Financial Condition of Depository Banks (CRS Report for Congress)
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| Release Date |
Revised March 26, 2014 |
| Report Number |
R43002 |
| Report Type |
Report |
| Authors |
Darryl E. Getter, Specialist in Financial Economics |
| Source Agency |
Congressional Research Service |
| Older Revisions |
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Summary:
A bank is an institution that obtains either a federal or state charter that allows it to accept federally insured deposits and pay interest to depositors. In addition, the charter allows banks to make residential and commercial mortgage loans; provide check cashing and clearing services; underwrite securities that include U.S. Treasuries, municipal bonds, commercial paper, and Fannie Mae and Freddie Mac issuances; and other activities as defined by statute.
Congressional interest in the financial conditions of depository banks or the commercial banking industry has increased in the wake of the financial crisis that unfolded in 2007-2009, which resulted in a large increase in the number of distressed institutions. A financially strained banking system would have difficulty making credit available to facilitate macroeconomic recovery.
The financial condition of the banking industry can be examined in terms of profitability, lending activity, and capitalization levels (to buffer against the financial risks). This report focuses primarily on profitability and lending activity levels. Issues related to higher bank capitalization requirements are discussed in CRS Report R42744, U.S. Implementation of the Basel Capital Regulatory Framework, by Darryl E. Getter.
The banking industry continues consolidating, with more total assets held by a smaller total number of institutions. There are fewer problem banks since the peak in 2011, as well as fewer bank failures in 2013 in comparison to the peak amount of failures in 2010. Non-current loans still exceed the capacity of the banking industry to absorb potential losses (should they become uncollectible), meaning that news of industry profitability should be tempered by the news that aggregate loan loss provisions are currently insufficient. Consequently, the rate of bank lending growth may not return to pre-crisis levels until loan-loss capacity exhibits even more improvement.
