Commercial Banking

In response to a congressional request, GAO reviewed all commercial banks the Federal Deposit Insurance Corporation insured to determine current conditions and recent trends in commercial bank performance from December 31, 1976 through June 30, 1987.

GAO found that: (1) between 1976 and 1987, commercial banking industry assets grew from $1,182 billion to $2,913 billion; (2) the asset growth rate declined from 13.26 percent to 7.69 percent by 1986 and was negative in 1987; and (3) commercial banks' share of the domestic financial services industry declined from 38.8 percent to 32.5 percent. GAO also found that: (1) banks increased their off-balance-sheet activities due to loss of market share in standard credit activities; (2) bank profitability declined from 1.12 percent in 1980 to 0.47 percent in 1986, but rose slightly at year-end because banks made greater loan loss provisions; (3) although declines in profitability could have impeded growth in equity capital, most banks have achieved slight increases in equity capital since 1980; and (4) recent problems with loans to underdeveloped countries resulted in a drop in equity capital among large banks from 5.14 percent to 4.22 percent of assets. In addition, GAO found that, between 1976 and 1987: (1) cash assets declined from 24.63 percent to 14.47 percent; (2) smaller banks relied more heavily on investment securities than larger banks; (3) investment securities remained stable, while federal funds sold and resale agreements rose; (4) there was a sharp increase in trading assets held for resale among the largest banks; (5) a deterioration in loan repayments contributed largely to banks' declining profitability; and (6) banks' reliance on both core deposits and managed liabilities remained stable.