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MAY O6 1992


Spring 1992
News and Views
Eighth District Bankers

District Banks Outperform Peers in 1991

Pulse Up
Federal Reserve Bank of St. Louis

Despite a sluggish economy,
Eighth District banks performed well in 1991, surpassing their national peers in key
measures of profitability and
asset quality.
Return on average assets
(ROA) for District banks
equaled 0.93 percent in 1991,
substantially higher than the
0.67 percent return posted by
their national peers.* The
primary reason for the stronger
showing was lower loan losses
and associated expense
Unlike banks in the Northeast
or on the West Coast, which
were hurt more by the weakened economy, the generally
conservative nature of District

banks provided a buffer against
the 1991 downturn. At yearend, for example, nonperforming loans represented just
1.68 percent of total loans for
District banks, compared with
2.90 percent for U.S. peers.
District banks also increased
their loan loss reserves to 102
percent of nonperforming
loans. This compared favorably to the national peer group
average of 81 percent. Banks
here also reported net loan
losses equal to only 0.74 percent of loans compared with
1.33 percent for the U.S. peers.


with fewer layoffs being
announced than in previous
months. In fact, a number of
manufacturers have
announced hiring plans.
Some of the District's good
news comes at the expense of
other regions. Several firms
from other parts of the country
have announced plans to move
their operations to Eighth District cities. For example, about

hile the District is not
completely out of the
economic doldrums, a stream
of good news indicates recovery
is taking hold. Consumer
spending appears to be picking
up, and lower interest rates and
warm weather have spurred
Although not reflected in official statistics yet, employment
appears to be stabilizing too,

*National peers are U. S. banks with
less than $15 billion in average assets.
As ofDecember 31, 1991, all District
banks met this criteria.

1,000 jobs will be created by the
movement of two manufacturing firms-a piping firm and
a medical equipment makerto Little Rock and St. Louis.
Meanwhile, northeast Mississippi is poised to become the
Silicon Valley of the Mid-South
with the news that an aerospace firm will open a plant to
build engines for the space
shuttle in 1994. That
company's move has already
induced a number of smaller
high-tech firms to set up shop
in the area.


The Continuing Viability Of Eighth
District Community Banks


n the Eighth District,
community banb are
often fixtures in our neighborhoods-part of both the
urban and rural landscape.
With the recent mergers of
some of the nation's largest
Thomas C Melzer
banking institutions-for example, Security Pacific
and Bank of America, C&S/Sovran and NCNBmany have speculated, however, that the future of
these neighborhood institutions looks grim.
Although their numbers have declined in our
District, community banb remain a viable and
needed resource. In 1991, community banb still
accounted for about one-third of our District's
total banking assets. What's more, of the 10 new
District banb that opened for business during the
past year, eight were community banb.
These numbers do not surprise me. As it turns
out, when it comes to profitability, bigger is not

always better.
Community banb are some of the District's
strongest and most resilient. In 1991, District
community banb averaged only a slightly lower
ROA-three basis points-- than all District banb.

Fed Now Accepts Financial
Reports Electronically


o make it easier for institu tions to submit financial
reports, the St. Louis Fed is now
accepting reports electronically.
The new service eliminates
paperwork and avoids the cost
and time involved in mailing or
Currently, we can accept data
electronically for the following
depository institution reports:
• FR2900 (Report of Transac
Federal Reserve Bank of St. Louis

tion Accounts, Other Deposits
and Vault Cash) ,
• FR2950/51 (Report of Certain Eurocurrency Transactions),
• FRY9C (Consolidated
Financial Statements),
• FRY9LP ((Parent Company
Only Financial Statements).
To submit your FR 2900 and
2950 electronically, you will
need Fedline®version 2.30.20

And their equity-capital-to-assets ratios averaged
almost 150 basis points higher than the District
In the 1980s, District banb of all sizes declined
in profitability. But mid-sized banb, which include most community banb, fared better than
both the very smallest and very largest banb.
In our Bank's 1991 annual report, "The Future of
Community Banking," we conclude that predictions of the demise of the community bank are
premature. The latest bank performance statistics,
out in April 1991, support this conclusion.
Many Eighth District community banb have
found their niche-despite deregulation and cost
disadvantages. If such banb continue to do what
they do best---6upport their local economies by
providing basic banking and personal servic~
they will remain an integral part of our region's
banking culture.
Thomas C. Melzer is president ofthe Federal Reserve &lnk ofSt. Louis.
To request a copy ofour 1991 annual report, please call the Public Information
Office, (314) 444-8320.


or higher. This version allows
you to enter, save, and transmit
your data, as well as print off a
copy for your own records.
Another option in this version
of Fedline allows you to calculate your estimated reserve
requirements for both the current and future maintenance
To submit the FRY9C or
FRY9LP electronically, you will
need vendor-supplied software,
a microcomputer that meets
minimum Fedline compatibil-

ity standards, Fedline hardware
and software, and Fedline
version 2.30 or higher.
To learn more about submitting your FR 2900 electronically, please call Joan Boelter of
the Statistics Section at (314)
444-8627. For the FRY9C/LP
reports, call Robin Miller at
(314) 444-8554. Both can be
reached toll-free at 1-800-3330810, ext. 8627 and 8554,

Rising Unemployment RatesGood Times Ahead?


AdamM. Zaretsky
Federal Reserve Bank of St. Louis

are all well-rehearsed
nowadays to respond to
rising unemployment rates
with a frown. Obviously, if the
unemployment rate goes up,
something must be wrong in
the economy. Conversely, we
respond to news of falling
unemployment rates with
much fanfare.
Unfortunately, taken alone,
the unemployment rate can be
a poor indicator of what is
happening in the economy.
To get a better picture, one
should view the unemployment
rate as part of a bigger package
that includes such information
as the number of people
employed and unemployed.

Unfortunately, taken
alone, the unemploy•
ment rate can be a
poor indicator of
what is happening in
the economy.
This package reveals not only
more about the economy, but
more about how individuals
view the economy.
Let's look at what happened
earlier this year. The accompanying table shows the number of civilians who were
employed or unemployed, as
well as the unemployment
rates for January and February
1992. The most notable observation is that the unemployment rate increased 0.2 percentage points betweenJanuary
and February. What caused
this increase? The answer lies
in the other data.
We can see that the civilian
labor force grew by approximately 300,000 people. This

growth reflects the combined
effects of changes in the number of employed persons and
changes in the number of
unemployed persons. Employment declined by about
U.S. Employment Data
Februmy January
Unem~oyment rate
(percent of labor force)



Civilianlabor force*
(millions of peisons)

126.3 126.0


117.0 117.1

•figures may not add due to rounding.

100,000 people during this
period. Those people who lost
their jobs had two options:
become unemployed or leave
the labor force completely.
Suppose all 100,000 become
unemployed, partially contributing to the increased unemployment rate. Of the 300,000
newly unemployed persons in
the table, we still have not
accounted for 200,000 of them.
Where did they come from?


ost likely, these people
are re-entering the
labor market, after losing their
jobs at some earlier time and
leaving the labor force completely. They left the labor
force, perhaps, because they
felt there were no opportunities
in the market worth pursuing.
Today, however, prospects have
apparently brightened because
they are confident enough to
re-enter the market and look
for work. This re-entering has
resulted in our observation
that the total number of unemployed persons increases (because they are actively looking

for jobs), the total number in
the labor force increases
(because the total number of
unemployed has increased)
and the total number of
employed persons remains
relatively stable (because these
re-entrants have not found jobs
yet). This is exactly what the
information in the table
What conclusion can we
reach? That an increase in the
unemployment rate does not
happen only because people
lose jobs. In this case job losses
only partially contributed to
the current increase. We can
also view the current increase,
however, as a sign that people
are regaining confidence in the
economy and are foreseeing an
improved future.
-Adam M. Zaretsky is an economist
at the Federal Reseroe Bank ofSt.
Louis. For more information on this
topic, see the March 1992 issue of
Pieces ofEight, the St. Louis Fed's
regional quarterly which you can
receive by calling (314) 444-8809.

Regional Roundup

The fo llowing are Federal Reserve
System proposals currently out for

Proposal on new Reg DD to
implement the Truth in Savings Act. Requires depository
institutions to provide consumers with more information
on deposit accounts. Comments due by June 10.
(Docket No . R-0753)

Interim amendment to
Reg Y that affects BHCs and
foreign banking organizations
with U. S. operations.
Comments due by June 15.
(Docket No. R-0755)
■ Modifications to risk-based
capital guidelines affecting
treatment of multi-family
housing loans and
collateralized transactions .
Comments due by May 15.
(Docket No . R-0756)

Direct all comments to William W
Wit~, Secretary, Board of Governors
of the Federal R~erve System, 20th
Street and Consti'tution Avenue,
N. W, Washington, DC 20551.

$50s Being Shipped
Perhaps you've noticed. New
security-enhanced $50 note; are
now being issued.
The new $50s have the same
security feature; as the $100 note;
issued in 1991: a poly~tersecurity thread visible onlywhen held
to the light, and microprinting
around the portrait on the bill.
As with the $100 note, the $50s
will serve as replacement note;
for unfit bills in circulation.
The remaining denominations----except for the one dollar
bill- are scheduled for production in three to five years.

Are We Headed For
AnoH1er Drought?
As we wrap up another planting
season, Eighth District crop prospects are mixed. The U.S. Dept.
of Agriculture initially forecasted
larger com, cotton and rice acreage, but smaller wheat and
Consumer Compliance
Handbook Available
soybean acreage in the District; a
Anew handbook d~igned to help myriad of unfore;een events,
banks comply with consumer
however, are yet to playthemprotection laws and regulations is selv~out.
now available.
Two factors could significantly
The handbook provid~ easy-to- alter the equation for this crop
read summari~ of the Fair Hous- year: the first is "El Nifio," an
ing Act, the Home Mortgage Dis- irregularlyoccurring weather
closure Act, the Community Rephenomenon that produre;
inv~tment Act, Truth in Lending, abnormal rainfall in parts of the
Consumer Leasing, Electronic
world; the second is last year's
Funds Transfer, Expedited Funds volcanic eruption in the PhilipAvailability, Unfair or Deceptive
pin~. Although all scientists do
Practire; and Fair Credit Report- not agree about this, the combi-

lines Humming at the Fed's
On-line Database


callers from 13 foreign countri~.
ince April 18 of last year,
Because of the demand for
when the St. Louis Fed introFRED's servire;, an additional
duced FRED®, its on-line economic database, FRED hasn't had phone line was added last year to
alleviate busy signals. At the
a moment's peace. From
same time, several new data seBelleville, Illinois, to Bahrain,
ri~ were added, bringing the tomore than 1,700 people have
tal to 290. All data published in
accessed FRED's data, including
Federal Reserve Bank of St. Louis

ing. Included are examination
procedure; used by the Fed and
an examiner's checklist.
Each state member bank
received one free handbook in
1991. Others can write to Publications Servire;, fuard of Governors of the Federal R~rve
System, Washington, D.C. 20551.
Please send a check for $20 for
each handbook.

the St. Louis Fed's US Financial
Data,Monetary Trends andNational Economic Trends are now
available on FRED. "Update" fil~
have been added, enabling users to
download only the last few observations of data in certain seri~,
instead of the entire historical file.
R~ponding to user comments,
we continue to mcxlify FRED. In
the past few weeks, for example, 10
historical daily and 30 historical

nation of an El Nifio and a volcanic eruption have caused---or at
least contributed to-the 1983
and 1988 droughts in the United
State;. Whether they will precipitate a drought this summer is
unknown. One of the early signposts meterologists look for,
however, has already occurred:
heavy winter rains in California,
where February's rainfall was 50
perrent above normal.

Maior Credit Card
Terms Available
Acomprehensive list of credit
card terms from more than 150
of the larg~t credit card issuers in
the nation is available from the
Federal R~rve. Published by the
Federal R~rve fuard, this report
contains information ranging
from annual percentage rate
(APR) to annual f~ to grace
periods. The report is compiled
every six months.
For a subscription to the report,
send a check for $5 payable to
BGFRS Publications Servire;,
Stop 138, fuard of Governors of
the Federal R~rve System,
Washington, D.C. 20551. Acopy
of the report is also available at
the St. Louis Fed's library.
weekly seri~ have been added.
Th~ include the corporate AAA
bond rate and the three-month
T-bill rate, dating back (daily) to
the early 1970s.
There is no charge for FRED's
servie(5-you pay only for the
phone call. FRED can be acre;sed through a mcxlem by dialing (314) 621-1824. For more
information, call Tom Pollmann
at (314) 444-8562.

Changes to Treasury
Auction Process Continue
he U.S. Treasury has made
several changes
to the auction
process over the
past six months
to streamline operations and
ensure the integrity of reported
data. To date, the Treasury has:

•expanded the eligibility of all
registered government securities
brokers and dealers to bid for
their customers;
•implemented an autocharge
agreement among the bidder, a

Fed Tour Program
Welcomes Bankers


s our officers travel around
the District calling on
banks, they hear quite often of
bankers who have never been to
a Federal Reserve Bank.
For many, the sight of vast
quantities of currency and coin
being put into circulation, as
well as millions of checks
being sorted and billions of
dollars being transferred
electronically, is worth the trip.
Federal Reserve Bank of St. Louis

Visitors to the St. Louis Fed
see our Cash, Check, Electronic
Funds Transfer operations and
more, while being familiarized
with Fed history and its role in
today's economy.
In the Cash Department,
guides show how currency is
counted, how counterfeit bills
are detected and what's in the
vault. The life of a check is
traced while visitors view the

financial institution, and the Fed
as a method of payment for
securities awarded; and
• increased the maximum
amount for non-competitive bids
on notes and bonds to $5 million.
In addition to these changes,
the Treasury is now placing
greater emphasis on the singlebidder guidelines. Asingle
bidder is defined as one or more
entities or individuals who,
because of their affiliation, have
the potential to act together.
Single bidders-for example,
family members, investment
agents or institutions acting as
fiduciary for "managed" accounts--are subject to a maximum award for each auction.
The distinction between
"directed" and "managed"
accounts is now an important
one. With a directed account, the
customer provides specific investment direction; the institution
merely acts on behalf of the customer. Each directed account by
itself must meet the single-bidder
With a managed account, the

Fed's high-speed check-clearing machines, which operate
six days a week, 24 hours a day.
Group tours for up to 42
people are offered as a public
service to depository institutions, senior citizen groups,
schools, community organizations and the general public.
Tours depart at 9:30 a.m. and
1:30 p.m. every Monday
through Friday. Atour lasts
approximately 45 minutes, but
can be varied to suit the interest of your group.

customer provides no investment
direction. Such accounts are
pooled together, with the total
subject to the single-bidder
guidelines. What this means is
that institutions with managed
accounts may realize a decrease
in the amount of eligible securities that they can purchase in a
single auction.
In another change, bidders
cannot submit non-competitive
and competitive bids for their
own account in the same
Further revisions from the
Treasury are forthcoming,
including new tender forms,
disclosure statements and other
tools designed to clarify responsibilities for those involved in the
auction process.
Finally, to streamline the
operation, bidders will soon be
able to submit tenders electronically through Fedline®, a PC
connection to the Fed. The
Eighth District plans to make this
capability available by August.

To ensure availability, please
reserve your tour at least three
weeks in advance. If you 'd like
more infonnation on the tour
program or other educational
programs offered by the
St. Louis Fed, please contact
Debra Bangert, Public Information, at (314)444-8421 or
Tours are also offered at the
Little Rock, Louisville and
Memphis branches.



All-Electronic n&L
Deadline Nears
The Eighth District has set a
deadline of December 31, 1992,
for all TI&L participants to
submit advices of credit
If you are currently sending
advices of credit by mail, carrier
or fax, you will need to convert to
either Fedline® (a PC connection) or EDITII® (a telephone
voice response system) by this
date. For more information,
please call Customer Support at

District Offers Low
Dollar Truncation
All four District offices now offer a
new low dollar option to our
check truncation service. With
low dollar truncation, the Fed
captures MI CRline detail from
one or more selected checking
accounts and delivers the detail,
as presentment, electronically or
on magnetic tape.



Post Office Box 442
St. Louis. ~1issouri 63166

CB is published quarterly by the

Public Information Office 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.
Federal Reserve Bank of St. Louis



The service differs from regular
truncation in that we hold the
physical items for only 30 days,
rather than 90, before they are
de5troyed; in addition, the items
are not microfilmed during proces.sing. This allows us to reduce
the per item fees significantly to:
St. Louis and Memphis-$.oo6;
Loui~lle-$.008; and Llttle
This option may be attractive
for accounts that issue many low
dollar items, like rebate checks,
where item retention and
microfilming are not required
because of their low risk. For
complete truncation pricing or
further information, contact your
account executive or your local
Check Department.

Cash Ordering Soon
Available on Fedline
Later this year, District banks will
have a choice of two options to
use when ordering and shipping
cash to and from the Federal


Reserve. Currently, customers
must use our voice response systern, EDITII, to handle cash
transactions with the Fed. A
Fedline option, tentatively scheduled for fourth quarter 1992, will
provide banks with an alternative

Retum Item Reclearing
Service Enhanced
The Llttle Rock and Louisville
branches recently announced two
additional dollar amount thresholds for the reclearing service.
With the current service, the Fed
automatically reclears items of
$100 or less returned for the first
time because of "not sufficient
funds" or "uncollected funds."
There is a daily fixed fee of $2.50,
which includes the first 20 ellgible items, and $.10 for each additional item. The new offerings
give customers the option of
choosing a $200 cutoff at $.11
per item or a $500 cutoff at $.12
per item. Both options retain the

$2.50 minimum daily fee.
If you are a current customer
and would like to change your
minimum or a potential customer who would like more
information, please call Danny
Wilson in Llttle Rock at (501)
324-8216, Ron Hadorn in
Louisville at (502) 568-9200, or
your local Check Department.

Fed To Conduct Conlin•
gency Tests
To help us attain our goal of
uninterrupted service to our customers in an emergency, the Fed
will conduct contingency tests with
District institutions the weeks of
June 21-27 and September 6-12.
We will test with at least one
bank for each type of electronic
connection. Our Electronic
Support Department will be contacting banks asking them to participate, but volunteers are welcome. To volunteer, please call
Susan Hackney at
(314) 444-8504.