Fraud by bank employees has led to losses and even the closure of some banks recently. More broadly, after the failure of Enron, the stock market has reacted as we might expect to the uncertainty created by opaque balance sheets by punishing firms, both banks and nonbanks, whose risk profiles are less easily understood.
To be sure, the U.S. banking system remains strong by virtually any measure and is well positioned to support future economic growth. By historic standards, current profitability figures are robust; and relative to the industry's equity, reserves, or asset size, nonperforming assets are still low. Banks survive and prosper by accepting risk, which is their crucial economic role and the reason for their existence.