of the Financial Services Industry
The year 2001 was marked by a significant
turning point in the nationís economy. Following an unprecedented
period of prosperity, the economy slipped into recession during
March. The national unemployment rate rose progressively, from
a low of 3.9% in October 2000 to 5.8% in December 2001, a 6-1/2 year
high. Real gross domestic product (GDP), a measurement of the nationís
output, turned negative in the third quarter, declining 1.3% at
an annual rate.
A major shift in economic performance
has important implications for the condition of the banking industry.
During a recession, there is a tendency for banking organizations
to experience erosion in the quality of assets, a drop in loan demand,
and reduction in net income. However, it is important to note that
New York State-chartered banks entered the year with strong capital
cushions and therefore were relatively well positioned to weather
the economic downturn.
Further, the Federal Reserve acted
aggressively to counter the slowdown in the economy. In a series
of eleven reductions, the targeted overnight Federal funds rate
declined from 6.5% to 1.75% by year end, a cumulative decline of
475 basis points. The favorable interest rate environment provided
a major stimulus to residential mortgage lending.
Supervised Banking Institutions
Safety and Soundness Ratings