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Summer 2010


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 : District and U.S. Banks on the Mend? | Small-Business Lending Problems

Fed Conference Call Helps Banks
Navigate CRE Loan Workouts

conomic conditions continue to
severely stress the commercial
real estate (CRE) market. The CRE
market is experiencing increasing
delinquencies, value deterioration due
to rising cap rates, and substantial
refinancing risk over the next several
years. The magnitude of the challenge
is driven home by the fact that U.S.
banks held $1.8 trillion in outstanding
CRE debt as of May 2010.
In response to tremendous losses
in CRE, the federal banking supervisors issued in October the Interagency
Policy Statement on Prudent CRE
Loan Workouts. The purpose was
to promote supervisory consistency,
enhance the transparency of CRE
workout transactions, and ensure that
supervisory policies and actions do not
inadvertently curtail the availability of
credit to sound borrowers.
When problems with CRE loans
arise, bankers and borrowers often
work together to restructure the loan.
But CRE loan workout situations can
present unique considerations, leaving bankers with more questions than
answers under the federal guidance.
So, on May 5, the Fed’s experts held
a nationwide teleconference call to
explain the guidance to bankers and
to answer their questions. More than
1,300 financial institutions joined the
call, submitting 60 questions for consideration.
The program was presented by
Sabeth Siddique, assistant director

Good Loan Workouts Have Three Components
1.	Analyzing the borrower’s repayment capacity – The analysis
should demonstrate the borrower’s willingness and capacity to
repay under reasonable modified terms.
2.	Evaluating the guarantor – The guarantor should have both the
capacity and willingness to provide ongoing support. The bank
should have documentation to demonstrate the guarantor’s capacity to fulfill the obligation. The documentation should include a
written and legally enforceable agreement.
3.	Assessing collateral value – Consideration should be given to
the reasonableness of the underlying assumption of the bank’s
collateral valuation. Weaknesses in collateral valuations should
be addressed, and the degree of collateral protection should
be assessed.
of credit risk at the Federal Reserve’s
Board of Governors, and his team,
consisting of Robert Walker, Virginia
Gibbs and Brian Valenti.
“The guidance is not a panacea for
solving all of the challenges of management and resolution of troubled
loans,” explained Siddique. “And it’s
not meant to be any form of forbearance, but rather a reiteration of existing principles.”
The general guidance focuses
on the following:
• promoting prudent workouts,
• recognizing that reasonable and prudent workouts are in the best interest
of both banks and borrowers,
continued on Page 7

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. 20 | No. 2

Independence Is Best Route
for Fed Accountability


Scott Kelly
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.
Sign up for Central Banker e-mail notices at Follow
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To subscribe by mail, send your name, address,
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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.

2 | Central Banker

By Julie Stackhouse


ankers are well aware of the
unprecedented actions taken by the
Federal Reserve in the fall of 2008 to
stem the downward spiral of the financial crisis. At various points in time,
the Fed had more than $1.5 trillion outstanding in loans to financial institutions and, more recently, has purchased
$1.25 trillion of mortgage-backed secuJulie Stackhouse is
rities to stabilize the economy.
senior vice president
The magnitude of the Fed’s response
of the St. Louis Fed’s
to the financial crisis has caused some
division of Banking
to question why the Fed has the freeSupervision, Credit
dom to engage in such actions withand the Center for
out the explicit consent of Congress.
Online Learning.
This freedom to stabilize the financial
system without political direction is
commonly referred to as “central bank
Legislation recently passed by the House of Representatives could affect central bank independence by permitting frequent and ongoing reviews of monetary policy and
financial stability decisions, deliberations and actions by the
Government Accountability Office (GAO). Currently, monetary policy actions are not subject to GAO review.
The implications of such reviews are significant and
concerning. GAO reviews of discount window loans, for
example, could serve to dampen the willingness of banks
to borrow from the discount window during periods of
financial instability. Take, for example, the first two days
following the tragic events of Sept. 11, 2001. If banks had
been reluctant to use the discount window for fear of GAO
disclosure, would our financial system have rebounded so
The implications for monetary policy effectiveness must
be carefully weighed. The Federal Reserve’s ability to act in
the long-run best interests of the economy depends importantly on its credibility and independence from short-term
political pressures, including the temptation of governments
to use the central bank to fund budget deficits or alter the
way monetary policy is conducted. Numerous studies have
shown that countries whose central banks are protected
from short-term political influence have better economic
performance, including lower inflation and interest rates.
Without question, the Federal Reserve should be accountable to the electorate for its actions. However, audits by the
GAO are not the best way. Indeed, retaining the independence of the central bank may well be the best method for
preventing government from misusing monetary policy for
short-term political purposes.

Q u a r t e r ly R e p o r t

Are District and U.S. Banks
on the Mend?
By Michelle Neely


rofits strengthened at Eighth
District banks and their national
peers in the first quarter of 2010, an
indicator that the industry may have
hit a turning point. Return on average
assets (ROA) climbed 49 basis points
to 0.58 percent at District banks in the
first quarter; at U.S. peer banks—those
with average assets of less than $15
billion—ROA jumped 58 basis points
and into positive territory, hitting
0.24 percent. (See table.)
Smaller institutions continue to be
more profitable than their larger counterparts. District banks with average
assets of less than $1 billion averaged
ROA of 0.76 percent in the first quarter; national peer banks in this size
category recorded an average ROA of
0.43 percent.
The increase in profitability is the
result of modest increases in net interest income and substantial declines in
loan loss provisions and noninterest
expenses. The net interest margin
(NIM) rose at both sets of banks to 3.77
percent, an increase of 10 basis points
for District banks and 12 basis points
for U.S. peer banks. At both sets of
banks, declines in interest income
were more than offset by declines in
interest expense, resulting in rising
Net noninterest expense shrunk
19 basis points at District banks and
12 basis points at U.S. peer banks.
Although personnel and other noninterest expenses fell and noninterest
income increased slightly, the primary
factor driving down net noninterest expense was a large reduction in
impairment losses for goodwill and
other intangible assets, especially at
institutions with assets of more than
$1 billion.
A substantial reduction in loan loss
provisions, however, was the dominant determinant for the large uptick
in earnings. Loan loss provisions as a
percent of average assets fell 30 basis

Earnings Are Up but So Is Loan Delinquency
1Q 2009

4Q 2009



1Q 2010

Return on Average Assets

District Banks
Peer Banks





District Banks




Peer Banks




District Banks




Peer Banks




Net Interest Margin

Loan Loss Provision Ratio

Nonperforming Loan Ratio

District Banks




Peer Banks




SOURCE: Reports of Condition and Income for Insured Commercial Banks
NOTE: 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.

points at District banks and a staggering 46 basis points at U.S. peer banks
in the first quarter. Some of that
decline no doubt reflects a ratcheting
back of normal end-of-year accounting
The drop in loan loss provisions does not seem to be related to
improvements in asset quality, especially at the District level. The ratio
of nonperforming loans to total loans
rose 22 basis points to 3.08 percent in
the first quarter at District banks and
was up 10 basis points to 4.25 percent
at U.S. peer banks. Among the three
major categories of bank loans—real
estate, commercial and industrial,
and consumer—only consumer loans
showed a drop in delinquency status. Nonperforming loan rates in the
real estate portfolio continue to rise,
especially in the commercial area.
More than 11 percent of all District
construction and land development
loans were nonperforming at the end
of March; for U.S. peer banks, the ratio
continued on Page 7
Central Banker Summer 2010 | 3

Ec o n o m i c F o c u s

Kentucky’s Economy Lags
Behind Typical States’
Bankers Could Help by Encouraging Better Education

By Maria Gerwing Hampton


entucky’s economy has grown
slower over the past decades when
compared with the national averages, but there have been bright spots,
noticeably in housing.
“By almost any measure, the Kentucky economy has grown much
slower than the typical U.S. state,” says
Ken Troske, director of the Center
for Business and Economic Research
at the University of Kentucky. “And
it’s not just a regional issue, because
Kentucky has grown much slower than
other Southern states. While there
are regional differences within the
state, no region in Kentucky is more
prosperous or has experienced faster
growth than the typical U.S. state.”
Troske joined Paul Coomes, economist and professor at the University
of Louisville, to give presentations on
the state’s regional outlook during the
St. Louis Fed’s Economic Teamwork
event in Louisville in November. They
provide an update for us here.
“While from 1929 to 1970 Kentucky
closed the gap between itself and the
rest of the country, since then the
Kentucky economy has been stagnant
or may have even reversed course,”
Troske says.
Coomes’ research echoes Troske’s
statements. Coomes examined population and job growth over the past three
decades in nine economic areas in and
around Kentucky. Economic areas
are large regional markets, defined by
the U.S. Bureau of Economic Analysis.
These areas group together contiguous counties that are tied together by
commuting, retail, transportation and
media. All of the areas containing
Kentucky counties also include counties in other states.
Coomes explains that population
growth/loss and job growth/loss
4 | Central Banker

mirrored each other: If an economic
area’s population contracted, so did the
area’s job growth. The overall impression is one of a fairly robust economy
down the north-south corridors
around Interstates 65 and 75, particularly to the south, and of contraction
at the far eastern and western parts of
the state. (See Figures 1 and 2.)
Data show the steepest decline in
manufacturing jobs between 1970
and 2008, while services jobs showed
the greatest increase over the same
period. While lagging the U.S. averages on population and job growth,
Kentucky as a whole fared somewhat
better in the housing market. “There
was no sign of a housing bubble in
any of the nine markets,” Coomes
says. “The nine metro areas added
a net of 225,000 housing units in the
last decade, with a growth of 11 percent, the national average. However,
occupied housing units only rose by
135,000, or 7 percent, also identical to
the U.S. as a whole; so, vacancy rates
have risen substantially in all markets
except Bowling Green.”
To help understand why growth in
Kentucky lags other states, Troske
examined one area that has the potential to give the state an economic boost:
the stock of knowledge, meaning the
state’s innovative activity coupled with
educational levels of the work force.
Of all the factors that affect growth
(demographics, local and state government and taxes, infrastructure,
etc.), “the single biggest factor that
explained why some states grow faster
is the stock of knowledge in a state,”
he says. “Comparing the stock of
knowledge in Kentucky to the stock of
knowledge in other states shows why
Kentucky has performed so poorly
over the recent period.”
Kentucky also ranks 48th in the
country in the percent of adults with

a college degree. One of the primary
reasons for the low percentage of
college graduates in the state is the
high dropout rate at the state’s postsecondary schools. In Kentucky, only
23 percent of students who start at a
two-year college end up completing
a degree compared with 28 percent
in the typical state, while less than
half the kids who start at a four-year
college end up completing a degree
compared with 56 percent for the rest
of the country.
Business leaders in general, and
community bankers in particular,
played a major role in helping to pass
the 1991 Kentucky Education Reform
Act, which provided a kick-start to the
reform of elementary and secondary
education in the state. These leaders can play a similar role in reforming higher education in Kentucky.
“Bankers could start by urging all
participants in the higher education
market—students, administrators and
politicians—to view education as an
investment and to focus on the return
of this investment instead of fixating
on the initial cost of the investment,”
Troske says. He also suggests that
education leaders in the state need to
be rewarded based on the number of
kids who graduate from college and
not just on the number who graduate
from high school or the number of kids
who enroll in college.
Troske concludes by saying that,
“Only through a consistent, long-term
commitment to increasing the number
of college graduates in Kentucky can
we reverse the decades-long decline in
the state’s economy and begin catching
up with the rest of the country.”
Maria Gerwing Hampton is the senior branch
executive of the Louisville Branch of the Federal Reserve Bank of St. Louis.

Figure 1

Three Decades of Population Growth, 1977 to 2007
Economic Areas Around Kentucky


United States









SOURCE: U.S. Bureau of Economic Analysis figures. The figure includes Charleston, W.Va.,
for comparison.

Figure 2

Three Decades of Job Growth, 1977 to 2007
Economic Areas Around Kentucky


United States

-20% 0%

10% 20%

30% 40% 50% 60% 70% 80% 90%

SOURCE: U.S. Bureau of Economic Analysis figures. The figure includes Charleston, W.Va.,
for comparison.

Central Banker Summer 2010 | 5


Community Leaders Explore
Small-Business Lending Problems
By Lisa Locke


wning a small business can be
filled with many unknowns and
risks for the owners, especially in
the current economy. With new or
expanding small businesses being the
largest source of private employment,
many economic development experts
are relying on building companies
locally instead of the traditional model
of recruiting large corporations to the
Today, many businesses are struggling to stay afloat because of troubles
in the financial services industry,
which have led to more-restrictive
lending policies. In late winter and
early spring, the St. Louis Fed’s Community Affairs department helped
address the financing needs of small
business by gathering key stakeholders to share their perspectives on
lending matters.
The St. Louis Fed’s meetings helped
identify credit gaps in small-business
financing and gathered information on
regional differences in access to credit.
Participants included representatives
from community and national banks,
political offices, and community and
business groups from the Little Rock,
Louisville, Memphis and St. Louis
zones. The key takeaways were similar, as participants generally agreed on
the following:
• The economy continues to be an issue
for small businesses, particularly
with available capital and access to
capital; consequently, many small
businesses are more fragile. “The
best customers we cater to are hunkering down, and we continue to support them in difficult times as best we
can,” said one banker. He explained
that if his bank can’t give a loan to
a long-time customer, another bank
won’t give that person a loan, either.
• For some, credit cards were their
primary source of capital, but with

6 | Central Banker

some banks cutting credit card limits, owners are finding it harder to
get other types of credit.
• Stricter underwriting standards are
limiting the supply of loans to small
business. Financial institutions
have returned to more traditional
underwriting standards, which are
more dependent on equity and cash
flow than on credit scores. At the St.
Louis meeting, one financial institution representative described this
as “getting back to lending basics in
• The demand for small-business support services and for assistance from
small-business development centers
is on the rise. Technical-assistance
providers report that they are seeing
a different type of client: Smallbusiness owners who traditionally
sought lending from banks are now
seeking help from support-service
providers and searching for alternative funding sources.
• Participants agreed that the U.S.
Small Business Administration loan
programs are great; however, most
financial institutions have not taken
advantage of the new programs and
increased guarantees. Many bankers see SBA products as requiring
too much preparation and monitoring of the loans as too cumbersome.
• Collaboration between financial
institutions and support-service
providers is needed to sustain smallbusiness development. A referral
system and better communication are
needed between the organizations.
Findings from these local meetings
are being combined with information
collected from around the country. As
a result of what the Fed learned, the
Fed’s Board of Governors in August
will share the findings and best practices and discuss future actions. In the
Eighth District, the next step will be
to bring together lenders, technical-

Navigate CRE Loan Workouts
continued from Page 1

• expecting examiners to take a balanced and consistent approach in
their review of banks’ workout
activity, and
• understanding that restructured
loans will not be adversely classified solely because the value of the
underlying collateral has declined to
an amount less than the loan balance.
In addition, financial institutions
that implement prudent loan workout arrangements after performing
comprehensive reviews of borrowers’
financial conditions will not be subject to criticism for engaging in these
efforts, even if the restructured loans
have weaknesses that result in adverse
credit classifications.
“We’re sure you’ve heard this many
times: ‘Prudent workouts’ means
that each loan should be judged on
its own merits and not on trends,”
Siddique noted. “Prudent workouts
are in everyone’s interest, but not all
loans can be worked out. And bankers
should keep in mind that ‘pretend and
extend’ is not a prudent loan workout.”

Are District Banks on the Mend?
continued from Page 3

topped 15 percent.
The large decline in loan loss
provisions and continued increases
in nonperforming loans put more
downward pressure on the District’s
coverage ratio (the ratio of loan loss
reserves to nonperforming loans). The
ratio declined 364 basis points to 62.42
percent, indicating about 62 cents are
in reserve for every dollar of nonperforming loans. For U.S. peer banks,

assistance providers and alternative
financial providers to explore the
possibility of developing a loan fund
for the St. Louis region. Several meeting participants have expressed their
interest in being part of the ongoing

Essentially, cash flow is king on
loan workouts. Siddique urged his
listeners to “decide whether a loan to
a sound borrower should be adversely
classified by determining whether
well-defined weaknesses exist that
jeopardize repayment.”
The federal guidance provides some
detailed examples of loan workouts. As
a general rule, banks should contact
their chartering authority and/or their
primary federal supervisor for answers
to specific CRE loan workout questions.
Bankers interested in listening to the
online recording of this special “Ask
the Fed” program may do so by contacting the Federal Reserve Bank of
St. Louis at

>> M o r e O n li n e

Policy Statement on Prudent
CRE Loan Workouts
CRE and Debt Problems

the coverage ratio increased slightly,
but at 53.76 percent, remains well
below the District’s ratio.
The District’s average leverage
ratio remained virtually unchanged
in the first quarter at 8.83 percent.
For U.S. peer banks, the average
leverage ratio rose 12 basis points to
9.14 percent.
Michelle Neely is an economist at the
Federal Reserve Bank of St. Louis.

>> M o r e O n li n e

When Will Business Lending
Pick Up?

Lisa Locke is a community affairs specialist in the Louisville Branch of the Federal
Reserve Bank of St. Louis.
Central Banker Summer 2010 | 7


Central Banker Online
S e e t h e o n l i n e v e r s i o n o f t h e s umm e r 2 0 1 0
C e n t r a l B a n k e r f o r m o r e i n s i g h t s, r e g u l ato ry
s p ot l i g h t s a n d F e d n e w s.


• Annual Report: Why the
Fed Is a Well-Designed
Central Bank
• Current State of the
Banking Industry

• Follow the St. Louis
Fed via Social Media
• Use This Easy Resource
for Consumer Credit
• Fed Makes New Reports
for Online Electronic

Reader Poll


New rules governing debit cards and overdrafts take effect this summer. The new
rules are supposed to benefit consumers.
Will the new rules make you more or less
likely to use overdraft programs?

• Participate in the Fed’s
Regulation C Public

• More likely, because I like being able to
opt in to overdraft services for my debit
card and ATM transactions.

• Agencies Issue Correspondent Concentration
Risks Guidance

• Less likely, because opting in could
lead me to overspend.

• Final Debit Cards and
Overdraft Protection
Rules Effective in July
• Final Stage of Credit
Card Changes Coming
in August

>> O n ly O n l i n e

Read these features at

• The new rules won’t change my
spending habits.
Take the poll at Results are not scientific and are
for informational purposes only.
In the spring issue’s poll, we asked how often
you use checks these days on a personal
level. Based on 661 responses (percentages
are rounded):
• 41 percent said they still use checks
because they’re safer than electronic
• 28 percent said they use a combination
of checks, cash, credit/debit cards and
electronic payments.
• 19 percent said they use them once
or twice a month.
• 13 percent said they don’t use
them anymore.


Views: Stackhouse Discusses the Current State of
the Banking Industry
St. Louis Fed Banking Supervision and Regulation Senior Vice President Julie Stackhouse discussed the
current state of the banking industry in a presentation to Tennessee bankers at A Day with the Commissioner
on May 12, hosted by the Tennessee Department of Financial Institutions in Nashville.
In her presentation, The Current State of the Banking Industry, Stackhouse included a look back at the history
of the financial crisis and its spillover effects; an overview of the current state of the banking industry, and the
near-term challenges facing banks.
St. Louis Fed President James Bullard was the keynote luncheon speaker at the event. See the press release
and his presentation, The U.S. Economic Situation and Regulatory Reform.


Views: Annual Report: Why the Fed Is a WellDesigned Central Bank
Recently, critics of the Federal Reserve have called for curbing the Fed's independence. Keeping the central
bank at arm's length from partisan politics was a primary consideration when Congress created the Fed in
1913. And central bank independence is still important to preserve today, says Research Director Chris Waller,
the author of the Bank's 2009 annual report, Why the Fed Is a Well-Designed Central Bank. Waller says that
the Fed's credibility, independence, accountability and transparency combine to make it a well-designed
In a message preceding the essay, Bank President Jim Bullard writes: “As we emerge from one of the worst
economic and financial crises in a generation, it is appropriate for the nation to scrutinize the structure and
responsibilities of the Federal Reserve System. In a democracy, that’s how it's done. But, as the debate
ensues about how best to improve the Fed, we should consider change carefully. In creating the Fed,
Congress understood that to ensure good monetary policy, the incentives needed to be right. Independence
with accountability in the structure of the Federal Reserve System, in my opinion, was the right approach.”
Read the full report.


Follow the St. Louis Fed on Social Media
To make it easier to get the information you want from the St. Louis Fed, we are now on Twitter, Facebook,
YouTube, LinkedIn, Flickr or in your inbox.
On Twitter, we post messages and links about important research, data, speeches, conferences,
articles in our publications and media coverage of all of the above. In addition, many of our job
openings are advertised on Twitter.
You can “like” us on Facebook to have updates about our publications, events and news appear in your
news feed.
On our YouTube channel, you’ll find Bank-produced videos that cover timely topics, including those
from Bank President James Bullard.
Check out our Flickr site for photos of our events held all over the Eighth District.
If you’re already “linked in,” you will be able to connect with many employees of the St. Louis Fed
who’ve also posted their work history and work interests on LinkedIn.
Sign up for RSS feeds and be the first to know when we update
You can also sign up for e-mail alerts to have updates delivered directly to your inbox.

Use this Easy Resource on Consumer Credit Conditions
With the continuing high unemployment rate, bankers are looking to find good sources of information on
consumer credit conditions. To find information and resources on mortgages, bank cards, auto loans and
student loans, you can use The web site also has a mapping
feature that allows you to see the impact of credit conditions in various geographic locations.
Information, resources and capabilities, organized by mortgage type, include the following:

Prime, Fannie Mae and Freddie Mac, Jumbo, FHA and VA Mortgages
The New York Fed aggregates from loan-level data
State and county level data is downloadable in spreadsheet format
Variables include foreclosure and delinquent percentages, flow out of foreclosure, ARM resets and
loans per 1,000 housing units
Information is updated monthly

Subprime and Alt-A Mortgages
The New York Fed aggregates from loan-level data
State and county level data is downloadable in spreadsheet format
Available in variables including foreclosure and delinquent percentages, late payments, ARM resets,
real estate owned per 1,000 housing units and median combined loan-to-value ratios

Information is updated monthly

Auto and Student Loans, Bank Cards and All Mortgages
Data include individual-level data representing more than 20 million consumer credit records
The primary residence of the buyer is captured, not the address of the mortgaged property
Joint accounts are reported differently, as each individual will have a delinquency reported on his or her
credit report
Information is updated quarterly

Fed Creates Tool for Electronic Adjustments
Your staff can use a new online tool for banks to streamline and manage their electronic adjustments, called
Check Adjustments Case Status Report.
The report will be generated at the close of business each day with the most up-to-date status of all
adjustments cases submitted to the Bank. This report will reflect requests that are pending (awaiting
supporting documentation or a response from another institution) or outstanding (from the perspective of the
sender, for which provisional entry or the requested information has not yet been provided).


Rules and Regulations
Participate in the Fed’s Regulation C Public Hearings
The Federal Reserve Board is holding four public hearings between July and September on potential revisions
to Regulation C, which implements the Home Mortgage Disclosure Act.
The Board wants to:
1. evaluate whether the 2002 revisions to Regulation C, which requires lenders to report mortgage pricing
data, help provide useful and accurate information about the mortgage market;
2. gather information that will help the Board assess the need for additional data and other improvements;
3. identify emerging issues in the mortgage market that may warrant additional research.
The hearings will take place at the Atlanta Fed on July 15, the San Francisco Fed on Aug. 5, the Chicago Fed
on Sept. 16 and the Federal Reserve Board in Washington, D.C. on Sept. 24. Mortgage lenders, consumers,
community and consumer organizations, and other interested parties are invited to participate in the hearings.
Eighth District bankers can participate either in person or by submitting written statements of any length before
any of the events.

Agencies Issue Correspondent Concentration Risks Guidance
The federal financial regulatory agencies issued Interagency Guidance on Correspondent Concentration Risks
on April 30. Financial institutions are expected to consider actions beyond the minimum requirements to
identify, monitor and manage correspondent concentration risks, especially when there are rapid changes in
market conditions or in a correspondent's financial condition.
It is important for financial institutions to:
implement procedures for identifying correspondent concentrations;
consider aggregate credit concentration exposures on the asset side of the balance sheet;
consider aggregate funding concentration exposures on the liability side of the balance sheet;
calculate credit and funding concentration exposures;
monitor correspondent relationships: define the information, ratios or trends that must be reviewed on
each correspondent on an ongoing basis, and consider factors such as deteriorating trends in capital or
asset quality, level of other real estate loan, the existence of public enforcement actions, etc.; and
manage the concentrations. If the concentration exceeds prudent risk management thresholds, take
steps to review it.
Several examples illustrating possible actions by an institution are included in the final guidance. If you have
any questions, contact your regulator.

Final Debit Cards and Overdraft Protection Rules Effective in July
If your customers are unsure how the new rules are supposed to work for debit cards, ATM withdrawals and
the like, you can direct them to the Fed’s Overdraft Protection web site.
Meanwhile, the Federal Reserve Board proposed clarifications to its Nov. 17, 2009, final Regulation E rule
regarding assessing overdraft fees on one time debit card and ATM transactions. The proposal clarifies that
the prohibition in Regulation E on assessing overdraft fees without the consumer's affirmative consent applies
to all institutions, including those with a policy and practice of declining ATM and one-time debit card
transactions when an account has insufficient funds.

Final Stage of Credit Card Changes Coming in August
The last of a series of changes to credit card practices take effect in August.
The third stage of credit card changes required by the 2009 Credit Card Accountability Responsibility and
Disclosure Act will address practices related to excessive penalty fees and require credit card issuers to inform
consumers of the reasons for increases in rates. In addition, issuers that have increased rates since Jan. 1,
2009, must evaluate whether the reasons for the increase have changed and, if appropriate, reduce the rate.