Report pinpoints credit, market risks as key for banking industry going into new fiscal year

Credit risk in the areas of agriculture, commercial real estate, energy, housing, leveraged lending and corporate debt, and nonbank lending, and market risk in the areas of interest rate risk and deposit competition, and liquidity are the key risks facing the banking industry as it enters the 2020 fiscal year, the federal insurer of bank deposits said Monday.

In its annual Risk Review (the latest for 2019), the Federal Deposit Insurance Corp. (FDIC) said, regarding credit risk, that institutions with concentrations of credit have greater exposure to market sector changes. “Competition among lenders has increased as loan growth has slowed, posing risk management challenges,” the agency said in the annual report. “Market demand for higher-yielding leveraged loan and corporate bond products has resulted in looser underwriting standards.”

On market risk side, the FDIC the current interest rate environment “presents earnings and funding challenges to banks and could pressure liquidity at some institutions.”

The FDIC Risk Review, according to the agency, provides a summary of key risks that ultimately may affect FDIC-insured institutions and the agency’s Deposit Insurance Fund (the fund that covers deposits in member banks). The FDIC said that much of the review focuses on risks that may affect community banks.

FDIC 2019 Risk Review