Looking out at the horizon, one concern we have is the condition of the banking industry and what worsening conditions could mean in increasing bank failures. The numbers show a continuation of recent trends. Specifically, the vast majority of banks remain highly profitable, and their performance indicators remain strong. While bank earnings in 2000 were a mixed picture, more than two out of three banks reported higher earnings. Some of the factors that have helped to sustain the string of record industry earnings low expenses for credit problems, strong growth in noninterest revenues, and a steady contribution from net interest income are still evident in the most recent data.
Times are still good.
Nevertheless, signs of stress are emerging. A few large banks continue to struggle with asset-quality problems, and their difficulties are reflected in industry totals. As a result, for the first time in nine years, banking industry earnings did not set a new annual record in the year 2000. Problems in commercial and industrial loans have been limited to a few large banks but the severity of these problems has been increasing. Growth in noninterest revenues, especially those that are sensitive to conditions in the stock and financial markets, lost some of its momentum in the past year.