National Banking Trends |
State of the District |
Spotlight: Commercial Real Estate |
Spotlight: Interest Rate Yields
By Michael Johnson, Senior Vice President
Supervision & Regulation
Federal Reserve Bank of Atlanta
It certainly has been an interesting past several months. First, we experienced the suspense of U.S. debt ceiling negotiations. On the heels of that event, Standard & Poor's downgraded, by one notch, U.S. government debt. Then we received news that economic growth was dramatically slower in the first half of the year than anticipated, causing most forecasts to be revised downward as well. So with all of this uncertainty and the continuing European debt crisis and fiscal woes, it's not surprising that market volatility has returned. Although we are seeing stabilization and even some signs of improvement in bank performance, as I reported in the last edition of "ViewPoint," I envision the overall environment will continue to be stressed for some time.
In this edition of "ViewPoint," we have our usual feature on Sixth District banking conditions, providing some room for optimism. We also address interest rate risk, which deserves particular attention as banks work to find yield in a low interest rate environment. In a similar vein, we revisit commercial real estate (CRE) conditions because of the pivotal role this sector plays, both directly and indirectly, in the performance and financial condition of Sixth District banks.
State of the District
Today, more and more banks are focusing on revenue growth, not just problem asset resolution. Unfortunately, loan growth within the Sixth District continues to be challenging as new lending opportunities remain scarce and highly competitive. Net interest margins in the Sixth District, though up slightly year over year driven by low-cost deposits, remain lower than the rest of the country. In an effort to improve earnings through loan growth, competition for high-quality borrowers is intense, and we are seeing some pricing concessions. As long as broader economic concerns prevent businesses from expanding, finding new revenue opportunities will be difficult for many banks. Overall, we see some signs of improvement, but major challenges remain. You'll find more details concerning second-quarter results in this edition.
The quest for yield in a low-rate, high-volatility environment
Commercial real estate markets
Slow consumer spending has hindered the recovery of the retail sector while also acting as a headwind for improvement in the office and warehouse sectors. Overall, continued recovery in CRE depends on job growth and general improvements in the economy. For more information on conditions in national and regional markets, see our spotlight on the CRE market.
Dodd-Frank turns one year old
With that, I hope everyone is ready to enjoy the cooler—and hopefully less stressful—autumn days. As always, please let me know if you have any feedback and do not hesitate to contact me at ViewPoint@atl.frb.org.