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F Ba R e d e r a l n k o f R e se r v e i c h m o n d E IG H B O R H O O D S c m d B a n K IN G 1 9 9 4 A n n u a l R e p o r t CONTENTS Message from Management 2 Neighborhoods and Banking 4 Bank Highlights 36 Bank Directors 38 Advisory Groups 42 Bank Officers 44 Comparative Financial Statements 46 Summary of Operations 48 Acknowledgments 49 ABOUT THE BANK The Federal Reserve Bank of Richmond serves the Fifth Federal Reserve District, which consists of the District of Columbia, Maryland, North Carolina, South Carolina, Virginia, and most of West Virginia. In addition to its head quarters in Richmond, Virginia, the "Richmond Fed" has branch offices in Baltimore, Maryland, and Charlotte, North Carolina. The Bank also operates check processing centers in Charleston, West Virginia, and Columbia, South Carolina. T e n ig b oodsh w inth p otog p s o h e h orh o n e h ra h n th cov a do th fa g p g is p rt of th e er n n e cin a e a e FnD trict, loca inR mn , V in . T e a is ted ich o d irg ia h Fng ts its n m fro th wyits streets fa a e ae m e a n oot ha in w fro dwto nR mn . e d g est m o n w ich o d FD ARSRE AKF I HOD FD ARSRE AKF I HOD FD ARSRE AKFR HOD FDRLE RE AKFR HOD FD ARSRE AKFR HOD FDRLE RE AKF I HOD FDRL E REAKF I HOD FD ARSRE AKF EE LE VBNOR MN • EE LE VBNOR MN • EE LE VBNO I MN • EEARS VBNO I MN• EE LE VBNO I MN •EEARS VBNOR MN• EEARS VBNOR MN • EE LE VBNOI R E C R E C R E C E C R E C E C E C R E O | Cuc S e Caleto , Su Crlin hrh tre t hr s n o th ao a O8 A 3I ^ 0 3 QOHrt 0 N8 AiS'HV3 3 QOHM0 N8 A33 1H :! QOH HONfl A33 1 3 3 QOND 0 N9 A33! aQJ QOHr 0 N9 A331 V3 3 GOH 1 ONa A33 V33 QOHra ONa A3 HV3 3 QC XV3»S>1 3 3 •NWDf3X V 3't33 1*Qd• NW r 3X V 3^SHV33 • NW P J XV 3-aSU^ 0 3• NVHr 3X V 3*S>lV3 3 • NWDf3 3 V 3*S>1H 3 • NW DJ ^ V 3'«S'a1^Q3• NWD J 'XV 3U3 1aQJ* N N 3 D Q D a t G D S 4 *FDRLRSREB N O R H O D•FDRLRSREB N O R H O D•FDRLRSREB N O R H O D•FDRLRSREB N O R H O D•FDRLRSREB N O R H O D•FDRLRSREB N O R H O D•FDRLRSREB N O R H O D•FDRLRSREB D EEA EEV A K F IC M N EEA EEV A K F IC M N EEA EEV A K F IC M N EEA EEV A K F IC M N EEA EEV A K F IC M N E EA EEV A K F IC M N EEA EEV A K F IC M N EEA EEV EIGHBORHOODS ^ / B a n k i n g by Jeffrey M. Lacker* T he economic condition of some of our low-income neighborhoods is appalling. Are banks responsible? Critics blame the banking industry for failing to meet the credit needs of poorer neighborhoods. Some claim that bankers pass up worthwhile lending opportunities because of racial or ethnic bias. Others argue that a market failure causes banks to restrain lending in low-income neighborhoods. They claim that joint lending efforts by many banks in such neighborhoods would be profitable, but no single bank is willing to bear the cost of being the pioneer. The central statute regulating the relationship between bank lending and neighborhoods, the Community Reinvestment Act of 1977 (CRA, or "the Act"), T he e c o n o m ic was inspired by the critics' view that banks discriminate against low-income C O N D IT IO N communities.1 The Act directs the bank regulatory agencies to assess the extent OF SOME OF O U R to which a bank meets "the credit needs of its entire community, including lowand moderate-income neighborhoods." In a similar spirit, the Home Mortgage L O W 'IN COM E N E IG H B O R H O O D S IS APPALLING. Disclosure Act (HMDA) requires depository institutions to disclose mortgage A re b a n k s originations in metropolitan areas by census tract. The annual HMDA reports RESPONSIBLE? routinely show large disparities in mortgage flows to minority and white neigh borhoods, bolstering the critics' case. Defenders of the banking industry attribute the disparity in credit flows to differences in the creditworthiness of potential borrowers, information that is unavailable from the HMDA reports. They view the CRA as a burdensome interfer ence in otherwise well-functioning credit markets and as a regulatory tax on banking activity. They argue that the decay of low-income neighborhoods, while deplorable, is beyond the capacity of the banking industry alone to repair.2 The CRA is currently attracting renewed attention. Public release of expanded HMDA reports, along with widely publicized research suggesting bank lending discrimination, has sparked complaints that banks neglect low-income neigh borhoods. Critics now assert that regulators have been too lax in implementing the CRA, and they press for regulations *Teautho h sb n fite fro c m e tsb Mrv G o frie d TmH m h y Tn K p n v S c yS h ft, andJo n Win e . Tev w e p s e h r a e e d m o m n y a in o d n , o u p re , o y u ria o , ta e c re h e b rg h ie s x re s d a th au o alo eandd notn c s a re c th v w ofth F d ra R s rv B n ofR o do th F d ra R s rv S s m re e th r's n o e e s rily fle t e ie s e e e l e e e a k ichm n r e e e l e e e y te . DNa3 HS !V3 3 •QOHI J > V 3 ^Sa1>3 33•GOHI J X V 3HT lV3 3 •QO HraJ ^ V 3> Sa1>3 3 •QO HP 30X V 3 yS-f!V3 3 •QO HI'H30X V S ^T 1>33•QO HIUJ X V 3 HSa1 yQ •OO HIUJ > V S-SS 1 UQd X V A3IH yQJ NWD OINfl A3T V1Q NWD ON 9 A3 H aQJ N WD ON 9 A13r V1QJ NWDH N9 A33t yQ3 NWD N8 AS H VIQ N WD ON 9 A3 r V3 33 N WD O!Ng A SUV3 3 • U U S J a 5 FD ARSREAK F I HOD FD ARSREAKF I HOD FD ARSRE AKF I HOD FD ARSRE AKFR HOD FD ARSRE AKFR HOD FD ARSRE AKF I HOD FDRLE RE AKFR HOD FD ARSRE AKFI EE L E VBNOR MN• EE LE VBNOR MN • EE L E VBNOR MN • EE LE V BNO I MN • EE LE VBNO I MN• EE L E VBNOR MN • EEARS VBNO I MN • EE LE VBNOR R E . C R E C R E C R E C R E C R E C E C R E < Z o 2 X 0 1 based on measures of bank lending in low-income neighborhoods. In response, federal banking agencies I recently proposed revisions to the regulations implementing the CRA that would base a bank's assessment in 1 part on quantitative measures of lending in low-income neighborhoods.3 Banks' defenders argue that the reg- 2 ulations are already too burdensome and that numerical measures inevitably would come to resemble lend- 1 ing quotas. Banks would be induced to make loans to uncreditworthy borrowers, risking losses to the I deposit insurance funds and, ultimately, to taxpayers. 1 This essay reexamines the rationale for the CRA. A reconsideration seems worthwhile in light of the \ dire condition of our poor neighborhoods on the one hand, and the demonstrable risks to banks and taxpayers \ on the other. After a review of the empirical literature relevant to critics' claims, I will argue that there is little conclusive evidence that banks fail to meet the credit needs of low-income W it h o u t CO N TR O LLIN G neighborhoods per se. Instead, the CRA regulations should be understood as a transfer program, aimed at redistributing resources to low-income neighborhoods. FOR DIFFERENCES IN The basic goal of the CRA to improve conditions in distressed neighborhoods is THE DE M A N D FOR obviously a worthy one. But the lending and community investment obliga CRE D IT THERE IS LITTLE tions impose an implicit tax on the banking industry for which there is little ONE CAN SAY ABOUT CONSTRAIN TS O N THE justification. Nonprofit community development organizations (CDOs) also SUPPLYOF CREDIT redistribute resources through subsidized lending in low-income neighbor T O M IN O R ITY hoods and represent an alternative to imposing a potentially unsustainable N E IG H B O R H O O D S. burden on banks. Directing investment toward low-income neighborhoods could be better accomplished by carefully subsidizing existing institutions that \ specialize in community development, rather than by imposing a burdensome and potentially risky implicit • tax on the banking system. | DO BANKS REDLINE? 0 1 1 I The legislative history of the Community Reinvestment Act makes clear that the Act was based on the premise that banks engage in "redlining." Senator William Proxmire, principal sponsor of the CRA, defined | redlining during debate on the Senate floor: o | By redlining ... I am talking about the fact that banks and savings and loans will take their deposits from a community s and instead of reinvesting them in that community, they will invest them elsewhere, and they will actually or figuratively • draw a red line on a map around the areas of their city, sometimes in the inner city, sometimes in the older 5 neighborhoods, sometimes ethnic and sometimes black, but often encompassing a great area of their neighborhood.4 0 1 o X' o a Aaa hqj qond ONa Aa3 aad q o h iu va A3 'U uad q o h iu o Na Aaa ^ a j q o h i d^ v Aa3 » Q3 q o hp x v A33 aQJ q o h iu OiNa A 3 ^ aj^ Nw D Na A3 U a33 q o' x v H'asniv s s • nv hiuJ X v 3usnivaa • n wd jo»N 3H3 iv aa • n wd d^ v a^s'aiv a a • n w d'h o iNa3’as'aiv3 3 • nwdujo n b3^Sniv3 3 • n wd J ^ v 3t S'aiv a s a o H iujox v 3U3 i\jQ • nv N S i3 S 3 6 )N * FDRLRSREB N O R H O D•FDRLRSREB N O R H O D•FDRLRSREB D EEA EEV A K F IC M N EEA EEV A K F IC M N EEA EEV F IC M N •FDRLRSREB R H O D EEA EEV F IC M N *FDRLRSREB N O R H O D•FDRLRSREB N O R H O D•FDRLRSREB R H O D E EA EEV A K F IC M N EEA EEV A K F IC M N EEA EEV FR H O D•FDRLRSREB IC M N EEA EEV The term "redlining" dates back to the 1930s, when the Home Owners Loan Corporation and the Federal Housing Administration (FHA) used detailed demo graphic and survey analysis to classify city neighborhoods for lending risk.5 The agencies adopted standardized appraisal and underwriting practices that embodied the common real estate practice of the time of rating neighborhoods in part on the basis of their current and prospective racial and eth nic composition.6 Blocks with the lowest of four grades were color-coded red on secret maps. A 1939 FHA Underwriting Manual warned that "if a neighborhood is to retain stability it is necessary that properties shall continue to be occupied by the same social and racial classes."7While government agen cies retreated from explicitly racial policies after the 1948 U.S. Supreme Court decision against racial deed covenants, neighborhood racial composition apparently continued to affect appraisals into the 1970s.8 As evidence of continuing redlining, legislators cited the results of numerous stud ies in the early 1970s by community groups and local governments. The availability of HMDA data in the mid-1970s spurred further redlining research in the academic and policy communities. Although critics often cite discrimination against older or lower-income neighborhoods, research has addressed almost exclusively redlining on the basis of a neighborhood's racial composition. The studies documented large disparities in mortgage lending activity, which led critics of banks to conclude that they had unfairly restricted loan supply in predominantly minority neighborhoods and thus had failed to serve the credit needs of their communities.9 ■3 * V 3U3 1H 3 • NWD J XV 3UT 1H3 • NWD 3X V 3H3 1U 3 • NWDI3X V 3'H3 1U 3 • NWD d>Na3^SUV33 • NW IMON83 'aSU a 0N9 A3 HV3 3 QOHI ONfl A3 HV3 3 OOHI 0 N8 A3 UV3 J QOHH 0 N8 A3 'HV3 3 QOHI OI V A33 1M J QOH' J XV A33 1^3033• NWD 3X V 3U3 1U 3 • NVHI 3X V 3ySHV33 • S G U S 0 U S Q S G U Q D QOHI 0 N8 A3 HV3 3 QOND 0 N8 A 3 1D 3 U S 0 U 3 Q 7 FDRLRSREB N O R H O D•FDRLRSREB N O R H O D•FDRLRSREB N O R H O D•FDRLRSREB N O R H O D•FDRLRSREB N O R H O D•FDRLRSREB N O R H O D•FDRLRSREB N O R H O D•FDRLRSREB N O R EEA EEV A K F IC M N EEA EEV A K F IC M N EEA EEV A K F IC M N EEA EEV A K F IC M N EEA EEV A K F IC M N EEA EEV A K F IC M N E EA EEV A K F IC M N EEA EEV A K F O 5 X 0 | This first-generation research failed to show, however, that supply rather than 1 demand was responsible for the lending disparities. A basic premise of the redlining 1 hypothesis is that banks curtail the supply of credit to a neighborhood for noneco- 1 z nomic reasons such as racial composition. Many factors that influence the demand | for mortgage credit by qualified borrowers also vary across neighborhoods: income | and wealth levels, owner-occupancy rates, and housing turnover rates, for example. Moreover, many of | these factors are known to be correlated with the racial composition of a neighborhood. Without controlling 2 for differences in the demand for credit, there is little one can say about constraints on the supply of credit to | minority neighborhoods. | Subsequent redlining research sought to remedy this problem using information on the economic char- 1 acteristics of neighborhoods and individual loan applicants. When such information is taken into account, I mortgage flows and loan approval rates appear unrelated to neighborhood racial composition. For example, I s I Schill and Wachter (1993) estimate models of banks' loan approval decisions. In their simplest model, the 1 characteristics such as median income, vacancy rate, and age of the housing stock are included, neighbor- § neighborhood racial composition is significantly related to approval probability, but when neighborhood Gns Pr , Calo , NrhCrlin e eis ak hr tte ot ao a x o fl A S 1H 3 QOHIUONfl A3 HV33 a OH H0 N8 AI 3 1A33 QOHD ONg A3 -HX103 OOHU0 N9 A SH^ 0 3 QOHIUONfl A33l V1Q QOHIU0 N8 A!33 V3 3• NWDi 0 N9 A3 y V33 QO XV HHUV33 • NWD J XV 3H3 1^Q3•NW F 3X V 3>SH\1Q • NWDJJ XV 3U3 1033 • NW I 3X V 3-33 1 3 3 • NWD d XV 3yS>1>33•NWD 3X V 3>Sy1 yQ3 QO Hn3X V 3H3 1 yaJ• NV N UH Q S D 3 3 S D a 3 S 8 O N D * FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK 2 O hood racial com position is no longer im portant. Sim ilarly, Canner, Gabriel, and Woolley (1991) find that, after controlling for individual and neighborhood m easures of default risk , I there is no evidence of discrim ination based on the racial com position of neighborhoods. o I E o \ Several other studies confirm these findings.'0 R esearch thus has failed to uncover any evidence that banks discrim inate against neighborhoods on the basis of racial composition." DO BANKS DISCRIMINATE AGAINST INDIVIDUALS? = R edlining is distinct from racial discrim ination against individuals because not a m ll inority applicants live | • in redlined neighborhoods.1 Although research has found little evidence of discrim 2 ination against m inority \ neighborhoods, recent research has uncovered evidence consistent w discrim ith i nation against individual m ority loan applicants. The m w in ost idely publicized evidence comes from the HMDA data. In 1989, C ongress am ended the Hom e R e s e a r c h ... h a s M ortgage Disclosure Act to require lenders to report the disposition of every FAILED TO UNCOVER ANY EVIDENCE m ortgage loan application, along w the race or national origin, gender, and ith annual incom of each applicant. Num e erous press rep orts have focused on th e disparities betw een w hites and m inorities in the fraction of applicants denied THAT BANKS DISCRIMINATE AGAINST credit. F r exam o ple, the 1993 data show th for conventional hom purchase at e NEIGHBORHOODS ON THE BASIS OF RACIAL loans, 34 percent of African-Am erican applicants and 25 percent of H ispanic COMPOSITION. applicants w denied credit, w ere hile only 15 percent of w hite applicants w ere denied credit.'3 B them y selves, how ever, sim tabulations of HMDA data are inconclusive for the sam reason th ple e at raw m ortgage flow data are m isleading. The HMDA data report applicant incom but not credit history or e, other economic characteristics. W ithout controlling for applicant creditw orthiness, the disparity in m ortgage loan denial rates in the HMDA data could reflect the disadvantaged economic statu of m s inorities, rath er than noneconomic discrim ination by banks. I is w know that racial and ethnic groups differ significantly t ell n on m any dim ensions of creditw orthiness. F example, the average m or inority individual has low incom er e, lower net worth, and lower financial asset holdings than does the average white Am erican. Furtherm ore, m inority m ortgage applicants are m likely to have adverse ore credit histories and to request larger loans relative to property value, factors associated w higher default risk.'4 In short, differentiating betw ith een racial discrim ination and racial disparities in creditw orthiness is difficult. 2 O inJO N fl 3 y S *1 HQJ•Q O H IUJO ^ V A33 V 3 3 N W D INVfl 3 ^ S ^1 HQJ•Q O H H JO IN a 3> S> '1HQ:)•Q O H IU30»N S 'US *1 UC J•Q O H IX JO V 3 ^ S H1 U a 3•Q O H IUJO IN g 3 X S * "IV 3 3 •Q O H IUd X V 3 US H1 HQJ•Q O N D d ^ V 3 *3 * iva3 3• A 3 3 V 3 3 N W D l ^ V AI33I V3 3 N W D V8 A S S V 3 ]3 N W D »N a A33 V 3 3 N W D ^ V A 3 3 HQ3 N W D O N fl A 3T V 3 3 N V H IU O N fl A S3 a3 9 FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RIC O 0 1 THE BOSTON FED STUDY t I A recent study by econom a th F eral R ists t e ed eserve B k of B an oston h gone th as e 1 farth tow solving th problem 5They asked banks and m est ard is .1 ortgage com panies for \ detailed inform ation from the loan applicant files for a sam of B ple oston HMDA | 1 I data for 1990. They obtained data on housing expenses, total debt paym ents, net w ealth, credit and m ortgage paym histories, appraised property values, w ent hether properties w single- or ere z i m ulti-fam dw ily ellings, w hether applicants w self-em ere ployed, and w hether applicants w denied p ere rivate m ortgage insurance. Com bining th inform is ation for a sam of 3,062 in ple dividu al applicants w applicant race and the unem ith ploym ent rate in the applicant's A l t h o u g h research HAS FOUND LITTLE EVIDENCE OF DISCRIMINATION in u d stry, they estim ated th probability of a particular m e ortgage loan application being denied. The study's major finding is that, after controlling for the financial, AGAINST MINORITY employment and credit h istory variables they were able to observe, race still NEIGHBORHOODS, RECENT RESEARCH HAS had a highly significant effect on the probability of denial. The resu im lts ply UNCOVERED EVIDENCE CONSISTENT WITH that m inority individuals w the characteristics of an average w ith hite applicant have a 17 percent denial rate com pared to an 1 percent denial rate for w 1 hite applicants w the sam characteristics. M ith e oreover, the B oston F study sug ed DISCRIMINATION AGAINST INDIVIDUAL gests that w hatever discrim ination takes place is of a subtle form W . hereas MINORITY applicants of all races w unblem ith ished credentials were alm certain to be ost LOAN APPLICANTS. approved, the study found th the vast m at ajority of applicants had some im per fection. As a resu lenders have considerable discretion to consider compenlt, § o 5 sating factors in evaluating creditw orthiness. The B oston F researchers suggest that "lenders seem m ed ore \ w illing to overlook flaw for w s hite applicants than for m inority applicants."1 6 0 \ These findings are consistent w the widely held view th lending discrim ith at ination is common in hous- f in m g arkets. A recent survey found that 69 percent of African Am ericans and 33 percent of w hites do not feel 1 that A frican Am ericans have an equal opportunity for credit loans and m ortgages. H ousing discrim ination i j also has been the focus of housing m arket audit studies, in w hich m atched pairs of testers, one w hite and one I m inority, respond to advertisem ents for ren or sales properties. Such studies have found tal i evidence of differential treatm based on race, such as African Am ent ericans not being show n I certain available properties. The few pilot studies on hom m e ortgage lending discrim ination I at the pre-application stage are too sm to be conclusive. Anecdotal reports of lending disall l crim ination are som etim cited as well.'7 es I o 5 O X V 3 » S *1 *3 J« O H I> J X V 3 » S *1UC3 •Q O H rUJO N 8 3 U S *1^3033•Q O H IY 3 N 8 3 *3 3 1 » Q3•Q O H I^ 3 V 3 US U1 *3 ]3 •Q O H mJO N U3 US U1 MQJ•Q O H I^ 30XN 9 3US > 1 U Q 3 Q O H H 30X V 3>3311 > a 3•Q O N fl A 3 3 V a3 aN W D l O N fl A 3 3 V313 N W D X V A 3 3 N W D I 0X V A S * V 3 3 N W D 03N 8 A 3T V C 3 N W D X V A 33 V 3 3 N W D V A33J V 3 3 • N W D J N 8 AJS> V l33 N W 10 77 FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF Rl INTERPRETING THE BOSTON FED RESULTS Although anecdotes and evidence from audit studies are suggestive, the B oston F study rem ed ains the m rigorous evidence available of hom m ost e ortgage lending discrim ination.'8D espite the study's sophistication, how ever, considerable uncertainty rem ains concerning its in terpretation. Som researchers have questioned e the reliability of the data and the em pirical m odel underlying the study.1 Although the critiques are far from 9 definitive, replication of the study's resu using different data sets obviously would increase confidence in lts its findings. Seldom is a single retrospective study taken as conclusive, particularly in the social sciences, and the B oston F study is the only research on lending discrim ed ination th explicitly controls for in at dividu appli al cants' credit h istory. F rth research w u er ould be especially valuable in view of th plausible altern e ative hypotheses th are consistent w at ith Fu r t h e r the B oston F resu ed lts. One such alternative view is that the variables in the study m easuring creditw orthiness are im precise or incom plete and fail to capture com pletely the judgm of a hypothetical unbiased loan ent officer. If there is any random discrepancy between applicants' true creditw orthiness and their creditw orthiness as m easured by m odel variables, there is likely to be a bias in m easuring discrim i research WOULD BE ESPECIALLY VALUABLE IN VIEW OF THE PLAUSIBLE ALTERNATIVE HYPOTHESES THAT ARE CONSISTENT WITH THE BOSTON RED RESULTS. nation. When tru creditw e orthiness is inaccurately m easured, it is very difficult to distinguish racial discrim ination from unm easured racial disparities in creditw orthiness. If tru creditw e orthiness is associated w applicant race, the m ith odel w ill indicate th race affects the probability of denial, even if race plays no direct causal role. If tru creditw at e orthi ness is low on average for m er inority applicants, then there w be a bias tow ill ard finding discrim ination against m inorities.2 0 The fact th m at easured creditw orthiness is statistically associated w race suggests th th condition ith at is holds. R egulatory field exam iners rep th it is often difficult to fin m ort at d atched p of loan files corroborating airs discrim ination detected by a statistical m odel or sum ary statistics. Exam m ination of applicant files often reveals explanatory considerations th are not captured by any m at odel variables. The credit h istory variables in the B oston F study are sim functions of the num ed ple ber of m issed paym ents or w hether the applicant ever declared bankruptcy, and do not reflect the reasons for any delinquencies. E valuating explanations of past delinquencies is at the h eart of credit underw riting; som w indicate poor financial m e ill anagem skills or unstable earnings, ent w hile others w reflect response to unusual one-tim financial shocks or inaccurate ill e X V 3 *33 iv^aaaj •aNOw j N fl a S » tora 12 a3 HS H1 *3 3 •Q O H ry 3 X V 3 HS ^ 1 UQ3•Q O N D i A 33 V a d N W D 0 N fl A 33I V 3 3 N V H I* a3 HS Ul\rtl3a3d*aN W D 3 3 V 3 U S * 1 a Q3•Q O H IHd X V 3 U S *1 HQ3•Q O H I* d X V 3 *3 3 1 *3 ]3 •Q O H I> dO V8 3 >33 lV 3 3 •Q O ! A 33 O H IU 0 N 8 A 33 V3 3 N W O O N fl A 3 3 V 3 3 N W D O N fl A S » V C d N W D l *N AJ S * d Q d N W iO N D * FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK O credit reports. I seem quite plausible, therefore, th the B t s at oston F findings are an artifact of our in ed ability to ; capture complex credit history inform ation in a tractable quantitative representation. \ o Another hypothesis consistent w the evidence from the B ith oston F study is that m ed inority borrow ers \ are m likely to default than equally qualified w ore hite borrow ers, so lenders im plicitly use race as an indica- | i tor of creditw orthiness in m arginal cases, above and beyond the inform ation provided by incom balance e, I sheets, or credit h istory. Such behavior, often called "statistical discrim ination," m ight be economically ratio- | o nal, though still illegal. The statistical discrim ination and m easurem error hypotheses are closely related ent I because both assum that the outside analyst does not observe tru creditw e e orthiness. The distinction is th at • s § u nder the m easurem error hypothesis the loan officer observes tru creditw ent e orthiness, w hile under the statistical discrim ination hypothesis the loan officer does not d irectly observe credit quality bu uses race as a p t roxy. 1 o A recent study of m ortgage default data supports these alternative explanations. The study found that an I African-Am erican borrow is m likely to default than a w er ore hite borrow even after controlling for incom er, e, I w ealth, and other observable borrow characteristics.2 Why would a m er 1 inority borrow be m likely to er ore i Aa sMgnWh go, D. dm o a, a i tn .C r sn idO Vg 3 -a S y1 UQd•Q O H IUdO N g 3 US Hlva3 3 •Q O H rHd ^ V 3>33 lVa3a3d*Q O \H I'a dO Vfl 3 *3 3 1Va3a3d*aN W D dO Vg 3 >33 !V a3d«aN V H I'a d -X V 3US 'M1 y3 I3 « O H ra d ^ V 3 U S * 1 U a3d*aN V D dO N g 3 *3 * iv*3a3d* *N A 33 V 3 3 N W D ^ V A 33 Q d N W D O IN g A1SU NV D SN A S » O H ra SN AJ S * a3 O N D O N g A 33 V C d aN W D O IN g A 3 3 V 3 O \H rH M V A S3 13 FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF O 2 0 | default than an equally qualified w hite borrow M er? ortgage defaults often are | attributable to "trigger events," such as involuntary job loss or large unexpected | health care costs, that sharply reduce the borrow er's ability to repay.2 M peo2 ost 1 pie are poorly insured against such risk and it seem plausible that m s, s inorities 1 experience these events m ore often than whites.2 F example, unem 3 or ploym ent z rates are higher for m inorities than for w hites, but m im ore portant, the probability of involuntary job loss is | higher for m inorities.2 M 4 inority household holdings of financial assets are far sm aller on average, reducing I their ability to w ithstand uninsured financial shocks.2 M 5 inorities tend to be less healthy on average and are more likely to lack health insurance.2 There seems to be no research on 6 w hether these differences in the likelihood of trigger events persist after control [ D I is p a r it ie s o u t s id e ling for incom w e, ealth, credit h istory, and other factors observable at the tim e LENDING MARKETSIN LABOR MARKETS, FOR EXAMPLE- of the application. B t it seem plausible th these risk factors can explain the u s at MIGHT WELL BE loan approval rates. This line of reasoning suggests th disparities outside lend at RESPONSIBLE FOR in m g arkets — in labor m arkets, for exam — m ple ight w be responsible for ell WHAT APPEARS TO BE LENDING DISCRIMINATION. disparity in m ortgage default rates and can thereby account for disparities in w appears to be lending discrim hat ination.2 7 One other consideration th lends support to these altern at ative explanations of the B oston F resu is the presum ed lts ption th com at petitive forces should act to elim inate unprofitable discrim inatory practices. If som lenders discrim e inate on \ noneconom grounds, they ought to system ic atically lose business over tim as long as th are som lenders th e ere e at 1 I • 0 1 0 1 do not discrim inate. The discrim inatory lenders m end up servin only p of th m et, bu nondiscrim ay g art e ark t ina- i discrim ination could easily rem unconvinced by the B ain oston F study. On the other hand, critics w a ed ith • strong prior belief in the prevalence of lending discrim ination w find strik g confirm ill in ation in the B oston I F stu y. Betw these tw extrem lies a range of reasonable assessm ed d een o es ents.2 9 tory lenders w ould be eager to fill the void.2 8 T sum arize, the em o m pirical evidence on bank lending discrim ination based on an applicant's race seem inconclusive. A skeptic w a strong prior belief in the ability of m s ith arket forces to restrain unprofitable 0 1 What does the em pirical evidence on discrim ination, such as it is, im ply about appropriate public policy? D iscrim ination against m ortgage applicants on • c 5 the basis of an individual's race calls for vigorous enforcement of fair-lending law H ever, the lack of evidence of discrim s. ow ination against neighborhoods p se er o raises questions about the need for a lending obligation aim at neighborhoods. ed \ Not all m inority applicants have low incom or live in low-income neighbores o o *N fl 3 *3 * 1 *3 ]3 *a O V D 30X V 3 *3 3 1 UQ J•aN W D JJO N fl 3 *3 3 1 *I3 3 •Q O H IUJ03 V 3 * S > 1 HQJ•Q O H IUJO N fl 3 *33 1 * 3 3 •Q O H 1 JJ05 V 3 *3 3 1 ^ QJ•Q O H I^ JO N 8 3 U S *1 UC i•aN W D JO Vg 3 US H1V V A S3 V C d N V H IU N 8 A S » V 3 3 O H H > V A S * V Q3 N W D N 8 A331 V 3 3 N W O ^ V A S -« V1QJ N WD T IN 8 A S U V 3 3 N W D X V A 3 3 V 3 I3 O H IH SN A 33 *3a33«aN 14 IM ND* F D R LR S R EB N O R H O D•F D R LR S R EB N O RICH O D•F D R LR S R EB N O RICH O D•F D R LR S R E B N O RICH O D•F D R LR S R EB N O RICH O D•F D R LR S R EB N O RICH O D•F D R LR S R EB N O R H O D•F D R LR S R EB N O E E A E E V A K F JC M N E E A E E V A K F M N E E A E E V A K F M N E E A E E V A K F M N E E A EE V A K F M N E E A EE V A K F M N E E A E E V A K F IC M N E E A E E V A K 0 1 C \ hoods, so the connection betw een racial discrim ination against individuals and I lending to low-income neighborhoods is doubly obscure. The evidence that we do o have, w hich suggests the possibility of racial discrim ination against individuals but i 2 o \ not neighborhoods, provides little reason for a law lik the CRA that targets lending e to low-income neighborhoods.3 0 j | IS THERE SOME OTHER SOURCE OF MARKET FAILURE? | 2 0 L acking evidence of bank discrim ination against neighborhoods, is there som other rationale for a eove ? ernm ent-im posed lending obligation? Could CRA-induced lending be socially desirable even though banks would otherw find it unprofitable? In other ise w ords, is there a m arket failure affecting lending in low-income neighborhoods?3 1 Many w riters have pointed out that low-income housing m arkets are A SKEPTIC WITH A STRONG PRIOR BELIEF IN THE ABILITY OF frequently characterized by "spillover effects" because the physical condition MARKET FORCES TO and appearance of one property affects the desirability of nearby properties. RESTRAIN UNPROFITABLE DISCRIMINATION This leads to a strategic interaction am ong property owners; im provem ents to a house in a w ell-m aintained block are w orthw hile but would have little value if the rest of the block is poorly m aintained or vacant. A run-dow neighborhood n m ight be w orth renovating from society's point of view yet no single property , COULD EASILY REMAIN UNCONVINCED BY THE BOSTON FED STUDY owner h an incentive to invest. T strategic interaction extends to potential as his lenders as well. E ach bank judges an applicant in isolation, ignoring the effect on nearby properties. T aking the poor condition of neighboring properties as given, the loan m ight appear to be a poor risk even though , s 1 | sim ultaneous loans to im prove all properties m ight be w orthw hile. A would be better off if lenders could ll \ coordinate their decisions and agree to lend, since those loans would be profitable. B t in the absence of u I coordination, each bank's reluctance to len confirm oth banks' reluctance to len an becom a self-fu d s er d d es lfillin g | s 1 prophecy of neighborhood decline. Inthese circum stances, a genuine m arket failu could be said to occur.3 re 2 Spillovers seem quite im portant in affluent residential and com ercial m m arkets as well. The preem i- \ nence of location in valuing suburban hom epitom es izes the im portance m any hom ebuyers place on the § characteristics of the surrounding neighborhood. Office buildings often are clus- I i tered to take advantage of common services or hom ogeneity of appearance. What \ is strik g about spillovers in m affluent real estate m in ore arkets is that they do not \ seem to cause any serious m arket failure; private m arket m echanism seem quite s I capable of coordinating investm decisions. F r exam ent o ple, suburban housing is I 2 c m JO N a 3 » S 'a1 y Q3•aN W D 30»N 3 HS H1 3 3 •aN W D HdO N g 3 ^ S H1 a a 3•Q O H I'a 3 > V 3 » S tl iva303j •Q O H IUJO N 8 3 US 'H1 M0 3•Q O H IU30»N 3 HS M1 HQ3•Q O H IUJO IN a 3 ^ S 'd1 HQ3•Q O H IU3 X V 3'HS'«1 1 0 3• m X V A33 V3 3 O H I'M V8 A 33 WQ 3 O H F X V A 33 V 3 3 N W D 0 IN a A 33 N W D X V A 33 V 3 3 N W D Va A 3T V 3 3 N W D ^ V A33 V 3 3 N W D 0 N 8 A 33 ^ 3 3 75 F D R LR S R EB N O RICH O D•F D R LR S R EB N O RICH O D•F D R LR S R EB N O RICH O •F D R LR S R EB N O RICH O D•F D R LR S R EB N O R M N •F D R LR S R EB N O R M N •F D R LR S R EB N O RICH O D•F D R LR S R EB N O R H E E A EE V A K F M N E E A E E V A K F M N E E A E E V A K F M ND E E A E E V A K F M N E E A E E V A K F ICH O D E E A E E V A K F ICH O D E E A E E V A K F M N E E A E E V A K F IC Z o 5 X 0 | often developed in large parcels of very sim hom ensuring the first buyers ilar es, 1 that subsequent investm w not blem the neighborhood. The developent ill ish 1 m is coordinated by a single entity that either builds all the hom or enforces ent es \ hom ogeneity through building restrictions and deed covenants. I F rom th perspective, it is h to see just w would im is ard hat pede sim m ilar ar- | k m et echanism in low-income neighborhoods. A substantial p of the ecos art 1 nomic role of a real estate developer is to coordinate investm decisions, internalizing the spillovers ent % inherent in closely neighboring investm ents. If a coordinated investm in a low-income neighborhood is in ent I society's best interest, why wouldn't a private developer assem the capital to finance the investm ble ent? Several notable differences betw een the suburbs and low-income, in ern O n THE W HOLE... IT SEEMS DIFFICULT TO ARGUE THAT LENDING IN LOWHNCOME NEIGHBORHOODS IS ANY MORE BESET BY MARKET FAILURES THAN LENDING IN AFFLUENT NEIGHBORHOODS. city neighborhoods m ight explain why coordinating investm ents is m diffi ore cult or costly in city neighborhoods. Low-income urban neighborhoods tend to be older, higher-density areas, w hile developm ent in the suburbs is often on virgin tracts of undeveloped land. Assem bling control of the requisite property righ is arguably less costly for the la ts tter. Another factor affecting the ease of assem bling property rig ts is the h h igher incidence in th cities of governm e ental encum brances such as ren controls or tax liens. The greater incidence of crim in t e u rban areas also in ib developm by m h its ent aking it m costly to provide re ore si dents w a given level of secu ith rity. D isparities betw een u rban and suburban m arkets in the costs of coordi- j j nating investm ents, how ever, do not necessarily provide a rationale for governm stim ent ulus of low-income • com unity developm m ent. The expense of keeping crim out of a neighborhood, for example, is a real social e 0 1 cost that deserves to be addressed directly, and there is no reason to encourage people to ignore it in th eir I investm decisions. Sim ent ilarly, governm restrictions on property righ distort decisions, although usually ent ts I w the aim of benefiting some particular group. These distortions im ith pose genuine costs, and it is h to ard I see why we should encourage people, including lenders, to discount them. 0 1 0 In sum these very real costs do not, by them , selves, represent a m arket failure. 1 L g and N an akam ura (1993) describe a m subtle type of spillover. The ore 1 precision of appraisals, they argue, depends on the frequency of previous home- § o sale transactions in the neighborhood. A low rate of transactions makes | appraisals im precise, w hich increases m ortgage lending risk in the neighborhood, \ reducing m ortgage supply, and thereby reducing the frequency of transactions. 0 1 o 2 X o ■INa3 US H1 ^ Q3•Q O N D 3 > V 3 HS 'a1 y C 3•Q 0W 3IH3 > V 3 US U1033 •Q O H IU3 5 V 3 '« S a1 HC 3•Q O N D 3 > V 3 'HS H1033 •Q O N D 30»N 3 US 'a1 HQ3•Q O H IU30XN 8 3 HS 'a1 H G 3 Q O \H I> 30XN 3 3 ‘ 33 1 a Q3•Q O H > V A 33 V 3 3 N V H IU 0 IN a A 33 V3 ]3 N H 0 iN a A 33 X103 N W D 0 IN a A 3T V 3 I3 N V H IU 0 IN a A 33 X103 N V H I'H Va A 33 V 3 3 N W D V A 33 V 3 3 • N V D I V A S'H V3 3 N W [ H 76 G reo nWh go, D. e gtw a i t n .C o , sn i c D ! JO N 8 3 U S *1 UQJ•Q O H IU30XN 83»S > 1 HQ3•Q O H H JO N fl 3 HS H1 HQ3•Q O H rH30*N 3 *3 T 1^3033•Q O H I> JO N fl 3 ^ S > 1 H 0 J•Q O H rHJO V 3 US '«1 y Q3•dN W D 30X V 3 ^ S H1 M0 J•Q O H IUd > V 3>33 1 *3 ]3 • H X V A 33 V 3 3 N W D V A331 V 3 3 N W D l X V A 3T V 3 3 N W D Vfl A S H N W D l X V A33 I V 3 3 N W D ilN a A 33 V3 3 O H IU N 8 A 3T V 3 3 N W D O IN a AJSH V C J 77 FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICH O X 0 1 A neighborhood can get stuck in a self-reinforcing condition of restricted m ortgage | lending and low housing stock turnover. The key im pedim to efficiency in this ent | story is the failure of lenders and hom ebuyers to account for the social benefit of I their transaction on others' ability to m accurate appraisals in the future. ake | While this argum seem theoretically plausible, some im ent s portant problem s rem ain. F example, it is not clear w or hat lim th phenom its is enon to low-income | neighborhoods. Affluent housing m arkets are quite prone to transitory declines in transactions volume, but | rarely seem to get stuck in a depressed condition. And again, it is not clear why m arket m echanism w s ould | be unable to coordinate transactions in low-income neighborhoods as they do in m any other real estate m ar kets. On the whole, then, it seem difficult to argue that lending in low-income neighborhoods is any m s ore f beset by m arket failures than lending in affluent neighborhoods. 1 IS REDISTRIBUTION THE PURPOSE OF THE CRA? t I If the CRA cannot be rationalized as a cor- 1 rective for lending discrim ination or some other I < identifiable m arket failure, then the CRA m be ust ' I essentially a redistributive program th should be at I I justified by equity rath than efficiency considerer i ations. Indeed, the desire to simply transfer 1 resources to low-income neighborhoods is under- 1 | ? standable in view of their appalling condition. B t u how should such a transfer be carried out? 0 1 The CRA has been likened to a tax on con- 0 1 ventional banking linked to a subsidy to lending in \ low-income neighborhoods.3 Although banks are 3 • exam ined regularly for compliance w CRA regith 0 1 : ulations and receive public CRA ratin enforce-u gs, 1 m relies on the pow of the regulatory agencies to delay or deny an application for perm ent er ission to m erge r o' c .. Hpr FryWtVg i a es er, e i i a r s rn w or acquire another bank or to open a new branch. The prospect of having an application delayed or ith • 0 2 denied, along w the public relations value of a h CRA ratin provides banks w a tangible incentive ith igh g, ith I for CRA compliance.3 According to th view by tilting banks' profit-loss calculations, the CRA regulations 4 is , 1 give banks an incentive to m ake loans they would not otherw have m ise ade. T the extent that banks are o 0 a3 y s3 iv i3 3 •qnowhdhi j Aa * > a J 18 a3 HS U1 A 33 ^3033•Q O H I'UJO*N fl 3 y S U1 > a 3•aN W D M3 N WD V A3 3 V l33 O H P a3 HS H1 > a3 O H I'aJ > V 3 * S > 1 *3 ]3 O H ni JO N fl 3 *3 3 1V 3a3J« O H ra dO N a 3 US »1 > a3 O H raJO N a 3 HS H1 *3 J*C O '^ A 33 V l3 J*aN W D O lN a A33J V C J*aN W D X V A S y » aN W D X V A 33 V J3 J*aN W 3 X V A 33 V a3 IN V MOND • FEDERAL RESERVE B F RICHMOND • FEDERAL RESERVE E F RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE B induced to m ake loans and investm ents they would not otherw have found prof ise itable, the CRA regulations encourage banks to subsidize lending in low-income neighborhoods. Investm ents at concessionary rates and CRA-related outlays, such as for m arketing program and philanthropic contributions, directly reduce a bank's s net earnings. The gap betw een the cost of these loans to borrow and w they ers hat would have cost in the absence of the CRA represents a tran to the low-income neighborhood. sfer Tw questions naturally arise, though, if the CRA is viewed as a redistributive program F o . irst, why should we provide low-income neighborhoods w an enhanced credit supply rath than unencum ith er bered cash paym ents? Second, why should the banking industry be the source for such tran sfers? WHY SUBSIDIZE LENDING IN LOW-INCOME NEIGHBORHOODS? If the goal is to m the residents of low-income neighborhoods better off, w not provide u ake hy nrestricted transfer paym ents? Econom ists generally argue that unrestricted income transfers are m ore efficient than equally costly transfers tied to particular goods or services. This A PLAUSIBLE ARGUMENT CAN efficiency arises from the expanded choices available to recipi ents. Com unity development subsidies via enhanced m m ortgage BE MADE FOR lending, in contrast, tie transfers to borrow ing and homeowner- TARGETING SUBSIDIES TO LOW-INCOME ship. Why encourage low-income households to take on m ore HOMEOWNERS AS A WAY TO RECTIFY THE BANEFUL HOUSING AND LENDING POLICIES OF THE PAST. debt? And why should subsidies to residents of low-income neigh borhoods be tied to their ow nership of housing? A plausible argum can be m ent ade for targeting subsidies to low-income hom eowners as a way to rectify the baneful housing and lending policies of the past. A variety of explicit policies at both public and private institutions in the first half of this century encouraged the flight of w hite m iddle-class residents from in cities to the suburbs. M ner etropolitan real estate boards adopted explicitly racial appraisal standards and attem pted to prevent m bers from integrating em neighborhoods.3 The FH provided a significant stim 5 A ulus to hom eownership, but agency underw riting poli cies and housing standards strongly favored new constructed hom in all-w ly es hite suburbs.3 It recommended racially restrictive deed covenants on properties it 6 insured u til the Suprem Court ruled them unenforceable in 1948. The banking n e industry apparently adopted sim ilar underw riting policies.3 Som researchers cite 7 e these policies as im portant in the creation and persistence of racial segregation and the concentration of poverty in the inner cities.3 8 ID 305 V 3 » S * 1 UQ3•Q O H IHd X V 3 U S * 1 *l3 3 •Q O H H dO N S 3>33 1 y Qd•Q O N D Hd X V 3 *3 T 1 H0 3•Q O H F d > V 3 *3 T 1 a Qd•Q O H rtf d )IN 83>3311>33 •Q O H P dO V8 3 H S 1>33 •aN W D J 30*N fl 3* S > !V 3 3 • ra IN 9 A 3 3 V 3 3 N W O O N fl A 3 3 V Gd N W D I X V A1S ^ V 3 3 N V H F O N fl A S H V 3 3 N W D M O IN 9 A S H V3 3 N W D O V AJS> V1a d N W D H *N A 3 ra VJ 0d O H D V A331 y Q d 19 F D R LR S R EB N O RICH O D•F D R LR S R EB N O RICH O D•F D R LR S R EB N O RICH O D•F D R LR S R EB N O RICH O D•F D R LR S R EB N O RICH O D•F D R LR S R EB N O RICH O D•F D R LR S R EB N O RICH O D•F D R LR S R EB N O R E E A EE V A K F M N E E A E E V A K F M N E E A EE V A K F M N E E A EE V A K F M N E E A E E V A K F M N E E A E E V A K F M N E E A E E V A K F M N E E A E E V A K F IC Z o 2 0 1 This rationale for the CRA invokes the notion of corrective justice, the norm ative idea th com at pensation I should be m ade for past inequities.3 The discrim 9 inatory practices of earlier tim depressed the w es elfare of § low-income m inority com unities by raisin the cost of hom m m g e ortgages there relative to m affluent subur ore ban com unities, although the lack of evidence of redlining in recent years suggests th noneconomic cost m at | differentials have largely been rem oved. Subsidies that low the cost of home m er ortgage lending in low- I incom m e inority com unities — in contrast to unrestricted cash paym m ents — tran sfer resources to precisely 1 the sam groups th the earlier discrim e at inatory polices tran sferred resources from— nearly creditw orthy low - 1 2 incom hom e eowners. As P eter Sw (1994) notes, "Only a very sm subset of the effects of discrim ire all ination | [in housing m ets] can be traced w enough specificity to perm legal redress" (p 95). Thus, it m be quite ark ith it . ay I difficult to target u nrestricted incom tran e sfers to individuals directly harm by past discrim ed inatory practices. M ortgage lending subsidies that m irror the tax home lending dis- crim ination m ight be the m efficient w ost ay of com pensating those who were harm ed. SHOULD BANKS SUBSIDIZE LENDING? Why should depository in tion be stitu s singled out for the affirm ative obligation im posed by CRA regulations? Why do other lending interm ediaries such as m ortgage, finance, and life insurance companies escape obligation? More broadly, why should financial interm ediaries bear the burden rather than society as a whole? S enator P roxm provided a p ire artial answ er N MktMD b a e q iil w r w hen introducing the original Act by noting th a bank ch at arter "conveys num erous benefits and it is fair for the public to ask som ething in return."4 The 0 CR in th view is a quid pro quo for the special privileges conferred by a bank ch A, is , arter, w hich incidentally explains w th Act lin s assessm to a bank's "application for a deposit facility." hy e k ent T the extent th CRA obligations are unprofitable or are equivalent to charitable o at contributions, apparently they are to be cross-subsidized from the stream of excess p rofits otherw generated by the bank ch ise arter. 20 Mgn nNt Con o at . oh a l a r o r ri 21 F D R LR S R EB N O RICH O D•F D R LR S R EB N O RICH O D•F D R LR S R EB N O RICH O D•F D R LR S R EB N O RICH O •F D R LR S R EB N O R M N •F D R LR S R EB N O RICH O D•F D R LR S R EB N O R M N •F D R LR S R EB N O R E E A EE V A K F M N E E A EE V A K F M N E E A EE V A K F M N E E A E E V A K F M ND E E A E E V A K F ICH O D E E A E E V A K F M N E E A E E V A K F ICH O D E E A E E V A K F IC Z c GevlleSu Con r ni , ot a l a e h ri Og 3A 3S3U1033 •QNOW DIUdO^INVa3A3S3>I 1VUQ3•QNOW DHI 30XNV8 3A 33 1V*3Q3•Q OVNHDni 30*NVg 3>3T 1O33 •QNOW DIU30XNV9 3A*3STtf 1VUQ3•QNOW DHI 30XNV8 3A 3S3U1033 •QNOW DHJJOXNVa 3Ay3S3U1Vy3Q 3•dNOW DPadO^NVfl 3>3T 1VH3(]33*aNO 3 V U X1 0 3 N H » 33 H '«S 'a 3 N AJS d NJQ3 H 33 H H X1 0 3 H 3 H AJS « 22 DND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK The difficulty w th role for the CRA is that cross-subsidization m be infeasible.4 ith is ay 1 The com petitive environm facing banks h changed greatly since passage of the CRA ent as in 1977. Over the last two decades the legal and regulatory restrictions on com petition am ong banks have been substantially reduced, a trend that w continue w the im ill ith ple m entation of the In terstate B anking Efficiency Act of 1994. P erhaps m im ore portant, rap id changes in financial technology are eroding the advantages of banks relative to nonbank com petitors. Consequently, im posing a unique burden on the banking indus try m ight only dim inish banks' share of interm ediated lending. The regulatory higher loan rates and on bank-dependent savers in the form of low deposit er T H E REGULATORY BURDEN ULTIMATELY WOULD FALL ON rates. And to the extent that lending induced by the CRA regulations increases BANINDEPENDENT the risk exposure of the deposit insurance funds, taxpayers who ultim ately BORROWERS IN THE back those funds bear some of the burden as w ell. FORM OF HIGHER LOAN RATES AND ON burden ultim ately would fall on bank-dependent borrow ers in the form of Senator P roxm suggested a practical reason banks are asked to shoul ire der the CRA burden when he rem arked that "there is no way the Federal BANK-DEPENDENT SAVERS IN THE FORM OF Governm ent can solve the problem [of revitalizing the inner cities] w its ith LOWER DEPOSIT RATES. resources."4 F 2 romth perspective, the CRA im is poses a tax on banks to avoid an explicit general tax increase. B t a general tax increase is usually less costly to society than an equal-sized u tax on a single in stry because spreading the burden over a w du ider base m inim izes the resulting distortions in economic activity. F rom this perspective, im posing the CRA tax on banks rath th the economy as a er an whole involves an excess social cost. Compelling banks to provide subsidized lending in low-income neighborhoods m ight be w arranted nevertheless if banks have a unique com parative advantage in doing so. The cost savings from such a com parative advantage m ight justify incurring the excess social cost of the CRA burden on banks. B t if no com u parative advantage can be identified, we ought to consider alternative m eans of providing subsidized lending that avoid the excess cost of a tax levied solely on banks. COMMUNITY DEVELOPMENT ORGANIZATIONS PROVIDE SUBSIDIZED LENDING Com unity developm organizations (CDOs) are institutions that prom invest m ent ote m in target neighborhoods, w ent orking closely w hom ith ebuyers, private lenders, busi nesses, government agencies, and private donors.4 They prim 3 arily arrange loans for iJO N 83HS> IV Q 3•Q O H rH30XN a 3 *3 3 1 HC 3•aN W D HJO N a 3 y S H1 UQ3•O O H iy JO N 8 3 *3 T lV 3 3 •dNO HDI* 30*NVa 3>3Tf1 U a 3•Q O H ni 30XN a 3 'dS H1^3033•aN W D 30*NVa 3 'HS 'a1 H0 3•Q O H iy 30)IN a 3 » S y1>33 • X V A33J *3 3 N W D V A S U V 3 I3 O H P X V A3 3 V 3 3 N W D X V A S H y Q J W A1St V 3 3 N W D V A 3T O H rtl A 33 V 3 3 N W D V A 33 V1a3 23 FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RI O 5 0 | developm ent projects and homeowners, and their costs are generally funded by | gran and donations. T ts heir goal of revitalizing decaying neighborhoods m atches 1 exactly the avow purpose of the CRA. CDOs represen an altern ed t ative to channeling ° subsidized lending throu the banking system gh . | Neighborhood Housing Services of B altim (N SB) is one such organizaore H | tion.4 The m 4 ain focus of the NHSB is promoting occupant homeownership, 1 im proving the physical appearance of neighborhoods, and "stabilizing" the real \ estate m arket. The NH has targeted four different Baltim SB ore neighborhoods since its inception in 1974. Within a neighborhood, it often targets particular t I blocks by system atically searching for owner-occupants for each property on the block. When it finds a suit- z I able buyer for a property, NH often arranges for extensive renovations, handles the design and bidding, SB and selects a contractor. C A great deal of the w of NH involves lending. I provides extensive ork SB t o m p e l l in g b a n k s TO PROVIDE education and counseling to help prospective borrow qualify for loans. ers SUBSIDIZED LENDING IN LOW-INCOME This assistance can involve establishing bank accounts, repairing credit records, documenting sources of income, learning about home purchase NEIGHBORHOODS M IGH T BE WARRANTED ...IF BANKS HAVE A and m ortgage application procedures, and saving for a down payment. Qualification often requires a num ber of sessions lasting nearly a year or UNIQUE COMPARATIVE m ore. Counseling serves as a screening process — NH officials often talk SB ADVANTAGE IN of seeking a "match" betw een a property and a borrow A the purchase, er. fter DOING SO. counselors provide advice to financially strapped borrow and m help ers ay them renegotiate paym schedules. ent 0 1 COMMUNITY DEVELOPMENT LENDING IS DIFFERENT The activities of NH are different in m SB any w from the usual for-profit home m ays ortgage lending th at • banks perform NH coordinates a package of hom purchase financing for a borrow that is generally . SB e er 0 2 1 m ore complex than typical arrangem ents. A first m ortgage is obtained, som etim es 0 1 from a conventional lender, often on conventional term but occasionally through a s, \ special m ortgage program tailored to low-income borrow ers. NH also m SB akes first | m ortgages from its own loan fund. Some NH loans are sold in a secondary m SB arket 1 , run by a national organization, Neighborhood Housing Services of America. 0 0 , A second m ortgage is usually crucial to the package since borrow generally have ers 1 5 V 3 » S H1 UC 3•Q O H n JO IN 83> S 'a1> C d•Q O H m30*N fl 3 *3 3 1^3033•a O H P J05 V 3 > S > 1 HQ3•Q O H I> 30XN 83 > S a1 H 0 J•Q O H I^ J > V 3 > S ^1 HQJ•O O H IUdO V8 3 US U1T3 3 •aN W D H30X V 3 > S y1 UQ3•Q O ' IN 8 A3T V 3 I3 N W D i > V AI33 VI3I3 N W D V A SU N W O H IN a AI33I V 3 3 N W D l V Al3T V 3 3 N W D O IN g AI33 V 3 3 N W D *N A 3T VJQ3 O H F N 8 AI33 V 3 3 N V 24 DND» FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK just a m inim am al ount of cash. NH arranges for SB the second m ortgage, usually from its own loan fund. F urther funding m be available from a ay "Closing Cost L oan Program it adm " inisters. L oan term often are designed to retire the junior debt s first before retirin principal on the first m g ortgage. NH officials often refer to their supplem SB ental financing as "soft second" m oney, since they are som etim w es illing to reschedule paym ents if the borrow suffers an adverse financial shock. er The NH goes to great lengths to m SB inim ize the credit risks posed by its clients. Extensive inform ation about borrow em ers erges in the early counseling stage. B orrow are carefully selected ers for the righ "fit" w the property in the sense t ith that the paym ents w be affordable. B ill orrow ers generally are required to save a down paym of ent at least $1,000, w hich provides an equity in terest in the home and helps dem onstrate the discipline required to m anage m ortgage paym ents. NH SB also closely monitors the neighborhood and encourages close connections betw een residents through com unity clean-up projects, neighm ™ | borhood organizations, and crim patrols. This helps NH learn early on about a borrow e SB er's § financial difficulty before a costly m ortgage default, generally the last stage of financial distress 1 for a conventional borrow In addition, renovations are designed in p to er. art \ m inim the chance of costly repairs — new furnaces and appliances are often ize \ installed, even when existing units satisfy city housing codes. Active post- 1 purchase counseling helps m inim the ex post costs of financial distress. ize | Second, the NH spends m SB uch tim coordinating investm in targeted e ent Md Tw AhNf lkVjn i le on r . o o , i i i d e c r na 1 neighborhoods. A prim goal of N SB is to achieve a "generally good physical ary H appearance" in a neighborhood. I tries to develop vacant properties, rehabilit f tate existing properties, and im prove com ercial areas. I encourages owner m t | H c »d X V 3 US U1 UQ3•Q O H IU30XN 9 3 \J S U1 UQ3•Q O H I^ 3 X V 3^33l 1 I3 3 •Q O H IU3 > V 3 US > 1 HQ3•Q O H ltl 3 N 9 3> S 'a1 > Qd•Q O H rtf 3 X V 3 '«S > 1 U 0 3•Q O N D i 30»N 3 ^ S ^1 y Q3•Q O H IU3 5 V 3>33f1 H a 3• O N fl A 33 V 3 3 N W D V A 33 V 3 3 N W D 0 N U AJSt \A a 3 N W D 0 IN g A 33I V 3 3 N W D 0X V Al33 V I3 3 N W D 0 N H A 33I V 3 3 N V H n V8 A 3 3 V 3 3 N W D 0 IN A A1S't V 3 3 25 FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND* FEDERAL RESERVE BANK OF Rl< 1 occupancy in the belief th ow at ners who occupy their ow hom spend m n e ore on maintenance and improvem ents. It tries to influence local government 1 spending on am enities such as streets, sidew alks, and public lands. Som etim es | it helps arrange the departure of taverns or other "undesirable" businesses. In | short, m uch of NHSB's activity involves trying to overcome just the sort of | neighborhood externalities discussed earlier in th essay. is | T hird, N SB lending requires substantial subsidies. Its counseling, m H onitoring, and coordination activi- \ ties are quite labor-intensive, and home purchase transactions are often subsidized. Operating and program expenditures are funded out of federal, state, and local gran and private donations. Officials adm th they ts it at often "overimprove" a house, undertaking renovations th cost m than the resulting increase in m at ore arket I value. N SB officials also recognize that their second-m H ortgage loans are not "bankable" in th no private at EiotCyMy n l ct i . a l d l t ra » V 3 'HS 'a1 X QJ•Q O H I'tf JO N fl 3 'tf33 1 a Q3•C O H iy J > V 3 y S »1 a QJ•O O H I'H30*NVa 3 » S ^1 HQ J•Q O H IUJO V 3 « H1 H QJ•Q O H I'H30X V 3 * S > 1 HQJ•Q O H F JO N 8 3 *3 3 1 y QJ•Q O H IUJO N a 3)J S 'a1 UC J•Q O N a A 33 V 3 3 N W D X V A S y V 3 3 JN W D O IN 8 A3 3 V 3 3 N W D A 33 V 3 3 N W D ^N a A S3 V 3 3 N W D N 3 A33J V 3 3 N W D y X V A S ^ V 3 3 N W D X V A 33 V 3 I3 N ' 26 ^ O N D * FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK lender would lend on the sam term In fact, loans sold to Neighborhood e s. Housing Services of America, a national um brella group, are backing for notes sold to in stitution investors who agree to receive a below-m al arket rate of retu on th "social investm rn eir ent." SHOULD BANKS DO COMMUNITY DEVELOPMENT LENDING? The com unity developm lending perform by CDOs is the type of subsidized lending encouraged m ent ed by CRA regulations. As suggested above, how ever, the com unity developm activities of CDOs lik N SB m ent e H differ in m any respects from traditional banking. Do banks have any com para tive advantage in providing com unity developm m ent lending? Furtherm ore, how m of these activities are banks capable of perform safely? any ing T he COMMUNITY DEVELOPMENT F the concessionary lending done by NH seem inappropriate for irst, SB s insured depository institutions. Although CRA regulations require th lending at LENDING PERFORMED BYCDO'S IS THE TYPE be "sound," the regulations also encourage concessionary investm ents and OF SUBSIDIZED charitable contributions tow ard community development. B anks get CRA LENDING ENCOURAGED credit for offering higher loan-to-value ratios and other "more flexible" lending BY CRA REGULATIONS. term w s, hich can only m ean m risk lending term In fact, in the new ore y s. ly proposed CRA regulations, concessionary com unity developm investm m ent ents are included alongside lowincom neighborhood lending in assessing CRA compliance. T approach threatens to blu the distinction e his r betw een concessionary and for-profit lending and could induce banks to m ake underpriced or excessively risk loans. In the absence of convincing evidence th banks pass u econom y at p ically viable lending opportuni ties in low-income neighborhoods, the attem to stim pt ulate additional bank lending to these neighborhoods risk saddling the banking in u w a large p s d stry ith ortfolio of poorly perform m ing ortgages if it h any effect at all. as Since these debts w ould carry regulators' im plicit im atu forbearance in the prim r, event of w idespread losses would be h to avoid, as in the case of sovereign ard debt in the 1980s. M aintaining a clear boundary at banks betw een concessionary and for-profit lending is thus crucial to the clarity and integrity of regulatory supervision. E iners need to know w xam hether a portfolio is intended to be profitable or philan thropic. Allowing government-insured banks to carry concessionary lending 2 : >aJo N fl a ^ sa ivyaaaa•qnovmhdid aoxNva a u sa lvaaaaa•qnowhdiu aoxNva a ^ sa ivyaaaa•Q O H ra ao^Nva a ^ sa ivyaaaa•onowhdi'hjo^nvh a ^ sa ivuaaaa •anowhdid aoxnvs a ^ sa ivaaaaa •qnowhdi'hao^Nva aA asayivaaaaa•onowhdiu ao>iN a ^ sa ivyaaaa• r :x V A a y Aa y Aa u N WD Aa n Aa y Aa n y vg A a * 27 FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHM OND* FEDERAL on th books hides the cost, unless the subsidy is explicitly recog eir nized up front through higher loan loss reserves or discounting the value of the loan for interest rate subsidies. Funding concessionary lending explicitly out of retained earnings or bank capital subjects transfers to a least m t inim accounting safeguards, ensures tim recognition of costs, and m al ely akes their redistributive n re clear. B atu etter yet, concessionary com unity developm m ent lending could be conducted separately through a com unity developm sub m ent sidiary of a bank's holding com pany. This would have the advantage of keeping such lending pro gram separate from the bank's conventional lend s ing, m aking the evaluation of both portfolios easier. One im pedim to com unity developm ent m ent lending by banks or bank holding companies, how ever, is the extensive counseling th appears cru at cial to lending by NH and other CDOs. U SB nlike CDO counselors, bank loan officers face regulatory constraints on their ability to communicate w ith borrow ers; under the E u C q al redit O pportunity Act, they cannot tell an applicant w to do to qualify hat for a loan w ithout triggering a form application al w the required docum ith entation and disclosures. As a resu N SB counselors learn far m about lt, H ore borrow th would bank loan officers. B ers an ecause the screening inherent in these program appears to s be essen to th viab tial e ility of com unity developm lending, ban often contract m ent ks w community development groups to perform pre-application counseling. ith Thus, even bank holding company subsidiaries m require external assistance ay to perform com unity developm lending.4 m ent 5 Would banks have any com parative advantage in com unity developm m ent lending th would m at otivate a com unity developm m ent requirem for banks? ent The experience of the NH suggests the answ is no. NH counselors have SB er SB extensive contact w local bank lending officers and appear w inform ith ell ed XN 8H yjSialV Q J•Q O H IU J M V 3 > S tt ~ y QJ•Q O H IU3 N 8 3 y S »1 UQ3•Q O H I'H3 X V 3 HS 'a"IV 3 3 •Q O H I'H30*NV9 3^S > 1 a Q3•Q O H IUJO N 8 3'US 'aiv G J•Q O H F 30X V 3 » S tl 1 a Q3•Q O H n 30XN 9 3 * V A a3 3 N W D O N U Al33 IV3 3 N W D 0X V A33 V 3 3 N W D 0 N U A 33 HQ3 N W D A33J V3 3 N W D X V A 33 y3 3 N W D tf N 8 A 33 V3 3 N W D i V A 28 OND» FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK about specialized loan program available and the constraints associated w conventional fors ith p rofit lending. In addition, N SB h extensive contact w residents through ongoing w w H as ith ork ith neighborhood associations, and thus som etim has better inform es ation about borrow than ers would a bank. If anything, then, CDOs would seem to have a com parative advantage over banks in the com unity developm lending encouraged by the CRA regulations. m ent B anks have m ade substantial contributions of funds to com unity developm m ent, m uch of it under agreem ents negotiated w com unity groups.4 Do banks have any special advantage at ith m 6 m aking such contributions? Perhaps their w orking involvem ent w local com unity ith m development groups helps them compare and evaluate organizations. Bankers often speak of trying to select "truly responsible" organizations.4 On the other hand, banks 7 and other lenders appear to be a m inority among NH SB's contributors. M are corpo ost rations, individuals, and foundations in the Baltim ore area, and it seems unlikely that they learned about NH through joint lend SB in arrangem g ents. Also, the national netw ork of Neighborhood H ousing Services organiza tions, along w explicit certification pro ith grams, assures some uniformity, making evaluation easier for outside investors and contributors. Thus, it is unclear why banks would have any advantage in evaluating subsidy recipients. T sum arize, there does not seem to o m be a compelling rationale for imposing a Fsi a Cnr Wh go, D. etvl et , a i t n .C e sn I costly lending obligation on banks. U ately such an obligation ltim | is a tax on bank-dependent borrow and depositors. Sim ers ilarly, I there seems to be scant economic justification for looking 1 to banks for the concessionary investments encouraged by | the CRA regulations. I 3 V 3 ‘33a103 3 •C O H iy 3 X V 3>33 103 3 •Q O H I'a JO V 3 HS U1 HQ3•Q O H IUJ » V 3 HS H1033 •Q O H IU3 > V 3 - 33 1 HQJ•Q O H I'MJO IN a 3 'HS 'a1033 •Q O N D H3 X V 3'HS 'a1033 •O O H IU30X V 3 'dS 'a1033 • 0XN 8 A S ‘ X1Q3 IN W D 0 N 8 A1S'y X1Q3 N W D »N a A 33 V 3 3 N W D O N 8 A 33 X103 N W D 0 IN 8 A S ^ V 3 3 N W D a H ^ V A 33 X103 N V H 1 0 N 8 A 33 X103 N W D N 8 A 33 X103 29 RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BAN Hpr Fr, WtVg i a es e y e i i a r r s rn 5 V 3 H S y1 HQJ•QN V H IUJ X V 3 HS ‘ 1 ^ Q3•G O H rUJO N 8 3HS 'H1 MG3•Q O H I'U3 X V 3 y S H1 ^ Qd»aNOW JO N 8 3 » S 'a1 a QJ•Q O H IUdO V 3US 'H1 HQJ•Q O H IUJO V 3 ’ 33 1 ^ 0 3•aN W 3 l 30*NV8 S ^ S y1 y Q3 lN « A 3 3 V 3 3 O N D O N 8 A 33a V 3 3 N W D X V A 33 V 3 3 N W D 0 N 8 A33 V 3 3 HD^ X V A33 V 3 3 N W D *N 8 A 33 V 3 3 N W D )IN 8 A S 'a X 3 3 O H l> H A S S V3 3 30 • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE B WHERE DO WE GO FROM HERE? Our low-income neighborhoods nevertheless rem ain in appalling condition. Com unity developm lending seem to be a prom m ent s ising way of channeling resources tow ard im proving conditions in these neighborhoods. The evidence sum arized in th m is essay, how ever, suggests th the CRA is not an efficient vehicle for revitalizing decayed at neighborhoods, despite its laudable goals. An altern ative to the CR is to fund com unity developm subsidies directly out A m ent of general tax revenues. The Com unity Developm B m ent ankin Act (CD g BA), signed in to law in Septem 1994, provides federal funding for com unity developm ber m ent. T is Act h creates a new governm corporation, called the Com unity Developm ent m ent F an in cial In tion F n , charged w providing financial and technical assistance to specialized, lim stitu s u d ith ited-purpose com unity developm financial in tion (C F and authorizes expenditures of $382 m m ent stitu s D Is), illion over four years.4 E licit appropriation for com unity developm h distin advantages over draw subsidies from 8 xp m ent as ct ing banks. R oving the im em plicit tax burden on banks would reduce existing distortions in financial flow and s avoid the risk of concessionary lending. B directing assistance through organizations th have com unity s y at m developm as th sole m ent eir ission, m onitoring and evaluation of such assistance w ould become transparen t. The CDBA leaves considerable uncertainty, how ever, about im portant aspects of the Fund's operation.4 F example, the 9 or A n ALTERNATIVE TO THE CRA IS TO FUND COMMUNITY CDBA requires th a C F have "a prim m at DI ary ission of prom oting com unity development," w m ithout defining the latter term Other . DEVELOPMENT key provisions depend on undefined concepts like "significant SUBSIDIES DIRECTLY unm needs for loans or equity investm et ents." M fundam ore entally, OUT OF GENERAL distributing public money to a netw ork of small, information TAX REVENUES. intensive lending organizations can create adverse incentives in m uch the same way that deposit insurance can distort bank behavior. M oreover, the oversight and reporting provisions in the CDBA are notably less detailed than current banking legislation, and form regulations have been left to the F n to establish. Consequently, m al ud uch w ill depend on the way in w hich the CDBA is im plem ented; in particu effective screening and m lar, onitoring is essential. N evertheless, the CDBA or som ething sim to it seem to be m prom ilar s ore ising than the CRA for dealing w the plight of the nation's low-income neighborhoods. ith JJ ^ sa ivyaaaj •aNow Aa u HDiy ao^Nva 3 ^ S yivaaoad•qnowhdiu jo»Nva 3 > s3 i ivyaaad•aNO H joxnvu 3 33i i A 33 An > W Dm au S> •Q O H l'M30*NVfl 3 U S *1 MQ3•O O H IU30*NV8 3 y S > 1 033 •d O Y D 30»N 3 H S * 1033 • N WD A 33 V 3 3 N W D A33J X103 N V H IU Vg A 3 3 X103 31 FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF R 1C ENDNOTES 1 Iw ueth te m"b n s" tho g o ttor fe toc m e c l . ill s e r a k r u h u e r o mr ia b n sa dt r . Ce it u io saec r e tlye e p fr mth C A a k n hifts r d n n r ur n x m t o e R . 2. Iw ueth o g o t th e yth le s c m e m te m ill s r u h u e ssa e s u b rso e r "low co e n ig b rh o s" to r fe toth lo - a dmd r te -in m e h o o d e r e w n o ea in o e n ig b rh o s th t a eth fo u o th C A T e n w c m e h o o d a r e c s f e R . h e ly p p se C Ar g la n d fin lo -in o e n ig b rh o s a ro o d R e u tio s e e w c m e h o o d s c n s tr c w md n h u h ld in o e les th n50 p r e t e su a ts ith e ia o se o c m s a ec n o th md nh u h ldin o eo th mtr p lita s tis a f e e ia o se o c m f e e o o n ta tic l ae (MA Md r te c m n ig b r o d aed fin da c nu r a S ). o e a -in o e e h o h o s r e e s e s s tr c w md n h u h ld in o e b twe 50 a d80 p r e t a ts ith e ia o se o c m e e n n ec n o th md nh u h ld in o e o th M A f e e ia o se o c m f e S . 3 Ba d(1994). . or 4. C g on ression l R , d ilyed J n 6,1977, S 8958, c d a ecord a ., u e . ite inDn is (19 S n to Po m e d fin no r d in a o e n 78). e a r r x ir 's e itio f e lin g ls r fle tsth d c in o lo a inb n in —th id ath tth sa e c e o tr e f c lism a k g e e a e v in so ac m u itys o ldb in e te lo a r thrth nw e e g f o m n h u e v s d c lly a e a h r r tun ae h h s S eM c ya dM r (1 9 ) fo ac itiq e e r s r ig e t. e a e n ille 9 3 r r u . 5 S eWe l (1 9 ) fo ad s r tio o th H L a dth F A . e o lfe 9 4 r e c ip n f e O C n e H . 6 J c s n(1985). . a ko 7 Q o d inJ c s n(1985), p 207. . u te a ko . 8 I 1977 th A e ic nI s teo Ra Et t A pa e s . n e mr a ntitu f e l sae p r is r r mv dd c im a r r c l r fe e c sfr mthirte tb o a pr e o e is r in to y a ia e r n e o e x o k s at o a a r e e t s ttlin afe e a la s it. S eAt (1 87), p 1078. f n g e mn e g d r l wu e r 9 . 9. S eC n e (1982) a d Bnto (1979) fo s r e s e a nr n es n r uv y . 1 . S eA e ya dB y a (1981), H lms a d Hr itz (1994), 0 e vr n unk o e n ov K g(1980), Mn e e a (u d te ), a dS h a dWc te in u n ll t l. n a d n c ill n a h r (1994). S m s d s h v r p r de id n eo r d in , b t in o e tu ie a e e o te v e c f e lin g u th seth c n o fo in iv u l c a a te is s ae lim do e e o tr ls r d id a h r c r tic r ite r a se t. Ba b r , C se a d D n a (1989) ued taa th b n r d uy a , n u h m s a t e n ig b rh o le e b t th ye p ya p o le a c e it flo e h o o d v l, u e m lo r b mtic r d w v r b th t in lu e c m e ia a wll a r s e tia tr na a ia le a c d s o mrc l s e s e id n l a s c tio s. T e d n t c n o fo in iv u l e n m c a a te is s n h y o o o tr l r d id a co o ic h r c r tic . C le a dS tz r(19 a u n ig b rh o -le e d ta a d a m n tu e 94) lso se e h o o d v l a , n sod n t c n o fo in iv u l e n m c a a te is s Ae y o o o tr l r d id a co o ic h r c r tic . v r , B e n a dS id r a (1993) r lyo H D d taa dc n s e so , n n e mn e n M A a n e su tr c in r a n a ds ae u a letoc n o fo a p a t a t fo mtio , n o r n b o tr l r p lic n wa o c e itwr in ss. A o g it i c n e a leth t fu r e lth r r d o th e lth u h s o c iv b a tue r s a c w tunu e id n eo r d in , i se m u lik ly th e e r h ill r p v e c f e lin g t e s n e ; e fa t th t s d sw b tte c n o fo in iv u l e n m c a c a tu ie ith e r o tr ls r d id a co o ic h r a te is s o ta s a ro n g ib e timte o th e c o c r tic b in mlle r e lig le s a s f e ffe t f r c l c mo no mr a eo tc mss g e tsthtth e timte aia o p sitio n o tg g u o e u g s a e s a s w h v aeb s du wr . e a e r iae p a d 1 . Citic a h v c a g dth t b n s r d eo e a dlo e 1 r s lso a e h r e a a k e lin ld r n wr in o e n ig b rh o s (s eAt , fo e a p ), b t a eo c m e ho od e r r x m le u g f th h u gs c a db r o e in o e a eb thp u ly r la d e o sin to k n o r wr c m r o la sib e te tole d g r k A ar s lt, s tis a r s a c o th ty e r fe r d n in is . s e u ta tic l e e r h f e p e r e toa o e isu a letod tin u hb twe le itimteu d r r g bv nb is g is e e n g a n e witin p a tic s a dr d in th se n ig b rh o s. Ia u a a eo a y r c e n e lin g e e h o o d m n wr f n a mt tod n n leth tw . tte p ise ta g e o 1 Fre a p , in1992, 39.2 p r e t o m o ity in iv u ls 2. o x m le e c n f in r d id a liv do tsid o c n s tr c inw ic o e h lfo th p p la n e u e f e su a ts h h v r a f e o u tio w s m o ity(d r e fr mC n e , P s mr , a dS ith [19 a in r e iv d o a n r a s o e n m 94]). 13. Fd r l F a c l Intitu n E a in tio C u c (1994). e e a in nia s tio s x m a n o n il 33 U S *"IV 3 3 •Q O 1 It! JOINVa 3 U S * 1 ^ QJ•Q O H IU3 > A 3 3 HQJ N W -0 A 33 V 3 3 N W D 0 1 32 Q O H I'tf J X V 3 y S * 1 ^ C J• N W D O N ti A 3 3 V3 I3 14. O r c l d p r s i in o ea deco o ic s tu, se , n a ia is a itie n c m n n m ta s e fo e a p , Kn ic e a dS a k a q e (1992), J y e a d r x m le e n k ll n h c -Mr u z a ns n W m (1989), o th S mo minth Fll 1990 is u o th illia s r e y p siu ea se f e J u a of E om P ectives. Mn e e a (1992) r p r tht o rn l con ic ersp u n ll t l. e ot a lo n -v lu r tio a da v r c e it h toyv r b s ae h h r a -to a e a s n d e se r d is r a ia le r ig e fo m o itya p a ts; se a Cr a dMg o g e (19 r in r p lic n e lso ar n e b lu b 93). C n e a dL c e (19 r p r tht h u h ld h a e b a a n r n uktt 90) e ot a o se o s e d d y m o itya es n a tlymr lik lytoh v m dad b p y in r r ig ific n o e e a e isse e t a mn e e a rc n o gfo o e h u h ldc a a te is s e t, v n fte o tr llin r th r o se o h r c r tic . 15 S eM n e e a (1992). . e u n ll t l. 16 M n e e a (1992), p 3 . u n ll t l. . . 17 T e s r e d taa efr mNtio a C n re c (1994). O . h u v y a r o a n l o fe n e n a d s d s inh u g se F a dS uk(1993), b t p r u r u it tu ie o sin , e ix n tr y u a tic la lyth c itiq e b Hc mna dS g lmn(1993). C u a d e r u y e k a n ie e a lo d n G lste (1993) s r e h m mr a e le d ga d stu ie , a n a r uv y o e o tg g n in u it d s lo g w a e d ta r p r o le d gd r in tio . T ea p a n ith n c o l e ots f n in isc im a n h p lic tio o a d mth d lo yto le d gd r in tio is in ib db f u it e o o g n in isc im a n h ite y la s p o ib ga p in fo amr a e u d rfa pe ne . w r h itin p ly g r o tg g n e lse r te s s A d mth d lo y isth s lim dtoth mr su je tiv p o le u it e o o g u ite e oe b c e r b m o d r n l tr a e t a th p e p lic tio s g . f iffe e tia e tmn t e r -a p a n ta e 18. S v r l r d in s d se a in d d tafo o tc ms o in i e e a e lin g tu ie x m e a r u o e f d v u l mr a ea p a n S m fo n th t m o itya p a ts id a o tg g p lic tio s. o e u d a in r p lic n wre le s lik lyth nw ite too ta amr a e lo n e e a r e s e a h s b in o tg g a , v n fte c n o gfo n ig b rh o e n m c a a te istic . S eA e y o tr llin r e h o o d co o ic h r c r s e v r , B e n a dS id r a (1993), S a ra d L d (1981), Cn e , e so , n n e mn h fe n a d a nr G b ie a dW o y (19 a dSh a dWc te (1993,1994). a r l, n o lle 91), n c ill n a h r N n o th ses d s c n o dfo a p a t c e it h toy a d o e f e tu ie o tr lle r p lic n r d is r , n soth ys ffe fr mth sa eo itte -v r b p o le th t p g e e u r o e m m d a ia le r b m a la u s th a a sis o th H D d ta I r la dr s a c , H w ya d e n ly f e M A a . n e te e e r h a le n Fjii (1991), Gb ie a d Rs n a (1991), a d D c a d u a r l n oe th l n ua n Rs n a (1993), uin d tafr mth 1983 S r e o C n mr o e th l s ga o e uv y f o su e F a c s, fin th ta rc n o gfo in iv u l c a a te is s in n e d a fte o tr llin r d id a h r c r tic , m o itie a emr lik lyth nw ite to r p r h v gb e in r s r o e e a h s e o t a in e n tun dd w fo c e it. In r a no in iv u l c e itwr in s r e o n r r d fo mtio n d id a r d o th e s w s q ite lim d h wv r a a le v gth se s d sv ln r b a u ite , o e e , g in a in e tu ie u e a le toth o itte -v r b p b m e m d a ia le ro le . 19. H r e (1994) r p r o r e a in tio s o so e o th lo n on e ots n e x m a n f m f e a file a th F ICintitu n p r ip tin i th s d . A o g s t e D s tio s a tic a g n e tu y lth u h h r p r ala g n me o d tae r r , h d e n t r e timte e e ots r e u b r f a r os e o s o e s a th md l, so n c n lu n isp ssib a o t th e c o th s e oe o o c sio o le b u e ffe t f o e e r r . I a d n file wre se c dfo r e a in tio inawy r os n d itio , s e le te r e x m a n a th t w u b s a yr e a n L b w (1993) c im ina a o ld ia n e stimtio . ie o itz la s n e ito ia p g e y inT e Wll S jou a th t c r e tin d r l a e ssa h a treet rn l a o r c g se c dd ta o in e r r e in te th fin in o d r in le te a -c d g r o s lim a s e d g f isc im a tio , b t Cr a dMg o g e (1993) a dG n o a dS n e n u ar n e b lu b n le n n n te g l (1994) d c mn th tth d r in tio fin in p r is a rs s o u e t a e isc im a n d g e s ts fte y te a d ta le n g su g stin b s inth w y L b w c r mtic a -c a in , g e g ia e a ie o itz o r c e r r . S ea Bo n (19 ). Z n i (1993) c im th t e ts r os e lso r w e 93a a d la s a o issio o av r b a ssin w e e th intitu nr p r m n f a ia le sse g h th r e s tio e ots th t th a p a t mt thirc e it g id lin s ws r sp n lefo a e p lic n e e r d u e e a e o sib r th e a dr c e c Cr a dMg o g e (1993) c n m e stimte a e ffe t. ar n e b lu b o fir th t in lu in th v r b r d c s th e a d r c e c a c d g is a ia le e u e e stimte a e ffe t so e h t, b t n teth t th su je tiv a ssmn b th le d g mw a u o a is b c e sse e t y e n in intitu niss n a tlyr la dtoa a p a t's r c , e e a r s tio ig ific n e te n p lic n a e v n fte c n o gfo th o je tiv e n m c a a te is s o th a p o tr llin r e b c e co o ic h r c r tic f e p li c n S ea Bo n (1993b Sh a dWc te (1994) a o a t. e lso r w e ). c ill n a h r ls s d th B s n Fdd tas t. tu y e o to e a e 83'HS'H1 a Q J•Q O N A 33 v 3 3 N V H a3 y S yiva3Q A33 3j*aNov\HDiy jo> 3 US , iva3a3J*aN v\H ru jox invu A 33 y O D I3 HS U1 H0 J•Q O A 33 Y 3 3 N l )ND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE B 20. I atr ee p n to yv r b i ma ue w n is , it r ge f u x la a r a ia le s e s r d ith o e s e r s s nc e ie t w b b s dto a dz r . I th tc se a yo e io o ffic n ill e ia e wr e o n a a , n th r v r b c r e te w th tr ee p n to yv r b w b s n a ia le o r la d ith e u x la a r a ia le ill e ig ifi c n i th r g e s n e e th u hi myp yn d e tc ua r le a t n e e r s io , v n o g t a la o ir c a s l o ine p in gth b h v r inq e tio . T u, ma r mn e r ris x la in e e a io u s n h s e su e e t r o av r s r u p o le ins tis a in r n e S eJ h s n(1 6 ) e y e io s r b m ta tic l fe e c . e o nto 9 3 fo ad c s io o ma u e e ter ra dCin(1 8 ) fo ad u r is us n f e s r mn r o n a 9 6 r isc s s no th imlic tio sfo d te tin d c im a n io f e p a n r e c g is r in tio . th C Aw u a wr g la r tos e e fo c mn a tio inc se e R o ld llo e u tos e k n r e e t c n a s o "s bta tia n n o p n e th lo e t p s ib C Ar tin. f u s n l o c m lia c ," e ws o s le R a g 35. Hlp r (1969). ee 36. J c s n(1985). a ko 37. J c s n(1985), p 203. a ko . 38. S e fo e a p , W n (19 o Msse a d D n n e , r x m le ilso 87) r a y n e to (1993). H mo n r pe r n e a p r n p yar lea w ll. o e w e r fe e c s p a e tly la o s e 21. Br o e e a (1 94) ued tao mr th naq ate o am e k v c t l. 9 s a n o e a ur r f il lio F Amr a e o ig a dd r g1987-1989. T e d tad n H o tg g s r in te uin h ir a o n t in lu e in r a no th b r o e 's c e it h toy b tth y o c d fo mtio n e o r wr r d is r , u e e timteth t in lu in c e it h toyw u r d c th e timteo s a a c d g r d is r o ld e u e e s a f th r c e c b o ly30 p r e t. Br , C r e a dY z r(1979, e a e ffe t y n e c n ath o d s, n e e 1983), a d Ea s Mr , a dWin in(19 a osh wth t r c n v n, a is n e ste 85) ls o a a e iss n a tlyr la dtod fa lt po a ilitie , b tth o issio o ig ific n e te e u r bb s u e m n f imo ta t v r b swa e sth in r r ta no thirr s lts p r n a ia le e k n e te pe tio f e eu . 39. I ap p rd v te tole a a de n m a a sis o th n a e e o d g l n co o ic n ly f e C A S ir (19 d u s c r e tiv ju ea a"n econ R , w e 94) isc sse o r c e stic s on om ic" r tio a fo th C A H a d u s "d ib tiv ju a n le r e R . e lso isc sse istr u e stice," w ic w u a r tio a etr nfe s b t w u n t n c ssa ily h h o ld lso a n liz a s r u o ld o e e r su g stth yta eth fo mo su sid e le d g g e e k e r f b iz d n in . 22. S eQ e iaa dS g a (19 fo ar v wo r c n lite a e u rc n te mn 92) r e ie f e e t r tueo mr a ed fa lt. r n o tg g e u 41. W ite (19 h 93). 23. C c ra e (1991) r p r e id n eth t h u h ld a ep o ly oh n e o ts v e c a o se o s r o r inue a a s in o n r jo los a d lo g r a se c s d e s r d g int v lu ta y b s n n -te m b n e u to illn s . es 24. J c s na dMn o e (1986), B ua d Kh (1981), a d a ko n o tg mry la n a n n F n g n(1978). la a a 25. Kn ic e a dS a k a u z (1992). e n k ll n h c -Mrq e 26. Ntio a C n rfo Ha S tis s (1994). a n l e te r e lth ta tic 27. S eJ y e (1990) fo as r e o th la o mr e s tu o e a ns r uv y f e b r ak t ta s f A ic nA e a s. fr a mric n 28. C lo ir , Kh , a d L n h fe (19 s g e t th t ala ko a m is a n n o g o r 94) u g s a c f "c ltu a a ity b twe w ite lo no e s a dm o itya p u r l ffin " e e n h a ffic r n in r p li c n mye p infin in s o d r in tio . Ala ko a ity a ts a x la d g f isc im a n c f ffin m h r d c th r lia ilitya da c ra yo lo no e s' su je ig t e u e e e b n c u c f a ffic r b c tiv e a a n le d gtoh h rs n a d fo A ic n e v lu tio s, a in ig e ta d r s r fr a A e a s a p e o in n w iteb n s T ec ltua a ity mric n t r d m a tly h a k. h u r l ffin h p th s , h wv r h str u lee p in gth h h r r je tio y o e is o e e , a o b x la in e ig e e c n r te fo n a m o ity w e b n s a s u d t in r -o n d a k. 29. P b p lic to a d n ig b rh o s a db n in c u b u lic o y wr e h o o d n a k g o ld e a e g e tlyb r s a c o th r o c u o mr a ed fa lts: id d r a y e e r h n e o t a se f o tg g e u W y isi th ttr g re e ts su ha ha p o le s o in o n h t a ig e v n c s e lth r b m r v lu tayjo los aes p o ly inue ? S c r s a c m h a wu r b s r o o r s r d u h e e r h ig t llo s tod tin u hb twe c m e ge p n tio s o d p r s in is g is e e n o p tin x la a n f is a itie c e it flo s a r s n ig b rh o s a de n g o p. r d w c o s e h o o d n th ic r u s F r e mr , w m h fin th t r d c gd p r s inth in i uth r o e e ig t d a e u in is a itie e c d n o tr g re e ts ismr e c eth na mtiv le d g e ce f ig e v n o e ffe tiv a ffir a e n in o lig tio s th t e c u g b n s toig o es c d p r s b a n a n o ra e a k n r u h is a itie . 30. Fras ila v w s eth S a o F a c l Rg la r o im r ie , e e h d w in n ia e u to y C m itte (1994). om e 31. Mr e fa r c no c r ins a n w s illo e e c , a k t ilue a c u itu tio s ith p v r ffe ts sin e o e p r o d e n t h v top yfo th e c o th ird ci c n e s n o s o a e a r e ffe t f e e sio o th w ll-b in o o e s a w e p llu r d n t p yfo n n e e e g f th r , s h n o te s o o a r th d mg c u d b th ire issio s. e a a e a se y e m n 32. G tte ta a dWc te (1 8 ) pe e tth e te n litya g mn u n g n a h r 9 0 r s n is x r a r u e t. 33. W ite (1993), M c y a dM r (1993). h a e n ille 34. T er c n p o o e r v io toth r g la n imle e tin h e e t r p s d e is n e e u tio s p mn g 40. U . C n r ss (1977), p 1 S ea F h e (1993). .S o g e . . e lso is b in 42. S e U . C n r ss (1 88), p 7 e .S o g e 9 . . 43. S eWlls a dJ c s n(19 fo as r e o c m u ity e e n a ko 93) r uv y f o m n d v lo mn le d g a dBado G v r o (1993) fo as r e e e p e t n in , n o r f o e n rs r uv y o c m u ityd v lo mn le d gb b n s f o m n e e p e t n in y a k. 44. Nig b rh o Hu gS r ic so B ltimr , In ., isapiv te e h o o d o sin e v e f a o e c ra n n r fito g n a na disa te w an twr o o e 200 o po r a iz tio n ffilia d ith e o k f v r N ig b rh o Hu gS r ic so g n a n n tio w e N S e h o o d o sin e v e r a iz tio s a n id . H B a oo e a s a a te o g n a n N ig b rh o Rn l ls p r te n ffilia d r a iz tio , e h o o d e ta S r ic s th t r n v te r n l po e ty e v e , a e o a s e ta r p r . 45. O e c m u ityd v lo mn a tiv so th N S se m th r o m n e e p e t c itie f e H B e d u fo b n s a wll. Fre a p , m c o th c o d a g iffic lt r a k s e o x m le u h f e o r in tin a tiv th tse m v l toth C Oa p o c in o e fin in c ity a e s ita e D p r a h v lv s d g o n r-o c p n th t aev wda b n fic l toth n ig b r w e c u a ts a r ie e s e e ia e e ho h o . S c d c im a na o g b y r o b r o e s w u o d u h is r in tio mn u e s r o r wr o ld p se le a p o le s fo ab n r a e ta s bid r . o g l r b m r a k e l s te u s ia y 46. A nF h e (1 9 ) o th Cn rfo C m u ityC a g e ti lle is bin 9 3 f e e te r o m n h n e s mte th ta o n $35 b nhsb e "c m itte " b b n sa d a s a rud illio a e n o m d y a k n s v g a dlo n s c th la 1 70 u d ra r e e tsw com a in s n a s in e e te 9 s n e g e mn ith mn g o p. T eb n in a e c s o ia v wc m itmn u ity r u s h a k g g n ie ffic lly ie o m e ts fo fu r a tio a "la g lyin p lic b toa a s s mn o th r tue c n s r e a p a le n s e s e t f e a p a t'sC Ap r r a c " (G r o da dS ith1993, p 2 p lic n R e fo mn e a wo n m . 60). 4 . "O r jo , q itefr n ly istoc o se p r e s ip w o g n 7 u b u ak , h o a tn r h s ith r a i z tio s th td n t h v h d na e d s, aetr lyr sp n le a n a o o a e id e g n a r u e o sib a dh v a a p e ia no o r lim tio s" (M g 1994, p 7 n a e n p r c tio f u ita n illin . ). 48. F n s c nb p o id d inth fo mo ga ts e u in e ud a e r v e e r f r n , q ity v st mn lo n o d p sits, a dms b mtc e d lla fo d lla e ts, a s, r e o n ut e a h d o r r o r b piv tefu d T e F n isp o ib dfr mh ld go e 50 y r a n s. h u d r h ite o o in v r p r e t o th e u o aC F a dmyn t p o id mr th n e c n f e q ity f D I n a o r v e o e a $5 m ntoa yo eC F d r ga yth e -y a p r d U to illio n n D I uin n r e e r e io . p o e ir o th a po r tio myb a p dto a dad p sito n -th d f e p r pia n a e p lie wr e o r intitu n d p sit inua c p e iu . T ea p o r tio cov y s tio 's e o s r n e r m m h p r p ia n e s a m is a ec sts a wll. Mn s ila e r h v b e r d in tr tiv o s e a y im r ffo ts a e e n fu d d insmlle a o n inth p s S eWlls a dJ c s n ne a r mu ts e at. e e n a ko (1993). M c y a dM r (19 a a g eth t d e t fu d go a e n ille 93) lso r u a ir c n in f c m u ityd v lo mn w u b s p r rtoth C Aa it is o m n e e p e t o ld e u e io e R s c r e tly im le e te . ur n p mn d 49. S eT w se d(1 9 ) fo ac itiq eo a e r rda o th e o n n 9 4 r r u f n a lie r ft f e C m u ity D v lo mn Bn in A t. o mn e e p e t a k g c i 3133 lV 3 3 •Q O H IUi l A1SU y Q 3 N W D I 1 UQ3•Q O H I'Hi V3 3 N WD 33 »S -aT U a : A33 V 3 3 a3 US H1 HQ3•Q O H I'tf 3 X V 3>33 1^3033• A 33 V 3 3 N W D O N 0 AJ S y 33 FEDERAL F • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE B F RICHMOND • FEDERAL RESERVE B • FEDERAL RESERVE B F RICHMOND • FEDERAL RESERVE B F RICHMOND • FEDERAL RESERVE B F RICHMOND • FEDERAL RESERVE B R FE E C S E RNE At, Rb r C "S c l Rs o s ilityinBn Ce it Dc n r o e t . o ia e p nib a k r d e isio s: T eC m u ity Rin e tmn At O e D c d Lte ," P cific h o mn e v s e t c n e a e a r a L w o r a v l. 18 (1987), p . 1 71-1139. a Jun l, o p 0 Cn e , G n B R lin g R rcha dF era L isla e a n r le n . ed in : esea n ed l eg tiv R on S ff S d s 121. Wsh g n Bado G v rn rso esp se. ta tu ie a in to : o r f o e o f th Fdr l Rs r eS s m 1982. e e e a e e v y te , Ae y Rb r B Ptr iaEB e n a dMr S id r a . v r , o e t ., a ic . e so , n a k n e mn "A c u tin fo Rc l D r n e i Hu gCe itMr e c o n g r a ia iffe e c s n o sin r d a k ts," Wr in Pp r9310. C v la d Fdr l Rs r e Bn o ok g a e le e n : e e a e e v a k f C v la d D c m e 19 . le e n , e e b r 93 , S atA Gb ie a dJM h e W o y "R c , tur . a r l, n . ic a l o lle . a e Dfa lt R ka dMr a eL n in : AS d o th F Aa d e u is n o tg g e d g tu y f e H n C n e tio a La Mr e S th E om Jun l, v l. 5 o v n n l o n a k ts," ou ern con ic o r a o 8 (Jly1991), p . 249-62. u p Ae y Rb r B a dT o a M B y a . "Mrtg g Rd in : v r , o e t ., n h ms . u n k o a e e lin g S m N wE id n e Fdr l Rs r eBn o C v la d o e e v e c ," e ea e e v a k f le e n E om R , S m e 1981, p . 18-32. con ic eview u mr p Cn e , G n B a dC a le A L c e "C n mr Db a n r le n ., n h r s . uktt. o su e e t Rp y e tW es: I s h fr maH u h ldS r e ," Ju a of e a mn o nig ts o o se o uv y o rn l R il Bn in , v l. 12 (S r g1990), p . 55-62. eta a k g o pin p Br , J ms B J s p JC r e , a dA th n M JYz r "F A ath a e ., oe h . o d s n n o y . . e e . H Mr a eInua c a dH h is Mr a e Ln in : S m o tg g s r ne n ig -R k o tg g e d g o e Ls o sfo P lic ," Hu gF a ce R , v l. 2 (Ar 19 3 e s n r o y o sin in n eview o pil 8 ), p . 93-107. p Cn e , G n B W y e P s mr , a dD lo e S S ith a n r le n ., a n a s o e n o r s . m . "Rs e tia Ln in toL w c m a dM o ityF m s e id n l e d g o -in o e n in r a ilie : E id n efr mth 1992 H D D ta F era R v ec o e M A a ," ed l eserve Blletin u , v l. 80 (Fbu r 1 94 p . 79-108. o e r ay 9 ), p ________ . "F a c l I situio Rg la n, Rd in a d in n ia nt t n e u tio s e lin g n Mr a eMr e inP o tg g a k ts," roceed g ofaC feren onth in s on ce e R u tio of F a cia In tio s(Fdr l Rse v Bn of Bsto eg la n in n l stitu n e ea e r e a k o n C n r n eSr s N . 21, Oto e 1 79 p . 101-43. o fe e c e ie o c b r 9 ), p Cr, J ms H a dIs a FMg o g e "T e Fdr l Rs r e ar a e ., n a c . e b lu b . h e e a e e v Bn o Bs nS d o Mr a eL n in Rv d Fn ieMe a k f oto tu y n o tg g e d g e isite ," a n a Wr in Ppr Wsh g n D ., 1993. o k g a e. a in to , .C Bnto , Go g J"Rd in Rs a c : ARv wa dCitic l e s n e r e . e lin g e e r h e ie n r a A a s D u n inP n ly is isc ssio ," roceed g ofaC feren onth in s on ce e R u tio ofF a cia In tio s(Fdr l Rse v Bn o eg la n in n l stitu n e ea e r e a k f B s nC n r n eSr s N . 21, O to e 1 79 p . 144-95. oto o fe e c e ie o c b r 9 ), p C u , Cth , a dG o g Gls r "W at D W K o A o t lo d a y n e r e a te . h o e n w b u Rc l D c im a ninMr a eMr e R a ia is r in tio o tg g a k ts?" eviewof B ck la Plitica E om v l. 22 (S m e 1993), p . 101-20. o l con y, o u mr p C c r n , Jh H "AS p Ts o C n mtio Inu a c ," o ha e o n . imle et f o su p n s r n e Ju a of Plitica E om v l. 99 (Oto er 1991), p . 957-76. o rn l o l con y, o c b p Br o e , J ms G n Cn e , S atG b ie a dT o y e k v c a e , le n a n r tur a r l, n imth Hn a . "R c , Rd in , a dRs e tia Mr a eLa a n n a e e lin g n e id n l o tg g o n P r r a c ." Pprpe e te toth C n r n eo In r a n e fo mn e a e r s n d e o fe e c n fomtio a dS r e in i Ra Et t F a c , Fdr l Rs r e Bn o n c e n g n e l sae in ne e e a e e v a k f P ila e h , Mr h3-4,1994. h d lp ia a c B u Fa c e D a dL we c M Kh . "C u s a d la , r nin ., n a r n e . a n a se n C n q e c so L y ffs E om In u , v l. 1 (Ar 19 1 o se u n e f a o ," con ic q iry o 9 pil 8 ), p . 270-96. p Ba do G v r o s o th Fdr l Rs r eS s m "C m u ity o r f o e n r f e e ea e e v y te . o m n Rin e tmn A t: Jin N tic o Po o e R le a in " (D c e e v s e t c o t o e f r p s d u mk g o k t N . R 22, S p me 27,1994). o -08 e te b r ________ . R ort toCn ressonC m n D ep og om u ity evelopm t en L d gbyD ositoryIn tio s. Wsh g n Bado en in ep stitu n a in to : o r f G v r o s, 1993. o enr Ba b r , Kthr eL Kr EC se a dC n n eRD n a . r d uy a ein ., al . a , n o sta c . u h m "G o r p ic Pten o Mr a eLn in inBs n 1982-1987," e g a h at r s f o tg g e d g oto , N Eg n E om R iew S p me /Oto e 1989, p . 3-30. ew n la d con ic ev , e te b r c b r p Bo n , Ln E in. Lte toth Eit r T e Wll S Jun l, r w e y n la e et r e d o, h a treet o r a S p me 21,1 93 . e te b r 9 a Dn is Wr e L"T eC m u ityRin e tmn A to 1977," e n , ar n . h o mn e v s e t c f Wr in Ppr24 Wst LFy tte In .: Ce it Rs a c Cn r o k g a e . e a a e , d r d e e r h e te , Ka nr Ga u teS h o o Mn g mn P r u U iv r ity 1978. r n et r d a c o l f a a e e t, ud e n e s , D c , Jh V a dSur S Rs n a "B r o in Cntr in , u a o n ., n t at . oe th l. o r w g o s a ts Hue o Db a dRc l D c im a ninLa Mr e "J u a o s h ld e t, n aia is r in tio o n akts o rn l ofF a cia In ed tio , v l. 3(Oto e 1993), p . 77-103. in n l term ia n o c br p Ea s R h r D Bia A Mr , a dRb r I Win in v n, ic ad ., r n . a is n o e t . e ste . "E p c d Ls a dMr a e Dfa lt R k Q a x e te os n o tg g e u is ," u rterlyJu a of o rn l B sin a dE om v l. 24 (W te 1985), p . 75-92. u ess n con ics, o in r p Fdr l F a c l Intitu n Ea in tio C u c Pes Rle s . e ea in nia s tio s x m a n o n il. r s e ae Oto e 26,1994. c br F h e , A nJ"T eC m u ity Rin e tmn A tA rF e n is b in lle . h o m n e v s e t c fte ift e Yas I Wr s, BtS e g e e Fdr l E fo c mn isN e e ," e r : t o k u tr n th n d e e a n r e e t e d d Frd a U a L w o rn l, v l. 20 (1993), p . 293-310. o h m rb n a Ju a o p F , M h e a dRy o dJS uk C ra dC vin g ix ic a l, n a mn . tr y . lea n on cin E en M su en ofD in tioninA erica Wsh g n vid ce: ea rem t iscrim a m . a in to : Ub nI situePes 1993. r a nt t r s , F n g n Rb r J"D r in tio T e r , Lb rT r o e , a d la a a , o e t . isc im a n h o y a o un v r n Rc l U e p y e t D r n ls," Ju a of H mnR rces, a ia n m lo mn iffe e tia o rn l u a esou v l. 1 (S r g1 78 p . 187-207. o 3 pin 9 ), p Citiq eo Bs nLn in S d M dth r u f oto e d g tu y isse e Mrk A erica Bn e S p me 9,1993b p 2 a ," m n a kr, e te b r , . 1 Cin G nG "T eEo o icA a s o LbrMr e D c im a n a , le . h c n m n lyis f a o akt is r in tio : AS r e ," inEr Ah n lte a dR hr Lnad e s., H n b uv y al s e fe r n ic ad a y r , d a d ook ofL b rE om NwYr : Nr Hlla d 1986. a o con ics. e ok oth o n , Gb ie S atA a dS a tS Rs n a "Ce it Rtio in , Rc , a r l, tur ., n tu r . o e th l. r d a n g a e a dth Mr a eMr e Ju a of U a E om v l. 2 n e o tg g a k t," o rn l rb n con ics, o 9 (My 1 91 p . 371-79. a 9 ), p C le , Pu a dM h e S tz r "T eS p A a tic o a m a l, n ic a l tu e. h imle n ly s f O se e D c im a n inCe itMr e Mn s r t. Fdr l b rv d is r in tio r d a k ts." a uc ip e ea Rs r eBn o P ila e h , J n 7,1994. e e v a k f h d lp ia u e G rw o , GiffithL a dD lo e S S ith "T eC m u ity a od r ., n o r s . m . h o m n Rin e tmn A t: Eo tio a dC r e t Issu s," F era R e v s e t c v lu n n ur n e ed l eserve B lletin v l. 79 (Ar 1993), p . 251-67. u , o pil p C lo ir C a le W C a le M Kh , a dS n yD L n h fe . a m is, h r s ., h r s . a n n ta le . o g o r "H u g in n e In r e tio a dPiv teIn e tiv s Hlp g o sin -F a c te v n n n r a c n e : e in M o itie a dth P o ," jo rn l ofM ey, C it, a dBn in , in r s n e o r u a on red n a k g v l. 2 (A g s 1994, Pr 2 p . 634-74. o 6 u ut at ), p G n o , Dn is a dM h ll S n e "A Ea a no th le n n e n , n itc e te g l. n v lu tio f e Fdr l Rs r e Bn o B s n S d o Rc l D c im a nin e ea e e v a k f o to 's tu y f a ia is r in tio Mr a eL n in ," Wr in Pp r94-2. Wsh g n O eo o tg g e d g o k g a e a in to : ffic f th C mtr lle o th C r e c , E o o ic &P lic A a s , e o p o r f e ur n y c n m o y n ly is Wsh g n D ., A r 1994. a in to , .C pil 3 > S H1HC3 •Q O H IfJ J A n3 V33J N W D 34 AA 3 3 T a a3 -aNOW 3 3 »S y v 3 d HDiy t 3'aS '«1 HQ3• l A 33 V 3 3 a3 y S yivy3a3d*aN W :>ra d » a3 -a S »T y Q3•Q A33 OH O A 33 V3 3 N CHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK OF RICHMOND • FEDERAL RESERVE BANK G tte ta , Jc M a dS s nLWc te . "R d in a dP b u n g ak ., n ua . a h r e lin g n u lic P lic ," N Yr Uiv , S onB th C terforth o y ew ok n ersity olom ro ers en e S d of F a cia In tio sM og p S inF a cea d tu y in n l stitu n on ra h eries in n n E om 1980-1. con ics, Hw y C r B a dE w T F jii. "D r in tio in a le , liffo d ., n d in . u isc im a n C n mrCe itMr e Es r E om Ju a v l. 1 o su e r d a k ts," ate n con ic o rn l, o 7 (J n a y a c 1991), p . 21-30. a u r -Mr h p th H D D ta Wr in Pp r92-7. B s n Fdr l Rs r e e M A a ," o k g a e o to : e ea e e v Bn o B s n 1992. a k f o to , M n e A ia H Go e M B T o ll, Ln EBo n , a d u n ll, lic ., e ffr y . . o te y n . r w e n J msME e n y "Is D c im a nRc l o G o r p ic a e c na e . is r in tio a ia r e g a h ?" Mn s r t. Fdr l Rs r e Bn o Bs n u d te . a uc ip e e a e e v a k f oto , n a d Ntio a Cn rfo Ha S tis s H lth U itedS tes, 1993. a n l e te r e lth ta tic. ea , n ta Ha v , M .: P b Ha S r ic , 1994. y tts ille d u lic e lth e v e Hc mn J msJ a dPte S g lmn "T e Ub nI situeA d e k a , a e ., n e r ie e a . h r a nt t u it S d s T e Mth d a dF d g ," inM h e F a dRy o d tu ie : hir e o s n in in s ic a l ix n a mn JS uk e s., C ra dC vin gE id ce: M su en of . tr y , d lea n on cin v en ea rem t D in tio inA erica Wsh g n Ub nIntituePes 1993. iscrim a n m . a in to : r a s t r s, Ntio a C n r n e Tk gA erica P lse: T eFll R ortof a n l o fe e c . a in m 's u h u ep th Ntio a C feren S rv onIn rou R tio s. N w e a n l on ce u ey ter-C p ela n e Y r : T e Ntio a C n r n e 1994. ok h a n l o fe e c , Hlp r Rs . R cia P e e , oe a l oliciesa dP cticesof R l E teB k n ra ea sta ro ers. M n a o U iv r ityo M n so Pes 1969. in e p lis: n e s f in e ta r s , Q e c , Rb r G a dM h e A S g a . "Rs e tia u r ia o e to ., n ic a l . te mn e id n l Mr a e Dfa lt: ARv wo th L r tue Ju a ofH sin o tg g e u e ie f e ite a r ," o rn l ou g R rch v l. 3 (1992), p . 341-79. esea , o p Hlms A de , a dPu Hr itz "Mr a eRd in : Rc , Rk o e , n r w n a l o w . o tg g e lin g a e is , a dD mn ," Jun lofF a ce, v l. 49 (Mr h1 9 ), p . 81-99. n e a d o r a in n o ac 9 4 p Hr e Dv K"Ea a gth Rleo Rc inMr a eL n in ," o n , a id . v lu tin e o f a e o tg g e d g F ICBn in R iew v l. 7(S rin /S m e 1994), p . 1-15. D a k g ev , o p g u mr p Sh fe , Rb r a dHle FL d . D c a r o e t, n e n . a d iscrim a ninM a e in tio ortg g L d g C mrid e Mss.: T eM Pes 1981. en in . a b g , a h IT r s , J c s n Kn e T T eC b ra Fo tier N wY r : O fo d a ko , e n th . h ra g ss r n . e ok x r U iv r ityPes 1985. n e s r s, S h M h e H a dS s nM Wc te . "B r o e a d c ill, ic a l ., n ua . a h r o r wr n Nig b r o d Rc l a dIn o eC aa te is sa dF a c l e h o h o aia n c m h r c r tic n in nia I s tio Mr a eA p a nS r e in ," Ju a of R l Eta ntitu n o tg g p lic tio c e n g o rn l ea s te F a cea dE om v l. 9, (D cemer 1994), p . 223-39. in n n con ics, o e b p J c s n Pt r a dEwr Mn o e y "L y ffs, D c a g s a d a ko , ee, n d ad o tg mr . a o is h r e n Y u U e p y e t," inR h r B Fe mna d Hr yJ Hlz r o th n m lo mn ic ad . r e a n ar . o e , e s., T eB ckYu E p en Cis . C ic g : U iv r ityo d h la o th mloym t r is h a o n e s f C ic g Pes 1986. h a o r s, ________ . "AT leo T oC s Rc l a dGo r p ic a f w itie : a ia n e g a h D p r s i H m Mr a eL n in inBs na d is aitie n o e o tg g e d g oto n P ila e h ," Wr in Ppr 1 P ila e h : Wa to Ra h d lp ia o k g a e 48. h d lp ia h r n e l Et t Cn r J n 1,1993. sae e te , u e J y e, Gr ldD v . "T e Lb rMr e S tu o B c a ns e a a id h a o a k t ta s f la k A e ic n 1939-1985," Ju a ofE om P ectiv v l. 4 mr a s: o rn l con ic ersp es, o (Fll 19 ), p . 9-24. a 90 p S a o F a c l Rg la r C m itte . S tem t ofth S a ow h d w in nia e u to y o m e ta en e hd F a cia R u toryC m onP osedR ision to in n l eg la om ittee rop ev s C m n R vestm t R u tio s, S te e t N . 105, om u ity ein en eg la n ta mn o Fbu r 14,1994. e r ay ________ , a dRb M W m J., e s. AC m n o in . illia s, r d om on D y: B ck a dA erica S ciety Wsh g n Ntio a estin la s n m n o . a in to : a n l A a e yPes 1989. c d m r s, J h s n JE om M od N wY r : MG w ill, 1963. o nto , . con etric eth s. e ok c ra -H Kn ic e Ath r a dJ n eS a k a q e . "C a g s inF m e n k ll, r u, n a ic h c -Mr u z h n e a ily F a c sfr m19 to 1989: E id n efr mth S r e o in n e o 83 v e c o e uv y f C n mr F a c s," F era R o su e in n e ed l eserve B lletin v l. 78 (Jn ay u , o a ur 19 ), p . 1-18. 92 p K g A T o a "D c im a n inMr a e L n in : AS d o in , . h ms. is r in tio o tg g e d g tu y f T r eC s," N Yr Uiv , S onB th C terfor he itie ew ok n ersity olom ro ers en S ir , Pt r P"T e Pr is n Po le o Ln in D c im a n w e ee . h es te t r b m f e d g is r in tio : AL wa dE o o ic A a sis." Mn s r t. Uiv r ityo V g ia a n c n m s n ly a uc ip n e s f ir in , A g s 26,1994. u ut T w se d Rb r M "C m u ity D v lo mn Bn in a d o n n , o et . o m n e e p e t a k g n F a c l Intitu n A t: ACitiq ew R c m e d tio s." in nia s tio s c r u ith e o mn a n Pp rpe e te toth 3 thA n a C n r n eo Bn S utue a e r s n d e 0 n u l o fe e c n a k tr c r a dC me n My 1 -13,1994. n o p titio , a 1 U . C n r ss, S n te C m n R vestm tA Ha in , 10 .S o g e e a . om u ity ein en ct. e r g 0 C n . 2S s . Wsh g n G v r mn Pin gO e 1988. o g e s a in to : o e n e t r tin ffic , th S d of F a cia In tio sM og p S inF a cea d e tu y in n l stitu n on ra h eries in n n E om 1980-4. con ics, ________ . C m n C it N s. Ha in , 9 C n . 1 om u ity red eed e r g 5 o g S s . Wsh g n G v r mn Pin gO e 1977. e s a in to : o e n e t r tin ffic , Ln, W mW a dLo adI Nk mr . "AMd l o Rd in ," a g illia ., n e nr . a a ua o e f e lin g Wlls, FJa , a dW mJ c s n "C m u ityD v lo mn e . e n n illia a ko . o m n e e p e t Ln e s P lic O tio s a dth TakR c r ," C n r s io a e dr : o y p n n e r c e o d o ges n l Rs ac S r ic Rp r fo C n r ss, My11,1993. e e r h e v e e ot r o g e a Jun lofU a E n m v l. 33 (Mr h1993), p . 223-34. o r a rb n co o ics, o ac p L b w , S n "AS d T a Dse v s N Ce it," T e Wll ie o itz ta . tu y h t e r e o r d h a S Jun l, S p me 1,1993. treet o r a e te b r Mc y J n th nR a dGo e PM r "T eC m u ity a e , o a a ., n e ffr y . ille . h o m n Rin e tmn A t: A E o o icA a sis," V g iaL wR iew e v s e t c n c n m n ly ir in a ev , v l. 79 (Mr h1 93 p . 291-348. o a c 9 ), p Ms e , D u la S a dN n yA Dn n A erica A a eid a s y o g s ., n a c . e to . m n p rth . C mr g , Mss.: Hr adU iv r ityPes 1993. a b id e a av r n e s r s , Mn e A ia H Ln EBo n , J ms ME e n y a d u n ll, lic ., y n . r w e a e c n a e , n Go e M BT o ll. "Mr a e Ln in inB s n I tepe g e ffr y . . o te o tg g e d g o to : n r r tin 33HS 'ti 1 HQ3•Q O H I'H3 A33 V 3 3 N W D 33US > T il3 3 •aN W D 3 A331 V Q3 O H IH W n W mJ liu. T e Tu D d a ta ed T eIn erC , ilso , illia u s h r ly isa v n g : h n ity th Ud ss, a dP b Plicy. C ica o U iv rsityof C ica o e n ercla n u lic o h g: n e h g Pes 1987. r s, W e l, C a le JE cyclop iaof B n in a dF a ce, 1 the . o lfe h r s . n ed a k g n in n 0 d C ic g : Po u, 1994. h a o rbs M g RK g "B n sMs La fo C stoT r e S e illin , . in . a k ut e d r itie h iv ," ton Su , v l. 1 (S m e 1994), p . 6-7. o p o 2 u mr p a3 H S 'yivaaajj •Q O H IU3 A H3 N W3 W ite L we c J"T eC m u ityRin e tmn A t: G o h , a r ne . h o mn e v s e t c o d In n n Ha e inth W n D e tio ," Frd a U a L w te tio s e d d e ro g ir c n o h m rb n a Jun l, v l. 20 (1993), p . 2 1-92. ora o p 8 Z n i, Mr . "B sto Fd B sS d Ws De lyF wd a d a k o n e 's ia tu y a e p la e ," A erica Bn er, A g st 19,1993, p 1 . m n ak uu . 3 93 \I33 lV 3 3 •Q O H l'il 3 A SH y Q3 N WD i3 ^ S »1 HQ3•Q O H IU30INV9 3 US > 1 HQ3•Q O H Itl 3 A 33 V 3 3 N W D A 33I V 3 3 N W D a3 y S H1 A33 ^3033• 35 BANK HIGHLIGHTS P erhaps the Bank's m im ost portant achievement this year was its progress in restructuring and reducing costs in its check operations. Achieving these cost reductions was a major short-term goal in the Bank's strategic plan. Cost reductions were essential because of changes in the financial industry and in regula tions that were reducing Federal Reserve check-processing volume. M ergers and acquisitions among depository institutions, for example, have resulted in a larger share of check transactions between people or businesses w accounts at the same bank, which has reduced the number of checks that require ith outside processing. In addition, a major regulatory change (known as "same-day settlement") allowed private-sector check processing to be more competitive w Federal Reserve processing. Check Collection staff worked energeti ith cally and successfully to modify and improve services offered to financial institutions and to reduce operating costs. Their efforts resulted in a smaller reduction in checkcollection volume and lower costs than projected. The Bank expects the restructuring and cost reductions to keep its check services financially viable for the fore seeable future. During 1994 the Bank also paid considerable attention to the relationship between banking and our communities. The Bank's Community Affairs Department, for example, expanded its efforts to increase the public's understanding of innovative community development financing programs in the F ifth District. Bank staff logged many hours traveling throughout the District, talking to residents, bankers, and community groups to get a feel for the impact of lending on District neighborhoods. Community development groups and bankers assisted the Bank in these efforts by organizing tours of several B ksaf Dtitbnes adcmuiydvlomtledr vstdsvrl Bli oeni hohosi Ags. a t f. i rc akr, n o m t ee p e aes iie eea a m egbrod n uut n s n n t r F ifth District neighborhoods. The Banks Community Affairs Department also cosponsored two confer ences on community development financing — one with the Neighborhood Reinvestment Corporation and one with the Ms. Foundation for Women. Within the Bank, the Research Department introduced banking policy briefings that inform the Bank's senior officers on banking issues and foster a sense of community among staff from various departments. The banking meet ings are an interdepartm ental version of the monetary policy briefings that the Research Department has held for many years to prepare the president for Federal Open M arket Committee meetings. Staff from the Bank's Richmond and branch offices attend the quarterly meetings. Among the topics covered in 1994 were the Community Reinvestment Act, interstate banking, and the pricing of Reserve Bank services. In addition to these internal briefings, Bank staff shared their expertise w central bankers from a number of ith foreign countries. During 1994 they provided more forms of assistance to bankers in more countries than ever before. China, Mexico, R ussia, Saudi Arabia, Ukraine, and Vietnam were among the countries w which B ith ank staff worked. One senior staff member, for example, advised the B ank of Mexico on issues such as the control of daylight credit and the design of a new large-value-transfer system. He also represented the Federal Reserve on a committee responsible for reform the R ing ussian payment system. Another senior staff member taught monetary theory and eco nomic development in Switzerland to central bankers from around the world. In addition, he advised the Saudi Arabian Monetary Agency on restructuring its research departm ent. 36 While in previous years the Bank's international assistance has prim arily involved senior staff teaching central banking concepts and principles, this year it included a wider range of staff conducting practical workshops on cen tral banking functions. F example, in March the Bank hosted and its staff lectured at a payment-system training or program that the World B ank organized for its senior staff w responsibilities for economic development programs. ith In another case, Bank staff helped organize and conduct an International Monetary Fund workshop in Vienna, Austria. The workshop, held for bankers from the former Soviet Union, included an on-line computer demonstration by an accounting supervisor of the Federal Reserve's risk-management system . During 1994, the B ank expanded the assistance it provides nationally as well as internationally. The Richmond Bank, like all the Reserve Banks, has long aided the Treasury by processing savings-bond transactions that originate w ithin its own district. When the Treasury chose to consolidate savings-bond processing w ithin the Federal Reserve System it selected the B , ank to handle the transactions that another Federal Reserve D istrict previously would have processed. In addition, the Treasury designated Richmond as a contin gency backup site for all the rem aining savings-bond processing sites. The B ank also provides support services to the T reasury and the Federal Reserve Banks through its operation of the Currency Technology Office (CTO), now located in Richmond. The CTO coordi nates the development of currency processing and counterfeit detection technologies; the installation and im plem entation of new currency pro cessing system and the provision of ongoing support and training in s; the use of currency processing equipment. During 1994, the office worked w the B ith ureau of E ngraving and P rinting to redesign the U.S. currency to make counterfeit notes more difficult to produce and easier to detect. Among the visible changes to the bills w be the appearance ill of a standard Federal R eserve seal in place of a specific R eserve B ank seal and the addition of a w aterm ark. The new currency w be in ill troduced over the rem ainder of the decade, starting w the $100 bill. ith During 1994 the CTO also assisted Reserve Banks with the „ ( lh |t ^ o fcin[ | c CM ^ tl[1 l| l> ateB kt suyt eRerhDprm t oeai n, t h a o t d h e ac eat e s prtos n s n installation of the IS 3000, the most advanced currency processor on the m S arket. The IS 3000 operates w fewer S ith employees and at a faster rate than its predecessor. Already the new machines are processing 70,000 notes per hour on average compared to 60,000 notes per hour for the old equipment. This performance is expected to improve as operators gain experience using the machines. Another feature of the IS 3000 is its improved counterfeit detectors. S In 1994 the CTO helped in stall a total of 56 machines, eight of them in the F D ifth istrict. B 1997,132 IS 3000s w y S ill be in place in the 37 Federal Reserve offices throughout the country. P lans to close the Bank's Culpeper facility precipitated the need not only for the CTO to relocate, but also for a new disaster recovery site for the Bank, the Board of Governors, and the Federal Reserve Automation Services (FR S) A operation. In an emergency, the site w handle critical functions and house key staff. Three other Reserve Banks — ill Boston, Philadelphia, and Cleveland — agreed to establish a joint backup site w Richmond and to share the costs ith to support it. They chose the Baltim ore Branch as the common site because of its central location, proximity to large airports, and ability to renovate space at low cost. Boston, Philadelphia, Cleveland, Richmond, and FR w use AS ill Baltim ore as their backup for shared mainframe peripherals (printers, tape drivers, etc.). Richmond, the Board, and FR S w use it for relocation of their key business functions and operations. B year-end 1994, Baltim A ill y ore had con verted approximately 7,600 square feet to accommodate approximately 200 staff members in an emergency. In early 1995 Baltim w reconfigure about 1,800 additional square feet to house shared mainframe peripherals. ore ill 37 BANKDIRECTORS FED ERAL R SE V BANKOF RICHMOND (DECEMBER31,1994) E RE (From left to right) Stephen Brobeck; Claudine B. Malone; Webb C. Hayes IV; Robert M. Freeman; L. Newton Thomas, Jr. (From left to right) Charles E. Weller; R.E. Atkinson, Jr.; Henry J. Faison; Paul A. DelaCourt C hairm an H enry J. Faison Chairman Faison Associates Charlotte, North Carolina D e p u ty C hairm an C laudine B. M a lo ne President Financial & Management Consulting, Inc. McLean, Virginia R.E. A tkinson, Jr. Chairman Dilm arO il Company, Inc. Florence, South Carolina Stephen Brobeck Executive Director Consumer Federation of America Washington, D.C. Paul A . D elaC o urt Chairman The North Carolina Enterprise Corporation Raleigh, North Carolina R obert M . Freeman Chairman and Chief Executive Officer Signet Banking Corporation Richmond, Virginia W ebb C. Hayes IV Chairman of the Board Palmer National Bancorp, Inc. President The Palmer National Bank Washington, D.C. L. N e w to n Thomas, Jr. Retired, Senior Vice President ITT/Carbon Industries, Inc. Charleston, West Virginia Charles E. W e lle r President Elkridge National Bank and ENB Financial Corporation Elkridge, Maryland M BER, F D R L EM EEA ADVISORYCOUNCIL Richard G. Tilghman Chairman and Chief Executive Officer Crestar Financial Corporation Richmond, Virginia BALTIM ORE OFFICE (DECEMBER31,1994) (From left to right) Richard M. Adams; Morton I. Rapoport; Daniel R. Baker; Rebecca Hahn Windsor (From left to right) F Levi Ruark; Thomas J. Hughes; . Michael R. Watson CHARLOTTE OFFICE (DECEMBER31,1994) (From left to right) David B. Jordan; Dorothy H. Aranda; Jim M. Cherry, Jr. 40 (From left to right) James O. Roberson; Harold D. Kingsmore; Dennis D. Lowery C h airm a n Rebecca H ahn W in d s o r Chairman and Chief Executive Officer Hahn Transportation, Inc. New Market, Maryland R ichard M . Adam s Chairman and Chief Executive Officer United Bankshares, Inc. Parkersburg, West Virginia D anie l R. Baker President and Chief Executive Officer Tate Access Floors, Inc. Jessup, Maryland Thom as J. Hughes President/CEO Navy Federal Credit Union Merrifield, Virginia C h airm a n H a ro ld D . Kingsm ore President and Chief Executive Officer Graniteville Company Graniteville, South Carolina M o rto n I. R apoport President and Chief Executive Officer University of Maryland Medical System Baltimore, Maryland F. Levi Ruark Chairman of the Board, President, and Chief Executive Officer The National Bank of Cambridge Cambridge, Maryland M ich a e l R. W atson President Association of Maryland Pilots Baltimore, Maryland D o ro th y H . A ran da President Dohara Associates, Inc. Hilton Head Island, South Carolina D ennis D . Lo w e ry CEO and Chairman of the Board Continental Ltd. Charlotte, North Carolina Jim M . C herry, Jr. President and Chief Executive Officer Williamsburg First National Bank Kingstree, South Carolina James O . Roberson President/CEO Research Triangle Foundation of North Carolina Research Triangle Park, North Carolina D a v id B. Jordan Vice-Chairman, CEO, and Director Security Capital Bancorp Salisbury, North Carolina 41 SM ALL BU ESS AND AGRICULTURE ADVISORY COUNCIL (DECEMBER31,1994) SIN \~ -4 if. (From left to right) Robert A. Quicke; Vernon A. Reid; Joseph C. Jefferds, Jr.; Catherine L. Hughes (From left to right) Watts Auman; George B. Reeves; John W. Hane; Bobby G. Lowery OPERATIONS ADVISORY COMMITTEE (DECEMBER31,1994) (From left to right) Harry G. McDonnold; G. Thomas King; Frances Bradshaw; Kenneth L. Greear; Charles C. Schmitt; Martin W. Patterson V* %-i 1 , V 1 fT (From left to right) Daniel E. Lanier, Sr.; John G. Chapman; Ralph M. Burns, III; William E. Albert; G. Dodson Mathias (From left to right) Gerald L. Martin; Rick A. Wieczorek; C. L. Wilson, III; Raymond L. Gazelle; Jimmie R. Monhollon (From left to right) Thomas W. Dispenza; Richard D. Pillow; David G. Poole; Michael L. Morgan; Ronald D. Brown C hairm an W atts A um an Auman Farm West End, North Carolina John W . H ane Partner/Manager Blackwoods Farm Fort Motte, South Carolina C atherine L. Hughes Owner/CEO Radio One, Inc. Baltimore, Maryland Joseph C. Jefferds, Jr. Chairman Jefferds Corporation Charleston, West Virginia C hairm an C. L. W ilso n, III Senior Vice President Branch Banking and Trust Company Wilson, North Carolina W illia m E. A lb e rt Vice President and Cashier The First National Bank of Bluefield Bluefield, West Virginia R obert L. BeHage Senior Vice President NationsBanc Services, Inc. Richmond, Virginia Frances Bradshaw Assistant Vice President-Operations First Carolina Corporate Credit Union Greensboro, North Carolina R onald D. B row n Senior Vice President The Riggs National Bank of Washington, D.C. Washington, D.C. Ralph M . Burns, III Senior Vice President The Palmetto Bank Laurens, South Carolina John G. Chapm an Senior Vice President SouthTrust Bank of Charleston Charleston, South Carolina B obby G. Low ery President Better Cleaning Janitor Service, Inc. Better Cleaning Maintenance Supply, Inc. Charlotte, North Carolina Louise Lynch President & Chief Executive Officer Courtesy Associates, Inc. Washington, D.C. G eorge B. Reeves President Reeves Agricultural Enterprises, Inc. Chaptico, Maryland V ern on A . Reid Principal, Chief Investment Officer V. A. Reid & Associates, Inc. Baltimore, Maryland R obert A. Q u ic k e General Manager Southside Transportation Co. Inc. Blackstone, Virginia B arbara J. Rackes President/CEO Rackes Columbia, South Carolina J. M a u ric e C la rk President Huntington Federal Savings & Loan Association Huntington, West Virginia Ashpy P. L o w rim o re Senior Vice President-City Executive Southern National Bank of South Carolina Florence, South Carolina Francis X. Pokorny Senior Vice President of Corporate Operations First National Bank of Maryland Baltimore, Maryland John S. D iP ie tro Senior Vice President Peninsula Bank Princess Anne, Maryland G erald L. M a rtin Executive Vice President and Chief Financial Officer Fidelity Federal Savings Bank Richmond, Virginia D avid G . Poole Senior Vice President Industrial Bank of Washington Washington, D.C. Thomas W . D ispenza Chief Executive Officer NARC Federal Credit Union Beltsville, Maryland Raym ond L. G azelle Executive Vice President Citizens Bank of Maryland Laurel, Maryland Kenneth L. G reear Senior Vice President United National Bank Charleston, West Virginia D. C. Hastings President and Chief Executive Officer Virginia Bank and Trust Company Danville, Virginia G . Thomas King Senior Vice President and Automated Systems Manager Raleigh Federal Savings Bank Raleigh, North Carolina D aniel E. Lanier, Sr. Vice President-Operations One Valley Bank Charleston, West Virginia G. D odson M athias Senior Vice President First Union National Bank of North Carolina Charlotte, North Carolina H a rry G . M c D o n n o ld Executive Vice President American Federal Bank FSB Greenville, South Carolina M ich a e l L. M o rgan Senior Vice President-Group Executive Wachovia Operational Services Corporation Winston-Salem, North Carolina M a rtin W . Patterson Senior Vice President and Division Manager of Production Services Crestar Bank Richmond, Virginia R ichard D . P illo w Vice President Virginia Credit Union League Lynchburg, Virginia Elwyn G . Raiden, Jr. President and Chief Executive Officer Home Federal Savings Bank Washington, D.C. Charles C. S chm itt Executive Vice President Loyola Federal Savings Bank Glen Burnie, Maryland Charles E. Thomas Vice President West Virginia Credit Union League, Inc. Parkersburg, West Virginia Rick A . W ieczore k President District of Columbia Credit Union League Washington, D.C. A ssociate M e m b e r N orm an K. Robinson Executive Director & Treasurer Virginias Automated Clearing House Association Richmond, Virginia 43 B A N K OFFICERS (DECEMBER 31,1994) Senior Vice P residen B t ruce J Sum ers, who has played a leading role in developing and im . m ple m enting the B ank's strategic plan, w given responsibility for Com unity A as m ffairs, Discount and C redit, F an in cial P lanning and C ontrol, and Accounting. Senior Vice President Jam D. Reese, form es erly responsible for Check Collection in R ichm ond and Charleston, E lectronic P ents, F aym iscal Agency, Securities, Custom Support, er C ash, and B usiness Developm and P ent lanning, assum full-tim responsibility for System C ed e ash Services. He also assum responsibility for the C ed urrency Technology Office, w hich relocated fromCulpeper to Richm ond. Senior Vice P residen R L F ber was assigned responsibility for E t oy . au lectronic P ents, aym C ash, F iscal Agency, Securities, B usiness Development, Product Developm ent and P lanning, C ustom Support, and Check Collection in R er ichm ond and C harleston. H continued to head e B ess Applications Services, O usin perations and Technical Support, and Culpeper's Contingency P rocessing C enter. Vice P residen Andrew L T t . ilton added responsibility for C ash to h existing is responsibilities for Check Collection, F iscal Agency, and Securities. Assistant Vice P resident B ford N. Carden, previously responsible for E rad lectronic P ents, assum responsibility for aym ed B usiness Developm ent and became the F ederal R eserve System liaison to the U.S. T 's reasu ry. V.H (Son y) R . n osson, J., assistan vice president for P r t roduct Developm and P ent lanning, w given as responsibility for E lectronic P ents. Inform aym ation System Officer Jan H s ice aase's responsibility for O perations and Technical Support w expanded to include Custom S as er upport. Vice P resid ts Tim en othy Q. Cook, W illiam E Cullison, and George B E s and Associate . . van G eneral C ounsel W illiam C. F itzgerald retired . Vice P resident D M. B an echter w appointed chief public inform as ation officer and given full-tim responsibility for Public A e ffairs. Stacey L Schreft, who was prom . oted to associate research officer, assum responsibility for R ed egional Econom and R ics esearch Publications. B oth officers continue to contribute to the B k as econom an ists. J effrey M L . acker w prom as oted to research officer, and P eter N. Irelan w prom d as oted to associate research officer. A. Linw ood G III, in the B ill anking Supervision and R egulation D epartm ent, and B W . ayne D and S san A. Saavedra, in the Audit D eal u epartm ent, w prom ere oted to assistan vice president. t Vice P residen W t illiam E Pascoe, I I of the B . I, altim Office, died suddenly on J n 14, ore ue 1994. Pascoe had w orked in several departm ents in the Richm ond Office before m oving to B altim in 1971 to become general m ore anager of the check operation. He advanced to assistan t vice president in 1972 and vice president in 1974. B efore h death, he was responsible for is P ersonnel, B uilding Services, P ublic Inform ation, D Services, and B ata usiness Developm and ent w "second-in-command" to Senior Vice P as residen R t onald B Duncan. M . argaret M. M urphy, in the B altim Office, w prom ore as oted to vice president in Septem and acquired the departm ber en ta responsibilities form l erly held by Pascoe. Vice P residen W t illiam J T . ignanelli assum the role ed of "second-in-command." At the C harlotte Office, Vice P resid t R en obert F S . tratto retired M n . arsha H M . alarz w pro as m oted to vice president and took over responsibility for Accounting, Personnel, and P ublic Inform ation. Bobby D. Wynn, assistan vice president, tran t sferred from R ichm ond to C harlotte and assum responsibility for P ed ublic Inform ation and B usiness Developm ent. Senior Vice P residen J n G. Stoides, of the Culpeper Office, retired t oh . A the C t harleston Office, Vice P residen R t ichard L H . opkins added B ess Developm usin ent to h responsibilities for the C is harleston R egional Processing C enter territory of West V irgin ia. RICHMOND R H Webb oy . 701 E st B S a yrd treet Richm ond, V irgin 23219 ia (804) 697-8000 Malcolm C. Alfriend Vice President Assistant Vice President K per W. B er, J. em ak r JA . lfred Broaddus, J. r President Assistant Vice President Jackson L B . lanton Jim ie R Monhollon m . Assistant Vice President First Vice President William A. B ridenstine, J. r Lloyd W. B ostian, J. r Senior Vice President R L Fauber oy . Senior Vice President M arvin S Goodfriend . Senior Vice President and Director of Research Jam McAfee es Senior Vice President and General Counsel Joseph C. Ram age Senior Vice President Jam D. R es eese Senior Vice President B ruce J Sum ers . m Senior Vice President F L B ell red . agw Vice President Dan M. B echter Vice President William H B . enner, J. r Vice President W yatt F Davis . Vice President M ichael Dotsey Vice President R obert L H . etzel Vice President Thom M. H phrey as um Vice President Y PM ash . ehra Vice President M ichael W. Newton Vice President G. R onald Scharr Vice President J n W. Scott oh Vice President Assistant General Counsel B radford N. C arden Assistant Vice President B M. Fahed etty Assistant Vice President Jam J F es . lorin II I Assistant Vice President A. Linw ood G II ill I Assistant Vice President Sharon M. Haley Assistant Vice President and Secretary Eugene W. Johnson, J. r Assistant Vice President J effrey S K . ane Assistant Vice President Thom P K as . ellam Assistant Vice President Anatoli K uprianov Vice President Assistant Vice President A ur J Zohab, J. rth . r Assistant Vice President CHARLOTTE 530 E st T e S a rad treet C harlotte, N orth C arolina 28202 (704) 358-2100 F loyd M. Dickinson, J. r Examining Officer Janice E H . aase Information Systems Officer P eter N. Irelan d Associate Research Officer Law rence P Nuckols . Examining Officer R th S P tt u . ra Information Systems Officer Arlene S. Saunders Personnel Officer Stacey L Schreft . Associate Research Officer J n N. Weiss oh W alter A. V arvel Senior Vice President M arsha H. M alarz Vice President Sam W. Pow J. uel ell, r Vice President J A. W eff alker Vice President L C. DeVane yle Assistant Vice President Ronald D. Steele Assistant Vice President Bobby D. Wynn Assistant Vice President Examining Officer CULPEPER H Lew G . is arrett Senior Vice President and General Auditor 19053 M ount P R ony oad C ulpeper, V irgin 22701 ia (703) 829-1600 B Wayne D . eal Assistant Vice President Susan A. Saavedra Assistant Vice President Research Officer Thom C. Ju d as d Assistant Vice President J liu M u s alinowski, J. r Assistant Vice President J effrey M. L acker Research Officer H arold T Lipscom . b Assistant Vice President Susan Q. Moore BALTIMORE 502 Sou S arp S th h treet B altim M ore, aryland 21201 (410)576-3300 CHARLESTON 1200 A irport R oad C harleston, West V irgin 25311 ia (304) 345-8020 Assistant Vice President Joseph F M . orrissette R onald B Duncan . Assistant Vice President Senior Vice President V irginius H. Rosson, J. r R ichard L H . opkins M argaret M. M urphy Assistant Vice President M arsha S Shuler . Assistant Vice President Jam R Slate es . Assistant General Counsel C harlotte L Waldrop . Assistant Vice President R obert E Wetzel, J. . r Assistant Vice President Andrew L T . ilton H ard S W ow . hitehead W illiam F White . Assistant Vice President Vice President Vice President W illiam J Tignanelli . Vice President RW . illiam Ahern Assistant Vice President J n S F in oh . ra Assistant Vice President COLUMBIA 1624 B ning R row oad Colum bia, Sou C th arolina 29210 (803) 772-1940 Woody Y Cain . Vice President P atricia S T n . u stall Assistant Vice President J n I. T rnbull I oh u I Assistant Vice President 45 COM PARATIVE FIN AN CIAL STATEMENTS CONDITION A ssets Gold certificate account Special D ing R ts certificate account raw igh C oin L s to depository in tion oan stitu s F eral agency obligations ed U governm securities .S. ent B ills N otes B onds Decem 30,1994 ber $ 902,000,000.00 652,000,000.00 56,354,936.44 0 290,698,054.04 Decem 31,1993 ber $ 899,000,000.00 652,000,000.00 66,664,434.39 65,000,000.00 361,803,779.06 14,178,645,999.75 11,522,018,033.19 3,436,984,865.02 12,508,901,522.51 10,302,126,663.67 3,086,639,170.04 29,137,648,897.96 25,897,667,356.22 T ta U.S. governm secu o l ent rities C item in process of collection ash s B k prem an ises F rn re and equipm (n u itu ent et) O ther assets In istrict settlem account terd ent Accrued service incom e TO L A S T TA S E S L iabilities F eral R ed eserve notes D eposits D epository in tion stitu s F oreign Other 392,072,216.52 133,814,709.74 151,623,521.71* 2,225,794,821.10 (867,239,113.22) 4,982,912.52 $33,079,750,956.81 $31,553,127,650.90 $28,846,504,812.00 $28,034,847,897.00 2,782,100,893.95 9,472,408.94 70,392,642.45 2,356,864,209.97 9,563,200.00 31,537,576.38 2,861,965,945.34 2,397,964,986.35 446,625,128.05 331,987,071.42 477,144,405.72 186,183,061.83 $32,487,082,956.81 $31,096,140,350.90 $ $ T deposits otal D eferred availability cash item s O ther liabilities TO L L B IT S TA IA IL IE C apital Accounts C apital paid in Su lu rp s TO L L B IT S AND C P A ACCOUNTS TA IA IL IE A IT L 296,334,000.00 296,334,000.00 $33,079,750,956.81 * h a ou t in d $96,158,058.28in1 9 a d$1 1 8 ,9 7 9in1 9 forF era R Tis m n clu es 9 4 n 1 ,5 4 2 .2 9 3 ed l eserveA tomtionS ices. u a erv 46 501,742,124.09 138,618,569.74 153,529,571.22* 2,212,833,953.92 598,286,734.97 5,981,127.29 228,493,650.00 228,493,650.00 $31,553,127,650.90 EARNINGS AND E P N E XESS E arnings Loans to depository in stitution s FD assum indebtedness IC ed In terest on U.S. governm securities ent F oreign currencies Incom from services e Other earnings T otal current earnings E xpenses Operating expenses Cost of earnings credits Net expenses 1994 343,007.64 0 1,518,935,700.92 60,179,648.61 62,684,003.74 556,485.19 1993 230,415.87 0 1,309,605,453.09 85,509,214.61 65,142,479.48 251,348.24 $ $ $1,642,698,846.10 $1,460,738,911.29 $ 166,374,125.25* 13,602,461.65 $ 185,472,700.89* 10,500,337.76 179,976,586.90 195,973,038.65 $1,462,722,259.20 $1,264,765,872.64 (1,950,982.29) 162,752,518.02 22,195.65 3,037,703.43 18,266,352.43 4,333.72 160,823,731.38 21,308,389.58 0 15,049.17 0 36,520,950.00 15,049.17 36,520,950.00 160,808,682.21 (15,212,560.42) 4,152,968.75 10,122,800.00 30,012,475.00 2,875,704.56 9,619,500.00 29,323,293.00 N T EARN GS B F R P E IN E O E AYM N TO U.S. TR A R E TS E SU Y $1,579,242,697.66 $1,207,734,814.66 D istribution of Net E arnings Dividends paid P ents to U.S. T aym reasu (in ry terest on F era R ed l eserve n otes) T sferred to surplus ran $ 15,506,612.12 1,495,895,735.54 67,840,350.00 $ 13,061,398.81 1,176,241,765.85 18,431,650.00 $1,579,242,697.66 $1,207,734,814.66 $ 228,493,650.00 67,840,350.00 $ 210,062,000.00 18,431,650.00 $ 296,334,000.00 $ 228,493,650.00 $ 228,493,650.00 75,345,550.00 $ 210,062,000.00 26,139,150.00 303,839,200.00 7,505,200.00 236,201,150.00 7,707,500.00 $ 296,334,000.00 $ 228,493,650.00 CURRENT N T EARN G E IN S Additions to current net earnings P rofit on sales of U.S. governm securities (n ent et) P rofit on foreign exchange transactions A other ll T otal additions Deductions from current net earnings L osses on foreign exchange transactions A other ll T otal deductions Net additions or deductions Cost of unreim bursed T reasury services Assessm for expenses of B ent oard of Governors F ederal R eserve currency costs TO L TA Surplus Account Balance at close of previous year Addition of p rofits for year BALAN AT C SE OF CURRENT Y A CE LO ER Capital Stock Account (rep tin a ou tp idin w ichis50%ofa ou tsu scrib ) resen g m n a , h m n b ed Balance at close of previous year Issued during the year Canceled during the year BALAN A C SE OF CURRENT Y A CE T LO ER * h a ou tin d $4 11,4 Tis m n clu es 3,8 87.90in7 4a d$59,654,828.00in1 9 forF era R 99 n 9 3 ed l eserveA tomtionS ices. u a erv 47 SU M M A R Y O F OPERATIONS OPERATION NUMBER AMOUNT ($ thousands) 1994 1993 Currency and coin processed Currency received and verified Currency verified and destroyed Coin bags received and verified 2,119,457,000 702,796,000 216,013 2,093,672,000 660,012,000 271,203 28,412,365 6,812,575 167,470 27,225,822 6,423,583 208,064 Checks handled Commercial—processed* Commercial—packaged item s U.S. governm ent 1,480,814,000 329,989,000 55,611,000 1,521,814,000 446,289,000 56,677,000 1,033,893,000 157,253,000 91,727,000 1,120,853,000 179,026,000 103,779,000 11,274 0 14,362 0 2,903 0 6,833 0 230,331 237,340 2,271,016,000 2,462,115,000 6,456,322 6,379,386 11,372,596,000 10,434,014,000 292,192,000 325,731,000 1,484,255 1,568,573 273 266 2,451,000 2,428,552 Collections item handled s U.S. governm coupons paid ent Noncash item s Com ercial book-entry m transfers originated F n s tran ud sfers sent and received Food stam redeem ps ed L oans advanced *T is category excludes checks on th B n . h is a k 1994 1993 ACKNOWLEDGMENTS M any people contributed to the creation of th is Annual R eport. For their generosity in allowing us to use photographs of theirs, we thank B R lue idge Com unity Action Agency and m the N orth Carolina Housing Finance Agency, photograph page 21; C restar F inancial Corporation and V irgin ia Union U niversity, photograph page 39; C harleston T en Convention & V rid t isitors B ureau, photograph page 4; Com unity Developers of Beaufort-H and m yde the N orth Carolina Housing Finance Agency, photograph page 1 ; 1 S outhern L g, Inc., photographs pages ivin 7 (©1988), 18 (©1983), 20 (©1992), 22 (© 1994), 25 (© 1993), 26 (© 1993), 28 (©1994), 30 (©1992); W ashington, DC Convention & V isitors Association, photograph page 17. M anaging E ditor: Elaine M. Mandaleris A ssistant M anaging E ditor: Judy R Higgins . D esign F : Beatley Gravitt Communications irm P rinter: Stephenson P ting rin Photographers: cover: David White, Robert Llew ellyn; inside front cover: David White; pages 3, 37-38, 40, 42, Duane B erger; page 8, J Wes B . obbit; page 13, The Philadelphia In irer/Joh Costello; page 29, B qu n ruce Reedy; page 36, K enneth Anderson FEDERAL RESERVE B A N K OF R IC H M O N D P.O. BOX 27622 RICHMOND, VA 23261 B U L K RATE P A ID U.S. POSTAGE PERMIT N O . 2 R IC H M O N D , VA