Despite growing consumer credit problems, bank loan loss reserves and capital levels remain high. Banks in the Eleventh District and elsewhere in the United States have maintained a ratio of loan loss reserves to noncurrent loans well over 100 percent since 1992. And, as Chart 8 shows, capital levels generally have increased. In other words, banks appear able to absorb potential losses. Bank measurement statistics indicate that the past few years have been good for banking.
Profits are high partly because banks have found new sources for fee income.
Despite recent increases in troubled consumer credit, overall asset quality measures remain favorable. In the event of a downturn, especially in the consumer credit area, banks have established fairly large cushions to absorb potential losses through high loan loss reserves and capital. Much of the improvement in banking industry performance has likely resulted from the changes in industry structure, as mergers have made many banks better able to compete within the changing environment in which they operate. Massive consolidation among banks has occurred over the past several years. Chart 9 shows that the number of banks has declined from roughly 14,500 in 1984 to about 9,500 by the end of 1996.