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A return to profitability: the performance of eleventh district commercial banks

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  • Kevin J. Yeats

Abstract

In 1990, the commercial banking industry in the Eleventh Federal Reserve District posted profits for the first time in five years. Kevin Yeats examines this turnaround and concludes that banks returned to profitability for three reasons: the Federal Deposit Insurance Corporation (FDIC) took over many bad loans as it resolved failed banks, banks lowered their burden from nonperforming loans by realizing losses and removing bad loans from the books, and improvement in the regional economy enabled some borrowers to catch up on delinquent payments. Yeats predicts that if delinquencies continue to decline and net income remains positive at Eleventh District banks, the region's banking industry can proceed to full financial recovery. ; Yeats notes that from late 1987 through 1990 the general improvement in the Southwest economy was not reflected in the performance of this region's banks. To reach that conclusion, Yeats examines the performance of banks that received no FDIC assistance during this time and finds that their improved capital ratios followed the region's economic upswing with a lag of at least three years.

Suggested Citation

  • Kevin J. Yeats, 1991. "A return to profitability: the performance of eleventh district commercial banks," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Jul, pages 15-29.
    • Handle: RePEc:fip:fedder:y:1991:i:jul:p:15-29
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