	Introduction

A commercial or depository bank is typically a corporation that obtains either a federal or state charter to accept federally insured deposits and pay interest to depositors. Commercial banks also make residential and commercial mortgage loans, consumer loans, provide check cashing and clearing services, and may underwrite securities, including U.S. Treasuries, municipal bonds, Fannie Mae and Freddie Mac issuances, and commercial paper (unsecured short-term loans to cover short-term liquid ity needs). The permissible activities of depository banks are defined by statute, namely the Glass-Steagall Act. By contrast, investment banks (or brokerage firms) are not allowed to accept federally insured deposits, and they do not make loans (i.e., a debt obligation owed to a single lending source). Congressional interest in the financial conditions of depository banks, also referred to as the commercial banking system, has increased following challenging economic conditions and changes in the regulatory environment. Both large and small banking institutions experienced losses related to the declining asset values (of mortgage-related assets), resulting in a substantial increase in bank failures. Hence, the challenge for the banking industry is to determine the sustainable amount of financial (lending) risk-taking while simultaneously facing higher costs associated with greater financial risk-taking (i.e., compliance with prudential regulations designed to minimize the severity of financial distress under deteriorating macroeconomic conditions). This report begins with a general overview of the banking industry. Next, this report summarizes profitability and lending activity levels in the banking industry. At the other extreme are the large financial institutions that have $10 billion or more in assets. For several decades, bank assets have increased while the number of banking institutions has decreased. The smallest of the community banks, those with less than $100 million in assets, have accounted for most of the industry consolidation even prior to the 2007-2009 recession. An Overview of Capital (Equity) Regulation

Banking regulators (i.e., the Office of the Comptroller of the Currency, the Federal Reserve, the FDIC, and state banking regulators) require U.S. banking institutions that accept federally insured deposits to comply with safety and soundness regulations, which are designed to monitor and buffer against the types of financial intermediation risks that can result in financial distress for banks and the broader economy. Return on assets (RoA) and return on equity (RoE) are commonly used metrics to gauge bank profitability. The negative returns coincided with the wave of loan defaults that also occurred during the recession, which led to the deterioration of capital, increases in the number of banks on the FDIC's problem list, and increases in bank failures. Capital requirements pertaining to the maintenance of equity shareholder levels are designed to buffer against unanticipated losses and generally do not vary. Since the recession, regulators have required banks to increase loan-loss provisioning (as well as other components of regulatory capital) levels to better match the levels of problem loans. For example, suppose a bank originates a consumer loan that is expected to be repaid in full over two years. Conclusion

Since the 2007-2009 financial crisis, the banking industry has exhibited profitability. The industry is still accumulating sufficient reserves to cover noncurrent assets. Hence, profitability trends may differ for banks by size.
A commercial bank is an institution that obtains either a federal or state charter that allows it to accept federally insured deposits and pay interest to depositors. In addition, the charter allows banks to make residential and commercial mortgage loans; to provide check cashing and clearing services; to underwrite securities that include U.S. Treasuries, municipal bonds, commercial paper, and Fannie Mae and Freddie Mac issuances; and to conduct other activities as defined by statute, namely the National Banking Act. Commercial banks are limited in what they can do. For example, the Glass-Steagall Act separates commercial banking (i.e., activities that are permissible for depository institutions with a bank charter) from investment banking (i.e., activities that are permissible for brokerage firms, which do not include taking deposits or providing loans).
Congressional interest in the financial conditions of depository banks, or the commercial banking industry, has increased in light of the financial crisis that unfolded in 2007-2009, which resulted in a large increase in the number of distressed institutions. Providing credit during the financial crisis was difficult for the banking system. Thus, an analysis of post-financial crisis trends that pertain to lending activity may provide some useful insights about recovery of the banking system. The financial condition of the banking industry can be examined in terms of profitability, lending activity, and capitalization levels (to buffer against the financial risks). This report focuses primarily on profitability and lending activity levels. Issues related to higher bank capitalization requirements are discussed in CRS Report R42744, U.S. Implementation of the Basel Capital Regulatory Framework, by [author name scrubbed].
The banking system generally has substantially more small banks (i.e., those with $1 billion or less in assets) relative to larger size banks. For several decades, bank assets have increased while the number of banking institutions has decreased. The banking industry continues consolidating, with more of the industry's assets held by a smaller number of institutions.
Generally speaking, by most measures, the health of the banking system has improved since 2009. There are fewer problem banks since the peak in 2011, as well as fewer bank failures in comparison to the peak amount of failures in 2010. The return on assets (RoA) and return on equity (RoE) for the banking industry, expressed as percentages, have rebounded since the financial crisis. Although RoA and RoE have not returned to pre-recessionary levels, the range of percentages that should be associated with optimal performance of the banking system is subjective.
The banking system currently has increased its capital reserves that have been designated to buffer against unforeseen macroeconomic and financial shocks. The banking system also has loan-loss reserves to sufficiently cover losses expected to be uncollectible. For loans that are noncurrent (delinquent) but have not yet gone into default, however, the banking system still needs to rebuild this loan-loss capacity if such loans do become uncollectible. Hence, news of industry profitability should be tempered by the news that aggregate loan-loss provisions still must increase to sufficiently buffer against noncurrent loans.