In a three-part analysis of bank merger activity published today in the FDIC's quarterly publication, Regional Outlook , analysts in the FDIC's Division of Insurance examine a number of factors driving the industry consolidation and also some of the risks merging institutions face. The time and attention that must be devoted to the operational aspects of a merger, and the pressures to meet analysts' earnings expectations, create challenges that if not well-managed can make the merged institution more vulnerable to an economic downturn. Moreover, the strategies some small banks are adopting to cope with a changing industry may complicate their operations and could affect their overall risk profile. In addition to the in-depth examination of merger activity, each of the eight editions of the Regional Outlook includes a review of banking and economic activity in the states in each FDIC region.
Analysts note that total employment growth remains strong across all regions.
In addition, institutions in all eight regions continue to post strong performance and, with few exceptions, report strong capital positions. However, analysts in each region continue to report a slowdown in sectors tied to U.S. exports, particularly exports to Asian markets, and increasing risk in some banking lines of business. Reduced demand from Asia is affecting the manufacturing sector, particularly industrial supplies, and a potential slowdown in the Canadian economy could aggravate the Asian effect on the region's exporters. Analysts in the New York Region report that the region's community banks are being hurt by narrowing interest margins and intense competition for small business lending. They examine the risks faced by community banks as they cope with a changing competitive landscape.