The FDIC outlined key credit and market risks that could affect FDIC-insured institutions, the FDIC's deposit insurance fund and community banks.

In a 2019 Risk Review, the FDIC warned that banks with concentrations of credit are more vulnerable to market sector changes due to increased competition among lenders and to looser underwriting standards. The FDIC highlighted several areas of credit risk for the banking industry, including:

  • the agricultural economy experiencing (i) low commodity prices that depress farm incomes and (ii) reduced agricultural exports, as a result of trade uncertainties and a decrease in the growth of the global economy;

  • the energy industry exposing certain banks to its "boom and bust cycles";

  • the housing market slowing down, though the FDIC reported that credit quality has remained "resilient" so far;

  • leveraged lending that has become increasingly risky and, in addition, nonfinancial corporate debt as a share of GDP that is at a "record high"; and

  • bank lending to nonbank financial institutions exposing banks to the "risks inherent in the activities and markets" of the nonbank financial institutions.

In addition, the FDIC emphasized certain market risks for the banking industry due to current interest rates, which place pressure on earnings and funding. The FDIC also elaborated on areas of market risk affecting the banking industry, such as:

  • interest rate and deposit risks for banks, if competition intensifies; and

  • the decline in short-term liquidity having the potential to hurt smaller banks' ability to effectively deal with a potential downturn.