Most are all too familiar with the recent troubles in the banking industry. Banks with heavy concentrations in commercial real estate loans have suffered large losses. In addition, the loan portfolios of many banks have exhibited other signs of weakness. Banks have responded to deteriorating loan portfolios by increasing provisions and charge-offs, deepening the pressure on earnings. These problems have contributed to many bank failures, adding to the liquidity problems of the bank deposit insurance fund.
Optimism regarding the banking industry has been in short supply in recent years. This is not surprising, given the apparent abundance of bad news and the relative scarcity of good tidings.