Fed Governor Mark Olson gave this speech yesterday. Check out the charts at the end; they are quite amazing. Bottom line, asset quality did not deteriorate nearly as much in the most recent (2001) recession as they did in the 1990-91 recession.
Risk management has certainly improved, but banks should not become complacent. As Olson puts it:
The more favorable experience in the more recent period speaks well for the credit-risk management at smaller institutions, even in the context of a mild recession. That said, it also means that it has been a decade and a half since many lenders have seen a serious overall downturn in asset quality. We know from surveys of senior lenders that lending standards have eased overall. Some easing is normal for this phase of the business cycle, but this easing is always of concern to regulators. Some lenders have recently expanded their offerings of interest-only mortgages and mortgage loans with maturities beyond thirty years. In this context, prudent lenders should weigh their alternatives carefully before compromising established underwriting standards or pricing in the face of competitive pressures.
That's probably good advice.
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