n The banking industry’s “golden period of record profits” came to a halt in the second half of 2007 as write-downs by large banks contributed to a 27.4% drop in earnings for FDIC-insured commercial banks and savings institutions in 2007.  The group’s net income of $105.5 billion was down from a record $145.2 billion in 2006.

FDIC Chairman Sheila Bair said in the agency’s Quarterly Banking Profile that the previous “golden period” is helping many institutions weather the current business climate. She said the “overwhelming majority of banks and thrifts remain[ed] wellcapitalized and profitable” in 2007. She said 99% of institutions were well-capitalized at the end of 2007 and nearly 90% were profitable.

In addition to the steep earnings decline, growing asset quality problems were reflected in an increase in loan-loss provisions from $29.5 billion in 2006 to $68.2 billion in 2007. Trading revenue plummeted to $4.1 billion in 2007 from $14.9 billion in 2006. Return on assets (ROA) fell from 1.28% the previous year to 0.86%. The average net interest margin (NIM)—the difference between the rate banks earn on their loans and other investments and the rate they pay to fund those assets—declined slightly to 3.29% from 3.31%, the sixth straight annual decline and lowest NIM since 1988.

Bair said asset quality will be a key focus in coming months and that “writeoffs and loss provisions will likely remain high for the near future.”

More industry statistics are available in the Quarterly Banking Profile at

n The downturn in housing led to record losses of $5.24 billion for thrifts in the fourth quarter of 2007, according to the Office of Thrift Supervision. Write-downs, restructuring costs and record levels of provisions for anticipated loan losses all battered an industry that saw full-year earnings decline to $2.87 billion in 2007 from $15.85 billion in 2006.

Return on assets fell to 0.19% in 2007 from 1.06% in 2006. In the fourth quarter, ROA was –1.38%. Troubled assets rose to 1.65% of all assets in the fourth quarter, up from 1.19% in the third quarter.

The complete report of the thrift industry’s results for 2007 is available at

n The FDIC released a guide aimed at helping bankers and other financial professionals calculate proper insurance coverage for deposits of revocable and irrevocable trusts at insured financial institutions. The FDIC Guide to Calculating Deposit Insurance Coverage for Revocable and Irrevocable Trusts uses a standard set of questions and answers to help analyze insurance coverage for different types of trusts. The publication also contains a full set of FDIC rules and regulations pertaining to revocable and irrevocable trusts.

The guide is available at

n Regulators from five countries issued a report that assesses a range of risk management practices among major global financial services organizations.

The report, Observations on Risk Management Practices during the Recent Market Turbulence, summarizes a joint review initiated in the fall of 2007. The seven regulatory agencies participating in the project were the French Banking Commission, the German Federal Financial Supervisory Authority, the Swiss Federal Banking Commission, the U.K. Financial Services Authority, and, in the United States, the Office of the Comptroller of the Currency, the SEC and the Federal Reserve.

The report also includes results of a roundtable discussion that participating agencies held with industry representatives Feb. 19 at the Federal Reserve Bank of New York. The regulators said in a joint cover letter that they would use the report’s findings to help define an agenda for strengthening regulatory oversight of relevant areas that include:

  • Supporting the efforts of the Basel Committee on Banking Supervision to strengthen the efficacy and robustness of the Basel II capital framework to enhance incentives for firms to develop more forward-looking approaches to risk measures.
  • Strengthening the management of liquidity risk.
  • Reviewing and strengthening, as appropriate, existing guidance on risk management practices, valuation practices and the controls over both.
  • Addressing issues—including the quality and timeliness of public disclosures of financial services firms, accounting and disclosure treatments of off-balance-sheet vehicles and compensation practices—that may benefit from discussion among market participants, regulators and other key players such as accountants.

To download a copy of the report, visit


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