Greenspan says US banks strong
Institutions seen in position to back growing economy
WASHINGTON -- US banks are strong and profitable, with ''favorable" asset quality, and will be able to provide financing for a growing economy, Federal Reserve chairman Alan Greenspan said yesterday.
''The weakness in credit quality that accompanied the recent recession has clearly been mild, and the system remains strong and well positioned to meet customer needs for credit and other financial services," Greenspan told the Community Bankers Convention in San Diego via satellite.
Delinquency rates have fallen in many loan categories since the expansion began in November 2001. About 1.74 percent of banks' residential loans were delinquent in the final quarter of last year versus 2.25 percent in the final quarter of 2001. Credit card delinquencies stood at 4.62 percent of total credit card debt in the final quarter of 2003 versus 4.86 percent in the final quarter of 2001.
The lowest borrowing costs in decades still are encouraging consumers to take on more debt and interest service even as overall incomes are declining. Fed officials left the overnight lending rate at 1 percent, the lowest since 1958, at Tuesday's meeting of the Federal Open Market Committee.
Households' debt payments on mortgages and consumer loans as a percentage of disposable income stood at 13.14 percent in the third quarter, according to the most recent data available from the Fed. The ratio hit a record high of 13.32 percent in the final quarter of 2001. The ratio averaged 12.6 percent for the four quarters of 2000, 13.14 for 2001, and 13.25 percent for 2002.
In recent speeches, Greenspan has said that financial innovation, such as derivatives securities that allow banks to off-load the credit risk on loans, helps banks manage their portfolios.
While small banks are losing some share of the mortgage market, loans to land and commercial real estate developers accounted for more than 90 percent of net asset growth for banks with less than $1 billion in assets last year, the Fed chairman said.
Even though there have been few delinquencies in these types of loans, ''bankers need to be aware of the historical real estate cycle that, in the past, placed such exposures under severe stress," Greenspan said. ''One hopes that improvements in underwriting standards are lasting."
