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Economic SYNOPSES
short essays and reports on the economic issues of the day
2003 ■ Number 21

Regional Patterns in the Quality of Bank Assets
R. Alton Gilbert

1

Measures of bank performance each quarter by bank size and Census division
are available from this Bank at http://research.stlouisfed.org/fred2/categories/83.

Percent of Nonperforming C&I Loans (£$300M in assets)
12
10
8
6
4
2
0

M
ar
-8
M 8
ar
-8
M 9
ar
-9
M 0
ar
M 91
ar
-9
M 2
ar
M 93
ar
-9
M 4
ar
-9
M 5
ar
M 96
ar
-9
M 7
ar
M 98
ar
-9
M 9
ar
-0
M 0
ar
M 01
ar
-0
M 2
ar
-0
3

T

explain the narrowing of the range of bank asset quality across
regions since the mid-1990s. The bottom chart shows the range
of growth rates of nonfarm employment across the nine
Census divisions; the solid line is the national growth rate of
employment, and the shaded area is the range of growth rates
across Census divisions. The range of the growth rates of
employment narrowed substantially around 1997. The average
range of growth rates across Census divisions was 4.5 percentage points for 1988-96, compared with 2 percentage points for
1997-2002. ■

Percent Annual U.S. Growth Rate of Nonfarm Employment
8
6
4
2
0

19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02

he quality of U.S. bank assets varied during the late
1980s and early 1990s. At various times during this
period the average asset quality of banks in New
England, the Southwest, and California was unusually poor
relative to that of banks in other parts of the nation. Since the
asset quality problems of banks in these three regions peaked
at different times, differences in measures of asset quality across
regions remained large for an extended period. I compare the
recent range of differences in asset quality across regions (during the recent recession and current economic expansion) with
comparable data for the late 1980s and early 1990s.
The measure of asset quality shown here is the percentage
of commercial and industrial (C&I) loans that are nonperforming (past due ≥90 days or classified as nonaccrual). This measure of asset quality for community banks (often identified as
banks with total assets less than $1 billion) is more likely to
reflect the economic conditions in the Census divisions of their
headquarters than would the nonperforming loan ratios of
very large banks with offices located in several regions. In the
top chart the shaded area is the range of the average nonperforming C&I loan ratios for relatively small community banks
(total assets < $300 million) across the nine Census divisions
(groups of contiguous states) since 1988; the solid line is the
average nonperforming C&I loan ratio for these relatively
small community banks. The decline in this line indicates that
the average nonperforming loan ratio at these banks was higher
during the late 1980s and early 1990s than during the recent
recession and current economic expansion. The range of the
average nonperforming C&I loan ratio across the Census
divisions shrank substantially during the second half of the
1990s and did not widen during the recession of 2001 or the
following economic expansion. The patterns are similar for
the nonperforming C&I loan rate for banks with total assets
between $300 million and $1 billion and for the nonperforming rate on total loans for community banks in each of the
two size groups (above and below $300 million, not shown).
Regional differences in asset quality have been very small
during recent quarters relative to the size of the differences in
the late 1980s and early 1990s.1
Differences in the pace of economic activity across regions
of the nation began declining during the 1990s, which may

–2
–4
–6

SOURCE: Top: Call Report Data, available from the FRB St. Louis at web
address in footnote 1. Bottom: Bureau of Labor Statistics, available at
http://www.bls.gov/sae/home.htm.

Views expressed do not necessarily reflect official positions of the Federal Reserve System.

research.stlouisfed.org