Changes in the Banking Industry Essay Example | Topics and Well Written Essays - 500 words - 1

Changes in the Banking Industry - Essay Example The capital ratio stands at 11.39% in 2010 when compared to 8% in 2006. The number of institutions reporting to the FDIC has decreased from 8833 institutions in the year 2005 to 7760 institutions in 2010. The number of problem institutions has increased drastically on a year on year basis from 552 in 2009 to 860 in 2010. The number of failed institutions has also increased to 127 institutions in 2010 from just 3 institutions in the year 2007. Bank’s return on assets which refers to net income as a percentage of total assets, increased which suggests that the banking industry is able to garner more interest income with the rising in demand for loans with reducing the cost of funds, therefore sustaining revenues and improving asset quality. In relation to the core capital ratio, Tier 1 capital can absorb losses without a bank being required to cease its functioning. Therefore increase in core capital ratio indicates the health of the banking industry is improving considerably. T he banking industry is giving prime importance to strengthening the Tier 1 level of capital. Credit growth has been strong due to which the net interest margin is indicating an upward trend with a 291.33% increase in net operating income of banks. Despite this relatively good news, the number of problem institutions has increased primarily because of financial, operational or managerial weaknesses that might lead to increased number of failed institutions in the last quarter of 2010. The trend of the number of institutions reporting to FDIC reducing is largely explained by the acquisition of smaller institutions by bigger institutions to prevent banks from failing and also because of increasing number of failed institutions. The number of problem institutions continues to increase but the aggregate assets of these problem institutions continued to decline suggests that this are smaller institutions in nature.