The continued push by banks to diversify their revenues by expanding business lines devoted to asset management, servicing, securitization, investment banking, and other fee-based activities should help stabilize earnings streams. In addition, in the wake of consolidation and interstate banking, many larger firms are less vulnerable to downturns in particular regions or specialized business lines.
Nonetheless, in the past few quarters, emerging earnings weaknesses have been pronounced at some of the larger banking organizations, which have experienced sharp increases in loan loss provision expenses, narrowing interest margins, and significant declines in venture capital revenues. During the first quarter of this year, those negative developments at large firms were somewhat offset by record trading profits and better overhead cost efficiency.