Second Quarter 2013: Banking Recovery – Liquidity Buildup and Deleveraging May be Over


Federal Reserve Bank of San Francisco

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August 23, 2013

The First Glance 12L provides a first look at the financial performance and condition of banks headquartered within the 12th Federal Reserve District (nine western states) each quarter. The 2Q13 report, subtitled “Banking Recovery – Liquidity Buildup and Deleveraging May be Over,” provides evidence that liquidity and capital metrics are starting to reverse course from a lengthy period of post-recession buildup. District banks continue to recover from the recession; loan growth again represents the primary form of earning asset growth and problem loans are being worked down to manageable levels. Profitability at District banks continued to improve slowly, reaching a five year high in 1H13 while still constrained by narrow net interest margins. The likelihood of further rises in interest rates is a growing concern as banks have extended earning asset maturities in search of yield and some are likely vulnerable to rising rates. The percentage of District banks with unsatisfactory CAMELS composite ratings from their regulators has fallen for ten consecutive quarters to 37%. While down from a high of 60%, it is still well above historic norms and above the 20% for banks nationwide. In addition to analyzing financial trends and conditions, the First Glance 12L report also includes a discussion of selected “Bank Supervisors’ Hot Topics.”

Loans to Assets