1240.0
7.7
Net chargeoffs................................
Net additions to capital stock..........
Cash dividends on capital stock —
16,342
3,192
9,208
13,245
2,395
8,529
23.4
332
8.0
5250
2205
3226
4,9a
1,651
28a
6.2
33.6
13.4
Selected Performance and Condition Indicators, FDIC-lnsured Commercial Banks
..........
.................
.....................
...............
...................
.....................
.................
...................
.........................
1982
1983
1964
1985
0.71%
1211
5.87
1.85
0.56
8.12
-0.62
1,196
0.66%
0.65%
10.73
6.15
1.97
0.76
7.11
3.40
1,891
800
78
0.70%
11.31
620
1.87
0.84
326
34
10.70
6.00
1.97
0.67
6.75
-3.69
1,530
603
45
8.86
6.X
2453
1,098
118
1986
0.64%
10.18
621
1.96
0.99
7.62
-1 6 X
2784
1,457
ia
Preliminary B a n k Data and Perform ance and C ond ition Ratios,
Distributed by Asset Size and by Region, Fourth Quarter 1986 (Dollar figures in billions, ratios in %)
Geographic Distnbution
Asset Size Distribution
$1-10
Billion
Greater
than $10
Billion
Region
549
$276.2
232.3
3.9%
9.4
10.2
306
$897.9
680.8
2.2%
30.6
29.8
33
$1,055.4
737.1
0.2%
35.9
32.3
1,080
$1,133.4
826.2
7.6%
38.6
36.2
357
79
22
17
1
1
9.82%
9.68%
5.474.63
5.45
4.37
5.32
4.37
3.66
2.99
-0.66
-0.48
-4.99
1.24
1.64%
All Banks
Number of banks
reporting....................
Total assets ................
Total deposits..............
% of total b a n ks........
Asset share (% )..........
Deposit share (%) —
Sedition Ratios
Loss reserve to
loans and-leases . . .
Nonperforming assets
to assets ..................
Equity capital ratio . . .
Primary capital ratio ..
Net loans and leases
to assets ..................
Net assets repriceable
in one year or less
to assets..................
$25-100
Million
$100-300
Million
$300-1,000
Million
4,813
$71.0
63.0
33.9%
2.4
2.8
6,581
$333.5
298.9
46.4%
11.3
13.1
1,899
$304.4
268.7
13.4%
10.4
11.8
2,082
1,814
18
Southeast,
Region
Central
Region
568
1
0
11
17
8
9.83%
9.20%
9.93%
8.92%
9.82%
5.37
4.47
5.37
3.83
5.66
4.27
5.57
3.35
5.15
4.67
1.92
2.78
2.28
2.03
2.60
2.92
0.64
0.76
12.88
0.68
0.88
13.18
0.65
0.74
10.71
0.46
0.63
8.55
-1.30
-1.04
-15.67
0.32
0.42
7.38
1.01
0.74
0.90
0.96
2.48
3.26
1.37
1.46%
1.83%
1.49%
1.29%
1.44%
1.93%
2.261
%
1.86%
1.90
• 6.74
7.51
1.46
5.95
6.60
2.29
5.14
6.19
1.02
6.57
7.07
1.30
6.80
7.52
2.02
7.15
8.11
4.06
6.46
7.69
2.99
5.68
6.74
54.43
59.25
60.45
61.69
59.62
57.58
56.16
51.88
55.00
65.69
-7.25
-6.60
-6.52
-3.76
-4.87
-4.20
-9.35
-3.49
-10.88
-6.32
-2.28
8.0%
7.9
5.0
17.2
1.9
15.9
8.6
5.4
-5.4
-9.1
-0.0
-5.7
7.9
5.3
-94.6
3.9
10.8%
10.5
9.1
23.3
21.9
18.5
11.4
8.3
-2.8
-7.4
3.6
22.1
18.9
8.2
-33.7
-17.3
12.6%
12.2
13.7
31.7
45.6
33.4
13.6
10.7
0.3
-6.3
9.4
33.5
18.7
14.1
-51.3
-33.8
16.0%
16.1
18.1
30.8
34.2
18.0
15.8
15.8
0.2
-7.5
11.8
30.6
8.3
14.1
-19.9
-3.1
6.7%
7.4
7.3
29.0
2.3
16.5
6.9
10.2
-11.5
-17.2
0.5
12.5
22.9
13.4
17.4
31.9
0
9.11%
9.14%
5.49
4.63
5.08
4.03
5.77
3.37
2.73
2.81
2.32
1.73
-0.00
0.17
2.04
0.33
0.47
6.27
0.28
0.42
6.09
0.59
0.72
11.86
0.48
0.63
12.09
2.99
2.24
1.62
1.62
0.95
1.74%
1.53%
1.46%
1.59%
2.60
9.59
10.42
2.17
8.16
8.91
1.88
7.28
7.97
58.74
48.20
50.49
-5.14
-5.28
6.3%
6.4
4.1
15.3
2.1
14.2
7.2
0.5
-6.2
-10.2
-0.7
-16.3
9.2
2.9
19.9
32.2
2.31
Growth Rates
(from year-ago quarter)
Assets .......................
Earning asse ts..........
Loans and leases
Loss reserve..............
Net charge-offs..........
Nonperforming assets
Deposits....................
Equity ca p ita l............
Interest income ........
Interest expense........
Net interest income ..
Loan loss expense . . .
Noninterest income ..
Noninterest expense .
Net operating income
income................
m IONS: Northeast — Connecticut,
10.12%
9.15%
18.2%
18.6
18.8
22.2
10.4
20.3
18.7
17.9
-1.4
-6.2
5.0
-2.3
9.0
9.6
-7.7
16.1
9.2%
8.7
9.9
15.8
4.0
-4.4
9.1
9.2
-6.6
-12.0
2.6
-8.5
10.0
6.5
4.6
6.5
14.4%
14.6
11.5
33.0
-1.3
4.7
12.5
10.1
-9.4
-12.7
-4.8
-17.6
42.6
8.0
94.0
126.0
oo
o
1,513
0
10.10%
1,579
$453.9
373.1
11.1%
15.4
16.4
1,172
411
9.38%
West
Region
572
0
100.0
100.0
Southwest
Region
3.135
$301.7
246.2
22.1%
10.3
10.8
3,122
$463.6
370.9
22.0%
15.8
16.3
100 .0 %
Midwest
Region
3.315
$205.1
160.1
23.4%
7.0
7.0
1,950
$380.7
304.2
13.8%
13.0
13.3
14,181
$2,938.4
2,280.7
Number of
unprofitable banks . . .
Number of failed
banks .......................
Performance ratios
(annualized)
Yield on
earning assets ..........
Cost of funding
earning assets ..........
Net interest margin ..
Net noninterest
expense to
earning a sse ts........
Net operating income
to assets..................
Return on assets . . . .
Return on equity . . . .
Net charge-offs to
is and leases . . .
Less
than $25
Million
WEST
EAST
0.9
-2.5
44.0
29.2
57.1
0.1
-6.1
-15.4
-16.1
10.1
26.5
-0.2
3.4
-317.2
-587.2
9.0%
8.1
10.2
35.7
-10.4
18.5
10.2
12.4
-10.8
-19.0
0.6
-8.9
15.8
5.1
448.1
9^9 ^
Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania
Puerto Rico, Rhode Island, Vermont
Southeast — Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, West Virginia
Central — Illinois, Indiana, Kentucky, Michigan, Ohio, Wisconsin
Midwest — Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota
Southwest — Arkansas, Louisiana, New Mexico, Oklahoma, Texas
West — Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada Oregon, Pacific Islands, Utah, Washington, Wyoming
NOTES TO USERS
Computation Methodology for Performance and Condition Ratios
All income figures used in calculating performance ratios represent amounts for that quarter, annualized.
All asset and liability figures used in calculating performance ratios represent average amounts (beginningof-period amount plus end-of-period amount, divided by two).
All asset and liability figures used in calculating the condition ratios represent amounts as of the end of
the period.
Definitions
“Problem” Banks — Federal regulators assign to each financial institution a uniform composite rating, based
upon an evaluation of financial and operational criteria. The rating is based on a scale of 1 to 5 in ascending
order of supervisory concern. “ Problem” banks are those institutions with financial, operational or manageri
al weaknesses that threaten their continued financial viability. Depending upon the degree of risk and super
visory concern, they are rated either “ 4” or “ 5” .
Earning Assets — all loans and other investments that earn interest, dividend or fee income.
Yield on Earning Assets — total interest, dividend and fee income earned on loans and investments as a
percentage of average earning assets.
Cost of Funding Earning Assets — total interest expense paid on deposits and other borrowed money as
a percentage of average earning assets.
Net Interest Margin — the difference between the yield on earning assets and the cost of funding them,
i.e., the profit margin a bank earns on its loans and investments.
Net Noninterest Expense — total noninterest expense, excluding the expense of providing for loan losses,
less total noninterest income. A measure of banks’ overhead costs.
Net Operating Income — income after taxes but before gains (or losses) from securities transactions and
nonrecurring items. The profit earned on banks’ regular banking business.
Return on Assets — net income (including securities transactions and nonrecurring items) as a percentage
of average total assets. A basic yardstick of bank profitability.
Return on Equity — net income as a percentage of average total equity capital.
Net Charge-offs — total loans and leases charged off due to uncollectibility, less amounts recovered on previ
ous charge-offs.
Nonperforming Assets — the sum of loans past-due 90 days or more, loans in nonaccrual status and real
estate owned other than bank premises.
Primary Capital — total equity capital plus the allowance for loan and lease losses plus minority interests
in consolidated subsidiaries plus qualifying mandatory convertible debt, less intangible assets except pur
chased mortgage servicing rights.
Net Loans and Leases — total loans and leases less unearned income and the allowance for loan and lease
losses.
Net Assets Repriceable in One Year or Less — short-term and variable rate interest-earning assets, minus
interest-bearing liabilities maturing or repriceable within the same one-year interval. A measure of banks sen
sitivity to interest rate changes, where a positive value indicates that banks’ income from assets is more
sensitive to movements in interest rates than is the expense of their liabilities, and vice-versa for a negative
value.
Temporary Investments — the sum of interest-bearing balances due from depository institutions, federal funds
sold and resold, trading-account assets and investment securities with remaining maturities of one year or
less. These are banks’ more liquid investments.
Loan Loss Expense — the addition to the allowance for loan and lease losses, the reserve maintained to
absorb expected loan losses.
Additional information regarding bank performance, bank failures and economic issues affecting the
banking industry is available in the Banking and Economic Review, published by the Division of Research
and Strategic Planning, FDIC. Information on legislative issues and changes in state and federal laws
and regulations governing banks is contained in the Regulatory Review, also published by the Division
of Research and Strategic Planning. Single-copy subscriptions are available to the public free of charge. |
Requests should be mailed to:
Banking and Economic Review or Regulatory Review
Division of Research and Strategic Planning
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, DC 20429
_______________________ __
APPENDIX B
TABLE I
FDIC-INSURED CLOSED BANKS
YEAREND
0 - $300*
MILLION_______
TOTAL
ASSETS**
#
$300 - $1,000
MILLION
TOTAL
ASSETS
#
OVER $1
BILLION
TOTAL
ASSETS
#
TOTAL
f
TOTAL
ASSETS
138
6,965,800
116
2,851,969
79
2,763,011
45
4,136,923
32
2,493,415
260,060
7
260,060
10
236,164
10
236,164
1979
10
132,988
10
132,988
1978
6
281,495
7
994,035
1977
6
232,612
6
232,612
1976
15
627,186
16
1,039,293
1975
13
419,950
13
419,950
1974
3
166,934
1
3,655,662
4
3,822,596
1973
5
43,807
1
$1,265,868
6
1,309,675
1972
1
22,054
1
22,054
1971
6
196,520
6
196,520
1970
7
$62,147
7
$62,147
135
4,287,971
1985
116
2,851,969
1984
78
2,371,211
1
391,800
1983
43
1,954,397
1
778,434
1982
30
1,530,573
2
962,842
1981
7
1980
*
**
2
1,061,013
1986
1
1
1
1,616,816
1,404,092
712,540
$412,107
CATEGORIES ARE BY ASSET SIZE.
000 OMITTED FROM "TOTAL ASSETS" FIGURES
1
TABLE II
FDIC-INSURED OPEN BANKS WHICH RECEIVED
FINANCIAL ASSISTANCE
YEAREND
UNDER $300*
MILLION
TOTAL
ASSETS**
#
$300 - $1,000
MILLION
TOTAL
#
ASSETS
OVER $1
BILLION
#
TOTAL
ASSETS
TOTAL
u
TOTAL
ASSETS
7
720,694
1986
6
220,694
1
500,000
1985
2
197,879
1
492,420
1
5,200,000
4
5,890,299
1
513,400
1
35,900,000
2
36,413,400
1
2,500,000
3
2,890,000
1984
1983
2
390,000
1982
2
206,000
1981
5
3,533,000
3
5,400,000
10
9,139,000
1
899,000
2
3,700,000
3
4,599,000
1
5,500,000
1
5,500,000
1
350,000
1
150,000
1
1,300,000
1
$9,300
1980
1979
1978
1977
1
1976
$350,000
1975
1974
1
150,000
1973
1
1972
1971
1
$9,300
1970
*
**
CATEGORIES ARE BY ASSET SIZE.
000 OMITTED FROM "TOTAL ASSETS" FIGURES.
$1,300,000
TABLE III
FDIC-Insured Problem Banks17
Total Deposits by Year
YearEnd
0 - $300
Mi 11 ionDeposi ts-'
if
$300 - S I ,000
Million
Deposits
n
Over $1
Billion
a
Depos i ts
25 $191,683
a
Total
De d o s
it s
1 ,434 $270,946
1986
1 ,412
$54,915
46
$24,348
1935
1 ,069
41,317
41
23,217
30
132,593
1,140
197,127
1984
778
31,031
38
20,129
32
134,949
848
186,109
1983
591
26,828
31
16,513
20
85,740
642
129,081
1982
332
12,759
21
10,119
16
34,460
369
57,338
1981
197
5,659
15
9,423
11
27,482
223
42,564
1930
206
4,599
7
4,860
4
12,185
217
21 ,644
1979
274
6,995
11
6,559
2
6,763
287
20,317
1978
322
8,404
14
7,668
6
48,069
342
64,142
1977
348
10,036
13
7,307
7
44,561
368
61,904
1976
361
11,286
10
6,037
8
41,830
379
59,153
1975
340
9,971
7
3,955
2
6,517
349
20,443
1974
177
4,525
5
3,116
1
1 ,420
183
? 9,061
1973
154
3,107
c.
0
1 ,499
0
0
156
4,036
1972
189
3,141
3
2,192
0
0
192
5,333
1971
239
3,504
2
1 ,453
0
0
241
4,957
1970
251
3,613
0
0
1
1 ,076
252
4,689
-''CAMEL ratings of 4 and 5 and pre-CAMEL equivalents.
-'Categories are by asset size.
-'Deposit amounts are shown in SMillion.
TABLE IV
CAPITALIZATION DATA*
FDIC-INSURED COMMERCIAL BANKS, 1981-1986
(DOLLAR VALUES IN BILLIONS)
1986
1985
1984
1983
1982
1981
EQUITY CAPITAL
$183
$169
$154
$140
$129
$118
PRIMARY CAPITAL**
$211
$192
$173
$156
$142
$129
EQUITY CAPITAL RATIO
8.18%
8.42%
8.42%
8.47%
8.52%
8.51%
PRIMARY CAPITAL RATIO
9.10%
9.20%
9.16%
9.04%
9.03%
9.04%
*
**
INFORMATION OBTAINED FROM THE UNIFORM BANK PERFORMANCE REPORTING SYSTEM.
RATIOS REPRESENT THE UNWEIGHTED AVERAGE OF THE RATIO VALUE OF EACH INSURED
COMMERCIAL BANK.
EQUITY CAPITAL PLUS ALLOWANCE FOR LOAN LOSSES.
TABLE V
BANK HOLDING COMPANY
DOUBLE LEVERAGE RATIOS*
BY REGION, DECEMBER 31, 1985
REGION
NORTHEAST
*
ALL
BHC’S
99.8%
BHC’S UNDER
$10 MILLION
99.9%
SOUTHEAST
107.4
99.7
CENTRAL
109.8
157.9
MIDWEST
133.2
143.3
SOUTHWEST
135.2
178.1
WESTERN
108.7
207.0
DOUBLE LEVERAGE IS DEFINED AS EQUITY INVESTMENTS IN SUBSIDIARIES AS A
PERCENT OF TOTAL SHAREHOLDERS’ EQUITY.
SOURCE:
LYONS, ZOMBACK & OSTROWSKI, INC., DEPOSITORY INSTITUTIONS PERFORMANCE
DIRECTORY, BANK HOLDING COMPANIES, YEAREND 1985.
TABLE VI
EARNINGS DATA*
FDIC-INSURED COMMERCIAL BANKS, 1981-1986
1986
1985
1984
1983
1982
1981
RETURN ON ASSETS
0.74%
0.87%
0.94%
1.02%
1.10%
1.18%
RETURN ON EQUITY
8.75%
10.19%
10.96%
11.96%
12.90%
13.65%
*
INFORMATION OBTAINED FROM THE UNIFORM BANK PERFORMANCE REPORTING SYSTEM.
RATIOS REPRESENT THE UNWEIGHTED AVERAGE OF THE RATIO VALUE OF EACH INSURED
COMMERCIAL BANK.
TABLE VII
NUMBER OF FDIC FIELD EXAMINERS
YEAR
NUMBER
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
1,726
1,547
1,389
1,481
1,551
1,655
1,698
1,713
1,760
1,644
1,556
1,455
1,381
1,622
1,603
1,606
1,581
@FedFRASER