Banks become deeply committed to their borrowing customers. When trouble arises, immediate extrication or unlending your bank's money is not an option. So keeping a wary eye on developments that affect the success of your borrowing customers and preserving flexibility are long-standing banking traditions. About one-half of the FDIC institutions are subprime lenders. The bank regulatory agencies have provided guidance on sub-prime lending on a couple of occasions and the FDIC may issue more.
Subprime loans are particularly vulnerable to a down cycle.
The FDIC has always been sensitive to the need for banks to maintain proper capital against the risks being undertaken. As banks become engaged in categories of lending that traditionally have been the province of entities that are willing to accept greater credit risks, it is reasonable to expect that the percentage of capital maintained against those risks will be adjusted proportionately upward. At the FDIC, we are working closely with our counterparts studying this issue and will react as necessary to ensure that capital remains in a proper proportion with the riskiness of assets. The market currently rewards high-performing banks to an unprecedented degree. This gives some lenders the incentive to push the envelope.