Report on the condition of the U.S. banking industry: third quarter, 2003

Federal Reserve Bulletin, Winter, 2004

Beginning with this issue, the Federal Reserve Bulletin will include a new quarterly report summarizing the condition of the banking industry from its broadest perspective, that of the bank holding company. The report presents financial and nonfinancial data drawn primarily from regulatory filings with the Federal Reserve, along with a brief summary of key developments.

Bank holding companies gained prominence after the passage of the Bank Holding Company Act of 1956 and have helped enhance the efficiency of the U.S. banking system in a manner consistent with protecting the federal safety net and the financial system. The specific opportunities and restrictions faced by bank holding companies have evolved considerably over the years, largely in response to changing market forces. By owning banks, and in some cases nonbanking subsidiaries, bank holding companies have long been able to conduct a broad range of banking and nonbanking activities in a broad range of geographic markets. They currently control 97 percent of commercial banking assets in the United States--roughly $7.0 trillion. Increasingly, bank holding companies have responded to the growing integration of markets for financial services by linking banking and nonbanking activities into larger and more diverse financial enterprises. As a result, bank holding companies now control another $2.0 trillion in nonbanking financial services assets. Net of intercompany claims, bank holding company assets totaled $8.7 trillion at the end of September 2003. With nearly $700 billion in equity, bank holding companies are able to mobilize capital in financial markets to support both banking and nonbanking operations. The bank holding company structure has also allowed institutions to call upon a broad array of deposit and nondeposit funding sources.

Development of this new report reflects both the Federal Reserve's perspective as the supervisor of bank holding companies in the United States and its broader interest in the overall soundness and stability of the U.S. financial system. The report also responds to frequent public requests for aggregate data on bank holding companies, in particular for large institutions.

THE DATA

This new report presents aggregate time-series data drawn primarily from regulatory reports submitted to the Federal Reserve each quarter by individual bank holding companies (the FR Y-9C and the FR Y-9LP). The data exclude smaller bank holding companies, generally those with consolidated assets less than $150 million, that are not obliged to file these reports. For those institutions with a multitiered structure, only the top-tier bank holding company is included to avoid double-counting.

Data in the tables provide information for three groups of reporting bank holding companies:

* Financial Characteristics of All Reporting Bank Holding Companies (table 1) presents data for the overall population of bank holding companies that is required to file regulatory reports, that is, all but the smallest bank holding companies.

* Financial Characteristics of Fifty Large Bank Holding Companies (table 2) describes the condition of the largest institutions within the overall population.

* Financial Characteristics of All Other Reporting Bank Holding Companies (table 3) summarizes the condition of smaller reporting bank holding companies.

The data for the fifty large bank holding companies---at both the institutional and aggregate level---have been analyzed internally at the Federal Reserve for many years as part of its ongoing supervisory monitoring processes. Experience with this analysis suggests that sole reliance on the raw information from regulatory reports can have certain significant drawbacks. In particular, trends and developments can be obscured by transitory changes in the panel of large institutions, by large mergers or divestitures, and by significant restatements of published historical financial results without corresponding amendments to regulatory reports. To address these shortcomings, although the basic information used to generate these internal data is drawn from regulatory reports, the data in table 2 are presented on a fixed-panel, merger-adjusted, and as-restated basis:

* The data presented in this table are for the same fifty institutions across all periods covered by the report. These institutions are, by and large, the fifty largest companies in terms of consolidated assets as of the most recent period shown. This group excludes a few large bank holding companies at which banking operations account for only a small portion of assets and earnings, because these institutions have different financial characteristics that would distort the aggregates. (1)

* In order to present data for the same institutions over time, the underlying data for historical periods are merger-adjusted to include the fifty large bank holding companies as they existed during those periods as well as entities that subsequently merged with them. The merger adjustments are generally made by combining the information for predecessor institutions regardless of the accounting treatment applied to the transactions, although in some cases other information is required. Large divestitures have also been incorporated into this data.