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.
Moreover, the general economy needs to strengthen further before we can be much more comfortable that we’re out of the woods. As noted, current weaknesses appear to be largely within the commercial loan portfolios of large regional and money center banks rather than those of smaller institutions.