Report on the Condition of the U.S. Banking Industry: Second Quarter, 2005

Assets at reporting bank holding companies rose $234.6 billion in the second quarter, with loan growth accounting for $163.5 billion, or almost 70 percent of the increase in assets over the period. Aggregate assets of reporting bank holding companies reached $10.9 trillion, 2.2 percent higher than

The strong 3.2 percent increase in loans occurred mostly in mortgage-related categories, both residential and commercial, and in commercial and industrial loans. A sizable portion of the growth in residential mortgage loans at some institutions was reportedly in adjustable-rate mortgages (ARMs). A significant portion of the growth in residential mortgages reportedly included conventional ARMs and such nontraditional products as "option ARMs" (which allow the borrower to select from a range of payment amounts each month) as well as fixed-rate interest-only loans. To some extent, the recently heightened prominence of these nontraditional types of mortgage loans has been associated with recent and significant increases in home values coupled with efforts by lenders and marginally qualified households to arrange financing for home purchases. Bank holding companies continued to favor these adjustable-rate loans amid market expectations of future increases in interest rates. The growth in commercial real estate lending included substantial increases in construction and land development loans, some of which were used to finance the construction of new homes. Unused commitments to lend rose somewhat more slowly, at 2.6 percent.