Profits and Balance Sheet Developments at U.S. Commercial Banks in 2000

Abstract

Consolidation within the banking industry slowed significantly in 1999. The net reduction in the number of banks, 195, was only about half the decline in each of the preceding two years. Among the 450 banks that ceased operations last year, 8 failed, and the remaining 442 merged with other banks, were purchased outright, or otherwise changed their charters. Meanwhile, 255 new banks were createdthe most in one year since 1987. At the end of 1999, 8,620 banks were in operation, down from 12,728 a decade ago (chart 3). The share of industry assets held by the 100 largest banks moved up just 1 ⁄2 percentage point, to 70 percent, after having jumped an average of 4 percentage points per year between 1995 and 1998.Consolidation slowed even more dramatically among bank holding companies (BHCs) in 1999, perhaps in part because of the poor performance of 3. Number of commercial banks and share of assets at the largest 100 banks, 1970-99

Differential Pricing of Components of Bank Loan Fair Values

“…Because banks' interest income is likely to be higher for loans with higher credit risk, we include nonperforming loans and loan charge-offs to control for the level of credit risk. We control for the size of loan portfolio (LN,,) because return of equity is shown to vary with size (Bassett and Zakrajsek [2001]). We also include capital ratio (CAPRAT), computed as the ratio of book value of equity to total assets, to control for the impact of leverage on return on equity.…”