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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

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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
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a is
ted ich o d irg ia h
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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
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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

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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

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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

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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

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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
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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

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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

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*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
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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

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H X V A 33 V 3 3 N W D
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Vfl A S H
N W D l X V A33 I V 3 3 N W D
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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
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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

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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
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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
:
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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 •
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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
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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

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N WD
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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 [1987], 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

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)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

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V3 3 N WD

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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




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P A ID

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PERMIT N O . 2
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Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102