Federal Reserve

BULLETIN

Sections of this Page

• Assets
• Derivatives
• Liabilities
• Capital
• Trends in Profitability
• International Operations Of U.S. Commercial Banks
• Developments in Early 2010
• Appendix

Seung Jung Lee and Jonathan D. Rose, of the Board's Division of Monetary Affairs, prepared this article. Thomas C. Allard and Mary E. Chosak assisted in developing the database underlying much of the analysis. Michael Levere and Robert Kurtzman provided research assistance.

The U.S. commercial banking sector remained under significant pressure in 2009. Bank profitability was damped by the effects of the weak economy on asset quality and lending activity, with loan delinquency and charge-off rates rising to historical highs in many cases and banks' balance sheets contracting. Reflecting the weak portfolios and low profitability that weighed on the sector as a whole, 120 smaller banks failed during the year, and the watch list of the Federal Deposit Insurance Corporation (FDIC) expanded to include about 700 institutions by year-end, the highest levels for both of these measures since the early 1990s. By contrast, the acute strains the largest banks faced in late 2008 abated over the first half of 2009, largely because of unprecedented interventions by the Treasury, the Federal Reserve, and the FDIC.

Asset quality worsened for all major loan classes over 2009, but real estate loans backed by residential and by commercial properties remained at the center of banks' credit quality problems. Conditions in the real estate sector generally stayed weak, especially in commercial markets. House prices continued declining sharply in the first half of the year but were more stable in the second half. The stabilization of prices partly reflects stronger demand for housing that was likely spurred in part by low mortgage rates, which were fostered partly by the Federal Reserve's purchases of agency debt and mortgage-backed securities (MBS). A tax credit for first-time homebuyers also helped support housing demand. Still, with many households' mortgage obligations exceeding the value of their houses, 1.4 million properties entered foreclosure over the year.

Aggregate economic activity picked up in the second half of the year after several quarters of contraction, stimulated by monetary and fiscal expansions, increased foreign growth, and improvements in financial market conditions. However, as is typical in cyclical economic recoveries, the improvement in labor market conditions lagged the trends in economic activity, and the unemployment rate reached 10 percent at year-end before edging lower. The weakness in labor markets contributed to historically elevated delinquency and charge-off rates on consumer credit card loans. The deterioration in credit quality across all loan categories led to a further rise in already elevated rates of loss provisioning. Consequently, the profitability of the commercial banking industry was depressed, and return on assets (ROA) and return on equity (ROE) were both at their lowest annual levels since at least 1985. (Figure 1)¹

Profitability diverged between the largest banking institutions and the rest of the industry, primarily reflecting the ability of large banks to generate income from specialized activities in which other banks do not generally participate. Indeed, large banks, taken together, posted a small profit last year, as trading revenue rebounded to pre-crisis levels with the improvements in capital markets and income from net servicing fees increased. Those revenues managed to offset the pressures on earnings at these banks caused by the further deterioration in credit quality. In addition, large banks experienced a substantial inflow of core deposits at very low interest rates, which improved their net interest margins. In contrast, profits at small and medium-sized banks declined further, weighed down by higher loan losses that were not offset by other forms of revenue.

The commercial banking sector deleveraged over 2009 as banks raised capital and nominal assets posted an annual decline for the first time since 1948. Loans outstanding declined--across all major loan categories, but especially in loans to businesses--consistent with reports of banks' more stringent lending posture and reduced demand for loans from creditworthy borrowers. Borrowers such as households and small businesses with more limited access to nonbank sources of credit were particularly affected by the tight lending conditions.

Demand for bank loans was further held down by the efforts of households and businesses to rebuild their balance sheets. Consumer spending stabilized in the first half of the year and expanded thereafter, reflecting the improvement in financial market prices and accommodative monetary and fiscal policies. However, households financed the increase in consumer outlays primarily out of disposable income. On the business side, commercial real estate (CRE) activity contracted sharply. Businesses' spending on equipment and software picked up in the second half of the year, probably owing in part to improved conditions in the bond market and some increase in sales prospects. Indeed, large reductions in corporate bond spreads spurred robust issuance of both investment- and speculative-grade bonds, and large firms reportedly paid down some bank loans with the proceeds of such bond issues.

Throughout the year, the Federal Open Market Committee maintained a target range for the federal funds rate of 0 to 1/4 percent to foster economic recovery. The Federal Reserve extended through early 2010 most of the special credit and liquidity programs that it had established at the height of the crisis. However, as financial market functioning improved over 2009, these facilities generally declined in size (figure 2), and on February 1, 2010, most expired.² The Term Asset-Backed Securities Loan Facility, which was designed to increase credit availability and support economic activity by facilitating renewed issuance of consumer and business asset-backed securities (ABS) at more-normal interest rate spreads, continued operating into 2010. Together, the support provided by all of these programs helped reduce strains in funding markets and bolster liquidity in financial markets more broadly.

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve announced large-scale asset purchases of government-sponsored enterprise (GSE) debt and agency MBS in late 2008. In March 2009, those programs were enlarged, and the Federal Reserve also announced a program of purchases of Treasury securities. The Federal Reserve concluded purchasing $1.25 trillion of agency MBS and about $175 billion of agency debt in March 2010, in addition to the $300 billion of Treasury securities that it purchased between March 2009 and October 2009.

The Treasury provided a large amount of capital to banking institutions under the Troubled Asset Relief Program (TARP), and a substantial volume of that capital was downstreamed by parent holding companies to their commercial bank subsidiaries in the first half of 2009. The Treasury injected capital into financial institutions primarily through the Capital Purchase Program (CPP), under which it acquired shares of preferred stock at the holding company level. In addition, the federal bank regulatory agencies, led by the Federal Reserve, successfully completed the Supervisory Capital Assessment Program (SCAP), which induced several large U.S. banking organizations to raise capital in public equity markets.³ Subsequently, a number of other larger banks also raised capital in order to repay their CPP funds and increase the share of common equity in their total capital. Meanwhile, aggregate regulatory capital ratios at the commercial bank level reached historical highs by the end of 2009.

The government programs to support and assess the level of capital adequacy augmented the highly accommodative monetary and fiscal policies to help improve investors' outlook for the banking industry. The Dow Jones stock price index for banks rebounded sharply beginning in March 2009, as market participants began to mark down the odds of a worsening of the financial crisis, especially after the completion of the SCAP. Indeed, bank stocks have significantly outperformed the broader S&P 500 index since that time despite historically low profitability, though they remain substantially below their pre-crisis levels (figure 3, top panel). Reflecting the decrease in the perceived risks of failure for large banks after the conclusion of the SCAP, credit default swap spreads on banks' subordinated debt came back to levels last seen in the first half of 2008 (figure 3, bottom panel).

Assets

Severe and widespread economic weakness during 2009 impaired the health of both lenders and borrowers and significantly reduced the supply of and demand for bank loans. Consequently, the total assets of all commercial banks contracted 3-1/2 percent in 2009, the first annual contraction since 1948 (table 1, figure 4). However, the decline in banks' assets last year was even larger--about 5-1/4 percent--after accounting for the acquisition of several nonbanks by commercial banks (see box "Adjustments to the Balance Sheet Data for Structure Activity in 2009"). The share of industry assets in the top 100 banks fell slightly, the first annual decline since 1991 (see box "Bank Failures and Measures of Banking Concentration in 2009").

1. Change in balance sheet items, all U.S. banks, 2000-09
Percent

Item	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	MEMO Dec. 2009 (billions of dollars)
Assets	8.76	5.11	7.19	7.18	10.78	7.73	12.36	10.81	10.22	-3.58	11,772
Interest-earning assets	8.66	3.96	7.53	7.27	11.29	7.97	12.45	10.11	8.31	-2.46	10,108
Loans and leases (net)	9.24	1.82	5.90	6.51	11.21	10.39	11.97	10.57	2.21	-5.96	6,221
Commercial and industrial	8.54	-6.73	-7.41	-4.56	4.35	12.53	11.81	20.27	3.48	-18.42	1,149
Real estate	10.74	7.94	14.44	9.75	15.41	13.80	14.94	7.04	4.48	-.44	3,780
Booked in domestic offices	11.02	8.02	14.85	9.66	15.09	13.93	15.05	6.77	4.75	-.42	3,719
One- to four-family residential	9.28	5.70	19.86	10.01	15.75	11.95	15.11	5.53	3.07	3.17	2,121
Other real estate	13.31	10.95	8.81	9.19	14.20	16.61	14.96	8.39	6.89	-4.82	1,597
Booked in foreign offices	-1.62	3.97	-7.41	15.74	35.59	7.19	8.79	22.76	-9.28	-1.72	62
Consumer	8.04	4.16	6.55	9.31	10.16	2.30	6.19	11.67	4.23	-1.95	969
Other loans and leases	7.01	-2.02	-.03	8.31	3.57	-.18	3.17	13.01	-6.41	-7.32	537
Loan loss reserves and unearned income	7.98	13.15	5.73	-3.41	-3.72	-5.55	1.69	27.98	75.28	35.73	214
Securities	6.36	7.22	16.20	9.44	10.58	2.40	11.53	4.54	-.53	21.24	2,646
Investment account	2.85	8.88	13.53	8.70	6.15	1.19	6.94	-4.42	10.07	26.66	2,177
U.S. Treasury	-32.72	-40.27	41.92	14.14	-15.87	-17.59	-19.30	-26.93	7.96	215.48	100
U.S. government agency and corporation obligations	3.75	12.84	18.09	9.68	9.46	-1.83	4.71	-12.15	15.44	15.49	1,190
Other	13.39	12.18	2.72	5.98	3.02	10.12	13.78	10.75	2.66	35.05	887
Trading account	37.16	-3.72	36.12	14.01	36.81	7.96	31.32	35.98	-26.69	1.17	469
Other	10.30	13.09	-2.93	6.76	14.25	5.81	19.31	22.35	73.68	-20.71	1,241
Noninterest-earning assets	9.45	12.74	5.11	6.64	7.61	6.19	11.79	15.42	22.30	-9.89	1,664
Liabilities	8.59	4.45	7.13	7.24	9.56	7.74	12.10	10.79	11.27	-5.46	10,458
Core deposits	7.53	10.55	7.58	7.29	8.25	6.40	5.84	5.49	14.51	8.07	5,843
Transaction deposits	-1.31	10.20	-5.12	2.82	3.20	-1.18	-4.28	-1.22	20.72	6.34	892
Savings deposits (including MMDAs)	12.51	20.68	18.46	13.71	11.72	6.93	5.53	3.34	9.98	17.78	3,879
Small time deposits	7.20	-7.23	-4.92	-6.79	1.58	12.88	16.97	18.03	23.48	-15.88	1,072
Managed liabilities1	8.79	-2.73	5.34	6.96	12.06	12.24	19.45	16.57	6.45	-16.61	4,038
Large time deposits	19.37	-3.65	5.05	1.42	21.86	22.88	15.94	1.90	4.56	-16.15	897
Deposits booked in foreign offices	7.84	-10.96	4.49	12.63	16.84	6.32	29.67	25.86	2.46	-.60	1,529
Subordinated notes and debentures	13.98	9.56	-.59	5.08	10.49	11.41	22.60	16.83	4.60	-15.53	154
Gross federal funds purchased and RPs	6.49	5.72	12.75	-8.70	8.40	15.62	9.47	7.06	5.76	-31.70	537
Other managed liabilities	1.80	-.28	.97	22.00	1.37	6.15	18.89	28.44	14.38	-27.25	921
Revaluation losses held in trading accounts	7.47	-17.06	33.44	14.03	-12.61	-17.86	6.89	42.66	88.60	-57.17	166
Other	20.61	14.90	5.23	5.28	17.19	-1.60	22.33	3.21	-8.63	-3.31	410
Capital account	10.65	12.29	7.84	6.61	23.14	7.59	14.69	10.94	.96	14.54	1,314
MEMO
Commercial real estate loans2	12.16	13.10	6.82	8.99	13.93	16.87	14.91	9.21	6.74	-5.69	1,588
Mortgage-backed securities	3.29	29.05	15.54	10.12	13.45	2.06	10.22	-1.24	11.37	11.54	1,192
Federal Home Loan Bank advances	n.a.	n.a.	17.21	3.71	3.73	10.00	29.80	30.62	17.51	-24.87	402

NOTE: Data are from year-end to year-end and are as of March 23, 2010.

1. Measured as the sum of large time deposits in domestic offices, deposits booked in foreign offices, subordinated notes and debentures, federal funds purchased and securities sold under repurchase agreements, Federal Home Loan Bank advances, and other borrowed money.  Return to table

2. Measured as the sum of construction and land development loans secured by real estate; real estate loans secured by nonfarm nonresidential properties or by multifamily residential properties; and loans to finance commercial real estate, construction, and land development activities not secured by real estate.  Return to table

n.a. Not available.  Return to table

MMDA Money market deposit account.  Return to table

RP Repurchase agreement.  Return to table

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d Return to text

The decline in assets on banks' books reflected in large part a fall in gross loans of about 5 percent, or 7 percent when adjusted for structure activity. Relative to 2008, on an adjusted basis, loan declines in 2009 spread from closed-end residential real estate loans to all major loan classes, as the economic contraction encompassed the consumer, business, and real estate sectors. The runoff in loans involved a number of related factors. With less need for external financing and the uncertain economic outlook, demand from businesses for bank-intermediated credit declined broadly. Household loan demand similarly dropped as consumers began deleveraging their balance sheets, in part to adjust to the declines in the values of their homes and equity holdings. Weak balance sheets of both businesses and households likely also reduced the number of creditworthy borrowers. In addition, banks tightened their lending policies substantially over 2008 and 2009, partly in response to a less favorable or more uncertain economic outlook. Reportedly, banks were also responding to a range of other factors, including the poor quality of assets on their balance sheets, the adverse implications of that situation for their own capital, and disruptions in securitization markets.

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The credit quality of existing loans in all major classes continued to deteriorate significantly, on balance, over the year, resulting in historically high charge-off rates. Banks' overall loan delinquency rate (that is, the proportion of loans whose payments are 30 days or more past due or not accruing interest) rose to 7-1/4 percent at year-end, the highest level posted since at least 1985. Credit quality deteriorated most sharply for real estate loans. For 2009 as a whole, banks cumulatively charged off 2-1/2 percent of the loans that were outstanding at year-end 2008, directly contributing to the decline in loans outstanding.

In contrast to the drop in loans, banks' holdings of securities expanded about 20 percent over 2009 (adjusted for structure activity), with growth particularly strong in holdings of Treasury securities and agency debt securities (excluding MBS). In addition, as the Federal Reserve ramped up its purchases of Treasury and agency securities over the course of the year, reserve balances grew as a share of banks' total assets. Indeed, at the end of 2009, such balances accounted for 5 percent of banks' total assets; reserve balances had accounted for just 1/4 percent of assets before the financial turmoil of the fall of 2008.

Business Loans

Commercial and industrial (C&I) loans on banks' books plummeted 18-1/2 percent in 2009, the steepest annual decline since at least 1985, and the pace of contraction gained momentum over the year (figure 5).

Demand for C&I loans decreased as nonfinancial firms' need for external finance dropped off. The financing gap at nonfinancial corporations--the difference between capital expenditures and internally generated funds--fell sharply in the second half of 2009 and ended the year below zero (figure 6). Anecdotal reports associated with the weekly data collected by the Federal Reserve indicate that originations of large loans were sparse last year, and there were broad-based paydowns of existing C&I loans across banks and industries. The contraction in C&I loans was especially steep at large banks last year, which is consistent with reports that some large firms with access to capital markets paid down bank loans with the proceeds of bond issues. Indeed, bond issuance was robust after the first quarter amid increasingly attractive conditions in the corporate bond market (figure 7). Overall, according to domestic banks responding to the Federal Reserve's Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), the most important factors explaining the decline in C&I loans last year were lower loan demand from creditworthy borrowers and a deterioration in the credit quality of potential borrowers.

On the supply side, results from the SLOOS indicated that unprecedented fractions of banks tightened standards and a wide range of terms on C&I loans through the first half of 2009 (figure 8). Results from the Federal Reserve's quarterly Survey of Terms of Business Lending also pointed to a tightening in credit conditions, indicating that the spreads of C&I loan rates over banks' cost of funds increased sharply last year. Even after adjusting for changes in the riskiness of loans and other nonprice loan characteristics, significant increases in C&I loan rate spreads were reported on loans of all sizes and on loans originated by both large and small banks.

A number of developments contributed importantly to last year's decline in C&I loans. As financial market conditions improved in 2009, the drop in C&I loans may have been exacerbated by repayments of draws on existing credit lines; firms had reportedly drawn heavily on these lines for precautionary liquidity during the extreme disruptions in credit markets in the fall of 2008. In addition, strained conditions in the syndicated loan market may also have contributed to the sharp decline in C&I loans at large banks, as banks, to complete syndicated deals, had relied heavily on some types of structured vehicles that have not regained acceptance by investors. In the leveraged segment of the C&I loan market, issuance was weak through most of last year despite consistent improvement in loan prices and trading liquidity in the secondary market for such loans. In the fourth quarter, however, issuance of syndicated leveraged loans picked up somewhat, and the terms on such loans reportedly eased a bit.

Policymakers have expressed concern about the difficulties that creditworthy business borrowers without access to capital markets--typically small businesses--are experiencing in obtaining credit in the current lending environment. Gauging the degree to which small businesses' access to credit has tightened is difficult, as only sparse and imperfect measures of small business lending by banks are available.⁴ A survey by the National Federation of Independent Business found that slightly larger net fractions of small businesses in 2009 reported that they faced tightening credit conditions than had so reported during the period of banking strains in the early 1990s, and that approval rates for business owners attempting to borrow were significantly lower than in the mid-2000s. That said, only 8 percent of surveyed business owners indicated that access to credit was their principal economic problem, with slow sales and an uncertain economic situation being more commonly cited.⁵ In part, the tight credit conditions reported by small businesses may reflect the reduced credit quality of such firms. Banks reported in the SLOOS that delinquency rates in the fourth quarter were higher for C&I loans to small businesses than for such loans to larger businesses, and more banks expected improvement over 2010 in the credit quality of C&I loans to larger firms than of C&I loans to smaller firms.

Federal and state regulators issued guidance in February 2010 stating that banks should strive to make prudent loans to creditworthy small businesses, and the regulators directed examiners to conduct their reviews in a way that would not discourage such activities.⁶ In addition, the availability of loans to small businesses was supported by the Term Asset-Backed Securities Loan Facility, which helped revitalize the market for securities guaranteed by the Small Business Administration.

Delinquency and charge-off rates on C&I loans increased through 2009, and while these rates were not as high as those in other loan categories, their levels at year-end were roughly comparable with those from the early 1990s (figure 9). Most SLOOS respondents indicated that they expected the credit quality of C&I loans to stabilize or improve in 2010, although banks' outlook regarding credit quality was more sanguine for loans to larger businesses than for loans to smaller businesses. In addition, some signs of stabilization in C&I loan quality were apparent in the fourth quarter of 2009, as the delinquency rate on C&I loans increased only slightly further and the charge-off rate declined a bit.

The fundamentals of CRE were poor in 2009, with prices of commercial properties dropping, rents declining, and vacancy rates rising. Financing conditions for CRE were strained over the year: Almost no issuance of commercial mortgage-backed securities occurred (figure 10), and large net fractions of banks reported tighter standards for CRE loans in the SLOOS (figure 11). The pace of the runoff in CRE loans increased over the year, while delinquency and charge-off rates reached historically high levels. In particular, the delinquency rate on construction and land development loans surged to 18-1/2 percent by the end of 2009, and the delinquency rate was 28-1/2 percent for loans that financed the construction of one- to four-family residential properties (figure 12). Meanwhile, the charge-off rate on construction and land development loans reached 8 percent in the fourth quarter. The credit quality of other CRE lending categories deteriorated to a lesser degree but nevertheless appeared to still be worsening at year-end. Indeed, in the January 2010 SLOOS, banks reported expectations of further deterioration in the credit quality of CRE loans over 2010, an outlook that may be seen as a particular concern for smaller banks because their assets are more heavily concentrated in CRE lending. Smaller banks increased their concentration of lending in CRE loans over much of the past decade; at the end of 2009, CRE loans accounted for about 46 percent of total loans at such banks, compared with about 17 percent of loans at the 100 largest banks.

Banks' holdings of CRE loans fell 6 percent (adjusted for structure activity) in 2009, pulled down by a precipitous drop in loans to fund construction and land development, particularly of one- to four-family residential homes (figure 13).⁷ In contrast, loans secured by nonfarm nonresidential properties expanded modestly last year despite the worsening fundamentals in commercial property markets. Some of this relative strength may reflect a substitution away from C&I loans: Given the substantial deterioration in the credit quality of banks' business loan portfolios, some banks reportedly sought stronger collateral for business loans, which may have included forms of real estate. In such cases, the loans would have shifted from the C&I category to loans secured by nonfarm nonresidential real estate. Nonetheless, even growth of nonfarm nonresidential loans slowed over the second half of the year. In other CRE lending, loans backed by multifamily properties grew mildly over most of 2009 but dropped in the fourth quarter.

Household Loans

Banks' holdings of loans to households also declined broadly in 2009. Adjusted for structure activity, residential real estate loans on banks' books decreased 1-3/4 percent and consumer loans fell 4-1/4 percent.

Following the financial crisis, households took steps to strengthen their balance sheets. The household financial obligations ratio--an estimate of debt payments and recurring obligations as a percentage of disposable income--fell over 2009 to end the year at its lowest level since 2000; this movement is consistent in part with households paying down debt to reduce their interest and principal burdens (figure 14). In addition, the personal saving rate increased markedly since the beginning of 2008.

However, the combination of low mortgage rates, a tax credit for first-time homebuyers, and improved home affordability likely contributed to the strengthened demand for prime mortgages reported in the SLOOS over the first three quarters of 2009 (figure 15). Compared with 2008, originations of first-lien residential mortgages by commercial banks as a whole rose in 2009.

The decrease in banks' holdings of residential real estate loans last year was attributable to their substantial sales of such loans to the GSEs, their tight lending standards in an environment of declining home values and high unemployment, and few originations of nontraditional or subprime loans by banks.

The deterioration in the credit quality of banks' closed-end residential real estate loans showed little, if any, sign of abating in 2009 (figure 16). National data on rates of serious delinquency worsened considerably for all classes of borrowers and types of mortgages. Delinquency rates on variable-rate mortgages in particular continued to increase more than those on fixed-rate loans, especially for subprime borrowers (figure 17). Of all major loan classes, banks recorded the highest delinquency rate for residential real estate loans, and the charge-off rate in this category was also very elevated. Banks' holdings of foreclosed real estate rose in 2009 but remained low relative to delinquency rates; such holdings equaled about 1/2 percent of the value of outstanding closed-end residential mortgages by year-end.

The credit quality of first- and junior-lien closed-end residential mortgages diverged last year. Delinquency and charge-off rates for first liens worsened throughout the year, but the delinquency rate for junior liens stabilized in the second half of the year. The latter development may be explained by the very sharp increase in the charge-off rate on junior liens, as these loans are associated with lower recovery rates and tend to be charged off sooner after becoming delinquent than first liens. In contrast, delinquency and charge-off rates for revolving, open-end home equity loans were about flat for most of the year, likely reflecting banks' tightening of standards on such loans over the past several years and their ability to reduce credit lines for borrowers with impaired home values.

Non-credit-card consumer loans expanded somewhat in the second half of 2009, perhaps in part as a result of frictions in the student loan securitization market, which caused banks to retain more of such loans on their books. In addition, this category of lending may have benefited from a pickup in personal consumption expenditures on durable goods during the second half of the year.

In contrast, credit card loans declined substantially over the same period, likely for several reasons. These loans incurred the highest charge-off rates of any major loan category, directly reducing outstandings (figure 18).⁸ Also, banks tightened standards and terms on consumer loans (figure 19), partly in anticipation of new regulations. Households may also have reduced their use of credit cards in part to shore up their financial condition, a move that would be consistent with the reduced demand for consumer loans that was reported by notable net fractions of banks in the SLOOS during 2009.

By year-end 2009, the credit quality of consumer loans appeared to have begun to stabilize. The delinquency and charge-off rates on consumer loans declined slightly in the second half of the year but remained at historically high levels, particularly for credit card loans. In the January 2010 SLOOS, banks reported expecting no further deterioration, on net, in the credit quality of consumer credit card loans over 2010, assuming that economic activity progressed in line with consensus forecasts; moderate net fractions of banks expected credit quality to improve for other consumer loans. The largest banks--which are responsible for the bulk of credit card lending--may have begun to benefit from the stabilization in credit quality on credit card loans, as evidenced by their reductions in loan loss provisioning during the fourth quarter.

Other Loans

All other loans and leases on banks' books, a volatile category, dropped 7-1/4 percent over 2009, about the same rate of decline as in 2008. Loans to other depository institutions were about flat for the year. Leases, which are made primarily to businesses for financing equipment or to households for financing automobiles, have been declining for most of the past decade and continued to do so in 2009, albeit at a somewhat faster rate. Bank lending to state and local governments grew during 2009 but not as rapidly as in recent years. Farm loans were about flat for the year, as farm banks have been less affected by the financial crisis, but growth of these loans weakened compared with past years given the wider macroeconomic downturn. The credit quality of farm loans also deteriorated in 2009 but was not notably worse than the average quality of these loans over the past two decades.

Securities

The decline in total loans over 2009 was partially offset by growth in banks' securities holdings of about 20 percent (adjusted for structure activity). While the expansion in securities was shared by banks of all sizes, it was strongest at the 100 largest banks. Amid heavy inflows of core deposits over the course of the year (discussed later in the article) and weak loan demand, banks increased their holdings of Treasury securities and agency non-MBS issues most rapidly, suggesting a preference for liquid, low-risk assets. A total of about $154 billion of these securities was added to commercial banks' balance sheets over 2009, an increase of roughly 67 percent over year-end 2008. The run-up occurred mostly at the 100 largest banks, which traditionally have held fewer of these securities as a share of total securities than smaller banks. Agency MBS, which accounted for roughly 37 percent of banks' securities holdings at year-end 2009, also grew strongly at the 100 largest banks.

In general, banks report both the book value (or amortized cost of acquisition) of their securities and the securities' current market value. The market value of the securities is affected by the credit quality of the issuers or of the assets that back the securities as well as by changes in the general level of interest rates. At the height of the credit market turmoil in the fall of 2008, the market value of many bank-held securities, particularly the non-agency MBS at the center of the crisis as well as the perpetual preferred securities issued by the GSEs, had declined considerably. However, the substantial decline in the general level of interest rates since the onset of the crisis has caused the market value of longer-duration assets with little credit risk to increase.

Over 2009, the difference between reported fair value measurements and book values of available-for-sale securities in investment accounts narrowed, suggesting that banks have substantially lower revaluation losses on their current securities holdings than they did a year ago. At the end of 2008, banks reported net unrealized losses on investment account securities of about $60 billion, led by losses on non-agency MBS and ABS, which were offset a bit by gains in other securities categories, particularly agency MBS. These net unrealized losses waned over 2009, as improving financial conditions and lower interest rates contributed to a recovery in the market prices of many securities. At the end of the fourth quarter, banks reported net unrealized gains of about $9 billion on their investment account securities as a whole.⁹ Finally, banks sold some securities at a loss, which was reflected in the $1.7 billion of total net realized losses on securities holdings over 2009.

Cash Assets

Cash assets, including reserve balances with Federal Reserve Banks, expanded considerably in late 2008, a pattern consistent with the considerable growth of the Federal Reserve's balance sheet. Usage of the special liquidity facilities established at the height of the financial crisis gradually fell over the first half of 2009, and reserve balances declined over the same period. However, as the Federal Reserve continued its large-scale asset purchases, reserve balances rose sharply in the third quarter. At year-end, the level of reserve balances was at a record high, accounting for 5 percent of industry assets. The interest rate paid on excess reserves held by banks remained at 25 basis points over the year.

Off-Balance-Sheet Items

For the second consecutive year, banks' off-balance-sheet unused commitments to fund loans contracted steeply, and the runoff was widespread across all major commitment categories (figure 20). Responses to the SLOOS suggest that banks reduced credit lines for both new and existing customers and that those reductions were more prevalent for lower-quality borrowers. In addition, the cuts in lines likely reflected disproportionately the tightened lending standards by banks, as borrowers are presumably unlikely to request reductions in their line size since the marginal cost to borrowers of maintaining unused lines is typically small, especially for households.

Securitized loans, which are not held on banks' books, contracted 5 percent over 2009.¹⁰ Since the data began to be collected in 2002, the only previous annual decline occurred in 2003, with a drop of -1/2 percent. Last year's decline was likely in response to the impairment of many securitization markets for all or part of the period, as well as the weak lending environment. Securitized mortgages had risen considerably over 2007 and 2008 and still accounted for two-thirds of securitized loans at the end of 2009. However, with the market for non-agency MBS remaining shut last year, balances of securitized mortgages declined about 3-3/4 percent in 2009. The GSEs, though, continued to purchase large quantities of closed-end residential mortgages from banks.

Securitized credit card loans, which account for a further 20 percent of securitized loans, declined 8-3/4 percent in 2009. Most of this decline was due to the consolidation of securitized credit card assets in the fourth quarter by one large bank that adopted the new FAS 166 and 167 accounting rules at that time.¹¹

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Derivatives

In 2009, the notional principal amount of derivatives contracts held by banks grew a moderate 3-3/4 percent to reach $220 trillion (table 2). ¹² Notional values are boosted substantially by a few of the largest banks, which enter into offsetting positions in their capacities as dealers in derivatives markets. The fair market value of those derivatives contracts held by banks reflects the contracts' replacement costs and is far smaller than the notional principal amount.¹³ The aggregate fair market value for all bank contracts with a positive value in 2009 was about $4.1 trillion; for all bank contracts with a negative value, the aggregate fair market value was roughly negative $3.9 trillion. These fair values were considerably smaller relative to their notional values at the end of 2009 than they were at the end of 2008, due to the partial recovery in financial markets from the unprecedented market dislocations that occurred in the fall of 2008. Both the positive and negative fair values contracted substantially over the first half of 2009, and each declined about 43 percent for the year as a whole.

2. Change in notional value and fair value of derivatives, all U.S. banks, 2004-09
Percent

Item	2004	2005	2006	2007	2008	2009	MEMO Dec. 2009 (billions of dollars)
Total derivatives
Notional amount	23.69	15.38	29.75	25.68	27.70	3.80	220,146
Fair value
Positive	13.71	-6.46	-4.50	68.18	250.24	-42.86	4,057
Negative	13.75	-5.78	-4.27	65.77	249.26	-43.26	3,919
Interest rate derivatives
Notional amount	22.07	11.92	27.11	20.54	35.85	2.09	179,548
Fair value
Positive	13.14	-5.52	-14.55	56.19	290.52	-39.06	3,121
Negative	12.94	-5.15	-15.06	58.19	286.45	-39.41	3,023
Exchange rate derivatives
Notional amount	21.03	7.69	29.27	36.69	-1.46	2.22	17,298
Fair value
Positive	14.86	-35.84	22.86	43.59	149.12	-45.05	354
Negative	12.74	-37.36	21.39	43.40	163.80	-47.91	345
Credit derivatives
Notional amount	134.52	148.09	54.93	75.87	1.05	28.76	20,639
Guarantor	139.07	137.87	67.69	73.94	-1.27	31.37	10,143
Beneficiary	130.46	157.53	44.03	77.79	3.30	26.33	10,496
Fair value
Guarantor	69.92	81.43	92.96	295.25	282.68	-61.31	406
Positive	74.56	-5.62	201.40	-38.79	19.41	230.90	122
Negative	38.37	827.98	-1.59	1187.41	316.11	-71.96	284
Beneficiary	51.28	83.50	90.26	301.20	260.40	-60.12	448
Positive	2.64	505.51	3.98	1086.95	306.28	-70.62	319
Negative	66.36	2.79	187.44	-18.95	-13.35	233.57	129
Other derivatives1
Notional amount	32.66	29.43	75.17	13.44	-9.00	-18.48	2,661
Fair value
Positive	8.55	58.51	18.99	41.22	33.70	-33.53	142
Negative	19.73	74.29	24.15	15.66	39.27	-32.75	139

NOTE: Data are from year-end to year-end and are as of March 23, 2010.

1. Other derivatives consist of equity and commodity derivatives and other contracts.  Return to table

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Interest rate products continued to account for more than 80 percent of the notional value of derivatives products held by banks and about 77 percent of positive and negative fair values. Interest rate swaps, which account for most of the interest rate derivatives on banks' books, are an important way for banks to hedge interest rate risk, including that related to interest-sensitive assets such as mortgages and MBS. The notional amount of interest rate swaps declined 1-3/4 percent over 2009. In addition, both positive and negative fair values dropped substantially, likely in part because of the development of stable low interest rates over the year. Other interest rate derivatives include options, futures, and forwards, and the notional value of these other derivatives contracts grew 16 percent over 2009, in line with the pace in the past few years.

One of the fastest growing components of banks' derivatives portfolios in recent years has been credit derivatives, which, prior to last year, had expanded an average of about 70 percent per year since 2000. After a pause in 2008, credit derivatives resumed growth in 2009.¹⁴ The notional amount of these derivatives grew 29 percent for the year, and at year-end 2009, credit derivatives accounted for 9-1/2 percent of the notional principal value of all derivatives contracts held by banks. By contrast, the fair value of credit derivatives contracts fell 60 percent in 2009, and these products constituted about 11 percent of positive and negative fair values at banks at year-end. These fair values started to decline in the spring of 2009 but remained high relative to historical norms due to the elevated spreads on many of the underlying reference entities. Over the course of the year, as spreads on underlying reference entities receded and overall market functioning improved, the value of such credit protection (the fair values of the credit derivatives) declined. Credit default swaps accounted for 98 percent of the notional value of credit derivatives held by banks throughout the year (total return swaps and credit options are two other common types). Banks are beneficiaries of protection when they buy credit derivatives contracts and providers of protection (guarantors) when they sell them. Banks are typically net beneficiaries of protection; as of year-end, contracts in which banks were beneficiaries of protection totaled $10.5 trillion in notional value, and contracts in which they were guarantors totaled $10.1 trillion (figure 21).

Banks also use derivatives related to foreign exchange, equities, and commodities. Collectively, those instruments accounted for about 9 percent of the notional value of the derivatives contracts held by banks at year-end. Banks' notional holdings of foreign-exchange-related derivatives grew 2-1/4 percent in 2009. Their notional holdings of equity and commodity derivatives together fell 18-1/2 percent, a second consecutive annual decline.

The share of industry derivatives contracts (in terms of notional value) at the 10 largest banks (in terms of assets) had for years been more than 97 percent, a concentration ratio that reflected the role that some of the largest banks play as dealers in derivatives markets. However, since the end of 2008, that share has declined to about 80 percent, as the reorganization of a prominent derivatives dealer involved booking these derivatives at one of its commercial bank subsidiaries that remained outside of the 10 largest banks at the end of 2009. Still, banks' derivatives holdings were highly concentrated over the past two years: The 5 banks with the most derivatives activity in 2009, including 1 bank not among the 10 largest banks by assets, held 96 percent of all derivatives by notional amounts.¹⁵

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Liabilities

Total liabilities on banks' books declined about 5-1/2 percent in 2009. Adjusting for major structure events, liabilities contracted 6-3/4 percent. As was true of the decrease in assets, the decline in liabilities was concentrated at the 100 largest banks. The runoff in liabilities took place in the context of deleveraging by banking institutions amid weak loan demand and tight credit standards; banks reduced assets, raised capital, and pared back relatively more expensive sources of funding. Thus, banks did not compete strongly for managed liabilities or small time deposits, and declines in those components accounted for the contraction of overall liabilities. Indeed, small time deposits shrank substantially over 2009, reversing a steep run-up during the height of the financial crisis in late 2008, after which the spreads between rates on time and savings deposits declined markedly.

While overall liabilities contracted, total core deposits grew about 8 percent in 2009, well above the average pace during years prior to the financial crisis. As a result, for the second consecutive year, core deposits rose as a share of bank funding.¹⁶ Amid low market interest rates, the opportunity cost of holding liquid deposits remained low in 2009, and consequently savings and transaction deposits grew sizably (figure 22). With money market rates unusually low, money market mutual funds experienced large outflows, some of which may have ended up at banks as the public sought the safety and liquidity of insured deposits (figure 23). Reinforcing this trend was the extension through 2013 of the temporary increase in the Federal Deposit Insurance Corporation's maximum deposit insurance amount to $250,000, which previously had been in place only through the end of 2009.¹⁷ The FDIC also extended, until the end of June 2010, its program providing unlimited guarantees of transaction accounts, although the new higher annual assessment rates for participating banks caused many large institutions to opt out of the program at year-end 2009.

Managed liabilities contracted 16-1/2 percent over 2009. Given strong growth of core deposits and shrinking assets, banks were able to continue reducing their reliance on these generally more expensive and less stable sources of funds. Large time deposits ran off appreciably, while deposits booked in foreign offices were about flat for the year. In addition to paring back advances from the Federal Home Loan Banks over the course of the year, commercial banks decreased their borrowings from the Federal Reserve liquidity facilities introduced during the crisis.¹⁸ Net borrowings in the federal funds market declined in light of banks' hefty reserve holdings.

Banking institutions issued about $300 billion of debt under the debt guarantee portion of the FDIC's Temporary Liquidity Guarantee Program (TLGP), which was established in October 2008. The TLGP guarantees, in exchange for a fee, short- and medium-term debt maturing on or before December 31, 2012. About five-sixths of this debt was issued by bank holding companies (BHCs) and so does not appear directly as long-term debt at the bank level. The program was used most heavily before the summer of 2009. After the results of the Supervisory Capital Assessment Program were released in May, many banks were able to issue sufficient amounts of debt without the guarantee. In October, the FDIC ended the Debt Guarantee Program component of the TLGP and established a new, limited emergency guarantee facility in order to promote the transition of banking institutions away from such support.

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Capital

The banking industry shored up its capital position in 2009. The equity capital of commercial banks rose to about 11-1/4 percent of assets by the end of 2009, up considerably from about 9-1/2 percent at the end of 2008. The increase was due largely to substantial infusions of capital from parent BHCs throughout the year. Total capital transfers in 2009 amounted to $113 billion. These additions augmented the large transfers that occurred in the fourth quarter of 2008 (figure 24). In many cases, the transfers reflected the downstreaming of capital raised by the parent BHC through the Troubled Asset Relief Program's Capital Purchase Program (CPP). Although many BHCs repaid CPP funds during the second half of 2009, most of that equity was replaced by secondary equity issuance by large BHCs that had been evaluated under the SCAP. As public equity markets improved further in the second half of 2009, other banks were also able to issue new shares to build capital or repay CPP investments. (For more information, see box "The Capital Purchase Program and the Supervisory Capital Assessment Program.")

Retained earnings as a share of total equity dropped from about 27 percent at the end of 2008 to about 22 percent at the end of 2009. That component was reduced by declared dividends that exceeded profits for the second consecutive year, even though such payouts as a percentage of average assets were at historically low levels. A large majority of the dividends were declared by banks in the top five BHCs. These relatively more profitable institutions repaid their CPP funds in the second half of 2009 and were not subject to the restrictions on dividends at the BHC level that are associated with the receipt of TARP funds.¹⁹ For the entire year, dividends at profitable banks amounted to 0.55 percent of average assets, while dividends at the other banks amounted to only 0.04 percent.

On balance, all three regulatory capital ratios increased to record levels (figure 25). The leverage ratio increased by 1 percentage point to about 8-1/2 percent by the end of 2009.²⁰ The tier 1 and total risk-based capital ratios, measured relative to risk-weighted assets, each increased substantially--from about 9-3/4 percent to 11-1/2 percent and from about 12-3/4 percent to 14-1/4 percent, respectively.²¹ Reductions in risk-weighted assets and average tangible assets as well as increased capital contributed to higher regulatory capital ratios in 2009. The reduction in risk-weighted assets was partly attributable to a shift in the composition of assets from loans to cash and securities, while total assets shrank as loans outstanding on banks' books ran off steeply last year.

Several factors likely contributed to banking institutions' efforts to boost capital. First, some of the largest banking organizations were required to augment their capital as a result of the SCAP process. Second, a few banks faced substantial increases in both risk-weighted and total assets associated with the large amounts of off-balance-sheet assets that are required to be consolidated on banks' balance sheets by the end of the first quarter of 2010 in conjunction with the adoption of Statements of Financial Accounting Standards Nos. 166 and 167. Those consolidations may have led some institutions to add to their capital prior to the accounting change.²² Third, capital is generally considered a buffer to protect uninsured depositors and other senior stakeholders against unexpected losses that a bank may potentially incur beyond what it has set aside in reserves. In the current uncertain economic environment, banks may want a larger than usual buffer. Moreover, banks' loan loss reserves--which are intended to cover estimated likely credit losses--have fallen to very low levels relative to their delinquent loans and charge-offs, even as certain sectors of the economy to which many banks have significant exposures, such as commercial real estate, remain fragile. Finally, both national and international authorities are considering tightening capital requirements in light of the crisis.

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Although not part of regulatory capital, accumulated other comprehensive income (AOCI), which includes net unrealized gains and losses on available-for-sale securities and accumulated net gains and losses on cash flow hedges, continued to play an important role as a component of equity last year. Particularly during the period of greatest stress on the banking system in late 2008 and the first half of 2009, market participants focused on various measures of tangible common equity (TCE) relative to tangible or risk-weighted assets as important indicators of banks' financial condition. These measures usually incorporated AOCI in the calculation of tangible capital. The increase in AOCI, which was largely due to the notable reduction in unrealized losses on available-for-sale securities, helped improve industry TCE ratios in 2009.

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Trends in Profitability

Total annual net income of the commercial banking industry as a percentage of average assets remained depressed in 2009, as profits were weighed down by high levels of loss provisioning. Elevated provisions were offset by higher noninterest income, particularly income from capital-market-related activities. Net interest margins remained basically unchanged, and noninterest expense edged down despite significant increases in FDIC assessments. Notably, large banks posted a small profit, on balance, while other banks ended the year with an aggregate loss.

Return on assets for the banking industry as a whole stayed very low by historical standards at 0.04 percent, and return on equity was 0.42 percent, with both profitability measures depressed by elevated loss provisioning amid the deterioration in credit quality. Banks increased provisioning to 1.95 percent of industry average consolidated assets in 2009, up from 1.48 percent in 2008. At the same time, charge-offs surged to 1.47 percent of industry assets--compared with 0.83 percent in 2008--limiting the rise in the stock of loan loss reserves, and delinquency rates increased dramatically throughout 2009. Although the rate of provisioning edged down in the final quarter of last year, consistent with reduced charge-offs in some loan categories, some measures of reserve adequacy remained very low.

Despite the high levels of provisioning, the ROA at large banks increased from 0.04 percent in 2008 to 0.12 percent in 2009. The improvement in profitability was due mainly to a rebound in these banks' noninterest income. In particular, trading revenue at large banks was boosted by significant improvements in financial markets throughout the year, including higher equity prices and lower interest rates on corporate bonds and other securities. In addition, relative to 2008, less noninterest expense, smaller losses on securities held in investment accounts, and improvements in net interest income supported earnings for the 100 largest banks. The improvement in net interest income was attributable to significant inflows of relatively low-cost core deposits, allowing banks to run off their more expensive managed liabilities. However, the improvement in profitability among the largest institutions was not uniform (figure 26, top panel). Forty-three of the top 100 banks--accounting for about 35 percent of the assets of such banks--incurred losses, compared with 35 of the top 100 banks in 2008.

In contrast, the fourth quarter of 2009 marked the sixth consecutive quarter of losses at small and medium-sized banks. ROA for such banks fell to negative 0.29 percent in 2009 from 0.10 percent in the previous year. The modest leftward shift in the distribution of ROA for such banks in 2009 reflects a deterioration in profitability for the group as a whole (figure 26, bottom panel). The fraction of small and medium-sized banks that incurred annual losses increased to about 30 percent in 2009, up from 23 percent in 2008. These institutions accounted for about 36 percent of assets at all small and medium-sized banks.

Several factors contributed to the weaker performance of smaller banks relative to larger ones. Smaller banks are not active in the capital market activities that provided a substantial source of revenue for large banks. In addition, smaller banks are relatively more exposed to the deterioration in loan quality, as loans compose a higher percentage of their assets. On the cost side, smaller banks could not substitute additional core deposits for managed liabilities to the same degree as large banks, as smaller banks already relied significantly on low-cost deposits for funding.

Interest Income and Expense

Overall, banks earned an average of 4.62 percent on their interest-earning assets in 2009, down from 5.72 percent in the previous year. The decline was due partly to large compositional shifts in banks' assets from loans to securities, an asset class that typically carries lower average interest rates. Indeed, the average effective interest rate on loans last year was 5.54 percent, while the rate on securities was significantly lower at 4.15 percent. However, the effective interest rate earned on loans net of provisioning fell sharply to just 2.10 percent, an unusually low rate of return by historical standards. The deterioration in loan quality also significantly reduced banks' interest income, as large fractions of loans that had yet to be charged off moved to nonaccrual status.

Meanwhile, consistent with the extended period of accommodative monetary policy, the average interest rate that banks paid on their interest-bearing liabilities fell steeply again, from 2.53 percent in 2008 to 1.30 percent in 2009. However, banks' use of substantial inflows of core deposits to pay down more costly managed liabilities was also an important factor in the decline. Core deposits are an attractive source of funding for banks because they tend to be fairly stable, as well as carry relatively low interest costs compared with managed liabilities. Most of the increase in core deposits last year came in the form of savings deposits, for which the effective interest rate paid in 2009, measured by interest paid on such accounts relative to their average balances, was historically low at about 0.50 percent, down from 1.24 percent in 2008.

On balance, the industry-wide net interest margin was little changed in 2009 despite the reported widening of spreads for many types of new loans over banks' cost of funds, as noted in the SLOOS, and evidence of wider spreads on newly originated commercial and industrial loans from the Survey of Terms of Business Lending, possibly due to a large fraction of loans moving to nonaccrual status. However, the net interest margin for the largest banks improved noticeably over the past two years: For banks in the top five BHCs, net interest margins increased from 3.13 percent in 2007 to 3.55 percent in 2009 (figure 27, top panel). These institutions benefited the most from the decrease in funding costs associated with shedding higher-cost managed liabilities in favor of core deposits. Indeed, core deposits at banks in the top five BHCs jumped from less than 33 percent of average consolidated assets in 2008 to almost 39 percent in 2009 (figure 27, bottom panel). In addition, the substantial increase in equity capital at large organizations, though accounting for a small percentage of assets, also boosted net interest margins, as neither common nor preferred dividends are included in banks' interest expense.

In contrast, core deposits at small and medium-sized banks have been relatively stable over the past few years, averaging just above 60 percent of assets since 2006. The net interest margins at small and medium-sized banks decreased from 3.80 percent in 2008 to 3.61 percent in 2009, as the drop in their asset yields exceeded the decline in the rates they paid on their liabilities.

Noninterest Income and Expense

Total noninterest income rebounded in 2009 to 2.07 percent of average assets. Most of the improvement was due to trading revenue at large banks returning to pre-crisis levels (figure 28, top panel). However, large banks' noninterest income was also boosted by a significant increase in income from net servicing fees and a substantial rise in the fair value of financial instruments accounted for under a fair value option as conditions in financial markets improved.²³ These improvements at large banks were offset somewhat by a sizable drop in net securitization income and a small decline in income from deposit fees. Income from fiduciary activities also decreased, largely because of a sharp drop in the first quarter of 2009 as assets under management and the number of accounts at bank trust departments fell in the wake of the decline in stock prices. In contrast, noninterest income at small and medium-sized banks inched down last year to 1.34 percent of average assets, primarily because they also suffered from the decrease in income from fiduciary activities (figure 28, middle panel).

The divergent pattern of noninterest income between the large and the other banks mostly reflected the different composition of their financial intermediation activities. Trading revenue, net servicing fees, card interchange fees, and net securitization income composed less than 13 percent of small and medium-sized banks' noninterest income in 2009, compared with about 35 percent for large banks. For large banks, trading revenue was boosted to pre-crisis levels by significant improvements in income from interest rate and credit exposures as conditions in financial markets improved (figure 28, bottom panel). The increase in net servicing fees--which include income from servicing mortgages, credit cards, and other off-balance-sheet assets, as well as changes in the fair value of such servicing rights--was partly a consequence of the consolidation of some large thrift institutions into the banking sector in the second and fourth quarters of 2009. Further, large banks reportedly sold sizable amounts of seasoned residential mortgage loans to the government-sponsored enterprises last year, and some may have retained servicing rights to those loans. While bankcard and credit card interchange fees continued to be an important source of noninterest income for large banks, net securitization income fell rapidly for the second consecutive year because of relatively subdued securitization activity.²⁴ Other noninterest income items not mentioned separately already made up about 35 percent of noninterest income for the industry as a whole.²⁵

Banks' noninterest expense edged down to 3 percent of average assets in 2009 (figure 29, top panel). Salaries, wages, and employee benefits composed about 43 percent of noninterest expense, a figure that continues to be fairly low by historical standards. Among other noninterest expense items, net expenses of premises and fixed assets (excluding mortgage interest) continued to account for about 12 percent of noninterest expense. Goodwill impairment charges decreased from more than $26 billion in 2008 to about $10 billion in 2009.²⁶ That improvement was offset, however, by rising FDIC assessment fees, which jumped to about $17 billion in 2009 from slightly more than $1 billion in 2008 (figure 29, bottom panel); those fees were exceptionally elevated in the second quarter of 2009, when the FDIC levied a special assessment fee in order to replenish the Deposit Insurance Fund (DIF) because of the growing number of bank failures. In the second half of 2009, the FDIC raised its estimated cost of bank failures and required banks to prepay regular assessments through 2012, with higher assessment rates applied for 2011 and 2012, in order to shore up the DIF. This prepayment was not considered to be noninterest expense for 2009, but rather was booked as a prepaid asset to be expensed smoothly over the next three years. According to the FDIC, these prepayments totaled $46 billion for all FDIC-insured institutions. Banks were able to reduce expenses in other noninterest categories, which include data processing expenses, advertising and marketing costs, and other items.²⁷

International Operations of U.S. Commercial Banks

The share of U.S. bank assets booked in foreign offices edged down from about 12-1/2 percent at year-end 2008 to just less than 12-1/4 percent at year-end 2009. Assets booked abroad remained highly concentrated among the largest banks. Commercial banks returned to profitability on their international operations in 2009, though losses were reported on domestic operations for the first time since at least 1985. However, profits at foreign offices would have been negative and those at domestic offices positive, as was the case in 2008, had there not been a large reduction in internal allocations of income and expense applicable to foreign offices at one large bank. Before such allocations and restructuring activity for the industry as a whole, net income from foreign offices as a percentage of average assets booked in foreign offices remained about the same as in 2008. More specifically, large increases in provisioning for loans and leases held at banks' foreign offices and a fall in noninterest income were offset by significantly smaller noninterest expense and a return to positive realized gains in investment account securities.

Banks' total exposures to foreign economies through lending and derivatives activities increased in 2009, as two investment banks with large foreign exposures became BHCs and were added to the Federal Financial Institutions Examination Council's Country Exposure Lending Survey (table 3). Without the change in the sample of banks, such foreign exposures would have continued to decline. The vast majority of U.S. banks' cross-border lending and derivatives outstanding--in dollar terms--remained in the advanced foreign economies at the end of 2009.²⁸ Lending and derivatives activities outstanding in Asia were about 12 percent of total foreign exposure, or 35 percent of total tier 1 capital of the banks in the survey. Lending and derivatives exposures to the Latin American and the Caribbean regions and such exposures to a selected group of European Union countries (Greece, Ireland, Italy, Portugal, and Spain) were both about 25 percent of total tier 1 capital.

3. Exposure of U.S. banks to selected economies at year-end relative to tier 1 capital, 1998-2009
Percent

Year	Asia				Latin America and the Caribbean			Eastern Europe	G-10 and Switzerland1	Non-G-10 developed countries2	Total	MEMO Selected EU countries3
	All	China	India	Korea	All	Mexico	Brazil
1998	28.2	1.0	2.2	7.1	42.9	9.9	11.3	3.5	182.5	37.1	294.3	29.7
2000	24.0	.8	2.6	6.4	37.9	9.1	11.2	4.4	174.6	32.8	273.7	26.9
2002	21.9	.9	2.7	5.8	38.9	20.8	8.4	5.5	172.1	21.3	259.8	23.9
2004	32.2	1.4	4.2	15.0	31.8	16.6	6.5	6.1	198.2	37.2	305.4	25.7
2006	34.7	4.1	6.1	13.6	30.8	16.8	5.7	6.5	174.7	38.5	285.1	23.2
2007	44.6	4.5	9.8	14.4	35.6	17.2	8.2	9.0	219.3	48.3	356.6	27.0
2008	30.8	3.4	6.1	10.7	25.5	12.9	5.0	5.4	166.3	35.3	263.3	20.0
2009	35.2	6.4	6.1	11.3	25.0	12.0	7.0	4.6	198.1	39.9	302.8	25.4
MEMO Total exposure (billions of dollars)
1998	69.1	2.3	5.4	17.3	105.0	24.1	27.6	8.5	446.3	90.8	719.6	72.5
2000	68.0	2.2	7.5	18.1	107.3	25.7	31.6	12.3	494.6	93.0	775.3	76.3
2002	69.5	2.7	8.7	18.4	123.5	66.2	26.6	17.5	546.5	67.7	824.7	75.9
2004	125.8	5.3	16.3	58.7	124.4	65.2	25.5	23.8	775.7	145.5	1,195.4	100.6
2006	190.5	22.7	33.6	74.8	168.9	92.5	31.5	35.5	959.1	211.2	1,565.2	127.1
2007	249.8	25.5	54.9	80.8	199.3	96.1	46.2	50.2	1,229.0	270.5	1,998.8	151.6
2008	217.4	24.3	43.1	75.3	179.7	90.7	35.6	37.9	1,172.9	248.6	1,856.5	141.0
2009	328.4	59.5	56.8	105.2	233.2	111.4	65.6	42.6	1,846.2	371.9	2,822.3	236.8

NOTE: Exposures consist of lending and derivatives exposures for cross-border and local-office operations. Respondents may file information on one bank or on the bank holding company as a whole. For the definition of tier 1 capital, see text note 21.

The 2009 data cover 69 banks (which include two large, newly formed bank holding companies) with a total of $932.1 billion in tier 1 capital. The 2008 data covered 68 banks with a total of $705.1 billion in tier 1 capital.

1. The G-10 (Group of Ten) countries are Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Sweden, and the United Kingdom.  Return to table

2. The non-G-10 developed countries include Australia, Austria, Denmark, Finland, Greece, Iceland, Ireland, Israel, New Zealand, Norway, Portugal, South Africa, Spain, and Turkey.  Return to table

3. The selected European Union (EU) countries consist of Greece, Ireland, Italy, Portugal, and Spain.  Return to table

Source: Federal Financial Institutions Examination Council, Statistical Release E.16, "Country Exposure Lending Survey" (www.ffiec.gov/E16.htm).

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Developments in Early 2010

U.S. economic activity continued to recover in the first quarter of 2010, and financial market conditions remained broadly supportive of economic recovery.²⁹ In particular, household spending expanded moderately, while business spending on equipment and software rose significantly. The equity and bond markets continued to be an important source of funding for large corporations. Treasury yields, interest rates on business loans, and mortgage rates remained low by historical standards, partly due to accommodative monetary policy. The Federal Open Market Committee continued to maintain a target range for the federal funds rate of 0 to 1/4 percent. Financial markets showed little effect from the end of the Federal Reserve's purchases of agency mortgage-backed securities and agency debt and the expiration of most of the Federal Reserve's emergency credit facilities. However, unemployment remained elevated, investment in nonresidential structures declined further, and home sales generally remained low.

Amid tight credit conditions and reportedly weak demand, loans to both businesses and households continued to decline during the first three months of 2010. Commercial and industrial loans contracted further as spreads of interest rates on such loans over comparable-maturity market instruments climbed again in the first quarter. Commercial real estate loans also posted a substantial decline, which reflected weak investment in nonresidential structures. Residential real estate loans also ran off, likely owing importantly to greater securitizations of mortgages to the government-sponsored enterprises and sluggish home sales, while credit card balances continued to fall, perhaps partly in response to further increases in interest rates on credit cards.

Bank profitability improved significantly in the first quarter of 2010 as many banks reported tentative improvements in credit quality. In particular, the four largest bank holding companies recorded profits in the first quarter of 2010, as trading revenue and lower loss provisioning boosted earnings. Indeed, the fairly broad-based decline in loss provisioning also contributed to improved earnings at many regional banks. Nevertheless, regional and smaller banks continued to struggle with profitability as credit losses on core lending operations remained high. Moreover, failures of smaller banks continued in 2010 at about the same pace as 2009, driven largely by credit losses on commercial real estate lending.

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Appendix

A.1. Portfolio composition, interest rates, and income and expense, U.S. banks, 2000-9
A. All banks

Item	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009
	Balance sheet items as a percentage of average net consolidated assets
Interest-earning assets1	87.13	86.49	86.42	86.08	86.90	86.82	86.86	86.94	85.28	85.71
Loans and leases (net)	60.48	58.95	57.83	56.88	56.98	57.88	58.26	58.37	56.73	53.96
Commercial and industrial	17.16	16.08	14.07	12.18	11.06	11.17	11.42	11.84	12.08	10.77
U.S. addressees	14.67	13.69	12.04	10.48	9.52	9.64	9.73	9.86	10.12	9.20
Foreign addressees	2.49	2.39	2.04	1.70	1.54	1.53	1.70	1.98	1.96	1.57
Consumer	9.38	9.23	9.35	9.06	9.18	9.12	8.53	8.43	8.33	8.06
Credit card	3.52	3.69	3.78	3.55	3.87	4.06	3.73	3.72	3.68	3.59
Installment and other	5.87	5.55	5.57	5.51	5.31	5.06	4.80	4.71	4.65	4.47
Real estate	27.04	27.10	28.39	29.91	30.77	32.40	33.19	33.37	31.96	32.02
In domestic offices	26.49	26.60	27.91	29.45	30.24	31.84	32.61	32.76	31.35	31.50
Construction and land development	2.51	2.85	2.98	2.99	3.26	3.90	4.73	5.05	4.73	3.99
Farmland	.56	.55	.56	.54	.54	.54	.53	.53	.52	.55
One- to four-family residential	14.96	14.67	15.40	16.96	17.42	18.26	18.23	18.31	17.29	17.59
Home equity	1.96	2.18	2.80	3.40	4.34	4.95	4.71	4.49	4.60	5.07
Other	13.00	12.49	12.60	13.57	13.08	13.31	13.51	13.82	12.70	12.52
Multifamily residential	.99	.97	1.02	1.05	1.06	1.08	1.06	1.04	1.10	1.30
Nonfarm nonresidential	7.48	7.56	7.95	7.91	7.97	8.06	8.07	7.84	7.70	8.07
In foreign offices	.54	.50	.48	.46	.53	.56	.58	.60	.61	.53
To depository institutions and acceptances of other banks	1.87	1.83	1.87	1.98	2.11	1.73	1.65	1.21	1.19	1.01
Foreign governments	.12	.10	.09	.08	.08	.06	.04	.03	.02	.02
Agricultural production	.78	.75	.70	.63	.59	.56	.55	.52	.49	.49
Other loans	2.58	2.34	2.06	2.00	2.35	2.09	2.19	2.48	2.64	2.26
Lease-financing receivables	2.63	2.58	2.44	2.11	1.79	1.58	1.43	1.23	1.07	.94
LESS: Unearned income on loans	-.05	-.04	-.05	-.04	-.04	-.03	-.03	-.02	-.02	-.02
LESS: Loss reserves2	-1.02	-1.04	-1.11	-1.03	-.91	-.79	-.71	-.70	-1.03	-1.58
Securities	20.02	19.53	21.27	21.90	22.57	22.04	21.32	20.77	19.27	20.39
Investment account	17.59	16.82	18.30	18.97	18.99	17.87	16.89	15.41	14.13	16.62
Debt	16.93	16.48	17.99	18.72	18.79	17.71	16.73	15.23	13.95	16.36
U.S. Treasury	1.66	.85	.78	.90	.89	.62	.47	.32	.24	.52
U.S. government agency and corporation obligations	10.31	10.08	11.46	12.26	12.37	11.51	10.65	9.32	8.14	9.32
Government-backed mortgage pools	4.75	5.13	6.09	6.75	7.13	6.78	6.43	5.82	5.47	6.14
Collateralized mortgage obligations	1.92	1.95	2.35	2.34	2.01	1.80	1.58	1.34	1.27	1.52
Other	3.63	2.99	3.02	3.17	3.22	2.93	2.65	2.16	1.40	1.66
State and local government	1.52	1.49	1.49	1.48	1.41	1.36	1.34	1.34	1.20	1.27
Private mortgage-backed securities	.95	1.09	1.25	1.30	1.41	1.76	1.89	2.15	2.10	1.88
Other	2.48	2.98	3.01	2.78	2.72	2.47	2.37	2.10	2.28	3.36
Equity	.66	.34	.31	.25	.20	.16	.16	.18	.18	.26
Trading account	2.43	2.72	2.97	2.93	3.59	4.17	4.43	5.36	5.13	3.77
Gross federal funds sold and reverse RPs	4.12	5.11	4.81	4.85	4.58	4.75	5.30	5.49	6.03	4.54
Balances at depositories1	2.52	2.90	2.52	2.46	2.76	2.14	1.98	2.30	3.25	6.82
Noninterest-earning assets1	12.87	13.51	13.58	13.92	13.10	13.18	13.14	13.06	14.72	14.29
Revaluation gains held in trading accounts	2.28	2.37	2.42	2.70	2.19	1.82	1.64	1.73	2.83	2.78
Other	10.58	11.14	11.16	11.22	10.91	11.36	11.51	11.33	11.90	11.51
Liabilities	91.58	91.25	90.85	90.96	90.57	89.91	89.84	89.78	90.07	89.50
Core deposits	46.52	47.07	48.98	49.18	48.56	47.52	45.56	43.89	42.72	46.92
Transaction deposits	11.07	10.36	10.06	9.73	9.10	8.46	7.45	6.43	6.16	6.90
Demand deposits	8.61	8.00	7.67	7.26	6.58	6.16	5.41	4.66	4.53	5.06
Other checkable deposits	2.46	2.36	2.39	2.47	2.52	2.30	2.04	1.77	1.63	1.84
Savings deposits (including MMDAs)	22.43	24.53	28.13	30.12	31.19	30.83	29.49	28.21	27.04	29.98
Small time deposits	13.01	12.18	10.80	9.33	8.27	8.23	8.62	9.26	9.51	10.04
Managed liabilities3	38.83	37.42	35.05	34.61	35.69	36.25	38.29	39.85	41.08	37.09
Large time deposits	8.77	8.89	8.30	8.09	8.00	9.11	10.07	9.13	9.13	8.32
Deposits booked in foreign offices	11.43	10.66	9.42	9.38	10.25	10.39	11.18	12.81	13.09	12.56
Subordinated notes and debentures	1.37	1.43	1.40	1.33	1.30	1.34	1.40	1.55	1.51	1.39
Gross federal funds purchased and RPs	7.83	7.95	7.77	7.75	7.24	7.05	7.53	7.06	6.98	6.05
Other managed liabilities	9.44	8.49	8.16	8.06	8.91	8.37	8.11	9.31	10.38	8.77
Revaluation losses held in trading accounts	2.29	2.21	2.09	2.30	1.95	1.67	1.51	1.59	2.27	1.98
Other	3.94	4.54	4.73	4.87	4.36	4.47	4.47	4.44	4.01	3.51
Capital account	8.42	8.75	9.15	9.04	9.43	10.09	10.16	10.22	9.93	10.50
MEMO
Commercial real estate loans4	11.58	12.09	12.57	12.47	12.78	13.52	14.35	14.47	14.10	13.91
Other real estate owned5	.05	.05	.06	.06	.06	.04	.05	.07	.13	.28
Mortgage-backed securities	7.63	8.17	9.69	10.39	10.56	10.33	9.89	9.31	8.84	9.55
Federal Home Loan Bank advances	n.a.	2.89	3.17	3.19	3.07	3.04	3.07	3.66	4.45	3.77
Balances at the Federal Reserve1	.42	.40	.38	.40	.35	.29	.24	.20	3.44	4.14
Interest-earning	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	3.00	4.14
Noninterest-earning	.42	.40	.38	.40	.35	.29	.24	.20	.44	n.a.
Interest-earning balances at depositories other than the Federal Reserve	2.52	2.90	2.52	2.46	2.76	2.14	1.98	2.30	2.69	2.68
Average net consolidated assets (billions of dollars)	5,907	6,334	6,635	7,249	7,879	8,592	9,427	10,396	11,578	11,869
	Effective interest rate (percent)6
Rates earned
Interest-earning assets	8.20	7.37	6.10	5.29	5.08	5.70	6.65	6.78	5.72	4.62
Taxable equivalent	8.26	7.42	6.15	5.33	5.12	5.73	6.69	6.82	5.74	4.64
Loans and leases, gross	9.00	8.15	6.89	6.15	5.91	6.52	7.55	7.54	6.39	5.54
Net of loss provisions	8.33	7.15	5.84	5.47	5.47	6.09	7.18	6.69	3.90	2.10
Securities	6.47	6.04	4.95	3.96	3.86	4.18	4.71	5.02	4.86	4.15
Taxable equivalent	6.65	6.22	5.10	4.10	3.99	4.30	4.83	5.14	4.94	4.23
Investment account	6.45	6.05	5.04	4.00	3.96	4.29	4.86	5.13	4.93	4.31
U.S. Treasury securities and U.S. government agency obligations (excluding MBS)	n.a.	5.76	4.42	3.29	3.11	3.46	4.19	4.71	4.23	2.78
Mortgage-backed securities	n.a.	6.45	5.44	4.24	4.38	4.60	5.10	5.29	5.21	4.86
Other	n.a.	5.60	4.74	4.08	3.76	4.23	4.76	5.02	4.58	3.94
Trading account	6.63	6.01	4.38	3.71	3.35	3.72	4.16	4.70	4.64	3.44
Gross federal funds sold and reverse RPs	5.56	3.86	1.93	1.40	1.40	2.66	4.31	5.07	2.50	.64
Interest-bearing balances at depositories1	6.48	4.01	2.79	2.09	1.98	3.70	5.10	5.13	3.23	.68
Rates paid
Interest-bearing liabilities	4.94	3.93	2.38	1.72	1.63	2.47	3.59	3.82	2.53	1.30
Interest-bearing deposits	4.45	3.61	2.11	1.47	1.36	2.06	3.05	3.39	2.26	1.14
In foreign offices	5.61	3.94	2.38	1.62	1.72	2.77	3.92	4.23	2.47	.69
In domestic offices	4.17	3.54	2.06	1.44	1.29	1.91	2.85	3.18	2.20	1.25
Other checkable deposits	2.34	1.96	1.06	.75	.77	1.41	1.88	2.04	1.16	.60
Savings deposits (including MMDAs)	2.86	2.19	1.13	.74	.72	1.24	2.01	2.22	1.24	.50
Large time deposits	5.78	5.04	3.37	2.59	2.35	3.19	4.39	4.71	3.48	2.22
Other time deposits	5.69	5.43	3.70	2.88	2.56	3.14	4.11	4.72	3.83	2.79
Gross federal funds purchased and RPs	5.77	3.83	1.88	1.30	1.49	3.07	4.57	4.97	2.39	.62
Other interest-bearing liabilities	6.97	5.91	4.49	3.69	3.34	4.58	6.29	5.46	4.05	2.74
	Income and expense as a percentage of average net consolidated assets
Gross interest income	7.18	6.38	5.27	4.54	4.43	4.97	5.85	5.94	4.88	4.05
Taxable equivalent	7.22	6.42	5.31	4.58	4.46	5.00	5.88	5.97	4.91	4.07
Loans	5.53	4.92	4.06	3.55	3.42	3.82	4.48	4.47	3.68	3.10
Securities	1.15	1.00	.89	.74	.74	.77	.84	.80	.70	.72
Gross federal funds sold and reverse RPs	.23	.20	.09	.07	.07	.13	.23	.28	.14	.03
Other	.27	.27	.22	.18	.20	.25	.31	.39	.35	.20
Gross interest expense	3.76	2.98	1.79	1.30	1.25	1.89	2.79	2.99	1.96	1.03
Deposits	2.56	2.09	1.23	.86	.81	1.23	1.84	2.05	1.33	.71
Gross federal funds purchased and RPs	.45	.31	.15	.10	.11	.22	.36	.36	.17	.04
Other	.75	.58	.41	.33	.33	.44	.59	.58	.45	.28
Net interest income	3.41	3.40	3.48	3.24	3.17	3.07	3.05	2.95	2.93	3.02
Taxable equivalent	3.46	3.44	3.52	3.28	3.21	3.11	3.09	2.98	2.95	3.05
Loss provisions7	.50	.68	.68	.45	.30	.30	.27	.55	1.48	1.95
Noninterest income	2.59	2.54	2.54	2.54	2.40	2.35	2.36	2.10	1.81	2.07
Service charges on deposits	.40	.42	.45	.44	.42	.39	.38	.38	.37	.35
Fiduciary activities	.38	.35	.32	.31	.32	.31	.30	.32	.28	.23
Trading revenue	.21	.20	.16	.16	.13	.17	.20	.05	-.01	.20
Interest rate exposures	.08	.09	.08	.07	.03	.05	.05	.04	-.01	.12
Foreign exchange rate exposures	.08	.07	.07	.07	.07	.07	.08	.07	.09	.04
Other commodity and equity exposures	.04	.03	.01	.02	.03	.04	.07	.03	.01	.02
Credit exposures	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	-.09	-.11	.01
Other	1.61	1.57	1.60	1.63	1.53	1.48	1.48	1.36	1.16	1.30
Noninterest expense	3.66	3.57	3.47	3.36	3.34	3.19	3.13	3.09	3.09	3.00
Salaries, wages, and employee benefits	1.51	1.49	1.51	1.50	1.46	1.44	1.44	1.39	1.27	1.28
Occupancy	.45	.44	.44	.43	.42	.41	.39	.37	.35	.35
Other	1.70	1.64	1.51	1.43	1.46	1.34	1.30	1.33	1.46	1.37
Net noninterest expense	1.07	1.03	.93	.82	.94	.84	.76	.99	1.28	.93
Gains on investment account securities	-.04	.07	.10	.08	.04	*	-.01	-.01	-.14	-.01
Income before taxes and extraordinary items	1.81	1.77	1.96	2.05	1.97	1.93	2.00	1.41	.03	.12
Taxes	.63	.59	.65	.67	.64	.62	.65	.43	.02	.04
Extraordinary items, net of income taxes	*	-.01	*	.01	*	*	.03	-.02	.05	-.03
Net income	1.18	1.17	1.32	1.39	1.33	1.31	1.39	.97	.05	.04
Cash dividends declared	.89	.87	1.01	1.07	.76	.75	.87	.82	.37	.37
Retained income	.29	.31	.30	.31	.58	.56	.51	.15	-.32	-.32
MEMO: Return on equity	13.97	13.41	14.38	15.34	14.14	12.99	13.65	9.45	.54	.42

NOTE: Data are as of March 23, 2010.

1. Effective October 1, 2008, the Federal Reserve began paying interest on depository institutions' required and excess reserve balances. Beginning with the 2008:Q4 Call Report, balances due from Federal Reserve Banks are now reported under "Interest-earning assets" rather than "Noninterest-earning assets."   Return to table

2. Includes allocated transfer risk reserve.  Return to table

3. Measured as the sum of large time deposits in domestic offices, deposits booked in foreign offices, subordinated notes and debentures, federal funds purchased and securities sold under repurchase agreements, Federal Home Loan Bank advances, and other borrowed money.   Return to table

4. Measured as the sum of construction and land development loans secured by real estate; real estate loans secured by nonfarm nonresidential properties or by multifamily residential properties; and loans to finance commercial real estate, construction, and land development activities not secured by real estate.  Return to table

5. Other real estate owned is a component of other noninterest-earning assets.  Return to table

6. When possible, based on the average of quarterly balance sheet data reported on schedule RC-K of the quarterly Call Report.   Return to table

7. Includes provisions for allocated transfer risk.  Return to table

* In absolute value, less than 0.005 percent.  Return to table

n.a. Not available.   Return to table

MMDA Money market deposit account.   Return to table

RP Repurchase agreement.   Return to table

MBS Mortgage-backed securities.  Return to table

Return to text

A.1. Portfolio composition, interest rates, and income and expense, U.S. banks, 2000-9,
B. Ten largest banks by assets

Item	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009
	Balance sheet items as a percentage of average net consolidated assets
Interest-earning assets1	82.23	81.74	81.68	81.39	83.54	83.96	84.68	85.03	83.05	83.54
Loans and leases (net)	55.22	53.86	53.61	52.20	51.29	51.35	52.03	53.21	50.66	46.99
Commercial and industrial	19.87	18.82	16.16	12.98	10.54	10.61	11.20	11.58	11.85	10.21
U.S. addressees	13.95	13.42	11.69	9.40	7.49	7.74	8.08	8.05	8.45	7.52
Foreign addressees	5.92	5.41	4.47	3.59	3.06	2.87	3.12	3.53	3.40	2.69
Consumer	5.43	6.17	7.82	7.96	8.49	8.80	8.17	8.98	8.43	6.83
Credit card	1.34	1.69	2.90	2.81	3.19	3.60	3.05	3.87	3.54	2.16
Installment and other	4.09	4.48	4.92	5.15	5.30	5.21	5.13	5.11	4.89	4.67
Real estate	19.82	19.23	20.78	22.68	23.21	24.55	25.51	27.04	25.26	26.23
In domestic offices	18.48	18.05	19.70	21.74	22.21	23.52	24.50	26.00	24.29	25.39
Construction and land development	.98	1.27	1.42	1.36	1.40	1.70	2.01	2.01	1.86	1.87
Farmland	.11	.11	.12	.10	.10	.10	.10	.09	.09	.09
One- to four-family residential	13.37	12.41	13.51	16.03	16.71	17.73	18.30	19.86	18.40	18.95
Home equity	1.61	1.78	2.35	2.96	4.04	5.22	5.40	5.46	5.59	6.26
Other	11.76	10.63	11.17	13.07	12.67	12.52	12.90	14.40	12.81	12.69
Multifamily residential	.60	.51	.55	.47	.45	.44	.44	.55	.69	1.00
Nonfarm nonresidential	3.42	3.76	4.09	3.78	3.55	3.55	3.65	3.49	3.25	3.48
In foreign offices	1.34	1.18	1.08	.94	1.00	1.03	1.01	1.03	.97	.84
To depository institutions and acceptances of other banks	3.78	3.23	3.20	3.54	4.10	3.15	2.97	1.71	1.67	1.27
Foreign governments	.28	.20	.20	.17	.16	.12	.07	.05	.02	.03
Agricultural production	.23	.28	.23	.19	.22	.20	.20	.17	.15	.16
Other loans	3.75	3.51	2.94	2.87	3.32	2.81	2.88	3.08	3.21	2.78
Lease-financing receivables	3.07	3.43	3.44	2.87	2.08	1.78	1.60	1.22	1.06	.93
LESS: Unearned income on loans	-.04	-.04	-.08	-.06	-.04	-.04	-.02	-.02	-.02	-.02
LESS: Loss reserves2	-.97	-.97	-1.12	-1.00	-.79	-.65	-.56	-.60	-.98	-1.45
Securities	18.98	17.81	20.54	21.22	22.95	23.37	23.05	21.97	20.97	22.27
Investment account	13.71	12.14	14.35	15.31	15.99	15.58	15.12	12.81	12.44	16.56
Debt	13.03	11.88	14.13	15.11	15.83	15.44	14.97	12.66	12.32	16.40
U.S. Treasury	1.96	.68	.59	.82	.86	.56	.43	.24	.16	.51
U.S. government agency and corporation obligations	6.59	6.84	8.69	9.20	9.92	9.69	9.48	8.02	6.95	8.67
Government-backed mortgage pools	4.88	4.99	6.38	7.59	8.64	8.65	8.64	7.53	6.48	7.25
Collateralized mortgage obligations	.93	1.11	1.52	.91	.70	.54	.53	.33	.38	.66
Other	.78	.74	.79	.70	.58	.50	.32	.16	.09	.75
State and local government	.51	.55	.59	.59	.57	.58	.64	.65	.55	.68
Private mortgage-backed securities	.51	.58	.92	1.10	.96	1.18	1.09	1.45	2.01	2.35
Other	3.47	3.22	3.34	3.40	3.52	3.43	3.33	2.30	2.66	4.19
Equity	.68	.26	.22	.20	.16	.14	.15	.16	.12	.16
Trading account	5.26	5.67	6.18	5.91	6.96	7.79	7.94	9.16	8.52	5.70
Gross federal funds sold and reverse RPs	5.02	6.38	5.26	5.79	6.37	6.96	7.60	7.47	8.13	6.53
Balances at depositories1	3.01	3.69	2.28	2.18	2.93	2.28	1.99	2.38	3.28	7.76
Noninterest-earning assets1	17.77	18.26	18.32	18.61	16.46	16.04	15.32	14.97	16.95	16.46
Revaluation gains held in trading accounts	5.66	5.48	5.40	5.79	4.45	3.50	3.07	3.03	4.77	4.47
Other	12.11	12.78	12.93	12.83	12.01	12.54	12.25	11.93	12.18	11.98
Liabilities	92.36	92.14	91.52	91.94	91.64	90.81	91.10	90.82	91.34	90.78
Core deposits	33.28	36.38	40.61	41.07	42.02	40.18	38.03	35.08	34.49	39.62
Transaction deposits	8.01	8.40	8.34	7.74	6.65	6.05	5.41	4.69	4.73	5.80
Demand deposits	7.28	7.50	7.40	6.72	5.43	4.90	4.32	3.80	3.91	4.84
Other checkable deposits	.74	.90	.95	1.02	1.22	1.15	1.09	.89	.81	.96
Savings deposits (including MMDAs)	19.24	22.21	26.82	28.99	31.54	30.11	28.11	25.55	24.59	28.41
Small time deposits	6.03	5.77	5.44	4.34	3.83	4.02	4.52	4.84	5.18	5.41
Managed liabilities3	46.84	43.41	38.89	38.60	39.33	40.83	43.75	46.83	47.69	43.51
Large time deposits	5.55	5.46	5.13	5.53	5.21	6.28	6.85	6.13	6.72	6.11
Deposits booked in foreign offices	22.76	20.28	17.31	16.62	17.20	17.51	18.50	19.86	20.16	20.25
Subordinated notes and debentures	2.10	2.16	2.11	1.92	1.78	1.89	1.99	2.17	2.09	1.87
Gross federal funds purchased and RPs	8.89	9.04	8.83	8.62	7.79	8.39	9.51	8.42	8.18	6.79
Other managed liabilities	7.55	6.47	5.53	5.90	7.35	6.76	6.89	10.26	10.54	8.48
Revaluation losses held in trading accounts	5.69	5.10	4.63	4.88	3.95	3.21	2.83	2.79	3.77	3.12
Other	6.55	7.26	7.39	7.40	6.34	6.60	6.47	6.12	5.39	4.53
Capital account	7.64	7.86	8.48	8.06	8.36	9.19	8.90	9.18	8.66	9.22
MEMO
Commercial real estate loans4	5.87	6.68	6.92	6.31	5.99	6.33	6.73	6.64	6.37	6.92
Other real estate owned5	.04	.04	.03	.03	.03	.02	.03	.05	.09	.19
Mortgage-backed securities	6.32	6.68	8.82	9.60	10.30	10.36	10.25	9.31	8.87	10.27
Federal Home Loan Bank advances	n.a.	.82	.82	.84	.79	.63	.75	2.33	2.81	2.64
Balances at the Federal Reserve1	.20	.27	.23	.23	.25	.21	.17	.15	3.92	4.29
Interest-earning	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	3.61	4.29
Noninterest-earning	.20	.27	.23	.23	.25	.21	.17	.15	.32	n.a.
Interest-earning balances at depositories other than the Federal Reserve	3.01	3.69	2.28	2.18	2.93	2.28	1.99	2.38	2.69	3.46
Average net consolidated assets (billions of dollars)	2,234	2,527	2,785	3,148	3,654	4,232	4,759	5,469	6,241	6,379
	Effective interest rate (percent)6
Rates earned
Interest-earning assets	7.76	6.83	5.82	4.99	4.71	5.29	6.32	6.52	5.44	4.08
Taxable equivalent	7.78	6.86	5.85	5.01	4.73	5.31	6.34	6.54	5.45	4.10
Loans and leases, gross	8.46	7.50	6.52	5.76	5.52	6.15	7.36	7.33	6.14	5.00
Net of loss provisions	7.92	6.55	5.30	5.19	5.29	5.84	7.02	6.29	3.23	1.55
Securities	6.48	6.23	5.04	4.15	4.04	4.27	4.69	4.99	4.93	4.20
Taxable equivalent	6.55	6.31	5.11	4.21	4.10	4.32	4.75	5.04	4.95	4.24
Investment account	6.40	6.23	5.30	4.26	4.37	4.63	5.11	5.29	5.14	4.50
U.S. Treasury securities and U.S. government agency obligations (excluding MBS)	n.a.	5.01	3.74	2.62	2.92	3.29	4.15	4.15	3.02	2.61
Mortgage-backed securities	n.a.	6.42	5.55	4.51	4.83	4.92	5.30	5.41	5.34	4.94
Other	n.a.	6.34	5.30	4.28	3.76	4.26	4.81	5.08	4.77	4.09
Trading account	6.70	6.24	4.46	3.87	3.32	3.57	3.90	4.57	4.59	3.36
Gross federal funds sold and reverse RPs	4.93	3.86	2.20	1.60	1.43	2.46	4.07	5.06	2.59	.72
Interest-bearing balances at depositories1	7.43	3.73	3.40	2.49	1.80	4.06	5.59	5.36	3.46	.72
Rates paid
Interest-bearing liabilities	5.03	3.78	2.33	1.67	1.62	2.52	3.74	3.87	2.47	1.04
Interest-bearing deposits	4.40	3.27	1.94	1.34	1.29	2.01	2.96	3.30	2.08	.79
In foreign offices	5.67	4.02	2.59	1.74	1.81	2.77	3.88	4.28	2.52	.74
In domestic offices	3.51	2.84	1.67	1.18	1.08	1.70	2.55	2.80	1.85	.82
Other checkable deposits	1.61	1.67	.93	.80	.97	2.27	2.46	2.36	1.13	.47
Savings deposits (including MMDAs)	2.43	1.92	1.02	.73	.71	1.15	1.87	1.98	1.10	.36
Large time deposits	5.32	4.40	3.26	2.36	2.14	3.06	4.32	4.72	3.33	1.60
Other time deposits	5.53	5.11	3.44	2.70	2.61	3.40	4.05	4.55	3.48	2.41
Gross federal funds purchased and RPs	5.47	3.81	2.02	1.39	1.59	3.11	4.63	5.15	2.54	.54
Other interest-bearing liabilities	8.07	6.84	5.57	4.42	3.83	5.40	7.78	5.61	4.32	2.80
	Income and expense as a percentage of average net consolidated assets
Gross interest income	6.39	5.55	4.77	4.05	3.94	4.47	5.46	5.61	4.52	3.53
Taxable equivalent	6.41	5.57	4.79	4.07	3.96	4.48	5.48	5.63	4.53	3.54
Loans	4.74	4.13	3.57	3.04	2.86	3.19	3.91	3.98	3.15	2.45
Securities	.88	.72	.73	.63	.69	.72	.80	.69	.65	.75
Gross federal funds sold and reverse RPs	.25	.25	.12	.10	.10	.18	.31	.38	.20	.05
Other	.51	.44	.35	.28	.30	.38	.45	.56	.51	.27
Gross interest expense	3.60	2.69	1.65	1.19	1.20	1.89	2.88	3.00	1.88	.82
Deposits	2.33	1.74	1.05	.74	.74	1.17	1.72	1.87	1.17	.48
Gross federal funds purchased and RPs	.49	.35	.18	.13	.13	.27	.47	.46	.21	.04
Other	.78	.59	.41	.33	.33	.45	.69	.68	.50	.29
Net interest income	2.78	2.87	3.12	2.86	2.74	2.58	2.58	2.61	2.63	2.71
Taxable equivalent	2.80	2.89	3.14	2.88	2.76	2.59	2.60	2.63	2.65	2.73
Loss provisions7	.38	.59	.73	.35	.16	.20	.22	.60	1.52	1.71
Noninterest income	2.54	2.26	2.31	2.32	2.21	2.37	2.35	1.95	1.66	2.17
Service charges on deposits	.40	.44	.48	.46	.45	.42	.41	.40	.40	.37
Fiduciary activities	.27	.29	.25	.26	.24	.27	.23	.20	.21	.21
Trading revenue	.48	.43	.32	.30	.23	.31	.37	.05	-.01	.23
Interest rate exposures	.20	.20	.15	.12	.07	.11	.09	.08	-.01	.13
Foreign exchange rate exposures	.18	.14	.14	.14	.12	.12	.14	.09	.13	.09
Other commodity and equity exposures	.11	.08	.03	.04	.04	.07	.13	.06	.03	.04
Credit exposures	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	-.18	-.17	-.03
Other	1.39	1.10	1.26	1.30	1.28	1.38	1.35	1.31	1.07	1.36
Noninterest expense	3.31	3.13	3.16	3.02	3.11	2.99	2.89	2.80	2.71	2.71
Salaries, wages, and employee benefits	1.46	1.38	1.41	1.39	1.34	1.38	1.39	1.32	1.20	1.28
Occupancy	.47	.45	.46	.45	.43	.43	.40	.37	.35	.36
Other	1.39	1.30	1.28	1.18	1.33	1.19	1.09	1.12	1.17	1.08
Net noninterest expense	.77	.87	.85	.70	.91	.62	.54	.85	1.05	.55
Gains on investment account securities	-.03	.08	.13	.11	.07	*	-.01	.02	-.05	-.03
Income before taxes and extraordinary items	1.60	1.48	1.67	1.92	1.74	1.75	1.82	1.18	*	.42
Taxes	.60	.49	.56	.63	.56	.57	.59	.33	-.07	.06
Extraordinary items, net of income taxes	*	-.01	*	*	*	*	.02	*	.09	*
Net income	1.00	.99	1.11	1.29	1.18	1.18	1.25	.85	.16	.35
Cash dividends declared	.86	.66	1.05	.99	.65	.59	.64	.60	.28	.47
Retained income	.13	.32	.06	.30	.53	.59	.62	.25	-.11	-.11
Memo: Return on equity	13.04	12.55	13.14	16.06	14.07	12.86	14.08	9.23	1.89	3.81

NOTE: Data are as of March 23, 2010.

1. Effective October 1, 2008, the Federal Reserve began paying interest on depository institutions' required and excess reserve balances. Beginning with the 2008:Q4 Call Report, balances due from Federal Reserve Banks are now reported under "Interest-earning assets" rather than "Noninterest-earning assets."   Return to table

2. Includes allocated transfer risk reserve.  Return to table

3. Measured as the sum of large time deposits in domestic offices, deposits booked in foreign offices, subordinated notes and debentures, federal funds purchased and securities sold under repurchase agreements, Federal Home Loan Bank advances, and other borrowed money.   Return to table

4. Measured as the sum of construction and land development loans secured by real estate; real estate loans secured by nonfarm nonresidential properties or by multifamily residential properties; and loans to finance commercial real estate, construction, and land development activities not secured by real estate.  Return to table

5. Other real estate owned is a component of other noninterest-earning assets.  Return to table

6. When possible, based on the average of quarterly balance sheet data reported on schedule RC-K of the quarterly Call Report.   Return to table

7. Includes provisions for allocated transfer risk.  Return to table

* In absolute value, less than 0.005 percent.  Return to table

n.a. Not available.   Return to table

MMDA Money market deposit account.   Return to table

RP Repurchase agreement.   Return to table

MBS Mortgage-backed securities.  Return to table

 

Return to text

A.1. Portfolio composition, interest rates, and income and expense, U.S. banks, 2000-09
C. Banks ranked 11 through 100 by assets

Item	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009
	Balance sheet items as a percentage of average net consolidated assets
Interest-earning assets1	88.67	88.09	88.34	88.10	88.18	87.87	87.05	87.01	85.34	85.84
Loans and leases (net)	64.88	62.14	60.00	59.48	60.63	63.37	62.77	60.99	60.04	58.58
Commercial and industrial	18.19	15.84	13.27	11.96	11.90	12.17	12.13	12.74	12.79	11.88
U.S. addressees	17.64	15.36	12.94	11.66	11.64	11.91	11.81	12.41	12.46	11.53
Foreign addressees	.55	.48	.33	.30	.26	.27	.32	.33	.34	.35
Consumer	13.79	13.20	12.79	12.57	12.74	12.84	11.94	9.99	10.61	12.96
Credit card	6.97	7.05	6.56	6.35	6.90	7.45	7.12	5.29	5.67	8.20
Installment and other	6.82	6.15	6.22	6.21	5.83	5.39	4.82	4.70	4.94	4.76
Real estate	26.21	27.29	28.94	30.67	32.16	34.89	35.23	33.53	32.50	31.21
In domestic offices	26.12	27.21	28.88	30.54	31.96	34.73	35.03	33.35	32.19	30.93
Construction and land development	3.00	3.31	3.36	3.22	3.51	4.21	5.27	5.95	5.65	4.45
Farmland	.22	.23	.22	.20	.19	.19	.17	.21	.26	.28
One- to four-family residential	14.51	15.51	17.05	18.79	19.52	21.05	20.27	17.80	16.57	16.19
Home equity	2.49	2.90	3.92	4.74	5.90	6.04	5.01	4.01	3.90	4.17
Other	12.02	12.60	13.13	14.05	13.62	15.01	15.26	13.79	12.67	12.02
Multifamily residential	1.11	1.16	1.20	1.32	1.34	1.45	1.45	1.27	1.25	1.31
Nonfarm nonresidential	7.28	6.99	7.05	7.00	7.41	7.83	7.86	8.13	8.47	8.71
In foreign offices	.09	.09	.06	.13	.20	.16	.21	.18	.31	.28
To depository institutions and acceptances of other banks	1.05	1.40	1.44	1.21	.54	.56	.45	1.05	.94	1.07
Foreign governments	.03	.03	.02	.02	.01	.02	.01	.01	.03	.01
Agricultural production	.37	.32	.27	.23	.19	.19	.18	.21	.23	.22
Other loans	2.57	2.03	1.80	1.59	1.87	1.62	1.88	2.43	2.56	1.98
Lease-financing receivables	3.82	3.18	2.65	2.35	2.30	2.07	1.83	1.80	1.50	1.31
LESS: Unearned income on loans	-.03	-.02	-.02	-.02	-.02	-.01	-.01	-.01	-.01	-.01
LESS: Loss reserves2	-1.12	-1.13	-1.17	-1.10	-1.06	-.97	-.87	-.75	-1.12	-2.05
Securities	17.32	19.00	20.30	21.16	21.28	19.96	19.22	19.89	16.88	18.31
Investment account	16.10	17.71	19.17	20.09	20.12	18.80	17.72	17.99	14.99	15.80
Debt	15.50	17.32	18.82	19.88	19.96	18.69	17.60	17.88	14.84	15.41
U.S. Treasury	1.12	.67	.74	.95	.89	.60	.44	.38	.31	.58
U.S. government agency and corporation obligations	9.70	10.09	11.45	12.99	12.80	11.62	10.07	9.06	7.72	8.66
Government-backed mortgage pools	4.31	5.19	6.00	6.08	5.74	4.83	4.04	3.73	3.76	4.56
Collateralized mortgage obligations	2.55	2.42	2.79	3.72	3.42	3.39	2.94	2.68	2.43	2.59
Other	2.84	2.48	2.65	3.19	3.64	3.40	3.10	2.65	1.54	1.51
State and local government	.96	.99	.97	.95	.96	.98	1.01	1.16	1.03	.89
Private mortgage-backed securities	1.66	2.01	2.13	2.14	2.65	3.58	4.29	4.60	3.23	1.78
Other	2.06	3.56	3.53	2.85	2.66	1.90	1.78	2.67	2.54	3.50
Equity	.60	.39	.34	.21	.16	.11	.12	.12	.14	.39
Trading account	1.22	1.29	1.13	1.07	1.16	1.16	1.50	1.90	1.89	2.52
Gross federal funds sold and reverse RPs	3.76	4.06	4.71	4.20	2.98	2.30	2.84	3.41	4.27	2.46
Balances at depositories1	2.71	2.88	3.33	3.26	3.29	2.24	2.22	2.72	4.16	6.48
Noninterest-earning assets1	11.33	11.91	11.66	11.90	11.82	12.13	12.95	12.99	14.66	14.16
Revaluation gains held in trading accounts	.40	.55	.47	.60	.42	.33	.30	.48	.91	1.36
Other	10.92	11.37	11.19	11.30	11.40	11.80	12.65	12.51	13.75	12.80
Liabilities	91.57	91.15	90.79	90.65	89.87	88.86	88.08	88.40	88.17	87.01
Core deposits	46.28	46.28	47.07	47.93	46.55	48.18	46.84	47.44	46.35	50.91
Transaction deposits	9.93	8.37	7.49	7.29	7.06	6.64	5.74	5.15	5.13	5.44
Demand deposits	8.61	7.17	6.32	5.96	5.65	5.35	4.54	3.90	3.89	3.98
Other checkable deposits	1.32	1.20	1.17	1.33	1.41	1.29	1.20	1.25	1.24	1.46
Savings deposits (including MMDAs)	24.02	26.62	30.07	32.34	31.75	33.33	32.66	32.99	31.50	34.24
Small time deposits	12.33	11.28	9.51	8.30	7.74	8.20	8.44	9.30	9.71	11.23
Managed liabilities3	41.98	40.81	39.48	38.12	39.29	37.04	37.60	37.02	37.82	32.01
Large time deposits	9.54	9.72	8.99	8.20	8.76	10.10	11.44	10.20	9.76	7.28
Deposits booked in foreign offices	7.56	7.05	6.28	6.54	7.21	6.02	6.43	8.52	7.80	5.78
Subordinated notes and debentures	1.54	1.53	1.44	1.38	1.39	1.31	1.32	1.40	1.31	1.32
Gross federal funds purchased and RPs	9.28	9.71	9.66	9.69	8.95	7.17	6.74	6.79	6.72	6.63
Other managed liabilities	14.07	12.79	13.11	12.30	12.97	12.44	11.66	10.10	12.23	11.00
Revaluation losses held in trading accounts	.41	.52	.44	.56	.40	.34	.29	.47	.85	1.10
Other	2.91	3.54	3.80	4.05	3.64	3.30	3.35	3.48	3.16	2.98
Capital account	8.43	8.85	9.21	9.35	10.13	11.14	11.92	11.60	11.83	12.99
MEMO
Commercial real estate loans4	12.06	12.06	12.24	12.10	12.85	13.93	15.05	15.95	16.01	15.04
Other real estate owned5	.03	.04	.05	.06	.05	.04	.05	.06	.10	.21
Mortgage-backed securities	8.52	9.63	10.93	11.93	11.81	11.81	11.27	11.01	9.42	8.93
Federal Home Loan Bank advances	n.a.	4.07	4.85	4.75	4.65	5.19	5.54	5.35	6.45	4.82
Balances at the Federal Reserve1	.43	.36	.37	.37	.28	.21	.18	.19	3.89	4.73
Interest-earning	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	3.18	4.73
Noninterest-earning	.43	.36	.37	.37	.28	.21	.18	.19	.72	n.a.
Interest-earning balances at depositories other than the Federal Reserve	2.71	2.88	3.33	3.26	3.29	2.24	2.22	2.72	3.43	1.75
Average net consolidated assets (billions of dollars)	2,031	2,130	2,124	2,287	2,376	2,403	2,579	2,798	3,177	3,281
	Effective interest rate (percent)
Rates earned
Interest-earning assets	8.44	7.54	6.03	5.30	5.21	5.98	6.93	6.87	5.83	5.14
Taxable equivalent	8.48	7.58	6.07	5.33	5.24	6.02	6.97	6.91	5.85	5.16
Loans and leases, gross	9.14	8.26	6.80	6.11	5.98	6.61	7.58	7.45	6.43	6.03
Net of loss provisions	8.25	6.96	5.59	5.11	5.19	5.89	7.04	6.64	3.75	1.64
Securities	6.64	5.96	4.79	3.80	3.63	4.18	4.99	5.25	4.78	4.01
Taxable equivalent	6.77	6.08	4.91	3.90	3.73	4.29	5.10	5.37	4.86	4.06
Investment account	6.66	6.04	4.86	3.87	3.64	4.11	4.84	5.18	4.74	4.03
U.S. Treasury securities and U.S. government agency obligations (excluding MBS)	n.a.	5.83	4.28	3.17	2.94	3.47	4.28	4.85	3.92	1.95
Mortgage-backed securities	n.a.	6.60	5.34	4.20	4.02	4.34	5.02	5.23	5.02	4.76
Other	n.a.	5.13	4.22	3.61	3.29	4.06	4.87	5.28	4.42	3.56
Trading account	6.25	4.83	3.59	2.56	3.39	5.30	6.74	5.94	5.06	3.87
Gross federal funds sold and reverse RPs	6.06	3.86	1.68	1.14	1.25	3.24	4.95	5.16	2.29	.38
Interest-bearing balances at depositories1	5.49	4.38	2.46	1.93	2.27	3.20	4.24	4.84	2.97	.54
Rates paid
Interest-bearing liabilities	4.97	3.94	2.22	1.61	1.56	2.44	3.48	3.72	2.38	1.34
Interest-bearing deposits	4.42	3.60	1.96	1.35	1.29	2.03	3.07	3.33	2.14	1.19
In foreign offices	5.38	3.67	1.70	1.23	1.42	2.76	4.10	4.01	2.21	.38
In domestic offices	4.26	3.60	1.99	1.36	1.27	1.95	2.95	3.22	2.12	1.27
Other checkable deposits	2.57	2.32	.94	.64	.72	1.29	2.12	2.60	1.32	.45
Savings deposits (including MMDAs)	2.94	2.30	1.08	.66	.65	1.30	2.14	2.44	1.32	.55
Large time deposits	5.88	5.11	3.37	2.70	2.49	3.31	4.45	4.46	3.14	2.38
Other time deposits	5.73	5.42	3.68	2.95	2.58	3.03	4.09	4.74	3.85	2.90
Gross federal funds purchased and RPs	6.02	3.86	1.73	1.20	1.37	3.04	4.46	4.71	2.07	.64
Other interest-bearing liabilities	6.25	5.29	3.65	3.04	2.77	3.81	4.90	5.25	3.66	2.42
	Income and expense as a percentage of average net consolidated assets
Gross interest income	7.54	6.70	5.31	4.67	4.63	5.28	6.08	5.99	4.99	4.49
Taxable equivalent	7.57	6.73	5.34	4.70	4.65	5.31	6.11	6.02	5.01	4.50
Loans	6.05	5.28	4.15	3.72	3.71	4.27	4.85	4.60	3.94	3.67
Securities	1.09	1.06	.90	.75	.73	.77	.87	.93	.71	.65
Gross federal funds sold and reverse RPs	.22	.15	.08	.04	.03	.06	.13	.17	.09	.01
Other	.18	.21	.18	.15	.15	.18	.23	.29	.24	.16
Gross interest expense	3.96	3.14	1.77	1.30	1.26	1.94	2.78	2.96	1.88	1.06
Deposits	2.41	2.01	1.09	.77	.74	1.18	1.84	2.04	1.26	.72
Gross federal funds purchased and RPs	.56	.38	.17	.12	.13	.23	.30	.32	.14	.04
Other	.99	.75	.51	.41	.40	.53	.63	.59	.48	.30
Net interest income	3.58	3.56	3.54	3.37	3.36	3.34	3.30	3.03	3.11	3.43
Taxable equivalent	3.61	3.59	3.57	3.40	3.39	3.37	3.33	3.06	3.13	3.45
Loss provisions7	.68	.91	.80	.67	.55	.52	.41	.55	1.69	2.71
Noninterest income	3.18	3.35	3.30	3.29	3.09	2.81	2.91	2.73	2.38	2.35
Service charges on deposits	.42	.42	.42	.42	.40	.37	.35	.33	.32	.30
Fiduciary activities	.52	.42	.42	.37	.42	.35	.41	.54	.41	.24
Trading revenue	.07	.08	.08	.09	.07	.06	.07	.09	-.01	.26
Interest rate exposures	.02	.04	.04	.04	-.01	-.01	.02	*	-.02	.18
Foreign exchange rate exposures	.04	.03	.04	.04	.05	.04	.05	.08	.08	-.03
Other commodity and equity exposures	*	*	*	.01	.03	.02	*	*	*	*
Credit exposures	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	.01	-.06	.11
Other	2.18	2.43	2.37	2.41	2.20	2.03	2.09	1.77	1.65	1.56
Noninterest expense	4.00	3.95	3.73	3.64	3.55	3.36	3.34	3.45	3.56	3.29
Salaries, wages, and employee benefits	1.44	1.47	1.49	1.47	1.45	1.37	1.34	1.32	1.22	1.14
Occupancy	.43	.42	.40	.41	.39	.37	.33	.34	.32	.31
Other	2.14	2.07	1.84	1.76	1.70	1.62	1.68	1.79	2.02	1.85
Net noninterest expense	.82	.60	.43	.35	.45	.55	.43	.72	1.18	.94
Gains on investment account securities	-.05	.09	.10	.06	.03	*	-.03	-.05	-.30	.01
Income before taxes and extraordinary items	2.02	2.14	2.41	2.42	2.39	2.27	2.43	1.71	-.06	-.21
Taxes	.70	.74	.82	.82	.82	.77	.83	.59	.13	*
Extraordinary items, net of income taxes	*	*	*	*	*	.01	.07	-.05	-.01	-.12
Net income	1.32	1.39	1.59	1.59	1.57	1.50	1.67	1.06	-.20	-.33
Cash dividends declared	.94	.96	.99	1.05	.95	1.00	1.37	1.26	.44	.18
Retained income	.38	.43	.60	.54	.62	.50	.30	-.20	-.63	-.52
MEMO: Return on equity	15.72	15.74	17.24	17.03	15.54	13.48	14.05	9.16	-1.67	-2.55

NOTE: Data are as of March 23, 2010.

1. Effective October 1, 2008, the Federal Reserve began paying interest on depository institutions' required and excess reserve balances. Beginning with the 2008:Q4 Call Report, balances due from Federal Reserve Banks are now reported under "Interest-earning assets" rather than "Noninterest-earning assets."   Return to table

2. Includes allocated transfer risk reserve.  Return to table

3. Measured as the sum of large time deposits in domestic offices, deposits booked in foreign offices, subordinated notes and debentures, federal funds purchased and securities sold under repurchase agreements, Federal Home Loan Bank advances, and other borrowed money.   Return to table

4. Measured as the sum of construction and land development loans secured by real estate; real estate loans secured by nonfarm nonresidential properties or by multifamily residential properties; and loans to finance commercial real estate, construction, and land development activities not secured by real estate.  Return to table

5. Other real estate owned is a component of other noninterest-earning assets.  Return to table

6. When possible, based on the average of quarterly balance sheet data reported on schedule RC-K of the quarterly Call Report.   Return to table

7. Includes provisions for allocated transfer risk.  Return to table

* In absolute value, less than 0.005 percent.  Return to table

n.a. Not available.   Return to table

MMDA Money market deposit account.   Return to table

RP Repurchase agreement.   Return to table

MBS Mortgage-backed securities.  Return to table

Return to text

A.1. Portfolio composition, interest rates, and income and expense, U.S. banks, 2000-9,
D. Banks ranked 101 through 1,000 by assets

Item	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009
	Balance sheet items as a percentage of average net consolidated assets
Interest-earning assets1	91.50	91.16	91.36	91.34	91.56	91.32	91.07	91.28	91.28	91.30
Loans and leases (net)	62.15	62.46	61.46	61.32	63.33	65.15	67.04	68.85	70.52	67.68
Commercial and industrial	12.95	13.03	12.38	11.50	11.52	11.78	11.68	12.07	12.58	11.38
U.S. addressees	12.60	12.65	12.06	11.20	11.21	11.48	11.45	11.80	12.31	11.17
Foreign addressees	.36	.38	.31	.31	.31	.30	.23	.27	.27	.21
Consumer	10.19	9.76	8.13	6.80	6.33	5.42	5.50	5.35	5.15	4.73
Credit card	3.27	3.65	2.63	1.82	1.91	1.24	1.63	1.88	1.76	1.23
Installment and other	6.92	6.11	5.50	4.98	4.42	4.18	3.87	3.46	3.39	3.50
Real estate	36.93	37.64	38.92	40.95	43.38	45.86	47.88	49.50	50.78	50.00
In domestic offices	36.91	37.62	38.89	40.90	43.32	45.78	47.78	49.41	50.77	49.99
Construction and land development	4.15	4.90	5.40	5.89	7.01	8.86	11.01	12.85	13.04	10.59
Farmland	.65	.66	.73	.80	.91	.99	1.07	1.16	1.22	1.30
One- to four-family residential	17.17	16.18	15.39	15.71	15.33	15.17	14.76	14.08	14.16	14.64
Home equity	2.10	2.21	2.51	2.92	3.46	3.60	3.25	3.01	3.19	3.39
Other	15.06	13.97	12.88	12.79	11.87	11.57	11.51	11.07	10.97	11.24
Multifamily residential	1.58	1.69	1.83	2.00	2.24	2.37	2.32	2.33	2.41	2.48
Nonfarm nonresidential	13.36	14.18	15.55	16.51	17.82	18.39	18.63	18.99	19.95	21.00
In foreign offices	.02	.02	.03	.05	.06	.08	.10	.09	*	*
To depository institutions and acceptances of other banks	.37	.38	.37	.37	.25	.13	.14	.14	.27	.19
Foreign governments	.03	.03	.02	.02	.01	*	*	*	*	*
Agricultural production	.82	.85	.86	.83	.82	.81	.84	.88	.90	.92
Other loans	1.22	1.22	1.18	1.25	1.32	1.36	1.20	1.22	1.37	1.47
Lease-financing receivables	.75	.74	.75	.67	.75	.75	.75	.65	.65	.49
LESS: Unearned income on loans	-.08	-.07	-.06	-.06	-.06	-.06	-.06	-.06	-.06	-.07
LESS: Loss reserves2	-1.04	-1.12	-1.10	-1.02	-.98	-.90	-.88	-.91	-1.12	-1.43
Securities	24.34	22.81	23.86	24.36	23.59	21.57	19.55	18.30	16.96	17.28
Investment account	24.25	22.70	23.80	24.23	23.54	21.50	19.47	18.10	16.80	17.19
Debt	23.46	22.28	23.30	23.79	23.18	21.21	19.20	17.69	16.27	16.72
U.S. Treasury	1.81	1.32	1.22	1.00	1.02	.83	.59	.47	.36	.48
U.S. government agency and corporation obligations	15.56	14.70	15.85	16.96	16.70	15.05	13.55	12.32	11.32	11.53
Government-backed mortgage pools	6.22	6.27	6.55	7.03	6.80	5.73	4.83	4.57	5.24	5.34
Collateralized mortgage obligations	3.04	3.08	3.69	3.69	3.41	3.16	2.81	2.60	2.42	2.81
Other	6.30	5.35	5.60	6.24	6.49	6.16	5.90	5.15	3.66	3.39
State and local government	2.91	2.90	2.89	2.95	2.92	2.78	2.74	2.77	2.73	2.90
Private mortgage-backed securities	.99	.94	.99	.87	1.08	1.17	1.08	1.01	.86	.83
Other	2.19	2.42	2.34	2.01	1.46	1.37	1.24	1.12	1.00	.98
Equity	.79	.43	.50	.43	.36	.29	.27	.41	.53	.47
Trading account	.09	.11	.06	.14	.05	.08	.07	.20	.17	.09
Gross federal funds sold and reverse RPs	3.40	4.20	4.15	3.85	2.95	2.83	2.81	2.57	2.01	1.46
Balances at depositories1	1.60	1.68	1.89	1.81	1.69	1.76	1.67	1.57	1.78	4.88
Noninterest-earning assets1	8.50	8.84	8.64	8.66	8.44	8.68	8.93	8.72	8.72	8.70
Revaluation gains held in trading accounts	.02	.01	.01	*	*	*	.03	.04	.06	.03
Other	8.49	8.84	8.64	8.66	8.44	8.68	8.90	8.67	8.66	8.67
Liabilities	90.95	90.32	89.93	89.68	89.18	89.10	89.01	88.87	89.24	89.52
Core deposits	60.80	60.33	61.26	61.30	60.39	59.03	58.04	59.68	58.94	60.49
Transaction deposits	12.29	11.48	11.37	11.50	11.77	11.15	9.82	8.43	7.74	8.27
Demand deposits	8.97	8.23	8.05	7.96	8.12	7.87	6.99	5.94	5.32	5.51
Other checkable deposits	3.32	3.25	3.32	3.54	3.64	3.28	2.83	2.49	2.42	2.76
Savings deposits (including MMDAs)	28.55	29.40	32.34	34.00	34.42	33.75	32.82	32.89	31.04	31.67
Small time deposits	19.96	19.46	17.55	15.80	14.21	14.13	15.41	18.36	20.15	20.55
Managed liabilities3	28.01	27.75	26.57	26.40	26.98	28.38	29.32	27.51	28.72	27.21
Large time deposits	11.98	12.60	12.17	11.92	12.12	13.64	15.21	14.42	14.13	15.21
Deposits booked in foreign offices	1.28	1.24	.88	.64	.65	.57	.52	.57	.72	.60
Subordinated notes and debentures	.30	.31	.34	.35	.35	.27	.24	.22	.21	.16
Gross federal funds purchased and RPs	6.30	5.77	5.27	5.35	5.52	5.54	5.40	5.33	5.26	4.06
Other managed liabilities	8.15	7.84	7.90	8.13	8.34	8.35	7.94	6.97	8.39	7.18
Revaluation losses held in trading accounts	*	.01	.01	*	*	*	.01	.01	.02	.02
Other	2.13	2.23	2.08	1.98	1.81	1.69	1.64	1.66	1.57	1.80
Capital account	9.05	9.68	10.07	10.32	10.82	10.90	10.99	11.13	10.76	10.48
MEMO
Commercial real estate loans4	19.32	21.03	23.05	24.62	27.28	29.84	32.22	34.52	35.86	34.51
Other real estate owned5	.07	.08	.10	.11	.10	.08	.08	.11	.27	.62
Mortgage-backed securities	10.25	10.29	11.24	11.59	11.29	10.06	8.72	8.18	8.52	8.97
Federal Home Loan Bank advances	n.a.	5.27	5.71	6.29	6.46	6.42	6.11	5.53	7.04	5.97
Balances at the Federal Reserve1	.57	.54	.52	.59	.55	.47	.36	.29	1.46	3.34
Interest-earning	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	1.15	3.34
Noninterest-earning	.57	.54	.52	.59	.55	.47	.36	.29	.31	n.a.
Interest-earning balances at depositories other than the Federal Reserve	1.60	1.68	1.89	1.81	1.69	1.76	1.67	1.57	1.54	1.53
Average net consolidated assets (billions of dollars)	986	1,002	1,022	1,072	1,080	1,152	1,249	1,267	1,278	1,312
	Effective interest rate (percent)6
Rates earned
Interest-earning assets	8.48	7.85	6.42	5.59	5.46	6.12	7.01	7.31	6.24	5.22
Taxable equivalent	8.56	7.94	6.50	5.67	5.53	6.19	7.08	7.38	6.30	5.28
Loans and leases, gross	9.42	8.76	7.31	6.56	6.25	6.90	7.79	8.02	6.72	5.81
Net of loss provisions	8.75	7.87	6.55	6.01	5.87	6.64	7.55	7.44	5.04	3.15
Securities	6.45	5.96	4.95	3.81	3.79	4.03	4.53	4.86	4.76	4.20
Taxable equivalent	6.71	6.24	5.21	4.06	4.04	4.28	4.80	5.14	5.01	4.43
Investment account	6.45	5.95	4.93	3.82	3.78	4.02	4.53	4.85	4.76	4.20
U.S. Treasury securities and U.S. government agency obligations (excluding MBS)	n.a.	5.85	4.54	3.42	3.15	3.47	4.19	4.74	4.45	3.19
Mortgage-backed securities	n.a.	6.33	5.38	3.95	4.01	4.23	4.64	4.96	5.09	4.75
Other	n.a.	5.40	4.51	4.07	4.21	4.42	4.81	4.81	4.42	3.97
Trading account	9.30	6.60	14.05	3.07	10.30	6.59	4.92	5.25	4.44	4.17
Gross federal funds sold and reverse RPs	6.15	3.91	1.73	1.27	1.57	3.31	4.94	4.87	2.12	.50
Interest-bearing balances at depositories1	5.76	3.93	1.79	1.26	1.47	3.29	4.60	4.56	2.21	.44
Rates paid
Interest-bearing liabilities	4.79	3.97	2.45	1.80	1.65	2.36	3.38	3.78	2.79	1.92
Interest-bearing deposits	4.46	3.81	2.28	1.61	1.44	2.09	3.11	3.59	2.72	1.85
In foreign offices	6.13	4.27	2.14	1.43	1.43	3.05	4.50	4.63	2.29	.59
In domestic offices	4.43	3.81	2.28	1.61	1.44	2.08	3.10	3.58	2.72	1.86
Other checkable deposits	2.27	1.81	1.06	.74	.72	1.18	1.74	1.89	1.17	.71
Savings deposits (including MMDAs)	3.07	2.22	1.17	.75	.74	1.27	2.06	2.38	1.39	.78
Large time deposits	6.00	5.27	3.32	2.58	2.33	3.21	4.42	4.90	3.91	2.71
Other time deposits	5.74	5.51	3.77	2.86	2.51	3.10	4.19	4.83	4.03	2.97
Gross federal funds purchased and RPs	5.95	3.82	1.83	1.29	1.45	2.94	4.52	4.49	2.30	1.15
Other interest-bearing liabilities	6.46	5.32	4.22	3.57	3.37	4.02	4.75	5.04	3.65	3.11
	Income and expense as a percentage of average net consolidated assets
Gross interest income	7.79	7.16	5.84	5.07	4.99	5.57	6.40	6.67	5.71	4.78
Taxable equivalent	7.86	7.23	5.91	5.15	5.06	5.64	6.46	6.74	5.76	4.82
Loans	5.96	5.59	4.56	4.07	4.01	4.55	5.29	5.58	4.80	4.01
Securities	1.58	1.33	1.15	.91	.88	.86	.89	.88	.80	.72
Gross federal funds sold and reverse RPs	.21	.16	.07	.05	.05	.09	.14	.12	.04	.01
Other	.04	.08	.06	.05	.05	.07	.09	.09	.06	.04
Gross interest expense	3.79	3.14	1.92	1.41	1.29	1.84	2.67	3.00	2.24	1.55
Deposits	2.87	2.48	1.49	1.04	.92	1.34	2.04	2.41	1.81	1.28
Gross federal funds purchased and RPs	.38	.22	.09	.07	.08	.16	.24	.24	.12	.05
Other	.54	.44	.34	.30	.29	.34	.39	.36	.31	.23
Net interest income	4.00	4.02	3.92	3.67	3.70	3.73	3.73	3.67	3.47	3.22
Taxable equivalent	4.07	4.10	3.99	3.74	3.77	3.79	3.79	3.73	3.52	3.27
Loss provisions7	.52	.65	.54	.40	.30	.24	.23	.47	1.25	1.88
Noninterest income	2.35	2.37	2.36	2.30	2.26	2.02	1.98	1.88	1.52	1.57
Service charges on deposits	.36	.39	.41	.41	.39	.36	.35	.36	.36	.34
Fiduciary activities	.44	.40	.35	.34	.37	.35	.30	.31	.31	.27
Trading revenue	.01	*	*	.01	.01	.01	.01	.01	-.01	.02
Interest rate exposures	.01	-.01	*	.01	.01	.01	*	*	*	*
Foreign exchange rate exposures	*	*	*	*	*	*	*	*	*	*
Other commodity and equity exposures	*	*	*	*	*	*	*	*	-.01	*
Credit exposures	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	*	*	.01
Other	1.55	1.58	1.60	1.54	1.49	1.30	1.32	1.20	.85	.94
Noninterest expense	3.84	3.88	3.72	3.59	3.54	3.37	3.35	3.26	3.42	3.36
Salaries, wages, and employee benefits	1.59	1.61	1.64	1.64	1.64	1.61	1.59	1.57	1.46	1.42
Occupancy	.47	.46	.45	.43	.43	.41	.40	.40	.39	.39
Other	1.78	1.81	1.63	1.53	1.48	1.36	1.35	1.28	1.58	1.55
Net noninterest expense	1.48	1.52	1.35	1.29	1.29	1.35	1.36	1.38	1.90	1.79
Gains on investment account securities	-.04	.05	.04	.05	.02	-.01	-.01	-.01	-.22	-.02
Income before taxes and extraordinary items	1.96	1.90	2.07	2.02	2.13	2.13	2.13	1.81	.09	-.47
Taxes	.67	.66	.67	.66	.68	.68	.69	.57	.14	*
Extraordinary items, net of income taxes	*	.01	*	.03	*	*	*	*	*	*
Net income	1.29	1.25	1.39	1.39	1.45	1.45	1.43	1.23	-.05	-.47
Cash dividends declared	.92	1.33	1.19	1.64	.78	.87	.90	.91	.57	.34
Retained income	.37	-.08	.20	-.25	.68	.58	.54	.32	-.62	-.80
MEMO: Return on equity	14.21	12.93	13.83	13.46	13.42	13.33	13.05	11.08	-.50	-4.48

NOTE: Data are as of March 23, 2010.

1. Effective October 1, 2008, the Federal Reserve began paying interest on depository institutions' required and excess reserve balances. Beginning with the 2008:Q4 Call Report, balances due from Federal Reserve Banks are now reported under "Interest-earning assets" rather than "Noninterest-earning assets."   Return to table

2. Includes allocated transfer risk reserve.  Return to table

3. Measured as the sum of large time deposits in domestic offices, deposits booked in foreign offices, subordinated notes and debentures, federal funds purchased and securities sold under repurchase agreements, Federal Home Loan Bank advances, and other borrowed money.   Return to table

4. Measured as the sum of construction and land development loans secured by real estate; real estate loans secured by nonfarm nonresidential properties or by multifamily residential properties; and loans to finance commercial real estate, construction, and land development activities not secured by real estate.  Return to table

5. Other real estate owned is a component of other noninterest-earning assets.  Return to table

6. When possible, based on the average of quarterly balance sheet data reported on schedule RC-K of the quarterly Call Report.   Return to table

7. Includes provisions for allocated transfer risk.  Return to table

* In absolute value, less than 0.005 percent.  Return to table

n.a. Not available.   Return to table

MMDA Money market deposit account.   Return to table

RP Repurchase agreement.   Return to table

MBS Mortgage-backed securities.  Return to table

Return to text

A.1. Portfolio composition, interest rates, and income and expense, U.S. banks, 2000-9,
E. Banks not ranked among the 1,000 largest by assets

Item	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009
	Balance sheet items as a percentage of average net consolidated assets
Interest-earning assets1	92.52	92.30	92.27	92.16	92.34	92.29	92.36	92.39	92.15	92.42
Loans and leases (net)	62.31	62.67	62.72	62.32	63.80	65.43	66.65	67.29	67.82	66.55
Commercial and industrial	11.09	11.10	10.71	10.42	10.29	10.21	10.17	10.25	10.34	9.72
U.S. addressees	11.02	11.02	10.65	10.37	10.25	10.15	10.12	10.21	10.30	9.68
Foreign addressees	.07	.07	.06	.05	.04	.05	.04	.04	.04	.05
Consumer	7.98	7.42	6.77	6.16	5.45	4.97	4.63	4.36	4.07	3.77
Credit card	.59	.59	.49	.51	.40	.36	.37	.37	.35	.31
Installment and other	7.39	6.83	6.28	5.64	5.05	4.61	4.25	3.99	3.72	3.46
Real estate	39.29	40.30	41.52	42.30	44.75	46.97	48.54	49.28	50.10	49.93
In domestic offices	39.29	40.30	41.52	42.30	44.74	46.97	48.53	49.28	50.10	49.93
Construction and land development	3.70	4.23	4.51	4.99	6.01	7.46	9.10	10.01	9.64	7.80
Farmland	3.06	3.04	3.08	3.13	3.22	3.25	3.26	3.38	3.49	3.64
One- to four-family residential	18.43	18.24	17.91	17.08	17.17	17.12	16.69	16.31	16.64	17.29
Home equity	1.28	1.37	1.62	1.79	2.11	2.20	2.06	2.01	2.11	2.29
Other	17.15	16.87	16.29	15.29	15.06	14.93	14.63	14.30	14.52	15.01
Multifamily residential	1.04	1.06	1.16	1.28	1.41	1.48	1.47	1.50	1.61	1.76
Nonfarm nonresidential	13.06	13.71	14.86	15.82	16.94	17.66	18.01	18.09	18.73	19.43
In foreign offices	*	*	*	*	*	*	*	*	*	*
To depository institutions and acceptances of other banks	.12	.12	.10	.09	.07	.05	.05	.06	.06	.06
Foreign governments	.01	*	*	*	*	*	*	*	*	*
Agricultural production	3.85	3.76	3.64	3.40	3.26	3.21	3.22	3.26	3.24	3.20
Other loans	.69	.67	.65	.66	.68	.70	.70	.70	.73	.75
Lease-financing receivables	.27	.27	.31	.26	.25	.24	.26	.27	.26	.24
LESS: Unearned income on loans	-.11	-.09	-.07	-.06	-.06	-.05	-.05	-.04	-.04	-.04
LESS: Loss reserves2	-.88	-.88	-.90	-.92	-.89	-.87	-.87	-.87	-.93	-1.09
Securities	25.40	22.80	23.34	23.47	23.34	21.92	20.54	19.65	19.20	19.22
Investment account	25.38	22.79	23.33	23.43	23.34	21.91	20.52	19.58	19.16	19.18
Debt	24.82	22.49	23.05	23.12	23.07	21.70	20.35	19.41	18.97	19.00
U.S. Treasury	2.12	1.33	1.04	.90	.81	.71	.61	.47	.33	.37
U.S. government agency and corporation obligations	16.95	15.27	16.07	16.23	16.57	15.64	14.73	14.01	13.44	13.12
Government-backed mortgage pools	3.47	3.78	4.54	4.84	4.76	4.23	3.62	3.55	4.80	5.15
Collateralized mortgage obligations	1.70	1.94	2.30	2.20	1.96	1.71	1.50	1.55	1.76	1.88
Other	11.78	9.56	9.23	9.19	9.85	9.70	9.61	8.92	6.88	6.09
State and local government	4.64	4.51	4.56	4.73	4.67	4.49	4.30	4.20	4.24	4.52
Private mortgage-backed securities	.23	.27	.26	.21	.19	.22	.24	.29	.47	.48
Other	.88	1.11	1.12	1.05	.83	.65	.48	.43	.49	.51
Equity	.56	.30	.27	.31	.26	.20	.17	.17	.19	.18
Trading account	.02	.01	.01	.04	.01	.02	.02	.07	.04	.03
Gross federal funds sold and reverse RPs	3.22	5.01	4.26	4.27	3.33	3.24	3.53	3.92	3.29	2.44
Balances at depositories1	1.59	1.82	1.95	2.11	1.86	1.69	1.64	1.54	1.84	4.21
Noninterest-earning assets1	7.48	7.70	7.73	7.84	7.66	7.71	7.64	7.61	7.85	7.58
Revaluation gains held in trading accounts	*	*	*	*	*	*	*	*	*	*
Other	7.48	7.70	7.73	7.84	7.66	7.71	7.64	7.61	7.85	7.58
Liabilities	89.88	89.59	89.73	89.58	89.55	89.49	89.35	88.95	89.12	89.53
Core deposits	70.87	69.92	70.04	69.96	69.24	67.68	65.74	65.12	64.28	64.35
Transaction deposits	23.20	22.35	22.66	23.18	23.36	22.72	20.81	18.66	17.75	17.99
Demand deposits	12.64	12.16	12.24	12.58	12.77	12.77	11.97	10.73	10.07	9.87
Other checkable deposits	10.57	10.19	10.42	10.60	10.59	9.95	8.84	7.93	7.68	8.12
Savings deposits (including MMDAs)	19.19	19.38	21.32	22.43	23.24	22.98	22.66	22.68	22.56	23.08
Small time deposits	28.48	28.20	26.05	24.36	22.64	21.98	22.28	23.78	23.97	23.28
Managed liabilities3	18.08	18.67	18.79	18.78	19.57	21.04	22.76	22.92	24.02	24.42
Large time deposits	12.51	13.55	13.21	13.07	13.15	14.53	16.49	16.91	16.64	17.79
Deposits booked in foreign offices	.05	.06	.07	.06	.07	.06	.06	.05	.06	.05
Subordinated notes and debentures	.02	.02	.04	.03	.04	.03	.03	.03	.03	.03
Gross federal funds purchased and RPs	2.06	1.55	1.51	1.52	1.76	1.74	1.82	1.82	1.87	1.49
Other managed liabilities	3.44	3.49	3.96	4.09	4.54	4.68	4.36	4.11	5.41	5.06
Revaluation losses held in trading accounts	*	*	*	*	*	*	*	*	*	*
Other	.93	1.00	.90	.84	.74	.77	.84	.91	.82	.76
Capital account	10.12	10.41	10.27	10.42	10.45	10.51	10.65	11.05	10.88	10.47
MEMO
Commercial real estate loans4	17.91	19.15	20.67	22.23	24.50	26.77	28.81	29.88	30.34	29.28
Other real estate owned5	.11	.12	.14	.15	.14	.13	.12	.16	.35	.70
Mortgage-backed securities	5.39	5.99	7.10	7.25	6.91	6.16	5.36	5.39	7.03	7.51
Federal Home Loan Bank advances	n.a.	3.34	3.71	3.87	4.32	4.46	4.14	3.93	5.20	4.78
Balances at the Federal Reserve1	.93	.76	.79	.87	.78	.70	.57	.45	1.26	2.09
Interest-earning	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	.82	2.09
Noninterest-earning	.93	.76	.79	.87	.78	.70	.57	.45	.45	n.a.
Interest-earning balances at depositories other than the Federal Reserve	1.59	1.82	1.95	2.11	1.86	1.69	1.64	1.54	1.71	2.12
Average net consolidated assets (billions of dollars)	655	675	704	742	768	805	840	862	882	897
	Effective interest rate (percent)6
Rates earned
Interest-earning assets	8.44	7.92	6.79	5.94	5.73	6.23	7.01	7.26	6.34	5.53
Taxable equivalent	8.56	8.03	6.90	6.05	5.84	6.33	7.10	7.35	6.42	5.61
Loans and leases, gross	9.51	9.01	7.83	7.08	6.72	7.17	7.94	8.13	7.03	6.32
Net of loss provisions	9.14	8.60	7.39	6.72	6.45	6.94	7.74	7.81	6.12	4.87
Securities	6.15	5.86	5.03	3.87	3.74	3.87	4.28	4.68	4.70	4.17
Taxable equivalent	6.54	6.27	5.43	4.26	4.11	4.24	4.65	5.05	5.04	4.51
Investment account	6.15	5.86	5.02	3.87	3.73	3.86	4.28	4.68	4.70	4.16
U.S. Treasury securities and U.S. government agency obligations (excluding MBS)	n.a.	5.97	4.80	3.74	3.38	3.53	4.12	4.69	4.62	3.65
Mortgage-backed securities	n.a.	6.20	5.47	3.58	3.90	4.17	4.59	4.96	5.08	4.67
Other	n.a.	5.29	4.87	4.43	4.18	4.16	4.25	4.33	4.28	4.07
Trading account	4.01	6.43	15.38	2.89	18.95	7.52	7.50	4.74	4.33	5.49
Gross federal funds sold and reverse RPs	6.24	3.82	1.63	1.08	1.32	3.21	4.95	5.05	2.17	.31
Interest-bearing balances at depositories1	6.38	4.56	2.68	1.97	2.02	3.21	4.64	5.06	3.03	1.15
Rates paid
Interest-bearing liabilities	4.84	4.43	2.93	2.14	1.88	2.44	3.42	3.91	3.06	2.16
Interest-bearing deposits	4.67	4.31	2.78	2.02	1.75	2.29	3.28	3.81	2.99	2.07
In foreign offices	5.13	3.97	1.67	.85	1.04	2.86	4.27	4.66	2.28	.19
In domestic offices	4.67	4.31	2.78	2.02	1.75	2.29	3.28	3.80	2.99	2.07
Other checkable deposits	2.47	1.97	1.16	.78	.69	.99	1.45	1.62	1.11	.74
Savings deposits (including MMDAs)	3.56	2.81	1.72	1.13	1.04	1.53	2.34	2.67	1.65	1.01
Large time deposits	5.89	5.52	3.61	2.79	2.47	3.21	4.37	4.90	4.03	2.84
Other time deposits	5.70	5.60	3.88	2.96	2.55	3.04	4.12	4.79	4.06	2.99
Gross federal funds purchased and RPs	5.69	3.92	1.85	1.31	1.45	2.89	4.37	4.46	2.35	1.10
Other interest-bearing liabilities	9.13	8.08	6.82	5.31	4.59	5.01	5.70	5.81	4.49	3.89
	Income and expense as a percentage of average net consolidated assets
Gross interest income	7.83	7.33	6.31	5.46	5.32	5.78	6.49	6.73	5.87	5.12
Taxable equivalent	7.95	7.44	6.41	5.56	5.41	5.87	6.58	6.82	5.94	5.19
Loans	5.99	5.73	5.01	4.47	4.35	4.76	5.35	5.53	4.83	4.27
Securities	1.57	1.32	1.16	.89	.87	.85	.88	.92	.90	.79
Gross federal funds sold and reverse RPs	.21	.20	.07	.05	.05	.11	.18	.20	.08	.01
Other	.05	.08	.06	.06	.05	.06	.08	.08	.07	.05
Gross interest expense	3.64	3.33	2.22	1.60	1.41	1.82	2.56	2.95	2.33	1.67
Deposits	3.30	3.07	1.98	1.41	1.22	1.58	2.27	2.67	2.08	1.48
Gross federal funds purchased and RPs	.12	.06	.03	.02	.02	.05	.08	.08	.04	.02
Other	.21	.20	.21	.17	.17	.19	.21	.20	.21	.17
Net interest income	4.20	4.00	4.08	3.86	3.91	3.96	3.94	3.79	3.54	3.45
Taxable equivalent	4.31	4.10	4.19	3.96	4.00	4.05	4.03	3.87	3.62	3.52
Loss provisions7	.32	.33	.35	.29	.23	.21	.20	.28	.68	1.03
Noninterest income	1.31	1.30	1.39	1.47	1.38	1.33	1.31	1.33	1.18	1.01
Service charges on deposits	.43	.44	.45	.43	.43	.40	.38	.37	.36	.33
Fiduciary activities	.20	.25	.27	.28	.31	.33	.36	.38	.33	.24
Trading revenue	*	*	*	*	*	*	*	*	*	*
Interest rate exposures	*	*	*	*	*	*	*	*	*	*
Foreign exchange rate exposures	*	*	*	*	*	*	*	*	*	*
Other commodity and equity exposures	*	*	*	*	*	*	*	*	*	*
Credit exposures	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	*	*	*
Other	.67	.61	.67	.76	.64	.61	.57	.58	.50	.44
Noninterest expense	3.57	3.54	3.57	3.55	3.52	3.48	3.49	3.53	3.52	3.44
Salaries, wages, and employee benefits	1.78	1.79	1.82	1.82	1.81	1.79	1.82	1.84	1.76	1.64
Occupancy	.47	.47	.46	.45	.45	.44	.44	.44	.44	.42
Other	1.31	1.28	1.28	1.28	1.26	1.25	1.24	1.25	1.32	1.38
Net noninterest expense	2.26	2.24	2.18	2.09	2.14	2.15	2.18	2.19	2.33	2.42
Gains on investment account securities	-.01	.04	.05	.04	.01	*	-.01	*	-.10	.02
Income before taxes and extraordinary items	1.61	1.46	1.60	1.53	1.55	1.60	1.55	1.31	.42	.02
Taxes	.45	.39	.41	.38	.37	.38	.36	.30	.09	.04
Extraordinary items, net of income taxes	*	*	-.01	*	*	*	*	*	*	*
Net income	1.17	1.07	1.18	1.14	1.18	1.21	1.19	1.01	.33	-.02
Cash dividends declared	.79	.64	.68	.67	.64	.67	.65	.67	.57	.36
Retained income	.38	.43	.50	.47	.54	.54	.53	.35	-.24	-.38
MEMO: Return on equity	11.52	10.28	11.49	10.97	11.25	11.54	11.14	9.18	3.03	-.19

NOTE: Data are as of March 23, 2010.

1. Effective October 1, 2008, the Federal Reserve began paying interest on depository institutions' required and excess reserve balances. Beginning with the 2008:Q4 Call Report, balances due from Federal Reserve Banks are now reported under "Interest-earning assets" rather than "Noninterest-earning assets."   Return to table

2. Includes allocated transfer risk reserve.  Return to table

3. Measured as the sum of large time deposits in domestic offices, deposits booked in foreign offices, subordinated notes and debentures, federal funds purchased and securities sold under repurchase agreements, Federal Home Loan Bank advances, and other borrowed money.   Return to table

4. Measured as the sum of construction and land development loans secured by real estate; real estate loans secured by nonfarm nonresidential properties or by multifamily residential properties; and loans to finance commercial real estate, construction, and land development activities not secured by real estate.  Return to table

5. Other real estate owned is a component of other noninterest-earning assets.  Return to table

6. When possible, based on the average of quarterly balance sheet data reported on schedule RC-K of the quarterly Call Report.   Return to table

7. Includes provisions for allocated transfer risk.  Return to table

* In absolute value, less than 0.005 percent.  Return to table

n.a. Not available.   Return to table

MMDA Money market deposit account.   Return to table

RP Repurchase agreement.   Return to table

MBS Mortgage-backed securities.  Return to table

Return to text

A.2. Report of income, all U.S. banks, 2000-09
Millions of dollars

Item	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009
Gross interest income	423,845	404,251	349,603	329,218	348,667	426,600	551,085	616,994	565,232	480,744
Taxable equivalent	426,479	406,937	352,351	332,000	351,651	429,556	554,341	620,456	567,906	483,511
Loans	326,804	311,539	269,397	257,697	269,408	328,088	421,922	464,878	426,025	367,691
Securities	67,666	63,061	59,311	53,316	58,577	65,864	78,913	82,710	81,547	85,803
Gross federal funds sold and reverse repurchase agreements	13,546	12,647	6,221	5,015	5,142	11,045	21,288	28,682	16,642	3,565
Other	15,829	17,006	14,672	13,189	15,538	21,602	28,960	40,723	41,019	23,687
Gross interest expense	222,161	188,746	118,741	94,123	98,541	162,501	263,393	310,412	226,557	122,065
Deposits	151,147	132,311	81,701	62,400	63,639	105,922	173,898	212,783	154,312	84,179
Gross federal funds purchased and
repurchase agreements	26,860	19,583	9,920	7,590	8,842	19,161	33,776	37,715	19,755	4,846
Other	44,155	36,852	27,122	24,133	26,058	37,418	55,721	59,914	52,489	33,041
Net interest income	201,684	215,505	230,862	235,095	250,126	264,099	287,692	306,582	338,675	358,679
Taxable equivalent	204,318	218,191	233,610	237,877	253,110	267,055	290,948	310,044	341,349	361,446
Loss provisions	29,386	43,084	45,206	32,742	23,894	25,579	25,386	56,749	170,777	231,927
Noninterest income	153,101	160,902	168,236	183,792	188,999	201,768	222,901	218,554	209,052	245,173
Service charges on deposits	23,720	26,872	29,629	31,692	33,454	33,830	36,194	39,187	42,542	41,000
Fiduciary activities	22,202	21,988	21,404	22,453	25,088	26,381	28,312	32,962	32,909	26,958
Trading revenue	12,235	12,382	10,794	11,605	10,303	14,375	19,170	5,289	-1,235	23,265
Other	94,945	99,658	106,410	118,042	120,154	127,180	139,226	141,116	134,839	153,952
Noninterest expense	216,375	225,979	230,128	243,214	263,304	274,136	294,891	321,406	357,254	356,135
Salaries, wages, and employee benefits	89,016	94,196	100,447	108,446	115,254	124,038	135,869	144,700	147,502	152,289
Occupancy	26,762	27,939	29,311	31,314	33,253	35,051	36,393	38,531	40,896	41,622
Other	100,598	103,846	100,368	103,453	114,797	115,048	122,630	138,177	168,855	162,224
Net noninterest expense	63,274	65,077	61,892	59,422	74,305	72,368	71,990	102,852	148,202	110,962
Gains on investment account securities	-2,280	4,630	6,411	5,633	3,393	-220	-1,320	-648	-16,432	-1,651
Income before taxes	106,741	111,971	130,176	148,563	155,322	165,933	188,995	146,334	3,264	14,141
Taxes	37,249	37,284	42,816	48,498	50,264	53,568	60,969	44,230	2,469	4,283
Extraordinary items, net of income taxes	-31	-324	-68	427	59	241	2,647	-1,672	5,382	-3,845
Net income	69,461	74,363	87,291	100,494	105,115	112,604	130,674	100,431	6,178	5,220
Cash dividends declared	52,547	54,844	67,230	77,757	59,523	64,624	82,360	85,266	43,327	43,445
Retained income	16,915	19,519	20,062	22,738	45,591	47,981	48,312	15,166	-37,150	-38,226

Note: Data are as of March 23, 2010.

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NOTE: The data in this article cover insured domestic commercial banks and nondeposit trust companies (hereafter, banks). Except as otherwise indicated, the data are from the Consolidated Reports of Condition and Income (Call Report). The Call Report consists of two forms submitted by domestic banks to the Federal Financial Institutions Examination Council: FFIEC 031 (for those with domestic and foreign offices) and FFIEC 041 (for those with domestic offices only). The data thus consolidate information from foreign and domestic offices, and they have been adjusted to take account of mergers and the effects of push-down accounting. For additional information on the adjustments to the data, see the appendix in William B. English and William R. Nelson (1998), "Profits and Balance Sheet Developments at U.S. Commercial Banks in 1997," Federal Reserve Bulletin, vol. 84 (June), p. 408. Size categories, based on assets at the start of each quarter, are as follows: the 10 largest banks, large banks (those ranked 11 through 100), medium-sized banks (those ranked 101 through 1,000), and small banks (those ranked 1,001 and higher). At the start of the fourth quarter of 2009, the approximate asset sizes of the banks in those groups were as follows: the 10 largest banks, more than $166 billion; large banks, $7.9 billion to $165 billion; medium-sized banks, $527.3 million to $7.9 billion; and small banks, less than $527.3 million.

Data shown in this article may not match data published in earlier years because of revisions and corrections. The data reflect information available as of April 20, 2010, unless noted otherwise. In the tables, components may not sum to totals because of rounding. Appendix tables A.1.A through A.1.E report portfolio composition, interest rates, and income and expense items, all as a percentage of overall average net consolidated assets, for all banks and for banks in each of the four size categories. Appendix table A.2 reports income statement data for all banks.

1. It is worth emphasizing that the analysis in this article is based on Call Reports for commercial banks. For a commercial bank that is a subsidiary of a bank holding company or a financial holding company, the Call Report does not include the assets, liabilities, income, or expenses of the other subsidiaries of the larger organization. Thus, the profits of the commercial banks that are subsidiaries of a larger banking organization may differ substantially from the profits of the consolidated institution.  Return to text

2. The following programs expired on February 1, 2010: Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility; Commercial Paper Funding Facility; Primary Dealer Credit Facility; Term Securities Lending Facility; Term Securities Lending Facility Options Program; and central bank liquidity swaps, including dollar liquidity swap lines and foreign currency liquidity swap lines. The Money Market Investor Funding Facility separately expired on October 30, 2009. In March 2010, the Federal Reserve completed its final planned auction of funds through the Term Auction Facility.  Return to text

3. For press releases and documents related to the SCAP, see http://www.federalreserve.gov/bankinginforeg/scap.htm.  Return to text

4. For example, each year the second-quarter Call Report records the amount of C&I loans outstanding that were made originally in small amounts; these amounts are often used as a proxy for small business lending but also may capture other lending, such as business credit card loans and loans to large firms that were issued by multiple banks. In addition, realized flows of credit generally reflect both demand and supply conditions, and so a fall in loans may not necessarily be due to supply factors. With those caveats, small C&I loans at banks declined about 4-½ percent from the second quarter of 2008 to the second quarter of 2009, while all other C&I loans declined about 9 percent.  Return to text

5. William J. Dennis, Jr. (2010), Small Business Credit in a Deep Recession (Washington: NFIB Research Foundation, February).  Return to text

6. See Interagency Statement on Meeting the Credit Needs of Creditworthy Small Business Borrowers, an attachment to Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, Office of Thrift Supervision, and Conference of State Bank Supervisors (2010), "Regulators Issue Statement on Lending to Creditworthy Small Businesses, joint press release, February 5, www.federalreserve.gov/newsevents/press/bcreg/20100205a.htm.  Return to text

7. Outstanding loans to fund the construction of one- to four-family residential homes totaled only $86 billion at year-end, less than one-half of their peak during the first quarter of 2008.  Return to text

8. For a discussion of the change in bankruptcy law that was implemented in 2005 and its effect on credit card loans, see the box "The New Bankruptcy Law and Its Effect on Credit Card Loans," in Elizabeth Klee and Gretchen Weinbach (2006), "Profits and Balance Sheet Developments at U.S. Commercial Banks in 2005," Federal Reserve Bulletin, vol. 92 (June), p. A89.  Return to text

9. In early April 2009, the Financial Accounting Standards Board issued guidance related to other-than-temporary impairments (OTTI), or FASB Staff Position (FSP) FAS 115-2, which required impairment write-downs through earnings only for the credit-related portion of a debt security's fair value impairment, while other components would affect other comprehensive income, which includes unrealized gains and losses on available-for-sale securities. (For more information on the guidance, see Financial Accounting Standards Board (2009), "Summary of Board Decisions," webpage, April 2, www.fasb.org/action/sbd040209.shtml . ) However, banks reported that the cumulative effect of the initial application of FSP FAS 115-2 on OTTI was only about $1.3 billion in 2009, having only a marginal effect on earnings relative to total unrealized gains and losses and fair value adjustments on securities.  Return to text

10. Loans that banks sold or securitized with servicing rights retained or with recourse or other seller-provided enhancements are hereafter referred to, for simplicity, as "securitized" loans. The analysis excludes loans that were sold to, and securitized by, a third party (for example, the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation).  Return to text

11. The Financial Accounting Standards Board (FASB) announced in June 2009 the publication of FAS 166, Accounting for Transfers of Financial Assets, and FAS 167, Amendments to FASB Interpretation No. 46(R) (Consolidation of Variable Interest Entities), which will change the way companies account for securitizations and special purpose entities. FAS 166 and 167 must be implemented with firms' first financial reporting period ending after November 15, 2009, which for commercial banks effectively means that the implementation will be reflected in their 2010:Q1 Call Reports. For more information, see the FASB's website at www.fasb.org. For more information about the balance sheets of commercial banks, see Board of Governors of the Federal Reserve System (2010), Statistical Release H.8, "Assets and Liabilities of Commercial Banks in the United States" (April 9), www.federalreserve.gov/releases/h8/current/default.htm.  Return to text

12. Notional amounts are amounts from which contractual payments will be derived and, in most instances, are much larger than the amounts at risk; thus, they do not accurately represent the scope of economic involvement of banks with derivatives.  Return to text

13. The total of all contracts with a positive fair value is a measurement of credit exposure, or the amount that a bank could lose if its counterparties did not fulfill their contracts. The total of all contracts with a negative fair value at a bank represents a measurement of exposure that the bank poses to its counterparties. Even these fair value amounts can overstate exposure, as counterparties often enter into bilateral "netting" agreements, which allow aggregation of all bilateral exposure into the equivalent of a single trade in the event of default of either party.  Return to text

14. The flattening in notional values of credit default swaps during 2008, however, appears to have been due in part to organized efforts to compress offsetting trades and not simply to a reduction in trading activity.  Return to text

15. Office of the Comptroller of the Currency, OCC's Quarterly Report on Bank Trading and Derivatives Activities, Third Quarter 2009 (Washington: OCC), available at www.occ.treas.gov/deriv/deriv.htm.  Return to text

16. Core deposits consist of savings deposits (including money market deposit accounts), small-denomination time deposits, and transaction deposits.  Return to text

17. This extension became effective on May 20, 2009.  Return to text

18. The Federal Home Loan Banks (FHLBs) were established in 1932 as GSEs chartered to provide a low-cost source of funds, primarily for mortgage lending. They are cooperatively owned by their member financial institutions, a group that originally was limited to savings and loan associations, savings banks, and insurance companies. Commercial banks were first able to join FHLBs in 1989, and since then FHLB advances have become a significant source of funding for them, particularly for medium-sized and small banks. The FHLBs are cooperatives, and the purchase of stock is required in order to borrow.  Return to text

19. The top five BHCs are ranked by the combined assets of commercial bank subsidiaries for a given BHC. As of the fourth quarter of 2009, the top five BHCs had 28 commercial bank subsidiaries, which accounted for about 52 percent of total commercial bank assets. For more information on the dividend restrictions, see the public term sheet for the CPP, which is an attachment to U.S. Department of the Treasury (2008), "Treasury Announces TARP Capital Purchase Program Description," press release, October 14, www.ustreas.gov/press/releases/hp1207.htm.  Return to text

20. The leverage ratio is the ratio of tier 1 capital to average tangible assets. Tangible assets are equal to total average consolidated assets less assets excluded from common equity in the calculation of tier 1 capital.   Return to text

21. Tier 1, tier 2, and tier 3 capital are regulatory measures. Tier 1 capital consists primarily of common equity (excluding intangible assets such as goodwill and excluding net unrealized gains on investment account securities classified as available for sale) and certain perpetual preferred stock. Tier 2 capital consists primarily of subordinated debt, preferred stock not included in tier 1 capital, and loan loss reserves up to a cap of 1.25 percent of risk-weighted assets. Tier 3 capital is short-term subordinated debt with certain restrictions on repayment provisions and is limited to approximately 70 percent of a bank's measure for market risk. Total regulatory capital is the sum of tier 1, tier 2, and tier 3 capital. Risk-weighted assets are calculated by multiplying the amount of assets and the credit-equivalent amount of off-balance-sheet items (an estimate of the potential credit exposure posed by the items) by the risk weight for each category. The risk weights rise from 0 to 1 as the credit risk of the assets increases. The tier 1 ratio is the ratio of tier 1 capital to risk-weighted assets; the total ratio is the ratio of the sum of tier 1, tier 2, and tier 3 capital to risk-weighted assets.  Return to text

22. Banks have an option to phase in the effects of the implementation of FAS 166 and 167 on risk-weighted assets and tier 2 capital over four quarters. See Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Office of Thrift Supervision (2010), "Agencies Issue Final Rule for Regulatory Capital Standards Related to Statements of Financial Accounting Standards Nos. 166 and 167," press release, January 21, www.federalreserve.gov/newsevents/press/bcreg/20100121a.htm.  Return to text

23. Some of the increase in the fair value of financial instruments may have been related to the new fair value guidance that was issued by the Financial Accounting Standards Board in April 2009 (FASB Staff Position FAS 157-e), which reduced the emphasis on "last transaction price" when markets are not active and transactions are likely to be forced or distressed. Generally, larger banks have tended to adopt the fair value option more widely than smaller banks.  Return to text

24. Such income is composed of net gains and losses on assets sold in the bank's own securitization transactions net of transaction costs--this includes unrealized losses (and recoveries of unrealized losses) on loans and leases held for sale in the bank's own securitization transactions and fee income from securitizations, securitization conduits, and structured finance vehicles.  Return to text

25. These other items include fees and commissions from securities brokerage, investment banking, advisory services, securities underwriting, and annuity sales; underwriting income from insurance and reinsurance activities; venture capital revenue; net gains and losses on sales of assets excluding securities; and other noninterest items. Items reported separately already are deposit fees, net servicing fees, fiduciary income, trading revenue, card interchange fees, the net change in the fair value of financial instruments, and net securitization income.  Return to text

26. Banks incur goodwill impairment losses when the market value of their business segments (or reporting units) drops below the fair value recorded by the company. Companies must test for impairment of goodwill annually or when events occur that would likely reduce the fair value of a business segment (or reporting unit) below the carrying value. Assets are written down when considered overvalued compared with the market value--that is, the amount that a potential (or actual) acquirer would be willing to pay (or had paid) for the assets.  Return to text

27. Other items include amortization expense and impairment losses for intangible assets besides goodwill, as well as other noninterest expense items.  Return to text

28. The advanced foreign economies include Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, South Africa, Spain, Sweden, Switzerland, Turkey, and the United Kingdom.   Return to text

29. This section reflects information available through mid-April.  Return to text

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