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Profits and balance sheet developments at U.S. commercial banks in 2003

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  • Mark Carlson
  • Roberto Perli

Abstract

Amid a strengthening economic expansion, U.S. commercial banks remained highly profitable in 2003. Return on assets reached a record level for the second year in a row, and return on equity was near the top of its recent range. Banks' profits were bolstered by decreased loan-loss provisions as a rising economy and considerable debt refinancing at very low interest rates led to lower delinquency rates on business and household loans. Fees associated with record mortgage refinancing activity and robust corporate bond issuance boosted non-interest income. Increases in non-interest expense were generally modest, although compensation-related costs rose more briskly. Lower long-term interest rates in the first part of the year allowed banks to realize gains on the sale of some of their securities, but they also contributed to a further shrinking of net interest margins. Banks' balance sheets expanded briskly, as the strong housing market and heavy refinancing activity boosted residential mortgages and mortgage-backed securities. Business loans ran off for a third year, albeit at a slower pace than in 2002 and 2003. Banks' regulatory capital positions strengthened further, as the growth of assets with low regulatory risk weights outpaced that of assets with higher risk weights.

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File URL: http://www.federalreserve.gov/pubs/bulletin/2004/spring04_profit.pdf
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Bibliographic Info

Article provided by Board of Governors of the Federal Reserve System (U.S.) in its journal Federal Reserve Bulletin.

Volume (Year): (2004)
Issue (Month): Spr ()
Pages: 162-191

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Handle: RePEc:fip:fedgrb:y:2004:i:spr:p:162-191:n:v.90no.2

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Keywords: Banks and banking ; Bank profits ; Bank assets;

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Cited by:
  1. William W. Lang & Loretta J. Mester & Todd A. Vermilyea, 2007. "Competitive effects of Basel II on U.S. bank credit card lending," Working Papers 07-9, Federal Reserve Bank of Philadelphia.
  2. William W. Lang & Loretta J. Mester & Todd A. Vermilyea, 2005. "Potential competitive effects on U.S. bank credit card lending from the proposed bifurcated application of Basel II," Working Papers 05-29, Federal Reserve Bank of Philadelphia.

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