In summary, we are entering a period of somewhat higher risk for the banking industry from at least two distinct directions. First, the passage of the Financial Modernization Act of 1999 has introduced a whole new set of competitors into the banks' marketplace. While this new legislation expands the menu banks can offer, bankers are well aware that they are still not quite on a level playing field with non-banks. Second, and simultaneously, this added competition comes at a time when the industry itself is beginning to feel the pressures of an economic slowdown, with all its attendant credit risks. The banking industry is, on the whole, prepared for these turbulent times.
Banks are well capitalized and loan loss reserves appear adequate.
Yet, the stress test for individual institutions is yet to come. It is incumbent upon each bank's senior management to see that the bank is prepared for whatever the future brings. To prosper in this new less-regulated environment, a bank needs a strong risk management system. One that correctly evaluates risk. One that prices correctly for risk.