OCC Sees Problems Ahead

The Comptroller of the Currency is warning that a slowdown in the domestic economy is coming and the resulting credit problems will force banks to increase their provisions for loan losses.In fact, OCC officials expect that second quarter call report data -- to be released in early September -- will slow that banks have already started to increase these reserves. Loan loss reserves are currently at a 10-year low, and the precipitous decline in these reserves during the 1992-94 period has contributed to strong bank earnings over the past several years. The economic slowdown, due to problems in Asia and to some extent the year 2000 computer problem, "will lead to some credit problems in bank portfolios," OCC director of economic analysis Nancy Wentzler told reporters Tuesday morning. The OCC economist would not estimate the magnitude of the economic slowdown, but the OCC has not been this concerned about the economy since 1992, she said. Although bank earnings in the second quarter are near record highs, there has been a slowdown in after-tax corporate profits for all companies, Ms. Wentzler said. Banks and nonbanks are finding it more difficult to reduce expenses, she added.