Donald W. Reynolds National Center For Business Journalism

Two Minute Tips

Covering banking: Avoiding common errors

October 14, 2011

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There are several challenges to bank reporting, some you can anticipate, some you cannot. This list of tips is designed to help prepare you in a way that will help limit the challenges and reduce the time you may take navigating them.

  • Like any specialized coverage area, the beat has a vocabulary of its own.
  • Income statements and balance sheets for banks can be extremely difficult to interpret, even for business reporters with years of experience in looking at financial statements of other kinds of companies.

There are many categories and line items that simply don’t appear in too many places outside of banking; the size of bank financial statements can be intimidating, and deciding what to focus on can be tricky at first.

  • Understanding the U.S. regulatory architecture is tough. Even the experts are baffled by our system, which compared with the architecture in other developed countries is very unwieldy. Here’s a quick cheat sheet on that:There are some concepts in banking that can be hard to wrap your head around. A loan is considered an asset, even though it represents money that the bank has temporarily parted with and that might not get paid back in full. Deposits are considered liabilities, even though they literally represent money in the bank—this is because the money belongs not to the banks, but to the depositors, who can yank the money back out.

The income statement and balance sheet data that I think is most useful to point out, in general, is net income, revenue, net interest margin, loan-loss provisions/releases, nonperforming assets and net charge-offs, and the Tier 1 risk-based capital ratio.

  • State-chartered institutions (those that get their charter from a state banking department) are supervised jointly by their state chartering authority and either the Federal Reserve or the FDIC. (The bank can choose.)
  • National banks are chartered by, and supervised by, the Office of the Comptroller of the Currency (the OCC), which is a bureau within the Treasury Department. Under the Dodd-Frank Act, much of the work of the Office of the Thrift Supervision, which separately chartered and examined thrifts, has been folded into the OCC (some of the work has been divided among the FDIC and the Fed). Of course, Dodd-Frank also established several new bureaus, so in terms of structure, things are only more confusing than they used to be.
  • The Federal Reserve oversees state-chartered banks who choose to be part of the Federal Reserve System. Importantly, the Fed also oversees bank and thrift holding companies (which in turns might own chartered banks overseen by the Fed, FDIC or OCC), and Dodd-Frank gave the Fed supervisory oversight of all systemically important institutions, whether they are banks or non-banks. The definition of what makes a non-bank company systemically important is still being worked out.

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