The banking industry faces another year of turmoil, with economic depression in the oil patch, uncertainty about the U.S. economy, major losses on the $500 billion in loans to lesser developed countries and the slim chance that Congress will act to let banks compete fully in the securities arena.
These economic and regulatory problems could benefit the industry in the long run if banks respond in ways that make them leaner and more competitive.
If the economy slumps, however, many banks that have suffered from the financial problems of the Southwest could be pushed over the edge, industry regulators and analysts said.
"Prospects for bank ... performance in 1988 hinge upon the outlook for the U.S. economy and further developments regarding the Third World debt situation," said Anthony R. Davis of Wheat First Securities of Richmond.
"Obviously the threat of a recession next year does evoke concerns over credit quality, particularly in such segments as construction and credit card lending," Davis added.
For foreign debt problems, 1987 was a watershed year for banks. Prompted first by Citicorp, the industry began to formally recognize that large portions of its debt to Latin America is worthless.
"It was the most constructive attempt to deal with Latin American debt problems," said L. William Seidman, chairman of the Federal Deposit Insurance Corp., the federal agency that insures deposits at banks up to $100,000.
He said confronting the problem brought the industry one step closer to resolving the crisis.
But the domestic economy is also worrisome.
The Southwest economy continues to be in a slump. The longer the depression continues, the harder it will hit banks there and the stronger the pressure will be for consolidations or sales to out-of-state buyers.
Regulators expect bank failures to total just under 200 in 1988, slightly less than the 203 last year. As in 1987, half the failures are expected in the Southwest.
But there are other regionals causing concern. In Alaska federal regulators in recent years have closed banks whose assets accounted for 30 percent of the state's banking assets.
And regulators have seen a slight but troubling rise in problem loans at banks in the Northeast, a region that in recent years seemed as invulnerable to recession as Texas did in the go-go years of the mid-1970s.
One bright spot for banks comes from the Oct. 19 stock market collapse.
Banks could win back some of the business they lost to Wall Street security firms as executives finance corporate operations by borrowing money rather than by selling stock.
Chances also are good that bank regulators among the top 12 industrial countries will agree on common capital rules, which would take the world closer to a global regulatory framework.
Capital is assets minus liabilities and is considered a cushion against unforeseen losses.
Prospects are less rosy for winning a decades-long push to get Congress to repeal a 55-year-old law that bars banks from most securities activity.
And a continuing drain to bankers will come from hundreds of troubled and mismanaged savings and loans, which sell the same services that banks sell but have been allowed to operate using riskier standards.
The S&Ls' problems have hurt consumer and investor confidence in the U.S. financial system and have raised banks' cost of doing business, regulators said.