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I , Earnings data from FCA Afford participants The Functional Cost Acchance for comparison counting (FCA) program was established by the Federal Reserve System in 1957 as a management aid for member banks. Through the program, Reserve Banks and participating member banks, together, develop uniform income and cost data. The uniform data afford banks an opportunity to compare their Assets of small banks yield higher earnings https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Although FCA was designed primarily as a service to the individual banks that choose to participate, and not as a research program, the annual FCA ational Averages Report contains considerable data of general interest. Of all the data in the FCA averages report, those of greatest interest, perhaps, are the net earnings figures. In the 197 6 report, average net current earnings before taxes, expressed as a percent of available funds (total assets less bank premises and other real estate) for participating banks with deposits of less own performance in various areas with average data for participating banks of similar size and with similar amounts of activity in each function. In recent years, about 50 Eighth District banks have participated in the program. Ninety district banks have said they intend to participate next year. than $50 million were 1.853 percent. The medium-size banks (de-. posits between $50 and $200 million) did almost as well at 1.834 percent, while the average for the over $ 200 million banks was somewhat lower at 1.575 percent. The accompanying chart illustrates the ten-year trend in net current earnings for the three size categories. Salary and fringe benefit expenses reported in the 197 6 report were somewhat lower for the small banks than for the large banks, but in all other areas, expenses were higher for the small banks. However, the small banks J, Net Current Earnings from All Sources Before Taxes Expressed as a Percent of Available Funds (total assets less bank premises and other real estate) ,.,, ""'"' 2.2 .., 2,2 2.1 2.0 1.t 1.7 1.6 1.S ol~~-...____.___.....____.__~i-~~~~~ 19'6 1967 1961 1969 1970 enjoyed a higher yield than did the larger banks on virtually every type of earning asset. Also, the small banks held a larger percentage of their earning assets in loans rather than in investments 1971 1972 1973 1974 1975 1976 and, of course, loans earned a better rate of return than did investments. Finally, a smaller portion of the assets of the small banks were non-earnin~. □ Flood insurance amendment Affects communities not in program An amendment to the recently enacted Hou ing and Community Development Bill removes the statutory prohibition against making loans secured by real property located in flood hazard areas in communities that have refusect to participate in or failed to q ualify for the national flood insurance program. However, few communities in the Eighth Federal Reserve District have either refused to parti cinate or failed to qualify. Acts established requirements The National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973 established the national flood insurance program and created several requirements for fi- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis I • nancial institutions that provide "federal or federally-related financial assistance." Federallyrelated financial assistance was defined to include "conventional construction and mortgage loans from federally insured, regulated, supervised or approved lending institutions." Thus, nearly all lenders are affected. Two primary requirements Provisions of the National Flood Insurance and Flood Disaster Protection Acts affect lenders making loans in comm unities HUD has identified as floodprone. A flood-prone community is a community that encompasses a HUD-defined "area of special flood hazard." When a loan is to be secured by improved real property located in an "area of special flood hazard": 1. The lender must require flood insurance as a condition of making, extending, renewing or increasing the loan, if flood insurance is available in the community through the national flood insurance program. An im- portant exception occurs when the property in question is residential property occupied prior to March I, 1976, or occupied before or during the first year in which the area was identified as a flood hazard area. 2. The lender has been prohibited from making the loan if flood insurance has not been available through the program because the community chose not to participate in or failed to qualify for the program. The amendment to the Housing and Community Development Bill mentioned above removes the statutory basis for this second requirement. Flood area maps In either case, the lender's primary problem is determining whether the property in question is located in a flood hazard area. Maps showing flood hazard areas are available through servicing companies working under contract to HUD's Federal Insurance Administration. Since an "identified" flood-prone community is defined as a community for which a map of flood hazard areas has been published, if no map exists, no obligation for lenders exists. Early in the program,lenders encountered some delays in obtaining maps.Federalinsurance Administration officials say distribution procedures have been improved and no such problems should now be encountered when maps are ordered through servicing companies. Also, once a lender obtains a map of a given community through a servicing company, the lender should automatically receive updated editions of the map as th~y are published. All flood insurance requirements pertain also to loans secured by mobile homes located orto be located in flood areasb https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis FEDERAL RESERVE BANK OF ST LOUIS P O BOX 442 ST LOUIS, MISSOURI 63166 FIMT CLASS MAil U S ,osf AGE PAID PERMtT"' RETURN POSTAGE GUARANTEED f IRST CLASS fflAIL The Fed Letter is published by the Federal Reserve Bank of St. Louis to help Eighth Federal Reserve District bankers keep informed on topics of importance to the banking industry. The Federal Reserve Bank of St. Louis is solely responsible for the contents of this publication. The publication does not necessarily represent the official or unofficial views of the Board of Governors of the Federal Reserve System. Tips on consumer regulations Early withdrawal statement In print ads mentioning certificates of deposit, some banks are not including a statement regarding the penalty for early withdrawal that conforms with Regulation Q. Regulation Q (Section 217.6(e)) permits the use, in broadcast ads, of a brief statement such as the following: "Substantial interest penalty is required for early withdrawal." However, for print ads, a more detailed statement is required. The Regulation suggest the following formulation: "Federal law and regulation prohibit the payment of a time deposit prior to maturity unless three months of the interest thereon i forfeited and interest on the amount withdrawn i reduced to the pa. book rate.'' Some banks are u ing, in print ads, the shorter statement intended for use in broadcast ads. Dealer paper liability Oealcr paper should be carefully checked to insure that Regulation Z disclosures have been made properly. When a bank acquire a note, it may become liable for Regulation Z violations that occurred in the credit transaction. Corporate savings limit Since ~he bal nee in a corporate savings account may not exceed $150,000, interest payments that would cau c the balance to exceed that amount may not be credited to the aving account. Instead, they ma. be paid directly to the corporation or deposited in some account other than a savings account. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis
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