Inaugural "ViewPoint Live" Explores Banking Conditions Then and Now

The banking environment continues to improve steadily, but some lingering challenges remain, said Atlanta Fed Supervision and Regulation (S&R) Chief Michael Johnson during the inaugural "ViewPoint Live."

The October 9 webcast, moderated by Madeline Marsden, also of S&R, was part of a twice-yearly event for community bankers. Johnson shared his perspective on the performance and condition of banks in the Sixth District, discussed some of the risks on supervisors' radar screens, and answered e-mail questions from viewers.

Banking conditions then and now
The half-hour presentation began with a look back at banking conditions during the crisis compared with the situation today. "I think it's important to understand and put the financial conditions of our institutions in a context of where they've been," Johnson said. Doing so helps us "appreciate how far we've come," he added.

The storyline was familiar to most viewers. In 2010, the number of institutions on the Federal Deposit Insurance Corporation's list of problem banks topped out at 884 nationwide. Bank failures, meanwhile, rose from just three in 2007 to a high of 157 in 2010. Since then, the list of problem banks has more than halved, and nationwide bank failures, which continue to be real estate driven, total just 12 so far in 2014. Despite some lingering problems, the bottom line is that "we've worked through so many problems, and I think we're in a much, much better position today," Johnson said.

Financial conditions improving for District banks
Narrowing his focus to the Sixth District, Johnson said that aggregate financial conditions continue to improve. He added that:

  • Banks with more than $10 billion in assets tended to have larger mortgage portfolios. They were hit first by the crisis, yet the overall level of problem assets at these banks was not as large as for smaller community banks, which suffered problems related to commercial real estate. "Those problems have taken longer to work through," Johnson noted.
  • Earning have rebounded "in a very strong way" and are nearing precrisis levels. However, two main factors driving earnings—low credit provisions and the low interest rate environment—have mostly run their course.
  • Bankers and regulators alike are thinking about the Basel III rules. The good news is that "by and large, almost all of the banks we supervise are already well above Basel III minimums," Johnson noted. "Our banks are well positioned for Basel III, and we're not anticipating that it's going to have any material impact," he said.

Johnson spent the remaining time answering viewer questions, several of which centered on the topic of regulatory burden. The Fed has introduced a number of changes aimed at clarifying supervisory expectations, Johnson noted. One such step is to clearly state to which banks its supervisory guidance applies and, perhaps more importantly, to which banks it does not apply. Other efforts include risk-focusing its supervisory program—for instance, by conducting off-site loan reviews when technology allows.

To learn more about banking conditions in the Southeast, be sure to watch the video recording above of "ViewPoint Live" and stay tuned for the next installment of the twice-yearly webcast in April 2015.