Factors contributing to this deterioration include rising financial leverage in the corporate sector as well as weaknesses within certain domestic industries. Many market observers also have attributed the increase in problem commercial loans to a heightened appetite for risk and relaxed underwriting standards from 1996 to 1999. The apparent softening in economic conditions in recent months reduces prospects that business loan quality will improve any time soon. In the meantime, lenders, analysts, and supervisors continue to pay close attention to U.S. business lending conditions. Although the sources of their difficulties are quite different, these industries share some common concerns and challenges.
Fierce competition characterizes their operating environment.
Armed with a better grasp of the origins of stress in these industries, we will have a better basis for understanding the lending risks associated with a changing policy and economic environment in the years to come. However, as the local economies continue to diversify, the benefits of rising oil prices will diminish over time. To do this more effectively, the second quarter 2001 edition will have a new look. We will publish a single national edition that will provide an overview of economic and banking risks and discussions of these risks as they relate to insured institutions in each FDIC Region. We will tell the national story and, at the same time, alert the reader to specific trends and developments at the regional level.