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r.:• MAY O6 1992 -- Spring 1992 News and Views for Eighth District Bankers District Banks Outperform Peers in 1991 Region's Economic Pulse Up https://fraser.stlouisfed.org 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 provisions. 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. W 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 homebuilding. 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. Feditorial The Continuing Viability Of Eighth District Community Banks I 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 T 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 faxing. Currently, we can accept data electronically for the following depository institution reports: • FR2900 (Report of Transac https://fraser.stlouisfed.org 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 average. 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 periods. 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, respectively. Rising Unemployment RatesGood Times Ahead? we AdamM. Zaretsky https://fraser.stlouisfed.org 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 (seasonallyadjusted) Februmy January Unem~oyment rate (percent of labor force) 1992 7.3 1992 7.1 Civilianlabor force* (millions of peisons) 126.3 126.0 Employment Unemployment 117.0 117.1 9.2 8.9 •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? M 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 reveals. 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 OUT FOR COMMENT The fo llowing are Federal Reserve System proposals currently out for comment: ■ 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. Security-Enhanced $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 5 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 https://fraser.stlouisfed.org 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 A 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. https://fraser.stlouisfed.org 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 guidelines. 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 auction. 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 1-800-333-0810. Tours are also offered at the Little Rock, Louisville and Memphis branches. I I I 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 electronically. 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 1-800-333-0869. 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. ■ I I 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. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis I FedFacts 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-$.008; and Llttle Rock-$.004. 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 I I I 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 method. 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.