Remarks
By
Chairman Donald E. Powell
Federal Deposit Insurance Corporation
Before
The National Bankers Association
New Orleans, Louisiana
October 9, 2002
FOR IMMEDIATE RELEASE Media Contact:
PR-107-2002 (10-9-2002) Rosemary George (202) 898-6530
Good afternoon.
I am excited to be here in New Orleans to help celebrate the National Bankers
Association's 75th anniversary. Since coming to the FDIC, I have met with your
President, Norma Hart, several times and I had lunch with some of the NBA's officers in
January of this year. I have enjoyed the opportunity to get to know you and your
organization.
I want to begin today by talking a little about some of the issues on our plate that might
be of interest to you and to the communities you serve.
First and foremost, I want to discuss how the business of banking has held up over the
course of the recent downturn in our economy. This is a matter of great interest to us at
the FDIC - as it is to you.
For the most part, we have seen remarkable strength in the industry. The reforms in
business model and corporate governance put in place after the last crisis have put the
industry in a good position to weather this economic storm. We see strong earnings,
decent growth and strong capital ratios - more than a year-and-a-half into this
slowdown. In fact, banks and thrifts reported record earnings in the second quarter of
2002 - combined net income of $27.3 billion. Improved noninterest income, lower
provisions for loan losses, increased gains from securities sales, and relatively low
growth in noninterest expenses all contributed to the earnings record.
There are problems, to be sure. Credit quality continues to deteriorate as the cycle
matures. Net charge-offs on commercial and industrial loans continue to rise. In fact, we
don't expect significant recovery in credit quality until corporate profits come back and
overall corporate indebtedness declines from current levels.
There may be some good news on this front. Recent earnings reports suggest that the
trend of declining corporate profits may have run its course. After five consecutive
By
Chairman Donald E. Powell
Federal Deposit Insurance Corporation
Before
The National Bankers Association
New Orleans, Louisiana
October 9, 2002
FOR IMMEDIATE RELEASE Media Contact:
PR-107-2002 (10-9-2002) Rosemary George (202) 898-6530
Good afternoon.
I am excited to be here in New Orleans to help celebrate the National Bankers
Association's 75th anniversary. Since coming to the FDIC, I have met with your
President, Norma Hart, several times and I had lunch with some of the NBA's officers in
January of this year. I have enjoyed the opportunity to get to know you and your
organization.
I want to begin today by talking a little about some of the issues on our plate that might
be of interest to you and to the communities you serve.
First and foremost, I want to discuss how the business of banking has held up over the
course of the recent downturn in our economy. This is a matter of great interest to us at
the FDIC - as it is to you.
For the most part, we have seen remarkable strength in the industry. The reforms in
business model and corporate governance put in place after the last crisis have put the
industry in a good position to weather this economic storm. We see strong earnings,
decent growth and strong capital ratios - more than a year-and-a-half into this
slowdown. In fact, banks and thrifts reported record earnings in the second quarter of
2002 - combined net income of $27.3 billion. Improved noninterest income, lower
provisions for loan losses, increased gains from securities sales, and relatively low
growth in noninterest expenses all contributed to the earnings record.
There are problems, to be sure. Credit quality continues to deteriorate as the cycle
matures. Net charge-offs on commercial and industrial loans continue to rise. In fact, we
don't expect significant recovery in credit quality until corporate profits come back and
overall corporate indebtedness declines from current levels.
There may be some good news on this front. Recent earnings reports suggest that the
trend of declining corporate profits may have run its course. After five consecutive
quarters of negative year-over-year growth in earnings from continuing operations,
companies in the S&P 500 Index reported positive earnings growth of 1.4 percent in the
second quarter of 2002. However, corporate bankruptcy filings remain at record levels.
Ratings downgrades also continue to outnumber upgrades. In the first half of 2002,
Moody's downgraded roughly 4.4 companies for every company it upgraded. The main
reasons for rating downgrades have been poor profitability and high leverage.
I am encouraged by what seems to be an improvement in underwriting standards at
many financial institutions. A number of surveys show that lenders have improved their
internal lending procedures over the course of this economic downturn.
In the overall economy, the signals are mixed. Real gross domestic product grew by 5.0
percent in the first quarter of 2002 but fell to 1.1 percent growth in the second quarter.
Economic surveys conducted by the group Blue Chip Economic Indicators indicate that
the recovery is intact and they forecast that the economy will grow by 3.2 percent next
year.
I realize that many of these numbers are overall averages that do not take into account
the variations in individual communities and institutions. I also realize that many of you
serve communities that face challenges that go beyond those faced by the overall
economy. So I have asked our folks to prepare a summary of the economic conditions
in each of the NBA's member communities. We'll make that available to you today.
Another issue I'd like to discuss with you is the FDIC's new Policy Statement regarding
Minority Depository Institutions. Our new program is structured to foster better outreach
and closer relationships with minority institutions. Every year, a member of our regional
management team will offer to meet with each FDIC-supervised minority institution to
discuss issues of interest to you and your directors. After every FDIC examination of a
minority-owned bank, we will offer to have staff members come back to the bank a few
months later to provide technical assistance on any matters raised during the
examination.
As many of you already know, the FDIC is hosting regional forums to discuss issues
facing minority institutions. We have received a good deal of positive feedback from the
meetings we held in Memphis, Chicago, Dallas, and Atlanta. The forums give us an
opportunity to listen to your perspectives and give you a chance to get to know the
regulators in your area. Planning is underway for events in San Francisco and New
York. The forums are being held with the other banking agencies, and we hope you will
consider attending.
We have also created a Minority Depository Institutions Web page. It contains the entire
text of the new Policy Statement, performance information on each minority bank, and
an automated tool that allows users to create custom peer group analysis. The Web
page also has contact information for our coordinators in each Regional Office and the
Washington Office, and links to other government and private programs that may
benefit you and your customers.
companies in the S&P 500 Index reported positive earnings growth of 1.4 percent in the
second quarter of 2002. However, corporate bankruptcy filings remain at record levels.
Ratings downgrades also continue to outnumber upgrades. In the first half of 2002,
Moody's downgraded roughly 4.4 companies for every company it upgraded. The main
reasons for rating downgrades have been poor profitability and high leverage.
I am encouraged by what seems to be an improvement in underwriting standards at
many financial institutions. A number of surveys show that lenders have improved their
internal lending procedures over the course of this economic downturn.
In the overall economy, the signals are mixed. Real gross domestic product grew by 5.0
percent in the first quarter of 2002 but fell to 1.1 percent growth in the second quarter.
Economic surveys conducted by the group Blue Chip Economic Indicators indicate that
the recovery is intact and they forecast that the economy will grow by 3.2 percent next
year.
I realize that many of these numbers are overall averages that do not take into account
the variations in individual communities and institutions. I also realize that many of you
serve communities that face challenges that go beyond those faced by the overall
economy. So I have asked our folks to prepare a summary of the economic conditions
in each of the NBA's member communities. We'll make that available to you today.
Another issue I'd like to discuss with you is the FDIC's new Policy Statement regarding
Minority Depository Institutions. Our new program is structured to foster better outreach
and closer relationships with minority institutions. Every year, a member of our regional
management team will offer to meet with each FDIC-supervised minority institution to
discuss issues of interest to you and your directors. After every FDIC examination of a
minority-owned bank, we will offer to have staff members come back to the bank a few
months later to provide technical assistance on any matters raised during the
examination.
As many of you already know, the FDIC is hosting regional forums to discuss issues
facing minority institutions. We have received a good deal of positive feedback from the
meetings we held in Memphis, Chicago, Dallas, and Atlanta. The forums give us an
opportunity to listen to your perspectives and give you a chance to get to know the
regulators in your area. Planning is underway for events in San Francisco and New
York. The forums are being held with the other banking agencies, and we hope you will
consider attending.
We have also created a Minority Depository Institutions Web page. It contains the entire
text of the new Policy Statement, performance information on each minority bank, and
an automated tool that allows users to create custom peer group analysis. The Web
page also has contact information for our coordinators in each Regional Office and the
Washington Office, and links to other government and private programs that may
benefit you and your customers.