By the mid-1990s, U.S. banks were enjoying stronger portfolios and higher earnings than they had seen in recent memory, attesting to the underlying strength and resiliency of our banking system. During the past decade, the industry’s profitability has arguably climbed to its highest level ever, as large banks finally joined small ones in achieving annual returns on average assets in excess of 1 percent.
To be sure, no one wants to repeat the experience of the early 1990s and, indeed, that period has set a standard for what we should seek to avoid. It is also clear, however, that the industry rebounded quickly when given the incentives to deal with its problems through market and regulatory pressures.