Financial Update (Fourth Quarter 2006)


Vol. 19, No. 4,
Fourth Quarter 2006


FEATURES

Point of Purchase
Fuels E-Check Growth

Atlanta Fed Publishes
Online Payments Guide

Agencies Propose Rules
to Prevent ID Theft

Fed Vice Chair: Payment
System Still Evolving

Bank Profitability Strong
in '05, Report Says

Comments Requested
on Basel II Rules

New Governor Joins
Federal Reserve Board

Study Explores Credit
Notice Attitudes

Payroll Cards to Receive
Added Protection

FHLBs' Risk Taking
Behaviors Examined

Nontraditional Mortgage
Guidance Issued

Atlanta Fed Welcomes
SBAL Council Members

Departments

Did You Know?

Data Bank

Circular Letters

Staff

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U.S. Commercial Banks Still Strong Through 2005

Bank Profitability
Source: Federal Reserve Board
U.S. commercial banks and nondeposit trust companies fared well in 2005, according to a recent report from the Federal Reserve Board. Profitability of U.S. banks remained strong again after having shown gains in prior years. Banks' asset quality remained high, and growth in industry assets was solid, according to research by Elizabeth C. Klee and Gretchen C. Weinbach of the Federal Reserve Board of Governors. The report, published this summer, is an annual look at the condition of the U.S. banking industry.

Pressure on net interest margins lowered returns on assets. Both short- and intermediate-term interest rates increased as the Federal Reserve tightened monetary policy, raising the federal funds rate 2 percentage points during 2005. Longer-term interest rates stayed low.

Overall economic health notable
Generally favorable U.S. economic conditions played a substantial role in banks' balance sheets. Throughout 2005, home mortgage loan rates were relatively low, rising slightly only toward the end of the year, the report noted.

Despite rising energy prices, consumer spending was still vigorous throughout the year. Household wealth rose in concert with substantial increases in housing prices and an improving labor market.

Related
Profits and balance sheet developments at U.S. commercial banks in 2005

Sales and borrowing steam ahead
On the corporate side, profits and investment spending were up, fueled by robust sales growth. Business borrowing, especially commercial and industrial loans, picked up as merger and acquisition activity rose and stock buybacks grew significantly.

The total assets of all reporting U.S. bank holding companies grew from $6.7 trillion in 2000 to $11.2 trillion through the third quarter of 2005, according to the report. During the same period, return on average equity held stable at about 15.1 percent in 2005 versus 15.2 percent in 2000. Return on average assets moved up from 1.13 percent in 2000 to 1.25 percent in 2005.

The number of reporting bank holding companies in the study grew from 1,727 in 2000 to 2,288 in 2005.