Profits and balance sheet developments at U.S. commercial banks in 2000

The profitability of the U.S. commercial banking industry remained robust in 2000, but returns on equity and on commercial bank assets fell back somewhat from the peak reached in 1999. The falloff reflected a continuation of the decline in net interest margin that dates from the extraordinarily high levels of the early 1990s, a significant increase in loan-loss provisions, and a notable slowing in noninterest income growth. The expansion of bank balance sheets was much stronger in 2000 than in the preceding year, as growth of both loans and securities accelerated. The pickup in loan growth resulted mainly from a marked decline in securitizations, which boosted the growth of consumer loans in bank portfolios, and from business and real estate lending. The faster growth of securities was due to a surge in trading accounts, as runoffs of U.S. Treasury securities damped the growth of investment accounts.