Commercial banks have been adversely affected by the current recession. Between 2000:IIIQ and 2001:IIIQ, their net income declined $1.9 billion to $17.4 billion. In 2001:IIIQ, as in 2000:IIQ, a decline in credit quality contributed significantly to lower net income. To cover their expected third-quarter loan losses, banks set aside $11.6 billion, the largest quarterly addition to reserves since 1990:IVQ. Net operating income, excluding discretionary transactions such as gains (or losses) on the sale of investment securities and extraordinary items, was 16.6% lower than a year earlier. Most of the industry’s decline in profits occurred at large banks that had sizable expenses for asset-quality problems. The industry’s return on assets fell to 1.08% in the 2001:IIIQ, compared to 1.28% a year earlier.
Suggested citation: "Commercial Banks," Federal Reserve Bank of Cleveland, Economic Trends, no. 02-01, pp. 16, 01.01.2002.