Net charge-offs, which were concentrated among commercial loans of large banks and credit card specialty lenders, also dropped. While this improvement since year-end may signal that problem assets have peaked, some large institutions have not yet fully recognized the results of this year’s supervisory assessment of shared national credits. Consequently, we may see further deterioration in asset quality during the periods ahead.
To a large extent this wisdom can be applied to the world economy and financial markets. There are numerous examples of how it sometimes takes a disaster or a crisis for a structural improvement to occur. It was only after the Asian crises of the late 1990s that Asian emerging markets started to build foreign exchange reserves and strengthen their macroeconomic fundamentals.