more than $ 50 billion in capital. looking ahead, bank holding companies will continue to face challenging market conditions and persistent pressure on earnings. more asset write - downs are likely as the market continues to adjust risk premiums and valuations change. adverse trends in loan quality will almost certainly continue and will require close monitoring by banking institutions and supervisory agencies alike. liquidity positions will need to continue to be actively managed and banking organizations will need to implement risk management improvements to remedy the deficiencies that have been noted by companies and supervisors over the past year. state member banks most state member banks entered the recent financial disturbance in sound condition, reporting strong earnings through the first half of 2007 and maintaining high capital ratios. as of december 31, 2007, more than 99 percent of these banks reported risk - based capital ratios consistent with a " well - capitalized " designation under prompt corrective action standards. however, profitability suffered in the second half of 2007 as state member banks increased loan loss provisions, reducing the aggregate return on average assets from 1. 4 percent for the full year 2006 to 1. 1 percent for 2007. in addition, although still below the most recent peak in 2002, the nonperforming assets ratio moved up sharply over the past year. in large part, this increase reflected deterioration in residential mortgages and loans to builders and has contributed to an increase in the portion of state member banks with lessthan - satisfactory supervisory ratings from 4. 5 percent at year - end 2006 to 6. 3 percent at the end of 2007. indeed, half of the state member banks that were downgraded to less - thansatisfactory camels ratings since mid - 2007 have evidenced significant financial or risk management weaknesses related to commercial real estate lending activities. state member banks entered 2007 relatively well - positioned to confront and withstand more adverse conditions. however, like bank holding companies, these banks face deteriorating credit conditions in 2008 and we anticipate further increases in their loan delinquencies and charge - offs. we also foresee more difficult liquidity conditions for some of these banks, and we expect to see the number with less than satisfactory camels ratings of 3, 4, or 5 grow from the low level that has prevailed over the last several years. key areas of supervisory focus as the nation's central bank, the federal reserve is acutely aware of conditions in the economy and financial markets and the challenges those conditions pose to the safety and soundness of banking organizations. accordingly, we have been

##cy requirements. see for instance kent c ( 2021 ), ‘ small business finance in the pandemic ’, speech at the australian finance industry association, sydney, 17 march. [ 21 ] see zaman and tanewski, n 4. [ 22 ] some of this compression likely reflects that since the tightening in monetary policy in 2022, rates on new loans for large firms increased by more than for small firms, as the three - month bbsw rate ( the reference for most business lending ) increased by more than the cash rate ( a key reference for small business loans ). [ 23 ] see connolly e and j bank ( 2018 ), ‘ access to small business finance ’, rba bulletin, september ; mccowage and nunn, n 19. blade disclaimer notice r e s e r v e b a n k o f au s t r a l i a