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Spring 2009 Central N e w s a n d V i e w s f o r E i g h t h D i s t r i ct B a n k e r s F e at u r e d i n t h i s i s s u e : Growth in Noncore Funding | Collapse of the Shadow Banking System How To Use the Fed’s Discount Window Traditional and New, Temporary Lending Programs Fit Specific Needs By Kim Nelson I n just a little over a year, the Federal Reserve’s discount window has become a popular option for many banks interested in temporary alternative funding sources. If you’re thinking of tapping into a temporary funding program for your financial organization, here is a quick review. The purpose of the discount window is to act as a safety valve to relieve pressures in the market for reserves. Normally, the discount window relieves temporary liquidity strains for depository institutions and the banking system; it is not intended to provide longer-term funding (with the exception of the very small seasonal credit program). However, because of the significant stress in the financial markets that started in August 2007, the Fed’s Board of Governors expanded discount window credit programs to provide longer-term liquidity to the financial system. The Fed introduced several temporary programs for banks first. These included Term Primary Credit, which makes funding available for 90 days, and the Term Auction Facility, which makes funding available for up to 84 days. These programs are available only to financial institutions that are in “generally satisfactory” financial condition. The loans come with essentially the same requirements as a traditional discount window loan, although loans exceeding 28 days must have an excess margin of collateral for contingency short-term borrowing purposes. After introducing the temporary programs for banks, the Board of Governors in March 2008 began exercising its authority under Section 13(3) of the Federal Reserve Act, which allows the Fed to extend credit to individuals, partnerships and corporations during what the Board determines to be “unusual and exigent circumstances.” Generally, an “unusual and exigent circumstance” presents risk of systemic insolvencies. No loans had been made under this provision since the Great Depression era of the 1930s. The Fed established two Section 13(3) programs to help with the resolution of specific financial entities: Bear Stearns and American Insurance Group (AIG). Other Section 13(3) programs were continued on Page 6 T h e F e d e r a l R e s e r v e B a n k o f St . L o u i s : C e n t r a l t o A m e r i c a ’ s Ec o n o m y ™ Central View News and Views for Eighth District Bankers Vol. 19 | No. 1 www.stlouisfed.org/cb Editor Scott Kelly 314-444-8593 scott.b.kelly@stls.frb.org Central Banker is published quarterly by the Public Affairs department of the Federal Reserve Bank of St. Louis. Views expressed are not necessarily official opinions of the Federal Reserve System or the Federal Reserve Bank of St. Louis. To subscribe for free to Central Banker or any St. Louis Fed publication, go online to www.stlouisfed.org/publications/subscribe. html. To subscribe by mail, send your name, address, city, state and ZIP code to: Central Banker, P.O. Box 442, St. Louis, MO 63166-0442. The Eighth Federal Reserve District includes all of Arkansas, eastern Missouri, southern Illinois and Indiana, western Kentucky and Tennessee, and northern Mississippi. The Eighth District offices are in Little Rock, Louisville, Memphis and St. Louis. Looking for Regulatory Information in Troubled Times? We’re Here To Help By Julie Stackhouse A t the St. Louis Fed, we’re committed to the goal of being the quality regulatory agency in the Midwest. One of the ways that we work toward our goal is to provide quality information to banking organizations when it is needed most. We offer a number of programs for your participation: • Ask the Fed. This one-hour monthly conference call-in program provides senior banking officials with critical information on recent financial and regulatory developments. Topics since November 2008, when this program began, have included origins of the mortgage crisis, new developments in the federal funds market, changes to the Fed’s payment system risk policy and an economic update by St. Louis Fed President Jim Bullard. Julie Stackhouse is senior vice president of the St. Louis Fed’s division of Banking Supervision, Credit and the Center for Online Learning. • Examiner advisory visits. By request, seasoned Fed examiners will visit state member banks or bank holding companies to discuss Bank Secrecy Act matters, loan-loss reserve issues, flood insurance, fair lending, Home Mortgage Disclosure Act data submission and other matters. These informal advisory visits are often beneficial to new compliance officers and staff as a matter of introduction and personalized training. • Regulatory reports consultation. At your request, our staff will conduct an on-site tuneup for your institution’s regulatory reporting needs. Benefits include improved report accuracy, access to in-person training, and in-depth analysis and data verification. • Fed officials’ visit. Periodically, Banking Supervision officers will visit your area to meet with small groups of senior officials from state member banks. This informal forum has been well-received as a unique opportunity for frank and informal discussion on matters that are most important to you, such as regulatory burden. • Visit to the St. Louis Fed. We invite you to come to our offices and meet with me and other officials in our Banking Supervision function. This program is especially beneficial for new executive officers who need a sound understanding of regulatory operations. We hope that you will take advantage of one or more of these opportunities. To find out more, contact Patrick Pahl, senior coordinator, Banking Supervision and Regulation division, at 314-444-8858 or patrick.pahl@stls.frb.org. 2 | Central Banker www.stlouisfed.org Q u a r t e r ly r e p o r t Performance Ratios Go from Bad to Worse at District and U.S. Banks By Michelle Neely A dismal banking environment and a very weak economy continued to wreak havoc on bank balance sheets and income statements in the fourth quarter, resulting in an awfully poor showing in earnings and asset quality at District banks and their U.S. peers. At District banks, return on average assets (ROA) fell 22 basis points to 0.45 percent in the fourth quarter. ROA was down 49 basis points from its year-end 2007 level. (See table.) Profitability at U.S. peer banks (banks with average assets of less than $15 billion) plunged in the fourth quarter, resulting in yearend ROA of just 0.15 percent, a 29 basis point drop from its third quarter level and a stunning 90 basis point decline from its year-end 2007 level. The double-digit declines in ROA in the fourth quarter at both sets of banks were due to large increases in net noninterest expense and loan loss provisions; the average net interest margin stayed flat at 3.79 percent for District banks and 3.82 percent at peer banks. Loan loss provisions as a percent of average assets climbed to 0.74 percent at District banks and 1.03 percent at U.S. peer banks. The LLP ratio has more than doubled at District banks and has almost tripled at peer banks over the past year. Despite the large increases in provisions, the coverage ratio (the loan loss reserve as a percentage of nonperforming loans) has tumbled significantly at both sets of banks over the past two years. At year-end 2006, District banks had $1.78 reserved for every dollar of nonperforming loans; at year-end 2008, the coverage ratio stood at just 84 cents. U.S. peer banks had just 65 cents reserved for every dollar of nonperforming loans, down dramatically from $1.83 at year-end 2006. Increases in loan loss provisions and declines in coverage ratios can be traced to continued deterioration in asset quality at District and U.S. peer banks. The ratio of nonperforming loans to total loans rose to 1.76 percent at District banks and 2.63 percent at peer banks in the fourth quarter. In the District, increases in nonperforming commercial and industrial loans and commercial real estate loans were the main contributors to the rise in the composite nonperforming loan ratio. More than 5 percent of District banks’ outstanding construction and land development (CLD) loans were nonperforming at the end of the fourth quarter. At U.S. peer banks, the decline in quality was even more pronounced, with almost 9 percent of outstanding CLD loans in nonperforming status. Despite the dreary earnings and asset quality numbers, District banks remain on average well-capitalized. At the end of the fourth quarter, only one District bank (out of 700) failed to meet at least one of the regulatory capital minimums. District banks averaged a leverage ratio of 8.99 percent. Michelle Neely is an economist at the Federal Reserve Bank of St. Louis. From Bad to Worse Q4 2007 Q3 2008 Q4 2008 0.94% 1.05 0.67% 0.44 0.45% 0.15 3.89 3.99 3.79 3.82 3.79 3.82 0.35 0.35 0.60 0.77 0.74 1.03 1.55 1.26 1.68 2.19 1.76 2.63 Return on average assets District Banks Peer Banks Net interest margin District Banks Peer Banks Loan Loss Provision Ratio District Banks Peer Banks Nonperforming loans Ratio District Banks Peer Banks SOURCE: Reports of Condition and Income for Insured Commercial Banks Banks with assets of more than $15 billion have been excluded from the analysis. All earnings ratios are annualized and use year-to-date average assets or average earning assets in the denominator. Nonperforming loans are those 90 days or more past due or in nonaccrual status. Central Banker Spring 2009 | 3 Ec o n o m i c F o c u s Noncore Funding Growing in Importance among Most Types of Banks By Rajeev Bhaskar and Yadav Gopalan N oncore funding sources have always played an important funding role for banks; however, in the last decade, reliance on them has increased. Noncore funding sources include federal funds purchased, Federal Home Loan Bank (FHLB) advances, subordinated notes and debentures, CDs of more than $100,000 (jumbo CDs) and brokered deposits. Aside from a blip during the 2000-01 recession, reliance on these noncore funds has increased Figure 1 Percentage of Noncore Funds to Total Assets 43 38 All U.S. banks 33 All Eighth District banks Eighth District community banks 18 2008 2007 2006 2005 2004 2003 2002 2001 1997 1996 2000 U.S. community banks 13 1999 23 All U.S. Banks 1998 28 NOTE: Data were captured on Sept. 30 of each year. Figure 2 Eighth District Noncore Funding Activity as a Percentage of Total Assests 35 30 25 Total noncore funding 20 Jumbo CDs Other borrowed money Fed funds purchased and repos 4 | Central Banker www.stlouisfed.org 2008 2004 2003 2002 2001 2000 1999 1998 1997 1996 NOTE: Data were captured on Sept. 30 of each year. For all U.S. banks, average noncore funding as a percentage of total assets has grown by 11 percentage points over the past 12 years. The ratio was 43 percent at the end of September 2008, compared with 32 percent at the end of September 1996. For the larger U.S. banks, which are weighted heavily in all bank averages, foreign deposits make up the largest component of noncore funding, followed by other borrowed money (OBM) and jumbo CDs. Since the credit crisis began, both OBM and brokered deposits have risen sharply. Other borrowed money is a broad category and includes Federal Reserve discount window loans and FHLB advances. The growth in this category is not surprising, given deterioration in the financial sector and banks’ sudden inability to access unsecured market sources. Community Banks Brokered deposits Forgeign deposits 2005 5 2007 10 2006 15 0 steadily at banks of all sizes over the last decade. (See Figure 1.) As the financial services industry has evolved over the past 10 to 20 years, depositors have had the opportunity to invest in the stock market, mutual funds and money market funds. As such, there has been a shift in core deposits away from banks to these alternate investment vehicles, which have potentially higher return. Banks, meanwhile, have experienced tremendous growth in loans over the same period. To keep up, banks have turned to more nontraditional noncore sources of funds. As a percentage of assets, noncore funds are more important to large banks than community banks. Still, the growth in noncore funding has been much faster at community banks. For all U.S. community banks— banks with $500 million or less in total assets—average noncore funding as a percentage of total assets has doubled over the period, rising from 14 percent R egiona l Spot l igh t Navigate the Financial Crisis with New St. Louis Fed Web Site at the end of September 1996 to 28 percent at the end of September 2008. Despite the tremendous growth, this ratio is still much lower than that of all U.S. banks. Jumbo CDs make up the bulk of this funding, followed by OBM. Like the trends at all U.S. banks, there has been a noticeable upsurge in brokered deposits and OBM since mid-2007. However, the growth in jumbo CDs has remained flat over this period. Eighth District Banks At most Eighth District banks (mostly community banks), the noncore-funding ratio remains above that of U.S. community banks but less than that of all U.S. banks. Noncore funds as a percentage of total assets rose 12 percentage points from 21 percent in September 1996 to 33 percent in September 2008. Here, too, jumbo CDs comprise the largest component of noncore funds. Figure 2 shows the breakdown of the noncorefunding ratio by component at Eighth District banks over the past 12 years. During the past year and a half, the jumbo CD share has been decreasing while the importance of OBM and brokered deposits has been rising. Trends at Eighth District community banks have paralleled those at U.S. community banks. In the past, the District’s community banks relied on noncore funds (as a percent of assets) slightly more than their peers did. (See Figure 1.) However, peer banks caught up over the past few quarters. The trend lines have merged: Noncore funds to total assets now stands at 28 percent for both U.S. and Eighth District community banks. As is the case with most banks, both OBM—from the Fed and the FHLB banks—and brokered deposits have spiked during the recent credit crisis. Don’t get lost amid the stories, events, rumors, analyses and actions surrounding the current financial crisis. Make sense of it all with a new, dynamic St. Louis Fed web site. The Financial Crisis: A Timeline of Events and Policy Actions site outlines events in financial markets from February 2007 to the present. The web site includes brief descriptions of market events and actions that the Fed and other government agencies have taken, links to relevant St. Louis Fed research papers, and links to press releases, SEC filings, congressional testimony and other primary documents. The site features charts and data showing the effects of the Fed’s new lending facilities. It also answers questions on the causes of the financial crisis and compares the current crisis with the Great Depression. Interested bankers can subscribe to the site’s RSS feed for the latest news and updates. (Look for the Timeline RSS link near the top of the center column.) “The Federal Reserve and other agencies have taken many steps to contain the financial crisis and limit its impact on the broader economy,” said St. Louis Fed President Jim Bullard. “As we begin to move forward, it is critically important that we clearly communicate these actions to better ensure their success.” Rajeev Bhaskar is a senior research associate and Yadav Gopalan is a research associate, both with the Banking Supervision and Regulation division at the Federal Reserve Bank of St. Louis. >>v i e w o n li n e www.stlouisfed.org/timeline Central Banker Spring 2009 | 5 Bankers Invited To Explore Community Innovation and Financing in Changing Times C hanging economic conditions are presenting new challenges for those working in community development. Financing, particularly in moderate- and low-income areas, is getting more difficult, and understanding how to leverage limited resources is more important than ever. The Federal Reserve Bank of St. Louis is hosting an April 22-24 conference in St. Louis to address financing, resources and other community development topics. The 2009 Exploring Innovation in Community Development conference, “Innovation in Changing Times,” will be of interest to bank senior management, directors, loan officers and Community Reinvestment Act officers. Katherine D. Siddens, U.S. Bank in St. Louis, attended the first Exploring Innovation conference, in 2007 “As the community development manager for U.S. Bank, I found the Exploring Innovation conference to be extremely beneficial to me, but also truly believe it would be a worthwhile experience for any bank representative who is interested in better understanding community needs,” Siddens says. “The information helped me uncover new opportunities to fulfill our CRA obligations and provided affirmation that bankers can serve as important connectors between the financial industry and the community at large.” Loura Gilbert, a mortgage officer with Commerce Bank in Clayton, Mo., who also went to the 2007 conference, says “The regulators are continually urging banks to be innovative in their response to CRA guidelines. And I welcome any opportunity to meet with other bankers and experts to brainstorm ideas about these issues.” This year’s conference will bring together high-level leaders from across the industry to explore best practices, innovative policies, and thinking in community and economic development. Topics will include: Discount Window determines that current market turmoil has ended. Information regarding traditional discount window programs is available at www.frbdiscountwindow.org. Additional details regarding Section 13(3) programs are available by e-mailing the Federal Reserve Bank of New York at general.info@ny.frb.org. continued from Page 1 established to “unfreeze” securities markets. These programs include the Primary Dealer Credit Facility, the Residential Mortgage-Backed Securities Facility and the Collateralized Debt Obligations Facility. Finally, the Fed created additional Section 13(3) programs to focus on supporting money market liquidity. These programs include the AssetBacked Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility and the Money Market Investor Funding Facility. All of these programs are temporary and will be unwound when the Board 6 | Central Banker www.stlouisfed.org • expanding economic opportunities through financing innovations, • building wealth in urban and rural areas, • accelerating regional development, and • examining the future of community development. For more information, visit the conference web site at www.exploring innovation.org. For an invitation, contact Cynthia Davis at 314-444-8761 or communitydevelopment@stls.frb.org. >> M o r e O n li n e www.frbdiscountwindow.org www.newyorkfed.org/markets/ Forms_of_Fed_Lending.pdf Kim Nelson is a vice president in the St. Louis Fed’s Banking Supervision and Regulation division. In-Depth The Credit Crunch Reflects Collapse of a “Shadow Banking System” Financial Assets: Growth Since 2000 350 300 Issuers of private-label asset-backed securities 250 Government-sponsored enterprises 200 150 2009 2003 2006 Federally insured depository institutions 100 2000 M any consumers and business owners are wondering: Have banks stopped lending? The answer depends on the status of financial institutions. Most banks, especially in the Eighth District, remain in generally sound financial condition and continue the economic necessity of lending to customers with good credit quality. However, some banks are facing severe financial distress, creating a need to preserve capital—which gives the appearance of a credit crunch. To improve their regulatory capital-to-asset ratios, some banks are reducing their total assets on the balance sheet by reducing the amount of loans outstanding. Some banks are improving ratios by raising more capital either privately or through recent government programs if eligibility requirements are met. In large part, the reduction in credit availability can be attributed to the partial collapse of the “shadow banking system.” In its simplest sense, the shadow banking system represents credit instruments that exist outside of the traditional commercial banking system, especially those related to consumer credit. Older parts of the shadow system include financial assets issued through government-supported institutions, such as Fannie Mae and Freddie Mac. More interesting is the growth in assets in the nongovernment-supported and nongovernment-insured sectors. As shown in the chart, these so-called private label assets grew at a three-fold rate over the past eight years. Some of these financial instruments, including the vast majority of the subprime mortgage market, were high-risk in nature as well. The securities created from these assets were often complex, with poor transparency and sometimes questionable suitability for unsophisticated customers. The intermediaries issuing and trading Figure 1 Index levels set to 100 in Q1 2000 By Julie Stackhouse and Bill Emmons the securities included nationally and internationally active investment banks, hedge funds and some insurance companies. Most of these entities were not required to be supervised by banking regulators. It is this part of the lending market that has collapsed. According to Federal Reserve data, total household loans outstanding (mortgages and other consumer credit) decreased during the six months ending Sept. 30, 2008. This marked the first six-month decline since at least 1952, when comprehensive data first became available. To the extent that the underpinnings of the shadow banking system were unsound, we should not expect that system to return anytime soon—especially the market for securitized subprime mortgages. For other segments, return of the securitized market will depend on investor confidence and a move toward increased transparency for investors. Julie Stackhouse is senior vice president of Banking Supervision, Credit and the Center for Online Learning. Bill Emmons is an officer and economist at the Federal Reserve Bank of St. Louis. Central Banker Spring 2009 | 7 Central Banker Connected Let Us Know What You Think of the New Central Banker See the online Version of Central b a n k e r f o r m o r e i n - d e p t h f e at u r e s, F e d n e w s a n d r e g u l ato ry s p ot l i g h t s. By now, you’ve noticed that this issue of Central Banker features a new look. We’ve expanded the number of pages, loosened and simplified the design to make articles easier to read, provided more links to related online materials and rearranged some of the items for a more logical flow of information. Although the design is new, our goal of providing concise banking news from the Fed perspective remains the same. We value your time and want to make sure that our information is easy to absorb and use. You’ll get economic research pertinent to the Eighth District; in-depth looks at the facts of banking today; local perspectives on national issues; and explanations about Fed-related topics, such as providing liquidity and community programs. Your feedback is important, too, and we’d like to hear from you. What topics should we cover? What would you like to know more about? What did you like or not like in an issue? Send your ideas and suggestions to Scott Kelly, Central Banker editor, at scott.b.kelly@stls.frb.org or call him at 314-444-8593. VIE W S • Dial “M” for monetary policy, says St. Louis Fed President Jim Bullard • Fed economist Dave Wheelock examines Great Depression mortgage moratoria TOOLS • Prepare new board members with Insights for Bank Directors • Remind staff of check services consolidation RE G ULATIONS • Final credit card rules take effect in 2010 • Fed changing reserve requirements > > O n l y O n l i n e Read these features at www.stlouisfed.org/cb Federal Reserve Bank of St. Louis P.O. Box 442 St. Louis, Mo. 63166-0442 FIRST-CLASS US POSTAGE PAID PERMIT NO 444 ST LOUIS, MO CENTRAL BANKER | SPRING 2009 https://www.stlouisfed.org/publications/central-banker/spring-2009/dial-m-for-monetary-policy-says-bullard Views: Dial “M” for Monetary Policy, Says Bullard St. Louis Fed President Jim Bullard warned Feb. 17 that the U.S. runs the near-term risk of falling into a deflationary trap, which could cause the U.S. housing market to further deteriorate and prolong the recession. “A key near-term risk for 2009 is disinflation and possibly deflation,” Bullard said in a speech to the New York Association of Business Economics’ Harvard Club in New York City. “With sustained deflation, the foreclosure experience that we have seen in the subprime market could generalize to a wider spectrum of homeownership.” In normal times, the standard central bank policy response to very low inflation has been to establish a lower effective target for a short-term nominal interest rate. In the current environment, however, because the intended federal funds rate is effectively zero, the Fed cannot lower nominal interest rates further; so, a more systematic approach is needed. “To avoid the risk of deflation,” as it has been experienced in Japan, “it is important that the Fed provide a credible nominal anchor for the economy,” Bullard said. “One way to do so is to set quantitative targets for monetary policy, beginning with the growth rate of the monetary base.” Bullard said that the Fed could signal that it intends to avoid the risk of deflation and the possibility of a deflation trap by expanding the monetary base at an appropriate rate. Although the impact that a change in the monetary base would have in the economy cannot be measured as precisely as that of a change in the nominal interest rate target, “the effects are unmistakable and every bit as powerful,” he added. “This channel can be used to support the committee’s medium-term inflation objective and head off a possible global deflation trap and the counter-productive rise in real interest rates that would accompany that outcome.” Since September 2008, the Fed has injected an astonishing amount of reserves into the banking system in response to the intensified financial turmoil. “This is the normal central bank response to severe financial market distress such as that experienced in 1998 or 2001. However, the scale of the response this past fall dwarfed that of these earlier events, and the crisis has persisted much longer than in earlier episodes,” said Bullard. The increase in the Fed’s balance sheet can be divided into two components—persistent and temporary. The liquidity injections associated with the lender-of-last resort function of monetary policy are of temporary nature and can be reversed. “Much, but not all, of the recent increase in the balance sheet can reasonably be viewed as temporary. The outright purchases of agency debt and MBS (mortgage-backed securities) are likely to be more persistent, however, and it is these purchases that may provide enough expansion in the monetary base to offset the risk of further disinflation and possible deflation,” said Bullard. CENTRAL BANKER | SPRING 2009 https://www.stlouisfed.org/publications/central-banker/spring-2009/changing-the-rules-state-mortgage-moratoria-during-thegreat-depression Views: Changing the Rules: State Mortgage Moratoria during the Great Depression Should the federal government and the states seek to halt mortgage foreclosures during hard financial times— and do the costs outweigh the potential benefits? With Congress looking for ways to reform mortgage bankruptcy rules, the experiences of the 1930s can help inform the decisions of the present. In a recent Fed study titled “Changing the Rules,” Dave Wheelock, an assistant vice president and economist at the St. Louis Fed, examined the mortgage cost/benefit tradeoff when foreclosure moratoria were imposed during the 1930s. Faced with an unprecedented number of farm and residential foreclosures during the Great Depression, many states imposed temporary halts to foreclosures alongside other mortgage relief efforts. Wheelock looked at the data to see why some states imposed moratoria while others avoided them. In short, while moratoria appear to have reduced the rate of foreclosures, they also appear to have reduced the availability of loans and made credit more expensive. Which side of the equation a state fell on depended on which was seen as more important. “Over the longer run, foreclosure moratoria and other changes in mortgage laws may have made loans costlier or more difficult to obtain,” Wheelock wrote. “Critics argued that foreclosure moratoria induce lenders to restrict the supply of loans and raise interest rates to compensate for the possibility that their right to foreclose on delinquent loans or to collect deficiency judgments will be constrained. “(On the other hand) in many states, the societal costs of widespread foreclosures were viewed as exceeding the costs of reduced loan-supply and higher interest rates borne by prospective borrowers,” Wheelock wrote. “Furthermore, foreclosure moratoria generally were viewed as expedients to buy time for the economy to recover and for the federal government to initiate programs to refinance delinquent mortgages.” Now, with foreclosure rates not seen since the Great Depression, many policymakers are looking toward methods used during that time. Policymakers should therefore look not only to what was done, but the potential costs. “The evidence from the use of foreclosure moratoria during the Great Depression demonstrates how legislative actions to reduce foreclosures can impose costs that should be weighed against potential benefits,” Wheelock wrote. CENTRAL BANKER | SPRING 2009 https://www.stlouisfed.org/publications/central-banker/spring-2009/prepare-your-new-board-members-with-eminsights-for-bankdirectorsem Tools: Prepare Your New Board Members with Insights for Bank Directors When taking on a new bank director, you probably want them up to speed as quickly as possible. Have your new board members take the Fed’s free Insights for Bank Directors course. Since 2004, tens of thousands of new bank directors across the nation have prepared for their oversight duties through Insights for Bank Directors, according to the creators of the course, the Fed’s Community Banking Organization Management Group. The web-based course introduces directors to their duties and responsibilities, provides general information on analyzing a bank’s financial performance and gives general guidelines on managing the bank’s portfolio risks. Based on feedback, bankers and directors have found the course useful and insightful. The course currently covers seven general areas: 1. the job of the bank director, 2. evaluations of financial performance, 3. large loans that may present policy exceptions, 4. regulatory issues in lending, 5. allowances for loan and lease losses, 6. market and liquidity risks, and 7. operational risk. While the course is designed for new directors at community banks, more-experienced directors and those of larger banks often find the course useful as a refresher on their board responsibilities and regulatory issues. The tenets of being a good bank director transcend bank size and it’s never too late to revisit director responsibilities. The course is built around events occurring at the fictional “Insights Bank & Trust,” a small community bank where the participant serves as an outside director. Early parts of the course serve as a prelude to a board meeting, which will offer information typically covered by directors. The course employs exercises and examples, and offers links to other useful information. You can take the course at your own pace, all at once or in pieces. Insights is the collaborative product of the Federal Reserve banks of Kansas City and St. Louis, based on an onsite director training course developed by the Kansas City Reserve Bank. The course is updated on a regular basis, with operational and compliance risk content added in 2008. CENTRAL BANKER | SPRING 2009 https://www.stlouisfed.org/publications/central-banker/spring-2009/check-services-consolidation-update Tools: Check Services Consolidation Update As you undoubtedly know, the Federal Reserve System consolidated check services a final time late last year, and last month all St. Louis commercial paper check processing moved to the Atlanta Fed. The St. Louis Fed’s check consolidation is now complete. For your staff’s information, here are some of the key contact numbers for Fed check services to keep in mind: Atlanta Check Services Customer Support: 877-553-9735 Check Operations: 404-498-8659 Check Reconcilement: 404-498-8471 Check Transportation: 404-498-8626 Check 21 Operations (file and quality image issues): 404-498-7885 Adjustments Check 21 specialist: 904-632-1024 More check numbers, services and fees are available at frbservices.org and on the Atlanta Fed’s web site. And see here for any lingering questions about the consolidation. CENTRAL BANKER | SPRING 2009 https://www.stlouisfed.org/publications/central-banker/spring-2009/regulatory-roundup Regulatory Roundup Final Credit Card Rules Take Effect in 2010 Banks and other issuers of credit cards will have stricter rules governing “plastic” in 16 months. Two months ago, the Federal Reserve Board approved sweeping and comprehensive final rules that will prohibit certain unfair acts or practices and improving consumer disclosures. The rules, which take effect July 1, 2010, are designed to: protect consumers from unexpected interest changes, forbid banks from imposing interest charges using the “two-cycle” billing method, require that consumers get reasonable time to make credit-card payments, limit fees that reduce the amount of available credit and prohibit payment allocation methods that unfairly maximize interest charges. More than 60,000 individuals and representatives of financial institutions commented in 2008 on the proposed changes. >>Related Regulation AA (Unfair or Deceptive Acts or Practices) Fed Changing Reserve Requirements in Spring The Federal Reserve is changing Regulation D (Reserve Requirements of Depository Institutions) to authorize the establishment of limited purpose, or excess balance, accounts at Federal Reserve banks. Excess balance accounts (EBA) will be intended for institutions eligible to receive earnings on their balances maintained at Federal Reserve banks. The establishment of such accounts would let participants earn interest at the excess balance rate in a Federal Reserve bank account managed by a correspondent or other agent, without participants having to open a separate individual account with the Fed. The Board of Governors is authorizing EBAs to address pressures on correspondent-respondent business relationships in the current market environment. The Board will evaluate the continuing need for EBAs when more normal market functioning is restored. Public comment just ended just as this issue was published. Final rules will be issued during the summer. >>Related Regulation D (Reserve Requirements) CENTRAL BANKER | SPRING 2009 https://www.stlouisfed.org/publications/central-banker/spring-2009/let-us-know-what-you-think-of-the-new-emcentral-bankerem Let Us Know What You Think of the New Central Banker By now, you’ve noticed that this issue of Central Banker features a new look. We’ve expanded the number of pages, loosened and simplified the design to make articles easier to read, provided more links to related online materials and rearranged some of the items for a more logical flow of information. Although the design is new, our goal of providing concise banking news from the Fed perspective remains the same. We value your time and want to make sure that our information is easy to absorb and use. You’ll get economic research pertinent to the Eighth District; in-depth looks at the facts of banking today; local perspectives on national issues; and explanations about Fed-related topics, such as providing liquidity and community programs. Your feedback is important, too, and we’d like to hear from you. What topics should we cover? What would you like to know more about? What did you like or not like in an issue? Send your ideas and suggestions to Scott Kelly, Central Banker editor, at scott.b.kelly@stls.frb.org or call him at 314-444-8593.
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