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Volume 96

2010 Compilation

Federal Reserve

BULLETIN

Board of Governors of the Federal Reserve System, Washington, D.C.

The Federal Reserve Bulletin Compilation (ISSN 0014-9209) is published annually by the Board of Governors of the
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Table of Contents
PREFACE
ARTICLES
Profits and Balance Sheet Developments at U.S. Commercial Banks in 2009 . . . . . . . . . . . . . . . . . . .
Seung Jung Lee and Jonathan D. Rose

A1

May 24

The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates
and Economic Distress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A39
Robert B. Avery, Neil Bhutta, Kenneth P. Brevoort, and Glenn B. Canner
December 22

LEGAL DEVELOPMENTS
Fourth Quarter, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

B1

March 3

First Quarter, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

B7

July 2

Second Quarter, 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B21
September 27

Third Quarter, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B31
November 29

INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C1

Preface
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Articles

A1

May 2010

Profits and Balance Sheet Developments
at U.S. Commercial Banks in 2009
Seung Jung Lee and Jonathan D. Rose, of the Board’s
Division of Monetary Affairs, prepared this article.
Thomas C. Allard and Mary E. Chosak assisted in
developing the database underlying much of the
analysis. Michael Levere and Robert Kurtzman provided research assistance.
The U.S. commercial banking sector remained under
significant pressure in 2009. Bank profitability was
damped by the effects of the weak economy on asset
quality and lending activity, with loan delinquency
and charge-off rates rising to historical highs in many
cases and banks’ balance sheets contracting. Reflecting the weak portfolios and low profitability that
weighed on the sector as a whole, 120 smaller banks
failed during the year, and the watch list of the
Federal Deposit Insurance Corporation (FDIC) expanded to include about 700 institutions by year-end,
the highest levels for both of these measures since the
early 1990s. By contrast, the acute strains the largest
Note: The data in this article cover insured domestic commercial
banks and nondeposit trust companies (hereafter, banks). Except as
otherwise indicated, the data are from the Consolidated Reports of
Condition and Income (Call Report). The Call Report consists of two
forms submitted by domestic banks to the Federal Financial Institutions Examination Council: FFIEC 031 (for those with domestic and
foreign offices) and FFIEC 041 (for those with domestic offices only).
The data thus consolidate information from foreign and domestic
offices, and they have been adjusted to take account of mergers and the
effects of push-down accounting. For additional information on the
adjustments to the data, see the appendix in William B. English and
William R. Nelson (1998), ‘‘Profits and Balance Sheet Developments
at U.S. Commercial Banks in 1997,’’ Federal Reserve Bulletin, vol. 84
(June), p. 408. Size categories, based on assets at the start of each
quarter, are as follows: the 10 largest banks, large banks (those ranked
11 through 100), medium-sized banks (those ranked 101 through
1,000), and small banks (those ranked 1,001 and higher). At the start of
the fourth quarter of 2009, the approximate asset sizes of the banks in
those groups were as follows: the 10 largest banks, more than
$166 billion; large banks, $7.9 billion to $165 billion; medium-sized
banks, $527.3 million to $7.9 billion; and small banks, less than
$527.3 million.
Data shown in this article may not match data published in earlier
years because of revisions and corrections. The data reflect information available as of April 20, 2010, unless noted otherwise. In the
tables, components may not sum to totals because of rounding.
Appendix tables A.1.A through A.1.E report portfolio composition,
interest rates, and income and expense items, all as a percentage of
overall average net consolidated assets, for all banks and for banks in
each of the four size categories. Appendix table A.2 reports income
statement data for all banks.

banks faced in late 2008 abated over the first half of
2009, largely because of unprecedented interventions
by the Treasury, the Federal Reserve, and the FDIC.
Asset quality worsened for all major loan classes
over 2009, but real estate loans backed by residential
and by commercial properties remained at the center
of banks’ credit quality problems. Conditions in the
real estate sector generally stayed weak, especially in
commercial markets. House prices continued declining sharply in the first half of the year but were more
stable in the second half. The stabilization of prices
partly reflects stronger demand for housing that was
likely spurred in part by low mortgage rates, which
were fostered partly by the Federal Reserve’s purchases of agency debt and mortgage-backed securities (MBS). A tax credit for first-time homebuyers
also helped support housing demand. Still, with many
households’ mortgage obligations exceeding the value
of their houses, 1.4 million properties entered foreclosure over the year.
Aggregate economic activity picked up in the
second half of the year after several quarters of
contraction, stimulated by monetary and fiscal expansions, increased foreign growth, and improvements in
financial market conditions. However, as is typical in
cyclical economic recoveries, the improvement in
labor market conditions lagged the trends in economic activity, and the unemployment rate reached
10 percent at year-end before edging lower. The
weakness in labor markets contributed to historically
elevated delinquency and charge-off rates on consumer credit card loans. The deterioration in credit
quality across all loan categories led to a further rise
in already elevated rates of loss provisioning. Consequently, the profitability of the commercial banking
industry was depressed, and return on assets (ROA)
and return on equity (ROE) were both at their lowest
annual levels since at least 1985 (figure 1).1

1. It is worth emphasizing that the analysis in this article is based on
Call Reports for commercial banks. For a commercial bank that is a
subsidiary of a bank holding company or a financial holding company,
the Call Report does not include the assets, liabilities, income, or
expenses of the other subsidiaries of the larger organization. Thus, the

A2

Federal Reserve Bulletin h May 2010

1. Bank profitability, 1985–2009
Percent

Percent

18
16

1.8
Return on equity

14
12
10

1.6
1.4

Return on assets

1.2
1.0

8

.8

6

.6

4

.4

2
+
_0

.2
+
0
_
1985 1988 1991 1994 1997 2000 2003 2006 2009

NOTE: The data are annual.
SOURCE: Here and in subsequent figures and tables except as noted,
Federal Financial Institutions Examination Council, Consolidated Reports of
Condition and Income (Call Report).

Profitability diverged between the largest banking
institutions and the rest of the industry, primarily
reflecting the ability of large banks to generate income
from specialized activities in which other banks do
not generally participate. Indeed, large banks, taken
together, posted a small profit last year, as trading
revenue rebounded to pre-crisis levels with the improvements in capital markets and income from net
servicing fees increased. Those revenues managed to
offset the pressures on earnings at these banks caused
by the further deterioration in credit quality. In addition, large banks experienced a substantial inflow of
core deposits at very low interest rates, which improved their net interest margins. In contrast, profits
at small and medium-sized banks declined further,
weighed down by higher loan losses that were not
offset by other forms of revenue.
The commercial banking sector deleveraged over
2009 as banks raised capital and nominal assets
posted an annual decline for the first time since 1948.
Loans outstanding declined—across all major loan
categories, but especially in loans to businesses—
consistent with reports of banks’ more stringent lending posture and reduced demand for loans from
creditworthy borrowers. Borrowers such as households and small businesses with more limited access
to nonbank sources of credit were particularly affected
by the tight lending conditions.
Demand for bank loans was further held down by
the efforts of households and businesses to rebuild
their balance sheets. Consumer spending stabilized in
profits of the commercial banks that are subsidiaries of a larger
banking organization may differ substantially from the profits of the
consolidated institution.

the first half of the year and expanded thereafter,
reflecting the improvement in financial market prices
and accommodative monetary and fiscal policies.
However, households financed the increase in consumer outlays primarily out of disposable income. On
the business side, commercial real estate (CRE) activity contracted sharply. Businesses’ spending on equipment and software picked up in the second half of the
year, probably owing in part to improved conditions
in the bond market and some increase in sales prospects. Indeed, large reductions in corporate bond
spreads spurred robust issuance of both investmentand speculative-grade bonds, and large firms reportedly paid down some bank loans with the proceeds of
such bond issues.
Throughout the year, the Federal Open Market
Committee maintained a target range for the federal
funds rate of 0 to 1⁄4 percent to foster economic
recovery. The Federal Reserve extended through early
2010 most of the special credit and liquidity programs
that it had established at the height of the crisis.
However, as financial market functioning improved
over 2009, these facilities generally declined in size
(figure 2), and on February 1, 2010, most expired.2
The Term Asset-Backed Securities Loan Facility,
which was designed to increase credit availability and
support economic activity by facilitating renewed
issuance of consumer and business asset-backed securities (ABS) at more-normal interest rate spreads,
continued operating into 2010. Together, the support
provided by all of these programs helped reduce
strains in funding markets and bolster liquidity in
financial markets more broadly.
To provide support to mortgage lending and housing markets and to improve overall conditions in
private credit markets, the Federal Reserve announced
large-scale asset purchases of government-sponsored
enterprise (GSE) debt and agency MBS in late 2008.
In March 2009, those programs were enlarged, and
the Federal Reserve also announced a program of
purchases of Treasury securities. The Federal Reserve
concluded purchasing $1.25 trillion of agency MBS
and about $175 billion of agency debt in March 2010,

2. The following programs expired on February 1, 2010: AssetBacked Commercial Paper Money Market Mutual Fund Liquidity
Facility; Commercial Paper Funding Facility; Primary Dealer Credit
Facility; Term Securities Lending Facility; Term Securities Lending
Facility Options Program; and central bank liquidity swaps, including
dollar liquidity swap lines and foreign currency liquidity swap lines.
The Money Market Investor Funding Facility separately expired on
October 30, 2009. In March 2010, the Federal Reserve completed its
final planned auction of funds through the Term Auction Facility.

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2009

2. Target federal funds rate and usage of Federal Reserve
lending facilities, 2002–10

March 2009=100

Stock price indexes

500
450

5

1,500
1,200

3. Indicators for the banking industry, 2001–10

Percent

Billions of dollars

Target federal
funds rate

400
4

350
300

3

900

Dow Jones bank index
600

200
1

150

+
0
_

+
0_

S&P 500
2002

2002

2004

2006

250

2

Usage of
Federal Reserve
lending facilities

300

A3

2008

2004

100
2006

2008

2010

2010

NOTE: The data are daily and extend through April 14, 2010. On December
16, 2008, the Federal Open Market Committee established a target range for
the federal funds rate of 0 to ¼ percent. The black rectangle represents this
range. Usage data are the sum of usage amounts for primary, secondary, and
seasonal credit; Term Auction Facility; dollar liquidity swaps; Primary Dealer
Credit Facility; Commercial Paper Funding Facility; Asset-Backed
Commercial Paper Money Market Mutual Fund Liquidity Facility; and Term
Asset-Backed Securities Loan Facility.
SOURCE: For federal funds rate, Federal Reserve Board (www.
federalreserve.gov/fomc/fundsrate.htm); for usage of lending facilities,
Federal Reserve Board, Statistical Release H.4.1, “Factors Affecting Reserve
Balances” (www.federalreserve.gov/releases/h41).

in addition to the $300 billion of Treasury securities
that it purchased between March 2009 and October
2009.
The Treasury provided a large amount of capital to
banking institutions under the Troubled Asset Relief
Program (TARP), and a substantial volume of that
capital was downstreamed by parent holding companies to their commercial bank subsidiaries in the first
half of 2009. The Treasury injected capital into
financial institutions primarily through the Capital
Purchase Program (CPP), under which it acquired
shares of preferred stock at the holding company
level. In addition, the federal bank regulatory agencies, led by the Federal Reserve, successfully completed the Supervisory Capital Assessment Program
(SCAP), which induced several large U.S. banking
organizations to raise capital in public equity markets.3 Subsequently, a number of other larger banks
also raised capital in order to repay their CPP funds
and increase the share of common equity in their total
capital. Meanwhile, aggregate regulatory capital ratios at the commercial bank level reached historical
highs by the end of 2009.
The government programs to support and assess
the level of capital adequacy augmented the highly
accommodative monetary and fiscal policies to help
3. For press releases and documents related to the SCAP, see
www.federalreserve.gov/bankinginforeg/scap.htm.

Premium on credit default swaps on subordinated
debt at selected banking institutions

Basis points

280
240
200
160
120
80
40
+
0
_

2002

2004

2006

2008

2010

NOTE: The stock price index data are monthly and extend through March
2010. The credit default swap (CDS) data are weekly and extend through
April 14, 2010; median spread of all available quotes.
SOURCE: For stock price indexes, Standard & Poor’s and Dow Jones; for
premium on CDS, Markit.

improve investors’ outlook for the banking industry.
The Dow Jones stock price index for banks rebounded
sharply beginning in March 2009, as market participants began to mark down the odds of a worsening of
the financial crisis, especially after the completion of
the SCAP. Indeed, bank stocks have significantly
outperformed the broader S&P 500 index since that
time despite historically low profitability, though they
remain substantially below their pre-crisis levels (figure 3, top panel). Reflecting the decrease in the
perceived risks of failure for large banks after the
conclusion of the SCAP, credit default swap spreads
on banks’ subordinated debt came back to levels last
seen in the first half of 2008 (figure 3, bottom panel).

ASSETS
Severe and widespread economic weakness during
2009 impaired the health of both lenders and borrowers and significantly reduced the supply of and
demand for bank loans. Consequently, the total assets
of all commercial banks contracted 31⁄2 percent in

A4

Federal Reserve Bulletin h May 2010

1. Change in balance sheet items, all U.S. banks, 2000−09
Percent

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Memo
Dec.
2009
(billions
of
dollars)

Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-earning assets. . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans and leases (net) . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and industrial. . . . . . . . . . . . . . . . . .
Real estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Booked in domestic offices. . . . . . . . . . . . . . .
One- to four-family residential . . . . . . . . .
Other real estate. . . . . . . . . . . . . . . . . . . . . . .
Booked in foreign offices . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other loans and leases . . . . . . . . . . . . . . . . . . . . .
Loan loss reserves and unearned income . . . .
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment account. . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency
and corporation obligations . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading account. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest-earning assets. . . . . . . . . . . . . . . . . . . . . . .

8.76
8.66
9.24
8.54
10.74
11.02
9.28
13.31
–1.62
8.04
7.01
7.98
6.36
2.85
–32.72

5.11
3.96
1.82
–6.73
7.94
8.02
5.70
10.95
3.97
4.16
–2.02
13.15
7.22
8.88
–40.27

7.19
7.53
5.90
–7.41
14.44
14.85
19.86
8.81
–7.41
6.55
–.03
5.73
16.20
13.53
41.92

7.18
7.27
6.51
–4.56
9.75
9.66
10.01
9.19
15.74
9.31
8.31
–3.41
9.44
8.70
14.14

10.78
11.29
11.21
4.35
15.41
15.09
15.75
14.20
35.59
10.16
3.57
–3.72
10.58
6.15
–15.87

7.73
7.97
10.39
12.53
13.80
13.93
11.95
16.61
7.19
2.30
–.18
–5.55
2.40
1.19
–17.59

12.36
12.45
11.97
11.81
14.94
15.05
15.11
14.96
8.79
6.19
3.17
1.69
11.53
6.94
–19.30

10.81
10.11
10.57
20.27
7.04
6.77
5.53
8.39
22.76
11.67
13.01
27.98
4.54
–4.42
–26.93

10.22
8.31
2.21
3.48
4.48
4.75
3.07
6.89
–9.28
4.23
–6.41
75.28
–.53
10.07
7.96

–3.58
–2.46
–5.96
–18.42
–.44
–.42
3.17
–4.82
–1.72
–1.95
–7.32
35.73
21.24
26.66
215.48

11,772
10,108
6,221
1,149
3,780
3,719
2,121
1,597
62
969
537
214
2,646
2,177
100

3.75
13.39
37.16
10.30
9.45

12.84
12.18
–3.72
13.09
12.74

18.09
2.72
36.12
–2.93
5.11

9.68
5.98
14.01
6.76
6.64

9.46
3.02
36.81
14.25
7.61

–1.83
10.12
7.96
5.81
6.19

4.71
13.78
31.32
19.31
11.79

–12.15
10.75
35.98
22.35
15.42

15.44
2.66
–26.69
73.68
22.30

15.49
35.05
1.17
–20.71
–9.89

1,190
887
469
1,241
1,664

Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction deposits . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings deposits (including MMDAs) . . . . . . . . .
Small time deposits . . . . . . . . . . . . . . . . . . . . . . . . . .
Managed liabilities1. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Large time deposits. . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits booked in foreign offices. . . . . . . . . . . . .
Subordinated notes and debentures . . . . . . . . . . . .
Gross federal funds purchased and RPs. . . . . . . .
Other managed liabilities . . . . . . . . . . . . . . . . . . . . .
Revaluation losses held in trading accounts . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8.59
7.53
–1.31
12.51
7.20
8.79
19.37
7.84
13.98
6.49
1.80
7.47
20.61
10.65

4.45
10.55
10.20
20.68
–7.23
–2.73
–3.65
–10.96
9.56
5.72
–.28
–17.06
14.90
12.29

7.13
7.58
–5.12
18.46
–4.92
5.34
5.05
4.49
–.59
12.75
.97
33.44
5.23
7.84

7.24
7.29
2.82
13.71
–6.79
6.96
1.42
12.63
5.08
–8.70
22.00
14.03
5.28
6.61

9.56
8.25
3.20
11.72
1.58
12.06
21.86
16.84
10.49
8.40
1.37
–12.61
17.19
23.14

7.74
6.40
–1.18
6.93
12.88
12.24
22.88
6.32
11.41
15.62
6.15
–17.86
–1.60
7.59

12.10
5.84
–4.28
5.53
16.97
19.45
15.94
29.67
22.60
9.47
18.89
6.89
22.33
14.69

10.79
5.49
–1.22
3.34
18.03
16.57
1.90
25.86
16.83
7.06
28.44
42.66
3.21
10.94

11.27
14.51
20.72
9.98
23.48
6.45
4.56
2.46
4.60
5.76
14.38
88.60
–8.63
.96

–5.46
8.07
6.34
17.78
–15.88
–16.61
–16.15
–.60
–15.53
–31.70
–27.25
–57.17
–3.31
14.54

10,458
5,843
892
3,879
1,072
4,038
897
1,529
154
537
921
166
410
1,314

Memo
Commercial real estate loans2 . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . . . . . . . . . . .

12.16
3.29
n.a.

13.10
29.05
n.a.

6.82
15.54
17.21

8.99
10.12
3.71

13.93
13.45
3.73

16.87
2.06
10.00

14.91
10.22
29.80

9.21
–1.24
30.62

6.74
11.37
17.51

–5.69
11.54
–24.87

1,588
1,192
402

Item

Note: Data are from year-end to year-end and are as of March 23, 2010.
1. Measured as the sum of large time deposits in domestic offices, deposits
booked in foreign offices, subordinated notes and debentures, federal funds
purchased and securities sold under repurchase agreements, Federal Home
Loan Bank advances, and other borrowed money.
2. Measured as the sum of construction and land development loans secured
by real estate; real estate loans secured by nonfarm nonresidential properties or

by multifamily residential properties; and loans to finance commercial real estate, construction, and land development activities not secured by real estate.
n.a. Not available.
MMDA Money market deposit account.
RP Repurchase agreement.

2009, the first annual contraction since 1948 (table 1
and figure 4). However, the decline in banks’ assets
last year was even larger—about 51⁄4 percent—after
accounting for the acquisition of several nonbanks by
commercial banks (see box ‘‘Adjustments to the
Balance Sheet Data for Structure Activity in 2009’’).
The share of industry assets in the top 100 banks fell
slightly, the first annual decline since 1991 (see box
‘‘Bank Failures and Measures of Banking Concentration in 2009’’).
The decline in assets on banks’ books reflected in
large part a fall in gross loans of about 5 percent, or
7 percent when adjusted for structure activity. Relative to 2008, on an adjusted basis, loan declines in
2009 spread from closed-end residential real estate
loans to all major loan classes, as the economic
contraction encompassed the consumer, business, and

4. Composition of assets at commercial banks, 2006–09
Percent

Billions of dollars

Securities
Other
Cash and equivalents
Total

Loans

12,500

100

11,500

75

10,500

50

9,500

25

2006

2007

2008

2009

NOTE: Other assets consist of loans to banks, trading assets (excluding
securities), and other assets not elsewhere classified.

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2009

A5

Adjustments to the Balance Sheet Data for Structure Activity in 2009
One consequence of the turmoil in financial markets over
the past two years has been a steady stream of acquisitions and reorganizations by major financial institutions.
Several large thrift institutions that were acquired by bank
holding companies in 2008 were consolidated into the
commercial bank subsidiaries of those institutions during
2009, boosting assets on banks’ books.1 In addition to
these bank–nonbank structure events, a large credit card
bank completed balance sheet consolidation of its securitized assets in the fourth quarter of 2009 under the new
accounting requirements established by Statements of Financial Accounting Standards Nos. 166 and 167; similar
events will boost assets on many banks’ books in the first
quarter of 2010.
In general, the effects of these structure activities on
bank balance sheet data do not reflect net asset creation or
elimination. To better capture net asset changes, the data
shown in table A have been adjusted to remove the effects
on the data series that have resulted from these structure
events. The growth rates of selected balance sheet components given in the table have been adjusted to remove the
estimated effects of the following events that occurred
over 2009, as well as the five major structure events that
were detailed in the Federal Reserve Bulletin article about
the 2008 developments:2

• Commercial bank subsidiaries of Wells Fargo & Company consolidated the assets and liabilities of Wachovia
Mortgage, F.S.B., and Wachovia Bank, F.S.B., on November 1, 2009, boosting industry assets by about
$85 billion.
• Bank of America, N.A., consolidated the assets and liabilities of Merrill Lynch Bank and Trust Co., F.S.B.,
on November 2, 2009, boosting industry assets by
about $40 billion.
• A large credit card bank consolidated securitized credit
card loans onto its balance sheet as of the December
2009 Consolidated Reports of Condition and Income (Call
Report), boosting industry assets by about $25 billion.3

• Bank of America, N.A., consolidated the assets and liabilities of Countrywide Bank, F.S.B., on April 27,
2009, boosting industry assets by about $115 billion.

These four events resulted in the net addition of more
than $265 billion of nonbank assets to commercial banks’
balance sheets last year, bringing the total since 2006 to
nine major events and $847 billion. As a consequence, the
adjusted growth rates shown in table A are generally
lower than the unadjusted growth rates shown in table 1
of the main text. Notably, after accounting for the consolidation of assets from Countrywide and Wachovia, the
growth of residential real estate loans in the second and
fourth quarters was markedly lower, more clearly reflecting the weakness in most residential real estate markets
over that period. Overall, the adjusted data on growth in
total loans show that, after adjusting for major structure
events, bank lending steadily contracted in each quarter of
2009.

1. In publishing its H.8 statistical release, ‘‘Assets and Liabilities of
Commercial Banks in the United States,’’ each week, the Federal Reserve
describes nonbank structure activity that affects bank assets by $5.0 billion
or more. For a list of such activity dating to December 16, 2005, see the
H.8 ‘‘Notes on the Data’’ webpage (www.federalreserve.gov/releases/h8/
h8notes.htm). In addition, information about structure activity involving
any banking organization is available in the Federal Financial Institutions
Examination Council’s central repository of data, the National Information
Center (www.ffiec.gov/nicpubweb/nicweb/nichome.aspx).
2. See box ‘‘Adjustments to the Balance Sheet Data for Structure Activity’’ in Morten L. Bech and Tara Rice (2009), ‘‘Profits and Balance Sheet
Developments at U.S. Commercial Banks in 2008,’’ Federal Reserve Bul-

letin, vol. 95 (June), pp. A62–A63, www.federalreserve.gov/pubs/bulletin/
2009/pdf/bankprofits09.pdf. The structure-adjusted growth rates shown in
the table were generally based on the difference between the end-of-period
reported data and the beginning-of-period data adjusted for the structure
event. To adjust for Bank of America, N.A., in 2009:Q2 and 2009:Q4, and
the bank subsidiaries of Wells Fargo & Company in 2009:Q4, the
beginning-of-period values were determined by adding the value of the assets of the acquired thrift(s) to the reported data for the previous quarter.
Similarly, to adjust for the large credit card bank in 2009:Q4, the
beginning-of-period values were determined by adding the value of the securitized loans to the reported data for the previous quarter.
3. See note 11 of the main text.

A. Structure-adjusted change in selected balance sheet items, all U.S. banks, 2007–09
Percent, annual rate
2008

2009

Balance sheet
category

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans and leases (gross) . . . . . . . . .
Commercial and industrial . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . .
One- to four-family residential . .
Commercial real estate loans1 . . .
Other loans and leases . . . . . . . . . .
Securities. . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . .
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital account . . . . . . . . . . . . . . . . . . . . .

12.38
5.05
9.49
9.27
–4.36
5.95
9.29
.30
10.74
13.30
4.33

–1.21
–.70
2.19
7.76
–10.36
4.97
1.86
–3.33
11.50
–1.20
.46

8.92
.40
7.14
–.23
–4.10
4.17
10.60
13.36
2.44
10.88
–7.44

3.51
–6.64
–6.19
–4.18
–4.90
.61
–10.49
–19.15
12.60
4.26
–5.59

–8.49
–4.08
–16.32
–3.21
2.05
–.41
–3.00
11.97
2.59
–11.61
21.94

–5.64
–6.27
–18.47
–2.39
–5.01
–4.37
–2.34
24.18
13.17
–7.17
10.11

–3.56
–11.73
–25.44
–5.55
–9.56
–7.83
–5.77
22.81
12.67
–5.11
9.25

Memo
Unused loan commitments . . . . . . . . . .
Federal Home Loan Bank advances . .

.21
15.96

–5.88
5.22

–16.43
52.64

–31.87
–50.30

–29.30
–49.47

–24.90
–43.31

–16.08
–43.92

Note: Data are from period-end to period-end and are as of April 15, 2010,
for both commercial banks and thrift institutions. For a discussion of the
structure adjustments, see the box text; for an explanation of the adjustment
calculation, see note 2 of the box text.
1. Measured as the sum of construction and land development loans
secured by real estate; real estate loans secured by nonfarm nonresidential

2007

2008

2009

–3.51
–6.49
–20.34
–6.19
5.29
–11.79
–10.74
16.17
12.06
–4.25
8.06

11.38
11.39
20.28
11.67
7.30
9.17
10.06
5.31
.43
11.41
11.16

6.10
–.43
3.23
3.10
–5.83
3.98
2.77
–2.49
9.39
7.07
–2.07

–5.15
–6.93
–18.62
–4.35
–1.78
–5.97
–5.37
19.98
10.51
–6.81
12.88

–8.94
–22.20

9.50
35.61

–12.98
4.83

–18.46
–34.07

properties or by multifamily residential properties; and loans to finance
commercial real estate, construction, and land development activities not
secured by real estate.
Source: Federal Financial Institutions Examination Council, Consolidated Reports of Condition and Income (Call Report) for commercial banks
and thrift institutions; staff calculations.

A6

Federal Reserve Bulletin h May 2010

Bank Failures and Measures of Banking Concentration in 2009
Among the major developments in the commercial banking sector in 2009 were the failure of 120 banks with
$117.9 billion in assets (figure A). Since the middle of
2007, the health of the commercial banking sector has
been adversely affected by the economic downturn and
disruptions to financial markets caused by the financial
crisis. The number of problem institutions, as identified
by the Federal Deposit Insurance Corporation (FDIC),
increased greatly throughout 2009 and reached about
700 institutions by year-end, up from about 250 a year
earlier.1
The FDIC sold most of the $117.9 billion in assets at
the 120 failed banks to other surviving banks. However,
given the uncertain quality of some of the seized assets, in
many instances the FDIC entered loss-sharing agreements
with the purchasers of disposed assets, and in some cases
it retained assets for future liquidation.
Very few new commercial banks were chartered during
2009. Merger activity among commercial banks slowed a
bit again, and roughly two-fifths of all mergers involved a
failed bank. Together, these structural developments
caused the number of banks to continue declining over the
year, to about 6,900 at year-end 2009 from about 7,100 at
year-end 2008 (figure B, top panel).
Concentration in the banking industry was little
changed over 2009 after many years of steady increases.

The share of assets held by the 10 largest banks increased
only slightly, to just under 541⁄2 percent at the end of
2009, even with the consolidation of assets from acquired
thrifts onto the balance sheets of the largest banks (figure
B, bottom panel). The share of assets held by the top
100 banks declined a bit over the year to 811⁄2 percent, the
first annual decline since 1991.
The number of bank holding companies (BHCs) fell at
about the same pace as in recent years to about 5,000 at
the end of 2009 (for multitiered BHCs, only the top-tier
organization is counted in these figures). While merger activity among BHCs slowed compared with the past two
years, the number of newly formed BHCs decreased for
the second consecutive year, and a number of BHCs exited because of the failures of their subsidiary banks. The
number of financial holding companies also declined
slightly, mainly as a result of mergers and decertifications
of financial holding company status.2

1. This total includes depository institutions insured by the FDIC that
are not commercial banks. See Federal Deposit Insurance Corporation
(2009), Quarterly Banking Profile (Washington: FDIC, December 31),
available at www2.fdic.gov/QBP/qbpSelect.asp?menuItem=QBP.

B. Number of banks, and share of assets at the largest
banks, 1990–2009

2. Statistics on financial holding companies include both domestic
BHCs that have elected to become financial holding companies and foreign banking organizations operating in the United States as financial holding companies and subject to the Bank Holding Company Act. For more
information, see Board of Governors of the Federal Reserve System and
U.S. Department of the Treasury (2003), Report to the Congress on Financial Holding Companies under the Gramm-Leach-Bliley Act (Washington:
Board of Governors and Department of the Treasury, November), available
at www.federalreserve.gov/pubs/reports_other.htm.

Thousands

Number

A. Assets at failed commercial banks, 2008–10

14
12

Billions of dollars

10
8

40

6

30

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 Percent

Share of assets
20
100 largest

100
80
60

10

10 largest

40
20

2008

2009

2010

NOTE: The data are monthly and extend through March 2010. Assets are
as of the fail date.
SOURCE: Federal Deposit Insurance Corporation via SNL Financial.

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
NOTE: The data are as of year-end. For the definition of bank size, see
the general note on the first page of the main text.

A7

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2009

real estate sectors. The runoff in loans involved a
number of related factors. With less need for external
financing and the uncertain economic outlook, demand from businesses for bank-intermediated credit
declined broadly. Household loan demand similarly
dropped as consumers began deleveraging their balance sheets, in part to adjust to the declines in the
values of their homes and equity holdings. Weak
balance sheets of both businesses and households
likely also reduced the number of creditworthy borrowers. In addition, banks tightened their lending
policies substantially over 2008 and 2009, partly in
response to a less favorable or more uncertain economic outlook. Reportedly, banks were also responding to a range of other factors, including the poor
quality of assets on their balance sheets, the adverse
implications of that situation for their own capital,
and disruptions in securitization markets.
The credit quality of existing loans in all major
classes continued to deteriorate significantly, on balance, over the year, resulting in historically high
charge-off rates. Banks’ overall loan delinquency rate
(that is, the proportion of loans whose payments are
30 days or more past due or not accruing interest)
rose to 71⁄4 percent at year-end, the highest level
posted since at least 1985. Credit quality deteriorated
most sharply for real estate loans. For 2009 as a
whole, banks cumulatively charged off 21⁄2 percent of
the loans that were outstanding at year-end 2008,
directly contributing to the decline in loans outstanding.
In contrast to the drop in loans, banks’ holdings of
securities expanded about 20 percent over 2009
(adjusted for structure activity), with growth particularly strong in holdings of Treasury securities and
agency debt securities (excluding MBS). In addition,
as the Federal Reserve ramped up its purchases of
Treasury and agency securities over the course of the
year, reserve balances grew as a share of banks’ total
assets. Indeed, at the end of 2009, such balances
accounted for 5 percent of banks’ total assets; reserve
balances had accounted for just 1⁄4 percent of assets
before the financial turmoil of the fall of 2008.

5. Change in commercial and industrial loans, 1986–2009
Percent

20
15
10
5
+
0
_
5
10
15
20
1988

1991

1994

1997

2000

2003

2006

2009

NOTE: The data are quarterly; changes are from four quarters earlier.

ference between capital expenditures and internally
generated funds—fell sharply in the second half of
2009 and ended the year below zero (figure 6).
Anecdotal reports associated with the weekly data
collected by the Federal Reserve indicate that originations of large loans were sparse last year, and there
were broad-based paydowns of existing C&I loans
across banks and industries. The contraction in C&I
loans was especially steep at large banks last year,
which is consistent with reports that some large firms
with access to capital markets paid down bank loans
with the proceeds of bond issues. Indeed, bond
issuance was robust after the first quarter amid
increasingly attractive conditions in the corporate
6. Financing gap and net equity retirement at nonfarm
nonfinancial corporations, 1990–2009
Billions of dollars

1,000
Net equity retirement

600
Financing gap

400
200
+
0
_

Business Loans
Commercial and industrial (C&I) loans on banks’
books plummeted 181⁄2 percent in 2009, the steepest
annual decline since at least 1985, and the pace of
contraction gained momentum over the year (figure 5).
Demand for C&I loans decreased as nonfinancial
firms’ need for external finance dropped off. The
financing gap at nonfinancial corporations—the dif-

800

200
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
NOTE: The data are four-quarter moving averages. The financing gap is the
difference between capital expenditures and internally generated funds. Net
equity retirement consists of funds used to repurchase equity less funds raised
in equity markets.
SOURCE: Federal Reserve Board, Statistical Release Z.1, “Flow of Funds
Accounts of the United States,” table F.102 (www.federalreserve.gov/
releases/z1).

A8

Federal Reserve Bulletin h May 2010

7. Selected components of net financing for nonfinancial
businesses, 2005–09

8. Changes in demand and supply conditions at selected
banks for commercial and industrial loans to large and
middle-market firms, 1990–2009

Billions of dollars, monthly rate
Percent

60

Net percentage of banks reporting stronger demand 1

40

Commercial paper
Bonds
C&I loans
Commercial mortgages
Total

60
40

20
+
0
_

20
+
0
_

20

20

40

40

60

60
80

2005

2006

2007

2008

2009

NOTE: C&I is commercial and industrial.
SOURCE: Federal Reserve Board, Statistical Release Z.1, “Flow of Funds
Accounts of the United States” (www.federalreserve.gov/releases/z1).

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 Percent

Net percentage of banks reporting tighter standards 2

100
80
60

bond market (figure 7). Overall, according to domestic banks responding to the Federal Reserve’s Senior
Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), the most important factors explaining
the decline in C&I loans last year were lower loan
demand from creditworthy borrowers and a deterioration in the credit quality of potential borrowers.
On the supply side, results from the SLOOS indicated that unprecedented fractions of banks tightened
standards and a wide range of terms on C&I loans
through the first half of 2009 (figure 8). Results from
the Federal Reserve’s quarterly Survey of Terms of
Business Lending also pointed to a tightening in
credit conditions, indicating that the spreads of C&I
loan rates over banks’ cost of funds increased sharply
last year. Even after adjusting for changes in the
riskiness of loans and other nonprice loan characteristics, significant increases in C&I loan rate spreads
were reported on loans of all sizes and on loans
originated by both large and small banks.
A number of developments contributed importantly
to last year’s decline in C&I loans. As financial
market conditions improved in 2009, the drop in C&I
loans may have been exacerbated by repayments of
draws on existing credit lines; firms had reportedly
drawn heavily on these lines for precautionary liquidity during the extreme disruptions in credit markets in
the fall of 2008. In addition, strained conditions in the
syndicated loan market may also have contributed to
the sharp decline in C&I loans at large banks, as
banks, to complete syndicated deals, had relied
heavily on some types of structured vehicles that have
not regained acceptance by investors. In the leveraged

40
20
+
0
_
20
40
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
NOTE: The data are drawn from a survey generally conducted four times
per year; the last observation is from the January 2010 survey, which covers
2009:Q4. Net percentage is the percentage of banks reporting an increase in
demand or a tightening of standards less, in each case, the percentage
reporting the opposite. The definition for firm size suggested for, and
generally used by, survey respondents is that large and middle-market firms
have annual sales of $50 million or more.
1. Series begins with the November 1991 survey.
2. Series begins with the May 1990 survey.
SOURCE: Federal Reserve Board, Senior Loan Officer Opinion Survey on
Bank Lending Practices (www.federalreserve.gov/boarddocs/snloansurvey).

segment of the C&I loan market, issuance was weak
through most of last year despite consistent improvement in loan prices and trading liquidity in the
secondary market for such loans. In the fourth quarter, however, issuance of syndicated leveraged loans
picked up somewhat, and the terms on such loans
reportedly eased a bit.
Policymakers have expressed concern about the
difficulties that creditworthy business borrowers without access to capital markets—typically small
businesses—are experiencing in obtaining credit in
the current lending environment. Gauging the degree
to which small businesses’ access to credit has tightened is difficult, as only sparse and imperfect measures of small business lending by banks are avail-

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2009

able.4 A survey by the National Federation of
Independent Business found that slightly larger net
fractions of small businesses in 2009 reported that
they faced tightening credit conditions than had so
reported during the period of banking strains in the
early 1990s, and that approval rates for business
owners attempting to borrow were significantly lower
than in the mid-2000s. That said, only 8 percent of
surveyed business owners indicated that access to
credit was their principal economic problem, with
slow sales and an uncertain economic situation being
more commonly cited.5 In part, the tight credit conditions reported by small businesses may reflect the
reduced credit quality of such firms. Banks reported
in the SLOOS that delinquency rates in the fourth
quarter were higher for C&I loans to small businesses
than for such loans to larger businesses, and more
banks expected improvement over 2010 in the credit
quality of C&I loans to larger firms than of C&I loans
to smaller firms.
Federal and state regulators issued guidance in
February 2010 stating that banks should strive to
make prudent loans to creditworthy small businesses,
and the regulators directed examiners to conduct their
reviews in a way that would not discourage such
activities.6 In addition, the availability of loans to
small businesses was supported by the Term AssetBacked Securities Loan Facility, which helped revitalize the market for securities guaranteed by the
Small Business Administration.
Delinquency and charge-off rates on C&I loans
increased through 2009, and while these rates were
not as high as those in other loan categories, their
levels at year-end were roughly comparable with
those from the early 1990s (figure 9). Most SLOOS
respondents indicated that they expected the credit
4. For example, each year the second-quarter Call Report records
the amount of C&I loans outstanding that were made originally in
small amounts; these amounts are often used as a proxy for small
business lending but also may capture other lending, such as business
credit card loans and loans to large firms that were issued by multiple
banks. In addition, realized flows of credit generally reflect both
demand and supply conditions, and so a fall in loans may not
necessarily be due to supply factors. With those caveats, small C&I
loans at banks declined about 41⁄2 percent from the second quarter of
2008 to the second quarter of 2009, while all other C&I loans declined
about 9 percent.
5. William J. Dennis, Jr. (2010), Small Business Credit in a Deep
Recession (Washington: NFIB Research Foundation, February).
6. See Interagency Statement on Meeting the Credit Needs of
Creditworthy Small Business Borrowers, an attachment to Board of
Governors of the Federal Reserve System, Federal Deposit Insurance
Corporation, National Credit Union Administration, Office of the
Comptroller of the Currency, Office of Thrift Supervision, and Conference of State Bank Supervisors (2010), ‘‘Regulators Issue Statement on Lending to Creditworthy Small Businesses,’’ joint press
release, February 5, www.federalreserve.gov/newsevents/press/bcreg/
20100205a.htm.

A9

9. Delinquency and charge-off rates for loans to
businesses, by type of loan, 1990–2009
Percent

Delinquencies
15
12
Commercial real estate

9

C&I

6
3
+
0
_

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 Percent

Net charge-offs

3.0
2.5

Commercial real estate

2.0
1.5

C&I

1.0
.5
+
0
_

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
NOTE: The data are quarterly and seasonally adjusted; the data for
commercial real estate begin in 1991. Delinquent loans are loans that are not
accruing interest and those that are accruing interest but are more than 30
days past due. The delinquency rate is the end-of-period level of delinquent
loans divided by the end-of-period level of outstanding loans. The net
charge-off rate is the annualized amount of charge-offs over the period, net of
recoveries, divided by the average level of outstanding loans over the period.
For the computation of these rates, commercial real estate loans exclude loans
not secured by real estate (see table 1, note 2). C&I is commercial and
industrial.

quality of C&I loans to stabilize or improve in 2010,
although banks’ outlook regarding credit quality was
more sanguine for loans to larger businesses than for
loans to smaller businesses. In addition, some signs of
stabilization in C&I loan quality were apparent in the
fourth quarter of 2009, as the delinquency rate on
C&I loans increased only slightly further and the
charge-off rate declined a bit.
The fundamentals of CRE were poor in 2009, with
prices of commercial properties dropping, rents declining, and vacancy rates rising. Financing conditions for CRE were strained over the year: Almost no
issuance of commercial mortgage-backed securities
occurred (figure 10), and large net fractions of banks
reported tighter standards for CRE loans in the
SLOOS (figure 11). The pace of the runoff in CRE
loans increased over the year, while delinquency and

A10

Federal Reserve Bulletin h May 2010

10. Gross issuance of selected mortgage- and asset-backed
securities, 2003–09

12. Delinquency and charge-off rates for construction
and land development loans, by type of loan, 2007–09

Billions of dollars, annual rate

Percent

CMBS
Consumer ABS

Delinquencies
30

500

25

400
Residential

20

300
15
200

10
Other

H1 H2

2003

2004

2005

2006

2007

2008

100

2009

5

2007

NOTE: CMBS are commercial mortgage-backed securities; consumer ABS
(asset-backed securities) are securities backed by credit card loans,
nonrevolving consumer loans, and auto loans.
SOURCE: For CMBS, Commercial Mortgage Alert; for ABS, Inside MBS &
ABS and Merrill Lynch.

2008

2009

Percent

Net charge-offs
10
Residential
8
6

11. Changes in demand and supply conditions at
selected banks for commercial real estate loans,
1996–2009

4
2

Other

Percent

Net percentage of banks reporting stronger demand
60
40
20
+
0
_
20
40
60
1997

1999

2001

2003

2005

2007

2009 Percent

Net percentage of banks reporting tighter standards

100
80
60
40
20
+
0
_
20
40

1997

1999

2001

2003

2005

NOTE: See figure 8, general note and source note.

2007

2009

2007

2008

2009

NOTE: The data are quarterly and are available since the series began in
2007:Q1. For definitions of delinquencies and net charge-offs, see the note
for figure 9. Other consists of other construction loans and all other land
development and other land loans.

charge-off rates reached historically high levels. In
particular, the delinquency rate on construction and
land development loans surged to 181⁄2 percent by the
end of 2009, and the delinquency rate was 281⁄2
percent for loans that financed the construction of
one- to four-family residential properties (figure 12).
Meanwhile, the charge-off rate on construction and
land development loans reached 8 percent in the
fourth quarter. The credit quality of other CRE lending categories deteriorated to a lesser degree but
nevertheless appeared to still be worsening at yearend. Indeed, in the January 2010 SLOOS, banks
reported expectations of further deterioration in the
credit quality of CRE loans over 2010, an outlook that
may be seen as a particular concern for smaller banks
because their assets are more heavily concentrated in
CRE lending. Smaller banks increased their concentration of lending in CRE loans over much of the past
decade; at the end of 2009, CRE loans accounted for

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2009

13. Change in commercial real estate loans, by major
components, 1990–2009

A11

14. Indicators of household financial stress, 1993–2009
Percent

Percent

Financial obligations ratio

19.0
40
Construction and land
development
Multifamily
residential

18.5

30

18.0

20

Nonfarm
nonresidential

10
+
0
_

17.5

10

16.5

20

16.0

17.0

30
1993 1995 1997 1999 2001 2003 2005 2007 2009
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
NOTE: The data are annual and adjusted for major structure events.

Household bankruptcy filings

Per 100,000 persons

1,000
900

about 46 percent of total loans at such banks, compared with about 17 percent of loans at the 100 largest
banks.
Banks’ holdings of CRE loans fell 6 percent
(adjusted for structure activity) in 2009, pulled down
by a precipitous drop in loans to fund construction
and land development, particularly of one- to fourfamily residential homes (figure 13).7 In contrast,
loans secured by nonfarm nonresidential properties
expanded modestly last year despite the worsening
fundamentals in commercial property markets. Some
of this relative strength may reflect a substitution
away from C&I loans: Given the substantial deterioration in the credit quality of banks’ business loan
portfolios, some banks reportedly sought stronger
collateral for business loans, which may have included forms of real estate. In such cases, the loans
would have shifted from the C&I category to loans
secured by nonfarm nonresidential real estate. Nonetheless, even growth of nonfarm nonresidential loans
slowed over the second half of the year. In other CRE
lending, loans backed by multifamily properties grew
mildly over most of 2009 but dropped in the fourth
quarter.

Household Loans
Banks’ holdings of loans to households also declined
broadly in 2009. Adjusted for structure activity, residential real estate loans on banks’ books decreased
13⁄4 percent and consumer loans fell 41⁄4 percent.
Following the financial crisis, households took
steps to strengthen their balance sheets. The house7. Outstanding loans to fund the construction of one- to four-family
residential homes totaled only $86 billion at year-end, less than
one-half of their peak during the first quarter of 2008.

800
700
600
500
400
300
200
100
1993 1995 1997 1999 2001 2003 2005 2007 2009
NOTE: The data are quarterly. The financial obligations ratio is an estimate
of debt payments and recurring obligations as a percentage of disposable
personal income; debt payments and recurring obligations consist of required
payments on outstanding mortgage debt, consumer debt, auto leases, rent,
homeowner’s insurance, and property taxes. The series shown for bankruptcy
filings begins in 1995:Q1 and is seasonally adjusted.
SOURCE: For financial obligations ratio, Federal Reserve Board
(www.federalreserve.gov/releases/housedebt); for bankruptcy filings, staff
calculations based on data from Lundquist Consulting.

hold financial obligations ratio—an estimate of debt
payments and recurring obligations as a percentage of
disposable income—fell over 2009 to end the year at
its lowest level since 2000; this movement is consistent in part with households paying down debt to
reduce their interest and principal burdens (figure 14).
In addition, the personal saving rate increased markedly since the beginning of 2008.
However, the combination of low mortgage rates, a
tax credit for first-time homebuyers, and improved
home affordability likely contributed to the strengthened demand for prime mortgages reported in the
SLOOS over the first three quarters of 2009 (figure 15). Compared with 2008, originations of firstlien residential mortgages by commercial banks as a
whole rose in 2009.
The decrease in banks’ holdings of residential real
estate loans last year was attributable to their substantial sales of such loans to the GSEs, their tight lending

A12

Federal Reserve Bulletin h May 2010

16. Delinquency and charge-off rates for residential real
estate loans at commercial banks, by type of loan,
1991–2009

15. Change in prices of existing single-family homes,
1990–2009
Percent

Percent

LP price index

FHFA
index

20

Delinquencies

15

14

10

12

5
+
0
_
5

10
8
6

10

4

Closed-end mortgages

15
20

2
+
0
_

Revolving home equity

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
NOTE: The data are quarterly and extend through 2009:Q4; changes are
from one year earlier. The LP price index includes purchase transactions
only. For 1990, the FHFA index (formerly calculated by the Office of Federal
Housing Enterprise Oversight) includes appraisals associated with mortgage
refinancings; beginning in 1991, it includes purchase transactions only.
SOURCE: For LP, LoanPerformance, a division of First American
CoreLogic; for FHFA, Federal Housing Finance Agency.

standards in an environment of declining home values
and high unemployment, and few originations of
nontraditional or subprime loans by banks.
The deterioration in the credit quality of banks’
closed-end residential real estate loans showed little,
if any, sign of abating in 2009 (figure 16). National
data on rates of serious delinquency worsened considerably for all classes of borrowers and types of
mortgages. Delinquency rates on variable-rate mortgages in particular continued to increase more than
those on fixed-rate loans, especially for subprime
borrowers (figure 17). Of all major loan classes,
banks recorded the highest delinquency rate for residential real estate loans, and the charge-off rate in this
category was also very elevated. Banks’ holdings of
foreclosed real estate rose in 2009 but remained low
relative to delinquency rates; such holdings equaled
about 1⁄2 percent of the value of outstanding closedend residential mortgages by year-end.
The credit quality of first- and junior-lien closedend residential mortgages diverged last year. Delinquency and charge-off rates for first liens worsened
throughout the year, but the delinquency rate for
junior liens stabilized in the second half of the year.
The latter development may be explained by the very
sharp increase in the charge-off rate on junior liens, as
these loans are associated with lower recovery rates
and tend to be charged off sooner after becoming
delinquent than first liens. In contrast, delinquency
and charge-off rates for revolving, open-end home
equity loans were about flat for most of the year,
likely reflecting banks’ tightening of standards on

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 Percent

Net charge-offs

3.5
3.0
2.5
2.0
1.5
1.0

Revolving home equity

.5
+
0
_

Closed-end mortgages
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

NOTE: The data are quarterly and seasonally adjusted. For definitions of
delinquencies and net charge-offs, see the note for figure 9.

17. Rate of serious delinquency on residential mortgages,
by type of mortgage and type of interest rate, 2000–10
Percent

45
40
35
30
25

Subprime, variable rate

20
15

Subprime, fixed rate

10
5
+
0
_

Prime, variable rate
Prime, fixed rate
2000

2002

2004

2006

2008

2010

NOTE: The data are monthly and extend through January 2010. Seriously
delinquent loans are 90 days or more past due or in foreclosure. The prime
mortgage data are representative of all residential mortgages, not just those
held by commercial banks. The subprime mortgage data cover only
securitized loans.
SOURCE: For prime mortgages, McDash Analytics; for subprime
mortgages, LoanPerformance, a division of First American CoreLogic.

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2009

19. Changes in supply conditions at selected banks for
consumer lending and for consumer installment loans,
1996–2009

18. Delinquency and charge-off rates for loans
to households, by type of loan, 1990–2009

Percent

Percent

Delinquencies

A13

7
6
Credit card

5

Net percentage of banks reporting tighter
standards for consumer lending

80
60

Credit card loans

4

40

Other consumer loans

Other consumer
3

20

2

+
0
_

1
20
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Percent

Net charge-offs

10

1997

1999

2001

2003

2005

2007

2009 Percent

Net percentage of banks reporting increased
willingness to make consumer installment loans

40

8
20
Credit card

6

+
0
_

4

20
Other consumer

2
40

+
0
_

60
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
NOTE: The data are quarterly and seasonally adjusted; data for delinquencies begin in 1991. For definitions of delinquencies and net
charge-offs, see the note for figure 9.

such loans over the past several years and their ability
to reduce credit lines for borrowers with impaired
home values.
Non-credit-card consumer loans expanded somewhat in the second half of 2009, perhaps in part as a
result of frictions in the student loan securitization
market, which caused banks to retain more of such
loans on their books. In addition, this category of
lending may have benefited from a pickup in personal
consumption expenditures on durable goods during
the second half of the year.
In contrast, credit card loans declined substantially
over the same period, likely for several reasons.
These loans incurred the highest charge-off rates of
any major loan category, directly reducing outstandings (figure 18).8 Also, banks tightened standards and
8. For a discussion of the change in bankruptcy law that was
implemented in 2005 and its effect on credit card loans, see the box
‘‘The New Bankruptcy Law and Its Effect on Credit Card Loans,’’ in
Elizabeth Klee and Gretchen Weinbach (2006), ‘‘Profits and Balance
Sheet Developments at U.S. Commercial Banks in 2005,’’ Federal
Reserve Bulletin, vol. 92 (June), p. A89.

1997

1999

2001

2003

2005

2007

2009

NOTE: See figure 8, general note and source note.

terms on consumer loans (figure 19), partly in anticipation of new regulations. Households may also have
reduced their use of credit cards in part to shore up
their financial condition, a move that would be consistent with the reduced demand for consumer loans
that was reported by notable net fractions of banks in
the SLOOS during 2009.
By year-end 2009, the credit quality of consumer
loans appeared to have begun to stabilize. The delinquency and charge-off rates on consumer loans declined slightly in the second half of the year but
remained at historically high levels, particularly for
credit card loans. In the January 2010 SLOOS, banks
reported expecting no further deterioration, on net, in
the credit quality of consumer credit card loans over
2010, assuming that economic activity progressed in
line with consensus forecasts; moderate net fractions
of banks expected credit quality to improve for other
consumer loans. The largest banks—which are responsible for the bulk of credit card lending—may have
begun to benefit from the stabilization in credit

A14

Federal Reserve Bulletin h May 2010

quality on credit card loans, as evidenced by their
reductions in loan loss provisioning during the fourth
quarter.

Other Loans
All other loans and leases on banks’ books, a volatile
category, dropped 71⁄4 percent over 2009, about the
same rate of decline as in 2008. Loans to other
depository institutions were about flat for the year.
Leases, which are made primarily to businesses for
financing equipment or to households for financing
automobiles, have been declining for most of the past
decade and continued to do so in 2009, albeit at a
somewhat faster rate. Bank lending to state and local
governments grew during 2009 but not as rapidly as
in recent years. Farm loans were about flat for the
year, as farm banks have been less affected by the
financial crisis, but growth of these loans weakened
compared with past years given the wider macroeconomic downturn. The credit quality of farm loans also
deteriorated in 2009 but was not notably worse than
the average quality of these loans over the past two
decades.

Securities
The decline in total loans over 2009 was partially
offset by growth in banks’ securities holdings of
about 20 percent (adjusted for structure activity).
While the expansion in securities was shared by
banks of all sizes, it was strongest at the 100 largest
banks. Amid heavy inflows of core deposits over the
course of the year (discussed later in the article) and
weak loan demand, banks increased their holdings of
Treasury securities and agency non-MBS issues most
rapidly, suggesting a preference for liquid, low-risk
assets. A total of about $154 billion of these securities
was added to commercial banks’ balance sheets over
2009, an increase of roughly 67 percent over year-end
2008. The run-up occurred mostly at the 100 largest
banks, which traditionally have held fewer of these
securities as a share of total securities than smaller
banks. Agency MBS, which accounted for roughly
37 percent of banks’ securities holdings at year-end
2009, also grew strongly at the 100 largest banks.
In general, banks report both the book value (or
amortized cost of acquisition) of their securities and
the securities’ current market value. The market value
of the securities is affected by the credit quality of the
issuers or of the assets that back the securities as well
as by changes in the general level of interest rates. At
the height of the credit market turmoil in the fall of
2008, the market value of many bank-held securities,

particularly the non-agency MBS at the center of the
crisis as well as the perpetual preferred securities
issued by the GSEs, had declined considerably. However, the substantial decline in the general level of
interest rates since the onset of the crisis has caused
the market value of longer-duration assets with little
credit risk to increase.
Over 2009, the difference between reported fair
value measurements and book values of available-forsale securities in investment accounts narrowed, suggesting that banks have substantially lower revaluation losses on their current securities holdings than
they did a year ago. At the end of 2008, banks
reported net unrealized losses on investment account
securities of about $60 billion, led by losses on
non-agency MBS and ABS, which were offset a bit by
gains in other securities categories, particularly agency
MBS. These net unrealized losses waned over 2009,
as improving financial conditions and lower interest
rates contributed to a recovery in the market prices of
many securities. At the end of the fourth quarter,
banks reported net unrealized gains of about $9 billion on their investment account securities as a
whole.9 Finally, banks sold some securities at a loss,
which was reflected in the $1.7 billion of total net
realized losses on securities holdings over 2009.

Cash Assets
Cash assets, including reserve balances with Federal
Reserve Banks, expanded considerably in late 2008, a
pattern consistent with the considerable growth of the
Federal Reserve’s balance sheet. Usage of the special
liquidity facilities established at the height of the
financial crisis gradually fell over the first half of
2009, and reserve balances declined over the same
period. However, as the Federal Reserve continued its
large-scale asset purchases, reserve balances rose
sharply in the third quarter. At year-end, the level of
reserve balances was at a record high, accounting for
5 percent of industry assets. The interest rate paid on

9. In early April 2009, the Financial Accounting Standards Board
issued guidance related to other-than-temporary impairments (OTTI),
or FASB Staff Position (FSP) FAS 115-2, which required impairment
write-downs through earnings only for the credit-related portion of a
debt security’s fair value impairment, while other components would
affect other comprehensive income, which includes unrealized gains
and losses on available-for-sale securities. (For more information on
the guidance, see Financial Accounting Standards Board (2009),
‘‘Summary of Board Decisions,’’ webpage, April 2, www.fasb.org/
action/sbd040209.shtml.) However, banks reported that the cumulative effect of the initial application of FSP FAS 115-2 on OTTI was
only about $1.3 billion in 2009, having only a marginal effect on
earnings relative to total unrealized gains and losses and fair value
adjustments on securities.

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2009

excess reserves held by banks remained at 25 basis
points over the year.

20. Change in unused bank loan commitments to
businesses and households, 1990–2009
Percent, annual rate

Off-Balance-Sheet Items
For the second consecutive year, banks’ off-balancesheet unused commitments to fund loans contracted
steeply, and the runoff was widespread across all
major commitment categories (figure 20). Responses
to the SLOOS suggest that banks reduced credit lines
for both new and existing customers and that those
reductions were more prevalent for lower-quality
borrowers. In addition, the cuts in lines likely reflected disproportionately the tightened lending standards by banks, as borrowers are presumably unlikely
to request reductions in their line size since the
marginal cost to borrowers of maintaining unused
lines is typically small, especially for households.
Securitized loans, which are not held on banks’
books, contracted 5 percent over 2009.10 Since the
data began to be collected in 2002, the only previous
annual decline occurred in 2003, with a drop of
1⁄2 percent. Last year’s decline was likely in response
to the impairment of many securitization markets for
all or part of the period, as well as the weak lending
environment. Securitized mortgages had risen considerably over 2007 and 2008 and still accounted for
two-thirds of securitized loans at the end of 2009.
However, with the market for non-agency MBS
remaining shut last year, balances of securitized
mortgages declined about 33⁄4 percent in 2009. The
GSEs, though, continued to purchase large quantities
of closed-end residential mortgages from banks.
Securitized credit card loans, which account for a
further 20 percent of securitized loans, declined
83⁄4 percent in 2009. Most of this decline was due to
the consolidation of securitized credit card assets in
the fourth quarter by one large bank that adopted the
new FAS 166 and 167 accounting rules at that time.11
10. Loans that banks sold or securitized with servicing rights
retained or with recourse or other seller-provided enhancements are
hereafter referred to, for simplicity, as ‘‘securitized’’ loans. The
analysis excludes loans that were sold to, and securitized by, a third
party (for example, the Federal National Mortgage Association or the
Federal Home Loan Mortgage Corporation).
11. The Financial Accounting Standards Board (FASB) announced
in June 2009 the publication of FAS 166, Accounting for Transfers of
Financial Assets, and FAS 167, Amendments to FASB Interpretation
No. 46(R) (Consolidation of Variable Interest Entities), which will
change the way companies account for securitizations and special
purpose entities. FAS 166 and 167 must be implemented with firms’
first financial reporting period ending after November 15, 2009, which
for commercial banks effectively means that the implementation will
be reflected in their 2010:Q1 Call Reports. For more information, see
the FASB’s website at www.fasb.org. For more information about the
balance sheets of commercial banks, see Board of Governors of the
Federal Reserve System (2010), Statistical Release H.8, ‘‘Assets and

A15

Commercial real estate,
construction, and
land development loans
Total

60
40
20
+
0
_
20
40
60
80

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
NOTE: The data, which are quarterly, begin in 1990:Q2 and are not
seasonally adjusted. The total consists of unused commitments relating to
credit card lines; revolving, open-end lines secured by one- to four-family
residential properties; commercial real estate, construction, and land
development loans; securities underwriting; and “other.”

DERIVATIVES
In 2009, the notional principal amount of derivatives
contracts held by banks grew a moderate 33⁄4 percent
to reach $220 trillion (table 2).12 Notional values are
boosted substantially by a few of the largest banks,
which enter into offsetting positions in their capacities as dealers in derivatives markets. The fair market
value of those derivatives contracts held by banks
reflects the contracts’ replacement costs and is far
smaller than the notional principal amount.13 The
aggregate fair market value for all bank contracts
with a positive value in 2009 was about $4.1 trillion;
for all bank contracts with a negative value, the
aggregate fair market value was roughly negative
$3.9 trillion. These fair values were considerably
smaller relative to their notional values at the end of
2009 than they were at the end of 2008, due to the
partial recovery in financial markets from the unprecedented market dislocations that occurred in the fall
of 2008. Both the positive and negative fair values
Liabilities of Commercial Banks in the United States’’ (April 9),
www.federalreserve.gov/releases/h8/current/default.htm.
12. Notional amounts are amounts from which contractual payments will be derived and, in most instances, are much larger than the
amounts at risk; thus, they do not accurately represent the scope of
economic involvement of banks with derivatives.
13. The total of all contracts with a positive fair value is a
measurement of credit exposure, or the amount that a bank could lose
if its counterparties did not fulfill their contracts. The total of all
contracts with a negative fair value at a bank represents a measurement
of exposure that the bank poses to its counterparties. Even these fair
value amounts can overstate exposure, as counterparties often enter
into bilateral ‘‘netting’’ agreements, which allow aggregation of all
bilateral exposure into the equivalent of a single trade in the event of
default of either party.

A16

Federal Reserve Bulletin h May 2010

2. Change in notional value and fair value of derivatives, all U.S. banks, 2004–09
Percent

Item
Total derivatives
Notional amount. . . . . . . . . . . . . . . . .
Fair value
Positive. . . . . . . . . . . . . . . . . . . . . . .
Negative . . . . . . . . . . . . . . . . . . . . . .

2007

2008

2009

Memo
Dec. 2009
(billions of
dollars)

2004

2005

2006

23.69

15.38

29.75

25.68

27.70

3.80

220,146

13.71
13.75

–6.46
–5.78

–4.50
–4.27

68.18
65.77

250.24
249.26

–42.86
–43.26

4,057
3,919

Interest rate derivatives
Notional amount . . . . . . . . . . . . . .
Fair value
Positive . . . . . . . . . . . . . . . . . . . .
Negative . . . . . . . . . . . . . . . . . . .

22.07

11.92

27.11

20.54

35.85

2.09

179,548

13.14
12.94

–5.52
–5.15

–14.55
–15.06

56.19
58.19

290.52
286.45

–39.06
–39.41

3,121
3,023

Exchange rate derivatives
Notional amount . . . . . . . . . . . . . .
Fair value
Positive . . . . . . . . . . . . . . . . . . . .
Negative . . . . . . . . . . . . . . . . . . .

21.03

7.69

29.27

36.69

–1.46

2.22

17,298

14.86
12.74

–35.84
–37.36

22.86
21.39

43.59
43.40

149.12
163.80

–45.05
–47.91

354
345

134.52
139.07
130.46

148.09
137.87
157.53

54.93
67.69
44.03

75.87
73.94
77.79

1.05
–1.27
3.30

28.76
31.37
26.33

20,639
10,143
10,496

69.92
74.56
38.37
51.28
2.64
66.36

81.43
–5.62
827.98
83.50
505.51
2.79

92.96
201.40
–1.59
90.26
3.98
187.44

295.25
–38.79
1187.41
301.20
1086.95
–18.95

282.68
19.41
316.11
260.40
306.28
–13.35

–61.31
230.90
–71.96
–60.12
–70.62
233.57

406
122
284
448
319
129

32.66

29.43

75.17

13.44

–9.00

–18.48

2,661

8.55
19.73

58.51
74.29

18.99
24.15

41.22
15.66

33.70
39.27

–33.53
–32.75

142
139

Credit derivatives
Notional amount . . . . . . . . . . . . . .
Guarantor . . . . . . . . . . . . . . . . . .
Beneficiary . . . . . . . . . . . . . . . . .
Fair value
Guarantor . . . . . . . . . . . . . . . . . .
Positive . . . . . . . . . . . . . . . . . .
Negative . . . . . . . . . . . . . . . . .
Beneficiary . . . . . . . . . . . . . . . . .
Positive . . . . . . . . . . . . . . . . . .
Negative . . . . . . . . . . . . . . . . .
Other derivatives1
Notional amount . . . . . . . . . . . . . .
Fair value
Positive . . . . . . . . . . . . . . . . . . . .
Negative . . . . . . . . . . . . . . . . . . .

Note: Data are from year-end to year-end and are as of March 23, 2010.
1. Other derivatives consist of equity and commodity derivatives
and other contracts.

contracted substantially over the first half of 2009,
and each declined about 43 percent for the year as a
whole.
Interest rate products continued to account for
more than 80 percent of the notional value of derivatives products held by banks and about 77 percent of
positive and negative fair values. Interest rate swaps,
which account for most of the interest rate derivatives
on banks’ books, are an important way for banks to
hedge interest rate risk, including that related to
interest-sensitive assets such as mortgages and MBS.
The notional amount of interest rate swaps declined
13⁄4 percent over 2009. In addition, both positive and
negative fair values dropped substantially, likely in
part because of the development of stable low interest
rates over the year. Other interest rate derivatives
include options, futures, and forwards, and the notional value of these other derivatives contracts grew
16 percent over 2009, in line with the pace in the past
few years.
One of the fastest growing components of banks’
derivatives portfolios in recent years has been credit
derivatives, which, prior to last year, had expanded an

average of about 70 percent per year since 2000. After
a pause in 2008, credit derivatives resumed growth in
2009.14 The notional amount of these derivatives
grew 29 percent for the year, and at year-end 2009,
credit derivatives accounted for 91⁄2 percent of the
notional principal value of all derivatives contracts
held by banks. By contrast, the fair value of credit
derivatives contracts fell 60 percent in 2009, and
these products constituted about 11 percent of positive and negative fair values at banks at year-end.
These fair values started to decline in the spring of
2009 but remained high relative to historical norms
due to the elevated spreads on many of the underlying
reference entities. Over the course of the year, as
spreads on underlying reference entities receded and
overall market functioning improved, the value of
such credit protection (the fair values of the credit
derivatives) declined. Credit default swaps accounted
14. The flattening in notional values of credit default swaps during
2008, however, appears to have been due in part to organized efforts to
compress offsetting trades and not simply to a reduction in trading
activity.

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2009

for 98 percent of the notional value of credit derivatives held by banks throughout the year (total return
swaps and credit options are two other common
types). Banks are beneficiaries of protection when
they buy credit derivatives contracts and providers of
protection (guarantors) when they sell them. Banks
are typically net beneficiaries of protection; as of
year-end, contracts in which banks were beneficiaries
of protection totaled $10.5 trillion in notional value,
and contracts in which they were guarantors totaled
$10.1 trillion (figure 21).
Banks also use derivatives related to foreign exchange, equities, and commodities. Collectively, those
instruments accounted for about 9 percent of the
notional value of the derivatives contracts held by
banks at year-end. Banks’ notional holdings of foreignexchange-related derivatives grew 21⁄4 percent in
2009. Their notional holdings of equity and commodity derivatives together fell 181⁄2 percent, a second
consecutive annual decline.
The share of industry derivatives contracts (in
terms of notional value) at the 10 largest banks (in
terms of assets) had for years been more than 97 percent, a concentration ratio that reflected the role that
some of the largest banks play as dealers in derivatives markets. However, since the end of 2008, that
share has declined to about 80 percent, as the reorganization of a prominent derivatives dealer involved
booking these derivatives at one of its commercial
bank subsidiaries that remained outside of the 10 largest banks at the end of 2009. Still, banks’ derivatives
holdings were highly concentrated over the past two
years: The 5 banks with the most derivatives activity
in 2009, including 1 bank not among the 10 largest

21. Notional amounts of credit derivatives for which
banks were beneficiaries or guarantors, 2000–09
Trillions of dollars

10
8
6
4

A17

banks by assets, held 96 percent of all derivatives by
notional amounts.15

LIABILITIES
Total liabilities on banks’ books declined about
51⁄2 percent in 2009. Adjusting for major structure
events, liabilities contracted 63⁄4 percent. As was true
of the decrease in assets, the decline in liabilities was
concentrated at the 100 largest banks. The runoff in
liabilities took place in the context of deleveraging by
banking institutions amid weak loan demand and
tight credit standards; banks reduced assets, raised
capital, and pared back relatively more expensive
sources of funding. Thus, banks did not compete
strongly for managed liabilities or small time deposits, and declines in those components accounted for
the contraction of overall liabilities. Indeed, small
time deposits shrank substantially over 2009, reversing a steep run-up during the height of the financial
crisis in late 2008, after which the spreads between
rates on time and savings deposits declined markedly.
While overall liabilities contracted, total core deposits grew about 8 percent in 2009, well above the
average pace during years prior to the financial crisis.
As a result, for the second consecutive year, core
deposits rose as a share of bank funding.16 Amid low
market interest rates, the opportunity cost of holding
liquid deposits remained low in 2009, and consequently savings and transaction deposits grew sizably
(figure 22). With money market rates unusually low,
money market mutual funds experienced large outflows, some of which may have ended up at banks as
the public sought the safety and liquidity of insured
deposits (figure 23). Reinforcing this trend was the
extension through 2013 of the temporary increase in
the Federal Deposit Insurance Corporation’s maximum deposit insurance amount to $250,000, which
previously had been in place only through the end of
2009.17 The FDIC also extended, until the end of June
2010, its program providing unlimited guarantees of
transaction accounts, although the new higher annual
assessment rates for participating banks caused many
large institutions to opt out of the program at year-end
2009.
Managed liabilities contracted 161⁄2 percent over
2009. Given strong growth of core deposits and

Beneficiary
2

Guarantor

+
0
_
2001

2003

NOTE: The data are quarterly.

2005

2007

2009

15. Office of the Comptroller of the Currency, OCC’s Quarterly
Report on Bank Trading and Derivatives Activities, Third Quarter
2009 (Washington: OCC), available at www.occ.treas.gov/deriv/
deriv.htm.
16. Core deposits consist of savings deposits (including money
market deposit accounts), small-denomination time deposits, and
transaction deposits.
17. This extension became effective on May 20, 2009.

A18

Federal Reserve Bulletin h May 2010

22. Selected domestic liabilities at banks as a proportion
of their total domestic liabilities, 1990–2009

23. Net flows into money market mutual funds
and deposits at commercial banks, 2007–09

Percent

Billions of dollars

500
40

Savings deposits

400
30

300
200

Small time deposits
Transaction deposits

20
100
+
0
_

10
+
0
_

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
NOTE: The data are quarterly. Savings deposits include money market
deposit accounts.

shrinking assets, banks were able to continue reducing their reliance on these generally more expensive
and less stable sources of funds. Large time deposits
ran off appreciably, while deposits booked in foreign
offices were about flat for the year. In addition to
paring back advances from the Federal Home Loan
Banks over the course of the year, commercial banks
decreased their borrowings from the Federal Reserve
liquidity facilities introduced during the crisis.18 Net
borrowings in the federal funds market declined in
light of banks’ hefty reserve holdings.
Banking institutions issued about $300 billion of
debt under the debt guarantee portion of the FDIC’s
Temporary Liquidity Guarantee Program (TLGP),
which was established in October 2008. The TLGP
guarantees, in exchange for a fee, short- and mediumterm debt maturing on or before December 31, 2012.
About five-sixths of this debt was issued by bank
holding companies (BHCs) and so does not appear
directly as long-term debt at the bank level. The
program was used most heavily before the summer of
2009. After the results of the Supervisory Capital
Assessment Program were released in May, many
banks were able to issue sufficient amounts of debt
without the guarantee. In October, the FDIC ended
the Debt Guarantee Program component of the TLGP

100
Money market mutual funds
Deposits
2007

2008

200
2009

NOTE: The data are aggregated from weekly to quarterly frequency.
SOURCE: For money market mutual funds, iMoneyNet; for deposits,
Federal Reserve Board, Statistical Release H.8, “Assets and Liabilities of
Commercial Banks in the United States” (www.federalreserve.gov/
releases/h8).

and established a new, limited emergency guarantee
facility in order to promote the transition of banking
institutions away from such support.

CAPITAL
The banking industry shored up its capital position in
2009. The equity capital of commercial banks rose to
about 111⁄4 percent of assets by the end of 2009, up
considerably from about 91⁄2 percent at the end of
2008. The increase was due largely to substantial
infusions of capital from parent BHCs throughout the
year. Total capital transfers in 2009 amounted to
$113 billion. These additions augmented the large
transfers that occurred in the fourth quarter of 2008
(figure 24). In many cases, the transfers reflected the
24. Capital transfers to commercial banks from
parent bank holding companies, 1990–2009
Billions of dollars

70
60
50
40

18. The Federal Home Loan Banks (FHLBs) were established in
1932 as GSEs chartered to provide a low-cost source of funds,
primarily for mortgage lending. They are cooperatively owned by their
member financial institutions, a group that originally was limited to
savings and loan associations, savings banks, and insurance companies. Commercial banks were first able to join FHLBs in 1989, and
since then FHLB advances have become a significant source of
funding for them, particularly for medium-sized and small banks. The
FHLBs are cooperatives, and the purchase of stock is required in order
to borrow.

30
20
10
+
0
_
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
NOTE: The data are quarterly.

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2009 A19

downstreaming of capital raised by the parent BHC
through the Troubled Asset Relief Program’s Capital
Purchase Program (CPP). Although many BHCs
repaid CPP funds during the second half of 2009,
most of that equity was replaced by secondary equity
issuance by large BHCs that had been evaluated
under the SCAP. As public equity markets improved
further in the second half of 2009, other banks were
also able to issue new shares to build capital or repay
CPP investments. (For more information, see box
‘‘The Capital Purchase Program and the Supervisory
Capital Assessment Program.’’)
Retained earnings as a share of total equity dropped
from about 27 percent at the end of 2008 to about
22 percent at the end of 2009. That component was
reduced by declared dividends that exceeded profits
for the second consecutive year, even though such
payouts as a percentage of average assets were at
historically low levels. A large majority of the dividends were declared by banks in the top five BHCs.
These relatively more profitable institutions repaid
their CPP funds in the second half of 2009 and were
not subject to the restrictions on dividends at the BHC
level that are associated with the receipt of TARP
funds.19 For the entire year, dividends at profitable
banks amounted to 0.55 percent of average assets,
while dividends at the other banks amounted to only
0.04 percent.
On balance, all three regulatory capital ratios
increased to record levels (figure 25). The leverage
ratio increased by 1 percentage point to about 81⁄2
percent by the end of 2009.20 The tier 1 and total
risk-based capital ratios, measured relative to riskweighted assets, each increased substantially—from
about 93⁄4 percent to 111⁄2 percent and from about
123⁄4 percent to 141⁄4 percent, respectively.21 Reduc19. The top five BHCs are ranked by the combined assets of
commercial bank subsidiaries for a given BHC. As of the fourth
quarter of 2009, the top five BHCs had 28 commercial bank subsidiaries, which accounted for about 52 percent of total commercial bank
assets. For more information on the dividend restrictions, see the
public term sheet for the CPP, which is an attachment to U.S.
Department of the Treasury (2008), ‘‘Treasury Announces TARP
Capital Purchase Program Description,’’ press release, October 14,
www.ustreas.gov/press/releases/hp1207.htm.
20. The leverage ratio is the ratio of tier 1 capital to average
tangible assets. Tangible assets are equal to total average consolidated
assets less assets excluded from common equity in the calculation of
tier 1 capital.
21. Tier 1, tier 2, and tier 3 capital are regulatory measures. Tier 1
capital consists primarily of common equity (excluding intangible
assets such as goodwill and excluding net unrealized gains on investment account securities classified as available for sale) and certain
perpetual preferred stock. Tier 2 capital consists primarily of subordinated debt, preferred stock not included in tier 1 capital, and loan loss
reserves up to a cap of 1.25 percent of risk-weighted assets. Tier 3
capital is short-term subordinated debt with certain restrictions on
repayment provisions and is limited to approximately 70 percent of a

25. Regulatory capital ratios, 1990–2009
Percent

Total

Tier 1

Leverage

13

11

9

7

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
NOTE: The data are quarterly. For the components of the ratios, see text
notes 20 and 21.

tions in risk-weighted assets and average tangible
assets as well as increased capital contributed to
higher regulatory capital ratios in 2009. The reduction
in risk-weighted assets was partly attributable to a
shift in the composition of assets from loans to cash
and securities, while total assets shrank as loans
outstanding on banks’ books ran off steeply last year.
Several factors likely contributed to banking institutions’ efforts to boost capital. First, some of the
largest banking organizations were required to augment their capital as a result of the SCAP process.
Second, a few banks faced substantial increases in
both risk-weighted and total assets associated with
the large amounts of off-balance-sheet assets that
are required to be consolidated on banks’ balance
sheets by the end of the first quarter of 2010 in
conjunction with the adoption of Statements of Financial Accounting Standards Nos. 166 and 167.
Those consolidations may have led some institutions
to add to their capital prior to the accounting
change.22 Third, capital is generally considered a
buffer to protect uninsured depositors and other
bank’s measure for market risk. Total regulatory capital is the sum of
tier 1, tier 2, and tier 3 capital. Risk-weighted assets are calculated by
multiplying the amount of assets and the credit-equivalent amount of
off-balance-sheet items (an estimate of the potential credit exposure
posed by the items) by the risk weight for each category. The risk
weights rise from 0 to 1 as the credit risk of the assets increases. The
tier 1 ratio is the ratio of tier 1 capital to risk-weighted assets; the total
ratio is the ratio of the sum of tier 1, tier 2, and tier 3 capital to
risk-weighted assets.
22. Banks have an option to phase in the effects of the implementation of FAS 166 and 167 on risk-weighted assets and tier 2 capital
over four quarters. See Board of Governors of the Federal Reserve
System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Office of Thrift Supervision (2010),
‘‘Agencies Issue Final Rule for Regulatory Capital Standards Related
to Statements of Financial Accounting Standards Nos. 166 and 167,’’
press release, January 21, www.federalreserve.gov/newsevents/press/
bcreg/20100121a.htm.

A20

Federal Reserve Bulletin h May 2010

The Capital Purchase Program and the Supervisory Capital Assessment Program
In 2009, parent bank holding companies (BHCs) transferred a record level of capital to commercial banks
within their organizational structures. Such transfers resulted in significantly higher regulatory capital ratios for
those subsidiary banks. The capital transfers themselves
were initially supported by large injections of government
capital at the BHC level through the Troubled Asset Relief Program (TARP), launched in October 2008, and primarily through the TARP Capital Purchase Program
(CPP).1 The CPP initially was allotted $250 billion to purchase senior preferred shares of financial institutions in
order to stabilize the financial system by increasing the
capital base of financial institutions and to support their
capacity to make loans to businesses and households. Financial institutions participating in the program agreed to
pay the Treasury a 5 percent dividend on the preferred
shares per year for the first five years and 9 percent per
year thereafter. At the end of 2008, the CPP had almost
$180 billion invested in more than 200 financial institutions. Most of the capital was committed to the largest
U.S. financial institutions (figure C, top panel). By the end
of 2009, more than 650 institutions had received CPP investments. CPP balances peaked at close to $200 billion
in the second quarter, but afterward many banks began to
repay those investments. As of year-end, CPP balances
had fallen to less than $85 billion.
A turning point in the outstanding balances of the CPP
program was the Supervisory Capital Assessment Program (SCAP), otherwise known as the bank stress tests.
Led by the Federal Reserve, the U.S. federal banking supervisory agencies conducted the SCAP from February to
April 2009 and released the results in May.2 The objective

1. The Treasury also purchased preferred stock at Citigroup, Inc., and
Bank of America Corporation through the TARP Targeted Investment Program (TIP). Both institutions fully repaid their TIP balances in the fourth
quarter of 2009.
2. For an overview of the results, see www.federalreserve.gov/
bankinginforeg/scap.htm.

senior stakeholders against unexpected losses that a
bank may potentially incur beyond what it has set
aside in reserves. In the current uncertain economic
environment, banks may want a larger than usual
buffer. Moreover, banks’ loan loss reserves—which
are intended to cover estimated likely credit losses—
have fallen to very low levels relative to their
delinquent loans and charge-offs, even as certain
sectors of the economy to which many banks have
significant exposures, such as commercial real estate, remain fragile. Finally, both national and international authorities are considering tightening capital requirements in light of the crisis.
Although not part of regulatory capital, accumulated other comprehensive income (AOCI), which

of the SCAP was to conduct a comprehensive, consistent,
and simultaneous assessment of capital needs across the
19 largest BHCs using a common set of macroeconomic
scenarios and a common forward-looking framework.3
More specifically, the SCAP estimated losses, revenues,
and loss reserve needs for the next two years under two
macroeconomic scenarios.4 The program was designed to
assess the need for a BHC to raise or improve the quality
of capital in order to have sufficient capital buffers to sustain lending even in a more adverse economic scenario.
The SCAP results identified 10 BHCs as requiring additional capital or higher-quality capital. The detailed publication of the SCAP results also helped clarify the financial
conditions of the largest BHCs and provided investors
with greater assurance about the health of these institutions. The resulting improvement in market sentiment regarding banking institutions, reinforced by the stabilization of the economic outlook at the time, allowed the
BHCs to tap capital markets for substantial funds. Most of
the 19 BHCs included in the SCAP issued equity, some to
raise their required SCAP buffer and some to repay the

3. The following 19 BHCs were in the SCAP: American Express Company; Bank of America Corporation; The Bank of New York Mellon Corporation; BB&T Corporation; Capital One Financial Corporation; Citigroup, Inc.; Fifth Third Bancorp; GMAC LLC; The Goldman Sachs
Group, Inc.; JPMorgan Chase & Co.; KeyCorp; MetLife, Inc.; Morgan
Stanley; PNC Financial Services Group, Inc.; Regions Financial Corporation; State Street Corporation; SunTrust Banks, Inc.; U.S. Bancorp; and
Wells Fargo & Company Bank Holding Company.
4. The two scenarios consisted of a ‘‘baseline scenario’’ and a ‘‘more
adverse scenario.’’ The baseline scenario relied on a consensus view about
the depth and duration of the recession, assuming real GDP growth and the
unemployment rate for 2009 and 2010 equal to the average of the projections published by Consensus Forecasts, the Blue Chip survey, and the
Survey of Professional Forecasters as of February 2009. In addition, house
prices were assumed to be in line with futures prices for the S&P/CaseShiller 10-city composite index in late February and with the average response to a special question on house prices in the Blue Chip survey. The
more adverse scenario was designed to characterize a recession longer and
more severe than the consensus expectation, with house prices assumed to
be significantly lower by the end of 2010 than in the baseline scenario.

includes net unrealized gains and losses on availablefor-sale securities and accumulated net gains and
losses on cash flow hedges, continued to play an
important role as a component of equity last year.
Particularly during the period of greatest stress on the
banking system in late 2008 and the first half of 2009,
market participants focused on various measures of
tangible common equity (TCE) relative to tangible or
risk-weighted assets as important indicators of banks’
financial condition. These measures usually incorporated AOCI in the calculation of tangible capital. The
increase in AOCI, which was largely due to the
notable reduction in unrealized losses on availablefor-sale securities, helped improve industry TCE
ratios in 2009.

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2009

Treasury investments through the CPP and, eventually,
other TARP programs (figure C, bottom panel). Other
banks also issued equity in the second half of 2009 to bolster their capital or repay CPP investments. The preferred
shares owned by the government were replaced primarily
with common stock held by private investors. Reflecting
the inflow of both government and private capital to
BHCs, capital transfers by the BHCs to their commercial
bank subsidiaries were strong throughout 2009.
While the CPP and SCAP helped reduce the uncertainty
about the capital adequacy of large financial institutions
and contributed to improved market functioning, it is difficult to assess the extent to which the CPP and SCAP
succeeded in fostering lending to creditworthy businesses
and households. Banks’ lending activity, as measured by
the sum of total loans and unused loan commitments outstanding, fell substantially last year, and lending standards
and terms continued to tighten according to the Federal
Reserve’s Senior Loan Officer Opinion Survey on Bank
Lending Practices. However, some of the fall in credit
was likely due to weaker demand by households and businesses as the economy remained fragile. In addition, at
least some tightening of credit standards and terms is also
to be expected when economic growth is weak or uncertain, and so a tightening may not reflect pressures on capital. Indeed, credit might have been even weaker and lending standards even tighter without the programs.
One can say, however, that the cumulative magnitude
of the capital transfers that were stimulated by the CPP
and SCAP was substantial. Without the capital transfers
from parent BHCs since the fourth quarter of 2008, the
regulatory capital ratios of commercial banks would have
been 11⁄2 to 2 percentage points lower at the end of 2009.
Although some of that difference in regulatory capital ratios in the absence of the CPP likely would have been
made up through other means, such as stock sales and
conversions, a further decrease in risk-weighted assets and
average tangible assets may also have resulted.

TRENDS IN PROFITABILITY
Total annual net income of the commercial banking
industry as a percentage of average assets remained
depressed in 2009, as profits were weighed down by
high levels of loss provisioning. Elevated provisions
were offset by higher noninterest income, particularly
income from capital-market-related activities. Net
interest margins remained basically unchanged, and
noninterest expense edged down despite significant
increases in FDIC assessments. Notably, large banks
posted a small profit, on balance, while other banks
ended the year with an aggregate loss.
Return on assets for the banking industry as a
whole stayed very low by historical standards at
0.04 percent, and return on equity was 0.42 percent,
with both profitability measures depressed by el-

A21

C. Outstanding balance in the Capital Purchase Program,
and cumulative gross secondary equity issuance,
October 2008–February 2010
Billions of dollars

Outstanding CPP balance
250
Total
200
150
100
SCAP banks
50
+
0_
2008

2009

2010

Cumulative gross secondary equity issuance
150

100

Financial companies

50

SCAP banks

+
_0

2008

2009

2010

NOTE: The data are daily and extend from October 28, 2008, to
February 24, 2010. CPP is the Capital Purchase Program; SCAP is the
Supervisory Capital Assessment Program.
SOURCE: For outstanding CPP balance, Department of the Treasury; for
cumulative gross secondary equity issuance, Securities Data Corporation
New Issues Database.

evated loss provisioning amid the deterioration in
credit quality. Banks increased provisioning to
1.95 percent of industry average consolidated assets
in 2009, up from 1.48 percent in 2008. At the same
time, charge-offs surged to 1.47 percent of industry
assets—compared with 0.83 percent in 2008—
limiting the rise in the stock of loan loss reserves, and
delinquency rates increased dramatically throughout
2009. Although the rate of provisioning edged down
in the final quarter of last year, consistent with
reduced charge-offs in some loan categories, some
measures of reserve adequacy remained very low.
Despite the high levels of provisioning, the ROA at
large banks increased from 0.04 percent in 2008 to
0.12 percent in 2009. The improvement in profitability was due mainly to a rebound in these banks’

A22

Federal Reserve Bulletin h May 2010

noninterest income. In particular, trading revenue at
large banks was boosted by significant improvements
in financial markets throughout the year, including
higher equity prices and lower interest rates on corporate bonds and other securities. In addition, relative to
2008, less noninterest expense, smaller losses on
securities held in investment accounts, and improvements in net interest income supported earnings for
the 100 largest banks. The improvement in net interest income was attributable to significant inflows of
relatively low-cost core deposits, allowing banks to
run off their more expensive managed liabilities.
However, the improvement in profitability among the
largest institutions was not uniform (figure 26, top
panel). Forty-three of the top 100 banks—accounting
for about 35 percent of the assets of such banks—
incurred losses, compared with 35 of the top 100
banks in 2008.
In contrast, the fourth quarter of 2009 marked the
sixth consecutive quarter of losses at small and
26. Distribution of return on assets at commercial banks,
by size of bank and by percentage of assets at all
banks in each size category, 2008–09

medium-sized banks. ROA for such banks fell to
negative 0.29 percent in 2009 from 0.10 percent in
the previous year. The modest leftward shift in the
distribution of ROA for such banks in 2009 reflects a
deterioration in profitability for the group as a whole
(figure 26, bottom panel). The fraction of small and
medium-sized banks that incurred annual losses increased to about 30 percent in 2009, up from 23 percent in 2008. These institutions accounted for about
36 percent of assets at all small and medium-sized
banks.
Several factors contributed to the weaker performance of smaller banks relative to larger ones.
Smaller banks are not active in the capital market
activities that provided a substantial source of revenue for large banks. In addition, smaller banks are
relatively more exposed to the deterioration in loan
quality, as loans compose a higher percentage of their
assets. On the cost side, smaller banks could not
substitute additional core deposits for managed liabilities to the same degree as large banks, as smaller
banks already relied significantly on low-cost deposits for funding.

Interest Income and Expense
100 largest banks

Percentage of assets at top 100 banks

50

2008
2009

40
30
20
10

-2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5

Small and medium-sized banks

Percentage of assets at all other banks

2008
2009

50
40
30
20
10

-2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5

Return on assets (percent)
NOTE: Assets are deflated by a gross domestic product price deflator. For
the definition of bank size, see the general note on the first page of the main
text.

Overall, banks earned an average of 4.62 percent on
their interest-earning assets in 2009, down from
5.72 percent in the previous year. The decline was due
partly to large compositional shifts in banks’ assets
from loans to securities, an asset class that typically
carries lower average interest rates. Indeed, the average effective interest rate on loans last year was
5.54 percent, while the rate on securities was significantly lower at 4.15 percent. However, the effective
interest rate earned on loans net of provisioning fell
sharply to just 2.10 percent, an unusually low rate of
return by historical standards. The deterioration in
loan quality also significantly reduced banks’ interest
income, as large fractions of loans that had yet to be
charged off moved to nonaccrual status.
Meanwhile, consistent with the extended period of
accommodative monetary policy, the average interest
rate that banks paid on their interest-bearing liabilities
fell steeply again, from 2.53 percent in 2008 to
1.30 percent in 2009. However, banks’ use of substantial inflows of core deposits to pay down more costly
managed liabilities was also an important factor in the
decline. Core deposits are an attractive source of
funding for banks because they tend to be fairly
stable, as well as carry relatively low interest costs
compared with managed liabilities. Most of the
increase in core deposits last year came in the form of
savings deposits, for which the effective interest rate

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2009

27. Net interest margin and core deposits as a percentage
of total assets, by size of bank, 1990–2009
Percent

Net interest margin

5.00
4.75
Small and medium-sized
4.50
4.25

100 largest

4.00
3.75
3.50

Banks in top 5 BHCs
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

3.25

Percent

A23

top five BHCs jumped from less than 33 percent of
average consolidated assets in 2008 to almost 39 percent in 2009 (figure 27, bottom panel). In addition,
the substantial increase in equity capital at large
organizations, though accounting for a small percentage of assets, also boosted net interest margins, as
neither common nor preferred dividends are included
in banks’ interest expense.
In contrast, core deposits at small and mediumsized banks have been relatively stable over the past
few years, averaging just above 60 percent of assets
since 2006. The net interest margins at small and
medium-sized banks decreased from 3.80 percent in
2008 to 3.61 percent in 2009, as the drop in their asset
yields exceeded the decline in the rates they paid on
their liabilities.

Core deposits as a percentage of total assets
75

Noninterest Income and Expense

65

Total noninterest income rebounded in 2009 to
2.07 percent of average assets. Most of the improvement was due to trading revenue at large banks
returning to pre-crisis levels (figure 28, top panel).
However, large banks’ noninterest income was also
boosted by a significant increase in income from net
servicing fees and a substantial rise in the fair value of
financial instruments accounted for under a fair value
option as conditions in financial markets improved.23
These improvements at large banks were offset somewhat by a sizable drop in net securitization income and
a small decline in income from deposit fees. Income
from fiduciary activities also decreased, largely because of a sharp drop in the first quarter of 2009 as
assets under management and the number of accounts
at bank trust departments fell in the wake of the decline
in stock prices. In contrast, noninterest income at small
and medium-sized banks inched down last year to
1.34 percent of average assets, primarily because they
also suffered from the decrease in income from fiduciary activities (figure 28, middle panel).
The divergent pattern of noninterest income between the large and the other banks mostly reflected
the different composition of their financial intermediation activities. Trading revenue, net servicing fees,
card interchange fees, and net securitization income
composed less than 13 percent of small and mediumsized banks’ noninterest income in 2009, compared

Small and medium-sized
55
100 largest

45
35

Banks in top 5 BHCs

25

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
NOTE: The data are annual. Net interest margin is net interest income
divided by average interest-earning assets. Core deposits consist of
transaction deposits, savings deposits, and small time deposits. For the
definition of bank size, see the general note on the first page of the main text;
for the definition of the top five bank holding companies (BHCs), see text
note 19.

paid in 2009, measured by interest paid on such
accounts relative to their average balances, was historically low at about 0.50 percent, down from
1.24 percent in 2008.
On balance, the industry-wide net interest margin
was little changed in 2009 despite the reported widening of spreads for many types of new loans over
banks’ cost of funds, as noted in the SLOOS, and
evidence of wider spreads on newly originated commercial and industrial loans from the Survey of Terms
of Business Lending, possibly due to a large fraction
of loans moving to nonaccrual status. However, the
net interest margin for the largest banks improved
noticeably over the past two years: For banks in the
top five BHCs, net interest margins increased from
3.13 percent in 2007 to 3.55 percent in 2009 (figure 27, top panel). These institutions benefited the
most from the decrease in funding costs associated
with shedding higher-cost managed liabilities in favor
of core deposits. Indeed, core deposits at banks in the

23. Some of the increase in the fair value of financial instruments
may have been related to the new fair value guidance that was issued
by the Financial Accounting Standards Board in April 2009 (FASB
Staff Position FAS 157–e), which reduced the emphasis on ‘‘last
transaction price’’ when markets are not active and transactions are
likely to be forced or distressed. Generally, larger banks have tended to
adopt the fair value option more widely than smaller banks.

A24

Federal Reserve Bulletin h May 2010

with about 35 percent for large banks. For large
banks, trading revenue was boosted to pre-crisis
levels by significant improvements in income from
interest rate and credit exposures as conditions in
financial markets improved (figure 28, bottom panel).
The increase in net servicing fees—which include
income from servicing mortgages, credit cards, and
other off-balance-sheet assets, as well as changes in
the fair value of such servicing rights—was partly a
consequence of the consolidation of some large thrift
28. Noninterest income, and selected components, as a
proportion of total assets, by size of bank, 2002–09
Percent

Noninterest income

3.0
2.8

100 largest

2.6
2.4
2.2

Small and medium-sized

2.0
1.8
1.6
1.4
1.2

2002

2003

2004

2005

2006

2007

2008

2009

Percent

All banks
.45
Deposit fees
.40
.35
.30
Fiduciary income

.25

institutions into the banking sector in the second and
fourth quarters of 2009. Further, large banks reportedly sold sizable amounts of seasoned residential
mortgage loans to the government-sponsored enterprises last year, and some may have retained servicing rights to those loans. While bankcard and credit
card interchange fees continued to be an important
source of noninterest income for large banks, net
securitization income fell rapidly for the second
consecutive year because of relatively subdued securitization activity.24 Other noninterest income items
not mentioned separately already made up about
35 percent of noninterest income for the industry as a
whole.25
Banks’ noninterest expense edged down to 3 percent of average assets in 2009 (figure 29, top panel).
Salaries, wages, and employee benefits composed
about 43 percent of noninterest expense, a figure that
continues to be fairly low by historical standards.
Among other noninterest expense items, net expenses
of premises and fixed assets (excluding mortgage
interest) continued to account for about 12 percent of
noninterest expense. Goodwill impairment charges
decreased from more than $26 billion in 2008 to about
$10 billion in 2009.26 That improvement was offset,
however, by rising FDIC assessment fees, which
jumped to about $17 billion in 2009 from slightly more
than $1 billion in 2008 (figure 29, bottom panel); those
fees were exceptionally elevated in the second quarter
of 2009, when the FDIC levied a special assessment
fee in order to replenish the Deposit Insurance Fund
(DIF) because of the growing number of bank failures.
In the second half of 2009, the FDIC raised its
estimated cost of bank failures and required banks to
prepay regular assessments through 2012, with higher
assessment rates applied for 2011 and 2012, in order to

.20

2002

2003

2004

2005

2006

2007

2008

2009

Percent

100 largest banks
.4

Net securitization income

.3
.2
.1

Net servicing fees

+
0
_
Trading income
2002

2003

2004

2005

2006

2007

2008

2009

NOTE: The data are annual. For the definition of bank size, see the general
note on the first page of the main text.

24. Such income is composed of net gains and losses on assets sold
in the bank’s own securitization transactions net of transaction costs—
this includes unrealized losses (and recoveries of unrealized losses) on
loans and leases held for sale in the bank’s own securitization
transactions and fee income from securitizations, securitization conduits, and structured finance vehicles.
25. These other items include fees and commissions from securities
brokerage, investment banking, advisory services, securities underwriting, and annuity sales; underwriting income from insurance and
reinsurance activities; venture capital revenue; net gains and losses on
sales of assets excluding securities; and other noninterest items. Items
reported separately already are deposit fees, net servicing fees, fiduciary income, trading revenue, card interchange fees, the net change in
the fair value of financial instruments, and net securitization income.
26. Banks incur goodwill impairment losses when the market value
of their business segments (or reporting units) drops below the fair
value recorded by the company. Companies must test for impairment
of goodwill annually or when events occur that would likely reduce
the fair value of a business segment (or reporting unit) below the
carrying value. Assets are written down when considered overvalued
compared with the market value—that is, the amount that a potential
(or actual) acquirer would be willing to pay (or had paid) for the assets.

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2009

29. Noninterest expense and selected components, and
other selected components of noninterest expense,
as a proportion of total assets, 2002–09
Percent

Noninterest expense and selected components

4.0
3.5

Noninterest expense

3.0
2.5
2.0

Salaries and benefits

1.5
1.0

Occupancy

2002

2003

2004

2005

2006

.5
+
0
_
2007

2008

2009

Percent

Other selected components of noninterest expense
.25
.20
.15

Advertising and data processing

.10

Goodwill impairment
losses

.05

FDIC assessments
2002

2003

2004

2005

2006

2007

2008

+
0
_

2009

NOTE: The data are annual. For the definition of goodwill impairment
losses, see text note 26. FDIC is the Federal Deposit Insurance Corporation.

shore up the DIF. This prepayment was not considered
to be noninterest expense for 2009, but rather was
booked as a prepaid asset to be expensed smoothly
over the next three years. According to the FDIC, these
prepayments totaled $46 billion for all FDIC-insured
institutions. Banks were able to reduce expenses in
other noninterest categories, which include data processing expenses, advertising and marketing costs,
and other items.27

INTERNATIONAL OPERATIONS
OF U.S. COMMERCIAL BANKS
The share of U.S. bank assets booked in foreign
offices edged down from about 121⁄2 percent at yearend 2008 to just less than 121⁄4 percent at year-end
2009. Assets booked abroad remained highly concentrated among the largest banks. Commercial banks
returned to profitability on their international opera27. Other items include amortization expense and impairment
losses for intangible assets besides goodwill, as well as other noninterest expense items.

A25

tions in 2009, though losses were reported on domestic operations for the first time since at least 1985.
However, profits at foreign offices would have been
negative and those at domestic offices positive, as was
the case in 2008, had there not been a large reduction
in internal allocations of income and expense applicable to foreign offices at one large bank. Before such
allocations and restructuring activity for the industry
as a whole, net income from foreign offices as a
percentage of average assets booked in foreign offices
remained about the same as in 2008. More specifically, large increases in provisioning for loans and
leases held at banks’ foreign offices and a fall in
noninterest income were offset by significantly smaller
noninterest expense and a return to positive realized
gains in investment account securities.
Banks’ total exposures to foreign economies
through lending and derivatives activities increased in
2009, as two investment banks with large foreign
exposures became BHCs and were added to the
Federal Financial Institutions Examination Council’s
Country Exposure Lending Survey (table 3). Without
the change in the sample of banks, such foreign
exposures would have continued to decline. The vast
majority of U.S. banks’ cross-border lending and
derivatives outstanding—in dollar terms—remained
in the advanced foreign economies at the end of
2009.28 Lending and derivatives activities outstanding in Asia were about 12 percent of total foreign
exposure, or 35 percent of total tier 1 capital of the
banks in the survey. Lending and derivatives exposures to the Latin American and the Caribbean regions
and such exposures to a selected group of European
Union countries (Greece, Ireland, Italy, Portugal, and
Spain) were both about 25 percent of total tier 1
capital.

DEVELOPMENTS IN EARLY 2010
U.S. economic activity continued to recover in the
first quarter of 2010, and financial market conditions
remained broadly supportive of economic recovery.29
In particular, household spending expanded moderately, while business spending on equipment and
software rose significantly. The equity and bond
markets continued to be an important source of
funding for large corporations. Treasury yields, interest rates on business loans, and mortgage rates
28. The advanced foreign economies include Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, the Netherlands,
New Zealand, Norway, Portugal, South Africa, Spain, Sweden, Switzerland, Turkey, and the United Kingdom.
29. This section reflects information available through mid-April.

A26

Federal Reserve Bulletin h May 2010

3. Exposure of U.S. banks to selected economies at year-end relative to tier 1 capital, 1998−2009
Percent
Asia

Latin America and the Caribbean

Year

Eastern
Europe

Non-G-10
G-10 and developed
Switzerland1 countries2

Total

Memo
Selected
EU
countries3

All

China

India

Korea

All

Mexico

Brazil

..........
..........
..........
..........
..........
..........
..........
..........

28.2
24.0
21.9
32.2
34.7
44.6
30.8
35.2

1.0
.8
.9
1.4
4.1
4.5
3.4
6.4

2.2
2.6
2.7
4.2
6.1
9.8
6.1
6.1

7.1
6.4
5.8
15.0
13.6
14.4
10.7
11.3

42.9
37.9
38.9
31.8
30.8
35.6
25.5
25.0

9.9
9.1
20.8
16.6
16.8
17.2
12.9
12.0

11.3
11.2
8.4
6.5
5.7
8.2
5.0
7.0

3.5
4.4
5.5
6.1
6.5
9.0
5.4
4.6

182.5
174.6
172.1
198.2
174.7
219.3
166.3
198.1

37.1
32.8
21.3
37.2
38.5
48.3
35.3
39.9

294.3
273.7
259.8
305.4
285.1
356.6
263.3
302.8

29.7
26.9
23.9
25.7
23.2
27.0
20.0
25.4

Memo
Total exposure
(billions of
dollars)
1998 . . . . . . . . . .
2000 . . . . . . . . . .
2002 . . . . . . . . . .
2004 . . . . . . . . . .
2006 . . . . . . . . . .
2007 . . . . . . . . . .
2008 . . . . . . . . . .
2009 . . . . . . . . . .

69.1
68.0
69.5
125.8
190.5
249.8
217.4
328.4

2.3
2.2
2.7
5.3
22.7
25.5
24.3
59.5

5.4
7.5
8.7
16.3
33.6
54.9
43.1
56.8

17.3
18.1
18.4
58.7
74.8
80.8
75.3
105.2

105.0
107.3
123.5
124.4
168.9
199.3
179.7
233.2

24.1
25.7
66.2
65.2
92.5
96.1
90.7
111.4

27.6
31.6
26.6
25.5
31.5
46.2
35.6
65.6

8.5
12.3
17.5
23.8
35.5
50.2
37.9
42.6

446.3
494.6
546.5
775.7
959.1
1,229.0
1,172.9
1,846.2

90.8
93.0
67.7
145.5
211.2
270.5
248.6
371.9

719.6
775.3
824.7
1,195.4
1,565.2
1,998.8
1,856.5
2,822.3

72.5
76.3
75.9
100.6
127.1
151.6
141.0
236.8

1998
2000
2002
2004
2006
2007
2008
2009

Note: Exposures consist of lending and derivatives exposures for crossborder and local-office operations. Respondents may file information on one
bank or on the bank holding company as a whole. For the definition of tier 1
capital, see text note 21.
The 2009 data cover 69 banks (which include two large, newly formed bank
holding companies) with a total of $932.1 billion in tier 1 capital. The 2008
data covered 68 banks with a total of $705.1 billion in tier 1 capital.
1. The G-10 (Group of Ten) countries are Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Sweden, and the United
Kingdom.

2. The non-G-10 developed countries include Australia, Austria, Denmark,
Finland, Greece, Iceland, Ireland, Israel, New Zealand, Norway, Portugal,
South Africa, Spain, and Turkey.
3. The selected European Union (EU) countries consist of Greece, Ireland,
Italy, Portugal, and Spain.
Source: Federal Financial Institutions Examination Council, Statistical Release E.16, “Country Exposure Lending Survey” (www.ffiec.gov/E16.htm).

remained low by historical standards, partly due to
accommodative monetary policy. The Federal Open
Market Committee continued to maintain a target
range for the federal funds rate of 0 to 1⁄4 percent.
Financial markets showed little effect from the end of
the Federal Reserve’s purchases of agency mortgagebacked securities and agency debt and the expiration
of most of the Federal Reserve’s emergency credit
facilities. However, unemployment remained elevated,
investment in nonresidential structures declined further, and home sales generally remained low.
Amid tight credit conditions and reportedly weak
demand, loans to both businesses and households
continued to decline during the first three months of
2010. Commercial and industrial loans contracted
further as spreads of interest rates on such loans over
comparable-maturity market instruments climbed
again in the first quarter. Commercial real estate loans
also posted a substantial decline, which reflected
weak investment in nonresidential structures. Resi-

dential real estate loans also ran off, likely owing
importantly to greater securitizations of mortgages to
the government-sponsored enterprises and sluggish
home sales, while credit card balances continued to
fall, perhaps partly in response to further increases in
interest rates on credit cards.
Bank profitability improved significantly in the
first quarter of 2010 as many banks reported tentative
improvements in credit quality. In particular, the four
largest bank holding companies recorded profits in
the first quarter of 2010, as trading revenue and lower
loss provisioning boosted earnings. Indeed, the fairly
broad-based decline in loss provisioning also contributed to improved earnings at many regional banks.
Nevertheless, regional and smaller banks continued
to struggle with profitability as credit losses on core
lending operations remained high. Moreover, failures
of smaller banks continued in 2010 at about the same
pace as 2009, driven largely by credit losses on
commercial real estate lending.

Appendix tables start on p. A27

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2009

A27

A.1. Portfolio composition, interest rates, and income and expense, U.S. banks, 2000–09
A. All banks
Item

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Balance sheet items as a percentage of average net consolidated assets
1

Interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . .
Loans and leases (net). . . . . . . . . . . . . . . . . . . . . . . .
Commercial and industrial . . . . . . . . . . . . . . . . .
U.S. addressees . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign addressees . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Installment and other . . . . . . . . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In domestic offices . . . . . . . . . . . . . . . . . . . . . .
Construction and land development . . . .
Farmland . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
One- to four-family residential. . . . . . . . .
Home equity . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multifamily residential . . . . . . . . . . . . . . . .
Nonfarm nonresidential . . . . . . . . . . . . . . .
In foreign offices . . . . . . . . . . . . . . . . . . . . . . . .
To depository institutions and
acceptances of other banks . . . . . . . . . . .
Foreign governments . . . . . . . . . . . . . . . . . . . . . .
Agricultural production . . . . . . . . . . . . . . . . . . . .
Other loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease-financing receivables . . . . . . . . . . . . . . . .
Less: Unearned income on loans . . . . . . . . . . .
Less: Loss reserves2 . . . . . . . . . . . . . . . . . . . . . . .
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment account . . . . . . . . . . . . . . . . . . . . . . . .
Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency and
corporation obligations . . . . . . . . . . .
Government-backed mortgage pools .
Collateralized mortgage obligations . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local government . . . . . . . . . . . .
Private mortgage-backed securities . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading account . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds sold and reverse RPs . . . . .
Balances at depositories1 . . . . . . . . . . . . . . . . . . . . .
Noninterest-earning assets1 . . . . . . . . . . . . . . . . . . . . .
Revaluation gains held in trading accounts . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

87.13
60.48
17.16
14.67
2.49
9.38
3.52
5.87
27.04
26.49
2.51
.56
14.96
1.96
13.00
.99
7.48
.54

86.49
58.95
16.08
13.69
2.39
9.23
3.69
5.55
27.10
26.60
2.85
.55
14.67
2.18
12.49
.97
7.56
.50

86.42
57.83
14.07
12.04
2.04
9.35
3.78
5.57
28.39
27.91
2.98
.56
15.40
2.80
12.60
1.02
7.95
.48

86.08
56.88
12.18
10.48
1.70
9.06
3.55
5.51
29.91
29.45
2.99
.54
16.96
3.40
13.57
1.05
7.91
.46

86.90
56.98
11.06
9.52
1.54
9.18
3.87
5.31
30.77
30.24
3.26
.54
17.42
4.34
13.08
1.06
7.97
.53

86.82
57.88
11.17
9.64
1.53
9.12
4.06
5.06
32.40
31.84
3.90
.54
18.26
4.95
13.31
1.08
8.06
.56

86.86
58.26
11.42
9.73
1.70
8.53
3.73
4.80
33.19
32.61
4.73
.53
18.23
4.71
13.51
1.06
8.07
.58

86.94
58.37
11.84
9.86
1.98
8.43
3.72
4.71
33.37
32.76
5.05
.53
18.31
4.49
13.82
1.04
7.84
.60

85.28
56.73
12.08
10.12
1.96
8.33
3.68
4.65
31.96
31.35
4.73
.52
17.29
4.60
12.70
1.10
7.70
.61

85.71
53.96
10.77
9.20
1.57
8.06
3.59
4.47
32.02
31.50
3.99
.55
17.59
5.07
12.52
1.30
8.07
.53

1.87
.12
.78
2.58
2.63
–.05
–1.02
20.02
17.59
16.93
1.66

1.83
.10
.75
2.34
2.58
–.04
–1.04
19.53
16.82
16.48
.85

1.87
.09
.70
2.06
2.44
–.05
–1.11
21.27
18.30
17.99
.78

1.98
.08
.63
2.00
2.11
–.04
–1.03
21.90
18.97
18.72
.90

2.11
.08
.59
2.35
1.79
–.04
–.91
22.57
18.99
18.79
.89

1.73
.06
.56
2.09
1.58
–.03
–.79
22.04
17.87
17.71
.62

1.65
.04
.55
2.19
1.43
–.03
–.71
21.32
16.89
16.73
.47

1.21
.03
.52
2.48
1.23
–.02
–.70
20.77
15.41
15.23
.32

1.19
.02
.49
2.64
1.07
–.02
–1.03
19.27
14.13
13.95
.24

1.01
.02
.49
2.26
.94
–.02
–1.58
20.39
16.62
16.36
.52

10.31
4.75
1.92
3.63
1.52
.95
2.48
.66
2.43
4.12
2.52
12.87
2.28
10.58

10.08
5.13
1.95
2.99
1.49
1.09
2.98
.34
2.72
5.11
2.90
13.51
2.37
11.14

11.46
6.09
2.35
3.02
1.49
1.25
3.01
.31
2.97
4.81
2.52
13.58
2.42
11.16

12.26
6.75
2.34
3.17
1.48
1.30
2.78
.25
2.93
4.85
2.46
13.92
2.70
11.22

12.37
7.13
2.01
3.22
1.41
1.41
2.72
.20
3.59
4.58
2.76
13.10
2.19
10.91

11.51
6.78
1.80
2.93
1.36
1.76
2.47
.16
4.17
4.75
2.14
13.18
1.82
11.36

10.65
6.43
1.58
2.65
1.34
1.89
2.37
.16
4.43
5.30
1.98
13.14
1.64
11.51

9.32
5.82
1.34
2.16
1.34
2.15
2.10
.18
5.36
5.49
2.30
13.06
1.73
11.33

8.14
5.47
1.27
1.40
1.20
2.10
2.28
.18
5.13
6.03
3.25
14.72
2.83
11.90

9.32
6.14
1.52
1.66
1.27
1.88
3.36
.26
3.77
4.54
6.82
14.29
2.78
11.51

Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction deposits . . . . . . . . . . . . . . . . . . . . . . .
Demand deposits . . . . . . . . . . . . . . . . . . . . . . . .
Other checkable deposits . . . . . . . . . . . . . . . .
Savings deposits (including MMDAs) . . . . . .
Small time deposits . . . . . . . . . . . . . . . . . . . . . . . .
Managed liabilities3 . . . . . . . . . . . . . . . . . . . . . . . . . .
Large time deposits . . . . . . . . . . . . . . . . . . . . . . . .
Deposits booked in foreign offices . . . . . . . . . .
Subordinated notes and debentures . . . . . . . . .
Gross federal funds purchased and RPs . . . . .
Other managed liabilities. . . . . . . . . . . . . . . . . . .
Revaluation losses held in trading accounts. . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

91.58
46.52
11.07
8.61
2.46
22.43
13.01
38.83
8.77
11.43
1.37
7.83
9.44
2.29
3.94

91.25
47.07
10.36
8.00
2.36
24.53
12.18
37.42
8.89
10.66
1.43
7.95
8.49
2.21
4.54

90.85
48.98
10.06
7.67
2.39
28.13
10.80
35.05
8.30
9.42
1.40
7.77
8.16
2.09
4.73

90.96
49.18
9.73
7.26
2.47
30.12
9.33
34.61
8.09
9.38
1.33
7.75
8.06
2.30
4.87

90.57
48.56
9.10
6.58
2.52
31.19
8.27
35.69
8.00
10.25
1.30
7.24
8.91
1.95
4.36

89.91
47.52
8.46
6.16
2.30
30.83
8.23
36.25
9.11
10.39
1.34
7.05
8.37
1.67
4.47

89.84
45.56
7.45
5.41
2.04
29.49
8.62
38.29
10.07
11.18
1.40
7.53
8.11
1.51
4.47

89.78
43.89
6.43
4.66
1.77
28.21
9.26
39.85
9.13
12.81
1.55
7.06
9.31
1.59
4.44

90.07
42.72
6.16
4.53
1.63
27.04
9.51
41.08
9.13
13.09
1.51
6.98
10.38
2.27
4.01

89.50
46.92
6.90
5.06
1.84
29.98
10.04
37.09
8.32
12.56
1.39
6.05
8.77
1.98
3.51

Capital account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8.42

8.75

9.15

9.04

9.43

10.09

10.16

10.22

9.93

10.50

11.58
.05
7.63
n.a.
.42
n.a.
.42

12.09
.05
8.17
2.89
.40
n.a.
.40

12.57
.06
9.69
3.17
.38
n.a.
.38

12.47
.06
10.39
3.19
.40
n.a.
.40

12.78
.06
10.56
3.07
.35
n.a.
.35

13.52
.04
10.33
3.04
.29
n.a.
.29

14.35
.05
9.89
3.07
.24
n.a.
.24

14.47
.07
9.31
3.66
.20
n.a.
.20

14.10
.13
8.84
4.45
3.44
3.00
.44

13.91
.28
9.55
3.77
4.14
4.14
n.a.

2.52

2.90

2.52

2.46

2.76

2.14

1.98

2.30

2.69

2.68

5,907

6,334

6,635

7,249

7,879

8,592

9,427

10,396

11,578

11,869

Memo
Commercial real estate loans4 . . . . . . . . . . . . . . . . . . .
Other real estate owned5 . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . . . . . . . .
Balances at the Federal Reserve1 . . . . . . . . . . . . . . .
Interest-earning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest-earning . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-earning balances at depositories
other than the Federal Reserve . . . . . . . . . . . . .
Average net consolidated assets
(billions of dollars) . . . . . . . . . . . . . . . . . . . . . . . .

A28

Federal Reserve Bulletin h May 2010

A.1. Portfolio composition, interest rates, and income and expense, U.S. banks, 2000–09—Continued
A. All banks—Continued
Item

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Effective interest rate (percent)6
Rates earned
Interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent . . . . . . . . . . . . . . . . . . . . . .
Loans and leases, gross . . . . . . . . . . . . . . . . . . . . . .
Net of loss provisions . . . . . . . . . . . . . . . . . . .
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent . . . . . . . . . . . . . . . . . . . . . .
Investment account . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury securities and U.S.
government agency obligations
(excluding MBS) . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading account . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds sold and reverse RPs . . . . .
Interest-bearing balances at depositories1 . . . . .

8.20
8.26
9.00
8.33
6.47
6.65
6.45

7.37
7.42
8.15
7.15
6.04
6.22
6.05

6.10
6.15
6.89
5.84
4.95
5.10
5.04

5.29
5.33
6.15
5.47
3.96
4.10
4.00

5.08
5.12
5.91
5.47
3.86
3.99
3.96

5.70
5.73
6.52
6.09
4.18
4.30
4.29

6.65
6.69
7.55
7.18
4.71
4.83
4.86

6.78
6.82
7.54
6.69
5.02
5.14
5.13

5.72
5.74
6.39
3.90
4.86
4.94
4.93

4.62
4.64
5.54
2.10
4.15
4.23
4.31

n.a.
n.a.
n.a.
6.63
5.56
6.48

5.76
6.45
5.60
6.01
3.86
4.01

4.42
5.44
4.74
4.38
1.93
2.79

3.29
4.24
4.08
3.71
1.40
2.09

3.11
4.38
3.76
3.35
1.40
1.98

3.46
4.60
4.23
3.72
2.66
3.70

4.19
5.10
4.76
4.16
4.31
5.10

4.71
5.29
5.02
4.70
5.07
5.13

4.23
5.21
4.58
4.64
2.50
3.23

2.78
4.86
3.94
3.44
.64
.68

Rates paid
Interest-bearing liabilities . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits. . . . . . . . . . . . . . . . . . . . . .
In foreign offices . . . . . . . . . . . . . . . . . . . . . . . . . .
In domestic offices. . . . . . . . . . . . . . . . . . . . . . . . .
Other checkable deposits . . . . . . . . . . . . . . . .
Savings deposits (including MMDAs) . . . .
Large time deposits. . . . . . . . . . . . . . . . . . . . . .
Other time deposits. . . . . . . . . . . . . . . . . . . . . .
Gross federal funds purchased and RPs . . . . . . .
Other interest-bearing liabilities. . . . . . . . . . . . . . .

4.94
4.45
5.61
4.17
2.34
2.86
5.78
5.69
5.77
6.97

3.93
3.61
3.94
3.54
1.96
2.19
5.04
5.43
3.83
5.91

2.38
2.11
2.38
2.06
1.06
1.13
3.37
3.70
1.88
4.49

1.72
1.47
1.62
1.44
.75
.74
2.59
2.88
1.30
3.69

1.63
1.36
1.72
1.29
.77
.72
2.35
2.56
1.49
3.34

2.47
2.06
2.77
1.91
1.41
1.24
3.19
3.14
3.07
4.58

3.59
3.05
3.92
2.85
1.88
2.01
4.39
4.11
4.57
6.29

3.82
3.39
4.23
3.18
2.04
2.22
4.71
4.72
4.97
5.46

2.53
2.26
2.47
2.20
1.16
1.24
3.48
3.83
2.39
4.05

1.30
1.14
.69
1.25
.60
.50
2.22
2.79
.62
2.74

4.88
4.91
3.68
.70
.14
.35
1.96
1.33
.17
.45
2.93
2.95
1.48
1.81
.37
.28
–.01
–.01
.09
.01
–.11
1.16
3.09
1.27
.35
1.46
1.28
–.14
.03
.02
.05
.05
.37
–.32
.54

4.05
4.07
3.10
.72
.03
.20
1.03
.71
.04
.28
3.02
3.05
1.95
2.07
.35
.23
.20
.12
.04
.02
.01
1.30
3.00
1.28
.35
1.37
.93
–.01
.12
.04
–.03
.04
.37
–.32
.42

Income and expense as a percentage of average net consolidated assets
Gross interest income. . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds sold and reverse RPs . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds purchased and RPs . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent . . . . . . . . . . . . . . . . . . . . . . . . .
Loss provisions7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service charges on deposits. . . . . . . . . . . . . . . . . . .
Fiduciary activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate exposures . . . . . . . . . . . . . . . . . . . . .
Foreign exchange rate exposures . . . . . . . . . . .
Other commodity and equity exposures . . . . .
Credit exposures. . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries, wages, and employee benefits. . . . . . . .
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net noninterest expense . . . . . . . . . . . . . . . . . . . . . . . .
Gains on investment account securities . . . . . . . . . .
Income before taxes and extraordinary items. . . . .
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Extraordinary items, net of income taxes . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared. . . . . . . . . . . . . . . . . . . . . .
Retained income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Memo: Return on equity. . . . . . . . . . . . . . . . . . . . . . . .

7.18
7.22
5.53
1.15
.23
.27
3.76
2.56
.45
.75
3.41
3.46
.50
2.59
.40
.38
.21
.08
.08
.04
n.a.
1.61
3.66
1.51
.45
1.70
1.07
–.04
1.81
.63
*
1.18
.89
.29
13.97

6.38
6.42
4.92
1.00
.20
.27
2.98
2.09
.31
.58
3.40
3.44
.68
2.54
.42
.35
.20
.09
.07
.03
n.a.
1.57
3.57
1.49
.44
1.64
1.03
.07
1.77
.59
–.01
1.17
.87
.31
13.41

5.27
5.31
4.06
.89
.09
.22
1.79
1.23
.15
.41
3.48
3.52
.68
2.54
.45
.32
.16
.08
.07
.01
n.a.
1.60
3.47
1.51
.44
1.51
.93
.10
1.96
.65
*
1.32
1.01
.30
14.38

Note: Data are as of March 23, 2010.
1. Effective October 1, 2008, the Federal Reserve began paying interest on
depository institutions’ required and excess reserve balances. Beginning with
the 2008:Q4 Call Report, balances due from Federal Reserve Banks are now
reported under “Interest-earning assets” rather than “Noninterest-earning assets.”
2. Includes allocated transfer risk reserve.
3. Measured as the sum of large time deposits in domestic offices, deposits
booked in foreign offices, subordinated notes and debentures, federal funds
purchased and securities sold under repurchase agreements, Federal Home
Loan Bank advances, and other borrowed money.
4. Measured as the sum of construction and land development loans secured
by real estate; real estate loans secured by nonfarm nonresidential properties or

4.54
4.58
3.55
.74
.07
.18
1.30
.86
.10
.33
3.24
3.28
.45
2.54
.44
.31
.16
.07
.07
.02
n.a.
1.63
3.36
1.50
.43
1.43
.82
.08
2.05
.67
.01
1.39
1.07
.31
15.34

4.43
4.46
3.42
.74
.07
.20
1.25
.81
.11
.33
3.17
3.21
.30
2.40
.42
.32
.13
.03
.07
.03
n.a.
1.53
3.34
1.46
.42
1.46
.94
.04
1.97
.64
*
1.33
.76
.58
14.14

4.97
5.00
3.82
.77
.13
.25
1.89
1.23
.22
.44
3.07
3.11
.30
2.35
.39
.31
.17
.05
.07
.04
n.a.
1.48
3.19
1.44
.41
1.34
.84
*
1.93
.62
*
1.31
.75
.56
12.99

5.85
5.88
4.48
.84
.23
.31
2.79
1.84
.36
.59
3.05
3.09
.27
2.36
.38
.30
.20
.05
.08
.07
n.a.
1.48
3.13
1.44
.39
1.30
.76
–.01
2.00
.65
.03
1.39
.87
.51
13.65

5.94
5.97
4.47
.80
.28
.39
2.99
2.05
.36
.58
2.95
2.98
.55
2.10
.38
.32
.05
.04
.07
.03
–.09
1.36
3.09
1.39
.37
1.33
.99
–.01
1.41
.43
–.02
.97
.82
.15
9.45

by multifamily residential properties; and loans to finance commercial real estate, construction, and land development activities not secured by real estate.
5. Other real estate owned is a component of other noninterest-earning
assets.
6. When possible, based on the average of quarterly balance sheet data reported on schedule RC-K of the quarterly Call Report.
7. Includes provisions for allocated transfer risk.
* In absolute value, less than 0.005 percent.
n.a. Not available.
MMDA Money market deposit account.
RP Repurchase agreement.
MBS Mortgage-backed securities.

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2009

A29

A.1. Portfolio composition, interest rates, and income and expense, U.S. banks, 2000–09
B. Ten largest banks by assets
Item

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Balance sheet items as a percentage of average net consolidated assets
1

Interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . .
Loans and leases (net). . . . . . . . . . . . . . . . . . . . . . . .
Commercial and industrial . . . . . . . . . . . . . . . . .
U.S. addressees . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign addressees . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Installment and other . . . . . . . . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In domestic offices . . . . . . . . . . . . . . . . . . . . . .
Construction and land development . . . .
Farmland . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
One- to four-family residential. . . . . . . . .
Home equity . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multifamily residential . . . . . . . . . . . . . . . .
Nonfarm nonresidential . . . . . . . . . . . . . . .
In foreign offices . . . . . . . . . . . . . . . . . . . . . . . .
To depository institutions and
acceptances of other banks . . . . . . . . . . .
Foreign governments . . . . . . . . . . . . . . . . . . . . . .
Agricultural production . . . . . . . . . . . . . . . . . . . .
Other loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease-financing receivables . . . . . . . . . . . . . . . .
Less: Unearned income on loans . . . . . . . . . . .
Less: Loss reserves2 . . . . . . . . . . . . . . . . . . . . . . .
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment account . . . . . . . . . . . . . . . . . . . . . . . .
Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency and
corporation obligations . . . . . . . . . . .
Government-backed mortgage pools .
Collateralized mortgage obligations . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local government . . . . . . . . . . . .
Private mortgage-backed securities . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading account . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds sold and reverse RPs . . . . .
Balances at depositories1 . . . . . . . . . . . . . . . . . . . . .
Noninterest-earning assets1 . . . . . . . . . . . . . . . . . . . . .
Revaluation gains held in trading accounts . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

82.23
55.22
19.87
13.95
5.92
5.43
1.34
4.09
19.82
18.48
.98
.11
13.37
1.61
11.76
.60
3.42
1.34

81.74
53.86
18.82
13.42
5.41
6.17
1.69
4.48
19.23
18.05
1.27
.11
12.41
1.78
10.63
.51
3.76
1.18

81.68
53.61
16.16
11.69
4.47
7.82
2.90
4.92
20.78
19.70
1.42
.12
13.51
2.35
11.17
.55
4.09
1.08

81.39
52.20
12.98
9.40
3.59
7.96
2.81
5.15
22.68
21.74
1.36
.10
16.03
2.96
13.07
.47
3.78
.94

83.54
51.29
10.54
7.49
3.06
8.49
3.19
5.30
23.21
22.21
1.40
.10
16.71
4.04
12.67
.45
3.55
1.00

83.96
51.35
10.61
7.74
2.87
8.80
3.60
5.21
24.55
23.52
1.70
.10
17.73
5.22
12.52
.44
3.55
1.03

84.68
52.03
11.20
8.08
3.12
8.17
3.05
5.13
25.51
24.50
2.01
.10
18.30
5.40
12.90
.44
3.65
1.01

85.03
53.21
11.58
8.05
3.53
8.98
3.87
5.11
27.04
26.00
2.01
.09
19.86
5.46
14.40
.55
3.49
1.03

83.05
50.66
11.85
8.45
3.40
8.43
3.54
4.89
25.26
24.29
1.86
.09
18.40
5.59
12.81
.69
3.25
.97

83.54
46.99
10.21
7.52
2.69
6.83
2.16
4.67
26.23
25.39
1.87
.09
18.95
6.26
12.69
1.00
3.48
.84

3.78
.28
.23
3.75
3.07
–.04
–.97
18.98
13.71
13.03
1.96

3.23
.20
.28
3.51
3.43
–.04
–.97
17.81
12.14
11.88
.68

3.20
.20
.23
2.94
3.44
–.08
–1.12
20.54
14.35
14.13
.59

3.54
.17
.19
2.87
2.87
–.06
–1.00
21.22
15.31
15.11
.82

4.10
.16
.22
3.32
2.08
–.04
–.79
22.95
15.99
15.83
.86

3.15
.12
.20
2.81
1.78
–.04
–.65
23.37
15.58
15.44
.56

2.97
.07
.20
2.88
1.60
–.02
–.56
23.05
15.12
14.97
.43

1.71
.05
.17
3.08
1.22
–.02
–.60
21.97
12.81
12.66
.24

1.67
.02
.15
3.21
1.06
–.02
–.98
20.97
12.44
12.32
.16

1.27
.03
.16
2.78
.93
–.02
–1.45
22.27
16.56
16.40
.51

6.59
4.88
.93
.78
.51
.51
3.47
.68
5.26
5.02
3.01
17.77
5.66
12.11

6.84
4.99
1.11
.74
.55
.58
3.22
.26
5.67
6.38
3.69
18.26
5.48
12.78

8.69
6.38
1.52
.79
.59
.92
3.34
.22
6.18
5.26
2.28
18.32
5.40
12.93

9.20
7.59
.91
.70
.59
1.10
3.40
.20
5.91
5.79
2.18
18.61
5.79
12.83

9.92
8.64
.70
.58
.57
.96
3.52
.16
6.96
6.37
2.93
16.46
4.45
12.01

9.69
8.65
.54
.50
.58
1.18
3.43
.14
7.79
6.96
2.28
16.04
3.50
12.54

9.48
8.64
.53
.32
.64
1.09
3.33
.15
7.94
7.60
1.99
15.32
3.07
12.25

8.02
7.53
.33
.16
.65
1.45
2.30
.16
9.16
7.47
2.38
14.97
3.03
11.93

6.95
6.48
.38
.09
.55
2.01
2.66
.12
8.52
8.13
3.28
16.95
4.77
12.18

8.67
7.25
.66
.75
.68
2.35
4.19
.16
5.70
6.53
7.76
16.46
4.47
11.98

Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction deposits . . . . . . . . . . . . . . . . . . . . . . .
Demand deposits . . . . . . . . . . . . . . . . . . . . . . . .
Other checkable deposits . . . . . . . . . . . . . . . .
Savings deposits (including MMDAs) . . . . . .
Small time deposits . . . . . . . . . . . . . . . . . . . . . . . .
Managed liabilities3 . . . . . . . . . . . . . . . . . . . . . . . . . .
Large time deposits . . . . . . . . . . . . . . . . . . . . . . . .
Deposits booked in foreign offices . . . . . . . . . .
Subordinated notes and debentures . . . . . . . . .
Gross federal funds purchased and RPs . . . . .
Other managed liabilities. . . . . . . . . . . . . . . . . . .
Revaluation losses held in trading accounts. . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

92.36
33.28
8.01
7.28
.74
19.24
6.03
46.84
5.55
22.76
2.10
8.89
7.55
5.69
6.55

92.14
36.38
8.40
7.50
.90
22.21
5.77
43.41
5.46
20.28
2.16
9.04
6.47
5.10
7.26

91.52
40.61
8.34
7.40
.95
26.82
5.44
38.89
5.13
17.31
2.11
8.83
5.53
4.63
7.39

91.94
41.07
7.74
6.72
1.02
28.99
4.34
38.60
5.53
16.62
1.92
8.62
5.90
4.88
7.40

91.64
42.02
6.65
5.43
1.22
31.54
3.83
39.33
5.21
17.20
1.78
7.79
7.35
3.95
6.34

90.81
40.18
6.05
4.90
1.15
30.11
4.02
40.83
6.28
17.51
1.89
8.39
6.76
3.21
6.60

91.10
38.03
5.41
4.32
1.09
28.11
4.52
43.75
6.85
18.50
1.99
9.51
6.89
2.83
6.47

90.82
35.08
4.69
3.80
.89
25.55
4.84
46.83
6.13
19.86
2.17
8.42
10.26
2.79
6.12

91.34
34.49
4.73
3.91
.81
24.59
5.18
47.69
6.72
20.16
2.09
8.18
10.54
3.77
5.39

90.78
39.62
5.80
4.84
.96
28.41
5.41
43.51
6.11
20.25
1.87
6.79
8.48
3.12
4.53

Capital account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7.64

7.86

8.48

8.06

8.36

9.19

8.90

9.18

8.66

9.22

5.87
.04
6.32
n.a.
.20
n.a.
.20

6.68
.04
6.68
.82
.27
n.a.
.27

6.92
.03
8.82
.82
.23
n.a.
.23

6.31
.03
9.60
.84
.23
n.a.
.23

5.99
.03
10.30
.79
.25
n.a.
.25

6.33
.02
10.36
.63
.21
n.a.
.21

6.73
.03
10.25
.75
.17
n.a.
.17

6.64
.05
9.31
2.33
.15
n.a.
.15

6.37
.09
8.87
2.81
3.92
3.61
.32

6.92
.19
10.27
2.64
4.29
4.29
n.a.

3.01

3.69

2.28

2.18

2.93

2.28

1.99

2.38

2.69

3.46

2,234

2,527

2,785

3,148

3,654

4,232

4,759

5,469

6,241

6,379

Memo
Commercial real estate loans4 . . . . . . . . . . . . . . . . . . .
Other real estate owned5 . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . . . . . . . .
Balances at the Federal Reserve1 . . . . . . . . . . . . . . .
Interest-earning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest-earning . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-earning balances at depositories
other than the Federal Reserve . . . . . . . . . . . . .
Average net consolidated assets . . . . . . . . . . . . . . . .
(billions of dollars) . . . . . . . . . . . . . . . . . . . . . . .

A30

Federal Reserve Bulletin h May 2010

A.1. Portfolio composition, interest rates, and income and expense, U.S. banks, 2000–09—Continued
B. Ten largest banks by assets—Continued
Item

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Effective interest rate (percent)6
Rates earned
Interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent . . . . . . . . . . . . . . . . . . . . . .
Loans and leases, gross . . . . . . . . . . . . . . . . . . . . . .
Net of loss provisions . . . . . . . . . . . . . . . . . . .
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent . . . . . . . . . . . . . . . . . . . . . .
Investment account . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury securities and U.S.
government agency obligations
(excluding MBS) . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading account . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds sold and reverse RPs . . . . .
Interest-bearing balances at depositories1 . . . . .

7.76
7.78
8.46
7.92
6.48
6.55
6.40

6.83
6.86
7.50
6.55
6.23
6.31
6.23

5.82
5.85
6.52
5.30
5.04
5.11
5.30

4.99
5.01
5.76
5.19
4.15
4.21
4.26

4.71
4.73
5.52
5.29
4.04
4.10
4.37

5.29
5.31
6.15
5.84
4.27
4.32
4.63

6.32
6.34
7.36
7.02
4.69
4.75
5.11

6.52
6.54
7.33
6.29
4.99
5.04
5.29

5.44
5.45
6.14
3.23
4.93
4.95
5.14

4.08
4.10
5.00
1.55
4.20
4.24
4.50

n.a.
n.a.
n.a.
6.70
4.93
7.43

5.01
6.42
6.34
6.24
3.86
3.73

3.74
5.55
5.30
4.46
2.20
3.40

2.62
4.51
4.28
3.87
1.60
2.49

2.92
4.83
3.76
3.32
1.43
1.80

3.29
4.92
4.26
3.57
2.46
4.06

4.15
5.30
4.81
3.90
4.07
5.59

4.15
5.41
5.08
4.57
5.06
5.36

3.02
5.34
4.77
4.59
2.59
3.46

2.61
4.94
4.09
3.36
.72
.72

Rates paid
Interest-bearing liabilities . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits. . . . . . . . . . . . . . . . . . . . . .
In foreign offices . . . . . . . . . . . . . . . . . . . . . . . . . .
In domestic offices. . . . . . . . . . . . . . . . . . . . . . . . .
Other checkable deposits . . . . . . . . . . . . . . . .
Savings deposits (including MMDAs) . . . .
Large time deposits. . . . . . . . . . . . . . . . . . . . . .
Other time deposits. . . . . . . . . . . . . . . . . . . . . .
Gross federal funds purchased and RPs . . . . . . .
Other interest-bearing liabilities. . . . . . . . . . . . . . .

5.03
4.40
5.67
3.51
1.61
2.43
5.32
5.53
5.47
8.07

3.78
3.27
4.02
2.84
1.67
1.92
4.40
5.11
3.81
6.84

2.33
1.94
2.59
1.67
.93
1.02
3.26
3.44
2.02
5.57

1.67
1.34
1.74
1.18
.80
.73
2.36
2.70
1.39
4.42

1.62
1.29
1.81
1.08
.97
.71
2.14
2.61
1.59
3.83

2.52
2.01
2.77
1.70
2.27
1.15
3.06
3.40
3.11
5.40

3.74
2.96
3.88
2.55
2.46
1.87
4.32
4.05
4.63
7.78

3.87
3.30
4.28
2.80
2.36
1.98
4.72
4.55
5.15
5.61

2.47
2.08
2.52
1.85
1.13
1.10
3.33
3.48
2.54
4.32

1.04
.79
.74
.82
.47
.36
1.60
2.41
.54
2.80

4.52
4.53
3.15
.65
.20
.51
1.88
1.17
.21
.50
2.63
2.65
1.52
1.66
.40
.21
–.01
–.01
.13
.03
–.17
1.07
2.71
1.20
.35
1.17
1.05
–.05
*
–.07
.09
.16
.28
–.11
1.89

3.53
3.54
2.45
.75
.05
.27
.82
.48
.04
.29
2.71
2.73
1.71
2.17
.37
.21
.23
.13
.09
.04
–.03
1.36
2.71
1.28
.36
1.08
.55
–.03
.42
.06
*
.35
.47
–.11
3.81

Income and expense as a percentage of average net consolidated assets
Gross interest income. . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds sold and reverse RPs . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds purchased and RPs . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent . . . . . . . . . . . . . . . . . . . . . . . . .
Loss provisions7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service charges on deposits. . . . . . . . . . . . . . . . . . .
Fiduciary activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate exposures . . . . . . . . . . . . . . . . . . . . .
Foreign exchange rate exposures . . . . . . . . . . .
Other commodity and equity exposures . . . . .
Credit exposures. . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries, wages, and employee benefits. . . . . . . .
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net noninterest expense . . . . . . . . . . . . . . . . . . . . . . . .
Gains on investment account securities . . . . . . . . . .
Income before taxes and extraordinary items. . . . .
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Extraordinary items, net of income taxes . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared. . . . . . . . . . . . . . . . . . . . . .
Retained income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Memo: Return on equity. . . . . . . . . . . . . . . . . . . . . . . .

6.39
6.41
4.74
.88
.25
.51
3.60
2.33
.49
.78
2.78
2.80
.38
2.54
.40
.27
.48
.20
.18
.11
n.a.
1.39
3.31
1.46
.47
1.39
.77
–.03
1.60
.60
*
1.00
.86
.13
13.04

5.55
5.57
4.13
.72
.25
.44
2.69
1.74
.35
.59
2.87
2.89
.59
2.26
.44
.29
.43
.20
.14
.08
n.a.
1.10
3.13
1.38
.45
1.30
.87
.08
1.48
.49
–.01
.99
.66
.32
12.55

4.77
4.79
3.57
.73
.12
.35
1.65
1.05
.18
.41
3.12
3.14
.73
2.31
.48
.25
.32
.15
.14
.03
n.a.
1.26
3.16
1.41
.46
1.28
.85
.13
1.67
.56
*
1.11
1.05
.06
13.14

Note: Data are as of March 23, 2010.
1. Effective October 1, 2008, the Federal Reserve began paying interest on
depository institutions’ required and excess reserve balances. Beginning with
the 2008:Q4 Call Report, balances due from Federal Reserve Banks are now
reported under “Interest-earning assets” rather than “Noninterest-earning assets.”
2. Includes allocated transfer risk reserve.
3. Measured as the sum of large time deposits in domestic offices, deposits
booked in foreign offices, subordinated notes and debentures, federal funds
purchased and securities sold under repurchase agreements, Federal Home
Loan Bank advances, and other borrowed money.
4. Measured as the sum of construction and land development loans secured
by real estate; real estate loans secured by nonfarm nonresidential properties or

4.05
4.07
3.04
.63
.10
.28
1.19
.74
.13
.33
2.86
2.88
.35
2.32
.46
.26
.30
.12
.14
.04
n.a.
1.30
3.02
1.39
.45
1.18
.70
.11
1.92
.63
*
1.29
.99
.30
16.06

3.94
3.96
2.86
.69
.10
.30
1.20
.74
.13
.33
2.74
2.76
.16
2.21
.45
.24
.23
.07
.12
.04
n.a.
1.28
3.11
1.34
.43
1.33
.91
.07
1.74
.56
*
1.18
.65
.53
14.07

4.47
4.48
3.19
.72
.18
.38
1.89
1.17
.27
.45
2.58
2.59
.20
2.37
.42
.27
.31
.11
.12
.07
n.a.
1.38
2.99
1.38
.43
1.19
.62
*
1.75
.57
*
1.18
.59
.59
12.86

5.46
5.48
3.91
.80
.31
.45
2.88
1.72
.47
.69
2.58
2.60
.22
2.35
.41
.23
.37
.09
.14
.13
n.a.
1.35
2.89
1.39
.40
1.09
.54
–.01
1.82
.59
.02
1.25
.64
.62
14.08

5.61
5.63
3.98
.69
.38
.56
3.00
1.87
.46
.68
2.61
2.63
.60
1.95
.40
.20
.05
.08
.09
.06
–.18
1.31
2.80
1.32
.37
1.12
.85
.02
1.18
.33
*
.85
.60
.25
9.23

by multifamily residential properties; and loans to finance commercial real estate, construction, and land development activities not secured by real estate.
5. Other real estate owned is a component of other noninterest-earning
assets.
6. When possible, based on the average of quarterly balance sheet data reported on schedule RC-K of the quarterly Call Report.
7. Includes provisions for allocated transfer risk.
* In absolute value, less than 0.005 percent.
n.a. Not available.
MMDA Money market deposit account.
RP Repurchase agreement.
MBS Mortgage-backed securities.

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2009

A31

A.1. Portfolio composition, interest rates, and income and expense, U.S. banks, 2000–09
C. Banks ranked 11 through 100 by assets
Item

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Balance sheet items as a percentage of average net consolidated assets
1

Interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . .
Loans and leases (net). . . . . . . . . . . . . . . . . . . . . . . .
Commercial and industrial . . . . . . . . . . . . . . . . .
U.S. addressees . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign addressees . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Installment and other . . . . . . . . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In domestic offices . . . . . . . . . . . . . . . . . . . . . .
Construction and land development . . . .
Farmland . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
One- to four-family residential. . . . . . . . .
Home equity . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multifamily residential . . . . . . . . . . . . . . . .
Nonfarm nonresidential . . . . . . . . . . . . . . .
In foreign offices . . . . . . . . . . . . . . . . . . . . . . . .
To depository institutions and
acceptances of other banks . . . . . . . . . . .
Foreign governments . . . . . . . . . . . . . . . . . . . . . .
Agricultural production . . . . . . . . . . . . . . . . . . . .
Other loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease-financing receivables . . . . . . . . . . . . . . . .
Less: Unearned income on loans . . . . . . . . . . .
Less: Loss reserves2 . . . . . . . . . . . . . . . . . . . . . . .
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment account . . . . . . . . . . . . . . . . . . . . . . . .
Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency and
corporation obligations . . . . . . . . . . .
Government-backed mortgage pools .
Collateralized mortgage obligations . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local government . . . . . . . . . . . .
Private mortgage-backed securities . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading account . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds sold and reverse RPs . . . . .
Balances at depositories1 . . . . . . . . . . . . . . . . . . . . .
Noninterest-earning assets1 . . . . . . . . . . . . . . . . . . . . .
Revaluation gains held in trading accounts . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

88.67
64.88
18.19
17.64
.55
13.79
6.97
6.82
26.21
26.12
3.00
.22
14.51
2.49
12.02
1.11
7.28
.09

88.09
62.14
15.84
15.36
.48
13.20
7.05
6.15
27.29
27.21
3.31
.23
15.51
2.90
12.60
1.16
6.99
.09

88.34
60.00
13.27
12.94
.33
12.79
6.56
6.22
28.94
28.88
3.36
.22
17.05
3.92
13.13
1.20
7.05
.06

88.10
59.48
11.96
11.66
.30
12.57
6.35
6.21
30.67
30.54
3.22
.20
18.79
4.74
14.05
1.32
7.00
.13

88.18
60.63
11.90
11.64
.26
12.74
6.90
5.83
32.16
31.96
3.51
.19
19.52
5.90
13.62
1.34
7.41
.20

87.87
63.37
12.17
11.91
.27
12.84
7.45
5.39
34.89
34.73
4.21
.19
21.05
6.04
15.01
1.45
7.83
.16

87.05
62.77
12.13
11.81
.32
11.94
7.12
4.82
35.23
35.03
5.27
.17
20.27
5.01
15.26
1.45
7.86
.21

87.01
60.99
12.74
12.41
.33
9.99
5.29
4.70
33.53
33.35
5.95
.21
17.80
4.01
13.79
1.27
8.13
.18

85.34
60.04
12.79
12.46
.34
10.61
5.67
4.94
32.50
32.19
5.65
.26
16.57
3.90
12.67
1.25
8.47
.31

85.84
58.58
11.88
11.53
.35
12.96
8.20
4.76
31.21
30.93
4.45
.28
16.19
4.17
12.02
1.31
8.71
.28

1.05
.03
.37
2.57
3.82
–.03
–1.12
17.32
16.10
15.50
1.12

1.40
.03
.32
2.03
3.18
–.02
–1.13
19.00
17.71
17.32
.67

1.44
.02
.27
1.80
2.65
–.02
–1.17
20.30
19.17
18.82
.74

1.21
.02
.23
1.59
2.35
–.02
–1.10
21.16
20.09
19.88
.95

.54
.01
.19
1.87
2.30
–.02
–1.06
21.28
20.12
19.96
.89

.56
.02
.19
1.62
2.07
–.01
–.97
19.96
18.80
18.69
.60

.45
.01
.18
1.88
1.83
–.01
–.87
19.22
17.72
17.60
.44

1.05
.01
.21
2.43
1.80
–.01
–.75
19.89
17.99
17.88
.38

.94
.03
.23
2.56
1.50
–.01
–1.12
16.88
14.99
14.84
.31

1.07
.01
.22
1.98
1.31
–.01
–2.05
18.31
15.80
15.41
.58

9.70
4.31
2.55
2.84
.96
1.66
2.06
.60
1.22
3.76
2.71
11.33
.40
10.92

10.09
5.19
2.42
2.48
.99
2.01
3.56
.39
1.29
4.06
2.88
11.91
.55
11.37

11.45
6.00
2.79
2.65
.97
2.13
3.53
.34
1.13
4.71
3.33
11.66
.47
11.19

12.99
6.08
3.72
3.19
.95
2.14
2.85
.21
1.07
4.20
3.26
11.90
.60
11.30

12.80
5.74
3.42
3.64
.96
2.65
2.66
.16
1.16
2.98
3.29
11.82
.42
11.40

11.62
4.83
3.39
3.40
.98
3.58
1.90
.11
1.16
2.30
2.24
12.13
.33
11.80

10.07
4.04
2.94
3.10
1.01
4.29
1.78
.12
1.50
2.84
2.22
12.95
.30
12.65

9.06
3.73
2.68
2.65
1.16
4.60
2.67
.12
1.90
3.41
2.72
12.99
.48
12.51

7.72
3.76
2.43
1.54
1.03
3.23
2.54
.14
1.89
4.27
4.16
14.66
.91
13.75

8.66
4.56
2.59
1.51
.89
1.78
3.50
.39
2.52
2.46
6.48
14.16
1.36
12.80

Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction deposits . . . . . . . . . . . . . . . . . . . . . . .
Demand deposits . . . . . . . . . . . . . . . . . . . . . . . .
Other checkable deposits . . . . . . . . . . . . . . . .
Savings deposits (including MMDAs) . . . . . .
Small time deposits . . . . . . . . . . . . . . . . . . . . . . . .
Managed liabilities3 . . . . . . . . . . . . . . . . . . . . . . . . . .
Large time deposits . . . . . . . . . . . . . . . . . . . . . . . .
Deposits booked in foreign offices . . . . . . . . . .
Subordinated notes and debentures . . . . . . . . .
Gross federal funds purchased and RPs . . . . .
Other managed liabilities. . . . . . . . . . . . . . . . . . .
Revaluation losses held in trading accounts. . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

91.57
46.28
9.93
8.61
1.32
24.02
12.33
41.98
9.54
7.56
1.54
9.28
14.07
.41
2.91

91.15
46.28
8.37
7.17
1.20
26.62
11.28
40.81
9.72
7.05
1.53
9.71
12.79
.52
3.54

90.79
47.07
7.49
6.32
1.17
30.07
9.51
39.48
8.99
6.28
1.44
9.66
13.11
.44
3.80

90.65
47.93
7.29
5.96
1.33
32.34
8.30
38.12
8.20
6.54
1.38
9.69
12.30
.56
4.05

89.87
46.55
7.06
5.65
1.41
31.75
7.74
39.29
8.76
7.21
1.39
8.95
12.97
.40
3.64

88.86
48.18
6.64
5.35
1.29
33.33
8.20
37.04
10.10
6.02
1.31
7.17
12.44
.34
3.30

88.08
46.84
5.74
4.54
1.20
32.66
8.44
37.60
11.44
6.43
1.32
6.74
11.66
.29
3.35

88.40
47.44
5.15
3.90
1.25
32.99
9.30
37.02
10.20
8.52
1.40
6.79
10.10
.47
3.48

88.17
46.35
5.13
3.89
1.24
31.50
9.71
37.82
9.76
7.80
1.31
6.72
12.23
.85
3.16

87.01
50.91
5.44
3.98
1.46
34.24
11.23
32.01
7.28
5.78
1.32
6.63
11.00
1.10
2.98

Capital account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8.43

8.85

9.21

9.35

10.13

11.14

11.92

11.60

11.83

12.99

12.06
.03
8.52
n.a.
.43
n.a.
.43

12.06
.04
9.63
4.07
.36
n.a.
.36

12.24
.05
10.93
4.85
.37
n.a.
.37

12.10
.06
11.93
4.75
.37
n.a.
.37

12.85
.05
11.81
4.65
.28
n.a.
.28

13.93
.04
11.81
5.19
.21
n.a.
.21

15.05
.05
11.27
5.54
.18
n.a.
.18

15.95
.06
11.01
5.35
.19
n.a.
.19

16.01
.10
9.42
6.45
3.89
3.18
.72

15.04
.21
8.93
4.82
4.73
4.73
n.a.

2.71

2.88

3.33

3.26

3.29

2.24

2.22

2.72

3.43

1.75

2,031

2,130

2,124

2,287

2,376

2,403

2,579

2,798

3,177

3,281

Memo
Commercial real estate loans4 . . . . . . . . . . . . . . . . . . .
Other real estate owned5 . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . . . . . . . .
Balances at the Federal Reserve1 . . . . . . . . . . . . . . .
Interest-earning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest-earning . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-earning balances at depositories
other than the Federal Reserve . . . . . . . . . . . . .
Average net consolidated assets
(billions of dollars) . . . . . . . . . . . . . . . . . . . . . . .

A32

Federal Reserve Bulletin h May 2010

A.1. Portfolio composition, interest rates, and income and expense, U.S. banks, 2000–09—Continued
C. Banks ranked 11 through 100 by assets—Continued
Item

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Effective interest rate (percent)6
Rates earned
Interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent . . . . . . . . . . . . . . . . . . . . . .
Loans and leases, gross . . . . . . . . . . . . . . . . . . . . . .
Net of loss provisions . . . . . . . . . . . . . . . . . . .
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent . . . . . . . . . . . . . . . . . . . . . .
Investment account . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury securities and U.S.
government agency obligations
(excluding MBS) . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading account . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds sold and reverse RPs . . . . .
Interest-bearing balances at depositories1 . . . . . .

8.44
8.48
9.14
8.25
6.64
6.77
6.66

7.54
7.58
8.26
6.96
5.96
6.08
6.04

6.03
6.07
6.80
5.59
4.79
4.91
4.86

5.30
5.33
6.11
5.11
3.80
3.90
3.87

5.21
5.24
5.98
5.19
3.63
3.73
3.64

5.98
6.02
6.61
5.89
4.18
4.29
4.11

6.93
6.97
7.58
7.04
4.99
5.10
4.84

6.87
6.91
7.45
6.64
5.25
5.37
5.18

5.83
5.85
6.43
3.75
4.78
4.86
4.74

5.14
5.16
6.03
1.64
4.01
4.06
4.03

n.a.
n.a.
n.a.
6.25
6.06
5.49

5.83
6.60
5.13
4.83
3.86
4.38

4.28
5.34
4.22
3.59
1.68
2.46

3.17
4.20
3.61
2.56
1.14
1.93

2.94
4.02
3.29
3.39
1.25
2.27

3.47
4.34
4.06
5.30
3.24
3.20

4.28
5.02
4.87
6.74
4.95
4.24

4.85
5.23
5.28
5.94
5.16
4.84

3.92
5.02
4.42
5.06
2.29
2.97

1.95
4.76
3.56
3.87
.38
.54

Rates paid
Interest-bearing liabilities . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits. . . . . . . . . . . . . . . . . . . . . .
In foreign offices . . . . . . . . . . . . . . . . . . . . . . . . . .
In domestic offices. . . . . . . . . . . . . . . . . . . . . . . . .
Other checkable deposits . . . . . . . . . . . . . . . .
Savings deposits (including MMDAs) . . . .
Large time deposits. . . . . . . . . . . . . . . . . . . . . .
Other time deposits. . . . . . . . . . . . . . . . . . . . . .
Gross federal funds purchased and RPs . . . . . . .
Other interest-bearing liabilities. . . . . . . . . . . . . . .

4.97
4.42
5.38
4.26
2.57
2.94
5.88
5.73
6.02
6.25

3.94
3.60
3.67
3.60
2.32
2.30
5.11
5.42
3.86
5.29

2.22
1.96
1.70
1.99
.94
1.08
3.37
3.68
1.73
3.65

1.61
1.35
1.23
1.36
.64
.66
2.70
2.95
1.20
3.04

1.56
1.29
1.42
1.27
.72
.65
2.49
2.58
1.37
2.77

2.44
2.03
2.76
1.95
1.29
1.30
3.31
3.03
3.04
3.81

3.48
3.07
4.10
2.95
2.12
2.14
4.45
4.09
4.46
4.90

3.72
3.33
4.01
3.22
2.60
2.44
4.46
4.74
4.71
5.25

2.38
2.14
2.21
2.12
1.32
1.32
3.14
3.85
2.07
3.66

1.34
1.19
.38
1.27
.45
.55
2.38
2.90
.64
2.42

4.99
5.01
3.94
.71
.09
.24
1.88
1.26
.14
.48
3.11
3.13
1.69
2.38
.32
.41
–.01
–.02
.08
*
–.06
1.65
3.56
1.22
.32
2.02
1.18
–.30
–.06
.13
–.01
–.20
.44
–.63
–1.67

4.49
4.50
3.67
.65
.01
.16
1.06
.72
.04
.30
3.43
3.45
2.71
2.35
.30
.24
.26
.18
–.03
*
.11
1.56
3.29
1.14
.31
1.85
.94
.01
–.21
*
–.12
–.33
.18
–.52
–2.55

Income and expense as a percentage of average net consolidated assets
Gross interest income. . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds sold and reverse RPs . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds purchased and RPs . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent . . . . . . . . . . . . . . . . . . . . . . . . .
Loss provisions7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service charges on deposits. . . . . . . . . . . . . . . . . . .
Fiduciary activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate exposures . . . . . . . . . . . . . . . . . . . . .
Foreign exchange rate exposures . . . . . . . . . . .
Other commodity and equity exposures . . . . .
Credit exposures. . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries, wages, and employee benefits. . . . . . . .
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net noninterest expense . . . . . . . . . . . . . . . . . . . . . . . .
Gains on investment account securities . . . . . . . . . .
Income before taxes and extraordinary items. . . . .
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Extraordinary items, net of income taxes . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared. . . . . . . . . . . . . . . . . . . . . .
Retained income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Memo: Return on equity. . . . . . . . . . . . . . . . . . . . . . . .

7.54
7.57
6.05
1.09
.22
.18
3.96
2.41
.56
.99
3.58
3.61
.68
3.18
.42
.52
.07
.02
.04
*
n.a.
2.18
4.00
1.44
.43
2.14
.82
–.05
2.02
.70
*
1.32
.94
.38
15.72

6.70
6.73
5.28
1.06
.15
.21
3.14
2.01
.38
.75
3.56
3.59
.91
3.35
.42
.42
.08
.04
.03
*
n.a.
2.43
3.95
1.47
.42
2.07
.60
.09
2.14
.74
*
1.39
.96
.43
15.74

5.31
5.34
4.15
.90
.08
.18
1.77
1.09
.17
.51
3.54
3.57
.80
3.30
.42
.42
.08
.04
.04
*
n.a.
2.37
3.73
1.49
.40
1.84
.43
.10
2.41
.82
*
1.59
.99
.60
17.24

Note: Data are as of March 23, 2010.
1. Effective October 1, 2008, the Federal Reserve began paying interest on
depository institutions’ required and excess reserve balances. Beginning with
the 2008:Q4 Call Report, balances due from Federal Reserve Banks are now
reported under “Interest-earning assets” rather than “Noninterest-earning assets.”
2. Includes allocated transfer risk reserve.
3. Measured as the sum of large time deposits in domestic offices, deposits
booked in foreign offices, subordinated notes and debentures, federal funds
purchased and securities sold under repurchase agreements, Federal Home
Loan Bank advances, and other borrowed money.
4. Measured as the sum of construction and land development loans secured
by real estate; real estate loans secured by nonfarm nonresidential properties or

4.67
4.70
3.72
.75
.04
.15
1.30
.77
.12
.41
3.37
3.40
.67
3.29
.42
.37
.09
.04
.04
.01
n.a.
2.41
3.64
1.47
.41
1.76
.35
.06
2.42
.82
*
1.59
1.05
.54
17.03

4.63
4.65
3.71
.73
.03
.15
1.26
.74
.13
.40
3.36
3.39
.55
3.09
.40
.42
.07
–.01
.05
.03
n.a.
2.20
3.55
1.45
.39
1.70
.45
.03
2.39
.82
*
1.57
.95
.62
15.54

5.28
5.31
4.27
.77
.06
.18
1.94
1.18
.23
.53
3.34
3.37
.52
2.81
.37
.35
.06
–.01
.04
.02
n.a.
2.03
3.36
1.37
.37
1.62
.55
*
2.27
.77
.01
1.50
1.00
.50
13.48

6.08
6.11
4.85
.87
.13
.23
2.78
1.84
.30
.63
3.30
3.33
.41
2.91
.35
.41
.07
.02
.05
*
n.a.
2.09
3.34
1.34
.33
1.68
.43
–.03
2.43
.83
.07
1.67
1.37
.30
14.05

5.99
6.02
4.60
.93
.17
.29
2.96
2.04
.32
.59
3.03
3.06
.55
2.73
.33
.54
.09
*
.08
*
.01
1.77
3.45
1.32
.34
1.79
.72
–.05
1.71
.59
–.05
1.06
1.26
–.20
9.16

by multifamily residential properties; and loans to finance commercial real estate, construction, and land development activities not secured by real estate.
5. Other real estate owned is a component of other noninterest-earning
assets.
6. When possible, based on the average of quarterly balance sheet data reported on schedule RC-K of the quarterly Call Report.
7. Includes provisions for allocated transfer risk.
* In absolute value, less than 0.005 percent.
n.a. Not available.
MMDA Money market deposit account.
RP Repurchase agreement.
MBS Mortgage-backed securities.

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2009

A33

A.1. Portfolio composition, interest rates, and income and expense, U.S. banks, 2000–09
D. Banks ranked 101 through 1,000 by assets
Item

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Balance sheet items as a percentage of average net consolidated assets
1

Interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . .
Loans and leases (net). . . . . . . . . . . . . . . . . . . . . . . .
Commercial and industrial . . . . . . . . . . . . . . . . .
U.S. addressees . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign addressees . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Installment and other . . . . . . . . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In domestic offices . . . . . . . . . . . . . . . . . . . . . .
Construction and land development . . . .
Farmland . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
One- to four-family residential. . . . . . . . .
Home equity . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multifamily residential . . . . . . . . . . . . . . . .
Nonfarm nonresidential . . . . . . . . . . . . . . .
In foreign offices . . . . . . . . . . . . . . . . . . . . . . . .
To depository institutions and
acceptances of other banks . . . . . . . . . . .
Foreign governments . . . . . . . . . . . . . . . . . . . . . .
Agricultural production . . . . . . . . . . . . . . . . . . . .
Other loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease-financing receivables . . . . . . . . . . . . . . . .
Less: Unearned income on loans . . . . . . . . . . .
Less: Loss reserves2 . . . . . . . . . . . . . . . . . . . . . . .
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment account . . . . . . . . . . . . . . . . . . . . . . . .
Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency and
corporation obligations . . . . . . . . . . .
Government-backed mortgage pools .
Collateralized mortgage obligations . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local government . . . . . . . . . . . .
Private mortgage-backed securities . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading account . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds sold and reverse RPs . . . . .
Balances at depositories1 . . . . . . . . . . . . . . . . . . . . .
Noninterest-earning assets1 . . . . . . . . . . . . . . . . . . . . .
Revaluation gains held in trading accounts . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

91.50
62.15
12.95
12.60
.36
10.19
3.27
6.92
36.93
36.91
4.15
.65
17.17
2.10
15.06
1.58
13.36
.02

91.16
62.46
13.03
12.65
.38
9.76
3.65
6.11
37.64
37.62
4.90
.66
16.18
2.21
13.97
1.69
14.18
.02

91.36
61.46
12.38
12.06
.31
8.13
2.63
5.50
38.92
38.89
5.40
.73
15.39
2.51
12.88
1.83
15.55
.03

91.34
61.32
11.50
11.20
.31
6.80
1.82
4.98
40.95
40.90
5.89
.80
15.71
2.92
12.79
2.00
16.51
.05

91.56
63.33
11.52
11.21
.31
6.33
1.91
4.42
43.38
43.32
7.01
.91
15.33
3.46
11.87
2.24
17.82
.06

91.32
65.15
11.78
11.48
.30
5.42
1.24
4.18
45.86
45.78
8.86
.99
15.17
3.60
11.57
2.37
18.39
.08

91.07
67.04
11.68
11.45
.23
5.50
1.63
3.87
47.88
47.78
11.01
1.07
14.76
3.25
11.51
2.32
18.63
.10

91.28
68.85
12.07
11.80
.27
5.35
1.88
3.46
49.50
49.41
12.85
1.16
14.08
3.01
11.07
2.33
18.99
.09

91.28
70.52
12.58
12.31
.27
5.15
1.76
3.39
50.78
50.77
13.04
1.22
14.16
3.19
10.97
2.41
19.95
*

91.30
67.68
11.38
11.17
.21
4.73
1.23
3.50
50.00
49.99
10.59
1.30
14.64
3.39
11.24
2.48
21.00
*

.37
.03
.82
1.22
.75
–.08
–1.04
24.34
24.25
23.46
1.81

.38
.03
.85
1.22
.74
–.07
–1.12
22.81
22.70
22.28
1.32

.37
.02
.86
1.18
.75
–.06
–1.10
23.86
23.80
23.30
1.22

.37
.02
.83
1.25
.67
–.06
–1.02
24.36
24.23
23.79
1.00

.25
.01
.82
1.32
.75
–.06
–.98
23.59
23.54
23.18
1.02

.13
*
.81
1.36
.75
–.06
–.90
21.57
21.50
21.21
.83

.14
*
.84
1.20
.75
–.06
–.88
19.55
19.47
19.20
.59

.14
*
.88
1.22
.65
–.06
–.91
18.30
18.10
17.69
.47

.27
*
.90
1.37
.65
–.06
–1.12
16.96
16.80
16.27
.36

.19
*
.92
1.47
.49
–.07
–1.43
17.28
17.19
16.72
.48

15.56
6.22
3.04
6.30
2.91
.99
2.19
.79
.09
3.40
1.60
8.50
.02
8.49

14.70
6.27
3.08
5.35
2.90
.94
2.42
.43
.11
4.20
1.68
8.84
.01
8.84

15.85
6.55
3.69
5.60
2.89
.99
2.34
.50
.06
4.15
1.89
8.64
.01
8.64

16.96
7.03
3.69
6.24
2.95
.87
2.01
.43
.14
3.85
1.81
8.66
*
8.66

16.70
6.80
3.41
6.49
2.92
1.08
1.46
.36
.05
2.95
1.69
8.44
*
8.44

15.05
5.73
3.16
6.16
2.78
1.17
1.37
.29
.08
2.83
1.76
8.68
*
8.68

13.55
4.83
2.81
5.90
2.74
1.08
1.24
.27
.07
2.81
1.67
8.93
.03
8.90

12.32
4.57
2.60
5.15
2.77
1.01
1.12
.41
.20
2.57
1.57
8.72
.04
8.67

11.32
5.24
2.42
3.66
2.73
.86
1.00
.53
.17
2.01
1.78
8.72
.06
8.66

11.53
5.34
2.81
3.39
2.90
.83
.98
.47
.09
1.46
4.88
8.70
.03
8.67

Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction deposits . . . . . . . . . . . . . . . . . . . . . . .
Demand deposits . . . . . . . . . . . . . . . . . . . . . . . .
Other checkable deposits . . . . . . . . . . . . . . . .
Savings deposits (including MMDAs) . . . . . .
Small time deposits . . . . . . . . . . . . . . . . . . . . . . . .
Managed liabilities3 . . . . . . . . . . . . . . . . . . . . . . . . . .
Large time deposits . . . . . . . . . . . . . . . . . . . . . . . .
Deposits booked in foreign offices . . . . . . . . . .
Subordinated notes and debentures . . . . . . . . .
Gross federal funds purchased and RPs . . . . .
Other managed liabilities. . . . . . . . . . . . . . . . . . .
Revaluation losses held in trading accounts. . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

90.95
60.80
12.29
8.97
3.32
28.55
19.96
28.01
11.98
1.28
.30
6.30
8.15
*
2.13

90.32
60.33
11.48
8.23
3.25
29.40
19.46
27.75
12.60
1.24
.31
5.77
7.84
.01
2.23

89.93
61.26
11.37
8.05
3.32
32.34
17.55
26.57
12.17
.88
.34
5.27
7.90
.01
2.08

89.68
61.30
11.50
7.96
3.54
34.00
15.80
26.40
11.92
.64
.35
5.35
8.13
*
1.98

89.18
60.39
11.77
8.12
3.64
34.42
14.21
26.98
12.12
.65
.35
5.52
8.34
*
1.81

89.10
59.03
11.15
7.87
3.28
33.75
14.13
28.38
13.64
.57
.27
5.54
8.35
*
1.69

89.01
58.04
9.82
6.99
2.83
32.82
15.41
29.32
15.21
.52
.24
5.40
7.94
.01
1.64

88.87
59.68
8.43
5.94
2.49
32.89
18.36
27.51
14.42
.57
.22
5.33
6.97
.01
1.66

89.24
58.94
7.74
5.32
2.42
31.04
20.15
28.72
14.13
.72
.21
5.26
8.39
.02
1.57

89.52
60.49
8.27
5.51
2.76
31.67
20.55
27.21
15.21
.60
.16
4.06
7.18
.02
1.80

Capital account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.05

9.68

10.07

10.32

10.82

10.90

10.99

11.13

10.76

10.48

19.32
0.07
10.25
n.a.
0.57
n.a.
0.57

21.03
0.08
10.29
5.27
0.54
n.a.
0.54

23.05
0.10
11.24
5.71
0.52
n.a.
0.52

24.62
0.11
11.59
6.29
0.59
n.a.
0.59

27.28
0.10
11.29
6.46
0.55
n.a.
0.55

29.84
0.08
10.06
6.42
0.47
n.a.
0.47

32.22
0.08
8.72
6.11
0.36
n.a.
0.36

34.52
0.11
8.18
5.53
0.29
n.a.
0.29

35.86
0.27
8.52
7.04
1.46
1.15
0.31

34.51
0.62
8.97
5.97
3.34
3.34
n.a.

1.60

1.68

1.89

1.81

1.69

1.76

1.67

1.57

1.54

1.53

986

1,002

1,022

1,072

1,080

1,152

1,249

1,267

1,278

1,312

Memo
Commercial real estate loans4 . . . . . . . . . . . . . . . . . . .
Other real estate owned5 . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . . . . . . . .
Balances at the Federal Reserve1 . . . . . . . . . . . . . . .
Interest-earning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest-earning . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-earning balances at depositories
other than the Federal Reserve . . . . . . . . . . . . .
Average net consolidated assets
(billions of dollars) . . . . . . . . . . . . . . . . . . . . . . .

A34

Federal Reserve Bulletin h May 2010

A.1. Portfolio composition, interest rates, and income and expense, U.S. banks, 2000–09—Continued
D. Banks ranked 101 through 1,000 by assets—Continued
Item

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Effective interest rate (percent)6
Rates earned
Interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent . . . . . . . . . . . . . . . . . . . . . .
Loans and leases, gross . . . . . . . . . . . . . . . . . . . . . .
Net of loss provisions . . . . . . . . . . . . . . . . . . .
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent . . . . . . . . . . . . . . . . . . . . . .
Investment account . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury securities and U.S.
government agency obligations
(excluding MBS) . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading account . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds sold and reverse RPs . . . . .
Interest-bearing balances at depositories1 . . . . . .

8.48
8.56
9.42
8.75
6.45
6.71
6.45

7.85
7.94
8.76
7.87
5.96
6.24
5.95

6.42
6.50
7.31
6.55
4.95
5.21
4.93

5.59
5.67
6.56
6.01
3.81
4.06
3.82

5.46
5.53
6.25
5.87
3.79
4.04
3.78

6.12
6.19
6.90
6.64
4.03
4.28
4.02

7.01
7.08
7.79
7.55
4.53
4.80
4.53

7.31
7.38
8.02
7.44
4.86
5.14
4.85

6.24
6.30
6.72
5.04
4.76
5.01
4.76

5.22
5.28
5.81
3.15
4.20
4.43
4.20

n.a.
n.a.
n.a.
9.30
6.15
5.76

5.85
6.33
5.40
6.60
3.91
3.93

4.54
5.38
4.51
14.05
1.73
1.79

3.42
3.95
4.07
3.07
1.27
1.26

3.15
4.01
4.21
10.30
1.57
1.47

3.47
4.23
4.42
6.59
3.31
3.29

4.19
4.64
4.81
4.92
4.94
4.60

4.74
4.96
4.81
5.25
4.87
4.56

4.45
5.09
4.42
4.44
2.12
2.21

3.19
4.75
3.97
4.17
.50
.44

Rates paid
Interest-bearing liabilities . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits. . . . . . . . . . . . . . . . . . . . . .
In foreign offices . . . . . . . . . . . . . . . . . . . . . . . . . .
In domestic offices. . . . . . . . . . . . . . . . . . . . . . . . .
Other checkable deposits . . . . . . . . . . . . . . . .
Savings deposits (including MMDAs) . . . .
Large time deposits. . . . . . . . . . . . . . . . . . . . . .
Other time deposits. . . . . . . . . . . . . . . . . . . . . .
Gross federal funds purchased and RPs . . . . . . .
Other interest-bearing liabilities. . . . . . . . . . . . . . .

4.79
4.46
6.13
4.43
2.27
3.07
6.00
5.74
5.95
6.46

3.97
3.81
4.27
3.81
1.81
2.22
5.27
5.51
3.82
5.32

2.45
2.28
2.14
2.28
1.06
1.17
3.32
3.77
1.83
4.22

1.80
1.61
1.43
1.61
.74
.75
2.58
2.86
1.29
3.57

1.65
1.44
1.43
1.44
.72
.74
2.33
2.51
1.45
3.37

2.36
2.09
3.05
2.08
1.18
1.27
3.21
3.10
2.94
4.02

3.38
3.11
4.50
3.10
1.74
2.06
4.42
4.19
4.52
4.75

3.78
3.59
4.63
3.58
1.89
2.38
4.90
4.83
4.49
5.04

2.79
2.72
2.29
2.72
1.17
1.39
3.91
4.03
2.30
3.65

1.92
1.85
.59
1.86
.71
.78
2.71
2.97
1.15
3.11

5.71
5.76
4.80
.80
.04
.06
2.24
1.81
.12
.31
3.47
3.52
1.25
1.52
.36
.31
–.01
*
*
–.01
*
.85
3.42
1.46
.39
1.58
1.90
–.22
.09
.14
*
–.05
.57
–.62
–.50

4.78
4.82
4.01
.72
.01
.04
1.55
1.28
.05
.23
3.22
3.27
1.88
1.57
.34
.27
.02
*
*
*
.01
.94
3.36
1.42
.39
1.55
1.79
–.02
–.47
*
*
–.47
.34
–.80
–4.48

Income and expense as a percentage of average net consolidated assets
Gross interest income. . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent. . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds sold and reverse RPs . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds purchased and RPs . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent. . . . . . . . . . . . . . . . . . . . . . . . .
Loss provisions7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service charges on deposits. . . . . . . . . . . . . . . . . . .
Fiduciary activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate exposures . . . . . . . . . . . . . . . . . . . . .
Foreign exchange rate exposures . . . . . . . . . . .
Other commodity and equity exposures . . . . .
Credit exposures. . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries, wages, and employee benefits. . . . . . . .
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net noninterest expense . . . . . . . . . . . . . . . . . . . . . . . .
Gains on investment account securities . . . . . . . . . .
Income before taxes and extraordinary items. . . . .
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Extraordinary items, net of income taxes . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared. . . . . . . . . . . . . . . . . . . . . .
Retained income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Memo: Return on equity. . . . . . . . . . . . . . . . . . . . . . . .

7.79
7.86
5.96
1.58
.21
.04
3.79
2.87
.38
.54
4.00
4.07
.52
2.35
.36
.44
.01
.01
*
*
n.a.
1.55
3.84
1.59
.47
1.78
1.48
–.04
1.96
.67
*
1.29
.92
.37
14.21

7.16
7.23
5.59
1.33
.16
.08
3.14
2.48
.22
.44
4.02
4.10
.65
2.37
.39
.40
*
–.01
*
*
n.a.
1.58
3.88
1.61
.46
1.81
1.52
.05
1.90
.66
.01
1.25
1.33
–.08
12.93

5.84
5.91
4.56
1.15
.07
.06
1.92
1.49
.09
.34
3.92
3.99
.54
2.36
.41
.35
*
*
*
*
n.a.
1.60
3.72
1.64
.45
1.63
1.35
.04
2.07
.67
*
1.39
1.19
.20
13.83

Note: Data are as of March 23, 2010.
1. Effective October 1, 2008, the Federal Reserve began paying interest on
depository institutions’ required and excess reserve balances. Beginning with
the 2008:Q4 Call Report, balances due from Federal Reserve Banks are now
reported under “Interest-earning assets” rather than “Noninterest-earning assets.”
2. Includes allocated transfer risk reserve.
3. Measured as the sum of large time deposits in domestic offices, deposits
booked in foreign offices, subordinated notes and debentures, federal funds
purchased and securities sold under repurchase agreements, Federal Home
Loan Bank advances, and other borrowed money.
4. Measured as the sum of construction and land development loans secured
by real estate; real estate loans secured by nonfarm nonresidential properties or

5.07
5.15
4.07
.91
.05
.05
1.41
1.04
.07
.30
3.67
3.74
.40
2.30
.41
.34
.01
.01
*
*
n.a.
1.54
3.59
1.64
.43
1.53
1.29
.05
2.02
.66
.03
1.39
1.64
–.25
13.46

4.99
5.06
4.01
.88
.05
.05
1.29
.92
.08
.29
3.70
3.77
.30
2.26
.39
.37
.01
.01
*
*
n.a.
1.49
3.54
1.64
.43
1.48
1.29
.02
2.13
.68
*
1.45
.78
.68
13.42

5.57
5.64
4.55
.86
.09
.07
1.84
1.34
.16
.34
3.73
3.79
.24
2.02
.36
.35
.01
.01
*
*
n.a.
1.30
3.37
1.61
.41
1.36
1.35
–.01
2.13
.68
*
1.45
.87
.58
13.33

6.40
6.46
5.29
.89
.14
.09
2.67
2.04
.24
.39
3.73
3.79
.23
1.98
.35
.30
.01
*
*
*
n.a.
1.32
3.35
1.59
.40
1.35
1.36
–.01
2.13
.69
*
1.43
.90
.54
13.05

6.67
6.74
5.58
.88
.12
.09
3.00
2.41
.24
.36
3.67
3.73
.47
1.88
.36
.31
.01
*
*
*
*
1.20
3.26
1.57
.40
1.28
1.38
–.01
1.81
.57
*
1.23
.91
.32
11.08

by multifamily residential properties; and loans to finance commercial real estate, construction, and land development activities not secured by real estate.
5. Other real estate owned is a component of other noninterest-earning
assets.
6. When possible, based on the average of quarterly balance sheet data reported on schedule RC-K of the quarterly Call Report.
7. Includes provisions for allocated transfer risk.
* In absolute value, less than 0.005 percent.
n.a. Not available.
MMDA Money market deposit account.
RP Repurchase agreement.
MBS Mortgage-backed securities.

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2009

A35

A.1. Portfolio composition, interest rates, and income and expense, U.S. banks, 2000–09
E. Banks not ranked among the 1,000 largest by assets
Item

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Balance sheet items as a percentage of average net consolidated assets
1

Interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . .
Loans and leases (net). . . . . . . . . . . . . . . . . . . . . . . .
Commercial and industrial . . . . . . . . . . . . . . . . .
U.S. addressees . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign addressees . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Installment and other . . . . . . . . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In domestic offices . . . . . . . . . . . . . . . . . . . . . .
Construction and land development . . . .
Farmland . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
One- to four-family residential. . . . . . . . .
Home equity . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multifamily residential . . . . . . . . . . . . . . . .
Nonfarm nonresidential . . . . . . . . . . . . . . .
In foreign offices . . . . . . . . . . . . . . . . . . . . . . . .
To depository institutions and
acceptances of other banks . . . . . . . . . . .
Foreign governments . . . . . . . . . . . . . . . . . . . . . .
Agricultural production . . . . . . . . . . . . . . . . . . . .
Other loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease-financing receivables . . . . . . . . . . . . . . . .
Less: Unearned income on loans . . . . . . . . . . .
Less: Loss reserves2 . . . . . . . . . . . . . . . . . . . . . . .
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment account . . . . . . . . . . . . . . . . . . . . . . . .
Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency and
corporation obligations . . . . . . . . . . .
Government-backed mortgage pools .
Collateralized mortgage obligations . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local government . . . . . . . . . . . .
Private mortgage-backed securities . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading account . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds sold and reverse RPs . . . . .
Balances at depositories1 . . . . . . . . . . . . . . . . . . . . .
Noninterest-earning assets1 . . . . . . . . . . . . . . . . . . . . .
Revaluation gains held in trading accounts . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

92.52
62.31
11.09
11.02
.07
7.98
.59
7.39
39.29
39.29
3.70
3.06
18.43
1.28
17.15
1.04
13.06
*

92.30
62.67
11.10
11.02
.07
7.42
.59
6.83
40.30
40.30
4.23
3.04
18.24
1.37
16.87
1.06
13.71
*

92.27
62.72
10.71
10.65
.06
6.77
.49
6.28
41.52
41.52
4.51
3.08
17.91
1.62
16.29
1.16
14.86
*

92.16
62.32
10.42
10.37
.05
6.16
.51
5.64
42.30
42.30
4.99
3.13
17.08
1.79
15.29
1.28
15.82
*

92.34
63.80
10.29
10.25
.04
5.45
.40
5.05
44.75
44.74
6.01
3.22
17.17
2.11
15.06
1.41
16.94
*

92.29
65.43
10.21
10.15
.05
4.97
.36
4.61
46.97
46.97
7.46
3.25
17.12
2.20
14.93
1.48
17.66
*

92.36
66.65
10.17
10.12
.04
4.63
.37
4.25
48.54
48.53
9.10
3.26
16.69
2.06
14.63
1.47
18.01
*

92.39
67.29
10.25
10.21
.04
4.36
.37
3.99
49.28
49.28
10.01
3.38
16.31
2.01
14.30
1.50
18.09
*

92.15
67.82
10.34
10.30
.04
4.07
.35
3.72
50.10
50.10
9.64
3.49
16.64
2.11
14.52
1.61
18.73
*

92.42
66.55
9.72
9.68
.05
3.77
.31
3.46
49.93
49.93
7.80
3.64
17.29
2.29
15.01
1.76
19.43
*

.12
.01
3.85
.69
.27
–.11
–.88
25.40
25.38
24.82
2.12

.12
*
3.76
.67
.27
–.09
–.88
22.80
22.79
22.49
1.33

.10
*
3.64
.65
.31
–.07
–.90
23.34
23.33
23.05
1.04

.09
*
3.40
.66
.26
–.06
–.92
23.47
23.43
23.12
.90

.07
*
3.26
.68
.25
–.06
–.89
23.34
23.34
23.07
.81

.05
*
3.21
.70
.24
–.05
–.87
21.92
21.91
21.70
.71

.05
*
3.22
.70
.26
–.05
–.87
20.54
20.52
20.35
.61

.06
*
3.26
.70
.27
–.04
–.87
19.65
19.58
19.41
.47

.06
*
3.24
.73
.26
–.04
–.93
19.20
19.16
18.97
.33

.06
*
3.20
.75
.24
–.04
–1.09
19.22
19.18
19.00
.37

16.95
3.47
1.70
11.78
4.64
.23
.88
.56
.02
3.22
1.59
7.48
*
7.48

15.27
3.78
1.94
9.56
4.51
.27
1.11
.30
.01
5.01
1.82
7.70
*
7.70

16.07
4.54
2.30
9.23
4.56
.26
1.12
.27
.01
4.26
1.95
7.73
*
7.73

16.23
4.84
2.20
9.19
4.73
.21
1.05
.31
.04
4.27
2.11
7.84
*
7.84

16.57
4.76
1.96
9.85
4.67
.19
.83
.26
.01
3.33
1.86
7.66
*
7.66

15.64
4.23
1.71
9.70
4.49
.22
.65
.20
.02
3.24
1.69
7.71
*
7.71

14.73
3.62
1.50
9.61
4.30
.24
.48
.17
.02
3.53
1.64
7.64
*
7.64

14.01
3.55
1.55
8.92
4.20
.29
.43
.17
.07
3.92
1.54
7.61
*
7.61

13.44
4.80
1.76
6.88
4.24
.47
.49
.19
.04
3.29
1.84
7.85
*
7.85

13.12
5.15
1.88
6.09
4.52
.48
.51
.18
.03
2.44
4.21
7.58
*
7.58

Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction deposits . . . . . . . . . . . . . . . . . . . . . . .
Demand deposits . . . . . . . . . . . . . . . . . . . . . . . .
Other checkable deposits . . . . . . . . . . . . . . . .
Savings deposits (including MMDAs) . . . . . .
Small time deposits . . . . . . . . . . . . . . . . . . . . . . . .
Managed liabilities3 . . . . . . . . . . . . . . . . . . . . . . . . . .
Large time deposits . . . . . . . . . . . . . . . . . . . . . . . .
Deposits booked in foreign offices . . . . . . . . . .
Subordinated notes and debentures . . . . . . . . .
Gross federal funds purchased and RPs . . . . .
Other managed liabilities. . . . . . . . . . . . . . . . . . .
Revaluation losses held in trading accounts. . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

89.88
70.87
23.20
12.64
10.57
19.19
28.48
18.08
12.51
.05
.02
2.06
3.44
*
.93

89.59
69.92
22.35
12.16
10.19
19.38
28.20
18.67
13.55
.06
.02
1.55
3.49
*
1.00

89.73
70.04
22.66
12.24
10.42
21.32
26.05
18.79
13.21
.07
.04
1.51
3.96
*
.90

89.58
69.96
23.18
12.58
10.60
22.43
24.36
18.78
13.07
.06
.03
1.52
4.09
*
.84

89.55
69.24
23.36
12.77
10.59
23.24
22.64
19.57
13.15
.07
.04
1.76
4.54
*
.74

89.49
67.68
22.72
12.77
9.95
22.98
21.98
21.04
14.53
.06
.03
1.74
4.68
*
.77

89.35
65.74
20.81
11.97
8.84
22.66
22.28
22.76
16.49
.06
.03
1.82
4.36
*
.84

88.95
65.12
18.66
10.73
7.93
22.68
23.78
22.92
16.91
.05
.03
1.82
4.11
*
.91

89.12
64.28
17.75
10.07
7.68
22.56
23.97
24.02
16.64
.06
.03
1.87
5.41
*
.82

89.53
64.35
17.99
9.87
8.12
23.08
23.28
24.42
17.79
.05
.03
1.49
5.06
*
.76

Capital account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10.12

10.41

10.27

10.42

10.45

10.51

10.65

11.05

10.88

10.47

17.91
.11
5.39
n.a.
.93
n.a.
.93

19.15
.12
5.99
3.34
.76
n.a.
.76

20.67
.14
7.10
3.71
.79
n.a.
.79

22.23
.15
7.25
3.87
.87
n.a.
.87

24.50
.14
6.91
4.32
.78
n.a.
.78

26.77
.13
6.16
4.46
.70
n.a.
.70

28.81
.12
5.36
4.14
.57
n.a.
.57

29.88
.16
5.39
3.93
.45
n.a.
.45

30.34
.35
7.03
5.20
1.26
.82
.45

29.28
.70
7.51
4.78
2.09
2.09
n.a.

1.59

1.82

1.95

2.11

1.86

1.69

1.64

1.54

1.71

2.12

655

675

704

742

768

805

840

862

882

897

Memo
Commercial real estate loans4 . . . . . . . . . . . . . . . . . . .
Other real estate owned5 . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . . . . . . . .
Balances at the Federal Reserve1 . . . . . . . . . . . . . . .
Interest-earning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest-earning . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-earning balances at depositories
other than the Federal Reserve . . . . . . . . . . . . .
Average net consolidated assets
(billions of dollars) . . . . . . . . . . . . . . . . . . . . . . .

A36

Federal Reserve Bulletin h May 2010

A.1. Portfolio composition, interest rates, and income and expense, U.S. banks, 2000–09—Continued
E. Banks not ranked among the 1,000 largest by assets—Continued
Item

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Effective interest rate (percent)6
Rates earned
Interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent . . . . . . . . . . . . . . . . . . . . . .
Loans and leases, gross . . . . . . . . . . . . . . . . . . . . . .
Net of loss provisions . . . . . . . . . . . . . . . . . . .
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent . . . . . . . . . . . . . . . . . . . . . .
Investment account . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury securities and U.S.
government agency obligations
(excluding MBS) . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading account . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds sold and reverse RPs . . . . .
Interest-bearing balances at depositories1 . . . . . .

8.44
8.56
9.51
9.14
6.15
6.54
6.15

7.92
8.03
9.01
8.60
5.86
6.27
5.86

6.79
6.90
7.83
7.39
5.03
5.43
5.02

5.94
6.05
7.08
6.72
3.87
4.26
3.87

5.73
5.84
6.72
6.45
3.74
4.11
3.73

6.23
6.33
7.17
6.94
3.87
4.24
3.86

7.01
7.10
7.94
7.74
4.28
4.65
4.28

7.26
7.35
8.13
7.81
4.68
5.05
4.68

6.34
6.42
7.03
6.12
4.70
5.04
4.70

5.53
5.61
6.32
4.87
4.17
4.51
4.16

n.a.
n.a.
n.a.
4.01
6.24
6.38

5.97
6.20
5.29
6.43
3.82
4.56

4.80
5.47
4.87
15.38
1.63
2.68

3.74
3.58
4.43
2.89
1.08
1.97

3.38
3.90
4.18
18.95
1.32
2.02

3.53
4.17
4.16
7.52
3.21
3.21

4.12
4.59
4.25
7.50
4.95
4.64

4.69
4.96
4.33
4.74
5.05
5.06

4.62
5.08
4.28
4.33
2.17
3.03

3.65
4.67
4.07
5.49
.31
1.15

Rates paid
Interest-bearing liabilities . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits. . . . . . . . . . . . . . . . . . . . . .
In foreign offices . . . . . . . . . . . . . . . . . . . . . . . . . .
In domestic offices. . . . . . . . . . . . . . . . . . . . . . . . .
Other checkable deposits . . . . . . . . . . . . . . . .
Savings deposits (including MMDAs) . . . .
Large time deposits. . . . . . . . . . . . . . . . . . . . . .
Other time deposits. . . . . . . . . . . . . . . . . . . . . .
Gross federal funds purchased and RPs . . . . . . .
Other interest-bearing liabilities. . . . . . . . . . . . . . .

4.84
4.67
5.13
4.67
2.47
3.56
5.89
5.70
5.69
9.13

4.43
4.31
3.97
4.31
1.97
2.81
5.52
5.60
3.92
8.08

2.93
2.78
1.67
2.78
1.16
1.72
3.61
3.88
1.85
6.82

2.14
2.02
.85
2.02
.78
1.13
2.79
2.96
1.31
5.31

1.88
1.75
1.04
1.75
.69
1.04
2.47
2.55
1.45
4.59

2.44
2.29
2.86
2.29
.99
1.53
3.21
3.04
2.89
5.01

3.42
3.28
4.27
3.28
1.45
2.34
4.37
4.12
4.37
5.70

3.91
3.81
4.66
3.80
1.62
2.67
4.90
4.79
4.46
5.81

3.06
2.99
2.28
2.99
1.11
1.65
4.03
4.06
2.35
4.49

2.16
2.07
.19
2.07
.74
1.01
2.84
2.99
1.10
3.89

5.87
5.94
4.83
.90
.08
.07
2.33
2.08
.04
.21
3.54
3.62
.68
1.18
.36
.33
*
*
*
*
*
.50
3.52
1.76
.44
1.32
2.33
–.10
.42
.09
*
.33
.57
–.24
3.03

5.12
5.19
4.27
.79
.01
.05
1.67
1.48
.02
.17
3.45
3.52
1.03
1.01
.33
.24
*
*
*
*
*
.44
3.44
1.64
.42
1.38
2.42
.02
.02
.04
*
–.02
.36
–.38
–.19

Income and expense as a percentage of average net consolidated assets
Gross interest income. . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent. . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds sold and reverse RPs . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds purchased and RPs . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent. . . . . . . . . . . . . . . . . . . . . . . . .
Loss provisions7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service charges on deposits. . . . . . . . . . . . . . . . . . .
Fiduciary activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate exposures . . . . . . . . . . . . . . . . . . . . .
Foreign exchange rate exposures . . . . . . . . . . .
Other commodity and equity exposures . . . . .
Credit exposures. . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries, wages, and employee benefits. . . . . . . .
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net noninterest expense . . . . . . . . . . . . . . . . . . . . . . . .
Gains on investment account securities . . . . . . . . . .
Income before taxes and extraordinary items. . . . .
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Extraordinary items, net of income taxes . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared. . . . . . . . . . . . . . . . . . . . . .
Retained income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Memo: Return on equity. . . . . . . . . . . . . . . . . . . . . . . .

7.83
7.95
5.99
1.57
.21
.05
3.64
3.30
.12
.21
4.20
4.31
.32
1.31
.43
.20
*
*
*
*
n.a.
.67
3.57
1.78
.47
1.31
2.26
–.01
1.61
.45
*
1.17
.79
.38
11.52

7.33
7.44
5.73
1.32
.20
.08
3.33
3.07
.06
.20
4.00
4.10
.33
1.30
.44
.25
*
*
*
*
n.a.
.61
3.54
1.79
.47
1.28
2.24
.04
1.46
.39
*
1.07
.64
.43
10.28

6.31
6.41
5.01
1.16
.07
.06
2.22
1.98
.03
.21
4.08
4.19
.35
1.39
.45
.27
*
*
*
*
n.a.
.67
3.57
1.82
.46
1.28
2.18
.05
1.60
.41
–.01
1.18
.68
.50
11.49

Note: Data are as of March 23, 2010.
1. Effective October 1, 2008, the Federal Reserve began paying interest on
depository institutions’ required and excess reserve balances. Beginning with
the 2008:Q4 Call Report, balances due from Federal Reserve Banks are now
reported under “Interest-earning assets” rather than “Noninterest-earning assets.”
2. Includes allocated transfer risk reserve.
3. Measured as the sum of large time deposits in domestic offices, deposits
booked in foreign offices, subordinated notes and debentures, federal funds
purchased and securities sold under repurchase agreements, Federal Home
Loan Bank advances, and other borrowed money.
4. Measured as the sum of construction and land development loans secured
by real estate; real estate loans secured by nonfarm nonresidential properties or

5.46
5.56
4.47
.89
.05
.06
1.60
1.41
.02
.17
3.86
3.96
.29
1.47
.43
.28
*
*
*
*
n.a.
.76
3.55
1.82
.45
1.28
2.09
.04
1.53
.38
*
1.14
.67
.47
10.97

5.32
5.41
4.35
.87
.05
.05
1.41
1.22
.02
.17
3.91
4.00
.23
1.38
.43
.31
*
*
*
*
n.a.
.64
3.52
1.81
.45
1.26
2.14
.01
1.55
.37
*
1.18
.64
.54
11.25

5.78
5.87
4.76
.85
.11
.06
1.82
1.58
.05
.19
3.96
4.05
.21
1.33
.40
.33
*
*
*
*
n.a.
.61
3.48
1.79
.44
1.25
2.15
*
1.60
.38
*
1.21
.67
.54
11.54

6.49
6.58
5.35
.88
.18
.08
2.56
2.27
.08
.21
3.94
4.03
.20
1.31
.38
.36
*
*
*
*
n.a.
.57
3.49
1.82
.44
1.24
2.18
–.01
1.55
.36
*
1.19
.65
.53
11.14

6.73
6.82
5.53
.92
.20
.08
2.95
2.67
.08
.20
3.79
3.87
.28
1.33
.37
.38
*
*
*
*
*
.58
3.53
1.84
.44
1.25
2.19
*
1.31
.30
*
1.01
.67
.35
9.18

by multifamily residential properties; and loans to finance commercial real estate, construction, and land development activities not secured by real estate.
5. Other real estate owned is a component of other noninterest-earning
assets.
6. When possible, based on the average of quarterly balance sheet data reported on schedule RC-K of the quarterly Call Report.
7. Includes provisions for allocated transfer risk.
* In absolute value, less than 0.005 percent.
n.a. Not available.
MMDA Money market deposit account.
RP Repurchase agreement.
MBS Mortgage-backed securities.

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2009

A37

A.2. Report of income, all U.S. banks, 2000–09
Millions of dollars
Item

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Gross interest income . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent . . . . . . . . . . . . . . . . . . . .
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds sold and reverse
repurchase agreements . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

423,845
426,479
326,804
67,666

404,251
406,937
311,539
63,061

349,603
352,351
269,397
59,311

329,218
332,000
257,697
53,316

348,667
351,651
269,408
58,577

426,600
429,556
328,088
65,864

551,085
554,341
421,922
78,913

616,994
620,456
464,878
82,710

565,232
567,906
426,025
81,547

480,744
483,511
367,691
85,803

13,546
15,829

12,647
17,006

6,221
14,672

5,015
13,189

5,142
15,538

11,045
21,602

21,288
28,960

28,682
40,723

16,642
41,019

3,565
23,687

Gross interest expense . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross federal funds purchased and
repurchase agreements . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

222,161
151,147

188,746
132,311

118,741
81,701

94,123
62,400

98,541
63,639

162,501
105,922

263,393
173,898

310,412
212,783

226,557
154,312

122,065
84,179

26,860
44,155

19,583
36,852

9,920
27,122

7,590
24,133

8,842
26,058

19,161
37,418

33,776
55,721

37,715
59,914

19,755
52,489

4,846
33,041

Net interest income . . . . . . . . . . . . . . . . . . . . . . . .
Taxable equivalent . . . . . . . . . . . . . . . . . . . .

201,684
204,318

215,505
218,191

230,862
233,610

235,095
237,877

250,126
253,110

264,099
267,055

287,692
290,948

306,582
310,044

338,675
341,349

358,679
361,446

Loss provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . .

29,386

43,084

45,206

32,742

23,894

25,579

25,386

56,749

170,777

231,927

Noninterest income . . . . . . . . . . . . . . . . . . . . . . . .
Service charges on deposits . . . . . . . . . . . . . .
Fiduciary activities . . . . . . . . . . . . . . . . . . . . . .
Trading revenue . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

153,101
23,720
22,202
12,235
94,945

160,902
26,872
21,988
12,382
99,658

168,236
29,629
21,404
10,794
106,410

183,792
31,692
22,453
11,605
118,042

188,999
33,454
25,088
10,303
120,154

201,768
33,830
26,381
14,375
127,180

222,901
36,194
28,312
19,170
139,226

218,554
39,187
32,962
5,289
141,116

209,052
42,542
32,909
–1,235
134,839

245,173
41,000
26,958
23,265
153,952

Noninterest expense . . . . . . . . . . . . . . . . . . . . . . .
Salaries, wages, and employee benefits . . .
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

216,375
89,016
26,762
100,598

225,979
94,196
27,939
103,846

230,128
100,447
29,311
100,368

243,214
108,446
31,314
103,453

263,304
115,254
33,253
114,797

274,136
124,038
35,051
115,048

294,891
135,869
36,393
122,630

321,406
144,700
38,531
138,177

357,254
147,502
40,896
168,855

356,135
152,289
41,622
162,224

Net noninterest expense . . . . . . . . . . . . . . . . . . . .

63,274

65,077

61,892

59,422

74,305

72,368

71,990

102,852

148,202

110,962

Gains on investment account securities . . . . .

–2,280

4,630

6,411

5,633

3,393

–220

–1,320

–648

–16,432

–1,651

Income before taxes . . . . . . . . . . . . . . . . . . . . . . .
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Extraordinary items, net of income taxes .

106,741
37,249
–31

111,971
37,284
–324

130,176
42,816
–68

148,563
48,498
427

155,322
50,264
59

165,933
53,568
241

188,995
60,969
2,647

146,334
44,230
–1,672

3,264
2,469
5,382

14,141
4,283
–3,845

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

69,461

74,363

87,291

100,494

105,115

112,604

130,674

100,431

6,178

5,220

Cash dividends declared . . . . . . . . . . . . . . . . .
Retained income . . . . . . . . . . . . . . . . . . . . . . . .

52,547
16,915

54,844
19,519

67,230
20,062

77,757
22,738

59,523
45,591

64,624
47,981

82,360
48,312

85,266
15,166

43,327
–37,150

43,445
–38,226

Note: Data are as of March 23, 2010.

A39

December 2010

The 2009 HMDA Data: The Mortgage
Market in a Time of Low Interest Rates
and Economic Distress
Robert B. Avery, Neil Bhutta, Kenneth P. Brevoort,
and Glenn B. Canner, of the Board’s Division of
Research and Statistics, prepared this article. Christa
Gibbs and Nicholas W. Henning provided research
assistance.
Data made available annually pursuant to the Home
Mortgage Disclosure Act of 1975 (HMDA) provide an
opportunity to explore changes in mortgage market
activity along a host of dimensions.1 HMDA requires
most mortgage lending institutions with offices in metropolitan areas to publicly disclose information about
their home-lending activity each year. The data include
the disposition of each application for mortgage credit;
the type, purpose, lien status, and characteristics of the
home mortgages that lenders originate or purchase
during the calendar year; loan pricing information; the
census-tract designation of the properties related to
these loans; personal demographic and other information about the borrowers; and information about loan
sales.2 The disclosures are used to help the public determine whether institutions are adequately serving their
communities’ housing finance needs, to facilitate enforcement of the nation’s fair lending laws, and to
inform investment in both the public and private sectors. The data have also proven to be valuable as a
research tool, providing insights in many fields of
interest.
The Federal Reserve Board currently implements
the provisions of HMDA through regulation.3 The
Federal Financial Institutions Examination Council
(FFIEC) is responsible for collecting the HMDA data
and facilitating public access to the information.4 In
1. A brief history of HMDA is available at Federal Financial
Institutions Examination Council, “History of HMDA,” webpage,
www.ffiec.gov/hmda/history2.htm.
2. A list of the items reported under HMDA is provided in appendix A.
3. HMDA is implemented by Regulation C (12 C.F.R. pt. 203) of
the Federal Reserve Board. Information about the regulation is
available at www.federalreserve.gov.
4. The FFIEC (www.ffiec.gov) was established by federal law in
1979 as an interagency body to prescribe uniform examination procedures, and to promote uniform supervision, among the federal

September, the FFIEC releases summary tables pertaining to lending activity from the previous calendar
year for each reporting lender and aggregations of
home-lending activity for each metropolitan statistical
area (MSA) and for the nation as a whole.5 The FFIEC
also makes available to the public an application-level
data file containing virtually all of the reported information for each lending institution.6
The 2009 HMDA data consist of information reported by more than 8,100 home lenders, including the
nation’s largest mortgage originators, and thus are
broadly representative of all such lending in the United
States. The regulations that implement HMDA have
been essentially unchanged since 2002, with one notable exception. The rules related to the reporting of
pricing data under HMDA were revised in 2008. The
new procedures affect whether or not a loan is classified as higher priced starting with applications taken
on October 1, 2009. Thus, the 2009 HMDA data reflect
two different loan pricing classification rules, although,
for the majority of the year and for most loans originated in 2009, the older rules applied. The effects of the
rule change on reported higher-priced lending are explored in some depth in this article.

agencies responsible for the examination and supervision of financial institutions. The member agencies are the Board of Governors
of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of
the Comptroller of the Currency, the Office of Thrift Supervision,
and representatives from state bank supervisory agencies.
5. For the 2009 data, the FFIEC prepared and made available to
the public 48,563 MSA-specific HMDA reports on behalf of reporting institutions. The FFIEC also makes available to the public
reports about private mortgage insurance (PMI) activity. All the
HMDA and PMI reports are available on the FFIEC’s reports
website at www.ffiec.gov/reports.htm.
6. The only reported items not included in the data made available to the public are the loan application number, the date of the
application, and the date on which action was taken on the application. Those items are withheld to help ensure that the individuals
involved in the application cannot be identified.

A40 Federal Reserve Bulletin □ December 2010

v The substantial growth in the portion of new home
mortgages that were backed by the FHA, VA, or
federal farm programs during 2008 continued in
2009, with such loans accounting for 54 percent of all
home-purchase lending. One factor likely playing a
role in this growth is the pullback by the governmentsponsored enterprises (GSEs)—Fannie Mae and
Freddie Mac—and private mortgage insurers from
the high loan-to-value (LTV) ratio market.
v An analysis of the HMDA pricing data in 2009 is
complicated by the steepening yield curve and the
transition to new HMDA reporting rules for pricing.
Comparisons of pricing outcomes across racial and
ethnic groups are particularly problematic for this
reason. Nevertheless, the data appear to indicate that
high-risk lending activity remained at very low levels
during 2009, with no indication of a rebound.
v Lending activity in census tracts with high foreclosure activity has declined more than in other neighborhoods. This decline has been particularly severe
for refinance lending. Declines in home-purchase
lending in high-foreclosure tracts have been similar
to those observed for other tracts in the same MSAs.
v Denial rate differences across racial and ethnic groups
persist, although the HMDA data do not include
sufficient information to determine the extent to
which these differences stem from illegal discrimination.

SUMMARY OF FINDINGS
This article offers a summary and preliminary analysis
of the 2009 HMDA data. The results of our analysis
reveal the following about mortgage lending in 2009:
v After substantial declines in loan volume in 2007 and
2008, overall loan volume rebounded in 2009, though
it remained well below the levels observed in the
middle of the decade. This increase obscures divergent trends. While refinance activity increased
sharply, likely as a result of historically low interest
rates, home-purchase lending continued to decline in
2009.
v The increase in refinancing activity in 2009 appears
to have been somewhat subdued compared with what
has historically been observed when mortgage rates
sharply decline. Evidence presented in this article
suggests that the more muted growth stems from
several factors, including economic distress and low
or negative equity among many households that
could have benefited from lower rates.
v The decline in home-purchase lending could have
been more dramatic were it not for first-time homebuyers. Those homebuyers benefited not only from
certain market conditions such as historically low
interest rates and falling house prices, but also from a
federal tax credit of $8,000 and the fact that they did
not need to sell a house in a depressed economic
environment.
v The percentage of home-purchase borrowers classified as lower-income under HMDA rose significantly in 2009 but did not rise in the refinance market.
Lower-income home-purchase borrowers were also
disproportionately likely to take out Federal Housing Administration (FHA) or Department of Veterans Affairs (VA) loans.

AN OVERVIEW OF THE 2009 HMDA DATA
HMDA covers most mortgage lending institutions,
including all of the largest lenders. From the inception
of HMDA, depository institutions have constituted

1. Distribution of reporters covered by the Home Mortgage Disclosure Act, by type of institution, 2000–09
Number
Depository institution
Year

Mortgage company
All institutions

Commercial
bank

Savings
institution

Credit union

All

Independent

Affiliated1

All

2000
2001
2002
2003
2004

...........
...........
...........
...........
...........

3,609
3,578
3,628
3,642
3,945

1,112
1,108
1,070
1,033
1,017

1,691
1,714
1,799
1,903
2,030

6,412
6,400
6,497
6,578
6,992

981
962
986
1,171
1,317

332
290
310
382
544

1,313
1,252
1,296
1,553
1,861

7,725
7,652
7,793
8,131
8,853

2005
2006
2007
2008
2009

...........
...........
...........
...........
...........

3,904
3,900
3,918
3,942
3,925

974
946
929
913
879

2,047
2,037
2,019
2,026
2,017

6,925
6,883
6,866
6,881
6,821

1,341
1,334
1,132
957
914

582
685
638
550
389

1,923
2,019
1,770
1,507
1,303

8,848
8,902
8,636
8,388
8,124

NOTE: Here and in all subsequent tables, components may not sum to totals because of rounding.
1. Subsidiary of a depository institution or an affiliate of a bank holding company.
SOURCE: Here and in subsequent tables and figures except as noted, Federal Financial Institutions Examination Council, data reported under the Home
Mortgage Disclosure Act (www.ffiec.gov/hmda).

The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress A41

2. Home loan activity of lending institutions covered under the Home Mortgage Disclosure Act, 2000–09
A. Applications, requests for preapproval, and purchased loans
Number
Applications received for home loans, by type of property
1−4 family

Year
Home purchase

Refinance

Home
improvement

Multifamily

Requests for
preapproval1

Purchased loans

Total

2000
2001
2002
2003
2004

.............
.............
.............
.............
.............

8,278,219
7,692,870
7,406,374
8,179,633
9,792,324

6,543,665
14,284,988
17,491,627
24,602,536
16,072,102

1,991,686
1,849,489
1,529,347
1,508,387
2,202,744

37,765
48,416
53,231
58,940
61,895

n.a.
n.a.
n.a.
n.a.
332,054

2,398,292
3,767,331
4,829,706
7,229,635
5,146,617

19,249,627
27,643,094
31,310,285
41,579,131
33,607,736

2005
2006
2007
2008
2009

.............
.............
.............
.............
.............

11,672,852
10,928,866
7,609,143
5,017,998
4,201,057

15,898,346
14,045,961
11,566,182
7,729,143
9,935,678

2,539,158
2,480,827
2,218,224
1,404,008
826,916

57,668
52,220
54,230
42,792
26,257

396,686
411,134
432,883
275,808
209,055

5,874,447
6,236,352
4,821,430
2,921,821
4,294,528

36,439,157
34,155,360
26,702,092
17,391,570
19,493,491

NOTE: Here and in subsequent tables, except as noted, data include first and junior liens, site-built and manufactured homes, and owner- and non-owneroccupied loans.
1. Consists of requests for preapproval that were denied by the lender or were accepted by the lender but not acted upon by the borrower. In this article,
applications are defined as being for a loan on a specific property; they are thus distinct from requests for preapproval, which are not related to a specific property.
Information on preapproval requests was not required to be reported before 2004.
n.a. Not available.

the bulk of the reporting entities. For 2009, 8,124 institutions reported on their home-lending activity under
HMDA: 3,925 commercial banks; 879 savings institutions (savings and loans and savings banks); 2,017
credit unions; and 1,303 mortgage companies, 914 of
which were not affiliated with a banking institution
(table 1).7 The number of reporting institutions has
fluctuated over the years, in part reflecting changes in
reporting requirements, including increases in the minimum asset level used to determine coverage.8 Changes
in the number and geographic footprint of metropolitan areas also influence reporting over time, as HMDA’s
coverage focuses on institutions with at least one office
in a metropolitan area.9 Finally, mergers and acquisitions, along with changes in economic conditions that
at times have resulted in more bank failures or new
start-ups, have affected the number of reporters. For
2009, the number of reporters fell 3 percent from 2008,

7. The data used in this article for the years 1990 to 2007 are based
on revised HMDA filings, which include corrections to the initial
public release. Consequently, figures for these years may not correspond exactly to figures in tables of earlier articles. The data for 2008
and 2009 reflect the initial public release.
8. For the 2010 reporting year covering the 2009 data, the minimum asset size for purposes of coverage was $39 million. The minimum asset size changes from year to year with changes in the
Consumer Price Index for Urban Wage Earners and Clerical Workers. See the FFIEC’s guide to HMDA reporting at www.ffiec.gov/
hmda/guide.htm.
9. From time to time, the Office of Management and Budget
updates the list and geographic scope of metropolitan and micropolitan statistical areas. See Office of Management and Budget, “Statistical Programs and Standards,” webpage, www.whitehouse.gov/
omb/inforeg_statpolicy.

continuing a downward trend since 2006. Independent
mortgage companies experienced the largest percentage decline in 2009, falling nearly 14 percent. Since
2006, the number of mortgage companies has fallen by
more than one-third.
Reporting lenders submitted information on 15 million applications for home loans of all types in 2009
(excluding requests for preapprovals and purchased
loans), up about 6 percent from 2008 but still far below
the 27.5 million applications reached in 2006, just
before the housing market began unraveling (data derived from table 2.A). The majority of loan applications are approved by lenders, and most of these
approvals result in extensions of credit. Some applications are approved, but the applicant decides not to
take out the loan; for example, in 2009 nearly 6 percent
of all applications were approved but not accepted by
the applicant (data not shown in tables). Overall, of the
nearly 15 million applications submitted in 2009,
60 percent resulted in an extension of credit (data
derived from tables 2.A and 2.B).
The HMDA data also include information on loan
purchases by lenders, although the purchased loans
may have been originated at any point in time. For
2009, lenders reported information on nearly 4.3 million loans that they had purchased from other institutions, a sharp rebound from the nearly decade-low
volume reported in 2008. Finally, lenders reported on
roughly 209,000 requests for preapprovals of homepurchase loans that did not result in a loan origination
(table 2.A); preapprovals that resulted in a loan are
included in the count of loan extensions noted earlier.

A42 Federal Reserve Bulletin □ December 2010

2. Home loan activity of lending institutions covered under the Home Mortgage Disclosure Act, 2000–09
B. Loans
Number
Loans, by type of property
Year

1−4 family

Total
Multifamily

Home purchase

Refinance

Home improvement

2000 . . . . . . . . . . . . . . . . . . . .
2001 . . . . . . . . . . . . . . . . . . . .
2002 . . . . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . .

4,787,356
4,938,809
5,124,767
5,596,292
6,429,988

2,435,420
7,889,186
10,309,971
15,124,761
7,583,928

892,587
828,820
712,123
678,507
966,484

27,305
35,557
41,480
48,437
48,150

8,142,668
13,692,372
16,188,341
21,447,997
15,028,550

2005 . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . .

7,382,012
6,740,322
4,663,267
3,119,692
2,784,956

7,101,649
6,091,242
4,817,875
3,457,774
5,758,875

1,093,191
1,139,731
957,912
568,287
387,970

45,091
39,967
41,053
31,509
19,135

15,621,943
14,011,262
10,480,107
7,177,262
8,950,936

Lending for Home Purchase or Refinancing
A monthly count of home-purchase and refinance
loan originations for one- to four-family homes in the
HMDA data shows a downward trend in home1. Volume of home-purchase and refinance originations and
annual percentage rate, by month, 2006–09
Percentage points

Thousands of loans

750

APR
(right scale)

Refinance
(left scale)

7

600
6
450
5
300
4

Home purchase
(left scale)

150

2006

2007

2008

2009

NOTE: The data are monthly. Loans are first- and second-lien mortgages
excluding multifamily housing. Annual percentage rate (APR) is the average
monthly rate for a 30-year fixed-rate mortgage from the Freddie Mac Primary
Mortgage Market Survey, as reported by the Federal Financial Institutions
Examination Council, www.ffiec.gov/ratespread/newcalc.aspx.

purchase lending from 2006 to 2009 (figure 1).10 For
instance, in June 2006, the peak month for home10. Lenders report the date on which action on an application is
taken. For originations, the “action taken” date is the closing date or
date of loan origination for the loan. This date is the one we use to
compile data at the monthly level. To help ensure the anonymity of
the data, the dates of application and action taken are not released in
the HMDA data files made available to the public.
The estimated annual percentage rates (APRs) in figure 1 are
derived from information on contract rates and points from Freddie
Mac’s Primary Mortgage Market Survey. Loan counts are aggregated to the monthly level using the date of loan origination, as
opposed to the potentially earlier date when the interest rate for the
loan was set, which is not reported under HMDA.

purchase lending that year, about 698,000 homepurchase loans were extended, compared with only
308,000 such loans in the peak month of 2008 and
285,000 at the monthly high point for 2009. Overall,
the number of home-purchase loans reported by lenders covered by HMDA was down about 11 percent
from 2008 and was nearly 60 percent lower than in
2006 (data derived from table 2.B).
The volume of refinance lending tends to be more
closely aligned with changes in interest rates than that
of home-purchase lending, expanding when mortgage
rates fall and retrenching when rates rise. The interest
rate environment in 2009 was quite favorable for borrowers, and the number of reported refinance loans
increased 67 percent from 2008 to 2009 (table 2.B).
However, factors such as elevated unemployment, depressed home prices, and tighter underwriting appear
to have hampered refinance activity, as discussed in
more detail later.

Non-Owner-Occupied Lending
Individuals buying homes either for investment purposes or as second or vacation homes have been an
important segment of the housing market for many
years. Under HMDA, housing units used in such ways
are collectively described and reported as non-owner
occupied.11 Between 2000 and 2005, the share of nonowner-occupied lending used to purchase one- to fourfamily homes rose, increasing over this period to
16 percent from about 9 percent (data derived from

11. An investment property is a non-owner-occupied dwelling
that is intended to be rented or resold for a profit. Some non-owneroccupied units—vacation homes and second homes—are for the
primary use of the owners and thus would not be considered investment properties. The HMDA data do not, however, distinguish
between these two types of non-owner-occupied dwellings.

The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress A43

3. Home loan applications and home loans for one- to four-family properties, by occupancy status of home and type of
loan, 2000–09
Number
Applications
Owner occupied

Year

Conventional

Nonconventional1

Loans
Non-owner occupied

Conventional

Owner occupied

Nonconventional1

Conventional

Nonconventional1

Non-owner occupied
Conventional

Nonconventional1

A. Home purchase
2000
2001
2002
2003
2004

...........
...........
...........
...........
...........

6,350,643
5,776,767
5,511,048
6,212,915
7,651,113

1,311,101
1,268,885
1,133,770
1,014,865
799,131

604,919
627,598
747,758
943,248
1,335,241

12,524
19,688
13,923
8,623
6,839

3,411,887
3,480,441
3,967,834
4,162,412
4,946,423

963,345
1,003,795
870,599
761,716
574,841

404,133
440,498
547,963
667,613
906,014

8,378
14,128
8,474
4,560
2,710

2005
2006
2007
2008
2009

...........
...........
...........
...........
...........

9,208,214
8,695,877
5,960,571
2,940,059
1,883,278

610,650
576,043
599,637
1,424,483
1,884,136

1,850,174
1,653,154
1,044,112
647,340
427,338

3,814
3,792
4,823
6,116
6,305

5,742,377
5,281,485
3,582,949
1,727,692
1,171,033

438,419
416,744
423,506
972,605
1,320,412

1,199,509
1,040,668
655,916
415,930
289,796

1,707
1,425
896
3,465
3,715

B. Refinance
2000
2001
2002
2003
2004

...........
...........
...........
...........
...........

6,051,484
12,737,863
15,623,327
21,779,329
14,476,350

110,380
705,784
742,208
1,236,467
497,700

379,299
823,748
1,111,588
1,563,430
1,084,536

2,502
17,592
14,504
23,310
13,516

2,170,162
6,836,106
9,058,654
13,205,472
6,649,588

64,882
524,228
535,370
895,735
304,591

198,695
516,616
706,570
1,007,674
621,667

1,293
12,181
9,377
15,871
8,082

2005
2006
2007
2008
2009

...........
...........
...........
...........
...........

14,494,441
12,722,112
10,173,282
5,829,633
7,251,066

262,438
208,405
375,860
1,240,472
2,051,766

1,135,929
1,112,891
1,012,827
650,042
617,707

5,538
2,553
4,213
8,996
15,139

6,336,004
5,382,950
4,123,507
2,593,793
4,404,215

158,474
122,134
196,897
522,243
998,585

603,914
585,142
496,577
337,914
348,599

3,257
1,016
894
3,824
7,476

C. Home improvement
2000
2001
2002
2003
2004

...........
...........
...........
...........
...........

1,833,277
1,771,472
1,459,049
1,430,380
2,081,528

91,575
16,276
11,582
13,876
11,887

65,286
60,598
58,080
63,806
109,105

1,548
1,143
636
325
224

843,884
788,560
676,515
642,065
904,492

10,896
6,722
4,878
5,226
5,557

37,047
32,990
30,533
31,113
56,341

760
548
197
103
94

2005
2006
2007
2008
2009

...........
...........
...........
...........
...........

2,401,030
2,335,338
2,072,688
1,294,162
740,061

10,053
12,645
16,717
26,544
28,437

127,857
132,694
128,700
83,036
58,171

218
150
119
266
247

1,026,340
1,067,730
887,123
516,612
348,409

4,483
6,115
9,409
12,347
11,212

62,298
65,842
61,321
39,170
28,183

70
44
59
158
166

1. Loans insured by the Federal Housing Administration or backed by guarantees from the U.S. Department of Veterans Affairs, the Farm Service Agency, or the
Rural Housing Service.

table 3, panel A). Since 2005, the share has fallen,
dropping to about 11 percent in 2009.

Types of Loans
While the total number of loans to purchase homes has
fallen sharply since near the middle of the decade, the
volume of nonconventional home-purchase loans—
including loans backed by FHA insurance, VA loan
guarantees, and, to a lesser extent, Rural Housing Service (RHS) guarantees and guaranteed and direct loans
from the Farm Service Agency (FSA)—has increased
markedly, particularly since 2007 (table 3, panel A).
From 2006 to 2009, the total number of reported
home-purchase loans for owner-occupied homes fell
56 percent, while the number of nonconventional
home-purchase loans of this sort more than tripled.

Nonconventional lending has also garnered a larger
share of the refinance market since 2007, although
conventional loans used for refinancing still outnumber nonconventional loans (table 3, panel B). In 2006,
there were 44 conventional loans used for the refinancing of loans secured by owner-occupied homes for
every nonconventional loan; in 2009, the ratio was 5 to
1. We discuss these developments in more detail in the
later section “The Changing Role of Government in
the Mortgage Market.”
The sharp increase in nonconventional lending for
home purchase relates almost exclusively to site-built
homes. In fact, the volume of loans, whether nonconventional or conventional, to purchase manufactured
homes has fallen every year since 2006, and such lending represents a small fraction (less than 3 percent in

A44 Federal Reserve Bulletin □ December 2010

4. Loans on manufactured homes, by occupancy status of home and type of loan, 2004–09
Number
Owner occupied

Non-owner occupied

Year
Conventional

1

Conventional

Nonconventional

Nonconventional1

A. Home purchase
2004 . . . . . . . . . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . .

107,686
101,539
102,458
95,584
68,821
43,253

23,974
27,229
30,530
28,554
27,615
20,558

16,243
17,927
19,105
13,963
11,392
7,895

125
56
257
92
93
29

6,507
6,331
6,240
6,332
6,817
5,922

57
26
68
74
177
59

1,269
1,372
1,425
1,494
1,324
1,110

5
3
2
2
36
1

B. Refinance
2004 . . . . . . . . . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . .

79,838
73,520
64,969
59,591
44,342
36,765

6,922
7,727
11,750
16,174
21,926
21,765
C. Home improvement

2004 . . . . . . . . . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . .

17,119
20,239
20,886
19,428
12,621
9,710

128
219
490
889
681
439

1. See note to table 3.

2009) of total home-purchase lending (data derived
from tables 2.B and 4).

2008. In 2009, only about 44,000 such loans were
extended by HMDA reporters.

Junior-Lien Lending

Loan Sales

Information on lien status reported in the HMDA data
differentiates among loans secured by a first lien, secured by a subordinate (junior) lien, and not secured.
(The latter arises only among home-improvement
loans, for which a security interest in a property may or
may not be taken). Home equity lines of credit (both
first and junior liens) are generally not reported under
HMDA. Other junior liens are reported only if they
are used for home purchase, home improvement, or a
refinancing of a previous loan, which means, in practice, that only junior liens used for home purchase are
comprehensively reported in HMDA. In the recent
past, one important purpose of home purchase juniorlien loans was to avoid paying for either private mortgage insurance (PMI) or government mortgage
insurance when purchasing a home. By taking out a
junior-lien loan (often referred to as a “piggyback”
loan) to accompany the primary mortgage, homebuyers were able to finance the down payment. In 2006,
HMDA reporters extended nearly 1.3 million juniorlien loans for the purpose of buying an owner-occupied
home (table 5, panel A). The number of such loans fell
by more than one-half in 2007 and fell sharply again in

The HMDA data include information on the type of
purchaser for loans that are originated and sold during
the year. The data are one of the few sources of information that provide a fairly comprehensive record of
where loans are placed after origination. Because some
loans originated during a calendar year are sold after
the end of the year, the HMDA data tend to understate
the proportion of originations that are eventually sold,
an issue we deal with in more detail in the later section
“The Changing Role of Government in the Mortgage
Market.”
Regulation C identifies nine types of purchasers that
lenders may use when reporting their loan sale activity.
Broadly, these purchaser types can be broken into
those that are government related—Ginnie Mae, Fannie Mae, Freddie Mac, and Farmer Mac—and those
that are not.12 Ginnie Mae and Farmer Mac are fo12. Technically, Ginnie Mae does not buy or sell loans; rather, it
guarantees that investors receive timely payment of interest and
principal for mortgage-backed securities backed by FHA or VA
loans. However, the HMDA rules direct lenders to report loans
covered by Ginnie Mae guarantees as sales to Ginnie Mae. (See the
Ginnie Mae website at www.ginniemae.gov.) Farmer Mac purchases

The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress A45

5. Home loans for one- to four-family properties, by occupancy status of home, type of loan, and lien status, 2004–09
Number
Owner occupied
Year

Conventional
First lien

Non-owner occupied
1

Nonconventional

Junior lien Unsecured First lien

Nonconventional1

Conventional

Junior lien Unsecured First lien

Junior lien Unsecured First lien

Junior lien Unsecured

A. Home purchase
2004 . . . . . .
2005 . . . . . .
2006 . . . . . .
2007 . . . . . .
2008 . . . . . .
2009 . . . . . .

4,209,787
4,520,378
4,013,196
3,031,606
1,636,194
1,128,950

736,636
1,221,999
1,268,289
551,343
91,498
42,083

n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

573,606
437,552
416,143
422,450
971,528
1,318,940

1,235
867
601
1,056
1,077
1,472

n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

853,490
1,049,555
878,325
605,714
410,377
287,760

52,524
149,954
162,343
50,202
5,553
2,036

n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

2,703
1,685
1,407
888
3,461
3,706

7
22
18
8
4
9

n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

12,711
25,423
38,712
23,241
9,070
6,747

n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

8,069
3,236
989
879
3,814
7,460

13
21
27
15
10
16

n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

8,153
10,756
13,739
11,508
5,473
3,174

8,160
8,998
8,190
8,143
7,215
5,411

30
17
18
35
135
101

54
49
20
18
13
29

10
4
6
6
10
36

B. Refinance
2004 . . . . . .
2005 . . . . . .
2006 . . . . . .
2007 . . . . . .
2008 . . . . . .
2009 . . . . . .

6,185,418
5,607,642
4,347,348
3,462,944
2,374,781
4,290,072

464,170
728,362
1,035,602
660,563
219,012
114,143

n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

304,298
158,198
121,761
196,544
521,863
998,089

293
276
373
353
380
496

n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

608,956
578,491
546,430
473,336
328,844
341,852

C. Home improvement
2004 . . . . . .
2005 . . . . . .
2006 . . . . . .
2007 . . . . . .
2008 . . . . . .
2009 . . . . . .

357,618
409,947
360,321
301,078
179,506
165,620

395,582
468,375
553,152
435,187
181,402
84,332

151,292
148,018
154,257
150,858
155,704
98,457

2,697
2,197
3,957
7,510
10,477
8,147

2,243
1,873
1,735
1,579
1,610
2,416

617
413
423
320
260
649

40,028
42,544
43,913
41,670
26,482
19,598

1. See note to table 3.
n.a. Not available.

cused on nonconventional loans (FHA, VA, FSA, and
RHS). Fannie Mae and Freddie Mac are focused on
conventional loans, within the size limits set by the
Congress that meet the underwriting standards established by these entities.
The HMDA data document the importance of the
secondary market for home loans. Overall, 82 percent
of the first-lien home-purchase and refinance loans for
one- to four-family properties originated in 2009 were
sold during the year (data not shown in tables).13 The
share of originations that are sold varies a bit from
year to year and by type and purpose of the loan
(table 6, panel A). For example, about 70 percent of the
conventional loans for the purchase of owner-occupied
one- to four-family dwellings that were originated in
2009 were sold that year. In contrast, about 92 percent
of the nonconventional loans used to purchase owneroccupied homes were sold in 2009. The share of conventional loans made to non-owner occupants that are
certain types of agriculture-related loans. (See a description of
Farmer Mac programs at www.farmermac.com/lenders/
fmacprograms/farmermacprograms.aspx.)
13. Loans that are sold in a different calendar year than the year
of origination are recorded in the HMDA data as being held in the
lender’s portfolio. In some cases, these loans are sold in subsequent
years, but those actions are not reported. Also, some loans recorded
as sold in the HMDA data are sold to affiliated institutions and thus
are not true secondary-market sales. In 2009, 6.5 percent of the loans
recorded as sold in the HMDA data were sales to affiliates.

sold is notably smaller than that for owner-occupied
loans.

Application Disposition, Loan Pricing, and
Status under the Home Ownership and
Equity Protection Act
For purposes of analysis, loan applications and loans
reported under HMDA can be grouped in many ways.
Every loan application reported in 2009 can be organized into 25 distinct product categories characterized
by type of loan and property, purpose of the loan, and
lien and owner-occupancy status (tables 7.A, 7.B, 8.A,
and 8.B). Each product category contains information
on the number of total and preapproval applications,
application denials, originated loans, loans with prices
above the reporting thresholds established by HMDA
reporting rules for identifying higher-priced loans,
loans covered by the Home Ownership and Equity
Protection Act of 1994 (HOEPA), and the mean and
median annual percentage rate (APR) spreads for loans
reported as higher priced. Table 7.A includes all applications filed prior to October 1, 2009; table 7.B includes applications filed over the remainder of the
year. This division corresponds to the change in pricereporting rules noted earlier and discussed in more
detail in the later section “The 2009 HMDA Data on

A46 Federal Reserve Bulletin □ December 2010

6. Distribution of home loan sales for one- to four-family properties, by occupancy status of home and type of loan,
2000–09
Percent
Owner occupied
Nonconventional1

Conventional

Year

Share sold

Non-owner occupied

MEMO: Share
sold to GSEs2

Share sold

Nonconventional1

Conventional

MEMO: Share
sold to GSEs2

Share sold

MEMO: Share
sold to GSEs2

Share sold

MEMO: Share
sold to GSEs2

A. Home purchase
2000
2001
2002
2003
2004

...........
...........
...........
...........
...........

64.8
66.8
71.0
72.3
74.2

31.3
34.6
36.7
33.1
25.5

89.1
86.1
88.7
91.2
92.2

46.0
46.2
43.7
40.7
40.5

53.7
57.9
62.5
63.1
63.5

29.3
34.0
36.4
31.8
23.6

81.4
92.2
87.9
80.8
63.7

22.9
23.0
29.7
21.6
11.5

2005
2006
2007
2008
2009

...........
...........
...........
...........
...........

75.9
74.8
70.1
71.6
70.4

18.7
19.0
29.1
40.1
39.7

89.9
88.6
87.6
90.0
91.7

32.6
31.7
32.5
36.5
34.5

69.7
69.3
61.4
60.3
57.4

18.0
19.0
26.9
36.3
34.1

49.7
61.3
74.9
95.1
88.7

16.3
15.0
27.6
21.6
35.6

B. Refinance
2000
2001
2002
2003
2004

...........
...........
...........
...........
...........

47.4
61.3
66.8
74.2
69.0

18.0
37.2
40.4
44.8
27.6

84.5
85.0
85.7
93.8
93.2

50.0
51.5
45.0
48.0
44.2

47.3
61.2
65.9
69.8
62.2

21.7
38.4
43.2
40.4
22.6

86.3
92.1
81.3
87.4
88.0

42.8
33.2
45.4
50.7
35.9

2005
2006
2007
2008
2009

...........
...........
...........
...........
...........

69.9
65.7
61.7
65.3
79.8

19.7
15.2
21.9
38.0
51.7

89.3
86.8
85.1
88.8
90.4

33.5
31.8
34.5
35.4
36.4

64.7
64.9
61.1
56.8
61.8

16.6
15.7
23.9
33.0
39.6

85.7
79.0
86.9
95.7
93.8

40.1
29.6
23.9
20.4
35.9

C. Home improvement
2000
2001
2002
2003
2004

...........
...........
...........
...........
...........

6.3
6.4
5.9
10.5
23.6

1.1
1.5
1.4
.8
6.0

15.6
22.3
28.4
43.8
48.7

4.7
7.6
7.1
6.7
23.5

4.4
3.9
4.0
6.5
23.1

.4
.8
.9
.7
7.5

52.9
73.7
55.3
35.0
20.2

.5
1.1
3.6
3.9
7.4

2005
2006
2007
2008
2009

...........
...........
...........
...........
...........

27.2
22.0
19.1
14.7
25.0

7.0
5.3
6.4
8.7
17.4

46.2
60.4
70.6
80.0
63.8

25.3
31.8
30.8
49.2
37.3

30.2
29.4
26.4
20.0
18.2

8.8
8.9
12.1
14.5
13.3

27.1
29.5
39.0
74.7
55.4

8.6
15.9
11.9
6.3
9.6

1. See note to table 3.
2. Loans sold to government-sponsored enterprises (GSEs) include those with a purchaser type of Fannie Mae, Freddie Mac, Ginnie Mae, or Farmer Mac.

Loan Pricing.” This change makes it inappropriate to
present the pricing information in one consolidated
table. Tables 8.A and 8.B provide information on preapprovals over the corresponding time periods.

Disposition of Applications
As noted, the 2009 HMDA data include information
on nearly 15 million loan applications, about 85 percent of which were acted upon by the lender (data
derived from combining tables 7.A and 7.B). Patterns
of denial rates are largely consistent with what has
been observed in earlier years.14 Denial rates on appli14. The information provided in the tables is identical to that
provided in analyses of earlier years of HMDA data except for the
division of the data by the date of application. Comparisons of the
numbers in these two tables with those in the tables from earlier

cations for home-purchase loans are notably lower
than those observed on applications for either refinance or home-improvement loans. Denial rates on
applications backed by manufactured housing are
much higher than those on applications backed by
years, including denial rates, can be made by consulting the following articles: Robert B. Avery, Neil Bhutta, Kenneth P. Brevoort,
Glenn B. Canner, and Christa N. Gibbs (2010), “The 2008 HMDA
Data: The Mortgage Market during a Turbulent Year,” Federal
Reserve Bulletin, vol. 95, pp. A169–A211; Robert B. Avery, Kenneth P. Brevoort, and Glenn B. Canner (2008), “The 2007 HMDA
Data,” Federal Reserve Bulletin, vol. 94, pp. A107–A146; Robert B.
Avery, Kenneth P. Brevoort, and Glenn B. Canner (2007), “The
2006 HMDA Data,” Federal Reserve Bulletin, vol. 93, pp. A73–
A109; Robert B. Avery, Kenneth P. Brevoort, and Glenn B. Canner
(2006), “Higher-Priced Home Lending and the 2005 HMDA Data,”
Federal Reserve Bulletin, vol. 92, pp. A123–A166; and Robert B.
Avery, Glenn B. Canner, and Robert E. Cook (2005), “New Information Reported under HMDA and Its Application in Fair Lending Enforcement,” Federal Reserve Bulletin, vol. 91, pp. 344–94.

The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress A47

site-built homes. For example, the denial rate for firstlien conventional home-purchase loan applications for
owner-occupied site-built properties was 15.7 percent
in 2009, compared with a denial rate of 59.0 percent for
first-lien conventional home-purchase loan applications for owner-occupied manufactured homes (data
derived from tables 7.A and 7.B).
In addition to the application data provided under
HMDA, nearly 560,000 requests for preapproval were
reported under HMDA as acted on by the lender (data
derived from tables 8.A and 8.B). About one-fourth of
these requests for preapproval were denied by the
lender. Not surprisingly, the number of requests for
preapproval is down substantially from the levels recorded at the height of the housing boom. In 2006,
covered institutions reported that they received nearly
1.2 million requests for preapproval upon which they
took action (data not shown in tables).

Loan Pricing
The collapse of the subprime and near-prime credit
markets in 2007 resulted in a sharp curtailment of
lending at relatively high interest rates, a market outcome reflected in the 2007 and 2008 HMDA data,
which show a marked decline in the number of loans
that were classified for purposes of reporting as higher
priced. A review of the 2008 HMDA data also revealed
that a substantial fraction of loans extended in 2008
that were reported as higher priced were so classified
because of atypical changes in the interest rate environment rather than because the loans represented relatively high credit risk.15
The 2009 HMDA data continue to show that the
level of higher-priced lending is greatly diminished
from the levels reached in 2006. The data also show
that the incidence of higher-priced lending across all
products in 2009 (about 5.5 percent; data derived from
tables 7.A and 7.B) is not only much lower than the
28.7 percent rate found in 2006 (2006 data not shown in
tables) but also about one-half of the 11.6 percent rate
found in 2008 (2008 data not shown in tables). The
loan pricing information within the HMDA data is
explored more fully in the later section “The 2009
HMDA Data on Loan Pricing.”

HOEPA Loans
The HMDA data indicate which loans are covered by
the protections afforded by HOEPA. Under HOEPA,
certain types of mortgage loans that have interest rates
15. See Avery and others, “The 2008 HMDA Data: The Mortgage Market during a Turbulent Year,” in note 14.

or fees above specified levels require additional disclosures to consumers and are subject to various restrictions on loan terms.16 For 2009, 1,153 lenders reported
extending 6,500 loans covered by HOEPA (tables 7.A
and 7.B). In comparison, lenders reported on about
8,600 loans covered by HOEPA in 2008 (data regarding lenders not shown in tables). In the aggregate,
HOEPA-related lending made up less than 0.1 percent
of all the originations of home-secured refinancing
loans and home-improvement loans reported for 2009
(data derived from tables).17

THE 2009 HMDA DATA ON LOAN PRICING
As noted, the rules governing whether or not a loan is
classified as higher priced under HMDA were changed
in 2008, with implementation affecting loan classifications for the 2009 data. The purpose of the rule change
was to address concerns that had arisen about the
distortive effects of changes in the interest rate environment on the reporting of higher-priced lending under
the original methodology.18 Because of changes in
underlying market rates of interest, two loans of
equivalent credit or prepayment risk could be classified
differently at different points in time, an outcome that
was unintended.
The rules for reporting loan pricing information
under HMDA were originally adopted in 2002, covering lending beginning in 2004. Under these rules (the
“old rules”), lenders were required to compare the
APR on a loan to the yield on a Treasury security with
a comparable term to maturity to determine whether
the loan should be considered higher priced: If the
difference exceeded 3 percentage points for a first-lien
loan or 5 percentage points for a junior-lien loan, the
loan was classified as higher priced and the rate spread
(the amount of the difference) was reported.
Analysis of the HMDA data revealed that the original loan pricing classification methodology created
unintended distortions in reporting. Since most mortgages prepay well before the stated term of the loan,
lenders typically use relatively shorter-term interest
rates when setting the price of mortgage loans. For
example, lenders often price 30-year fixed-rate mort16. The requirement to report HOEPA loans in the HMDA data
relates to whether the loan is subject to the original protections of
HOEPA, as determined by the coverage test in the Federal Reserve
Board’s Regulation Z, 12 C.F.R. pt. 226.32(a). The required reporting is not triggered by the more recently adopted protections for
“higher-priced mortgage loans” under Regulation Z, notwithstanding that those protections were adopted under authority given to the
Board by HOEPA. See 73 Fed. Reg. 44522 (July 30, 2008).
17. HOEPA does not apply to home-purchase loans.
18. The potential for such distortions is discussed in prior research; for example, see Avery, Brevoort, and Canner, “HigherPriced Home Lending and the 2005 HMDA Data,” in note 14.

A48 Federal Reserve Bulletin □ December 2010

7. Disposition of applications for home loans, and origination and pricing of loans, by type of home and type of loan,
2009
A. Loans with application dates before October 1, 2009, threshold change
Applications

Loans originated
Loans with APR spread above the threshold1

Type of home and loan

Acted upon by lender
Number
submitted

Number
Number Percent
Number

Number Percent
denied denied

Distribution,
by percentage points
of APR spread

APR spread
(percentage
points)

Number
of
HOEPAcovered
3457- 9 or
loans2
3.99 4.99 6.99 8.99 more Mean Median

1–4 FAMILY
NONBUSINESS RELATED3
Owner occupied
Site built
Home purchase
Conventional
First lien . . . . . . . . . . . .
Junior lien . . . . . . . . . .
Government backed
First lien . . . . . . . . . . . .
Junior lien . . . . . . . . . .
Refinance
Conventional
First lien . . . . . . . . . . . .
Junior lien . . . . . . . . . .
Government backed
First lien . . . . . . . . . . . .
Junior lien . . . . . . . . . .

1,415,449
51,521

1,229,153
45,929

189,822
7,302

15.4
15.9

944,844
34,828

45,160
7,063

4.8
20.3

1,588,919
1,581

1,403,515
1,379

208,478
98

14.9
7.1

1,125,063
1,247

56,504
4

5.0
.3

6,218,103
166,847

5,309,600 1,144,080
148,366
44,552

21.5
30.0

3,806,948 120,408
95,851 20,522

1,757,425
813

1,381,014
607

425,250
149

30.8
24.5

854,630
420

267,265
164,257

227,387
140,543

70,564
62,187

31.0
44.2

47.9 23.4 24.0
. . . . . . 91.8

3.8
7.1

.9
1.2

4.4
5.9

4.1
5.7

...
...

88.5 7.6 3.7
.1
.1
. . . . . . 50.0 25.0 25.0

3.5
8.3

3.3
6.4

...
...

3.2
21.4

48.9 21.3 20.0 9.0
. . . . . . 79.3 15.2

.8
5.5

4.5
6.3

4.0
5.9

1,885
397

61,060
7

7.1
1.7

92.6 5.5 1.8
.1
. . . . . . 71.4 28.6

.0
.0

3.4
6.1

3.2
5.4

284
...

142,781
71,000

28,122
12,010

19.7
16.9

37.0 25.2 24.3 11.7
. . . . . . 73.6 17.8

1.9
8.5

4.9
6.6

4.5
6.0

840
465

818
1,659

11.9
78.9

70.4 10.4 14.2 5.0
.0
. . . . . . 32.5 51.8 15.7

4.0
7.6

3.4
7.5

5
12

Home improvement
Conventional
First lien . . . . . . . . . . . .
Junior lien . . . . . . . . . .
Government backed
First lien . . . . . . . . . . . .
Junior lien . . . . . . . . . .
Unsecured
(conventional or
government
backed) . . . . . . . . . . .

16,073
5,171

12,716
4,447

4,817
1,783

37.9
40.1

6,868
2,103

181,904

177,263

78,924

44.5

77,557

...

...

...

...

...

...

...

Manufactured
Conventional, first lien
Home purchase. . . . . . . .
Refinance . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . .

166,420
70,219
108,369

159,732
60,693
95,393

92,937
23,879
36,314

58.2
39.3
38.1

37,065
31,150
48,872

28,261
15,956
9,719

76.2
51.2
19.9

15.6 18.3 34.2 17.7 14.2
17.0 17.7 36.2 24.0 5.1
44.1 15.5 26.1 10.5 3.8

6.4
6.0
5.0

5.9
5.8
4.3

...
1,298
449

Non-owner occupied 4
Conventional, first lien
Home purchase. . . . . . . .
Refinance . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . .

338,882
504,929
72,823

297,621
426,480
62,448

53,181
123,753
23,500

17.9
29.0
37.6

221,421
275,839
36,035

19,405
14,449
4,466

8.8
5.2
12.4

56.5 21.7 16.2 3.9
49.1 21.6 22.7 5.2
25.4 14.8 44.1 12.0

1.6
1.4
3.7

4.3
4.5
5.5

3.8
4.0
5.4

...
105
54

BUSINESS RELATED3
Conventional, first lien
Home purchase. . . . . . . .
Refinance . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . .

30,659
31,974
14,483

29,666
30,888
12,435

1,095
1,828
1,604

3.7
5.9
12.9

27,915
28,455
10,516

1,152
1,064
419

4.1
3.7
4.0

30.1 31.7 31.6
32.0 30.6 33.0
49.2 13.8 28.6

4.7
4.0
5.7

1.9
.6
2.6

4.9
4.8
4.7

4.6
4.6
4.0

...
6
9

MULTIFAMILY5
Conventional, first lien
Home purchase. . . . . . . .
Refinance . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . .

7,161
12,067
4,085

6,504
11,118
3,683

956
1,886
573

14.7
17.0
15.6

5,229
8,704
2,994

215
449
114

4.1
5.2
3.8

47.0 31.6 18.1
48.3 29.8 19.2
43.0 23.7 29.8

2.3
2.5
3.5

.9
.2
.0

4.3
4.3
4.4

4.1
4.0
4.0

...
...
1

Total . . . . . . . . . . . . . . . . . . . . . . 13,197,399 11,278,580 2,599,512

23.0

7,898,335 449,006

5.7

51.2 15.5 23.3

7.7

2.3

4.6

3.9

5,810

...

...

...

1. Annual percentage rate (APR) spread is the difference between the APR on the loan and the yield on a comparable-maturity Treasury security. The threshold
for first-lien loans is a spread of 3 percentage points; for junior-lien loans, it is a spread of 5 percentage points.
2. Loans covered by the Home Ownership and Equity Protection Act of 1994 (HOEPA), which does not apply to home-purchase loans.
3. Business-related applications and loans are those for which the lender reported that the race, ethnicity, and sex of the applicant or co-applicant are “not
applicable”; all other applications and loans are nonbusiness related.
4. Includes applications and loans for which occupancy status was missing.
5. Includes business-related and nonbusiness-related applications and loans for owner-occupied and non-owner-occupied properties.
... Not applicable.

gages based on the yields on securities with maturities
of fewer than 10 years, and they typically set interest
rates on adjustable-rate mortgages (ARMs) based on

the yields on securities with much shorter terms. Thus,
a change in the relationship between shorter- and
longer-term yields affected the reported incidence of

The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress A49

7. Disposition of applications for home loans, and origination and pricing of loans, by type of home and type of loan,
2009
B. Loans with application dates on or after October 1, 2009, threshold change
Applications

Loans originated
Loans with APR spread above the threshold1

Type of home and loan

Number
submitted

Acted upon
by lender
Number
Number Percent
Percent
Number Number
denied denied

Distribution,
by percentage points
of APR spread

APR spread
(percentage
points)

Number
of
HOEPAcovered
1.5- 2- 2.5- 34- 5 or
loans2
1.99 2.49 2.99 3.99 4.99 more Mean Median

1–4 FAMILY
NONBUSINESS RELATED3
Owner occupied
Site built
Home purchase
Conventional
First lien . . . . . . . . . . . .
Junior lien . . . . . . . . . .
Government backed
First lien . . . . . . . . . . . .
Junior lien . . . . . . . . . .
Refinance
Conventional
First lien . . . . . . . . . . . .
Junior lien . . . . . . . . . .
Government backed
First lien . . . . . . . . . . . .
Junior lien . . . . . . . . . .
Home improvement
Conventional
First lien . . . . . . . . . . . .
Junior lien . . . . . . . . . .
Government backed
First lien . . . . . . . . . . . .
Junior lien . . . . . . . . . .
Unsecured
(conventional or
government
backed) . . . . . . . . . . .

202,357
9,810

178,384
8,879

31,573
1,575

17.7
17.7

139,640
6,887

4,867
1,058

3.5
15.4

37.9 22.6 16.5
... ... ...

14.1 4.7 4.2
33.7 53.6 12.7

2.6
4.8

2.2
4.2

...
...

239,838
266

214,617
226

37,866
26

17.6
11.5

170,716
194

2,447
5

1.4
2.6

78.6 11.4 4.3
... ... ...

.8 .3
40.0 60.0

4.7
.0

2.0
4.2

1.7
4.3

...
...

747,592
27,587

630,921 158,935
25,102
8,773

25.2
34.9

442,401
15,242

9,982
1,589

2.3
10.4

32.7 19.6 13.6
... ... ...

15.3 6.7 12.1
30.7 37.3 32.1

3.0
4.9

2.4
4.4

188
63

244,580
110

192,941
87

62,850
21

32.6
24.1

120,499
64

3,938
4

3.3
6.3

1.3
.0

2.2
3.6

2.1
3.6

26
4

37,213
31,575

32,246
28,179

12,870
14,818

39.9
52.6

17,868
12,283

3,026
1,052

16.9
8.6

24.3 19.6 15.9
... ... ...

16.5 7.6 16.1
30.4 29.3 40.3

3.3
5.4

2.7
4.6

111
48

2,120
1,898

1,507
1,597

558
1,234

37.0
77.3

868
306

149
235

17.2
76.8

20.1 36.2 14.1
... ... ...

5.4 16.1 8.1
3.4 18.3 78.3

2.9
6.3

2.4
6.6

1
0

38.3 39.5 14.1 5.6
. . . . . . . . . 100.0

1.2
.0

35,729

34,787

16,783

48.2

17,100

...

...

... ... ...

...

...

...

...

...

Manufactured
Conventional, first lien
Home purchase. . . . . . . .
Refinance . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . .

...

34,721
9,928
14,052

33,794
8,994
12,238

21,150
4,100
5,812

62.6
45.6
47.5

5,856
4,367
5,065

4,358
2,023
870

74.4
46.3
17.2

5.8 5.8 8.4
12.5 11.1 15.0
20.9 15.2 12.1

21.5 19.0 39.6
24.2 15.8 21.5
23.0 9.1 19.8

4.9
3.9
3.8

4.4
3.5
3.1

...
180
56

Non-owner occupied 4
Conventional, first lien
Home purchase. . . . . . . .
Refinance . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . .

51,440
71,950
13,935

45,689
59,462
12,273

8,571
19,284
5,357

18.8
32.4
43.6

35,126
37,897
6,545

1,928
1,584
515

5.5
4.2
7.9

37.6 19.4 14.3
36.1 21.3 15.7
18.1 13.0 12.6

16.1 6.5 6.2
14.5 6.1 6.3
23.3 15.5 17.5

2.7
2.7
3.6

2.3
2.3
3.2

...
11
4

BUSINESS RELATED3
Conventional, first lien
Home purchase. . . . . . . .
Refinance . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . .

5,251
5,328
2,285

5,120
5,195
2,093

217
291
307

4.2
5.6
14.7

4,843
4,867
1,759

188
216
27

3.9
4.4
1.5

19.7 30.3 21.8
25.9 27.3 21.3
11.1 33.3 11.1

20.7 3.2 4.3
16.7 6.0 2.8
18.5 14.8 11.1

2.7
2.6
3.2

2.5
2.4
2.7

...
0
0

MULTIFAMILY5
Conventional, first lien
Home purchase. . . . . . . .
Refinance . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . .

985
1,425
534

910
1,336
515

151
228
105

16.6
17.1
20.4

733
1,073
402

57
64
5

7.8
6.0
1.2

49.1 22.8 12.3
23.4 40.6 15.6
40.0 20.0 .0

12.3
10.9
40.0

1.8
7.8
.0

2.3
2.6
2.4

2.0
2.2
2.1

...
0
0

Total . . . . . . . . . . . . . . . . . . . . . . 1,792,509 1,537,092 413,455

26.9

1,052,601 40,187

3.8

28.7 17.7 11.9

16.2 10.6 14.9

3.3

2.6

692

1.8
1.6
.0

NOTE: See notes to table 7.A.

higher-priced lending. For example, when short-term
interest rates fell relative to long-term rates, the number and proportion of loans reported as higher priced
fell even when other factors, such as lenders’ underwriting practices or borrowers’ credit risk or prepayment characteristics, remained unchanged.

For ARMs, this effect was further exacerbated by
the manner in which APRs are calculated. The interest
rates on most ARM loans, after the initial interest rate
reset date, are set based on the interest rate for one-year
securities. As a result, the APRs for ARMs, which take
into account the expected interest rates on a loan

A50 Federal Reserve Bulletin □ December 2010

8. Home-purchase lending that began with a request for preapproval: Disposition and pricing, by type of home, 2009
A. Loans with application dates before October 1, 2009, threshold change
Requests for preapproval

Applications preceded
by requests for preapproval1

Loan originations whose applications were preceded
by requests for preapproval

Acted upon
by lender
Type of home

Loans with APR spread above the threshold2

Number
acted Number Percent Number
Number
upon by denied denied submitted
lender
Number Number
Number Percent
denied

Distribution,
by percentage points
of APR spread

APR spread
(percentage
points)

3457- 9 or Mean Median
3.99 4.99 6.99 8.99 more spread spread
1–4 FAMILY
NONBUSINESS
RELATED3
Owner occupied
Site built
Conventional
First lien . . . . . . . . . . . . 264,145
Junior lien . . . . . . . . . . .
5,928
Government backed
First lien . . . . . . . . . . . . 184,995
Junior lien . . . . . . . . . . .
114

70,550
1,075

26.7
18.1

154,432
4,134

23,986
309

17,069
127

104,841
3,486

2,303
922

2.2
26.4

47,817
12

25.8
10.5

124,553
96

12,744
14

10,544
15

96,314
65

4,789
1

5.0
1.5

66.4 19.8 11.5 2.0
. . . . . . 93.8 5.5

.4
.7

3.9
5.9

3.5
5.8

85.6 10.5 3.6
. . . . . . 100.0

.1
.0

3.6
5.0

3.3
5.0

14.4 19.9 24.8 14.9 26.1
85.0 12.9 2.0 .0
.0

7.5
3.5

6.2
3.4

.2
.0

Manufactured
Conventional, first lien .
Other . . . . . . . . . . . . . . . . . .

5,618
2,733

1,400
709

24.9
25.9

3,829
1,969

361
606

918
266

2,117
1,006

1,340
93

63.3
9.2

Non-owner occupied 4
Conventional, first lien .
Other . . . . . . . . . . . . . . . . . .

33,198
1,646

8,109
216

24.4
13.1

21,047
1,393

3,020
179

2,057
136

14,767
1,064

800
14

5.4
1.3

62.3 21.6 12.6 2.3
14.3 .0 95.7 .0

1.3
.0

4.1
5.4

3.7
5.5

BUSINESS RELATED
Conventional, first lien . .
Other . . . . . . . . . . . . . . . . . . .

573
123

13
8

2.3
6.5

550
114

59
14

85
21

385
74

36
2

9.4
2.7

33.3 30.6 33.3 2.8
100.0 .0
.0 .0

.0
.0

4.8
3.3

4.5
3.3

MULTIFAMILY5
Conventional, first lien . .
Other . . . . . . . . . . . . . . . . . . .

98
35

6
0

6.1
.0

85
33

15
13

4
4

63
16

6
2

9.5
12.5

.0
.0

.0
.0

4.1
4.0

4.1
4.0

Total . . . . . . . . . . . . . . . . . . . . 499,206 129,915

26.0

312,235

41,320

31,246

224,198

10,308

4.6

62.3 13.8 17.1 3.1

3.7

4.4

3.6

3

50.0 33.3 16.7
50.0 50.0
.0

1. These applications are included in the total reported in table 7.A.
2. See table 7.A, note 1.
3. See table 7.A, note 3.
4. See table 7.A, note 4.
5. See table 7.A, note 5.
... Not applicable.

assuming that the loan does not prepay and that the
index rates used to establish interest rates after the reset
do not change, will be particularly sensitive to changes
in one-year interest rates. Consequently, the share of
ARMs reported as higher priced fell when one-year
rates declined relative to other rates even if the relationship between long- and intermediate-term rates remained constant.
To address these distortions, the price-reporting rules
under HMDA were modified (the “new rules”). For
applications taken beginning October 1, 2009 (and for
all loans that close on or after January 1, 2010), lenders
compare the APR on the loan with the estimated APR
(termed the “average prime offer rate” (APOR)) that a
high-quality prime borrower would receive on a loan
of a similar type (for example, a 30-year fixed-rate
mortgage). The APOR is estimated using the interest
rates and points (and margin for ARMs) reported by
Freddie Mac in its Primary Mortgage Market Survey

(PMMS).19 If the difference is more than 1.5 percentage points for a first-lien loan or more than 3.5 percentage points for a junior-lien loan, then the loan is
classified as higher priced and the rate spread is reported.20 Since APORs move with changes in market
rates and are product specific, it is anticipated that the
distortions that existed under the old rules will be
greatly reduced.

19. The weekly Freddie Mac Primary Mortgage Market Survey
reports the average contract rates and points for all loans and the
margin for adjustable-rate loans for loans offered to prime borrowers (those that pose the lowest credit risk). The survey currently
reports information for two fixed-rate mortgage products (30-year
and 15-year terms) and two ARM products (1-year adjustable rate
and 5-year adjustable rate). See Freddie Mac, “Weekly Primary
Mortgage Market Survey,” webpage, www.freddiemac.com/dlink/
html/PMMS/display/PMMSOutputYr.jsp.
20. For more details, see Federal Financial Institutions Examination Council, “FFIEC Rate Spread Calculator,” webpage,
www.ffiec.gov/ratespread/default.aspx.

The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress A51

8. Home-purchase lending that began with a request for preapproval: Disposition and pricing, by type of home, 2009
B. Loans with application dates on or after October 1, 2009, threshold change
Requests for preapproval

Applications preceded
by requests for preapproval1

Loan originations whose applications were preceded
by requests for preapproval

Acted upon
by lender

Loans with APR spread above the threshold2

Number
APR spread
acted
Distribution, by percentage points (percentage
Percent Number
upon Number
Number
of APR spread
denied
denied
submitted
points)
by
Number Number
Number Percent
lender
denied
1.5- 2- 2.5- 345 or Mean Median
1.99 2.49 2.99 3.99 4.99 more spread spread

Type of home

1–4 FAMILY
NONBUSINESS
RELATED3
Owner occupied
Site built
Conventional
First lien . . . . . . . . . . . . 27,846
Junior lien . . . . . . . . . . . 1,072
Government backed
First lien . . . . . . . . . . . . 22,587
Junior lien . . . . . . . . . . .
19

9,514
243

34.2
22.7

16,333
751

2,102
53

2,950
20

10,808
650

50
219

.5
33.7

.0
...

.0
...

.0 58.0
. . . 32.4

18.0 24.0
63.5 4.1

4.3
4.3

3.6
4.2

7,905
2

35.0
10.5

13,922
17

1,023
2

1,652
4

10,968
11

4
1

.0
9.1

.0
...

.0
...

.0 50.0
.0 50.0
...
.0 100.0
.0

5.9
4.9

4.2
4.9

Manufactured
Conventional, first lien .
Other . . . . . . . . . . . . . . . . . .

2,310
264

289
101

12.5
38.3

2,011
162

160
24

820
24

736
110

326
0

44.3
.0

.0
...

.0
...

.0 20.6
... ...

20.3 59.2
...
...

6.8
...

5.8
...

Non-owner occupied 4
Conventional, first lien .
Other . . . . . . . . . . . . . . . . . .

3,651
187

948
44

26.0
23.5

2,524
140

287
19

334
23

1,829
96

22
0

1.2
.0

.0
...

.0
...

.0 59.1
... ...

22.7 18.2
...
...

4.6
...

3.7
...

BUSINESS RELATED
Conventional, first lien . .
Other . . . . . . . . . . . . . . . . . . .

79
13

4
1

5.1
7.7

74
12

3
2

10
4

61
6

3
0

4.9
.0

.0
...

.0
...

.0 66.7
... ...

33.3
...

.0
...

3.6
...

3.1
...

MULTIFAMILY5
Conventional, first lien . .
Other . . . . . . . . . . . . . . . . . . .

15
3

0
0

.0
.0

13
3

2
0

3
1

6
1

0
0

.0
.0

...
...

...
...

...
...

...
...

...
...

...
...

...
...

...
...

Total . . . . . . . . . . . . . . . . . . . . 58,046

19,051

32.8

35,962

3,677

5,845

25,282

625

2.5

.0

.0

.0

29.4

35.4 35.2

5.7

4.6

3

1. These applications are included in the total reported in table 7.B.
2. See table 7.A, note 1.
3. See table 7.A, note 3.
4. See table 7.A, note 4.
5. See table 7.A, note 5.
... Not applicable.

Since the new reporting rules applied only to loans
with application dates on or after October 1, both
reporting rules were in effect during the fourth quarter
of 2009. For loans that originated in the fourth quarter,
the old threshold was used if their application date was
before October 1, and the new threshold was used
otherwise. Since the reported spreads for the old and
new rules are relative to different reporting thresholds,
the data are not directly comparable.21 Therefore, we
conduct our analysis of the pricing data for each reporting regime separately.

The Old Price Reporting Rules
As mentioned, under the rules that governed HMDA
at the beginning of 2009, a change in the relationship
between shorter- and longer-term yields could affect
21. The 2009 public HMDA data release contains a variable
indicating whether the loan or application was subject to the old or
new pricing rules.

the reported incidence of higher-priced lending. The
relationship between shorter- and longer-term interest
rates can be seen in the yield curve for Treasury securities, which displays how the yields on these securities
vary with the term to maturity. The slope of the yield
curve, which was already steep at the beginning of 2009
relative to patterns observed in previous years, continued to steepen. The difference between the yield on a
30-year Treasury security and that on a 1-year Treasury security increased sharply in the early portion of
the year and remained well above the levels observed
from 2006 through 2008 (figure 2). While the difference
between the yields on the 30-year and 5-year Treasury
securities did not increase as sharply, in 2009 this difference remained consistently above the levels generally
observed in the previous three years. As discussed
above, this change would be expected to decrease the
incidence of reported higher-priced lending, particularly for ARMs, even in the absence of any changes in
high-risk lending activity.

A52 Federal Reserve Bulletin □ December 2010

2. Spreads on Treasury bonds, 2006–09
Percentage points

4
1-year
3
2
1

5-year

+
0
_

2006

2007

2008

2009

NOTE: The data are weekly, and the spreads are over 30-year Treasury
bonds. Prior to mid-February 2006, the 30-year Treasury bond was not
available, and the data are missing.
SOURCE: Federal
Reserve
Board,
Statistical
Release
H.15,
www.federalreserve.gov/releases/h15/current/h15.htm.

In 2008, the decrease in the incidence of higherpriced lending that would be expected to follow a steepening yield curve was mitigated by the “flight to quality”
and liquidity concerns that were caused by the financial crisis in late 2008. This development resulted in the
yields on Treasury securities falling relative to rates on
other securities, including mortgage loans. As a result,
the spread between the HMDA reporting threshold
and the APR on a 30-year fixed-rate prime loan, based
on the rates reported by Freddie Mac’s PMMS, fell
during most of 2008 (figure 3). This pattern carried
into 2009 but began to reverse itself early in the year,
3. HMDA price-reporting threshold, interest rates for fixedand adjustable-rate loans, and spreads between the
threshold and such rates, 2006–09
Percentage points

APR, HMDA threshold
8
7
6

APR, 30-year fixed

5
APR, 5-year adjustable

4
3

Spread, 30-year fixed

2

Spread, 5-year adjustable

1
+
0
_

2006

2007

2008

2009

NOTE: For explanation of Home Mortgage Disclosure Act (HMDA)
price-reporting threshold, see text. The threshold and annual percentage rates
(APRs) are for conventional first-lien 30-year prime loans.
SOURCE: APRs from the Freddie Mac Primary Mortgage Market Survey;
see note to figure 1.

and by midyear the spreads between the HMDA reporting threshold and the APRs on the 30-year fixed-rate
and 5-year ARM from the PMMS had increased to
levels well above those observed in the previous three
years.
The historically high spreads between mortgage rates
for prime-quality borrowers (reflected by the APRs
calculated from the PMMS) and the HMDA reporting
threshold imply that the incidence of higher-priced
lending in 2009 would be below the levels for earlier
years, even if high-risk lending activity had remained
the same. Furthermore, the increasing spreads over
2009 suggest that loans of a given credit risk that may
have been reported as higher priced earlier in the year
may not have been so reported later in the year. This
possibility makes drawing inferences about changes in
high-credit-risk lending based upon changes in the
incidence of reported higher-priced lending much more
complicated.
In analyzing HMDA data from previous years in
which the yield curve changed substantially, we relied
on a methodology that used a different definition of a
“higher-priced loan” that is less sensitive to yield curve
changes and, therefore, more fully reflective of highrisk lending activity. This methodology defines the
credit risk component of a loan as the difference between the APR on that loan and the APR available to
the lowest-risk prime borrowers at that time. This
credit risk component is assumed to be constant over
time. In other words, we assume that a nonprime borrower who received a loan with an APR that was
1.25 percentage points above the APR available to
prime borrowers at that time would receive, if the
nonprime borrower’s characteristics remained constant, a loan that was 1.25 percentage points above the
available rate for prime borrowers at all other times,
regardless of any changes in the interest rate environment. We then examine the share of loans with credit
risk components that are above specific thresholds.
The approach of creating a threshold that is set relative
to the mortgage rates that are available to primequality borrowers is similar to the new HMDA reporting rules and should provide a more accurate depiction
of the extent to which high-risk lending has changed;
for instance, the lending data under the new rules are
relatively free of the distortions introduced in the incidence of reported higher-priced lending by changes in
the interest rate environment.
In estimating the credit risk component of loans in
the HMDA data, we use, as the measure of the rate
available to prime borrowers, the APR derived from
the information reported in the Freddie Mac PMMS

The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress A53

for a 30-year fixed-rate loan.22 As an approximation of
the APR on loans in the HMDA data, we add the
reported spread (for higher-priced loans) to the appropriate HMDA reporting threshold for a 30-year loan.
We refer to the resulting estimate of the credit risk
component as the “PMMS spread.” Because of the
large spreads in 2009 between the HMDA reporting
threshold and the APRs on prime-quality 30-year
fixed-rate loans, only those loans with a PMMS spread
in excess of 2.59 percentage points would have been
reported as higher priced under HMDA at all points
during 2009. Therefore, this spread is the minimum
PMMS spread that can be used as a threshold. We refer
to loans with a PMMS spread of 2.59 percentage
points or higher as “adjusted higher priced” loans.
The share of loans reported as higher priced under
the old HMDA reporting rules in 2009 (taken as a
whole) was low. Among first-lien loans secured by oneto four-family properties, 4.7 percent were higher priced
in 2009, down significantly from the historic high point
of 27.2 percent in 2006 and from 10.7 percent in 2008.
The decline in the incidence of higher-priced lending
was observed for all types of lenders.
Looking exclusively at changes in the annual rates of
higher-priced lending can obscure the information
about how the mortgage market is developing over
time. To better illustrate how changes in higher-priced
lending have played out in recent years, we examined
monthly patterns in higher-priced lending activity. The
monthly data show that the incidence of reported
higher-priced home-purchase lending fell over the
course of 2009 (figure 4, top panel; see line labeled
“HMDA (old rules)”). A similar decline is observed for
refinance loans, though the incidence of reported
higher-priced refinance lending ticked up slightly in
the latter portion of the year (figure 4, bottom panel).
As discussed, this decline in reported higher-priced
lending is expected given the increasing spread between
mortgage rates and the HMDA reporting threshold.
Using our methodology to correct for distortions
caused by changes in the interest rate environment, we
find that the share of adjusted higher-priced loans
(shown in figure 4) was relatively flat for homepurchase lending in 2009, suggesting that the decline in
the incidence of reported higher-priced lending in the
HMDA data for that period largely reflected changes

22. By using the APR for the 30-year fixed-rate mortgage, we are
implicitly treating all loans in the HMDA data as though they were
30-year fixed-rate loans. Data from large mortgage servicers provided by Lender Processing Services, Inc., show that less than 1 percent of first-lien mortgages in 2009 were ARMs. Because of the
rarity of ARMs and the prevalence of 30-year loans, we do not
expect our assumption to substantially distort the analysis.

4. Higher-priced share of lending, by annual percentage
rate threshold, 2006–09
Percent

Home purchase
HMDA (old rules)

25
20
15

PMMS + 2.59

HMDA
(new rules)

10
5

2006

2007

2008

2009

Percent

Refinance
35

HMDA (old rules)

30
25
20
15

PMMS + 2.59
HMDA
(new rules)

10
5

2006

2007

2008

2009

NOTE: The data are monthly. Loans are first-lien mortgages for site-built
properties and exclude business loans. Annual percentage rates are for
conventional 30-year fixed-rate prime mortgages. For explanations of old and
new pricing rules, see text.
PMMS Freddie Mac Primary Mortgage Market Survey.
HMDA Home Mortgage Disclosure Act.

in the interest rate environment. The share of refinance
loans that were considered adjusted higher priced in
2009 also remained at historically low levels. The small
increase observed in the incidence of higher-priced
lending in 2009 appears to reflect an actual increase in
high-risk lending, though the increase was small and
short lived. These figures suggest that lending to higherrisk borrowers, which declined sharply beginning in
2007, remained at low levels during the year, with little
indication that lending to such borrowers has begun to
rebound. However, it is important to note that the
PMMS spread that we use in this analysis is significantly higher than the PMMS spreads we have employed in previous years, and this threshold may not
capture a considerable share of lending to high-risk
borrowers.

The New Price Reporting Rules
The new price reporting rules, which apply to loans
originated during 2009 with application dates from
October to December, use reporting thresholds that

A54 Federal Reserve Bulletin □ December 2010

are based on the prevailing mortgage interest rates at
the time a loan’s interest rate is locked. The threshold is
similar to the one used earlier to adjust for changes in
the interest rate environment, though it has two major
advantages over our measure. First, the new-rule
threshold varies with the initial period over which a
loan’s interest rate does not change, which means that
the reporting threshold for ARMs can be set lower (or
higher) than the threshold for 30-year fixed-rate loans.
In the preceding analysis, because we could not distinguish fixed-rate from ARM loans (or between types of
ARMs), we had to assume that all loans originated
during 2009 were fixed rate. Analyses of the data reported using the new rules do not need to rely on such
an assumption. The second advantage is that because
lenders know the APR on the loan when comparing it
with the threshold, whereas we could only approximate a loan’s APR when it was reported as higher
priced under the old rules, the reporting threshold is
not constrained by the maximum PMMS spread that
was in effect over the period being examined. Consequently, the spread that governs reporting is lower than
we could use in our attempt to correct the old reporting
rules for changes in the interest rate environment. The
result should be a more accurate depiction of subprime
lending activity that is less sensitive to changes in the
interest rate environment.
As discussed, the new rules applied only to a fraction
of originated loans reported during the year. The new
rules applied to less than 15 percent of loans originated
in October, 62 percent of those originated in November, and 85 percent of those originated in December
(data not shown in tables). The shares of these loans
that were reported as higher priced during this period
are shown in the two panels of figure 4. The higher
incidences observed under the new reporting rules primarily appear to reflect the large spreads in effect during 2009 between mortgage rates for prime borrowers
and the old HMDA reporting threshold that reduced
reporting under the old rules. Beyond that, it is difficult
to compare the two numbers, as they are spreads relative to two different thresholds. Since we observe the
incidences for such a short period, we are unable to
make any inferences about the volume of subprime
lending activity other than that it seems to have been
relatively stable over this three-month period. However, beginning with the 2010 HMDA data, when the
new reporting rules will apply to all originated loans,
we expect these rules to provide a more accurate and
consistent depiction of lending activity to high-risk
borrowers.

THE CHANGING ROLE OF GOVERNMENT
IN THE MORTGAGE MARKET
The share of new mortgage loans either explicitly or
implicitly guaranteed by the federal government has
risen dramatically since 2006. We estimate that by the
end of 2009, almost 6 out of 10 new owner-occupied
home-purchase loans were originated through the
FHA, VA, and, to a much lesser extent, the FSA or
RHS programs, with a similar percentage of new refinance mortgages either owned outright or in mortgage
pools guaranteed by Fannie Mae or Freddie Mac. This
section will discuss the underlying causes of this trend.
To facilitate our analysis, we employ a revised data set
designed to correct for one of the limitations in the
HMDA reporting system.
Under HMDA reporting rules, all loans originated
under the FHA, VA, FSA, or RHS programs must be
identified as such.23 However, loans placed in pools
that are guaranteed by or sold to the housing-related
government-sponsored enterprises, Fannie Mae and
Freddie Mac, are identified only if they are sold directly to the GSEs or directly placed in a pool during
the same year of the loan origination. The HMDA
data therefore tend to undercount loans sold to the
GSEs for two reasons. First, sales can take place in a
year subsequent to origination, especially among loans
originated during the fourth quarter. Second, lenders
may not sell loans directly to the GSEs but instead may
sell them to other financial institutions that form mortgage pools for which investors subsequently obtain
GSE credit guarantees.
For the analysis in this section, we adjust the HMDA
data to attempt to correct for the undercount of GSE
loans. First, financial institutions are required to report
under HMDA their loan purchases as well as their
originations. Using information on loan size, location,
date of origination, and date of purchase, we were able
to match more than 50 percent of the loans that were
originated from 2006 to 2009 and then sold to another
financial institution to the record for the same loan in
the loan purchase file. From those matched, we are
then able to obtain the ultimate loan disposition from
the filing of loan purchases. Of the portion we were
unable to match, most were originated (and purchased)
by one large organization, which supplied us with the
aggregate disposition of the purchased loans. For those
sold loans that we were still unable to match, we as-

23. For the 2009 reporting year, 77.3 percent of the nonconventional home-purchase loans were FHA loans, 13.9 percent were VA
guaranteed, and 8.8 percent were covered under the FSA or RHS
programs. For nonconventional refinance loans, 83.7 percent were
FHA, 15.9 percent VA, and 0.4 percent FSA or RHS.

The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress A55

sumed that the distribution of the ultimate disposition
matched the distribution of loans that we could match.
Second, to address the undercount of GSE loans
originated in October through December of each year,
we used an imputation formula based on the allocation
of loans originated in the preceding September and the
following January to assign the ultimate disposition of
conventional loans.24 The imputation was conducted
separately for the 14 largest mortgage originators and
took account of the characteristics of the loan, including size and location.
The changing structure of the mortgage market
between 2006 and 2009 may be illustrated using our
adjusted data for the four major loan types reported
under HMDA (figure 5). The figure groups first-lien
site-built mortgages into four distinct categories:
(1) loans insured by the FHA, backed by the VA, or
issued or guaranteed by the FSA or RHS (“nonconventional”); (2) conventional loans sold to Fannie Mae
or Freddie Mac or placed in pools guaranteed by them
(“GSE”); (3) conventional loans sold to an affiliate or
held in the portfolio of the originating lender (“portfolio”); and (4) all other conventional loans, including
those sold into the private securitization market or to
unaffiliated institutions (“other”). Panels 5.A, 5.B, and
5.C show patterns for owner-occupied home-purchase,
refinance, and home-improvement loans; panel 5.D
shows patterns for all non-owner-occupied loans regardless of purpose.25
Our adjusted data show a greater role for the GSEs
than that implied by the raw HMDA data. The raw
data reported in table 6 show that 41 percent of owneroccupied refinance loans originated in 2009 were reported as sold directly to the GSEs; our revised data
imply that ultimately over 57 percent of such loans
were either purchased by the GSEs or placed in a
mortgage pool guaranteed by them. The data in figure 5
also show that the subprime-based private securitization market declined at the end of 2006 and throughout 2007, while the GSEs gained market share. Portfolio
and nonconventional market shares remained relatively constant until the end of 2007. The years 2008

5. Share of lending, by purpose of loan and occupancy status
of home and by type of loan, 2006–09
Percent

A. Home purchase, owner occupied
60
50
Nonconventional
GSE

30
20

Portfolio
10
Other
2006

2007

2008

2009

Percent

B. Refinance, owner occupied
60
Portfolio

45

GSE

30

Other

15

Nonconventional
2006

2007

2008

2009

Percent

C. Home improvement, owner occupied
75
60

Portfolio

45
30

GSE

15

Other
Nonconventional
2006

2007

2008

2009

Percent

D. All loans, non-owner occupied
80
GSE

24. For 2009, only the September data were used.
25. The home-improvement and non-owner-occupied loan categories are more heterogeneous than the other two. The homeimprovement category may include some “cash-out” refinance loans,
which would be treated as refinancings except that some of the funds
are used for home improvements, as well as smaller new loans on
homes that previously had no mortgage. The non-owner-occupied
category presented here is heterogeneous by construction since it
includes all types of loans. As a consequence of this heterogeneity,
the disposition of liens in these two categories is likely more sensitive
to market changes than the refinance and home-purchase categories.
The huge jump in GSE share for home-improvement and nonowner-occupied property loans at the end of 2009, for example, is
probably occurring because the refinance component of each group
rose as part of the late 2009 refinance boom.

40

Portfolio

Other

2006

2007

Nonconventional

2008

60

40

20

2009

NOTE: The data are monthly. Loans are first liens on one- to four-family,
site-built properties and exclude business loans. For definitions of loan types,
see text.

A56 Federal Reserve Bulletin □ December 2010

and 2009 show a different dynamic, with nonconventional home-purchase market share rising dramatically. The GSEs play a much more prominent role in
the refinance market, with their share rising dramatically at the beginning of 2008, falling through August,
and then rising again into 2009.
These patterns reflect the actions of a number of
players. Nonconventional lending has traditionally focused on the high-LTV market, offering investors mortgage insurance protection against borrower default.
Private mortgage insurance companies also offer similar insurance for high-LTV conventional loans, with
PMI (or some other credit enhancement) required by
statute for loans with LTVs above 80 percent that are
sold to the GSEs. Lenders can also choose to forgo
PMI and (1) hold the loan directly or (2) issue a second
lien for the portion of the loan above 80 percent (a
piggyback loan) and still sell the 80 percent loan to the
GSEs. The choice among PMI, public mortgage insurance, or a piggyback loan is likely to be made by
borrowers (and lenders) based on the relative pricing
and underwriting standards of the PMI and the nonconventional loan products. Prices and underwriting
established by purchasers in the secondary market also
matter. Both GSEs charge fees for loans they purchase
or guarantee, with the fees varying by LTV and credit
quality. The GSE, FHA, and VA programs are also
subject to statutory limits on loan size, which can and
have been changed. Finally, the willingness of financial
institutions to hold mortgages in portfolio is likely to
be sensitive to their costs of funds, their capital position, and other factors.
Many of these items have changed over the past four
years and likely influenced the market outcomes. First,
the Congress authorized an increase in the loan-size
limits applicable for the FHA and VA programs and
GSE purchases as part of the Economic Stimulus Act,
passed in February 2008; it did so again as part of the
Housing and Economic Recovery Act (HERA), enacted in July 2008; and it did so once more as part of
the American Recovery and Reinvestment Act
(ARRA), passed in February 2009.26
26. New standards released on March 6, 2008, raised the GSE
and FHA loan-size limits to $729,750 in certain areas designated by
the Department of Housing and Urban Development as “high
cost.” FHA loan limits were also raised above their 2007 levels to
new amounts in many other areas. Prior to these changes, the GSEs
could not purchase single-family home loans above $417,000 in most
states, while the FHA could not insure single-family home loans
above $271,050 in most areas of the country. (The GSE loan limits
were higher in Alaska and Hawaii; the maximum loan size for the
FHA program was as low as $200,160 in some low-cost areas.) VA
loans do not have a size limit, but they do have a guarantee limit that
is tied to GSE loan limits. FSA loans are also subject to different, and
generally higher, limits. Only lower- or moderate-income borrowers
in rural areas are eligible for RHS loans, but the loans do not have an

HERA also provided tax assistance (in effect, an
interest-free loan) to first-time homebuyers meeting
certain income conditions of up to $7,500 beginning in
April 2008. ARRA updated this program, providing a
tax credit of up to $8,000 for first-time homebuyers
purchasing a home between January 1, 2009, and November 30, 2009. Finally, the Worker, Homeownership, and Business Assistance Act of 2009 extended the
first-time homebuyer tax credit program through April
2010 and allowed certain long-term homeowners purchasing new homes to claim a tax credit of up to
$6,500. By primarily targeting first-time homebuyers,
these programs likely stimulated demand for high-LTV
home-purchase mortgages. Moreover, an FHA loan
may have had particular appeal for such borrowers
because the FHA allowed borrowers to use the tax
credit in advance as part of their down payment.
Second, with losses mounting in 2007 and 2008,
PMI companies tightened underwriting and raised
prices starting in the spring of 2008. These changes
likely reduced the ability of the GSEs to purchase
higher-LTV loans (loans with LTVs above 80 percent)
because of the requirement that such loans carry PMI
in order to be eligible for GSE purchase. The GSEs also
altered their own underwriting and fee schedule in
March 2008 and again in June. In particular, the GSEs
stopped buying loans with LTVs in excess of 95 percent and increased prices for other high-LTV loans.27
The increased GSE pricing for high-LTV loans was
slightly modified in March 2009 but remained in place
through the end of 2009. In contrast, the pricing of
FHA and VA loans has been little changed from 2006,
with a slight increase in pricing in September 2008.28
explicit maximum size limit. The increased limits were allowed to
remain in place through the end of 2009. Analysis in a previous
article concluded that the increase in limits accounted for less than
10 percent of the growth of nonconventional lending in 2008; nevertheless, the limit increase likely changed the mix of borrowers using
these programs. See Avery and others, “The 2008 HMDA Data: The
Mortgage Market during a Turbulent Year,” in note 14.
27. PMI annual premiums for loans with LTVs above 80 percent
generally range from 0.30 percentage points to 1.20 percentage
points, depending on LTV, credit score, and other factors (see, for
example, the website of the Mortgage Guaranty Insurance Corporation at www.mgic.com). On March 1, 2008, Fannie Mae and Freddie
Mac raised their one-time delivery fees for 30-year loans with LTVs
above 70 percent to a range of 0.75 to 2.00 percentage points,
depending on the borrower’s credit score. On March 9, 2008, both
GSEs added an additional fee of 0.25 percentage point for “market
conditions.” In June 2008, the GSEs raised their fees again, by an
average of 0.50 percentage point. These fees have remained more or
less unchanged since then. In the summer of 2008, many PMI
companies announced further increases in their rates, particularly in
markets they defined as “distressed.” In some areas, it became
almost impossible to obtain PMI for loans with LTVs of greater than
90 percent. Most of these restrictions remained in place for 2009.
28. For the first half of 2008, the FHA charged a flat delivery fee
of 1.50 percentage points and an annual premium of 0.50 percentage
point to insure 30-year mortgages. On July 14, 2008, the FHA

The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress A57

Both programs have limited ability to price on the basis
of risk; program volumes are determined more by the
actions of other market participants than by proactive
decisionmaking on the programs’ part. Toward the end
of 2009, the FHA decided to stop making loans to
borrowers with FICO scores below 580.29 Otherwise,
other than an expansion of the FHA’s streamlined
refinancing programs, FHA underwriting did not
change substantially over this period.30
Other developments likely also affected market
shares over the 2006–09 period. The market for privatelabel mortgage-backed securities essentially disappeared by the beginning of 2007, taking with it much of
the subprime mortgage market.31 Piggyback loans,
which had been a popular vehicle in the high-LTV
market, also largely disappeared. Finally, banking inimplemented a risk-based insurance system with upfront fees for
30-year mortgages ranging from 1.25 to 2.25 percentage points and
annual premiums from 0 to 0.55 percentage point, depending on the
LTV and credit score of the borrower. The price changes, however,
were rolled back by the Congress, which passed legislation prohibiting the use of a risk-based pricing system after October 1, 2008. On
that date, the FHA announced a new fee schedule with an upfront
fee of 1.75 percentage points and an annual premium of 0.55 percentage point for 30-year loans with LTVs of 95 percent and higher
and 0.50 percentage point for those with lower LTVs. These prices
prevailed for the rest of 2008 and through the spring of 2010. During
the period in which the FHA charged risk-based rates (and during
the post-March fixed-rate period), FHA fees were lower than those
for loans purchased by the GSEs with PMI (except for borrowers
with high credit scores).
Over the scope of our study period, the VA charged an upfront fee
of 2.15 percentage points and no annual premium for a veteran using
the program for the first time with no down payment (the dominant
choice); the fee was reduced to 1.50 percentage points with a 5 percent down payment and to 1.25 percentage points with a down
payment of 10 percent or more. The VA has a streamlined refinance
program that allows the refinancing of a VA loan into another VA
loan with little documentation and a refinance fee of 0.50 percentage
point (other refinance loans have the standard fees). Throughout the
study period, the RHS charged a flat upfront fee of 2.00 percentage
points.
29. FICO scores are one summary measure of the credit risk
posed by an individual based solely on the information contained in
the credit reports maintained by the three national credit reporting
agencies. FICO scores are produced using statistical models developed by Fair Isaac Corporation. A FICO score of 660 or greater is
often viewed as a score range associated with prime-quality borrowers; a score less than 620 is often associated with borrowers with
subprime credit quality. For more information, see www.myfico.com/
CreditEducation.
30. See U.S. Department of Housing and Urban Development
(2010), “Quarterly Report to Congress on FHA Single-Family Mutual Mortgage Insurance Fund Programs” (Washington: HUD,
August). This report shows that the percentage of FHA loans issued
to borrowers with FICO scores between 580 and 620 also fell sharply
in 2009, despite the fact that the FHA did not change its underwriting standards for this group. This reduction likely reflects the actions
of lenders who ceased making such loans. Only 6 percent of FHA
borrowers in the fourth quarter of 2009 had a FICO score below 620.
31. According to Inside MBS & ABS, no new mortgage-backed
securities were issued for subprime or alt-A loans or for primequality jumbo loans (loans with balances above the conforming loan
limits) in 2009. See Inside Mortgage Finance Publications (2010),
Inside MBS & ABS, June 11, www.imfpubs.com.

stitutions may have become less willing to make longterm investments, including holding new mortgage
loans in portfolio, for a variety of reasons, including
uncertainty about the economic and regulatory environment going forward.
In the remainder of this section, we examine the
implications of these market developments in more
detail, focusing on the role of the PMI companies and
the relative pricing of the conventional and nonconventional markets (for more information about PMI,
see box “Private Mortgage Insurance”).

PMI Companies under Strain
PMI companies generally reported large net losses in
2007 and 2008. The Mortgage Insurance Companies
of America (MICA) reports that its members suffered
cumulative operating losses of over $1.4 billion in 2007
and $5.8 billion in 2008, compared with operating
income of just over $2 billion in both 2005 and 2006.32
By early 2009, the stocks of several of the largest mortgage insurers had lost almost all of their value, and
Standard & Poor’s, a credit rating agency, reported in
mid-2009 that some major mortgage insurers were at
risk of breaching regulatory capital thresholds for writing new business.33 Indeed, MICA reports that the
overall risk-to-capital ratio of its members more than
doubled from 9 to 19 between 2006 and 2008, approaching the regulatory maximum of 25.34
Mortgage insurers tightened underwriting standards considerably in 2008 and 2009, especially in
company-designated “distressed areas.”35 For instance, in 2009, one major insurer began requiring a
minimum FICO score of 720 in some distressed markets and 700 in other areas. It also required an LTV
ratio below 90 percent and stopped providing insurance on ARMs with an initial fixed period of less than
five years in all geographic areas. Another large insurer
in 2009 raised its minimum credit score to 680 from 620
and stopped providing insurance on all manufactured
housing. This company also set a maximum LTV ratio

32. See Mortgage Insurance Companies of America (2009),
“2009–2010 Fact Book & Member Directory” (Washington: MICA),
available at www.privatemi.com/news/factsheets/2009-2010.pdf.
33. See Standard & Poor’s (2009), “Significant Operating Losses
Continue to Pressure U.S. Mortgage Insurers’ Capital Adequacy
Ratios,” Ratings Direct, August 21, www.standardandpoors.com/
ratingsdirect.
34. One relatively small insurer, Triad Guaranty, was forced to
stop writing new policies in 2008.
35. The list of distressed or declining markets varies by mortgage
insurance company but typically includes metropolitan areas and
states that have experienced severe declines in employment or home
prices.

A58 Federal Reserve Bulletin □ December 2010

Private Mortgage Insurance

In 1993, the Mortgage Insurance Companies of
America asked the Federal Financial Institutions Examination Council to process data from the largest
PMI companies on applications for mortgage insurance and to produce disclosure statements for the public based on the data.1 The PMI data largely mirror the
types of information submitted by lenders covered by

the Home Mortgage Disclosure Act of 1975 (HMDA).
However, because the PMI companies do not receive
all the information about a prospective loan from the
lenders seeking insurance coverage, some items reported under HMDA are not included in the PMI
data. In particular, loan pricing information, requests
for preapproval, and an indicator of whether a loan is
subject to the Home Ownership and Equity Protection
Act of 1994 are unavailable in the PMI data.
The handful of companies that typically report data
dominate the PMI industry. Therefore, these data cover
the vast majority of mortgage insurance written in the
United States, allowing for meaningful analysis of
these data alongside the HMDA data.2 Still, care must
be exercised in comparing the PMI and HMDA data.
Specifically, because of lender coverage rules under
Regulation C, the HMDA data may be less comprehensive than the PMI data, especially in terms of coverage of rural markets. The PMI reporting firms
provide information on all privately insured loans
regardless of property location. In contrast, HMDA’s
coverage is most complete for metropolitan areas primarily because lenders that maintain offices exclusively in rural areas need not report HMDA data.
For 2009, eight PMI companies reported on nearly
636,000 applications for insurance leading to the issuance of 367,000 insurance policies, down from about
2 million applications and 1.5 million policies in 2007.
About 58 percent of the policies in 2009 covered homepurchase loans, and the remainder covered refinance
mortgages. About 12 percent of PMI insurance applications were denied, a rate substantially higher than in
2006 and 2007, when only about 2 percent of the
requests for insurance were turned down.3

1. Founded in 1973, the Mortgage Insurance Companies of
America is the trade association for the PMI industry. The Federal
Financial Institutions Examination Council (FFIEC) prepares disclosure statements for each of the PMI companies. The company statements and the PMI data are available from the FFIEC at
www.ffiec.gov/reports.htm.

2. The PMI data do not capture “pool insurance”—that is, insurance written for pools of loans rather than individual mortgage loans.
3. For the other applications that did not result in a policy, the
application was withdrawn, the application file closed because it was
not completed, or the request was approved but no policy was issued.

Historically, mortgage lenders extending conventional
loans required prospective borrowers to make a down
payment of at least 20 percent of a home’s value before
they would extend a loan to buy a home or refinance
an existing mortgage. Private mortgage insurance
(PMI) emerged in the 1950s alongside the longstanding Federal Housing Administration (FHA) and
Department of Veterans Affairs (VA) government loan
programs to help bridge the gap between lenders reluctant to extend mortgages with high loan-to-value
(LTV) ratios and consumers interested in borrowing
more than 80 percent of the underlying home’s value.
For a borrower seeking a high-LTV loan, the lender
can require that the borrower purchase mortgage insurance to protect the lender against default-related
losses up to a contractually established percentage of
the principal amount. In fact, a high-LTV loan must
have PMI coverage in order to be eligible for purchase
by the government-sponsored enterprises (Fannie Mae
and Freddie Mac). Over the years, PMI-backed loans
became a significant part of the mortgage market and
an even more important segment of the insured portion of that market.
PMI Data Reported in Conjunction
with the HMDA Data

of 90 percent in distressed markets and 95 percent in
other areas during 2009.36
An analysis of the PMI data reported in conjunction
with the HMDA data documents the extent of the
decline in PMI by location (designated distressed areas
versus all other areas) for loans to purchase site-built
one- to four-family homes in metropolitan areas
(table 9).37 Although underwriting standards were
36. These are just some of the guidelines issued by these two
companies. Distressed market lists and underwriting guidelines are
generally available on the mortgage insurance companies’ websites.
37. The analysis here is restricted to metropolitan areas since the
HMDA mortgage origination data are more complete in metropolitan areas. We divided all MSA counties into the two groups using the

tighter in designated distressed areas during 2009, PMI
volume nevertheless fell about 80 percent (derived from
data in table 9) relative to 2007 in both types of areas.
The ratio of PMI policies to all loans (the rows labeled
“Market share” in table 9) fell sharply in all areas
distressed or declining market lists as of early to mid-2009 for three
of the largest PMI companies—Genworth Financial, United Guaranty, and Mortgage Guaranty Insurance Corporation. If a county
appeared on at least two of three distressed lists (by virtue of its
being in a designated distressed metropolitan area or state), then we
designated it a distressed county for the analysis. All MSA counties
in some states, including Arizona, California, Florida, Michigan,
New Jersey, and Nevada, were considered distressed. In contrast,
some states such as Texas had no MSA counties marked as distressed.

The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress A59

9. Patterns of lending for insured or guaranteed loans and for all loans in areas grouped by distressed status,
2007 and 2009
Percent except as noted
Type of loan
Insured or guaranteed, by type of insurance or guarantee
All2

Characteristic
Government (nonconventional)1

Private
2007

2009

Difference

2007

2009

Difference

2007

2009

Difference

452
42.2
*
7.7
.0

1,588
100.0
14.4
30.5
2.9

1,134
100.0
10.8
41.1
2.9

-454
.0
-3.6
10.5
.1

378
37.7
*
9.6
.2

1,851
100.0
13.6
36.6
2.4

1,221
100.0
8.3
43.5
2.5

-630
.0
-5.4
6.9
.2

Designated as distressed areas3
Number of loans (thousands)4 . . . . . . . . . . . .
Market share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-owner-occupied share . . . . . . . . . . . . . . . .
LMI share5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mean of loan amount to income (ratio) . . . .

380
23.9
10.1
43.6
3.3

71
6.3
2.4
30.5
2.9

-309
-17.6
-7.8
-13.1
-.4

91
5.7
*
42.3
3.2

543
47.9
*
50.0
3.2
All other areas3

Number of loans (thousands)4 . . . . . . . . . . . . .
Market share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-owner-occupied share . . . . . . . . . . . . . . . .
LMI share5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mean of loan amount to income (ratio) . . . .

589
31.8
9.3
48.7
2.7

115
9.5
1.6
29.0
2.4

-474
-22.4
-7.6
-19.7
-.3

241
13.0
*
43.1
2.6

619
50.7
*
52.6
2.8

1. See table 3, note 1.
2. Includes insured, guaranteed, and others.
3. For definition of designated distressed areas, see text.
4. Includes first-lien, home-purchase lending for site-built, one- to four-family properties located in metropolitan statistical areas.
5. Low- or moderate-income (LMI) borrowers have lower income, or the property is in a lower-income census tract. Borrower income is the total income relied
upon by the lender in the loan underwriting. Income is expressed relative to the median family income of the metropolitan statistical area (MSA) or statewide
non-MSA in which the property being purchased is located. “Lower” is less than 80 percent of the median. The income category of a census tract is the median
family income of the tract relative to that of the MSA or statewide non-MSA in which the tract is located. “Lower” is less than 80 percent of the median.
* Less than 0.5 percent.
SOURCE: Federal Financial Institutions Examination Council, data reported under the Home Mortgage Disclosure Act and private mortgage insurance data.

(18 percentage points in distressed areas and 22 percentage points in other areas).
Consistent with tightening standards, the share of
PMI to cover loans for non-owner-occupied housing, a
class of loans typically considered to entail elevated
credit risk, fell sharply in both types of geographic
areas. Moreover, these declines exceeded the decline in
the percentage of all loans for non-owner-occupied
properties (see last column of table 9). Also, the share
of borrowers obtaining PMI with low or moderate
incomes (LMI) or with property in LMI neighborhoods fell substantially.38 Finally, the average ratio of
loan amount to income fell noticeably for loans covered by PMI.
With PMI companies tightening their underwriting
standards, many borrowers and lenders seeking a highLTV loan likely turned to the FHA or other government loan programs. Nonconventional loans more
than offset the drop in PMI loans in designated dis38. LMI neighborhoods are census tracts with a median family
income less than 80 percent of the median family income of the
MSA or, for rural areas, the statewide non-MSA where the tract is
located. LMI borrowers are those with a reported income less than
80 percent of the median family income of the MSA or statewide
non-MSA where the property securing the borrower’s loan is located. Borrower income reported in the HMDA data is the total
income relied upon by the lender in the loan underwriting.

tressed areas, and the nonconventional share of mortgages surged from just 6 percent in 2007 to 48 percent
in 2009 in these areas. Despite the drop in PMI issuance, the total fraction of loans insured or guaranteed
through either government or private sources swelled
from 30 percent to 54 percent in designated distressed
areas. This fraction also rose in all other areas, though
not as dramatically. Overall, the use of mortgage insurance of one type or another has risen since 2007, especially in areas designated as distressed by the PMI
companies.

GSE Pricing and the Extension of
Conventional High-LTV Loans
The similar reduction in PMI issuance in both designated distressed and all other areas suggests that some
factor other than PMI underwriting and pricing
changes may have contributed to the dearth of conventional high-LTV loans with PMI in 2009. One important determinant of PMI volume is GSE underwriting
and pricing. For instance, loans with LTVs above
95 percent were generally ineligible for GSE purchase
during 2008 and 2009. Therefore, most borrowers seeking a loan with an LTV in excess of 95 percent were
likely to obtain a nonconventional loan rather than a

A60 Federal Reserve Bulletin □ December 2010

conventional loan with PMI.39 Also, for borrowers
with relatively low FICO scores, GSE pricing in 2008
and 2009 for loans with LTVs between 80 and 95 percent, regardless of PMI pricing and underwriting policies, probably made FHA and VA loans more attractive.
However, for borrowers with moderately high LTVs
(80 percent to 95 percent) and higher FICO scores
(greater than or equal to 700), GSE pricing by itself
would not have discouraged such borrowers from obtaining a conventional loan with PMI during 2009.
Therefore, among borrowers with higher FICO scores,
PMI pricing and underwriting could have played an
important role in determining whether these borrowers obtained a conventional loan with PMI.
We compiled data on individual mortgages from
Lender Processing Services, Inc. (LPS), to calculate the
FHA or VA share of first-lien home-purchase mortgage originations by LTV and borrower FICO score.
The LPS data are drawn from the records of 19 large
mortgage servicers, including 9 of the top 10, and
therefore provide detailed information on a large portion of the mortgage market. We report the FHA or
VA share at each LTV from 65 to 100 percent in increments of 1 percent for borrowers with FICO scores
greater than or equal to 700 (figure 6, top panel).40
Consistent with the conjecture made earlier, nearly all
loans with LTVs over 95 percent were FHA or VA.41
But even in the range just above 90 percent and below
95 percent, the vast majority of loans were FHA or VA
despite the GSEs’ favorable pricing for these loans.
Instead, the FHA and VA share falls precipitously
right at 90 percent (along with a spike in volume), and,
overall, only about 30 percent of loans with LTVs
between 80 and 90 percent were FHA or VA.42 Because
neither GSE nor FHA or VA pricing changes substan39. Recall that high-LTV loans must have PMI in order to be
eligible for purchase by the GSEs. Lenders could of course still
originate loans with LTVs above 95 percent and require the borrower
to purchase PMI, but these loans would not be eligible for immediate
sale to the GSEs. The lender would have to hold the loans in portfolio
or sell them on the private secondary market—options that may not
have been as viable in 2009 as they were earlier in the decade.
40. Loans were restricted to first-lien 30-year mortgages for singlefamily owner-occupied properties that were originated between May
and December of 2009. We focused on the May to December period
because the GSEs introduced price changes in April.
41. FHA and VA loans with LTVs reported in the LPS data as
being over 97 percent likely reflect the financing of the upfront
insurance premium.
42. It is important to note that the LPS data are not representative and may overrepresent nonconventional and GSE lending. Also,
a large number of loans in the LPS data do not have a loan purpose
(home purchase or refinance) reported, and these loans are skewed
toward the conventional market. For these reasons, the FHA or VA
shares reported in figure 6 may be overstated. Although the LPS
data lack the broad coverage of the HMDA data, they have important advantages in that they provide much more detailed underwriting information, such as FICO score and LTV, than do the HMDA
data.

6. Volume and share of home-purchase loans originated
by the Federal Housing Administration and the
Department of Veterans Affairs, by loan-to-value ratio,
May through December, 2009
Percent

Count, all loans

FICO scores 700 or above FHA/VA share
(right scale)

50,000

80

Loan volume
(left scale)

40,000

60
30,000
40
20,000
20

10,000
65

70

75

80

85

90

Loan-to-value ratio (percent)

95

100

Percent

Count, all loans

FICO scores below 700
50,000

FHA/VA share
(right scale)

80

40,000
60
30,000
40
20,000
Loan volume
(left scale)

10,000
65

70

75

80

85

90

Loan-to-value ratio (percent)

95

20

100

NOTE: The data are monthly. Loans are first liens on owner-occupied,
single-family, site-built properties with 30-year mortgages. For definition of
FICO score, see text note 29.
FHA Federal Housing Administration.
VA Department of Veterans Affairs.
SOURCE: Lender Processing Services, Inc.

tively at the 90 percent threshold, PMI pricing and
underwriting may become more favorable at this
threshold, causing the sharp shift away from government programs and into the conventional market at
90 percent.
Another downward spike in the nonconventional
share occurs at an 85 percent LTV. Again, this spike
cannot be explained by FHA, VA, or GSE pricing and
thus may be related to PMI policies. Finally, the FHA
and VA share falls to about zero at LTVs of 80 percent
and below, at which points PMI is not required for a
conventional loan.43
Also reported is the FHA and VA share for borrowers with FICO scores less than 700 (figure 6, bottom
panel). In contrast to the top panel, the vast majority
43. Of the loans with LTVs between 80 and 90 percent in the top
panel of figure 6 that were not FHA or VA, just over 94 percent of
them were reported as sold to one of the GSEs. In other words,
nearly all of the non-FHA/VA loans in this LTV/FICO cell would
have obtained PMI because nearly all were sold to the GSEs.

The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress A61

of loans with LTVs over 80 percent were FHA or VA.
As mentioned earlier, GSE pricing was unfavorable for
borrowers with FICO scores in this lower range, so it is
not surprising that these borrowers obtained nonconventional loans.44

7.B. Lending extended to borrowers in selected low-income
groups as a share of all lending, by type of low-income
group, 2006–09
Percent

Home purchase
Other

CHANGES IN TOTAL LENDING BY
BORROWER AND AREA CHARACTERISTICS
As discussed earlier, 2008 and 2009 were characterized
by the increased roles of the FHA, VA, FSA, and RHS
programs and the GSEs. This section examines whether
these changes played out differently across borrower
groups. We differentiate among borrowers by race and
ethnicity, relative income (for both the neighborhood
and the borrower), location (state), type of lender, and
indicators of low-quality lending.

60

40
Lower-income borrower
20

Lower-income census tract
Missing income
2006

2007

2008

2009

Refinance
Other

44. The relatively high FHA and VA share of loans with LTVs
below 80 percent in the bottom panel of figure 6 may reflect additional, unobserved credit risk such as a high debt-to-income ratio.
The downward spikes in the government-backed share at 75 percent
and 70 percent may stem from the GSE pricing schedule, which does
change at these thresholds for lower-score borrowers in 2009.

Percent

60

40
Missing income
Lower-income borrower
20

7.A. Share of lending extended to minorities, by selected
race and ethnicity of borrower, 2006–09
Percent

Home purchase
75
Non-Hispanic white

70
65
60
Other minority or missing

Hispanic white

15
10

Black

2006

2007

2008

2009

Percent

Refinance
80
75
70
Non-Hispanic white

65
60

Hispanic white
Other minority or missing

15
10

2006

2006

2007

2008

2009

NOTE: The data are monthly. Loans are first liens on owner-occupied, oneto four-family, site-built properties and exclude business loans. Borrower
income is the total income relied upon by the lender in the loan underwriting.
Income is expressed relative to the median family income of the metropolitan
statistical area (MSA) or statewide non-MSA in which the property being
purchased is located. “Lower” is less than 80 percent of the median. The
income category of a census tract is the median family income of the tract
relative to that of the MSA or statewide non-MSA in which the tract is
located. “Lower” is less than 80 percent of the median. “Missing” indicates
that information for the characteristic was missing on the application. “Other”
consists of all non-lower-income and non-missing-income borrowers who are
not in a lower-income census tract. Borrower groups are not mutually
exclusive; therefore, sums do not add to 100 percent.

5

Asian

Asian

Lower-income census tract

Black

5
2007

2008

2009

NOTE: The data are monthly. Loans are first liens on owner-occupied, oneto four-family, site-built properties and exclude business loans. For definition
of minority, see table 10.A, note 5; for definition of other minority and
explanation of “missing,” see table 10.A, note 6.

Changes in the shares of home-purchase and refinance lending from 2006 to 2009 for different groups
are shown (figures 7.A through 7.D). These data indicate different patterns for home-purchase lending compared with refinance lending. For example, the shares
of home-purchase loans to black and Hispanic white
borrowers decreased over 2008 and 2009, but the decrease in these groups’ shares of the refinance market
was more severe. Also, the share of refinance loans to
LMI borrowers fell significantly over the sample period, while the share of home-purchase loans to such
borrowers increased significantly. Most of this growth
took place in 2008 and 2009, when the first-time homebuyer tax credit program was in place.45
45. The upward trend in the LMI share of borrowers could
reflect, to some extent, inflated measures of borrower income re-

A62 Federal Reserve Bulletin □ December 2010

7.C. Share of lending, by loan quality and occupancy status
of home, 2006–09

7.D. Share of lending, by location of property securing
the loan, 2006–09

Percent

Percent

Home purchase

Home purchase

75

20
Other

60
Non-owner occupied

15
45
10
30

Sand states
High PTI ratio

5

Higher priced
2006

2007

2008

2009

15
Rust states

Percent

2006

2007

2008

2009

30
High PTI ratio

75

25

60

Other
20

Higher priced

45
15

Sand states
30

10
Non-owner occupied

Rust states

15

5
2006

Percent

Refinance

Refinance

2007

2008

2009

NOTE: The data are monthly. Loans are first liens on owner-occupied
(except as noted), one- to four-family, site-built properties and exclude
business loans. A payment-to-income (PTI) ratio is considered high if it
exceeds 30 percent. For definitions of higher-priced lending and PTI, see text.
“Non-owner occupied” includes loans for which occupancy status was
missing.

Tax records compiled by the Government Accountability Office (GAO) reinforce the view that first-time
homebuyers constituted a sizable portion of the 2008
and 2009 home-purchase population.46 The GAO reports that there were just over 1 million first-time
homebuyer tax credit claims from April through December of 2008 and just over 1.6 million claims from
January through November of 2009. To help put these
numbers in context, we calculated the number of firstlien, owner-occupied, home-purchase originations reported in the HMDA data during these two periods
and inflated these numbers 25 percent to account for
the fact that HMDA does not have universal coverage
of the mortgage market. Under the assumption that all
first-time homebuyers take out a mortgage, these data
imply that first-time homebuyers accounted for about
ported for low- or no-documentation loans in 2006 and 2007, thus
biasing downward the LMI share of borrowers in those years.
46. See U.S. Government Accountability Office (2010), Tax Administration: Usage and Selected Analyses of the First-Time Homebuyer Credit (Washington: GAO, September 2), www.gao.gov/
products/GAO-10-1025R.

2006

2007

2008

2009

NOTE: The data are monthly. Loans are first liens on owner-occupied, oneto four-family, site-built properties and exclude business loans. “Sand states”
consist of California, Florida, Arizona, and Nevada. “Rust states” consist of
Illinois, Indiana, Michigan, Ohio, and Wisconsin. “Other” denotes all
remaining states.

48 percent of the home-purchase loans between April
2008 and November 2009.47
Figure 7.C shows trends in three metrics of loan
quality that can be derived from the HMDA data—
the percentage of loans with estimated front-end debtpayment-to-income (PTI) ratios exceeding 30 percent
(a warning level in underwriting), the percentage of
loans reported as higher priced in the HMDA data,
and the percentage of loans for non-owner-occupied
properties. All three measures fell significantly over the
sample period, although most of this decline had taken
place before 2009.48
47. The LPS data shown in figure 6 are also consistent with
first-time homebuyers making up a large share of the home-purchase
mortgage population. These data indicate that a large share of
home-purchase loans had LTVs over 95 percent, which may reflect
high first-time homebuyer activity since such borrowers have traditionally had less money for a down payment.
48. The monthly mortgage payment used for the PTI is estimated
assuming all mortgages are fully amortizing 30-year fixed mortgages. If the loan pricing spread is reported in the HMDA data, the
loan contract rate is assumed to be the same as the APR. Otherwise,
it is assumed to be equal to the PMMS APR level plus 20 basis points
prevailing at the loan’s estimated lock date.

The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress A63

Some of the changes shown thus far in figures 7.A
through 7.C may reflect factors specific to certain geographic areas rather than factors specific to certain
demographic groups. For instance, a decline in lending
in California relative to the rest of the nation would
tend to generate a relative decline in lending to Hispanic white borrowers because of the prevalence of
this group in California. As shown in figure 7.D, the
share of loans extended to residents of the “sand
states”—California, Florida, Arizona, and Nevada—
declined, particularly for refinance lending. Nevertheless, even after controlling for differential trends in
lending across markets, the racial and income trends
described earlier mostly remain (data not shown in
tables).
Borrowers of different demographic groups showed
large differences in their propensity to use different
types of loans, with significant changes from year to
year (tables 10.A and 10.B). All groups showed substantial increases in their use of nonconventional loans
from 2006 through 2009. Black and Hispanic white
borrowers, however, relied particularly heavily on these
government programs. In 2009, more than 80 percent
of home-purchase loans and more than 50 percent of
refinance loans to black borrowers were nonconventional. For Hispanic white borrowers in 2009, nearly
three-fourths of their home-purchase loans and 30 percent of their refinance loans were nonconventional. In
2006, over 40 percent of home-purchase and refinance
loans to both black and Hispanic white borrowers
were sold into the private securities market or sold to a
nongovernment purchaser. By 2007, these shares had
dropped considerably, and the GSE and portfolio
shares of loans among these groups had grown. In
2008 and 2009, the share of home-purchase loans to
black and Hispanic white borrowers that were sold to
the GSEs fell, while the share of refinance loans to
both groups that were sold to the GSEs rose from 2007
through 2009.
Patterns of loan-type incidence for LMI borrowers
and borrowers living in LMI tracts are similar to those
for black and Hispanic white borrowers but are more
muted. Loans to these borrowers were less likely to be
sold on the nongovernment secondary market in 2006,
and the shift toward nonconventional loans in 2008
and 2009 was not as large. The share of borrowers with
income missing from their loan applications fell from
2006 through 2009 (more than one-half of these loans
were sold into the private secondary market in 2006).
The incidence of missing income for refinance loans
actually rose in 2008 and 2009, likely the result of
“streamlined” refinance programs.
In 2006 and 2007, nonconventional loans as well as
GSE loans were significantly less likely than portfolio

or private secondary-market loans to be classified as
low quality by our measures—high PTI or higher
priced. However, by 2008, this lower incidence for highPTI loans had largely disappeared. The secondary
market for loans reported as higher priced in the
HMDA data appears to have largely disappeared, as
most of these loans ended up in lenders’ portfolios in
2008 and 2009.
Loans originated in the sand states in 2006 and 2007
were much more likely to be sold into the private secondary market than loans originated in other states. By
2008, differences in the disposition patterns between
the sand states and the rest of the country had largely
disappeared in the home-purchase market, likely in
part because of changes in the FHA and GSE loan
limits. However, in the refinance market, loans originated in the sand states in 2008 and 2009 were more
likely to be purchased by the GSEs and less likely to be
part of the nonconventional loan programs than loans
in other states.

CHANGES IN THE STRUCTURE OF THE
MORTGAGE INDUSTRY
As noted, the HMDA data cover the majority of home
loans originated in the United States and include nearly
all home lenders with offices in metropolitan areas. As
a consequence of its broad coverage, the HMDA data
can be used to reliably track changes in the structure of
the mortgage industry and the sources of different
loan products.
Historically, depository institutions, particularly savings institutions, were a leading source of mortgage
credit. In 1980, savings institutions extended about
one-half of the home loans, and commercial banks
nearly one-fourth of such loans.49 As the secondary
market for mortgages evolved, and originating lenders
no longer needed to hold loans in portfolio, opportunities became available for a wider group of lenders to
enter the market and compete with the traditional
types of originating institutions. Mortgage companies
emerged as a major source of loans. Most mortgage
companies are independent of depositories, but some
are affiliates or direct subsidiaries of depositories. Both
types of mortgage companies rely on a wide-reaching
base of independent or affiliated brokers to find customers and take applications. By the early 1990s, mort-

49. See The Joint Center for Housing Studies, Harvard University (2002), The 25th Anniversary of the Community Reinvestment
Act: Access to Capital in an Evolving Financial Services System
(Cambridge, Mass.: JCHS, March).

A64 Federal Reserve Bulletin □ December 2010

10. Incidence of selected types of loans, by purpose of the loan and by various defining characteristics, 2006–09
A. Home purchase
Percent except as noted

Characteristic

Noncon2
3 Port- Noncon2
3 Port- Noncon2
3 Port- Noncon2
3 Portventional1 GSE Other folio4 ventional1 GSE Other folio4 ventional1 GSE Other folio4 ventional1 GSE Other folio4
2006

2007

2008

2009

Minority status of borrower5
Black or African American . . . . . .
Hispanic white . . . . . . . . . . . . . . . . . .
Asian . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Hispanic white . . . . . . . . . . . . .
Other minority or missing6 . . . . . .

13.9
7.0
2.7
9.6
6.2

16.9
18.2
30.7
33.2
26.5

43.2
46.5
33.5
27.8
35.3

26.0
28.3
33.1
29.4
32.0

21.9
12.2
3.2
11.5
9.4

34.2
37.0
43.0
44.0
41.9

15.7
17.2
17.1
16.2
16.9

28.2
33.6
36.7
28.4
31.8

64.0
51.5
14.8
35.4
33.4

19.4
29.5
54.8
36.2
40.4

5.2
6.1
10.2
9.9
7.8

11.4
13.0
20.2
18.5
18.4

81.4
73.6
27.3
52.1
51.3

9.2
15.3
49.5
28.9
30.4

2.6
4.1
9.4
7.1
6.1

6.8
6.9
13.9
11.9
12.3

LMI census tract or borrower7
Census tract. . . . . . . . . . . . . . . . . . . . .
Borrower. . . . . . . . . . . . . . . . . . . . . . . .
Other8 . . . . . . . . . . . . . . . . . . . . . . . . . .
Missing9 . . . . . . . . . . . . . . . . . . . . . . . .

9.6
14.9
7.7
1.7

22.1
30.2
30.6
15.9

38.9
27.6
32.5
41.8

29.4
27.4
29.2
40.7

13.8
15.9
10.6
4.7

39.0
43.0
42.9
29.8

15.5
15.1
16.5
24.1

31.7
26.0
30.0
41.5

45.5
46.1
33.5
37.0

30.9
30.2
38.6
25.4

7.2
8.7
9.4
8.5

16.5
15.0
18.4
29.1

64.3
65.3
47.2
53.3

20.0
20.6
32.7
24.7

5.2
5.3
7.5
5.8

10.4
8.8
12.6
16.2

Loan characteristic or
occupancy status
High payment-to-income ratio10 .
Higher priced11 . . . . . . . . . . . . . . . . .
Non-owner occupied12 . . . . . . . . . .

5.4
.1
.0

19.3
5.2
30.0

44.8
70.9
32.3

30.6
23.8
37.7

7.5
.5
.0

39.9
27.3
42.8

19.4
25.6
15.7

33.3
46.6
41.5

32.8
10.2
.6

38.4
17.3
53.9

10.9
10.6
10.4

17.9
61.8
35.1

54.8
15.5
.3

27.3
8.5
56.2

7.7
5.2
12.0

10.1
70.8
31.4

Property location13
Sand states . . . . . . . . . . . . . . . . . . . . . .
Rust states . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.6
9.4
11.1

19.6
35.1
30.8

46.2
26.5
29.4

31.6
29.0
28.7

6.0
11.3
13.5

37.1
46.6
42.6

20.0
13.0
16.1

36.9
29.1
27.8

39.8
35.9
37.2

38.4
35.8
35.1

8.1
8.2
9.5

13.7
20.1
18.2

57.8
50.8
54.0

27.4
30.8
27.2

7.3
5.0
6.7

7.4
13.4
12.1

Type of lender
Depository . . . . . . . . . . . . . . . . . . . . . .
Affiliate of depository . . . . . . . . . . .
Independent mortgage company .

7.5
8.9
10.8

31.2
44.6
16.1

19.3
31.1
49.8

42.0
15.4
23.3

9.0
10.7
19.0

41.5
57.1
32.0

9.0
16.0
33.2

40.5
16.2
15.8

30.1
35.8
55.1

40.7
45.5
20.7

5.8
7.7
17.2

23.4
11.0
7.0

45.7
56.2
69.1

33.7
32.0
16.0

4.4
4.1
11.3

16.2
7.7
3.7

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.0

28.9

32.8

29.4

11.8

42.2

16.4

29.7

37.5

35.8

9.1

17.6

54.4

27.7

6.6

11.3

NOTE: First-lien mortgages for owner-occupied, one- to four-family, site-built properties; excludes business loans.
1. See table 3, note 1.
2. Government-sponsored enterprise (GSE) loans are all originations categorized as conventional and sold to Fannie Mae, Freddie Mac, Ginnie Mae, or Farmer
Mac.
3. Other loans are conventional loans sold to non-government-related or non-affiliate institutions.
4. Portfolio loans are conventional loans held by the lender or sold to an affiliate institution.
5. Categories for race and ethnicity reflect revised standards established in 1997 by the Office of Management and Budget. Applicants are placed under only one
category for race and ethnicity, generally according to the race and ethnicity of the person listed first on the application. However, under race, the application is
designated as joint if one applicant reported the single designation of white and the other reported one or more minority races. If the application is not joint but
more than one race is reported, the following designations are made: If at least two minority races are reported, the application is designated as two or more minority
races; if the first person listed on an application reports two races, and one is white, the application is categorized under the minority race. For loans with two or
more applicants, lenders covered under the Home Mortgage Disclosure Act report data on only two.
6. Other minority consists of American Indian or Alaskan Native, and Native Hawaiian or other Pacific Islander. “Missing” indicates that information for the
characteristic was missing on the application.
7. See table 9, note 5.
8. Other consists of all non-lower- and non-missing-income borrowers who are not in a lower-income census tract.
9. Income was not relied upon in the underwriting of the loan.
10. High payment-to-income ratio is 30 percent or more.
11. For definition of higher-priced lending, see text.
12. Includes loans for which occupancy status was missing.
13. “Sand states” consist of California, Florida, Arizona, and Nevada; “rust states” consist of Illinois, Indiana, Michigan, Ohio, and Wisconsin; “other” consists
of all other states.

gage companies originated more than one-half of home
loans.50
During the 1980s and through the first half of the
1990s, mortgage companies and depositories largely
competed for borrowers of prime and near-prime quality, with a large proportion of these loans eventually
being purchased or backed by Fannie Mae or Freddie
Mac for sale to investors. Over the next decade or so, as
lenders and investors became more comfortable with
50. See U.S. Department of Housing and Urban Development,
Office of Policy Development and Research, “U.S. Housing Market
Conditions: National Data,” webpage, www.huduser.org/
periodicals/ushmc/fall97/nd_hf.html.

lending to borrowers with weaker credit histories or
other characteristics that signaled elevated credit risk,
the subprime and private securitization markets expanded.
By 2006, mortgage companies, including both independent institutions and those affiliated with a depository institution, originated about 57 percent of all
loans and 72 percent of the higher-priced loans
(table 11). As shown in tables 10.A and 10.B, affiliated
mortgage companies tended to sell loans to the GSEs,
while independent mortgage companies were the dominant suppliers of the private secondary market. The
collapse of the subprime market in the first half of

The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress A65

10. Incidence of selected types of loans, by purpose of the loan and by various defining characteristics, 2006–09
B. Refinance
Percent except as noted

Characteristic

Noncon2
3 Port- Noncon2
3 Port- Noncon2
3 Port- Noncon2
3 Portventional1 GSE Other folio4 ventional1 GSE Other folio4 ventional1 GSE Other folio4 ventional1 GSE Other folio4
2006

2007

2008

2009

Minority status of borrower5
Black or African American . . . . . .
Hispanic white . . . . . . . . . . . . . . . . . .
Asian . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Hispanic white . . . . . . . . . . . . .
Other minority or missing6 . . . . . .

4.4
1.8
.7
2.6
1.8

16.6
19.2
24.1
27.3
21.9

41.2
43.4
35.5
31.2
42.6

37.8
35.6
39.7
38.9
33.7

10.2
3.9
1.2
4.9
4.2

29.3
34.3
35.7
39.5
36.4

16.8
18.7
17.7
16.0
20.8

43.7
43.1
45.4
39.6
38.6

38.9
19.8
5.4
16.0
18.9

30.3
47.4
59.2
47.2
50.0

4.9
7.2
10.0
9.5
7.8

25.9
25.7
25.4
27.3
23.3

52.5
30.1
6.5
16.9
19.2

31.1
48.4
70.7
58.5
58.1

4.3
7.4
10.1
9.7
7.2

12.1
14.1
12.6
14.9
15.6

LMI census tract or borrower7
Census tract. . . . . . . . . . . . . . . . . . . . .
Borrower. . . . . . . . . . . . . . . . . . . . . . . .
Other8 . . . . . . . . . . . . . . . . . . . . . . . . . .
Missing9 . . . . . . . . . . . . . . . . . . . . . . . .

2.9
2.9
1.7
11.2

19.5
25.5
25.2
21.6

40.0
33.0
35.3
34.6

37.7
38.6
37.8
32.6

6.2
5.7
3.8
17.4

33.5
38.9
38.3
28.6

17.3
15.2
17.7
16.4

43.0
40.2
40.2
37.6

24.6
18.3
13.3
58.7

40.7
44.7
49.8
26.6

6.8
8.2
9.8
2.7

27.9
28.8
27.0
12.0

31.2
16.8
8.9
75.5

45.9
57.4
64.6
19.6

6.9
8.9
10.7
1.4

16.0
16.9
15.9
3.6

Loan characteristic or
occupancy status
High payment-to-income ratio10 .
Higher priced11 . . . . . . . . . . . . . . . . .
Non-owner occupied12 . . . . . . . . . .

.9
.1
.1

16.4
3.7
23.8

49.5
60.1
36.0

33.2
36.1
40.0

2.4
.2
.1

31.9
10.1
38.2

23.1
27.0
17.0

42.6
62.6
44.6

15.7
1.8
.9

47.9
9.8
52.0

10.5
2.9
8.8

26.0
85.5
38.3

20.2
8.5
2.0

56.5
7.9
61.1

10.6
2.7
9.3

12.8
80.9
27.7

Property location13
Sand states . . . . . . . . . . . . . . . . . . . . . .
Rust states . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .

.7
4.0
3.2

21.5
28.3
25.2

42.4
29.1
32.8

35.4
38.6
38.9

1.6
7.6
6.0

34.8
40.4
38.0

20.6
12.8
16.5

43.0
39.2
39.5

9.3
19.0
19.4

56.7
46.0
44.7

9.7
8.1
8.9

24.3
26.9
27.1

14.0
16.9
20.2

63.3
60.7
55.2

10.3
7.7
9.3

12.4
14.7
15.3

Type of lender
Depository . . . . . . . . . . . . . . . . . . . . . .
Affiliate of depository . . . . . . . . . . .
Independent mortgage company .

1.8
2.1
3.6

26.1
38.4
13.1

17.4
33.3
57.8

54.7
26.2
25.4

3.6
3.2
10.1

36.2
47.3
31.2

7.4
18.7
37.7

52.8
30.8
21.1

11.4
15.5
38.0

50.3
51.4
33.7

5.4
8.1
20.0

32.9
25.0
8.4

12.2
18.2
38.6

63.1
67.7
36.0

6.5
5.1
18.9

18.2
9.0
6.5

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.5

24.4

35.3

37.7

5.0

37.5

17.1

40.4

17.6

46.9

8.9

26.6

18.6

57.5

9.2

14.7

NOTE: See notes to table 10.A.

11. Distribution of reported higher-priced lending, by type of lender, and incidence at each type of lender, 2006–09
Percent except as noted
Higher-priced loans
MEMO: All loans
Old pricing rules1

Type of lender
Number

Distribution

New pricing rules2
Incidence

Number

Distribution

Incidence

Number

Distribution

...
...
...
...

...
...
...
...

3,290,902
4,459,306
2,649,644
10,399,852

31.6
42.9
25.5
100

...
...
...
...

...
...
...
...

1,683,792
4,649,803
1,905,246
8,238,841

20.4
56.4
23.1
100

...
...
...
...

...
...
...
...

1,319,714
4,044,889
826,848
6,191,451

21.3
65.3
13.4
100

14.7
79.0
6.3
100

1.5
3.6
1.9
2.9

2,026,273
5,499,235
832,555
8,358,063

24.2
65.8
10.0
100

2006
Independent mortgage company . . . . .
Depository . . . . . . . . . . . . . . . . . . . . . . . . . .
Affiliate or subsidiary of depository .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,291,245
801,001
731,703
2,823,949

45.7
28.4
25.9
100

39.2
18.0
27.6
27.2

...
...
...
...
2007

Independent mortgage company . . . . .
Depository . . . . . . . . . . . . . . . . . . . . . . . . . .
Affiliate or subsidiary of depository .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

307,933
660,518
489,927
1,458,378

21.1
45.3
33.6
100

18.3
14.2
25.7
17.7

...
...
...
...
2008

Independent mortgage company . . . . .
Depository . . . . . . . . . . . . . . . . . . . . . . . . . .
Affiliate or subsidiary of depository .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

120,605
401,594
138,709
660,908

18.2
60.8
21.0
100

9.1
9.9
16.8
10.7

...
...
...
...
2009

Independent mortgage company . . . . .
Depository . . . . . . . . . . . . . . . . . . . . . . . . . .
Affiliate or subsidiary of depository .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

71,679
243,974
29,779
345,432

20.8
70.6
8.6
100

4.1
5.0
4.0
4.7

4,088
21,957
1,754
27,799

NOTE: First-lien mortgages for site-built properties; excludes business loans. For definition of higher-priced lending, see text.
1. Higher-priced loans defined prior to October 1, 2009.
2. Higher-priced loans defined on or after October 1, 2009.
... Not applicable.

A66 Federal Reserve Bulletin □ December 2010

2007 and the ensuing financial crisis, however, greatly
diminished the role of mortgage companies. By 2009,
mortgage companies extended only 34 percent of the
loans, with independent mortgage companies accounting for about two-thirds of this total. The disposition
of loans by affiliates much more closely mirrored that
by depositories; independent mortgage companies were
still more likely to sell loans into the private secondary
market and showed higher incidence of nonconventional lending than affiliates or depositories
(tables 10.A and 10.B).
Aside from changes in the broad types of lenders
extending credit, another development in the mortgage
market has been an increase in market concentration,
which can be documented using the HMDA data. For
example, the 10 organizations that extended the largest
number of home-purchase loans in 1990 accounted for
about 17 percent of all reported loans of this type; in
2009, the largest 10 organizations accounted for 35 percent of the home-purchase loans (data not shown in
tables).51 This consolidation is likely driven, at least in
part, by economies of scale in underwriting, loan processing, and loan servicing. However, despite the growing importance of a relatively few large mortgage
originators, the vast majority of markets (represented
in our analysis by MSAs) remain relatively unconcentrated, with prospective borrowers having a wide range
of options.
One widely used metric for the degree of competition in a local market is the Herfindahl-Hirschman
Index (HHI).52 According to merger guidelines from
the U.S. Department of Justice and the Federal Trade
Commission, markets with HHI values less than 1,000
are considered unconcentrated, those with values from
1,000 to 1,800 are considered moderately concentrated,
and those with values above 1,800 are considered concentrated. Based on the 2009 HMDA data for homepurchase lending, 81 percent of 392 MSAs would be
considered unconcentrated, 17 percent moderately concentrated, and 2 percent concentrated (data not shown
in tables).53 By comparison, in 1990, 60 percent of the
MSAs were unconcentrated, 29 percent moderately
concentrated, and 11 percent concentrated. By this
measure of competition, a larger share of local markets was unconcentrated or moderately concentrated
51. For purposes of these calculations, affiliated entities, whether
banking institutions or mortgage companies, were consolidated into
a single organization.
52. See U.S. Department of Justice and Federal Trade Commission (2010), Horizontal Merger Guidelines (Washington: DOJ and
FTC).
53. HHI values were calculated based on 2009 HMDA data for
first-lien home-purchase loans for site-built properties. The analysis
was limited to the data for MSAs because HMDA coverage is most
complete for such areas.

in 2009 than in 1990 despite the increase in mortgage
market concentration at the national level.

SUBDUED REFINANCE ACTIVITY IN 2009
As shown earlier in figure 1, the average annual percentage rate for a prime-quality 30-year fixed-rate mortgage fell abruptly at the end of 2008 and into 2009,
dropping under 5 percent in April and May. Refinance
lending simultaneously surged, peaking at over 645,000
loans in May 2009 before falling back to monthly levels
more similar to those seen in 2006 and 2007 despite the
APR staying at historically low levels near 5 percent.
Compared with previous periods when interest rates
declined sharply, the surge in refinance lending in 2009
appears to have been quite weak. Interest rates also fell
sharply from 2001 to 2003, and refinance loan volume
increased to more than 15 million in 2003 (shown earlier in table 2.B), far greater than the refinancing volume in 2009 of about 5.8 million loans. One possible
reason that refinance activity was not stronger in 2009
is that many of the mortgages available to be refinanced in that year were originated between 2003 and
2005, when interest rates were quite low and therefore
refinancing these loans may not have offered a significant enough benefit to borrowers to offset the transaction costs.
Other potential obstacles to refinance activity in
2009 were high unemployment and underemployment,
as well as severely depressed home values resulting in
low or negative equity positions. From the end of
2006 to the end of 2009, the national unemployment
rate more than doubled to 10 percent, according to the
Bureau of Labor Statistics, and house prices fell nearly
11 percent, according to the Federal Housing Finance
Agency (FHFA) home price index. Several states experienced deeper home price declines over this period,
most notably the sand states plus Michigan, where the
FHFA index fell more than 20 percent. Many households may not have been able to refinance to take
advantage of the low rates because they did not have
enough home equity or they did not meet lenders’
income and employment requirements.
We present payoff rates—a rough proxy for refinance rates—during 2009 for 30-year fixed-rate conventional mortgages active as of December 2008 using
data from LPS (table 12). The loans are divided into
three broad groups: (1) those with a “clean” payment
history (no delinquencies on the mortgage) in the 12
months prior to December 2008 and secured by a
property outside of Arizona, California, Florida,
Michigan, and Nevada; (2) those with a clean payment
history in the 12 months prior to December 2008, but
inside Arizona, California, Florida, Michigan, and

The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress A67

12. Mortgage payoff rates during 2009 for loans active as of December 2008, by loan’s payment history, geographic
location, and year of loan origination
Percent
Status of loan’s 12-month payment history
Clean, by location
Year of loan origination1

1999 or earlier. . . . . . . . . . . . . . . . . . . . . . .
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MEMO
All origination years. . . . . . . . . . . . . . . . .

Outside Ariz., Calif.,
Fla., Mich., and Nev.

MEMO:
PMMS
average
rate1

Blemished

Inside Ariz., Calif.,
Fla., Mich., and Nev.

Share
of all
loans

Median
interest
rate

Share
paid off
in 2009

Share
of all
loans

Median
interest
rate

Share
paid off
in 2009

Share
of all
loans

Median
interest
rate

Share
paid off
in 2009

3.2
.2
1.5
4.1
12.0
6.9
9.3
8.8
11.2
7.7

7.250
8.125
6.750
6.250
5.750
5.875
5.875
6.500
6.375
6.000

15.5
10.7
19.3
23.7
17.1
17.1
16.2
23.4
21.7
19.6

1.2
.1
.5
1.5
5.5
2.6
3.8
3.0
3.6
2.7

7.250
8.125
6.875
6.250
5.750
5.875
5.875
6.420
6.375
6.000

12.0
7.9
19.0
18.4
14.6
11.4
9.3
9.6
11.4
17.7

.8
.1
.4
.6
1.3
1.0
1.7
2.0
2.2
.4

7.625
8.375
7.250
6.750
5.875
6.125
6.125
6.750
6.750
6.500

5.4
1.4
5.8
4.9
5.9
3.8
3.5
3.5
3.7
5.3

*
8.1
7.0
6.5
5.8
5.8
5.9
6.4
6.3
6.0

65.2

6.125

19.3

24.4

6.000

12.8

10.4

6.625

4.2

*

NOTE: Loans restricted to 30-year fixed-rate conventional first-lien mortgages, active as of December 2008, for owner-occupied single-family homes.
1. Average mortgage interest rate for 30-year fixed-rate mortgage reported by Freddie Mac's Primary Mortgage Market Survey (PMMS).
* Average not calculated because loans span many origination years.
SOURCE: Lender Processing Services.

Nevada; and (3) those with a “blemished” payment
history (at least one instance of being 30 days or more
in arrears) in the 12 months prior to December 2008.54
The second group captures borrowers most likely to be
facing low or negative equity, and the third group captures distressed borrowers regardless of geographic
location.55 The table disaggregates loans by year of
origination in order to show differences in payoff rates
across years with differing levels of interest rates.
As shown in the bottom row of the table, 65.2 percent of loans in the sample were in the first group,
24.4 percent were in the second group, and 10.4 percent
were in the third group. Thus, more than one-third of
the loans either had a blemished 12-month payment
history or were in one of the five states that experienced the sharpest home price declines from the end of
2006 to the end of 2009.
As mentioned earlier, many mortgages were originated between 2003 and 2005 when rates were quite
low, and thus refinancing these loans in 2009 may not
have offered a significant benefit to borrowers. Focusing just on the first group of loans, in which negative
equity and borrower distress should have been less
common, one can see that a substantial fraction of
loans active as of December 2008 were in fact origi54. Loans in the foreclosure process as of December 2008 were
dropped from the analysis sample, which otherwise included all
first-lien 30-year mortgages for single-family owner-occupied properties in the LPS database that were active as of that date.
55. The LPS data used here do not include updated home values
associated with the mortgages, so it is not possible to determine the
changes in home values for the properties related to the mortgages.

nated in the period from 2003 to 2005. Moreover, payoff rates for these loans were relatively low. For instance,
the payoff rate for the 2005 cohort, which had a median
interest rate of 5.875 percent, was 16.2 percent, compared with 23.4 percent for loans originated in the next
year, which had a median interest rate of 6.5 percent.56
Low or negative home equity and the economic
recession may also have muted recent refinance activity. Consistent with this view, the overall payoff rate for
loans in the first group is substantially higher, at about
19 percent, than that for loans in the second and third
groups, at about 13 percent and 4 percent, respectively.57 These payoff rates reflect both refinancing and
home sales. Nevertheless, the difference in payoff rates
across the groups likely reflects the difficulties of refinancing for distressed borrowers and borrowers with
low or negative equity. Indeed, the difference in payoff
rates is most pronounced for loans originated in 2006
when interest rates were relatively high. Among loans
56. Tightened mortgage lending standards, as documented in the
Federal Reserve’s Senior Loan Officer Opinion Survey on Bank
Lending Practices (www.federalreserve.gov/boarddocs/SnLoan
Survey), is another reason that refinance activity may have been
muted in 2009 relative to 2003. Tighter standards could have damped
refinance activity even among borrowers in the first group (those
with a clean payment history and outside the five states with steep
home price declines). The information presented in table 12 does not
shed light on the extent to which underwriting standards may have
affected refinance activity in 2009.
57. A substantial fraction of loans in the third group (those with a
blemished payment history) entered the foreclosure process during
2009. Loans that terminated through foreclosure during 2009 are
not counted among the loans that were paid off when calculating the
payoff rates in table 12.

A68 Federal Reserve Bulletin □ December 2010

originated in that year, 23.4 percent of loans in the first
group were paid off during 2009, compared with only
9.6 percent of loans in the second group and 3.5 percent in the third group.

PATTERNS OF LENDING IN DISTRESSED
NEIGHBORHOODS
The difficult economic circumstances of the past few
years have not fallen equally across all areas. Housing,
mortgage market, and employment conditions differ
appreciably across regions of the country, submarkets,
and neighborhoods (represented here by census tracts)
within these broader areas. Some areas have experienced much more distress than others. In some neighborhoods, high levels of distress have persisted for
some time; in others, conditions have recently deteriorated.
Concerns about credit conditions in areas experiencing high levels of distress have received heightened
attention from policymakers and others. For example,
in June 2010, the federal bank and savings institution
regulatory agencies proposed changes to the rules that
implement the Community Reinvestment Act (CRA)
to support the stabilization of communities hit hard by
elevated foreclosures.58 The revised regulations would
encourage covered institutions to support the Neighborhood Stabilization Program (NSP), administered
by the Department of Housing and Urban Development.59 Under the proposal, lenders would be encouraged to make loans and investments and provide
services in support of NSP activities to individuals and
neighborhoods beyond the traditional focus of the
CRA, which is on LMI individuals and LMI areas.
Allowing banking institutions to receive CRA consideration for activities conducted in NSP-targeted neighborhoods and directed to individuals in such areas
provides additional incentives for these institutions to
leverage government funds targeted to these areas and
populations.
58. For more information about the CRA, see Federal Financial
Institutions Examination Council, “Community Reinvestment Act,”
webpage, www.ffiec.gov/cra. More information about the proposed
revision to the CRA is in Board of Governors of the Federal Reserve
System, Federal Deposit Insurance Corporation, Office of the
Comptroller of the Currency, and Office of Thrift Supervision
(2010), “Agencies Propose to Expand Scope of Community Reinvestment Act Regulations to Encourage Depository Institution Support for HUD Neighborhood Stabilization Program Activities,”
joint press release, June 17, www.federalreserve.gov/newsevents/
press/bcreg/20100617c.htm.
59. The NSP program allocates funds to local counties and states
with problems arising from the mortgage foreclosure crisis. The
funds are intended to acquire, repair, and resell foreclosed and abandoned properties. See U.S. Department of Housing and Urban
Development, “Neighborhood Stabilization Program Resource Exchange,” webpage, http://hudnsphelp.info/index.cfm.

Given the public policy focus on areas in distress, it is
important to learn more about how the changing economic conditions have affected the availability of mortgage credit in distressed areas. The HMDA data can be
used to identify differences in the access to and use of
credit along a number of dimensions across census
tracts sorted by the degree of distress they have experienced in their local mortgage market. For the analysis
here, aggregated credit record information provided by
Equifax is used to measure the degree of distress a
neighborhood faces. We identify those census tracts
where at least 10 percent of mortgage borrowers had a
loan in foreclosure and designate these tracts as “highforeclosure tracts.”60 Over 75 percent of these tracts
are located in the sand states, with Florida alone accounting for almost one-half of the tracts.
In 2009, home-purchase lending in high-foreclosure
tracts, derived from the HMDA data, hovered around
30 percent of its average level in 2004 (figure 8, panel
A). While lending in non-high-foreclosure (“other”)
tracts was also down considerably from 2004 levels, the
declines have not been as severe. This difference is
particularly pronounced given that lending in the highforeclosure tracts was considerably higher in 2005 and
2006 than in these other areas.
A large portion of the difference in home-purchase
lending between high-foreclosure and other tracts derives from geographic location. The sand states have
been particularly hard hit by the downturn in the housing market, and, as a result, some of the differences
between the high-foreclosure and other tracts represent market-level (MSA) differences. When the distribution of high-foreclosure tracts across MSAs is
controlled for (shown by the line labeled “Control”),
home-purchase lending levels in the high-foreclosure
tracts appear to be consistent with those in other tracts
in the same MSAs.
As discussed earlier, borrowers in distressed areas
are less likely to refinance their mortgages. The refinance lending in the high-foreclosure tracts was down
substantially from earlier years (figure 8, panel B). This
decline was much more severe than that experienced in
the other tracts or in the control tracts, despite the
60. Equifax is one of the three national consumer reporting agencies. The credit-record-based data used here include a count within
each census tract of the number of individuals who had either a first
mortgage or a home equity loan and a count of the number of
individuals with a record of a foreclosure action as of December 31,
2008. These data included no individually identifying information.
See www.equifax.com for more information about Equifax.
In some cases, a mortgage or record of a foreclosure action may
relate to a property located in a census tract other than the current
residence of the individual, which is how individuals are assigned to
census tracts. Credit records include the address of the individual,
but this address may not be the one of the property associated with
any record of a mortgage.

The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress A69

8. Indexed volume of lending, by census-tract group,
2004–09

9. Indexed denial rate for home-purchase loans, by censustract group, 2004–09
Index

Index

A. Home purchase
150

High-foreclosure

High-foreclosure

175

120
Control

150

90
Other

200

125

60
Other

100

30
Control
2004

2005

2006

2007

2008

75
2009

Index

2004

B. Refinance
160
High-foreclosure
Other

120

80

40

Control

2004

2005

2006

2007

2008

2009

NOTE: The data are monthly. Loans are first-lien mortgages for site-built
properties and exclude business loans. Index is normalized to 100 for average
monthly lending volume in 2004. For definitions of census-tract groups, see
text.

consistently higher levels of refinance lending in the
high-foreclosure tracts from 2005 through 2007.
In spite of the similar patterns in home-purchase
lending in the high-foreclosure and control tracts, some
aspects of lending do appear to differ. For example,
denial rates for home-purchase loans, which have been
in decline since peaking in 2007, have been higher,
relative to their 2004 levels, in the high-foreclosure
tracts (figure 9). Other aspects of home-purchase lending in high-foreclosure tracts, including the share of
owner-occupied properties and the share of loans to
minority borrowers, exhibit similar trends over time as
other tracts, though the absolute levels of activity differ (data not shown).
A notable difference between the high-foreclosure
and control tracts in home-purchase lending involves
borrower income. The mean income of home-purchase
borrowers in high-foreclosure tracts, which increased
substantially faster than mean incomes in “other” tracts
during 2005 and 2006, has declined significantly faster
than in the control tracts (figure 10). In each quarter of
2009, the average income of borrowers in the highforeclosure tracts was over 10 percent lower than the

2005

2006

2007

2008

2009

NOTE: See note to figure 8.
SOURCE: Federal Financial Institutions Examination Council, data reported
under the Home Mortgage Disclosure Act.

mean had been in 2004. Incomes in both “other” and
control tracts also experienced declines and were below
their 2004 levels, though the declines were not as severe.
The average income of refinance borrowers does not
show a similar pattern; instead, the mean income of
refinance borrowers has grown over time, regardless of
the level of distress in the tract (data not shown).
One possible explanation for why borrower incomes
have fallen below their 2004 levels for home-purchase
borrowers, but not refinancers, may be a larger share of
loans to first-time homebuyers. Unfortunately, it is not
possible to identify first-time homebuyers in the
HMDA data. However, using a second source of data—
provided by Equifax and composed of individual,
anonymous credit bureau records—we can calculate
the share of all individuals taking out a closed-end
mortgage (for any purpose) during each month
10. Indexed average income of borrower, by census-tract
group, 2004–09
Index

Control
High-foreclosure
140

120
Other
100

2004

2005

NOTE: See notes to figure 9.

2006

2007

2008

2009

A70 Federal Reserve Bulletin □ December 2010

12. Share of first-time borrowers, by census-tract group,
2004–09

11. Share of first-time borrowers, 2004–09
Percent

Percent

20
High-foreclosure

50

15

40

10

30
Control

20

5
10

Other
2004

2005

2006

2007

2008

2009
2004

2005

2006

2007

2008

2009

NOTE: The data are monthly. For information on data calculation, see text;
also see text notes 61 and 62.
SOURCE: Authors’ calculations based on Equifax data.

NOTE: See notes to figure 11. For definitions of census-tract groups, see
text.

from 2004 through 2009 who had not previously had a
mortgage.61 These data suggest that the share of firsttime homebuyers by this metric, which remained
around 15 percent between 2004 and 2007, increased
sharply beginning in April 2008 to over 20 percent in
late 2008 (figure 11). The share of first-time homebuyers again peaked at about 20 percent in 2009.62
A larger share of first-time homebuyers may help
explain the observed declines in mean borrower incomes beginning in 2008 (both for the whole market
and for high-foreclosure tracts). In the case of highforeclosure tracts, the increase in the share of first-time
homebuyers was particularly steep beginning in April
2008, reaching levels of 40 percent during 2008 (figure 12). This increase was much larger than that observed for the other tracts, though similar to the pattern
observed for the control tracts, suggesting that the
increase was also experienced in “other” tracts in the
same MSAs as the high-foreclosure tracts. However,
during 2009, the share of first-time mortgage borrowers in high-foreclosure tracts remained well above the
levels observed in the other tracts or in the control

tracts. For much of 2009, one-third or more of new
mortgage borrowers in high-foreclosure tracts were
individuals taking out their first mortgages.
The timing of the increases in the share of first-time
homebuyers in April 2008 is consistent with the firsttime homebuyer tax credit having increased the number
of first-time homebuyers. The effect of the first-time
homebuyer tax credit may, however, be overstated by
these results. Some of the higher share of first-time
homebuyers could be explained by the fact that refinancing activity in these tracts has fallen more rapidly
than has home-purchase lending. Unfortunately, it is
difficult to distinguish between refinance loans and
home-purchase loans in the Equifax data. In other
words, the increasing share of first-time homebuyers is
a function of both the tax credit effect and differential
changes in refinance and home-purchase activity. And
it is not possible to determine the relative contributions
of these two factors. Nevertheless, a higher share of
first-time homebuying in these tracts offers a reasonable explanation for the fall in the mean income of
borrowers in high-foreclosure tracts.

61. This second source of data, from Equifax, is a nationally
representative sample of individual credit records, observed quarterly from 1999 through 2009. The data set includes a unique sequence number that allows us to track individual credit experiences
over time without any personal identifying information. All of the
individuals in our sample remain anonymous.
62. The share of first-time homebuyers calculated using the credit
record data differs substantially from the share of loans to first-time
homebuyers calculated earlier using tax record data and the HMDA
data for several reasons. These include that the former is a share of
borrowers while the latter is a share of loans. In addition, the loan
purpose, lien status, and occupancy status cannot be easily deciphered in the credit record data. As such, the share calculated in this
section using the credit record data includes borrowers who took out
junior-lien loans, loans backed by non-owner-occupied properties,
or refinance loans and therefore is far lower than the 48 percent of
loans to first-time homebuyers cited earlier.

DIFFERENCES IN LENDING OUTCOMES BY
RACE, ETHNICITY, AND SEX OF THE
BORROWER
Analyses of the HMDA data for each year since pricing data were introduced in 2004 have found substantial differences in the incidence of higher-priced lending
across racial and ethnic lines—differences that cannot
be fully explained by factors included in the HMDA
data.63 Analyses have also found differences across
63. See Avery, Brevoort, and Canner, “The 2006 HMDA Data”;
Avery, Brevoort, and Canner, “Higher-Priced Home Lending and

The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress A71

groups in mean APR spreads paid by those with higherpriced loans, but such differences have generally been
small. Analyses of denial rate data, collected since
1990, have also consistently found evidence of differences across racial and ethnic groups that cannot be
fully explained by the information in the HMDA data.
Here, we examine the 2009 HMDA data to determine
the extent to which these differences persist.
Unfortunately, our analysis of the 2009 pricing data
is severely hampered by the introduction of the new
pricing threshold in October 2009 and the significant
variation in the PMMS−Treasury gap over the year,
both of which were discussed earlier. Because the new
and old HMDA reporting rules use different, and
incomparable, thresholds, we conducted a pricing
analysis separately for applications received on or after
October 1, 2009, for which the new reporting threshold
was in place. For comparison purposes, we also conducted an analysis of loans covered under the old
Treasury-based threshold rules, but note that for the
reasons discussed earlier, comparison of the two results should be viewed with the utmost caution. Unlike
in previous years, we do not report the results of an
analysis of mean APR spreads paid by those with
higher-priced loans, as the incidence of high-rate lending in 2009 was so low as to make such tests meaningless. The data used for the analysis of racial and ethnic
differences in denial rates are unaffected by the problems with the pricing data, so a meaningful comparison can be made with previous years.
The methodology we use for our analysis of both
pricing and denial rates can be described as follows.
Comparisons of average outcomes for each racial, ethnic, or gender group are made both before and after
accounting for differences in the borrower-related factors contained in the HMDA data (income, loan
amount, location of the property (MSA), and presence
of a co-applicant) and for differences in borrowerrelated factors plus the specific lending institution used
by the borrower.64 Comparisons for lending outcomes
across groups are of three types: gross (or “unmodified”), modified to account for borrower-related
factors (or “borrower modified”), and modified to
the 2005 HMDA Data”; and Avery, Canner, and Cook, “New Information Reported under HMDA,” all in note 14.
64. Excluded from the analysis are applicants residing outside the
50 states and the District of Columbia as well as applications deemed
to be business related. Applicant gender is controlled for in the racial
and ethnic analyses, and race and ethnicity are controlled for in the
analyses of gender differences. For the analysis of loan pricing for
loans covered under the Treasury-based threshold, we control for
whether the loan was priced in the first three months of 2009 versus
the remaining part of the year, since the reporting threshold (under
the old rules) differed so much between these two periods. This
distinction is possible only because we have access to the information
on application and action dates, which are not publicly available.

account for borrower-related factors plus lender (or
“lender modified”).65 The analysis distinguishes between conventional and nonconventional lending, reflecting the different underwriting standards and fees
associated with these two broad loan product categories.66

Incidence of Higher-Priced Lending by Race,
Ethnicity, and Sex
The portion of the 2009 HMDA data for which we can
conduct the most meaningful analysis—applications
covered under the PMMS reporting threshold—
shows very little variation in the frequency of reported
higher-priced lending across racial and ethnic groups
(tables 13.A, 13.B, 13.C, and 13.D). This result is
driven to a large extent by the fact that the overall
incidence of higher-priced lending for all groups is
much lower than it was in earlier years. For example,
we estimated that 22.7 percent of black conventional
refinance borrowers in 2008 paid an interest rate that
was more than 1.75 percentage points above PMMS
prime.67 For loans covered by the new threshold rules,
only 6.3 percent of black conventional refinance borrowers were reported to have had an interest rate
1.50 percentage points above the PMMS prime rate.
The reduction in the incidence is similar for all groups
and all products. Overall, once other factors are accounted for, there are no significant differences in the
incidence of higher-priced loans between groups for
loans covered by the new rules.
As noted earlier, we also conducted a pricing analysis for loans covered under the old Treasury-based
threshold reporting rules. This analysis, reported in the
first four data columns of table 13, also shows a much
lower incidence of higher-priced lending for all groups
than was shown in earlier years. Perhaps as a consequence, pricing disparities among groups, whether
gross or controlling for other factors, are much lower
than estimated in earlier periods. However, as discussed earlier, the reporting threshold for fixed-rate
loans priced in April 2009 or later was much higher
than in previous years. Thus, it is not possible to know
for sure whether the decline in the reported incidence
65. For purposes of presentation, the borrower- and lendermodified outcomes shown in the tables are normalized so that, for
the base comparison group (non-Hispanic whites in the case of comparison by race and ethnicity and males in the case of comparison by
sex), the mean at each modification level is the same as the gross
mean.
66. Although results are reported for nonconventional lending as
a whole, the analysis controls for the specific type of loan program
(FHA, VA, or FSA/RHS) that was used.
67. See Avery and others, “The 2008 HMDA Data: The Mortgage Market during a Turbulent Year,” in note 14.

A72 Federal Reserve Bulletin □ December 2010

13. Incidence of higher-priced lending, unmodified and modified for borrower- and lender-related factors, by race,
ethnicity, and sex of borrower, 2009
A. Home purchase, conventional loan
Percent except as noted

Race, ethnicity, and sex

Number
of loans

Unmodified
incidence

Modified incidence,
by modification factor
Borrowerrelated

Borrowerrelated
plus lender

Number
of loans

Old pricing rules1
Race other than white only3
American Indian or Alaska Native. . .
Asian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Black or African American . . . . . . . . . .
Native Hawaiian or other Pacific
Islander . . . . . . . . . . . . . . . . . . . . . . . . . .
Two or more minority races. . . . . . . . . .
Joint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Missing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Unmodified
incidence

Modified incidence,
by modification factor
Borrowerrelated

Borrowerrelated
plus lender

New pricing rules2

3,519
52,420
21,178

7.2
2.5
7.3

5.5
3.9
6.8

7.7
5.0
7.6

502
11,291
3,220

3.6
.9
3.4

4.2
2.5
3.7

3.3
3.0
3.8

3,093
498
13,560
74,943

3.1
3.8
2.8
2.4

4.7
5.0
3.7
3.1

5.3
5.7
5.0
5.1

386
71
2,089
12,632

2.1
.0
1.5
.9

4.4
2.2
2.8
2.1

4.5
.6
3.3
3.1

White, by ethnicity3
Hispanic white . . . . . . . . . . . . . . . . . . . . . .
Non-Hispanic white . . . . . . . . . . . . . . . . .

37,725
393,916

7.9
4.9

6.2
4.9

6.4
4.9

5,948
81,537

6.3
3.2

4.4
3.2

3.8
3.2

Sex
One male. . . . . . . . . . . . . . . . . . . . . . . . . . . .
One female . . . . . . . . . . . . . . . . . . . . . . . . . .
Two males. . . . . . . . . . . . . . . . . . . . . . . . . . .
Two females . . . . . . . . . . . . . . . . . . . . . . . . .

171,398
128,179
11,970
9,411

5.0
4.4
5.4
3.8

5.0
4.3
5.4
4.3

5.0
4.7
5.4
5.9

34,584
25,707
1,769
1,373

2.9
2.5
4.4
3.3

2.9
2.5
4.4
3.1

2.9
2.7
4.4
1.9

NOTE: First-lien mortgages for owner-occupied, one- to four-family, site-built properties; excludes business loans. For definition of higher-priced lending and
explanations of old and new pricing rules and modification factors, see text. Loans taken out jointly by a male and female are not tabulated here because they would
not be directly comparable with loans taken out by one borrower or by two borrowers of the same sex.
1. See table 11, note 1.
2. See table 11, note 2.
3. See table 10.A, note 5.

13. Incidence of higher-priced lending, unmodified and modified for borrower- and lender-related factors, by race,
ethnicity, and sex of borrower, 2009
B. Refinance, conventional loan
Percent except as noted

Race, ethnicity, and sex

Number
of loans

Unmodified
incidence

Modified incidence,
by modification factor
Borrowerrelated

Borrowerrelated
plus lender

Number
of loans

Old pricing rules1

Unmodified
incidence

Modified incidence,
by modification factor
Borrowerrelated

Borrowerrelated
plus lender

New pricing rules2

Race other than white only3
American Indian or Alaska Native. . .
Asian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Black or African American . . . . . . . . . .
Native Hawaiian or other Pacific
Islander . . . . . . . . . . . . . . . . . . . . . . . . . .
Two or more minority races. . . . . . . . . .
Joint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Missing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,978
88,310
70,486

6.9
1.5
9.0

6.2
2.9
8.5

4.7
3.8
6.2

1,398
16,982
9,554

2.7
.6
6.3

2.6
2.2
6.0

1.7
2.6
3.7

9,207
2,000
43,100
245,310

3.5
1.4
2.7
2.5

4.8
3.4
3.0
2.9

3.6
1.7
3.3
4.0

1,113
245
6,219
38,810

1.3
.8
1.4
1.1

2.3
6.4
2.0
2.0

2.7
4.3
2.9
2.7

White, by ethnicity3
Hispanic white . . . . . . . . . . . . . . . . . . . . . .
Non-Hispanic white . . . . . . . . . . . . . . . . .

88,837
955,406

6.5
5.1

5.2
5.1

4.9
5.1

12,768
191,459

4.8
2.8

3.6
2.8

3.3
2.8

Sex
One male. . . . . . . . . . . . . . . . . . . . . . . . . . . .
One female . . . . . . . . . . . . . . . . . . . . . . . . . .
Two males. . . . . . . . . . . . . . . . . . . . . . . . . . .
Two females . . . . . . . . . . . . . . . . . . . . . . . . .

357,819
303,443
27,757
28,789

4.8
3.8
2.8
3.4

4.8
4.4
2.8
2.7

4.8
4.4
2.8
2.9

64,520
53,489
3,466
3,623

2.5
3.2
2.1
2.6

2.5
2.6
2.1
1.8

2.5
2.5
2.1
1.5

NOTE: See notes to table 13.A.

The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress A73

13. Incidence of higher-priced lending, unmodified and modified for borrower- and lender-related factors, by race,
ethnicity, and sex of borrower, 2009
C. Home purchase, nonconventional loan
Percent except as noted

Race, ethnicity, and sex

Number
of loans

Unmodified
incidence

Modified incidence,
by modification factor
Borrowerrelated

Borrowerrelated
plus lender

Number
of loans

Old pricing rules1
Race other than white only3
American Indian or Alaska Native. . .
Asian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Black or African American . . . . . . . . . .
Native Hawaiian or other Pacific
Islander . . . . . . . . . . . . . . . . . . . . . . . . . .
Two or more minority races. . . . . . . . . .
Joint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Missing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Unmodified
incidence

Modified incidence,
by modification factor
Borrowerrelated

Borrowerrelated
plus lender

New pricing rules2

7,059
23,449
61,000

5.2
4.6
7.9

4.7
4.6
6.9

5.3
5.4
7.5

1,024
4,490
12,520

.6
.8
2.2

.8
1.2
2.3

1.5
1.3
2.0

4,927
801
15,731
65,714

5.6
4.4
4.3
5.3

5.8
4.1
5.5
5.5

6.8
4.6
6.2
5.8

710
120
2,332
12,139

.7
.8
.7
1.0

.6
.6
1.5
1.1

.7
-.2
1.0
1.1

White, by ethnicity3
Hispanic white . . . . . . . . . . . . . . . . . . . . . .
Non-Hispanic white . . . . . . . . . . . . . . . . .

66,431
327,069

7.9
5.3

5.8
5.3

6.2
5.3

13,330
78,296

1.4
1.1

1.6
1.1

1.1
1.1

Sex
One male. . . . . . . . . . . . . . . . . . . . . . . . . . . .
One female . . . . . . . . . . . . . . . . . . . . . . . . . .
Two males. . . . . . . . . . . . . . . . . . . . . . . . . . .
Two females . . . . . . . . . . . . . . . . . . . . . . . . .

179,507
127,108
16,864
13,476

5.9
6.6
7.3
7.2

5.9
5.5
7.3
6.5

5.9
5.8
7.3
7.1

42,427
29,774
2,584
2,000

1.3
1.5
1.1
1.3

1.3
1.1
1.1
1.1

1.3
1.0
1.1
1.5

NOTE: See notes to table 13.A.

13. Incidence of higher-priced lending, unmodified and modified for borrower- and lender-related factors, by race,
ethnicity, and sex of borrower, 2009
D. Refinance, nonconventional loan
Percent except as noted

Race, ethnicity, and sex

Number
of loans

Unmodified
incidence

Modified incidence,
by modification factor
Borrowerrelated

Borrowerrelated
plus lender

Number
of loans

Unmodified
incidence

Modified incidence,
by modification factor
Borrowerrelated

Old pricing rules1

Borrowerrelated
plus lender

New pricing rules2

Race other than white only3
American Indian or Alaska Native. . .
Asian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Black or African American . . . . . . . . . .
Native Hawaiian or other Pacific
Islander . . . . . . . . . . . . . . . . . . . . . . . . . .
Two or more minority races. . . . . . . . . .
Joint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Missing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,868
10,449
57,330

5.0
5.4
9.1

7.1
5.8
9.5

6.2
6.5
8.9

408
1,642
8,750

4.4
3.2
5.9

5.1
3.2
4.0

4.1
1.8
.9

2,867
586
12,588
69,924

4.3
3.1
5.0
8.4

5.9
2.7
6.8
8.8

6.5
5.0
7.6
7.5

358
74
1,753
9,547

3.1
9.5
2.1
1.9

2.8
.9
3.9
1.7

4.8
.0
.6
.0

White, by ethnicity3
Hispanic white . . . . . . . . . . . . . . . . . . . . . .
Non-Hispanic white . . . . . . . . . . . . . . . . .

35,824
292,529

7.8
7.8

7.6
7.8

7.1
7.8

5,874
53,931

5.2
4.8

3.0
4.8

.0
4.8

Sex
One male. . . . . . . . . . . . . . . . . . . . . . . . . . . .
One female . . . . . . . . . . . . . . . . . . . . . . . . . .
Two males. . . . . . . . . . . . . . . . . . . . . . . . . . .
Two females . . . . . . . . . . . . . . . . . . . . . . . . .

135,396
97,662
8,284
8,739

7.8
9.7
7.4
7.9

7.8
8.0
7.4
7.2

7.8
8.4
7.4
5.2

23,718
17,070
1,226
1,032

4.0
7.6
2.0
2.6

4.0
5.8
2.0
1.8

4.0
6.1
2.0
.2

NOTE: See notes to table 13.A.

A74 Federal Reserve Bulletin □ December 2010

down more substantially from 2008 but still remain
much higher than rates for comparable home-purchase
applicants. For example, almost one-half of black conventional refinance applicants were denied, versus only
one-third of black conventional home-purchase applicants. There is no consistent pattern between conventional and nonconventional lending. Non-Hispanic
white conventional and nonconventional homepurchase applicants were denied at about the same
rate; nonconventional refinance applicants of the same
group were denied at a much higher rate than conventional refinance applicants. Black applicants, however,
consistently showed lower denial rates for nonconventional loans than for comparable conventional loans.
Controlling for borrower-related factors in the
HMDA data reduces the differences among racial and
ethnic groups. Accounting for the specific lender used
by the applicant reduces differences further, although
unexplained differences remain between non-Hispanic
whites and other racial and ethnic groups. Overall,
with the exception of the disparity between black and
non-Hispanic white applicants for conventional refinance loans, unexplained differences are modestly reduced from 2008. With regard to the sex of applicants,
no notable differences are evident for either conventional or nonconventional lending.

of higher-priced lending reflects less high-priced lending or a higher reporting threshold (although the reported incidence is also lower than in previous years in
the first three months of 2009, when a much lower
reporting threshold applied). Consequently, great caution should be exercised in drawing any meaningful
inference about disparities in pricing across racial and
ethnic groups from this portion of the analysis.
With regard to the sex of applicants, no notable
differences are evident for either conventional or nonconventional lending or for either of the threshold
rules.

Denial Rates by Race, Ethnicity, and Sex
Analyses of the HMDA data from earlier years have
consistently found that denial rates vary across applicants grouped by race or ethnicity. In 2009, as in earlier
years, for both home-purchase and refinance conventional and nonconventional lending, black and
Hispanic white applicants had notably higher gross
denial rates than non-Hispanic white applicants
(tables 14.A, 14.B, 14.C, and 14.D). The pattern for
Asian applicants is similar but much more muted.
Denial rates for all groups show modest decreases from
2008 to 2009. For refinance loans, denial rates are

14. Denial rates on applications, unmodified and modified for borrower- and lender-related factors, by race and ethnicity,
and sex of applicant, 2008−09
A. Home purchase, conventional loan application
Percent except as noted

Race, ethnicity, and sex

Number of
applications
acted upon
by lender

Unmodified
denial
rate

Modified denial rate,
by modification factor
Borrowerrelated

Borrowerrelated
plus lender

Number of
applications
acted upon
by lender

Unmodified
denial
rate

2008

Modified denial rate,
by modification factor
Borrowerrelated

Borrowerrelated
plus lender

2009

1

Race other than white only
American Indian or Alaska Native. . .
Asian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Black or African American . . . . . . . . . .
Native Hawaiian or other Pacific
Islander . . . . . . . . . . . . . . . . . . . . . . . . . .
Two or more minority races. . . . . . . . . .
Joint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Missing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9,939
152,213
105,001

29.7
18.7
36.1

24.6
16.6
29.7

21.0
16.8
25.4

6,677
160,900
50,667

27.7
16.6
32.3

22.6
15.6
27.4

20.4
15.5
24.1

8,016
1,669
28,195
220,395

26.9
23.6
14.8
21.5

22.7
21.9
17.6
19.9

21.0
23.8
15.3
17.0

5,335
925
25,300
182,358

24.1
26.9
13.2
19.1

19.9
18.0
15.2
17.5

17.6
18.8
14.0
15.4

White, by ethnicity1
Hispanic white . . . . . . . . . . . . . . . . . . . . . .
Non-Hispanic white . . . . . . . . . . . . . . . . .

160,823
1,425,869

31.1
13.6

22.7
13.6

22.0
13.6

90,662
1,159,857

25.6
13.1

19.7
13.1

19.0
13.1

Sex
One male. . . . . . . . . . . . . . . . . . . . . . . . . . . .
One female . . . . . . . . . . . . . . . . . . . . . . . . . .
Two males. . . . . . . . . . . . . . . . . . . . . . . . . . .
Two females . . . . . . . . . . . . . . . . . . . . . . . . .

640,030
443,753
25,195
19,148

21.3
19.8
21.1
20.4

21.3
19.4
21.1
19.3

21.3
19.9
21.1
19.6

481,586
336,677
21,092
15,684

18.0
16.9
20.2
19.1

18.0
16.1
20.2
17.6

18.0
16.6
20.2
17.5

NOTE: First-lien mortgages for owner-occupied, one- to four-family, site-built properties; excludes business loans. For explanation of modification factors, see
text. Applications made jointly by a male and female are not tabulated here because they would not be directly comparable with applications made by one applicant
or by two applicants of the same sex.
1. See table 10.A, note 5.

The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress A75

14. Denial rates on applications, unmodified and modified for borrower- and lender-related factors, by race and ethnicity,
and sex of applicant, 2008−09
B. Refinance, conventional loan application
Percent except as noted

Race, ethnicity, and sex

Number of
applications
acted upon
by lender

Unmodified
denial
rate

Modified denial rate,
by modification factor
Borrowerrelated

Borrowerrelated
plus lender

Number of
applications
acted upon
by lender

Unmodified
denial
rate

2008

Modified denial rate,
by modification factor
Borrowerrelated

Borrowerrelated
plus lender

2009

Race other than white only1
American Indian or Alaska Native. . .
Asian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Black or African American . . . . . . . . . .
Native Hawaiian or other Pacific
Islander . . . . . . . . . . . . . . . . . . . . . . . . . .
Two or more minority races. . . . . . . . . .
Joint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Missing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

36,265
150,970
343,389

65.4
31.6
61.2

56.7
35.4
59.9

43.0
36.1
44.9

29,013
398,222
268,726

44.1
22.8
49.8

40.4
24.8
44.7

36.5
24.3
38.3

19,275
4,682
53,200
532,425

51.8
50.5
41.8
41.5

52.2
49.7
46.0
42.5

43.4
42.0
36.8
37.8

23,332
4,660
114,738
964,105

38.8
41.8
23.4
28.9

36.4
42.6
27.6
29.1

32.1
33.1
25.2
25.5

White, by ethnicity1
Hispanic white . . . . . . . . . . . . . . . . . . . . . .
Non-Hispanic white . . . . . . . . . . . . . . . . .

320,845
2,894,154

50.6
31.7

45.3
31.7

41.3
31.7

323,805
5,726,883

41.0
21.0

33.0
21.0

30.1
21.0

Sex
One male. . . . . . . . . . . . . . . . . . . . . . . . . . . .
One female . . . . . . . . . . . . . . . . . . . . . . . . . .
Two males. . . . . . . . . . . . . . . . . . . . . . . . . . .
Two females . . . . . . . . . . . . . . . . . . . . . . . . .

1,125,624
889,334
32,014
35,706

41.5
40.7
38.2
41.7

41.5
39.0
38.2
38.5

41.5
39.6
38.2
36.9

1,621,336
1,291,103
59,147
59,281

29.6
28.4
27.1
26.8

29.6
27.1
27.1
26.0

29.6
27.5
27.1
26.7

NOTE: See notes to table 14.A.

14. Denial rates on applications, unmodified and modified for borrower- and lender-related factors, by race and ethnicity,
and sex of applicant, 2008−09
C. Home purchase, nonconventional loan application
Percent except as noted

Race, ethnicity, and sex

Number of
applications
acted upon
by lender

Unmodified
denial
rate

Modified denial rate,
by modification factor
Borrowerrelated

Borrowerrelated
plus lender

Number of
applications
acted upon
by lender

Unmodified
denial
rate

2008

Modified denial rate,
by modification factor
Borrowerrelated

Borrowerrelated
plus lender

2009

1

Race other than white only
American Indian or Alaska Native. . .
Asian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Black or African American . . . . . . . . . .
Native Hawaiian or other Pacific
Islander . . . . . . . . . . . . . . . . . . . . . . . . . .
Two or more minority races. . . . . . . . . .
Joint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Missing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,154
26,711
161,187

19.7
21.3
25.0

20.6
19.2
24.0

18.6
18.6
22.6

13,392
49,739
161,885

18.5
18.5
23.1

19.4
17.7
21.8

18.5
16.8
20.6

6,581
1,141
25,123
121,400

21.7
23.8
14.7
21.9

18.9
23.3
16.2
20.8

18.3
17.3
16.3
19.8

8,267
1,282
28,304
161,196

19.8
21.5
13.7
19.3

16.3
21.2
14.5
18.6

17.4
19.5
13.9
17.2

White, by ethnicity1
Hispanic white . . . . . . . . . . . . . . . . . . . . . .
Non-Hispanic white . . . . . . . . . . . . . . . . .

152,228
890,659

24.0
14.1

19.8
14.1

20.0
14.1

198,875
1,155,799

21.4
13.1

17.5
13.1

17.6
13.1

Sex
One male. . . . . . . . . . . . . . . . . . . . . . . . . . . .
One female . . . . . . . . . . . . . . . . . . . . . . . . . .
Two males. . . . . . . . . . . . . . . . . . . . . . . . . . .
Two females . . . . . . . . . . . . . . . . . . . . . . . . .

433,829
283,404
29,772
23,519

19.0
19.2
20.9
20.5

19.0
17.7
20.9
18.7

19.0
17.8
20.9
18.5

590,855
409,757
30,976
23,212

16.9
16.4
21.1
20.5

16.9
15.7
21.1
18.5

16.9
15.8
21.1
19.8

NOTE: See notes to table 14.A.

A76 Federal Reserve Bulletin □ December 2010

14. Denial rates on applications, unmodified and modified for borrower- and lender-related factors, by race and ethnicity,
and sex of applicant, 2008−09
D. Refinance, nonconventional loan application
Percent except as noted

Race, ethnicity, and sex

Number of
applications
acted upon
by lender

Unmodified
denial
rate

Modified denial rate,
by modification factor
Borrowerrelated

Borrowerrelated
plus lender

Number of
applications
acted upon
by lender

Unmodified
denial
rate

2008
Race other than white only1
American Indian or Alaska Native. . .
Asian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Black or African American . . . . . . . . . .
Native Hawaiian or other Pacific
Islander . . . . . . . . . . . . . . . . . . . . . . . . . .
Two or more minority races. . . . . . . . . .
Joint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Missing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Modified denial rate,
by modification factor
Borrowerrelated

Borrowerrelated
plus lender

2009

5,229
11,836
155,665

49.7
51.5
45.0

49.6
49.0
47.2

43.6
45.1
46.1

8,946
28,290
203,611

39.1
41.3
38.1

37.3
36.4
39.7

35.0
34.0
37.5

3,643
873
14,154
165,776

49.7
58.2
38.7
54.6

47.7
59.7
44.1
47.7

47.2
53.1
42.2
43.9

6,589
1,491
28,105
236,542

38.2
47.4
27.2
44.6

32.9
44.4
33.0
40.1

35.4
36.7
32.5
32.6

White, by ethnicity1
Hispanic white . . . . . . . . . . . . . . . . . . . . . .
Non-Hispanic white . . . . . . . . . . . . . . . . .

73,118
662,593

47.6
37.5

44.1
37.5

44.3
37.5

116,354
1,157,984

37.1
29.9

35.3
29.9

34.4
29.9

Sex
One male. . . . . . . . . . . . . . . . . . . . . . . . . . . .
One female . . . . . . . . . . . . . . . . . . . . . . . . . .
Two males. . . . . . . . . . . . . . . . . . . . . . . . . . .
Two females . . . . . . . . . . . . . . . . . . . . . . . . .

300,070
219,503
11,826
13,808

42.8
44.0
41.8
41.2

42.8
41.2
41.8
40.3

42.8
41.3
41.8
40.3

477,570
345,310
17,944
19,001

34.2
36.0
30.6
34.3

34.2
32.8
30.6
31.7

34.2
33.0
30.6
30.8

NOTE: See notes to table 14.A.

Some Limitations of the Data in Assessing
Fair Lending Compliance
In interpreting the findings in this section, it is important to note that both previous research and experience
gained in the fair lending enforcement process show
that differences in loan outcomes among racial or ethnic groups stem, in part, from credit-related factors not
available in the HMDA data, such as measures of
credit history (including credit scores), LTV and PTI,
and differences in choice of loan products. Differential
costs of loan origination and the competitive environment also may bear on the differences in pricing, as
may differences across populations in credit-shopping
activities. It is also important to note that the absence
of the finding of disparities in pricing across groups

does not mean that such disparities do not exist; the
reporting threshold for pricing under HMDA may simply have been set too high to detect them.
Differences in pricing and underwriting outcomes
may also reflect discriminatory treatment of minorities
or other actions by lenders, including marketing practices. The HMDA data are regularly used to facilitate
the fair lending examination and enforcement processes. When examiners for the federal banking agencies evaluate an institution’s fair lending risk, they
analyze HMDA price data in conjunction with other
information and risk factors, as directed by the Interagency Fair Lending Examination Procedures.68
68. The Interagency Fair Lending Examination Procedures are
available at www.ffiec.gov/PDF/fairlend.pdf.

The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress A77

— Fannie Mae
— Ginnie Mae
— Freddie Mac
— Farmer Mac
— Private securitization
— Commercial bank, savings bank, or savings association
— Life insurance company, credit union, mortgage
bank, or finance company
— Affiliate institution
— Other type of purchaser

APPENDIX A: REQUIREMENTS OF
REGULATION C
The Federal Reserve Board’s Regulation C requires
lenders to report the following information on homepurchase and home-improvement loans and on
refinancing loans:

For each application or loan
v application date and the date an action was taken on
the application
v action taken on the application
— approved and originated
— approved but not accepted by the applicant
— denied (with the reasons for denial—voluntary
for some lenders)
— withdrawn by the applicant
— file closed for incompleteness
v preapproval program status (for home-purchase
loans only)
— preapproval request denied by financial institution
— preapproval request approved but not accepted
by individual
v loan amount
v loan type
— conventional
— insured by the Federal Housing Administration
— guaranteed by the U.S. Department of Veterans
Affairs
— backed by the Farm Service Agency or Rural
Housing Service
v lien status
— first lien
— junior lien
— unsecured
v loan purpose
— home purchase
— refinance
— home improvement
v type of purchaser (if the lender subsequently sold
the loan during the year)

For each applicant or co-applicant
v
v
v
v

race
ethnicity
sex
income relied on in credit decision

For each property
v location, by state, county, metropolitan statistical
area, and census tract
v type of structure
— one- to four-family dwelling
— manufactured home
— multifamily property (dwelling with five or more
units)
v occupancy status (owner occupied, non-owner occupied, or not applicable)

For loans subject to price reporting
v spread above comparable Treasury security for applications taken prior to October 1, 2010
v spread above average prime offer rate for applications taken on or after October 1, 2010

For loans subject to the Home Ownership
and Equity Protection Act
v indicator of whether loan is subject to the Home
Ownership and Equity Protection Act
[

Legal Developments

B1

March 2010

Legal Developments: Fourth Quarter, 2009
ORDER ISSUED UNDER BANK
HOLDING COMPANY ACT

1 percent of the total amount of deposits of insured
depository institutions in the state.4

COMPETITIVE CONSIDERATIONS

Order Issued under Section 3 of the
Bank Holding Company Act
Sandhills Bancshares, Inc.
Iraan, Texas
Order Approving the Formation of a Bank
Holding Company
Sandhills Bancshares, Inc. (‘‘Sandhills’’) has requested the
Board’s approval under section 3 of the Bank Holding
Company Act (‘‘BHC Act’’)1 to become a bank holding
company and to acquire all the voting shares of TransPecos
Banks-Iraan (‘‘Bank’’),2 both of Iraan, from TransPecos
Financial Corp., San Antonio, all of Texas.3
Notice of the proposal, affording interested persons an
opportunity to comment, has been published (74 Federal
Register 34,015 (2009)). The time for filing comments has
expired, and the Board has considered the application and
all comments received in light of the factors set forth in
section 3 of the BHC Act.
Sandhills is a newly organized corporation formed for
the purpose of acquiring control of Bank. Bank, with total
assets of approximately $23.7 million, is the 583rd largest
insured depository institution in Texas, controlling deposits
of approximately $21.2 million, which represent less than

1. 12 U.S.C. § 1842.
2. Bank’s name will change to Tejas Bank after the acquisition.
Bank currently has one branch in Iraan, Texas, and had filed an
application with the Federal Deposit Insurance Corporation (‘‘FDIC’’)
and the Texas Department of Banking (‘‘TDOB’’), Bank’s primary
federal and state supervisors, to establish a second branch in Monahans, Texas, on consummation of this proposal. The Board received
one comment in opposition and fourteen comments in support of the
proposal to establish the Monahans branch. Those comments were
forwarded to the TDOB and FDIC, and both agencies have approved
the proposed branch (September 8 and September 11, 2009, respectively).
3. The seller is a bank holding company with one other subsidiary
bank, TransPecos Banks, Pecos, Texas.

Section 3 of the BHC Act prohibits the Board from
approving a proposal that would result in a monopoly or
that would be in furtherance of an attempt to monopolize
the business of banking in any relevant banking market.
The BHC Act also prohibits the Board from approving a
proposal that would substantially lessen competition in any
relevant banking market, unless the anticompetitive effects
of the proposal are clearly outweighed in the public interest
by the probable effect of the proposal in meeting the
convenience and needs of the community to be served.5
Sandhills does not currently control a depository institution. Based on all the facts of record, the Board has
concluded that consummation of the proposal would not
have a significantly adverse effect on competition or on the
concentration of banking resources in any relevant banking
market and that competitive considerations are consistent
with approval.

FINANCIAL, MANAGERIAL, AND SUPERVISORY
CONSIDERATIONS AND FUTURE PROSPECTS
Section 3 of the BHC Act requires the Board to consider the
financial and managerial resources and future prospects of
the companies and depository institutions involved in the
proposal and certain other supervisory factors.6 The Board
has considered the factors in light of all the facts of record,
including supervisory and examination information received from the relevant federal and state supervisors of
Bank and publicly reported and other available financial
information, including information provided by Sandhills.
In addition, the Board has consulted with the primary
federal and state supervisors of Bank.
In evaluating financial factors in proposals involving
newly formed small bank holding companies, the Board
reviews the financial condition of both the applicant and the
target depository institution. The Board also evaluates the
financial condition of the pro forma organization, including
its capital position, asset quality, and earnings prospects,
4. Asset and deposit data are as of June 30, 2009. State ranking is
based on 2008 FDIC Summary of Deposit data. In this context, insured
depository institutions include commercial banks, savings banks, and
savings associations.
5. 12 U.S.C. § 1842(c)(1).
6. 12 U.S.C. § 1842(c)(2) and (3).

B2

Federal Reserve Bulletin h March 2010

and the impact of the proposed funding on the transaction.
In addition, for proposals involving small bank holding
companies, the Board evaluates the institutions’ compliance with the Board’s Small Bank Holding Company
Policy Statement, including compliance with those measures that are to be used to assess capital adequacy and
overall financial strength.7 In assessing financial factors,
the Board consistently has considered capital adequacy to
be especially important.
The Board has considered carefully the financial factors
of the proposal. Bank currently is well capitalized and
would remain so on consummation of the proposal, and
Sandhills would be in compliance with relevant capital
standards. The transaction is structured as a cash purchase
funded from the proceeds of an issuance of new holding
company stock. Based on its review of those factors, the
Board finds that Sandhills has sufficient financial resources
to effect the proposal and to comply with the Board’s Small
Bank Holding Company Policy Statement.8
The Board also has considered the managerial resources
of the applicant, including the proposed management of the
organization. The Board has reviewed the examination
records of Bank, including assessments of its current
management, risk-management systems, and operations. In
addition, the Board has considered the supervisory experience of the other relevant banking agencies with Bank,
including its records of compliance with applicable banking laws and anti-money-laundering laws, and the proposed
management officials and principal shareholders of Sandhills. The Board also has considered Sandhills’ plan for the
proposed acquisition, including the proposed changes in
management at Bank after the acquisition.9
The Board also has considered carefully the future
prospects of Sandhills and Bank. Based on all the facts of
record, the Board concludes that considerations relating to
the financial and managerial resources and future prospects

7. 12 CFR 225, appendix C.
8. Sandhills also has adequate resources to finance the establishment of the proposed Monahans branch.
9. The Board received a comment regarding two proposed officers
and directors of Sandhills from a bank in Monahans, Texas, where
Bank plans to open its new branch. One of the individuals was
previously employed by a bank that was acquired by the commenter,
and the other had worked for a company that provided services to such
bank. The commenter alleged that these individuals potentially could
use proprietary knowledge about the commenter’s operations and
customers. The commenter also alleged that the proposed service of its
former employee at Sandhills would violate an unwritten, implied
agreement not to serve as an employee of a competitor institution. The
commenter further alleged, without providing any substantiating information, that the second proposed official had previously failed to
provide certain services to the bank acquired by the commenter. The
proposed management officials denied the commenter’s allegations,
including that any implied agreement restricts the employment of any
of Bank’s employees. In weighing the managerial factor, the Board has
considered carefully the information provided by the commenter,
information on all proposed management officials provided by Sandhills, including information on the management record in banking of
the individual who was employed by the bank acquired by the
commenter, and available supervisory and other information.

involved in the proposal are consistent with approval, as
are the other supervisory factors under the BHC Act.10

CONVENIENCE AND NEEDS CONSIDERATIONS
In acting on proposals under section 3 of the BHC Act, the
Board also must consider the effects of the proposal on the
convenience and needs of the communities to be served and
take into account the records of the relevant insured
depository institutions under the Community Reinvestment
Act (‘‘CRA’’).11 Bank received a ‘‘satisfactory’’ rating at its
most recent CRA performance evaluation by the FDIC, as
of July 30, 2007. After consummation of the proposal,
Sandhills does not plan to alter the Bank’s current CRA
policies. Sandhills has represented that the proposal would
provide convenience to Bank’s customers by continuing
products and services currently offered by Bank.

CONCLUSION
Based on the foregoing and all facts of record, the Board
has determined that the application should be, and hereby
is, approved. In reaching its conclusion, the Board has
considered all the facts of record in light of the factors that
it is required to consider under the BHC Act. The Board’s
approval is specifically conditioned on compliance by
Sandhills with all representations and commitments made
to the Board in connection with the application. For
purposes of this action, these representations and commitments are deemed to be conditions imposed in writing by
the Board in connection with its findings and decision and,
as such, may be enforced in proceedings under applicable
law.
The proposed transaction may not be consummated
before the 15th calendar day after the effective date of this
order, or later than three months after the effective date of
this order, unless such period is extended for good cause by
the Board or the Federal Reserve Bank of Dallas, acting
pursuant to delegated authority.
By order of the Board of Governors, effective October 1,
2009.
Voting for this action: Chairman Bernanke, Vice Chairman Kohn,
and Governors Warsh, Duke, and Tarullo.

Robert deV. Frierson
Deputy Secretary of the Board

10. The commenter also raised concerns about the future prospects
of the proposed Monahans branch. As previously noted, the Board
forwarded these comments to the TDOB and FDIC, the primary
supervisors with jurisdiction to act on the proposed branch filings, for
their consideration, and both agencies have approved establishment of
the branch.
11. 12 U.S.C. § 2901 et seq.

Legal Developments: Fourth Quarter, 2009

ORDER ISSUED UNDER
INTERNATIONAL BANKING ACT

Banque Transatlantique
Paris, France
Order Approving Establishment of a
Representative Office
Banque Transatlantique (‘‘Bank’’), Paris, France, a foreign
bank within the meaning of the International Banking Act
(‘‘IBA’’), has applied under section 10(a) of the IBA1 to
establish a representative office in New York, New York.
The Foreign Bank Supervision Enhancement Act of 1991,
which amended the IBA, provides that a foreign bank must
obtain the approval of the Board to establish a representative office in the United States.
Notice of the application, affording interested persons an
opportunity to submit comments, has been published in a
newspaper of general circulation in New York, New York
(The Daily News, March 16, 2009). The time for filing
comments has expired, and all comments received have
been considered.
Bank, with total consolidated assets of approximately
$2.7 billion,2 is a member of the Crédit Mutuel group
(‘‘CM’’), one of the largest cooperative banking groups in
France. Bank primarily provides private banking services
to French nationals living in France and abroad. Outside
France. Bank operates a branch in London, operates a
representative office in Singapore, and owns more than
50 percent of Banque Transatlantique Belgium and Banque
Transatlantique Luxembourg, which are banks located in
Belgium and Luxembourg, respectively. The proposed representative office would be Bank’s only office in the United
States.3 Bank is a direct wholly owned subsidiary of Crédit
Industrial et Commercial (‘‘CIC’’), Paris, France. Through
its offices and subsidiaries, CIC offers banking services
directly in a number of countries worldwide and owns
subsidiary banks in Switzerland, Luxembourg, and Liechtenstein.4 In the United States, CIC operates a branch in
New York, New York. CIC is majority owned by Banque
Fédérative du Crédit Mutuel (‘‘BFCM’’), Strasbourg,
France. BFCM does not conduct operations in the United
States. BFCM is majority owned by Caisse Fédérale de
Crédit Mutuel Centre Est Europe (‘‘CFCM’’), also of
Strasbourg, which is Bank’s ultimate parent.
CFCM is the central body for the Credit Mutuel Centre
Est Europe subgroup, which consists of five federations
located in Northeast France, Southeast France, Paris, the
1. 12 U.S.C. § 3107(a).
2. Unless otherwise indicated, data are as of December 31, 2008.
3. Bank previously had a representative office in Washington, D.C.
(see Banque Transatlantique, 79 Federal Reserve Bulletin 900 (1993)),
which it opened in 1993 and closed in December 2008.
4. CIC’s subsidiary banks are CIC Suisse, Banque de Luxembourg,
and Banque Pasche, respectively.

B3

Savoie Mont-Blanc region of France, and the Mid-Atlantic
region of France. CFCM is wholly owned by these five
federations, which are in turn owned by their member
banks. In addition to providing strategic advice to its
members, CFCM through its subsidiary, BFCM, issues
debt and other instruments in support of member banks and
maintains the federation’s solidarity fund.5 CFCM has no
direct operations in the United States and is one of 13
subgroups that are members of CM.6 CFCM is a bank that
is supervised by the French bank licensing authority, the
Comité des établissements de crédit et des enterprises
d’investissement (the ‘‘Commission Bancaire’’).
The proposed representative office would market the
products and services of Bank to prospective French customers in the United States and would facilitate communications between Bank’s existing and prospective customers
and employees of Bank at its headquarters in Paris.7
Specifically, the proposed representative office would
present and promote Bank’s products and services, conduct
research, solicit loans of principal amounts above $250,000
and, in connection with such loans, assemble credit information, make inspections and appraisals of property, secure
title information, prepare loan applications and make recommendations, and solicit other banking business except
for deposits or deposit-type liabilities.
In acting on an application under the IBA and Regulation K by a foreign bank to establish a representative office,
the Board shall take into account whether (1) the foreign
bank has furnished to the Board the information it needs to
assess the application adequately; (2) the foreign bank and
any foreign bank parent engage directly in the business of
banking outside of the United States; and (3) the foreign
bank and any foreign bank parent are subject to comprehensive supervision on a consolidated basis by their homecountry supervisor.8 The Board also may consider addi5. The fund serves as an emergency fund that may be used by a
member bank to meet its emergency liquidity and funding needs.
6. CM consists of 1,200 cooperative banks that are grouped into 18
federations and 13 subgroups. CM does not operate under legally
binding cross-guarantee mechanisms but instead the subgroups,
including CFCM, maintain a solidarity fund to which all members
within the subgroup contribute.
7. A representative office may engage in representational and
administrative functions in connection with the banking activities of
the foreign bank, including soliciting new business for the foreign
bank, conducting research, acting as a liaison between the foreign
bank’s head office and customers in the United States, performing
preliminary and servicing steps in connection with lending, and
performing back-office functions. A representative office may not
contract for any deposit or deposit-like liability, lend money, or engage
in any other banking activity (12 CFR 211.24(d)(1)).
8. 12 U.S.C. § 3107(a)(2); 12 CFR 211.24(d)(2). In assessing the
supervision standard, the Board considers, among other indicia of
comprehensive, consolidated supervision, the extent to which the
home-country supervisors (i) ensure that the bank has adequate
procedures for monitoring and controlling its activities worldwide; (ii)
obtain information on the condition of the bank and its subsidiaries
and offices through regular examination reports, audit reports, or
otherwise; (iii) obtain information on the dealings with and the
relationship between the bank and its affiliates, both foreign and
domestic; (iv) receive from the bank financial reports that are consolidated on a worldwide basis or comparable information that permits

B4

Federal Reserve Bulletin h March 2010

tional standards set forth in the IBA and Regulation K.9 The
Board will consider that the supervision standard has been
met if it determines that the applicant bank is subject to a
supervisory framework that is consistent with the activities
of the proposed representative office, taking into account
the nature of such activities. This is a lesser standard than
the comprehensive, consolidated supervision standard applicable to proposals to establish branch or agency offices
of a foreign bank. The Board considers the lesser standard
sufficient for approval of representative office applications
because representative offices may not engage in banking
activities.10 This application has been considered under the
lesser standard.
As noted above, Bank, CIC, BFCM, and CFCM engage
directly in the business of banking outside the United
States. Bank also has provided the Board with information
necessary to assess the application through submissions
that address the relevant issues.
The Commission Bancaire is the primary regulatory and
supervisory authority for French banks and, as such, is the
home-country supervisor of Bank, CIC, BFCM, and CFCM.
The Board previously has determined that, in connection
with other applications involving banks in France, those
banks were subject to consolidated comprehensive supervision by the Commission Bancaire.11 Bank, CIC, BFCM,
and CFCM are supervised by the Commission Bancaire on
substantially the same terms and conditions as those other
French banks. Based on all the facts of record, it has been
determined that factors relating to the supervision of Bank
by its home-country supervisor are consistent with approval
of the proposed representative office.
The additional standards set forth in section 7 of the IBA
and Regulation K12 have also been taken into account. The
Commission Bancaire has no objection to the establishment
of the proposed representative office.
analysis of the bank’s financial condition on a worldwide consolidated
basis; and (v) evaluate prudential standards, such as capital adequacy
and risk asset exposure, on a worldwide basis. No single factor is
essential, and other elements may inform the Board’s determination.
9. See 12 U.S.C. § 3105(d)(3)–(4); 12 CFR 211.24(c)(2). These
standards include (1) whether the bank’s home-country supervisor has
consented to the establishment of the office; the financial and managerial resources of the bank; (2) whether the bank has procedures to
combat money laundering, whether there is a legal regime in place in
the home country to address money laundering, and whether the home
country is participating in multilateral efforts to combat money
laundering; (3) whether the appropriate supervisors in the home
country may share information on the bank’s operations with the
Board; and (4) whether the bank and its U.S. affiliates are in
compliance with U.S. law; the needs of the community; and the bank’s
record of operation. See also Standard Chartered Bank, 95 Federal
Reserve Bulletin B98 (2009).
10. 12 CFR 211.24(d)(2).
11. See, e.g., Fédération Nationale du Crédit Agricole, 92 Federal
Reserve Bulletin C159 (2006); Calyon, S.A., 92 Federal Reserve
Bulletin C159 (2006); BNP Paribas, 91 Federal Reserve Bulletin 51
(2005); Société Générale, 87 Federal Reserve Bulletin 353 (2001);
Caisse Nationale de Crédit Agricole, 86 Federal Reserve Bulletin 412
(2000); Crédit Agricole Indosuez, 83 Federal Reserve Bulletin 1025
(1997); Caisse Nationale de Crédit Agricole, 81 Federal Reserve
Bulletin 1055 (1995).
12. See 12 U.S.C. § 3105(d)(3)–(4); 12 CFR 211.24(c)(2).

With respect to the financial and managerial resources of
Bank, taking into consideration Bank’s record of operations in its home country, its overall financial resources,
and its standing with its home-country supervisor, financial
and managerial factors are consistent with approval of the
proposed representative office. Bank appears to have the
experience and capacity to support the proposed representative office and has established controls and procedures for
the proposed representative office to ensure compliance
with U.S. law, as well as controls and procedures for its
worldwide operations generally.
France is a member of the Financial Action Task Force
(‘‘FATF’’) and subscribes to the FATF’s recommendations
regarding measures to combat money laundering and international terrorism. In accordance with these recommendations, France has enacted laws and created legislative and
regulatory standards to deter money laundering, terrorist
financing, and other illicit activities. Money laundering is a
criminal offense in France, and financial services businesses are required to establish internal policies, procedures, and systems for the detection and prevention of
money laundering. Bank has policies and procedures to
comply with these laws and regulations, and these policies
and procedures are monitored by the Commission Bancaire.
With respect to access to information on Bank’s operations, the restrictions on disclosure in relevant jurisdictions
in which Bank operates have been reviewed, and relevant
government authorities have been communicated with
regarding access to information. Bank and its ultimate
parent CFCM have committed to make available to the
Board such information on the operations of Bank and any
of its affiliates that the Board deems necessary to determine
and enforce compliance with the IBA, the Bank Holding
Company Act of 1956, as amended, and other applicable
federal law. To the extent that the provision of such
information to the Board may be prohibited by law or
otherwise, Bank and CFCM have committed to cooperate
with the Board to obtain any necessary consents or waivers
that might be required from third parties for disclosure of
such information. In addition, subject to certain conditions,
the Commission Bancaire may share information on Bank’s
operations with other supervisors, including the Board. In
light of these commitments and other facts of record, and
subject to the condition described below, it has been
determined that Bank and CFCM have provided adequate
assurances of access to any necessary information that the
Board may request.
Based on the foregoing and all the facts of record,
Bank’s application to establish a representative office is
hereby approved.13 Should any restrictions on access to
information on the operations or activities of Bank or its
affiliates subsequently interfere with the Board’s ability to
obtain information to determine and enforce compliance by
Bank or its affiliates with applicable federal statutes, the
Board may require termination of any of Bank’s direct or
13. Approved by the Director of the Division of Banking Supervision and Regulation, with the concurrence of the General Counsel,
pursuant to authority delegated by the Board.

Legal Developments: Fourth Quarter, 2009

indirect activities in the United States. Approval of this
application also is specifically conditioned on compliance
by Bank and CFCM with the conditions imposed in this
order and the commitments made to the Board in connection with this application.14 For purposes of this action,
these commitments and conditions are deemed to be condi14. The Board’s authority to approve the establishment of the
proposed representative office parallels the continuing authority of the
state of New York to license offices of a foreign bank. The Board’s
approval of this application does not supplant the authority of the state
of New York or its agent, the New York State Banking Department

B5

tions imposed by the Board in writing in connection with
its findings and decision and, as such, may be enforced in
proceedings under applicable law.
By order, approved pursuant to authority delegated by
the Board, effective October 1, 2009.
Robert deV. Frierson
Deputy Secretary of the Board
(‘‘Department’’), to license the proposed office of Bank in accordance
with any terms or conditions that the Department may impose.

B7

July 2010

Legal Developments: First Quarter, 2010
ORDER ISSUED UNDER BANK
HOLDING COMPANY ACT

Order Issued under Sections 3 and 4
of the Bank Holding Company Act
First Niagara Financial Group, Inc.
Buffalo, New York
Order Approving Formation of a Bank
Holding Company and Notice to Engage in
Nonbanking Activities
First Niagara Financial Group, Inc. (‘‘FNF Group’’), a
savings and loan holding company that owns First Niagara
Bank (‘‘FN Bank’’), both of Buffalo, a federal savings
bank, and its subsidiary, First Niagara Commercial Bank
(‘‘FNC Bank’’),1 Lockport, all of New York, has requested
the Board’s approval to become a bank holding company
by acquiring another bank holding company. FNF Group
also has requested approval to operate FN Bank as a
subsidiary savings association until it becomes a subsidiary
bank on its conversion to a national bank.
Specifically, FNF Group has requested approval under
section 3 of the BHC Act2 to merge with Harleysville
National Corporation (‘‘Harleysville’’) and thereby acquire
Harleysville National Bank and Trust Company (‘‘Harleysville Bank’’), both of Harleysville, Pennsylvania. After the
merger, FNF Group would convert FN Bank to a national
bank and would merge FNC Bank and Harleysville Bank
into FN Bank, with FN Bank as the survivor.3 Accordingly,
1. FNC Bank is a state-chartered bank that accepts only municipal
deposits. Although FNC Bank is a ‘‘bank’’ for purposes of the Bank
Holding Company Act of 1956, as amended (‘‘BHC Act’’), FNF
Group is not treated as a bank holding company. FNF Group controls
FNC Bank pursuant to section 2(a)(5)(E) of the BHC Act, 12 U.S.C.
§ 1841(a)(5)(E), which exempts a company from treatment as a bank
holding company if the state-chartered bank or trust company is
owned by a thrift institution and only accepts deposits of public
money.
2. 12 U.S.C. § 1842.
3. FN Bank has filed applications that are pending with the Office
of the Comptroller of the Currency (‘‘OCC’’) to convert FN Bank to a
national bank and to merge Harleysville Bank with and into FN Bank.
All the nonbanking subsidiaries of FN Bank will remain subsidiaries
of FN Bank after the conversion and merger. After its charter
conversion, FN Bank will do business as First Niagara Bank, N.A.

FNF Group has requested approval under section 3 for FN
Bank to become a subsidiary bank on the proposed conversion and to hold FNC Bank as a subsidiary of FN Bank
until such conversion and merger.4 In addition, FNF Group
has requested the Board’s approval pursuant to sections 4(c)(8) and 4(j) of the BHC Act5 to retain FN Bank
and thereby operate FN Bank as a savings association until
its conversion to a national bank. Operating a savings
association is an activity permissible for bank holding
companies under the Board’s Regulation Y.6 FNF Group
also has requested the Board’s approval under section 3 of
the BHC Act to acquire Harleysville’s minority ownership
interest in Berkshire Bancorp, Inc. (‘‘Berkshire’’) and to
own up to 19.9 percent of the voting shares of Berkshire
and its subsidiary bank, Berkshire Bank, both of Wyomissing, Pennsylvania.7
Notice of the proposal, affording interested persons an
opportunity to submit comments, has been published
(75 Federal Register 2544 and 4395 (2010)). The time for
filing comments has expired, and the Board has considered
the proposal and all comments received in light of the
factors set forth in sections 3 and 4 of the BHC Act.
FNF Group, with total consolidated assets of approximately $14.6 billion, controls FN Bank and FNC Bank,
which operate in Pennsylvania and New York. FN Bank is
the 18th largest insured depository institution in Pennsylvania, controlling deposits of approximately $3.7 billion,
which represent 1 percent of the total amount of deposits of
insured depository institutions in that state (‘‘state deposits’’).8
4. The Board received comments from the Office of Thrift Supervision (‘‘OTS’’), FN Bank’s primary federal supervisor, concerning FN
Bank’s proposed charter conversion as contemplated under the July 1,
2009, Statement on Regulatory Conversions (‘‘Policy Statement’’)
issued by the Federal Financial Institutions Examination Council. The
Board has considered carefully the comments made by OTS in light of
the information provided by FNF Group. After consultation with other
appropriate federal supervisors, and based on all the facts of record,
the Board believes the transaction is consistent with the Policy
Statement.
5. 12 U.S.C. §§ 1843(c)(8) and 1843(j).
6. 12 CFR 225.28(b)(4). FNF Group also has applied to retain or
acquire subsidiaries that engage in lending and other credit-related
activities, leasing, and the sale of credit-related insurance. These
nonbanking subsidiaries are listed in Appendix A.
7. As a result of the merger, FNF Group will acquire Harleysville’s
ownership of 17.5 percent of Berkshire’s voting shares. FNF Group
also has requested approval to own up to 19.9 percent of Berkshire’s
voting shares.
8. Asset and deposit data are as of June 30, 2009, with the
exception of data for FNF Group, which are as of September 30, 2009.
Deposit data include the deposits of FNC Bank. In this context,

B8

Federal Reserve Bulletin h July 2010

Harleysville, with total consolidated assets of approximately $5.2 billion, controls Harleysville Bank, which
operates only in Pennsylvania. Harleysville Bank is the
17th largest insured depository institution in Pennsylvania,
controlling deposits of $4 billion.
On consummation of the proposal, FNF Group would
become the ninth largest depository organization in Pennsylvania, controlling deposits of approximately $7.6 billion, which represent approximately 2.5 percent of state
deposits.
Berkshire Bank, with total assets of $145 million, is the
182nd largest insured depository institution in Pennsylvania. The bank operates only in Pennsylvania and controls
deposits of approximately $108 million. If FNF Group
were deemed to control Berkshire on consummation of the
proposal, FNF Group would remain the ninth largest
banking organization in Pennsylvania, controlling approximately $7.7 billion in deposits, which would represent
2.6 percent of state deposits.

INTERSTATE ANALYSIS
Section 3(d) of the BHC Act allows the Board to approve
an application by a bank holding company to acquire
control of a bank located in a state other than the bank
holding company’s home state if certain conditions are
met. For purposes of the BHC Act, the home state of FNF
Group will be Pennsylvania,9 and FN Bank, after the
conversion, will be located in Pennsylvania and
New York.10 Based on a review of all the facts of record,
including relevant state statutes, the Board finds that the
conditions for an interstate acquisition enumerated in section 3(d) of the BHC Act are met in this case.11

insured depository institutions include commercial banks, savings
associations, and savings banks.
9. A bank holding company’s home state is the state in which the
total deposits of all banking subsidiaries of such company were the
largest on July 1, 1966, or the date on which the company became a
bank holding company, whichever is later (12 U.S.C. § 1841(o)(4)(C)).
FNF Group plans to acquire Harleysville before it converts FN Bank
to a national bank. Accordingly, the state where the total deposits of all
of FNF Group’s banking subsidiaries will be the largest is Pennsylvania on the date of consummation.
10. For purposes of section 3(d) of the BHC Act, the Board
considers a bank to be located in the states in which the bank is
chartered or headquartered or operates a branch (12 U.S.C. §§ 1841
(o)(4)–(7), 1842(d)(1)(A), and 1842(d)(2)(B)).
11. 12 U.S.C. §§ 1842(d)(1)(A)–(B) and 1842(d)(2)–(3). FNF
Group is adequately capitalized and adequately managed, as defined
by applicable law. FN Bank has been in existence and operated for the
minimum period of time required by New York law and for more than
five years. See 12 U.S.C. § 1842(d)(1)(B)(i)–(ii). On consummation of
the proposal, FNF Group would control less than 10 percent of the
total amounts of deposits of insured depository institutions in the
United States (12 U.S.C. § 1842(d)(2)(A)). FNF Group also would
control less than 30 percent of, and less than the applicable state
deposit cap for, the total amount of deposits in insured depository
institutions in the relevant states (12 U.S.C. §§ 1842(d)(2)(B)–(D)). All
other requirements of section 3(d) of the BHC Act would be met on
consummation of the proposal.

COMPETITIVE CONSIDERATIONS
The Board has considered carefully the competitive effects
of FNF Group’s acquisition of Harleysville. Section 3 of
the BHC Act prohibits the Board from approving a proposal that would result in a monopoly. The BHC Act also
prohibits the Board from approving a proposed bank
acquisition that would substantially lessen competition in
any relevant banking market unless the anticompetitive
effects of the proposal are clearly outweighed in the public
interest by the probable effect of the proposal in meeting
the convenience and needs of the community to be served.12
In addition, the Board must consider the competitive effects
of a proposal to acquire a savings association under the
public benefits factor of section 4(j) of the BHC Act.
FNF Group and Harleysville do not compete in any
relevant banking market. Harleysville Bank and Berkshire
Bank, however, compete in the Reading, Pennsylvania
banking market (‘‘Reading market’’).13 Although the Board
has determined that FNF Group would not control Berkshire Bank, the Board previously has found that one
company need not acquire control of another company to
lessen competition between them substantially and has
recognized that a significant reduction in competition can
result from the sharing of nonpublic financial information
between two organizations that are not under common
control. In each case, the Board analyzes the specific facts
to determine whether the minority investment in a competitor would result in significant adverse competitive effects in
a banking market.14 In particular, the Board has considered
the number of competitors that would remain in the banking market; the relative shares of total deposits in depository institutions in the market (‘‘market deposits’’) controlled by FN Bank and Berkshire Bank;15 the concentration
level of market deposits and the increase in the level as
measured by the Herfindahl–Hirschman Index (‘‘HHI’’)
under the Department of Justice Merger Guidelines (‘‘DOJ
Guidelines’’);16 other characteristics of the market; and the

12. 12 U.S.C. § 1842(c)(1).
13. The Reading market is defined as Berks County, Pennsylvania.
14. See, e.g., The Bank of Nova Scotia, 93 Federal Reserve Bulletin
C136 (2007); Passumpsic Bancorp, 92 Federal Reserve Bulletin C175
(2006); BOK Financial Corp., 81 Federal Reserve Bulletin 1052,
1053–54 (1995); Sun Banks, Inc., 71 Federal Reserve Bulletin 243
(1985).
15. Deposit and market share data are as of June 30, 2009, and are
based on calculations in which the deposits of thrift institutions are
included at 50 percent, except as noted. The Board previously has
indicated that thrift institutions have become, or have the potential to
become, significant competitors of commercial banks. See, e.g.,
Midwest Financial Group, 75 Federal Reserve Bulletin 386, 387
(1989); National City Corporation, 70 Federal Reserve Bulletin 743,
744 (1984). The Board regularly has included thrift institution deposits
in the market share calculation on a 50 percent weighted basis. See,
e.g., First Hawaiian, Inc., 77 Federal Reserve Bulletin 52, 55 (1991).
In this case, FNF Group’s deposits are weighted at 50 percent
pre-merger and 100 percent post-merger to reflect the resulting
ownership by a commercial banking organization.
16. Under the DOJ Guidelines, a market is considered unconcentrated if the post-merger HHI is less than 1000, moderately concentrated if the post-merger HHI is between 1000 and 1800, and highly

Legal Developments: First Quarter, 2010 B9

commitments made by FNF Group to the Board not to
control Berkshire and Berkshire Bank.
Consummation of the proposal would be consistent with
Board precedent and within the thresholds in the DOJ
Guidelines in the Reading market. On consummation of the
proposal, the Reading market would remain moderately
concentrated. The change in the HHI would be small, and
numerous competitors would remain in the market.17
The Board also has carefully considered the competitive
effects of FNF Group’s proposed acquisition of Harleysville’s other nonbanking subsidiaries and activities in
light of all the facts of record. FNF Group and Harleysville
do not engage in the same nonbanking activities. As a
result, the Board expects that consummation of the proposal would have a de minimis effect on competition for
these services.
Based on all the facts of record, the Board concludes that
consummation of the proposal would not have any significantly adverse effects on competition or on the concentration of banking resources in the Reading market or in any
other relevant banking or nonbanking market and that the
competitive factors are consistent with approval.

FINANCIAL, MANAGERIAL, AND OTHER
SUPERVISORY CONSIDERATIONS
Sections 3 and 4 of the BHC Act require the Board to
consider the financial and managerial resources and future
prospects of the companies and banks involved in the
proposal and certain other supervisory factors.18 The Board
has carefully considered these factors in light of all the
facts of record, including supervisory and examination
information received from the relevant federal and state
supervisors of the organizations involved in the proposal
and other available financial information, including information provided by FNF Group.
In evaluating financial factors in expansion proposals by
banking organizations, the Board reviews the financial
condition of the organizations involved on both a parentonly and consolidated basis, as well as the financial condition of the subsidiary depository institutions and the organizations’ significant nonbanking operations. In this
evaluation, the Board considers a variety of information,
including capital adequacy, asset quality, and earnings
performance. In assessing financial factors, the Board
consistently has considered capital adequacy to be especoncentrated if the post-merger HHI is more than 1800. The Department of Justice (‘‘DOJ’’) has informed the Board that a bank merger or
acquisition generally will not be challenged (in the absence of other
factors indicating anticompetitive effects) unless the post-merger HHI
is at least 1800 and the merger increases the HHI more than 200
points. The DOJ has stated that the higher-than-normal HHI thresholds
for screening bank mergers for anticompetitive effects implicitly
recognize the competitive effects of limited-purpose lenders and other
nondepository financial entities.
17. If FNF Group were deemed to control Berkshire, FNF Group
would be the ninth largest depository organization in the market,
controlling $19.8 million in deposits, which would represent 2.6 percent of market deposits. The HHI would increase 3 points to 1354.
18. 12 U.S.C. § 1842(c)(2) and (3).

cially important. The Board also evaluates the financial
condition of the combined organization at consummation,
including its capital position, asset quality, and earnings
prospects, and the impact of the proposed funding of the
transaction.
The Board has carefully considered the proposal under
the financial factors. FNF Group, Harleysville, and their
subsidiary depository institutions are well capitalized and
would remain so on consummation of the proposal. Based
on its review of the record, the Board also finds that FNF
Group has sufficient financial resources to effect the proposal.19 The proposed transaction is structured as a share
exchange.
The Board also has considered the managerial resources
of the organizations involved and the proposed combined
organization. The Board has reviewed the examination
records of FNF Group, Harleysville, and their subsidiary
depository institutions, including assessments of their management, risk-management systems, and operations. In
addition, the Board has considered its supervisory experiences and those of the other relevant bank and thrift
institution supervisory agencies with the organizations and
their records of compliance with applicable banking law,
including anti-money-laundering laws. FNF Group and its
subsidiary depository institutions are considered to be well
managed. The Board also has considered FNF Group’s
plans for implementing the proposal, including the proposed management after consummation of the proposal.
Based on all the facts of record, the Board has concluded
that considerations relating to the financial and managerial
resources and future prospects of the organizations involved
in the proposal are consistent with approval, as are the other
supervisory factors under the BHC Act.20

19. FNF Group has issued nearly $1 billion in common equity since
late 2008.
20. A comment from the public expressed concern that FNF Group
acquired control over Harleysville before obtaining Board approval of
the application because of an extension of credit FNF Group made to
Harleysville. In December 2009, and after FNF Group filed its
application with the Board to acquire Harleysville, FNF Group loaned
Harleysville $50 million, secured by the shares of Harleysville Bank.
Harleysville invested the loan proceeds in Harleysville Bank to
increase the bank’s capital.
The Board is concerned when a banking organization seeking to
acquire another banking organization makes a loan to the acquiree in
advance of the Board’s approval of the acquisition. Those types of
loans raise concern that the transaction would be, in substance, the
acquisition of a controlling interest or would provide the acquirer with
the ability to exercise a controlling influence over the management and
policies of the bank holding company before receiving Board approval.
The Board has reviewed carefully the loan to Harleysville, including
the circumstances and terms of the loan, the merger agreements, the
purpose of the loan, and the relationships of the organizations after the
loan transaction. Based on all the facts of record, the Board does not
believe that the loan resulted in FNF Group acquiring voting securities
of, or a controlling equity interest in, Harleysville, or in FNF Group
exercising, or having the ability to exercise, a controlling influence
over Harleysville in this case. The Board continues to believe that
loans made by an acquirer to a target organization before agency
approval of its acquisition proposal raise important issues, and it will
review these arrangements critically and carefully.

B10

Federal Reserve Bulletin h July 2010

CONVENIENCE AND NEEDS AND CRA
PERFORMANCE CONSIDERATIONS
In acting on a proposal under section 3 of the BHC Act, the
Board must consider the effects of the proposal on the
convenience and needs of the communities to be served and
to take into account the records of the relevant depository
institutions under the Community Reinvestment Act
(‘‘CRA’’).21 The Board must also review the records of
performance under the CRA of the relevant insured depository institutions when acting on a notice under section 4 of
the BHC Act to acquire voting securities of an insured
savings association.22
The Board has carefully considered the convenience and
needs factor and the CRA performance records of FN Bank
and Harleysville Bank in light of all the facts of record. As
provided in the CRA, the Board evaluates the record of
performance of an institution in light of examinations by
the appropriate federal supervisors of the CRA performance records of the relevant institutions. An institution’s
most recent CRA performance evaluation is a particularly
important consideration in the applications process because
it represents a detailed, on-site evaluation of the institution’s overall record of performance under the CRA by its
appropriate federal supervisor.23
FN Bank received a ‘‘satisfactory’’ rating under the CRA
at its most recent performance evaluation by the OTS, as of
March 12, 2007. The OCC rated Harleysville Bank ‘‘satisfactory’’ after its most recent CRA evaluation, as of September 18, 2007. FNF Group has represented that after the
acquisition of Harleysville Bank, the combined organization will offer the same or substantially similar products
and services as are currently offered by the respective
organizations.
The Board also has considered the fair lending records
of, and the 2008 lending data reported under the Home
Mortgage Disclosure Act (‘‘HMDA’’)24 by, FN Bank and
Harleysville Bank in light of a comment from the public
received on the proposal. The commenter alleged, based on
2008 HMDA data, that FN Bank had denied applications
for conventional home purchase loans and refinancings by
minority applicants more frequently than those applications
by nonminority applicants in the Buffalo MSA. The commenter also alleged that in the Philadelphia MSA in 2008,
Harleysville Bank denied applications for conventional
home purchase loans by minority applicants more frequently than those applications by nonminority applicants.

21. 12 U.S.C. § 2903; 12 U.S.C. § 1842(c)(2).
22. See, e.g., North Fork Bancorporation, Inc., 86 Federal Reserve
Bulletin 767 (2000).
23. See Interagency Questions and Answers Regarding Community
Reinvestment, 74 Federal Register 11642 at 11665 (2009).
24. 12 U.S.C. § 2801 et seq. The Board reviewed HMDA data
reported by FN Bank and by Harleysville Bank in each bank’s
combined assessment areas, as well as in each bank’s headquarters
assessment area of the Buffalo, New York, Metropolitan Statistical
Area (‘‘Buffalo MSA’’) and the Philadelphia, Pennsylvania, MSA
(‘‘Philadelphia MSA’’), respectively.

Although the HMDA data might reflect certain disparities in the rates of loan applications, originations, and
denials among members of different racial or ethnic groups
in certain local areas, they provide an insufficient basis by
themselves on which to conclude whether or not FN Bank
or Harleysville Bank is excluding or imposing higher costs
on any group on a prohibited basis. The Board recognizes
that HMDA data alone, even with the recent addition of
pricing information, provide only limited information about
the covered loans.25 HMDA data, therefore, have limitations that make them an inadequate basis, absent other
information, for concluding that an institution has engaged
in illegal lending discrimination.
Accordingly, the Board has taken into account other
information, including examination reports that provide
on-site evaluations of compliance with fair lending laws by
FNF Group and its subsidiaries. The Board also has
consulted with the OTS and OCC about FN Bank’s and
Harleysville Bank’s records of fair lending compliance. In
addition, the Board has considered information provided by
FNF Group about its compliance-risk management systems.
The record of this application, including confidential
supervisory information, indicates that FNF Group has
taken steps to ensure compliance with fair lending and
other consumer protection laws and regulations. FNF
Group represents that it has policies and procedures to help
ensure compliance with all fair lending and consumer
protection laws applicable to its lending activities and that
its policies and procedures will apply to the combined
institution on consummation of the proposal. FNF Group’s
compliance program includes annual training of lending
personnel, regular fair lending analyses, and oversight and
monitoring of consumer lending functions. Under the compliance program, FN Bank has used a third party to analyze
its HMDA data for evidence of discriminatory lending
patterns or practices and has provided the analysis to FN
Bank’s board of directors and to the OTS. FNF Group also
represents that it performs quarterly loan file compliance
assessments to monitor compliance with lending laws and
regulations. In addition, mortgage loan applications slated
for denial undergo a second review to ensure complete and
careful treatment of loan applicants and to prevent discriminatory lending practices. FN Bank also has implemented a
formal complaint-resolution process managed by the bank’s
vice president for customer relations.
Based on a review of the entire record and for the
reasons discussed above, including the consultations with
the OTS and OCC, the Board has concluded that considerations relating to convenience and needs and the CRA
25. The data, for example, do not account for the possibility that an
institution’s outreach efforts may attract a larger proportion of marginally qualified applicants than other institutions attract and do not
provide a basis for an independent assessment of whether an applicant
who was denied credit was, in fact, creditworthy. In addition, credit
history problems, excessive debt levels relative to income, and high
loan amounts relative to the value of the real estate collateral (reasons
most frequently cited for a credit denial or higher credit cost) are not
available from HMDA data.

Legal Developments: First Quarter, 2010 B11

performance records of FN Bank and Harleysville Bank are
consistent with approval of the proposal.

NONBANKING ACTIVITIES
FNF Group also has filed a notice under sections 4(c)(8)
and 4(j) of the BHC Act to retain its ownership interest in
FN Bank and thereby operate a savings association and to
engage in activities that are permissible for bank holding
companies through its nonbanking subsidiaries, including
lending, loan servicing and related activities, leasing, and
the sale of credit-related insurance.26 The Board previously
has determined by regulation that the operation of a savings
association by a bank holding company, and the other
nonbanking activities for which FNF Group has requested
approval, are closely related to banking for purposes of
section 4(c)(8) of the BHC Act.27 As part of its evaluation
of the public interest factors under section 4(j) of the BHC
Act, the Board also must determine that the operation of FN
Bank by FNF Group ‘‘can reasonably be expected to
produce benefits to the public, such as greater convenience,
increased competition, or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of
interests, or unsound banking practices.’’28
The record indicates that consummation of the proposal
would create a stronger and more diversified financial
services organization and would provide the current and
future customers of Harleysville Bank with expanded financial products and services. For the reasons discussed above,
and based on the entire record, the Board has determined
that the conduct of the proposed nonbanking activities
within the framework of Regulation Y and Board precedent
is not likely to result in significantly adverse effects, such as
undue concentration of resources, decreased or unfair
competition, conflicts of interests, or unsound banking
practices. Moreover, based on all the facts of record, the
Board has concluded that consummation of the proposal
can reasonably be expected to produce public benefits that
would outweigh any likely adverse effects. Accordingly,
the Board has determined that the balance of the public
benefits under the standard of section 4(j)(2) of the BHC
Act is consistent with approval.
FNF Group engages in certain activities that are not
permissible for a bank holding company. Section 4 of the
BHC Act by its terms provides a company that becomes a
bank holding company two years within which to conform
(including by divestiture if necessary) its existing nonbanking investments and activities to the section’s requirements,
with the possibility of three one-year extensions.29 FNF
Group must conform any impermissible activities and
investments that it currently conducts or holds, directly or
indirectly, to the requirements of the BHC Act within the
time periods provided by the act.
26.
27.
28.
29.

12 U.S.C. §§ 1843(c)(8) and 1843(j); see 12 U.S.C. § 1843(i).
12 CFR 225.28(b)(1), (2), (3), (4), (8), and (11).
12 U.S.C. § 1843(j)(2)(A).
See 12 U.S.C. § 1843(a)(2).

NONCONTROLLING INVESTMENT
As noted, FNF Group proposes to acquire 17.5 percent of
Berkshire’s voting shares that Harleysville currently owns
and to increase up to 19.9 percent its total ownership
interest of Berkshire’s voting shares. Harleysville’s investment in Berkshire is a passive investment, and Harleysville
has complied with certain commitments previously relied
on by the Board in determining that an investing bank
holding company would not exercise a controlling influence over another bank holding company or bank for
purposes of the BHC Act (‘‘Passivity Commitments’’).30
FNF Group has stated that it does not propose to control or
exercise a controlling influence over Berkshire and that its
indirect investment in Berkshire Bank also would be a
passive investment. In this light, FNF Group has provided
the Passivity Commitments to the Board.31 For example,
among other things, FNF Group has committed not to
exercise or attempt to exercise a controlling influence over
the management or policies of Berkshire or any of its
subsidiaries; not to have or seek to have any employee or
representative of FNF Group or its affiliates serve as an
officer, agent, or employee of Berkshire or any of its
subsidiaries; and not to seek or accept representation on the
board of directors of Berkshire or any of its subsidiaries.
FNF Group also has committed not to attempt to influence
the dividend policies, loan decisions, or operations of
Berkshire Bank or any of its subsidiaries.
Based on these considerations and all the other facts of
record, the Board has concluded that FNF Group would not
acquire control of, or have the ability to exercise a controlling influence over, Berkshire or Berkshire Bank through
the proposed acquisition of Berkshire’s voting shares. The
Board also notes that the BHC Act would require FNF
Group to file an application and receive the Board’s
approval before the company could directly or indirectly
acquire additional shares of Berkshire or attempt to exercise a controlling influence over Berkshire or Berkshire
Bank.32
30. Although the acquisition of less than a controlling interest in a
bank or bank holding company is not a normal acquisition for a bank
holding company, the requirement in section 3(a)(3) of the BHC Act
that the Board’s approval be obtained before a bank holding company
acquires more than 5 percent of the voting shares of a bank suggests
that Congress contemplated the acquisition by bank holding companies of between 5 percent and 25 percent of the voting shares of banks.
See 12 U.S.C. § 1842(a)(3). On this basis, the Board previously has
approved the acquisition by a bank holding company of less than a
controlling interest in a bank or bank holding company. See, e.g., Penn
Bancshares, Inc., 92 Federal Reserve Bulletin C37 (2006) (acquisition
of up to 24.89 percent of the voting shares of a bank holding
company); S&T Bancorp Inc., 91 Federal Reserve Bulletin 74 (2005)
(acquisition of up to 24.9 percent of the voting shares of a bank
holding company); Brookline Bancorp, MHC, 86 Federal Reserve
Bulletin 52 (2000) (acquisition of up to 9.9 percent of the voting shares
of a bank holding company).
31. The commitments made by FNF Group are set forth in Appendix B.
32. See, e.g., Emigrant Bancorp, Inc., 82 Federal Reserve Bulletin
555 (1996); First Community Bancshares, Inc., 77 Federal Reserve
Bulletin 50 (1991).

B12

Federal Reserve Bulletin h July 2010

CONCLUSION
Based on the foregoing and all the facts of record, the
Board has determined that the applications under section 3
and the notice under section 4 of the BHC Act should be,
and hereby are, approved.33 In reaching its conclusion, the
Board has considered all the facts of record in light of the
factors that it is required to consider under the BHC Act.
The Board’s approval is specifically conditioned on compliance by FNF Group with all the conditions imposed in
this order and all the commitments made to the Board in
connection with the applications and notice and on the
receipt of all other required regulatory approvals for the
proposal. The Board’s approval of the proposed nonbanking activities is subject to all the conditions set forth in
Regulation Y, including those in sections 225.7 and
225.25(c),34 and to the Board’s authority to require such
modification or termination of the activities of a bank
holding company or any of its subsidiaries as the Board
finds necessary to ensure compliance with, and to prevent
evasion of, the provisions of the BHC Act and the Board’s
regulations and orders issued thereunder. These conditions
and commitments are deemed to be conditions imposed in
writing by the Board in connection with its findings and
decision and, as such, may be enforced in proceedings
under applicable law.
The proposal may not be consummated before the 15th
calendar day after the effective date of this order, or later
than three months after the effective date of this order,
unless such period is extended for good cause by the Board
or the Federal Reserve Bank of New York, acting pursuant
to delegated authority.
By order of the Board of Governors, effective March 25,
2010.

33. The commenter also requested that the Board hold a public
meeting or hearing on the proposal. Section 3(b) of the BHC Act does
not require the Board to hold a public hearing on an application unless
the appropriate supervisory authorities for the bank to be acquired
make a timely written recommendation of denial of the application
(12 CFR 225.16(e)). The Board has not received such a recommendation from the appropriate supervisory authorities. The Board’s regulations provide for a hearing under section 4 of the BHC Act if there are
disputed issues of material fact that cannot be resolved in some other
manner (12 CFR 225.25(a)(2)). Under its regulations, the Board also
may, in its discretion, hold a public meeting or hearing on an
application to acquire a bank if a meeting or hearing is necessary or
appropriate to clarify factual issues related to the application and to
provide an opportunity for testimony (12 CFR 262.3(e) and 262.25(d)).
The Board has considered carefully the commenter’s request in light
of all the facts of record. In the Board’s view, the commenter has had
ample opportunity to submit views and, in fact, submitted written
comments that the Board has considered carefully in acting on the
proposal. The request fails to identify disputed issues of fact that are
material to the Board’s decision that would be clarified by a public
meeting or hearing. For these reasons, and based on all the facts of
record, the Board has determined that a public meeting or hearing is
not required or warranted in this case. Accordingly, the request for a
public meeting or hearing on the proposal is denied.
34. 12 CFR 225.7 and 225.25(c)).

Voting for this action: Chairman Bernanke, Vice Chairman Kohn,
and Governors Warsh, Duke, and Tarullo.

Robert deV. Frierson
Deputy Secretary of the Board

Appendix A
FNF GROUP’S NONBANKING SUBSIDIARIES
Nonbanking Subsidiaries Retained by FNF Group
1. Homestead Funding Corporation and thereby engage in
activities related to extending credit, in accordance with
section 225.28(b)(2) of Regulation Y (12 CFR
225.28(b)(2)).
Nonbanking Subsidiaries Acquired from Harleysville by
FNF Group
2. Harleysville Financial Company (in dissolution) and
thereby engage in investment transactions as principal,
in accordance with section 225.28(b)(8) of Regulation Y
(12 CFR 225.28(b)(8)).
3. Harleysville Reinsurance Company and thereby engage
in insurance activities, in accordance with section 225.28(b)(11) of Regulation Y (12 CFR
225.28(b)(11)).

Appendix B
FNF GROUP’S PASSIVITY COMMITMENTS
FNF Group will not, without the prior approval of the
Board of Governors of the Federal Reserve System
(‘‘Board’’) or its staff, directly or indirectly:
1. Exercise or attempt to exercise a controlling influence
over the management or policies of Berkshire Bancorp,
Inc. (‘‘Berkshire’’), Wyomissing, Pennsylvania, or any
of its subsidiaries;
2. Have or seek to have a representative of FNF Group
serve on the board of directors of Berkshire or any of
its subsidiaries;
3. Have or seek to have any employee or representative of
FNF Group serve as an officer, agent, or employee of
Berkshire or any of its subsidiaries;
4. Take any action that would cause Berkshire or any of
its subsidiaries to become a subsidiary of FNF Group;
5. Acquire or retain shares that would cause the combined
interests of FNF Group and its officers, directors, and
affiliates to equal or exceed 19.9 percent of the outstanding voting shares of Berkshire or any of its
subsidiaries;
6. Propose a director or slate of directors in opposition to
a nominee or slate of nominees proposed by the
management or board of directors of Berkshire or any
of its subsidiaries;
7. Solicit or participate in soliciting proxies with respect
to any matter presented to the shareholders of Berkshire or any of its subsidiaries;
8. Attempt to influence the dividend policies; loan, credit,
or investment decisions or policies; pricing of services;
personnel decisions; operations activities, including the
location of any offices or branches or their hours of
operation, etc.; or any similar activities or decisions of
Berkshire or any of its subsidiaries;

Legal Developments: First Quarter, 2010 B13

9. Dispose or threaten to dispose (explicitly or implicitly)
of shares of Berkshire in any manner as a condition or
inducement of specific action or non-action by Berkshire or any of its subsidiaries;
10. Enter into any other banking or nonbanking transactions with Berkshire or any of its subsidiaries, except
that FNF Group may establish and maintain deposit
accounts with Berkshire, provided that the aggregate
balance of all such deposit accounts does not exceed
$500,000 and that the accounts are maintained on
substantially the same terms as those prevailing for
comparable accounts of persons unaffiliated with Berkshire.
11. Acquire or seek to acquire any nonpublic financial
information of Berkshire or any of its subsidiaries,
beyond the information already available to it as a
shareholder of Berkshire. FNF Group also confirms
that there are no legal, contractual, or statutory provisions that would allow it or its subsidiaries to have any
access to financial information of Berkshire or its
subsidiaries beyond the information available to shareholders.
The terms used in these commitments have the same
meanings as set forth in the BHC Act and the Board’s
Regulation Y.

ORDER ISSUED UNDER FEDERAL
RESERVE ACT

The Warehouse Trust Company LLC
New York, New York
Order Approving Application for
Membership
The Warehouse Trust Company LLC (‘‘Warehouse Trust’’),
an uninsured trust company under New York law,1 has
requested the Board’s approval under section 9 of the
Federal Reserve Act (the ‘‘Act’’)2 to become a member of
the Federal Reserve System.3 Warehouse Trust proposes to
operate a central trade registry for credit default swap
(‘‘CDS’’) contracts and to offer related services, including
the processing of life-cycle events for the contracts and
facilitation of payments settlement.
Warehouse Trust is a wholly owned subsidiary of DTCC
Deriv/SERV LLC (‘‘Deriv/SERV’’), which in turn is a
1. Under New York law, a limited-liability trust company may not
accept deposits from the general public and must obtain an exemption
from the general requirement under state law that New York-chartered
banks and trust companies have federal deposit insurance. See
New York Banking Law §§ 32 and 102a. The New York State Banking
Board (‘‘NYSBB’’) has approved Warehouse Trust’s articles of organization and its exemption from the deposit insurance requirement.
See letter from NYSBB to Douglas J. McClintock, Esq., November 5,
2009.
2. 12 U.S.C. § 321 et seq.
3. 12 U.S.C. §§ 221 and 321. Warehouse Trust would be a bank for
purposes of the Act and, therefore, is eligible for membership in the
Federal Reserve System.

wholly owned subsidiary of The Depository Trust & Clearing Corporation (‘‘DTCC’’).4 Through its subsidiaries,
DTCC provides clearing and settlement services with
respect to equities, corporate and municipal bonds, government and mortgage-backed securities, money market instruments, and over-the-counter (‘‘OTC’’) derivatives.
MarkitSERV LLC (‘‘MarkitSERV’’), a subsidiary of
Deriv/SERV, provides a confirmation and matching service
for OTC derivatives trades, under which parties to trades
submit transaction information to MarkitSERV, which then
compares the information received, and matches, confirms,
and reports discrepancies in unmatched trades.5 Information on confirmed CDS transactions flows into Deriv/
SERV’s Trade Information Warehouse (‘‘TIW’’).6 TIW
creates a unique electronic record for each contract, which
then is deemed to be the official record of the contract for
the contracting parties. TIW updates the record for credit
events over the life of the contract, including transfers,
terminations, and reorganizations, and for credit events
such as a reference entity’s bankruptcy or default. In
addition, TIW calculates payments as they come due on the
contracts and transmits payment instructions to facilitate
settlement. All of TIW’s operations will be transferred to
Warehouse Trust when Warehouse Trust opens for business.

FACTORS GOVERNING BOARD REVIEW OF THE
PROPOSAL
In acting on an application for membership in the Federal
Reserve System, the Board is required by the Act and
Regulation H to consider the financial history and condition
of the applying bank; the adequacy of its capital in relation
to its assets and to its prospective deposit liabilities and
other corporate responsibilities; its future earnings prospects; the general character of its management; whether its
corporate powers are consistent with the purposes of the
Act; and the convenience and needs of the community to be
served.7 In addition, all state member banks are required to
establish and maintain programs for compliance with the
Bank Secrecy Act.8
According to DTCC, TIW currently houses the records
of approximately 95 percent of CDS trades worldwide. The
4. Neither The Depository Trust Company (‘‘DTC’’), a state member bank subsidiary of DTCC in New York, New York, nor Warehouse
Trust, are banks as defined in the Bank Holding Company Act (‘‘BHC
Act’’) (12 U.S.C. § 1841 et seq.). See 12 U.S.C. § 1841(c)(1). Deriv/
SERV and DTCC, therefore, are not bank holding companies for
purposes of the BHC Act. The NYSBB has approved DTCC’s
application to become a bank holding company under New York law
when Warehouse Trust opens for business. See New York Banking
Law § 142.
5. MarkitSERV is a joint venture of Deriv/SERV and Markit, a
company that provides data, trade processing, and other services to the
derivatives markets.
6. MarkitSERV also provides matching and confirmation services
for OTC equity and interest rate derivatives in addition to CDS, but
only confirmed CDS contracts are recorded by TIW.
7. 12 U.S.C. §§ 322 and 329; 12 CFR 208.3(b)(3).
8. 12 CFR 208.63.

B14

Federal Reserve Bulletin h July 2010

Board, therefore, has also reviewed the applicable factors
in light of elements of the Federal Reserve’s Policy on
Payment System Risk (‘‘PSR Policy’’) that are relevant to
Warehouse Trust.9 These elements include standards regarding participation and access criteria, operational risk and
reliability, and governance.10

FINANCIAL CONSIDERATIONS
In considering the financial history and condition, future
earnings prospects, capital adequacy, and other financial
factors as they relate to this proposal, the Board has
reviewed Warehouse Trust’s business plan and financial
projections and has assessed the adequacy of its anticipated
capital levels in light of the proposed assets and liabilities.
TIW has been in business since November 2006, and
because Warehouse Trust will assume TIW’s operations,
the Board has also considered TIW’s financial history and
condition. Warehouse Trust will be well capitalized at the
time it commences operations, and it will maintain capital
that is sufficient to allow for an orderly wind-down if
confronted with the need to cease operations.11
After carefully considering all the facts of record, the
Board has concluded that Warehouse Trust’s financial
condition, capital adequacy, future earnings prospects, and
other financial factors are consistent with approval of the
proposal.

MANAGERIAL CONSIDERATIONS
In reviewing Warehouse Trust’s managerial resources, the
Board has considered carefully the experience of Warehouse Trust’s proposed management, as well as its planned
risk-management systems, operations, and anti-moneylaundering compliance program. In addition, the Board has
reviewed Warehouse Trust’s proposed governance arrangements. The Board notes that the directors and officers of
Warehouse Trust are all currently employed in similar
capacities by DTCC and its subsidiaries. The Board has
also considered its supervisory experience with the DTCC
organization, the parent of Warehouse Trust, including the
compliance record of DTC with applicable banking laws
and anti-money-laundering laws.

9. Federal Reserve Policy on Payments System Risk, available at
www.federalreserve.gov/paymentsystems/psr/default.htm. The PSR
Policy incorporates minimum standards issued jointly by the Committee on Payment and Settlement Systems of the Bank for International
Settlements and by the Technical Committee of the International
Organization of Securities Commissioners with respect to central
counterparties (Recommendations for Central Counterparties
(‘‘RCCP’’), issued in November 2004) and with respect to securities
settlement systems (Recommendations for Securities Settlement Systems (‘‘RSSS’’), issued in November 2001).
10. RCCP 2, 8, and 13; RSSS 11, 13, and 14.
11. In addition, the Board retains the authority to specify capital
requirements for Warehouse Trust if the Board at any time concludes
that Warehouse Trust’s capital is inadequate in view of its assets,
liabilities, and responsibilities (12 CFR 208.4(a)).

Based on this review and all the facts of record, the
Board has concluded that the general character of Warehouse Trust’s management is consistent with approval of
the proposal.

OTHER CONSIDERATIONS
In considering whether the corporate powers exercised by
Warehouse Trust are consistent with the purposes of the
Act, the Board notes that Warehouse Trust’s proposed
activities are permissible for a state member bank under the
Act’s applicable provisions and would not pose substantial
risks to the bank’s safety and soundness.12 Under Regulation H, Warehouse Trust would be required to obtain the
Board’s approval before changing the general character of
its business or the scope of the corporate powers it exercises.13 In addition, Warehouse Trust has provided the
Board with several commitments intended to ensure that
the Board will have adequate enforcement authority over
Warehouse Trust as an uninsured state member bank.14 For
these reasons and based on a review of the entire record, the
Board has concluded that this consideration is consistent
with approval of the proposal.
The Board also has considered the convenience and
needs of the community to be served.15 As the primary
trade repository for CDS, the TIW is an essential component of the market infrastructure for CDS, and Warehouse
Trust membership in the Federal Reserve System would
subject DTCC’s provision of CDS trade repository services
to active federal banking agency oversight for the first time.
Warehouse Trust would promote greater market transparency by making CDS data publicly available pursuant to
applicable statutes, regulations, policy statements, and
guidance. For these reasons and based on a review of the
entire record, the Board has concluded that the convenience
and needs considerations are consistent with approval of
the proposal.

CONCLUSION
Based on the foregoing and all the facts of record, including
all the commitments, stipulations, and representations made
in connection with the application, and subject to all the
terms and conditions set forth in this order, the Board has
determined that Warehouse Trust’s application for membership in the Federal Reserve System should be, and hereby
is, approved. The Board’s approval is specifically conditioned on compliance with Regulation H,16 with receipt of
12. See 12 U.S.C. §§ 330 and 335.
13. 12 CFR 208.3(d)(2).
14. Warehouse Trust has stipulated that it will be subject to the
supervisory, examination, and enforcement authority of the Board
under the Federal Deposit Insurance Act as if Warehouse Trust were an
insured depository institution for which the Board is the appropriate
federal banking agency under that act.
15. Because Warehouse Trust will not accept deposits or have
federal deposit insurance, it will not be subject to the Community
Reinvestment Act (12 U.S.C. § 2901 et seq).
16. 12 CFR part 208.

Legal Developments: First Quarter, 2010 B15

required authorizations from the New York State Banking
Department,17 and with all the commitments, stipulations,
and representations made in connection with the application, including the commitments and conditions discussed
in this order.18 The commitments, stipulations, representations, and conditions relied on in reaching this decision
shall be deemed to be conditions imposed in writing by the
Board in connection with its findings and decision and, as
such, may be enforced in proceedings under applicable law.
Warehouse Trust will become a member of the Federal
Reserve System upon its purchase of stock in the Federal
Reserve Bank of New York (‘‘Reserve Bank’’). This transaction must occur not later than three months after the
effective date of this order, unless such period is extended
for good cause by the Board or the Reserve Bank acting
pursuant to delegated authority.
By order of the Board of Governors, effective February 2, 2010.
Voting for this action: Chairman Bernanke, Vice Chairman Kohn,
and Governors Warsh, Duke, and Tarullo.

Robert deV. Frierson
Deputy Secretary of the Board

ORDER ISSUED UNDER
INTERNATIONAL BANKING ACT

ABN AMRO Bank N.V.
Amsterdam, The Netherlands
Order Approving Establishment of a
Representative Office
ABN AMRO Bank N.V., Amsterdam, The Netherlands
(‘‘Bank’’), a foreign bank within the meaning of the
International Banking Act (‘‘IBA’’), has applied under
section 10(a) of the IBA1 to establish a representative office
in New York, New York. The Foreign Bank Supervision
Enhancement Act of 1991, which amended the IBA, provides that a foreign bank must obtain the approval of the
Board to establish a representative office in the United
States.
Notice of the application, affording interested persons an
opportunity to submit comments, has been published in a
newspaper of general circulation in New York (The New York
17. Before Warehouse Trust may begin operations, the Superintendent must issue an authorization certificate. See New York Banking
Law § 25.
18. As a condition of the Board’s approval, Warehouse Trust will,
before purchasing stock in the Federal Reserve Bank of New York,
take certain actions and execute certain commitments to the Board.
These commitments and conditions also shall be deemed to be
conditions imposed in writing by the Board in connection with its
findings and decision on Warehouse Trust’s application.
1. 12 U.S.C. § 3107(a).

Times, January 26, 2010). The time for filing comments has
expired, and all comments received have been considered.
Bank, with total consolidated assets of approximately
$276 billion, is the third largest bank in The Netherlands.2
Bank is indirectly owned by a consortium (‘‘Consortium’’)
composed of the government of The Netherlands, the Royal
Bank of Scotland Group plc (‘‘RBS’’), and Banco Santander
S.A. (‘‘Santander’’).3 Bank is a newly licensed entity
resulting from the decision by the Consortium to divide the
businesses of the entity formerly called ABN AMRO Bank
(‘‘Former ABN AMRO’’). Certain assets of Former ABN
AMRO (‘‘State Allocated Assets’’) have been allocated by
the Consortium to the government of The Netherlands. On
February 6, 2010, the State Allocated Assets were transferred to Bank from Former ABN AMRO, and Former
ABN AMRO was renamed The Royal Bank of Scotland
N.V. The members of the Consortium remained the indirect
parents of Bank after the transfer. In a transaction scheduled to occur on March 31, 2010, the government of The
Netherlands will become the sole owner of Bank.
The operations of Former ABN AMRO allocated to
Bank include The Netherlands business, the global private
client business, most of the global asset management
business, and the global diamond and jewelry financing
business. Subject to receipt of required regulatory approvals, Bank plans to operate branch offices in Belgium,
Dubai, Hong Kong, India, Japan, Jersey, and Singapore; a
representative office in Spain; and subsidiaries in Botswana,
France, Germany, Luxembourg, and Switzerland. The proposed New York representative office will solicit loans and
market other products of Bank in the United States, perform preliminary and servicing steps in connection with
lending, and act as a liaison between Bank and its prospective U.S.-based customers.4
In acting on an application under the IBA and Regulation K by a foreign bank to establish a representative office,
the Board shall take into account whether (1) the foreign
bank has furnished to the Board the information it needs to
assess the application adequately; (2) the foreign bank and
any foreign bank parent engage directly in the business of
banking outside of the United States; and (3) the foreign
bank and any foreign bank parent are subject to comprehensive supervision on a consolidated basis by their home-

2. Data are as of September 30, 2009, and are on a pro forma basis.
3. Bank is wholly owned by RFS Holdings B.V., a Netherlands
corporation (‘‘RFS’’). RBS owns 38.3 percent of RFS, the government
of The Netherlands owns 33.8 percent, and Santander owns 27.9 percent. The government of the United Kingdom owns 84 percent of
RBS.
4. A representative office may engage in representational and
administrative functions in connection with the banking activities of
the foreign bank, including soliciting new business for the foreign
bank; conducting research; acting as a liaison between the foreign
bank’s head office and customers in the United States; performing
preliminary and servicing steps in connection with lending; and
performing back-office functions. A representative office may not
contract for any deposit or deposit-like liability, lend money, or engage
in any other banking activity (12 CFR 211.24(d)(1)).

B16

Federal Reserve Bulletin h July 2010

country supervisor.5 The Board may also consider additional standards set forth in the IBA and Regulation K.6 The
Board will consider that the supervision standard has been
met if it determines that the applicant bank is subject to a
supervisory framework that is consistent with the activities
of the proposed representative office, taking into account
the nature of such activities. This is a lesser standard than
the comprehensive, consolidated supervision standard applicable to applications to establish branch or agency
offices of a foreign bank. The Board considers the lesser
standard sufficient for approval of representative office
applications because representative offices may not engage
in banking activities.7 This application has been considered
under the lesser standard.
As noted above, Bank engages directly in the business of
banking outside the United States. Santander also engages
directly in the business of banking outside the United
States. Bank has provided the Board with information
necessary to assess the application through submissions
that address the relevant issues. At the proposed representative office, Bank may engage only in activities permissible for a representative office under Regulation K, which
include the proposed solicitation and customer-liaison
activities noted above.8
With respect to supervision by home-country authorities,
the Board has considered that Bank is supervised by De
Nederlandsche Bank N.V. (‘‘DNB’’), the primary regulator
of financial institutions in The Netherlands. The Board
previously has considered the supervisory regime in The
Netherlands for financial institutions in connection with

5. 12 U.S.C. § 3107(a)(2); 12 CFR 211.24(d)(2). In assessing the
supervision standard, the Board considers, among other indicia of
comprehensive, consolidated supervision, the extent to which homecountry supervisors (i) ensure that the bank has adequate procedures
for monitoring and controlling its activities worldwide; (ii) obtain
information on the condition of the bank and its subsidiaries and
offices through regular examination reports, audit reports, or otherwise; (iii) obtain information on the dealings with and the relationship
between the bank and its affiliates, both foreign and domestic; (iv)
receive from the bank financial reports that are consolidated on a
worldwide basis or comparable information that permits analysis of
the bank’s financial condition on a worldwide consolidated basis; and
(v) evaluate prudential standards such as capital adequacy and risk
asset exposure, on a worldwide basis. No single factor is essential, and
other elements may inform the Board’s determination.
6. See 12 U.S.C. § 3105(d)(3)–(4); 12 CFR 211.24(c)(2). These
standards include (1) whether the bank’s home-country supervisor has
consented to the establishment of the office; the financial and managerial resources of the bank; (2) whether the bank has procedures to
combat money laundering, whether there is a legal regime in place in
the home country to address money laundering, and whether the home
country is participating in multilateral efforts to combat money
laundering; (3) whether the appropriate supervisors in the home
country may share information on the bank’s operations with the
Board; and (4) whether the bank and its U.S. affiliates are in
compliance with U.S. law; the needs of the community; and the bank’s
record of operation. See also Standard Chartered Bank, 95 Federal
Reserve Bulletin B98 (2009).
7. See 12 CFR 211.24(d)(2).
8. See supra note 4.

applications involving other Netherlands banks.9 Bank is
supervised by the DNB on substantially the same terms and
conditions as those other banks. Based on all the facts of
record, it has been determined that Bank is subject to a
supervisory framework that is consistent with the activities
of the proposed representative office, taking into account
the nature of such activities.10
The additional standards set forth in section 7 of the IBA
and Regulation K have also been taken into account.11 The
DNB has no objection to the establishment of the proposed
representative office.
With respect to the financial and managerial resources of
Bank, taking into consideration the record of operation of
Former ABN AMRO in its home country, its overall
financial resources, and its standing with its home-country
supervisor, financial and managerial factors are consistent
with approval of the proposed representative office. Bank
appears to have the experience and capacity to support the
proposed representative office and has established controls
and procedures for the proposed representative office to
ensure compliance with U.S. law, as well as controls and
procedures for its worldwide operations generally.
The Netherlands is a member of the Financial Action
Task Force and subscribes to its recommendations on
measures to combat money laundering. In accordance with
these recommendations, The Netherlands has enacted laws
and created legislative and regulatory standards to deter
money laundering, terrorist financing, and other illicit
activities. Money laundering is a criminal offense in The
Netherlands, and financial institutions are required to establish internal policies, procedures, and systems for the
detection and prevention of money laundering throughout
their worldwide operations. Bank has policies and procedures to comply with these laws and regulations that are
monitored by governmental entities responsible for antimoney-laundering compliance.
With respect to access to information about Bank’s
operations, the Board has reviewed the restrictions on
disclosure in relevant jurisdictions in which Bank operates
and has communicated with relevant government authorities regarding access to information. Bank and Santander
have committed to make available to the Board such
information on Bank’s operations and any of its affiliates
that the Board deems necessary to determine and enforce
compliance with the IBA, the Bank Holding Company Act,
and other applicable federal law. To the extent that the
provision of such information to the Board may be prohibited by law or otherwise, Bank and Santander have commit9. See Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
Rabobank Nederland, 89 Federal Reserve Bulletin 81 (2003); see also
ING Bank, 85 Federal Reserve Bulletin 448 (1999).
10. Santander has been found to be subject to comprehensive
consolidated supervision by the Bank of Spain. See, e.g., Banco
Santander S.A., 85 Federal Reserve Bulletin 441 (1999). The Royal
Bank of Scotland plc, a United Kingdom bank subsidiary of RBS, has
been found to be subject to comprehensive consolidated supervision
by the United Kingdom Financial Services Authority. The Royal Bank
of Scotland plc, 93 Federal Reserve Bulletin C104 (2007).
11. See supra note 6.

Legal Developments: First Quarter, 2010 B17

ted to cooperate with the Board to obtain any necessary
consents or waivers that might be required from third
parties for disclosure of such information. In addition,
subject to certain conditions, the DNB may share information on Bank’s operations with other supervisors, including
the Board. In light of these commitments and other facts of
record, and subject to the condition described below, it has
been determined that Bank and Santander have provided
adequate assurances of access to any necessary information
that the Board may request.
Based on the foregoing and all the facts of record,
Bank’s application to establish the representative office is
hereby approved.12 Should any restrictions on access to
information on the operations or activities of Bank and its
affiliates subsequently interfere with the Board’s ability to
obtain information to determine and enforce compliance by
Bank or its affiliates with applicable federal statutes, the
Board may require termination of any of Bank’s direct or
indirect activities in the United States. Approval of this
application also is specifically conditioned on compliance
by Bank and Santander with the conditions imposed in this
order and the commitments made to the Board in connection with this application.13 For purposes of this action,
these commitments and conditions are deemed to be conditions imposed by the Board in writing in connection with
these findings and decision and, as such, may be enforced
in proceedings under applicable law.
By order, approved pursuant to authority delegated by
the Board, effective February 26, 2010.
Robert deV. Frierson
Deputy Secretary of the Board

FINAL ENFORCEMENT DECISION
ISSUED BY THE BOARD

In the Matter of
Adam L. Benarroch,
A former institution-affıliated party of
Midwest Bank and Trust,
Elmwood Park, Illinois
Docket No. 09-052-I-E

12. Approved by the Director of the Division of Banking Supervision and Regulation, with the concurrence of the General Counsel,
pursuant to authority delegated by the Board.
13. The Board’s authority to approve the establishment of the
proposed representative office parallels the continuing authority of the
state of New York to license offices of a foreign bank. The Board’s
approval of this application does not supplant the authority of the state
of New York or its agent, the New York State Banking Department
(‘‘Department’’), to license the proposed office of Bank in accordance
with any terms or conditions that the Department may impose.

FINAL DECISION
This is an administrative proceeding pursuant to the Federal Deposit Insurance Act (‘‘FDI Act’’) in which the Board
of Governors of the Federal Reserve System (‘‘Board’’)
seeks to prohibit the Respondent, Adam L. Benarroch
(‘‘Respondent’’), from further participation in the affairs of
any financial institution based on actions he took while
employed as an Assistant Vice President at Midwest Bank
and Trust, Elmwood Park, Illinois (‘‘Midwest’’).
Upon review of the administrative record, the Board
issues this Final Decision adopting the Recommended
Decision of Administrative Law Judge C. Richard Miserendino (‘‘ALJ’’), and orders the issuance of the attached
Order of Prohibition.

I. PROCEDURAL HISTORY
On April 14, 2009, the Board issued a Notice upon
Respondent that sought an order of prohibition against him
based on his fabrication of bank documents and forgery of
the signatures of bank officials in connection with origination of loans while he was an Assistant Vice President of
Midwest. After several extensions, Respondent appeared
pro se and filed his Answer on July 27, 2009. Respondent’s
Answer does not deny the specific allegations of the
Notice. Rather, it concedes that the Respondent made
certain ‘‘bad decisions while employed at Midwest Bank
and Trust Company’’ and claims that he operated ‘‘under
tremendous pressure to close loan transactions’’ as his
year-end bonus depended on loan volume. Respondent
claims that he lacked the necessary assistance in this
position to perform his duties and he apologized ‘‘for
putting the bank in jeopardy’’ through the various loan
transactions at issue here. Respondent concluded his Answer by requesting a second chance in the banking industry
short of a permanent ban, and proposing certain limitations
and restrictions on permitted activities (limitations short of
prohibition) that would enable him to continue to work in
the industry.
On September 16, 2009, Board Enforcement Counsel
moved for summary disposition of the proceeding and
submitted documentary evidence supporting the allegations
of the Notice. Board Enforcement Counsel contended that
no genuine issue of material fact existed and that the Board
was therefore entitled to the relief sought in the Notice. In
his October 7, 2009, response, Respondent conceded the
factual assertions set forth in the evidentiary exhibits
submitted in support of the motion and again offered
apologies for his actions. Respondent also offered further
details concerning his personal, professional, and family
situation, which he submitted in mitigation of the offenses
he otherwise admits.
On October 29, 2009, the ALJ granted the Board’s
Motion for Summary Disposition because there were no
material facts in dispute and the evidence presented by
Enforcement Counsel supported an order prohibiting Respondent from further participation in the industry, as
provided in section 8(e) of the FDI Act, 12 U.S.C.

B18

Federal Reserve Bulletin h July 2010

§ 1818(e). On November 30, 2009, Respondent submitted a
document entitled ‘‘Appeal,’’ in which he specifically states
that he ‘‘do[es] not deny the specific [allegations] in the
Notice’’ but asks that the decision be modified for several
other reasons, including the fact that he could not afford to
hire an attorney to represent him throughout this process.

II. STATUTORY AND REGULATORY
FRAMEWORK
Under the FDI Act and the Board’s regulations, the ALJ is
responsible for conducting proceedings on a notice of
charges relating to a proposed order of prohibition
(12 U.S.C. § 1818(e)(4)). The ALJ issues a recommended
decision that is referred to the Board together with any
exceptions to those recommendations filed by the parties.
The Board makes the final findings of fact, conclusions of
law, and determination whether to issue the requested
order. Id;, 12 CFR 263.40.
The FDI Act sets forth the substantive basis upon which
a federal banking agency may issue against a bank official
or employee an order of prohibition from further participation in banking. To issue such an order, the Board must
make each of three findings: (1) that the individual engaged
in identified misconduct, including a violation of law or
regulation, an unsafe or unsound practice, or a breach of
fiduciary duty; (2) that the conduct had a specified effect,
including financial loss to the institution or gain to the
respondent; and (3) that the respondent’s conduct involved
culpability of a certain degree — either personal dishonesty
or a willful or continuing disregard for the safety or
soundness of the institution (12 U.S.C. § 1818(e)(1)(A)–
(C)).

III. FACTS
The undisputed facts of this case show that with respect to
14 loan transactions handled by Respondent, Respondent
forged signatures of bank officers, fabricated documents to
make it appear that loans had been properly approved when
they had not, and changed the terms of approved loans to
the detriment of Midwest, including increasing the amount
of the loan and lowering the interest rate and fees. As a
result of these actions, Midwest was exposed to additional
risk on numerous loans, was deprived of more than
$350,000 in interest and fees, and was forced to write off
$109,000 in principal. The specific details regarding each
of the loan transactions are recounted in the ALJ’s Recommended Decision on Summary Disposition. (Rec. Dec.,
pages 3-16.)

IV. LEGAL CONCLUSIONS
The Board has reviewed the record in this matter and finds
that the ALJ properly granted Enforcement Counsel’s
Motion for Summary Disposition. As explained below, the
Board agrees that a prohibition order should be issued.

a. Respondent’s Appeal dated November 30, 2009
As previously noted, Respondent filed an Appeal at the
point at which exceptions to the ALJ’s recommended
decision were permitted by the Board’s regulations (12 CFR
263.39(a)). The regulation provides that exceptions must
‘‘set forth page or paragraph references to the specific parts
of the administrative law judge’s recommendations to
which exception is taken, the page or paragraph references
to those portions of the record relied upon to support each
exception, and the legal authority relied upon to support
each exception’’ (12 CFR 263.39(c)(2)). Failure of a party
to file exceptions to a finding, conclusion, or proposed
order ‘‘is deemed a waiver of objection’’ (12 CFR
263.39(b)(1).
Respondent’s Appeal does not conform to any of the
requirements of a valid exception. It does not identify the
portions of the ALJ’s recommendation to which an exception was taken or cite the portions of the record or legal
authority in support of its position. Accordingly, the
Respondent is deemed to have waived his right to object to
any portion of the Recommended Decision.
However, even if Respondent’s filing could be considered a valid exception, the Board finds that it raises no
meritorious claim. In his Appeal, Respondent does not
contest the allegations in the Notice, but requests that the
Board modify the final decision because (1) Respondent
could not afford an attorney during the process and did not
have an adequate defense; (2) Respondent misunderstood
Enforcement Counsel’s statement regarding his fifth amendment right against self-incrimination; (3) Respondent was
terminated from employment at a different financial institution because his employer was informed of these public
proceedings; and (4) the financial condition of Midwest has
significantly deteriorated. None of these issues merits
modification of the ALJ’s final decision.
First, Enforcement Counsel consented to and the ALJ
provided several extensions to permit Respondent time to
find counsel to represent him. A respondent in this type of
administrative action is not entitled to free counsel, and
Respondent’s inability to pay for counsel does not taint
these proceedings. See, e.g., Crothers v. Commodities
Futures Trading Comm’n, 33 F.3d 405 (4th Cir. 1994)
(sixth amendment rights inapplicable to administrative
license revocation proceedings). Second, although it appears that Respondent initially misunderstood Enforcement
Counsel’s statement regarding his fifth amendment rights
and may have believed he did not have to respond to the
Notice of Charges, this issue was clarified and he was given
additional time to respond. As noted, in his response he did
not contest the facts stated in the Notice. Third, the fact that
Respondent was terminated from employment at another
institution as a result of the pendency of this case does not
suggest that a prohibition order should not issue. In fact,
Respondent will be prohibited from such employment upon
issuance of the order. Finally, the current financial condition of Midwest is irrelevant to these proceedings. Accordingly, even if Respondent’s Appeal qualified as an exception, it would be entirely unpersuasive.

Legal Developments: First Quarter, 2010 B19

b. Prohibition Order
The Respondent does not contest any of the allegations in
the administrative record, including Enforcement Counsel’s initial Notice or the summary of facts in the ALJ’s
Recommended Decision. Based on the undisputed evidence in the administrative record, Respondent’s actions
satisfy the misconduct, effect, and culpability elements
required for an order of prohibition.
The Respondent’s conduct meets all the criteria for entry
of an order of prohibition under 12 U.S.C. § 1818(e).
Creating false entries in the books and records of a bank
violates 18 U.S.C. § 1005, and constitutes an unsafe or
unsound practice. Exposing the bank to additional risk and
lowering interest rates and fees breaches a bank employee’s
fiduciary duty. Respondent’s actions caused actual losses to
Midwest of over $460,000. Finally, Respondent’s actions
also exhibit both personal dishonesty and a willful and
continuing disregard for the safety or soundness of Midwest. Accordingly, the requirements for an order of prohibition have been met and the Board hereby issues such an
order.

CONCLUSION
For these reasons, the Board orders the issuance of the
attached Order of Prohibition.
By Order of the Board of Governors, this 12th day of
March, 2010.
BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
Jennifer J. Johnson
Secretary of the Board

ORDER OF PROHIBITION
WHEREAS, pursuant to section 8(e) of the Federal Deposit
Insurance Act, as amended (‘‘FDI Act’’) (12 U.S.C.
§ 1818(e)), the Board of Governors of the Federal Reserve
System (‘‘Board’’) is of the opinion, for the reasons set
forth in the accompanying Final Decision, that a final Order
of Prohibition should issue against ADAM L. BENARROCH (‘‘Benarroch’’), a former employee and institution-

affiliated party, as defined in section 3(u) of the FDI Act
(12 U.S.C. § 1813(u)) of Midwest Bank and Trust, Elmwood Park, Illinois (‘‘Midwest’’).
NOW, THEREFORE, IT IS HEREBY ORDERED, pursuant to section 8(e) of the FDI Act, 12 U.S.C. § 1818(e),
that:
1. In the absence of prior written approval by the Board,
and by any other Federal financial institution regulatory
agency where necessary pursuant to section 8(e)(7)(B)
of the FDI Act (12 U.S.C. § 1818(e)(7)(B)), Benarroch is
hereby prohibited:
a. from participating in any manner in the conduct of
the affairs of any institution or agency specified in
section 8(e)(7)(A) of the FDI Act (12 U.S.C.
§ 1818(e)(7)(A)), including, but not limited to, any
insured depository institution, any insured depository institution holding company or any U.S. branch
or agency of a foreign banking organization;
b. from soliciting, procuring, transferring, attempting
to transfer, voting, or attempting to vote any proxy,
consent or authorization with respect to any voting
rights in any institution described in subsection 8(e)(7)(A) of the FDI Act (12 U.S.C.
§ 1818(e)(7)(A));
c. from violating any voting agreement previously
approved by any Federal banking agency; or
d. from voting for a director, or from serving or acting
as an institution-affiliated party as defined in section 3(u) of the FDI Act (12 U.S.C. § 1813(u)), such
as an officer, director, or employee in any institution
described in section 8(e)(7)(A) of the FDI Act
(12 U.S.C. § 1818(e)(7)(A)).
2. Any violation of this Order shall separately subject
Benarroch to appropriate civil or criminal penalties or
both under section 8 of the FDI Act (12 U.S.C. § 1818).
3. This Order, and each and every provision hereof, is and
shall remain fully effective and enforceable until expressly stayed, modified, terminated or suspended in
writing by the Board.
This Order shall become effective at the expiration of
thirty days after service is made.
By Order of the Board of Governors this 12th day of
March 2010.
BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
Jennifer J. Johnson
Secretary of the Board

B21

September 2010

Legal Developments: Second Quarter, 2010
ORDER ISSUED UNDER BANK
HOLDING COMPANY ACT

Order Issued under Section 3 of the
Bank Holding Company Act
City Holding Company
Charleston, West Virginia
Order Approving the Acquisition of
Additional Shares of a Bank Holding
Company and Determination on a Financial
Holding Company Election
City Holding Company (‘‘City Holding’’), a bank holding
company within the meaning of the Bank Holding Company Act (‘‘BHC Act’’), has requested the Board’s approval
under section 3 of the BHC Act1 to increase its ownership
interest from 4.9 percent to 7.5 percent of the voting shares
of First United Corporation (‘‘First United’’) and thereby
increase its indirect interest in First United’s subsidiary
bank, First United Bank & Trust (‘‘First Bank’’), both of
Oakland, Maryland. City Holding also has filed with the
Board an election to become a financial holding company
pursuant to sections 4(k) and (l) of the BHC Act and
section 225.82 of Regulation Y.2
Notice of the proposal, affording interested persons an
opportunity to submit comments, has been published
(74 Federal Register 69,109 (2009)). The time for filing
comments has expired, and the Board has considered the
application and all comments received in light of the
factors set forth in section 3 of the BHC Act.
City Holding, with total banking assets of approximately
$2.6 billion, controls one depository institution, City
National Bank of West Virginia (‘‘City Bank’’), Charleston,
West Virginia, that operates in West Virginia, Ohio, and
Kentucky. City Bank is the fifth largest insured depository
institution in West Virginia, controlling deposits of approximately $1.9 billion, which represent 6.7 percent of the total
amount of deposits of insured depository institutions in the
state (‘‘state deposits’’).3
1. 12 U.S.C. § 1842.
2. 12 U.S.C. §§ 1843(k) and (l); 12 CFR 225.82.
3. Asset data are as of June 30, 2009; statewide deposit and ranking
data also are as of June 30, 2009, and reflect merger and acquisition

First United, with total assets of approximately $1.7 billion, is the 17th largest insured depository institution in
Maryland. First Bank operates in Maryland and West
Virginia and controls deposits of approximately $267 million in West Virginia. If City Holding were deemed to
control First United on consummation of the proposal, City
Holding would become the third largest banking organization in West Virginia, controlling approximately $2.2 billion in deposits, which would represent 7.7 percent of state
deposits.
City Holding has stated that it does not propose to
control or exercise a controlling influence over First United
and that its indirect investment in First Bank also would be
a noncontrolling investment. In this light, City Holding has
agreed to abide by certain commitments on which the
Board has previously relied in determining that an investing bank holding company would not be able to exercise a
controlling influence over another bank holding company
or bank for purposes of the BHC Act (‘‘Passivity Commitments’’).4 For example, City Holding has committed not to
exercise or attempt to exercise a controlling influence over
the management or policies of First United or any of its
subsidiaries; not to have or seek to have any employee or
representative of City Holding or its affiliates serve as an
officer, agent, or employee of First United or any of its
subsidiaries; and not to seek or accept representation on the
board of directors of First United or any of its subsidiaries.
City Holding also has committed not to enter into any
agreement with First United or any of its subsidiaries that
substantially limits the discretion of First United’s management over major policies or decisions.
Based on these considerations and all the other facts of
record, the Board has concluded that City Holding would
not acquire control of, or have the ability to exercise a
controlling influence over, First United or First Bank
through the proposed acquisition of the First United’s
voting shares. The Board notes that the BHC Act requires
City Holding to file an application and receive the Board’s
approval before the company could directly or indirectly

activity through that date. In this context, insured depository institutions include commercial banks, savings banks, and savings associations.
4. The commitments made by City Holding are set forth in the
appendix.

B22

Federal Reserve Bulletin h September 2010

acquire additional shares of First United or attempt to
exercise a controlling influence over First United or First
Bank.5

COMPETITIVE CONSIDERATIONS
The Board has considered carefully the competitive effects
of the proposal in light of all the facts of record. Section 3
of the BHC Act prohibits the Board from approving a
proposal that would result in a monopoly or would be in
furtherance of an attempt to monopolize the business of
banking in any relevant banking market. The BHC Act also
prohibits the Board from approving a bank acquisition that
would substantially lessen competition in any relevant
banking market, unless the anticompetitive effects of the
proposal are clearly outweighed in the public interest by the
probable effect of the proposal in meeting the convenience
and needs of the community to be served.6
City Bank and First Bank compete directly in two
banking markets: the greater Washington, D.C. area banking market (‘‘Washington banking market’’) and the Martinsburg, West Virginia banking market (‘‘Martinsburg
banking market’’). The Board has reviewed carefully the
competitive effects of the proposal in these banking markets in light of all the facts of record. In particular, the
Board has considered the number of competitors that would
remain in the banking markets; the relative shares of total
deposits in depository institutions in the market (‘‘market
deposits’’) controlled by City Bank and First Bank;7 the
concentration level of market deposits and the increase in
the level as measured by the Herfindahl–Hirschman Index
(‘‘HHI’’) under the Department of Justice Merger Guidelines (‘‘DOJ Guidelines’’);8 other characteristics of the
market; and the Passivity Commitments that City Holding
made to the Board with respect to First United and First
Bank.
5. See e.g., Emigrant Bancorp, Inc., 82 Federal Reserve Bulletin
555 (1996); First Community Bancshares, Inc., 77 Federal Reserve
Bulletin 50 (1991).
6. 12 U.S.C. § 1842(c)(1).
7. Deposit and market share data are as of June 30, 2009, and are
based on calculations in which the deposits of thrift institutions are
included at 50 percent. The Board previously has indicated that thrift
institutions have become, or have the potential to become, significant
competitors of commercial banks. See, e.g., Midwest Financial Group,
75 Federal Reserve Bulletin 386, 387 (1989); National City Corporation, 70 Federal Reserve Bulletin 743, 744 (1984). The Board
regularly has included thrift institution deposits in the market share
calculation on a 50 percent weighted basis. See, e.g., First Hawaiian,
Inc., 77 Federal Reserve Bulletin 52, 55 (1991).
8. Under the DOJ Guidelines, a market is considered unconcentrated if the post-merger HHI is less than 1000, moderately concentrated if the post-merger HHI is between 1000 and 1800, and highly
concentrated if the post-merger HHI is more than 1800. The Department of Justice (‘‘DOJ’’) has informed the Board that a bank merger or
acquisition generally will not be challenged (in the absence of other
factors indicating anticompetitive effects) unless the post-merger HHI
is at least 1800 and the merger increases the HHI more than 200
points. The DOJ has stated that the higher-than-normal HHI thresholds
for screening bank mergers for anticompetitive effects implicitly
recognize the competitive effects of limited-purpose lenders and other
nondepository financial entities.

A. Banking Market within Established Guidelines
Consummation of the proposal would be consistent with
Board precedent and within the thresholds in the DOJ
Guidelines in the Washington banking market.9 On consummation of the proposal, the market would remain
moderately concentrated as measured by the HHI. The
change in the HHI in the market would be consistent with
Board precedent and the thresholds in the DOJ Guidelines,
and a number of competitors would remain.10

B. Banking Market Warranting Special Scrutiny
The structural effects that consummation of the proposal
would have on the Martinsburg banking market warrant a
detailed review.11 In this banking market, the concentration
level on consummation of the proposal would exceed the
threshold levels in the DOJ Guidelines. City Bank is the
fourth largest depository institution in the market, controlling $113.98 million in deposits, which represents 11.1 percent of market deposits. First Bank is the third largest
depository institution in the market, controlling $113.99 million in deposits, which also represents 11.1 percent of
market deposits. If considered a combined organization on
consummation of the proposal, City Bank and First Bank
would be the second largest depository organization in the
Martinsburg banking market, controlling $228 million in
deposits, which would represent approximately 22.2 percent of market deposits. The proposal would exceed the
DOJ Guidelines because the HHI for the Martinsburg
banking market would increase 246 points to 2046. In this
light, consummation of the proposal would raise competitive issues in the Martinsburg banking market for the
combined organization.
After careful analysis of the record, however, the Board
has concluded that no significant reduction in competition
is likely to result from City Holding’s proposed indirect
investment in First Bank. Of particular significance in this
case are the structure of the proposed investment and the
Passivity Commitments that City Holding has provided to
the Board, which are designed to limit the ability of City
Holding to use its proposed investment to engage in any
anticompetitive behavior. The structure of the Martinsburg
banking market, the number of competitors in the market,
and the market’s record of recent entry also indicate that

9. The Washington banking market is defined as the Washington,
DC-MD-VA Rand McNally Area (RMA); the non-RMA portions of
Calvert, Charles, Frederick, and St. Mary’s counties in Maryland; the
non-RMA portions of Fauquier and Loudoun counties in Virginia; the
independent cities of Alexandria, Fairfax, Falls Church, Manassas, and
Manassas Park in Virginia; and Jefferson County, West Virginia.
10. If City Holding were deemed to control First United, City
Holding would be the 45th largest depository institution in the market,
controlling deposits of $164 million, which would represent less than
1 percent of market deposits. The HHI would increase by less than 1
point to 1134.
11. The Martinsburg banking market is defined as Berkeley County,
West Virginia, excluding the portion of that county included in the
Hagerstown RMA.

Legal Developments: Second Quarter, 2010

the market concentrations, as measured by the HHI, overstate the competitive effects of the proposal.
The Board previously has noted that one company need
not acquire control of another company to lessen competition between them substantially and has recognized that a
significant reduction in competition can result from the
sharing of nonpublic financial information between two
organizations that are not under common control. In each
case, the Board analyzes the specific facts to determine
whether the minority investment in a competitor would
result in significant adverse competitive effects in a banking market.
The Board has concluded, after careful analysis of the
entire record, that no significant reduction in competition
will likely result from City Holding’s proposed minority
investment in First United. As noted, City Holding has
committed not to exercise a controlling influence over First
United or First Bank and not to seek or accept representation on the board of directors of First United or First Bank.
City Holding also has committed not to acquire or seek to
acquire nonpublic financial information from First United
or First Bank. These commitments are designed to prevent
anticompetitive behavior that otherwise might occur through
either influencing the behavior of First United or First Bank
or the coordination of City Holding’s activities with those
of First United or First Bank. In addition, there are no legal,
contractual, or statutory provisions that would otherwise
allow City Holding to have any access to financial information of First United or First Bank beyond the information
already available to it as a shareholder with less than a
10 percent interest. These limitations restrict City Holding’s access to confidential information that could enable it
to engage in anticompetitive behavior in the Martinsburg
banking market with respect to First Bank.
The Board also has considered additional facts indicating that the proposal is not likely to have a significantly
adverse effect on competition in the Martinsburg banking
market. In addition to City Bank and First Bank, ten other
bank competitors, including two competitors with market
shares of at least 20 percent each, provide additional
sources of banking services to the market. The Board also
notes that the market includes two community credit unions
with broad membership criteria that include most of the
residents in the market, offer a wide range of consumer
banking products, and operate at least one street-level
branch.12 The market also appears relatively attractive for
entry. There has been substantial recent entry into the
Martinsburg banking market, with four banks entering the
market within the last five years.
12. The Board previously has considered competition from certain
active credit unions with those features as a mitigating factor. See
Passumpsic Bancorp, 92 Federal Reserve Bulletin C175 (2006);
Capital City Group, Inc., 91 Federal Reserve Bulletin 418 (2005);
F.N.B. Corporation, 90 Federal Reserve Bulletin 481 (2004); Gateway
Bank & Trust Co., 90 Federal Reserve Bulletin 547 (2004). If City
Bank and First Bank were considered as a combined organization on
consummation of the proposal, the HHI for the Martinsburg banking
market would increase 236 points to 1966 if the deposits of the credit
union are weighted at 50 percent.

B23

C. Views of Other Agencies and Conclusion on
Competitive Considerations
The DOJ also has reviewed the proposal and has advised
the Board that it does not believe that the acquisition would
likely have a significantly adverse effect on competition in
any relevant banking market. The appropriate banking
agencies have been afforded an opportunity to comment
and have not objected to the proposal.
Accordingly, in light of all the facts of record, the Board
concludes that consummation of the proposal would not
have a significantly adverse effect on competition or on the
concentration of resources in any relevant banking market
and that competitive considerations are consistent with
approval.

FINANCIAL, MANAGERIAL, AND SUPERVISORY
CONSIDERATIONS
Section 3 of the BHC Act requires the Board to consider the
financial and managerial resources and future prospects of
the companies and depository institutions involved in the
proposal and certain other supervisory factors. The Board
has considered these factors in light of all the facts of
record, including confidential reports of examination, other
supervisory information from the primary supervisors of
the organizations involved in the proposal, publicly reported and other financial information, and information
provided by City Holding.
In evaluating financial factors in expansion proposals by
banking organizations, the Board reviews the financial
condition of the organizations involved on both a parentonly and consolidated basis, as well as the financial condition of the subsidiary banks and significant nonbanking
operations. The Board also evaluates the financial condition
of the combined organization, including its capital position,
asset quality, and earnings prospects, and the impact of the
proposed funding of the transaction. In assessing financial
factors, the Board consistently has considered capital
adequacy to be especially important.
The Board has considered carefully the financial factors
of the proposal. City Holding and City Bank are well
capitalized and would remain so on consummation of the
proposal. The proposed transaction would be funded from
City Holding’s existing cash reserves. Based on its review
of the record, the Board finds that City Holding has
sufficient financial resources to effect the proposal and that
the financial resources of City Holding and its subsidiaries
would not be adversely affected by the proposal.
The Board also has considered the managerial resources
of City Holding, First United, and their subsidiary banks.
The Board has reviewed the examination records of these
institutions, including assessments of their management,
risk-management systems, and operations. In addition, the
Board has considered its supervisory experiences and those
of other relevant bank supervisory agencies with the organizations and their records of compliance with applicable
banking law, including anti-money-laundering laws.

B24

Federal Reserve Bulletin h September 2010

Based on all the facts of record, the Board has concluded
that considerations relating to the financial and managerial
resources and future prospects of the organizations involved
are consistent with approval, as are the other supervisory
factors under the BHC Act.

Convenience and Needs and CRA Performance
Considerations
In acting on a proposal under section 3 of the BHC Act, the
Board must consider the effects of the proposal on the
convenience and needs of the communities to be served and
take into account the records of the relevant depository
institutions under the Community Reinvestment Act
(‘‘CRA’’).13 The Board has carefully considered the convenience and needs factor and the CRA performance records
of City Bank and First Bank in light of all the facts of
record. As provided in the CRA, the Board evaluates the
record of performance of an institution in light of examinations by the appropriate federal supervisors of the CRA
performance records of the relevant institutions.14 City
Bank and First Bank received ‘‘satisfactory’’ ratings at their
most recent examinations for CRA performance by the
Office of the Comptroller of the Currency and the Federal
Deposit Insurance Corporation, as of November 2, 2009,
and July 6, 2009, respectively. Based on a review of the
entire record, the Board has concluded that considerations
relating to convenience and needs considerations and the
CRA performance records of City Bank and First Bank are
consistent with approval of the proposal.

FINANCIAL HOLDING COMPANY ELECTION
As noted, City Holding has elected to become a financial
holding company in connection with the proposal. City
Holding has certified that City Bank is well capitalized and
well managed and has provided all the information required
under the Board’s Regulation Y.15 Based on all the facts of
record, the Board has determined that City Holding’s
election is effective as of the date of this order.

CONCLUSION
Based on the foregoing and all the facts of record, the
Board has determined that the application under section 3
of the BHC Act should be, and hereby is, approved. In
reaching its conclusion, the Board has considered all the
facts of record in light of the factors that it is required to
consider under the BHC Act and other applicable statutes.
The Board’s approval is specifically conditioned on compliance by City Holding with the conditions imposed in this
order and the commitments made to the Board in connec13. 12 U.S.C. § 2901 et seq.; 12 U.S.C. § 2903; 12 U.S.C.
§ 1842(c)(2).
14. The Interagency Questions and Answers Regarding Community Reinvestment provide that a CRA examination is an important and
often controlling factor in the consideration of an institution’s CRA
record. See 75 Federal Register 11642 at 11665 (2009).
15. See 12 CFR 225.82(b).

tion with the application. For purposes of this action, the
conditions and commitments are deemed to be conditions
imposed in writing by the Board in connection with its
findings and decision herein and, as such, may be enforced
in proceedings under applicable law.
The proposed transaction may not be consummated
before the 15th calendar day after the effective date of this
order, or later than three months after the effective date of
this order, unless such period is extended for good cause by
the Board or the Federal Reserve Bank of Richmond,
acting pursuant to delegated authority.
By order of the Board of Governors, effective June 9,
2010.
Voting for this action: Chairman Bernanke, Vice Chairman Kohn,
and Governors Warsh, Duke, and Tarullo.

Robert deV. Frierson
Deputy Secretary of the Board

Appendix
Passivity Commitments
City Holding Company (‘‘City Holding’’), Charleston,
West Virginia, will not, without the prior approval of the
Board of Governors of the Federal Reserve System
(‘‘Board’’) or its staff, directly or indirectly:
1. Exercise or attempt to exercise a controlling influence
over the management or policies of First United Corporation (‘‘First United’’), Oakland, Maryland, or any
of its subsidiaries;
2. Have or seek to have a representative of City Holding
serve on the board of directors of First United or any of
its subsidiaries;
3. Have or seek to have any employee or representative of
City Holding serve as an officer, agent, or employee of
First United or any of its subsidiaries;
4. Take any action that would cause First United or any of
its subsidiaries to become a subsidiary of City Holding;
5. Acquire or retain shares that would cause the combined
interests of City Holding and its officers, directors, and
affiliates to equal or exceed 25 percent of the outstanding voting shares of First United or any of its subsidiaries;1
6. Propose a director or slate of directors in opposition to
a nominee or slate of nominees proposed by the
management or board of directors of First United or
any of its subsidiaries;
7. Solicit or participate in soliciting proxies with respect
to any matter presented to the shareholders of First
United or any of its subsidiaries;
8. Attempt to influence the dividend policies; loan, credit,
or investment decisions or policies; pricing of services;
personnel decisions; operations activities, including the
location of any offices or branches or their hours of
operation, etc.; or any similar activities or decisions of
First United or any of its subsidiaries;
9. Dispose or threaten to dispose (explicitly or implicitly)
1. City Holding is required to file an application and receive the
Board’s approval pursuant to section 3(a)(3) of the BHC Act before
increasing its ownership interest in First United above 7.5 percent.

Legal Developments: Second Quarter, 2010

B25

of shares of First United in any manner as a condition
of or inducement to specific action or non-action by
First United or any of its subsidiaries;
10. Enter into any other banking or nonbanking transactions with First United or any of its subsidiaries, except
that City Holding may establish and maintain deposit
accounts with First United, provided that the aggregate
balance of all such deposit accounts does not exceed
$500,000 and that the accounts are maintained on
substantially the same terms as those prevailing for
comparable accounts of persons unaffiliated with First
United; and
11. Acquire or seek to acquire any nonpublic financial
information of First United or any of its subsidiaries,
beyond the information already available to it as a
shareholder of First United. City Holding also confirms
that there are no legal, contractual, or statutory provisions that would allow it or its subsidiaries to have any
access to financial information of First United or its
subsidiaries beyond the information available to shareholders.

Banco Popular, with total assets of approximately
$23.3 billion, operates in Puerto Rico, the U.S. Virgin
Islands, and New York.4 Banco Popular is the largest
insured depository institution in Puerto Rico, controlling
deposits of approximately $17 billion, which represent
27.4 percent of the total amount of deposits of insured
depository institutions in the Commonwealth (‘‘total deposits’’).
Westernbank operates only in Puerto Rico where it is the
third largest insured depository institution, controlling
deposits of approximately $10.2 billion. On consummation
of the proposal, Banco Popular would remain the largest
insured depository institution in Puerto Rico, controlling
deposits of approximately $19.5 billion, which represent
31.4 percent of total deposits.5

The terms used in these commitments have the same
meanings as the terms set forth in the BHC Act and the
Board’s Regulation Y.

The Board has considered carefully the competitive effects
of the proposal in light of the facts of record. The Bank
Merger Act prohibits the Board from approving a proposal
that would result in a monopoly or would be in furtherance
of an attempt to monopolize the business of banking in any
relevant banking market. The Bank Merger Act also prohibits the Board from approving a bank acquisition that would
substantially lessen competition in any relevant banking
market, unless the anticompetitive effects of the proposal
are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience
and needs of the community served.6
Banco Popular and Westernbank directly compete in all
four banking markets in Puerto Rico. The Board has
reviewed carefully the competitive effects of the proposal
in each of these banking markets in light of all the facts of
record. In particular, the Board has considered the financial
condition of Westernbank and the fact that the Office of the
Commissioner of Financial Institutions of the Commonwealth of Puerto Rico (‘‘Puerto Rico OCFI’’) has placed
the bank into FDIC receivership. In addition, the FDIC, as
receiver for Westernbank, has selected Banco Popular’s bid
for Westernbank in accordance with the least-cost resolution requirements in the Federal Deposit Insurance Act7 and
eliminated more costly proposals. The Board also has
considered the resulting loss of Westernbank as an independent competitor in the banking markets if this transaction is

ORDER ISSUED UNDER BANK
MERGER ACT

Banco Popular de Puerto Rico
Hato Rey, Puerto Rico
Order Approving the Merger of Banks and
the Establishment of Branches
Banco Popular de Puerto Rico (‘‘Banco Popular’’),1 Hato
Rey, a state member bank, has requested the Board’s
approval under section 18(c) of the Federal Deposit Insurance Act2 (‘‘Bank Merger Act’’) to acquire assets and
assume liabilities of Westernbank Puerto Rico (‘‘Westernbank’’), Mayagüez, both of Puerto Rico. Banco Popular
also proposes to establish and operate branches at the
locations of the acquired branches of Westernbank.
The Federal Deposit Insurance Corporation (‘‘FDIC’’)
has been appointed receiver of Westernbank and has scheduled the sale of certain assets and the transfer of certain
liabilities, of Westernbank for April 30, 2010. The FDIC
has recommended immediate action by the Board to prevent the probable failure of Westernbank. On the basis of
the information before the Board, the Board finds that it
must act immediately pursuant to the Bank Merger Act3 to
safeguard the depositors of Westernbank. Accordingly,
public notice of the application and opportunity for comment is not required by the Bank Merger Act.
1. Banco Popular is a subsidiary of Popular, Inc., San Juan, Puerto
Rico.
2. 12 U.S.C. § 1828(c).
3. 12 U.S.C. § 1828(c)(3).

COMPETITIVE CONSIDERATIONS

4. Asset data are as of December 31, 2009, and deposit and ranking
data are as of June 30, 2009. For purposes of this order, insured
depository institutions include commercial banks. No savings associations operate in Puerto Rico.
5. In the proposed transaction, Banco Popular would assume only
$2.5 billion of Westernbank’s deposits.
6. 12 U.S.C. § 1828(c)(5).
7. The least-cost procedures require the FDIC to choose the
resolution method in which the total amount of the FDIC’s expenditures and obligations incurred (including any immediate or long-term
obligation and any direct or contingent liability) is the least costly to
the deposit insurance fund of all possible methods. See 12 U.S.C.
§§ 1821, 1822, and 1823(c)–(k).

B26

Federal Reserve Bulletin h September 2010

not consummated, as well as various measures of competition and market concentration, and other characteristics of
the markets.
Under the proposal, Banco Popular would purchase
assets and assume liabilities of Westernbank and thereby
merge Westernbank’s businesses into a viable ongoing
concern with demonstrated capital strength and management capability. Banco Popular’s proposal would continue
the availability of credit opportunities and banking services
for the customers and communities that Westernbank
served and avoid serious economic disruption in Puerto
Rico. The FDIC actively solicited bids for Westernbank
and selected Banco Popular’s proposal under the procedures specified by Congress in the Federal Deposit Insurance Act for resolving failed banks.8 The FDIC considered
this proposal in light of competing proposals submitted by
other bidders and determined that Banco Popular’s bid
represented the lowest cost to the Deposit Insurance Fund.
On this basis, the Banco Popular proposal is the only means
before the Board of achieving the public benefits discussed
above.
Under these circumstances, and after careful consideration of all the facts of record, the Board concludes that the
anticompetitive effects of this proposal in the relevant
markets are clearly outweighed in the public interest by the
probable effect of the Banco Popular proposal in meeting
the convenience and needs of the communities to be served
in Puerto Rico.

FINANCIAL AND MANAGERIAL RESOURCES
AND FUTURE PROSPECTS
The Bank Merger Act requires the Board to consider the
financial and managerial resources and future prospects of
the companies and depository institutions involved in the
proposal and certain other supervisory factors. The Board
has considered these factors in light of all the facts of
record, including confidential supervisory and examination
information from the Puerto Rico OCFI and the U.S.
banking supervisors of the institutions involved, and publicly reported and other financial information, including
substantial information provided by Banco Popular.
In evaluating financial factors in expansion proposals by
banking organizations, the Board reviews the financial
condition of the organizations involved on both a parentonly and consolidated basis, as well as the financial condition of the subsidiary depository institutions and significant
nonbanking operations. In this evaluation, the Board considers a variety of information, including capital adequacy,
asset quality, and earnings performance. In assessing financial resources, the Board also evaluates the financial condition of the combined organization at consummation, including its capital position, asset quality, earnings prospects,
and the impact of the proposed funding of the transaction.
The Board has carefully considered the financial resources of the organizations involved in the proposal.
8. See 12 U.S.C. §§ 1821, 1822, and 1823(c)–(k).

Banco Popular is well capitalized and would remain so on
consummation of the proposal. In addition, the parent
holding company of Banco Popular, Popular Inc., recently
raised in a public offering approximately $1.1 billion in
additional capital, of which a sufficient portion will be
downstreamed to Banco Popular to effect this transaction.
Based on its review of the record in this case, the Board
finds that Banco Popular has sufficient financial resources
to effect the proposal. As noted, the proposed transaction is
structured as a purchase of assets and assumption of
liabilities from the FDIC as receiver, and the transaction
will be funded by cash.
The Board also has considered the managerial resources
of Banco Popular. The Board has reviewed the examination
records of Banco Popular, including assessments of its
management, risk-management systems, and operations. In
addition, the Board has considered its supervisory experiences and those of other relevant banking supervisory
agencies, including the FDIC, with the organizations and
their records of compliance with applicable banking law
and anti-money-laundering laws. The Board also has considered Banco Popular’s plans for implementing the proposal, including its plans for managing the integration of
the acquired assets and operations into the bank.
Based on all the facts of record, the Board concludes that
considerations relating to the financial and managerial
resources and future prospects of Banco Popular are consistent with approval under the Bank Merger Act, as are the
other statutory factors.

CONVENIENCE AND NEEDS CONSIDERATIONS
In acting on a proposal under the Bank Merger Act, the
Board is required to consider the effects of the proposal on
the convenience and needs of the communities to be served
and take into account the records of the relevant insured
depository institutions under the Community Reinvestment
Act (‘‘CRA’’).9 Banco Popular received an ‘‘outstanding’’
rating at its most recent CRA performance evaluation by
the Federal Reserve Bank of New York, as of September 15, 2008. Westernbank received a ‘‘satisfactory’’ rating
at its most recent CRA performance evaluations by the
FDIC, as of July 1, 2007. After consummation of the
proposal, Banco Popular plans to implement its CRA
policies at the branches and acquired consumer lending
operations of Westernbank.
As noted, the Board believes that the proposal will result
in substantial benefits to the convenience and needs of the
communities to be served by maintaining the availability of
credit and deposit services to customers of Westernbank.
Banco Popular has represented that consummation of the
proposal would allow it to provide a broader range of
financial products and services to the customers of Westernbank. Based on all the facts of record, the Board concludes
that considerations relating to the convenience and needs of

9. 12 U.S.C. §§ 2901 et seq.

Legal Developments: Second Quarter, 2010

the communities to be served and the CRA performance
records of the relevant depository institutions are consistent
with approval.

CONCLUSION
Based on the foregoing and all facts of record, the Board
has determined that the application should be, and hereby
is, approved. In reaching its conclusion, the Board has
considered all the facts of record in light of the factors that
it is required to consider under the Bank Merger Act. The
Board’s approval is specifically conditioned on compliance
by Banco Popular with the commitments made to the Board
in connection with the application and the conditions
imposed in this order. These commitments and conditions
are deemed to be conditions imposed in writing by the
Board in connection with its findings and decision herein,
and, as such, may be enforced in proceedings under
applicable law.
The transaction may be consummated immediately but
in no event later than three months after the effective date
of this Order, unless such period is extended for good cause
by the Board or by the Federal Reserve Bank of New York,
acting pursuant to delegated authority.
By order of the Board of Governors, effective April 30,
2010.
Voting for this action: Chairman Bernanke, Vice Chairman Kohn,
and Governors Warsh, Duke, and Tarullo.

Robert deV. Frierson
Deputy Secretary of the Board

ORDER ISSUED UNDER
INTERNATIONAL BANKING ACT

National Agricultural Cooperative
Federation
Seoul, Republic of Korea
Order Approving Establishment of a
Representative Office
National Agricultural Cooperative Federation (‘‘NACF’’),
Seoul, Korea, a foreign bank within the meaning of the
International Banking Act (‘‘IBA’’), has applied under
section 10(a) of the IBA1 to establish a representative office
in New York, New York. The Foreign Bank Supervision
Enhancement Act of 1991, which amended the IBA, provides that a foreign bank must obtain the approval of the
Board to establish a representative office in the United
States.
Notice of the application, affording interested persons an
opportunity to comment, has been published in a newspa1. 12 U.S.C. § 3107(a).

B27

per of general circulation in New York, New York
(New York Post, March 8, 2010). The time for filing
comments has expired, and all comments received have
been considered.
NACF, with total consolidated assets of approximately
$251 billion, and banking business assets of approximately
$168 billion, is a special-purpose organization created by
the Korean government that acts as an umbrella organization for Korean agricultural cooperatives.2 NACF conducts
a variety of financial and nonfinancial activities, including
banking, insurance, agricultural marketing, agricultural
supply, and education and support services. NACF conducts banking activities through an unincorporated banking
unit, which would rank as one of the largest banks in
Korea, by asset and deposit size. The proposed representative office would be NACF’s only direct office outside
Korea.3 NACF offers a broad range of financial services,
including the provision of specialized agricultural and
general commercial credit and banking services and the
sale of life insurance. NACF is entirely owned by its
member agricultural cooperatives, which include 1,102
regional cooperatives and 82 commodity cooperatives,
representing nearly all of the farmers in Korea. No shareholder, directly or indirectly, owns 5 percent or more of the
voting shares of NACF.
The proposed representative office would act as liaison
between NACF and its U.S. customers and would engage
in other representational activities, including soliciting
purchasers of loans, parties to contract with NACF for the
servicing of NACF loans, and other banking business
(except for deposits or deposit-type liabilities); and conducting research.4 The proposed office would also solicit
loans in principal amounts of $250,000 or more and, in
connection with those loans, would assemble credit information, make property inspections and appraisals of property, secure title information, prepare loan applications, and
make recommendations.
In acting on an application under the IBA and Regulation K by a foreign bank to establish a representative office,
the Board must consider whether (1) the foreign bank has
furnished to the Board the information it needs to assess the
application adequately; (2) the foreign bank and any foreign bank parent engage directly in the business of banking
outside of the United States; and (3) the foreign bank and
any foreign bank parent are subject to comprehensive
supervision on a consolidated basis by their home-country
2. Asset and ranking data are as of March 31, 2010.
3. Through a Korean nonbanking subsidiary, NACF has a U.S.
subsidiary that engages primarily in agricultural market research,
marketing Korean agricultural products, and other nonbanking activities. NACF has similar establishments in Tokyo and Beijing.
4. A representative office may engage in representational and
administrative functions in connection with the banking activities of
the foreign bank, including soliciting new business for the foreign
bank, conducting research, acting as a liaison between the foreign
bank’s head office and customers in the United States, performing
preliminary and servicing steps in connection with lending, and
performing back-office functions. A representative office may not
contract for any deposit or deposit-like liability, lend money, or engage
in any other banking activity (12 CFR 211.24(d)(1)).

B28

Federal Reserve Bulletin h September 2010

supervisor.5 The Board also considers additional standards
set forth in the IBA and Regulation K.6 The Board will
consider that the supervision standard has been met if it
determines that the applicant bank is subject to a supervisory framework that is consistent with the activities of the
proposed representative office, taking into account the
nature of such activities. This is a lesser standard than the
comprehensive, consolidated supervision standard applicable to proposals to establish branch or agency offices of a
foreign bank. The Board considers the lesser standard
sufficient for approval of representative office applications
because representative offices may not engage in banking
activities.7 This application has been considered under the
lesser standard.
As noted above, NACF engages directly in the business
of banking outside the United States.8 NACF has provided
the Board with the information necessary to assess the
application through submissions that address the relevant
issues. At the proposed representative office, NACF may
engage only in activities permissible for a representative
office, which include the proposed customer-liaison, soliciting, marketing, and administrative activities noted above.9
With respect to supervision by home-country authorities,
the Board has considered that the unincorporated banking
unit of NACF is supervised by Korea’s Financial Supervisory Service (‘‘FSS’’). The Board previously has determined that, in connection with applications involving other
Korean banks, those banks were subject to comprehensive

5. 12 U.S.C. § 3107(a)(2); 12 CFR 211.24(d)(2). In assessing the
supervision standard, the Board considers, among other indicia of
comprehensive, consolidated supervision, the extent to which the
home-country supervisors (i) ensure that the bank has adequate
procedures for monitoring and controlling its activities worldwide; (ii)
obtain information on the condition of the bank and its subsidiaries
and offices through regular examination reports, audit reports, or
otherwise; (iii) obtain information on the dealings with and the
relationship between the bank and its affiliates, both foreign and
domestic; (iv) receive from the bank financial reports that are consolidated on a worldwide basis or comparable information that permits
analysis of the bank’s financial condition on a worldwide consolidated
basis; and (v) evaluate prudential standards, such as capital adequacy
and risk asset exposure, on a worldwide basis. No single factor is
essential, and other elements may inform the Board’s determination.
6. See 12 U.S.C. § 3105(d)(3)–(4); 12 CFR 211.24(c)(2). These
standards include (1) whether the bank’s home-country supervisor has
consented to the establishment of the office; the financial and managerial resources of the bank; (2) whether the bank has procedures to
combat money laundering, whether there is a legal regime in place in
the home country to address money laundering, and whether the home
country is participating in multilateral efforts to combat money
laundering; (3) whether the appropriate supervisors in the home
country may share information on the bank’s operations with the
Board; and (4) whether the bank and its U.S. affiliates are in
compliance with U.S. law; the needs of the community; and the bank’s
record of operation. See also Standard Chartered Bank, 95 Federal
Reserve Bulletin B98 (2009).
7. 12 CFR 211.24(d)(2).
8. Although not incorporated as a bank, NACF meets the definition
of ‘‘foreign bank’’ in the IBA. Foreign bank is defined as ‘‘any
company organized under the laws of a foreign country ... which
engages in the business of banking ...’’ (12 U.S.C. § 3101(7)).
9. See supra note 4.

supervision on a consolidated basis by the FSS.10 The
banking unit of NACF is supervised on substantially the
same terms and conditions as those other financial institutions, with additional oversight of the banking unit and of
NACF as a whole by other governmental bodies related to
NACF’s status as a specialized agricultural cooperative.11
The FSS does not have supervisory responsibility for
NACF as a whole. However, the FSS has authority to limit
transactions by NACF’s banking unit with other NACF
business units and to obtain information from those units.12
Based on all the facts of record, it has been determined
that NACF is subject to a supervisory framework that is
consistent with the activities of the proposed representative
office, taking into account the nature of such activities and
the supervision of NACF’s banking unit by FSS.
The additional standards set forth in section 7 of the IBA
and Regulation K also have been taken into account.13 The
FSS has no objection to the establishment of the proposed
representative office.
With respect to the financial and managerial resources of
NACF, taking into consideration NACF’s record of operations in its home country, its overall financial resources,
and its standing with its home-country supervisor, financial
and managerial factors are consistent with approval of the
proposed representative office. NACF appears to have the
experience and capacity to support the proposed representative office and has established controls and procedures for
the proposed representative office to ensure compliance
with U.S. law, as well as controls and procedures for its
worldwide operations generally.
Korea became a member of the Financial Action Task
Force (‘‘FATF’’) on October 14, 2009, and subscribes to the
FATF’s recommendations regarding measures to combat
money laundering and international terrorism. In accordance with those recommendations, Korea has enacted
laws and created legislative and regulatory standards to
deter money laundering, terrorist financing, and other illicit
10. The FSS is the executive body of the Financial Services
Commission (‘‘FSC,’’ formerly the Financial Supervisory Commission), which is responsible for promulgating supervisory regulations,
making policy decisions about supervision, and imposing sanctions on
Korean financial institutions. The FSS is responsible for the supervision of Korean financial institutions, including overseas offices, pursuant to regulations promulgated by the FSC. See Shinhan Financial
Group Co., Ltd., 90 Federal Reserve Bulletin 85 (2004); Woori
Finance Holdings Co., Ltd., 89 Federal Reserve Bulletin 436 (2003).
11. NACF is supervised by the Ministry for Food, Agriculture,
Forestry and Fisheries, which inspects each NACF unit, other than the
banking unit, over the course of a three-year schedule. Additionally,
NACF is subject to periodic on-site examination of all its businesses
by the Korean National Assembly’s Committee of Agriculture, Forestry and Ocean in connection with its oversight of the Korean
agricultural industry.
12. The Korean national legislature is considering a proposal to
establish NACF’s banking unit as a separate legal entity that would
remain a subsidiary of NACF (‘‘separation plan’’). Under the separation plan, NACF’s banking subsidiary would be subject, as a separate
legal entity, to consolidated supervision by the FSS on substantially
the same terms and conditions as other banks in Korea that the Board
has determined to be subject to comprehensive supervision. NACF
expects the separation plan to be implemented by the end of 2011.
13. See 12 U.S.C. § 3105(d)(3)–(4); 12 CFR 211.24(c)(2).

Legal Developments: Second Quarter, 2010

activities. Money laundering is a criminal offense in Korea,
and financial services businesses are required to establish
internal policies, procedures, and systems for the detection
and prevention of money laundering throughout their
worldwide operations. NACF has policies and procedures
to comply with those laws and regulations, and these
policies and procedures are monitored by governmental
entities responsible for anti-money-laundering compliance.
With respect to access to information about NACF’s
operations, the restrictions on disclosure in relevant jurisdictions in which NACF operates have been reviewed and
relevant government authorities have been communicated
with regarding access to information. NACF has committed to make available to the Board such information on the
operations of NACF and any of its affiliates that the Board
deems necessary to determine and enforce compliance with
the IBA, the Bank Holding Company Act of 1956, as
amended, and other applicable federal law. To the extent
that providing such information to the Board may be
prohibited by law or otherwise, NACF has committed to
cooperate with the Board to obtain any necessary consents
or waivers that might be required from third parties for the
disclosure of such information. In addition, subject to
certain conditions, the FSS may share information on
NACF’s operations with other supervisors, including the
Board. In light of these commitments and other facts of
record, and subject to the condition described below, it has
been determined that NACF has provided adequate assurances of access to any necessary information that the Board
may request.
Based on the foregoing and all the facts of record,
NACF’s application to establish the proposed representative office is hereby approved by the Director of the
Division of Banking Supervision and Regulation, with the
concurrence of the General Counsel, pursuant to authority
delegated by the Board.14 Should any restrictions on access
to information on the operations or activities of NACF and
its affiliates subsequently interfere with the Board’s ability
to obtain information to determine and enforce compliance
by NACF or its affiliates with applicable federal statutes,
the Board may require termination of any of NACF’s direct
or indirect activities in the United States. Approval of this
application also is specifically conditioned on compliance
by NACF with the conditions imposed in this order and the
commitments made to the Board in connection with this
application.15 For purposes of this action, these commitments and conditions are deemed to be conditions imposed
in writing by the Board in connection with this decision
and, as such, may be enforced in proceedings under
applicable law.

14. 12 CFR 265.7(d)(12).
15. The Board’s authority to approve the establishment of the
proposed representative office parallels the continuing authority of the
state of New York to license offices of a foreign bank. The Board’s
approval of this application does not supplant the authority of the state
of New York or its agent, the New York State Banking Department, to
license the proposed office of NACF in accordance with any terms or
conditions that it may impose.

B29

By order, approved pursuant to authority delegated by
the Board, effective June 29, 2010.
Robert deV. Frierson
Deputy Secretary of the Board

FINAL ENFORCEMENT DECISION
ISSUED BY THE BOARD

In the Matter of
Antonio Garcia-Adanez,
A Former Institution-Affıliated Party of
Standard Chartered Bank International
(Americas) Limited,
An Edge corporation subsidiary of
Standard Chartered Bank,
London, United Kingdom
Docket No. 10-057-E-I
Order of Prohibition Issued upon Consent
Pursuant to Section 8(e) of the Federal
Deposit Insurance Act, as Amended
WHEREAS, pursuant to sections 8(b)(3), 8(e) and 8(i)(3)
of the Federal Deposit Insurance Act, as amended (the
‘‘FDI Act’’), 12 U.S.C. §§ 1818(e) and (i)(3), the Board of
Governors of the Federal Reserve System (the ‘‘Board of
Governors’’) issues this Order of Prohibition (the ‘‘Order’’)
upon the consent of Antonio Garcia-Adanez (‘‘Garcia’’), a
former employee and institution-affiliated party, as defined
in section 3(u) of the FDI Act, 12 U.S.C. § 1813(u), of
Standard Chartered Bank International (Americas) Ltd.
(‘‘SCBI’’), at all relevant times an Edge corporation organized under Section 25A of the Federal Reserve Act
(12 U.S.C. § 611 et seq.);
WHEREAS, Garcia, while employed as a private banking relationship manager at SCBI in Miami, Florida, allegedly engaged in violations of law, unsafe and unsound
banking practices, and breaches of fiduciary duty that have
caused substantial losses to SCBI, including, inter alia,
manipulating the account statements of SCBI clients to
misrepresent client investments, obligations and authorizations.
WHEREAS, by affixing his signature hereunder, Garcia
has consented to the issuance of this Order by the Board of
Governors and has agreed to comply with each and every
provision of this Order, and has waived any and all rights
he might have pursuant to 12 U.S.C. § 1818, 12 CFR Part
263, or otherwise (a) to the issuance of a notice of intent to
prohibit on any matter implied or set forth in this Order; (b)

B30

Federal Reserve Bulletin h September 2010

to a hearing for the purpose of taking evidence with respect
to any matter implied or set forth in this Order; (c) to obtain
judicial review of this Order or any provision hereof; and
(d) to challenge or contest in any manner the basis,
issuance, terms, validity, effectiveness, or enforceability of
this Order or any provision hereof.
NOW THEREFORE, prior to the taking of any testimony or adjudication of or finding on any issue of fact or
law implied or set forth herein, and without this Order
constituting an admission by Garcia of any allegation made
or implied by the Board of Governors in connection with
this proceeding, and solely for the purpose of settlement of
this proceeding without protracted or extended hearings or
testimony:
IT IS HEREBY ORDERED, pursuant to sections 8(b)(3), 8(e) and (i)(3) of the FDI Act, 12 U.S.C.
§§ 1818(b)(3), (e) and (i)(3), that:
1. Garcia, without the prior written approval of the Board
of Governors and, where necessary pursuant to section 8(e)(7)(B) of the FDI Act, 12 U.S.C. § 1818(e)(7)(B),
another federal financial institutions regulatory agency,
is hereby and henceforth prohibited from:
a. participating in any manner in the conduct of the
affairs of any institution or agency specified in
section 8(e)(7)(A) of the FDI Act, 12 U.S.C.
§ 1818(e)(7)(A), including, but not limited to, any
insured depository institution, any holding company
of an insured depository institution, any subsidiary
of such holding company, any foreign bank, or any
Edge corporation organized under Section 25A of
the Federal Reserve Act (12 U.S.C. § 611 et seq.);
b. soliciting, procuring, transferring, attempting to transfer, voting or attempting to vote any proxy, consent,
or authorization with respect to any voting rights in
any institution described in section 8(e)(7)(A) of the
FDI Act, 12 U.S.C. § 1818(e)(7)(A);
c. violating any voting agreement previously approved
by any federal banking agency; or
d. voting for a director, or serving or acting as an
institution-affiliated party, as defined in section 3(u)
of the FDI Act, 12 U.S.C. § 1813(u), such as an
officer, director or employee, in any institution
described in section 8(e)(7)(A) of the FDI Act.

2. All communications regarding this Order shall be addressed to:
a. Richard M. Ashton, Esq.
Deputy General Counsel
Board of Governors of the Federal Reserve System
20th & C Streets NW
Washington, DC 20551
b. Mr. Antonio Garcia-Adanez
3162 Commodore Plaza
Miami, Florida 33133
With a copy to:
Martin B. Goldberg, Esq.
Lash & Goldberg LLP
100 Southeast Second Street
Suite 1200
Miami, Florida 33131
3. Any violation of this Order shall separately subject
Garcia to appropriate civil or criminal penalties, or both,
under sections 8(i) and (j) of the FDI Act, 12 U.S.C
§§ 1818(i) and (j).
4. The provisions of this Order shall not bar, estop, or
otherwise prevent the Board of Governors, or any other
federal or state agency or department, from taking any
other action affecting Garcia; provided, however, that
the Board of Governors shall not take any further action
against Garcia relating to the matters addressed by this
Order based upon facts presently known by the Board of
Governors.
5. Each provision of this Order shall remain fully effective
and enforceable until expressly stayed, modified, terminated, or suspended in writing by the Board of Governors.
By order of the Board of Governors of the Federal
Reserve System, effective this 13th day of May, 2010.
BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
Jennifer J. Johnson
Secretary of the Board
(signed)
Antonio Garcia-Adanez

B31

November 2010

Legal Developments: Third Quarter, 2010
ORDERS ISSUED UNDER BANK
HOLDING COMPANY ACT

Orders Issued under Section 3 of
the Bank Holding Company Act
China Investment Corporation
Beijing, People’s Republic of China
Order Approving Acquisition of an Interest
in a Bank Holding Company
China Investment Corporation (‘‘CIC’’), Beijing, People’s
Republic of China, has requested the Board’s approval
under section 3 of the Bank Holding Company Act of 1956,
as amended (‘‘BHC Act’’),1 to acquire indirectly up to
10 percent of the voting shares of Morgan Stanley,
New York, New York.
Notice of the proposal, affording interested persons an
opportunity to submit comments, has been published
(75 Federal Register 45628 (August 3, 2010)). The time for
filing comments has expired, and the Board has considered
the proposal and all comments received in light of the
factors set forth in section 3 of the BHC Act.
CIC is a sovereign wealth fund organized by the Chinese
government for the purpose of investing its foreign exchange reserves. CIC controls Central SAFE Investments
Limited (‘‘Huijin’’), also of Beijing, a Chinese governmentowned investment company organized to invest in Chinese
financial institutions. Huijin owns controlling interests in
three Chinese banks that operate banking offices in the
United States: Bank of China, China Construction Bank,
and Industrial and Commercial Bank of China, all also of
Beijing.2 Under the International Banking Act, any foreign
bank that operates a branch, agency, or commercial lending
company in the United States, and any company that
controls the foreign bank, is subject to the BHC Act as if
1. 12 U.S.C. § 1842.
2. Bank of China operates two grandfathered insured federal
branches in New York City and a limited federal branch in Los
Angeles. Bank of China, in turn, controls a wholly owned subsidiary
bank, Nanyang Commercial Bank, Limited, Hong Kong SAR, People’s Republic of China, that operates a federal branch in San
Francisco. China Construction Bank operates a state branch and a
representative office, and Industrial and Commercial Bank of China
operates a state branch, all in New York City.

the foreign bank or company were a bank holding company.3 As a result, CIC and Huijin are subject to the BHC
Act as if they were bank holding companies4 and are
required to obtain prior Board approval to make a direct or
indirect investment in 5 percent or more of the voting
shares of a bank holding company or U.S. bank.5
In December 2007, CIC, primarily through a wholly
owned nonbank subsidiary, invested in units consisting of
trust preferred securities of Morgan Stanley and a stock
purchase agreement to acquire voting common stock of
Morgan Stanley by August 2010, subject to certain conditions.6 In addition, CIC currently holds, through other
subsidiaries, 2.49 percent of the voting common stock of
Morgan Stanley. On consummation of the proposal, CIC
would own and control up to 10 percent of Morgan
Stanley’s voting common stock. At the time of its initial
investment in Morgan Stanley, CIC did not yet own the
Chinese banks with U.S. branches and, therefore, was not
subject to the BHC Act. In addition, Morgan Stanley, which
became a bank holding company in September 2008, was
not a bank holding company at the time it entered into the
stock purchase agreement with CIC. Therefore, the transaction in 2007 between CIC and Morgan Stanley did not
require review or approval by the Board. Because Morgan
Stanley is now a bank holding company and CIC is now
subject to the BHC Act as if it were a bank holding
company as a result of its acquisition of Huijin, CIC must
receive prior Board approval under section 3(a)(3) of the

3. 12 U.S.C. § 3106.
4. The Board previously provided certain exemptions to CIC and
Huijin under section 4(c)(9) of the BHC Act, which authorizes the
Board to grant to foreign companies exemptions from the nonbanking
restrictions of the BHC Act where the exemptions would not be
substantially at variance with the purposes of the act and would be in
the public interest. See 12 U.S.C. § 1843(c)(9). The exemptions
provided to CIC and Huijin do not extend to Bank of China, China
Construction Bank, Industrial and Commercial Bank of China, or any
other Chinese banking subsidiary of CIC or Huijin that operates a
branch or agency in the United States. See Board letter dated August 5,
2008, to H. Rodgin Cohen.
5. 12 U.S.C. § 1842(a)(3).
6. The agreement provided that the trust preferred securities would
either be remarketed in order to raise the funds necessary for CIC to
purchase Morgan Stanley’s voting common stock or directly redeemed
in exchange for common stock of Morgan Stanley. The securities were
converted directly into voting common stock of Morgan Stanley on
August 17, 2010, and the portion of such shares that would have
caused CIC to own more than 4.99 percent of Morgan Stanley’s voting
shares were transferred into a custody account. The shares in the
custody account will be released on Board approval of this application
and the expiration of the 15-day waiting period.

B32

Federal Reserve Bulletin h November 2010

BHC Act to own or control 5 percent or more of the voting
shares of Morgan Stanley.7
Morgan Stanley, with total consolidated assets of approximately $626 billion, engages in commercial and investment
banking, securities underwriting and dealing, asset management, trading, and other activities both in the United States
and abroad. Morgan Stanley controls Morgan Stanley
Bank, National Association (‘‘Morgan Bank’’), Salt Lake
City, Utah, which operates one branch in the state, with
total consolidated assets of approximately $66.2 billion and
deposits of approximately $54.1 billion. In addition, Morgan Stanley controls Morgan Stanley Private Bank, National Association (‘‘MSPB’’), Purchase, New York, with
total consolidated assets of $6.6 billion and deposits of
$5.8 billion.8

acquire control of, or have the ability to exercise a controlling influence over, Morgan Stanley or any of its subsidiaries through the conversion of the trust preferred securities
held by CIC in Morgan Stanley into voting common stock
of Morgan Stanley. The Board notes that the BHC Act
requires CIC to receive the Board’s approval before it
directly or indirectly acquires additional shares of Morgan
Stanley or attempts to exercise a controlling influence over
Morgan Stanley or any of its subsidiaries.10

COMPETITIVE AND CONVENIENCE AND NEEDS
CONSIDERATIONS

CIC has stated that it does not propose to control or
exercise a controlling influence over Morgan Stanley and
that its indirect investment will be a passive investment.9
CIC has agreed to abide by certain commitments substantially similar to those on which the Board has previously
relied in determining that an investing company would not
be able to exercise a controlling influence over another
bank holding company or bank for purposes of the BHC
Act (‘‘Passivity Commitments’’). For example, CIC has
committed not to exercise or attempt to exercise a controlling influence over the management or policies of Morgan
Stanley; not to seek or accept more than one representative
on the board of directors of Morgan Stanley; and not to
have any other director, officer, employee, or agent interlocks with Morgan Stanley. The Passivity Commitments
also include certain restrictions on the business relationships between CIC and Morgan Stanley.
Based on these considerations and all the other facts of
record, the Board has concluded that CIC would not

The Board has considered the competitive effects of the
proposal in light of all the facts of the record. Section 3 of
the BHC Act prohibits the Board from approving a proposal that would result in a monopoly or would be in
furtherance of any attempt to monopolize the business of
banking in any relevant banking market. The BHC Act also
prohibits the Board from approving a proposal that would
substantially lessen competition in any relevant banking
market, unless the anticompetitive effects of the proposal
clearly are outweighed in the public interest by the probable effect of the proposal in meeting the convenience and
needs of the community to be served.11
Several of the Chinese banks indirectly owned by CIC
maintain branches that compete directly with a subsidiary
bank of Morgan Stanley in the Metro New York banking
market.12 The Board has reviewed carefully the competitive effects of the proposal in the Metro New York banking
market in light of all the facts of record. In particular, the
Board has considered the number of competitors that
remain in the banking market, the relative shares of total
deposits in depository institutions in the market (‘‘market
deposits’’) controlled by relevant institutions,13 and the
concentration level of market deposits and the increase in
the level as measured by the Herfindahl–Hirschman Index

7. 12 U.S.C. § 1842(a)(3).
8. In addition, Morgan Stanley holds a noncontrolling 9.9 percent
interest in a bank holding company, Chinatrust Financial Holding
Company, Ltd. (‘‘Chinatrust’’), Taipei, Taiwan, and a national bank,
Herald National Bank (‘‘Herald’’), New York, New York. See Morgan
Stanley, 95 Federal Reserve Bulletin B86 (2009), and Morgan Stanley,
95 Federal Reserve Bulletin B93 (2009).
9. Although the acquisition of less than a controlling interest in a
bank or bank holding company is not a normal acquisition for a bank
holding company, the requirement in section 3(a)(3) of the BHC Act
that the Board’s approval be obtained before a bank holding company
acquires more than 5 percent of the voting shares of a bank suggests
that Congress contemplated the acquisition by bank holding companies of between 5 percent and 25 percent of the voting shares of banks.
See 12 U.S.C. § 1842(a)(3). On this basis, the Board previously has
approved the acquisition by a bank holding company of less than a
controlling interest in a bank or bank holding company. See, e.g.,
Mitsubishi UFG Financial Group, Inc., 95 Federal Reserve Bulletin
B34 (2009) (acquisition of up to 24.9 percent of the voting shares of a
bank holding company); Brookline Bancorp, MHC, 86 Federal
Reserve Bulletin 52 (2000) (acquisition of up to 9.9 percent of the
voting shares of a bank holding company); Mansura Bancshares, Inc.,
79 Federal Reserve Bulletin 37 (1993) (acquisition of 9.7 percent of
the voting shares of a bank holding company).

10. 12 U.S.C. § 1842. See, e.g., Emigrant Bancorp, Inc., 82 Federal
Reserve Bulletin 555 (1996).
11. 12 U.S.C. § 1842(c)(1).
12. The Metro New York banking market includes: Bronx, Dutchess, Kings, Nassau, New York, Orange, Putnam, Queens, Richmond,
Rockland, Suffolk, Sullivan, Ulster, and Westchester counties in
New York; Bergen, Essex, Hudson, Hunterdon, Mercer, Middlesex,
Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, Union, and
Warren counties and the northern portions of Mercer County in
New Jersey; Monroe and Pike counties in Pennsylvania; and Fairfield
County and portions of Litchfield and New Haven counties in Connecticut.
13. Call report, deposit, and market share data are based on data
reported by insured depository institutions in the summary of deposits
data as of June 30, 2009. The data are also based on calculations in
which the deposits of thrift institutions are included at 50 percent. The
Board previously has indicated that thrift institutions have become, or
have the potential to become, significant competitors of commercial
banks. See, e.g., Midwest Financial Group, Inc., 75 Federal Reserve
Bulletin 386 (1989); National City Corporation, 70 Federal Reserve
Bulletin 743 (1984). Thus, the Board regularly has included thrift
institution deposits in the market share calculation on a 50 percent
weighted basis. See, e.g., First Hawaiian, Inc., 77 Federal Reserve
Bulletin 52 (1991).

NONCONTROLLING INVESTMENT

Legal Developments: Third Quarter, 2010

(‘‘HHI’’) under the Department of Justice Bank Merger
Competitive Review guidelines (‘‘DOJ Bank Merger Guidelines’’).14
Consummation of the acquisition is consistent with
Board precedent and within the thresholds in the DOJ Bank
Merger Guidelines in the Metro New York banking market.
On consummation, the banking market would remain moderately concentrated, and numerous competitors would
remain in the market.15
The DOJ also has reviewed the matter and has advised
the Board that it does not believe that CIC’s ownership
interest in Morgan Stanley is likely to have a significant
adverse effect on competition in any relevant banking
market. The appropriate banking agencies have been
afforded an opportunity to comment and have not objected
to the application.
Based on all the facts of record, the Board has concluded
that consummation of the proposal would not have a
significantly adverse effect on competition or on the concentration of banking resources in any relevant banking
market and that competitive factors are consistent with
approval of the proposal.
In addition, considerations relating to the convenience
and needs of the communities to be served, including the
records of performance of the institutions involved under
the Community Reinvestment Act (‘‘CRA’’),16 are consistent with approval of the application.17 Morgan Bank
received an ‘‘outstanding’’ rating at its most recent CRA
performance evaluation by the FDIC, as of January 30,
2006.18
14. Under the DOJ Bank Merger Guidelines, a market is considered
unconcentrated if the post-merger HHI is under 1000, moderately
concentrated if the post-merger HHI is between 1000 and 1800, and
highly concentrated if the post-merger HHI exceeds 1800. The Department of Justice (‘‘DOJ’’) has informed the Board that a bank merger or
acquisition generally would not be challenged (in the absence of other
factors indicating anticompetitive effects) unless the post-merger HHI
is at least 1800 and the merger increases the HHI more than 200
points. Although the DOJ and the Federal Trade Commission recently
issued revised Horizontal Merger Guidelines, the DOJ has confirmed
that the DOJ Bank Merger Guidelines, which were issued in 1995,
were not changed. Press Release, Department of Justice (August 19,
2010), available at www.justice.gov/opa/pr/2010/August/10-at938.html.
15. The HHI would remain unchanged at 1315 in the Metro
New York banking market, which has 272 insured depository institution competitors. The combined deposits of the relevant institutions in
the Metro New York banking market represent less than 1 percent of
market deposits.
16. 12 U.S.C. § 2901 et seq.; 12 U.S.C. § 2903; 12 U.S.C.
§ 1842(c)(2).
17. Bank of China has two grandfathered federal branches whose
deposits are insured by the Federal Deposit Insurance Corporation
(‘‘FDIC’’). The branches received a ‘‘satisfactory’’ rating at their most
recent CRA performance evaluation by the FDIC, as of August 18,
2008.
18. Morgan Bank became a national bank on September 23, 2008,
on its conversion from a Utah-chartered industrial bank. The 2006
evaluation was conducted before this conversion. MSPB became a
national bank on July 1, 2010, on its conversion from a limitedpurpose savings association not subject to the CRA. MSPB has not yet
been evaluated under the CRA by the Office of the Comptroller of the
Currency.

B33

FINANCIAL, MANAGERIAL, AND OTHER
SUPERVISORY CONSIDERATIONS
Section 3 of the BHC Act requires the Board to consider the
financial and managerial resources and future prospects of
the companies and depository institutions involved in the
proposal, and certain other supervisory factors. The Board
has carefully considered these factors in light of all the
facts of record, including confidential supervisory and
examination information regarding Morgan Stanley and its
depository institution subsidiaries, publicly reported and
other financial information, and information provided by
CIC. With respect to the financial and managerial resources
and future prospects of the companies and depository
institutions involved in the proposal, Morgan Stanley’s
subsidiary banks currently are well capitalized and would
remain so on consummation of this proposal. In addition,
the Board has considered the financial, managerial, and
future prospects of CIC in light of the fact that CIC is a
government-owned investment company organized to invest the foreign exchange reserves of the government.
Based on all the facts of record, the Board has concluded
that considerations relating to the financial and managerial
resources and future prospects of the organizations involved
in the proposal are consistent with approval, as are the other
supervisory factors.19

SUPERVISION OR REGULATION ON A
CONSOLIDATED BASIS
In evaluating this application, the Board considered whether
CIC is subject to comprehensive supervision or regulation
on a consolidated basis by appropriate authorities in its
home country. The system of comprehensive supervision or
regulation may vary, depending on the nature of the
acquiring company and the proposed investment. The
Board believes that CIC may be found to be subject to an
appropriate type and level of comprehensive regulation on
a consolidated basis, given its unique nature and structure.
CIC is an entity that is wholly owned by the government of
China, was established to carry out the function of investing foreign exchange reserves, and is managed by officials
who are selected by and report directly to the State Council
of the People’s Republic of China (‘‘State Council’’),
which is the highest executive body in the Chinese govern19. Section 3 of the BHC Act also requires the Board to determine
that an applicant has provided adequate assurances that it will make
available to the Board such information on its operations and activities
and those of its affiliates that the Board deems appropriate to determine and enforce compliance with the BHC Act (12 U.S.C.
§ 1842(c)(3)(A)). CIC has committed that, to the extent not prohibited
by applicable law, it will make available to the Board such information
on the operations of its affiliates that the Board deems necessary to
determine and enforce compliance with the BHC Act, the International
Banking Act, and other applicable federal laws. CIC also has committed to cooperate with the Board to obtain any waivers or exemptions
that may be necessary to enable it or its affiliates to make such
information available to the Board. Based on all facts of record, the
Board has concluded that CIC has provided adequate assurances of
access to any appropriate information the Board may request.

B34

Federal Reserve Bulletin h November 2010

ment. The chairman and vice chairman of CIC are appointed directly by the State Council and all other officer
and director positions must be approved by the State
Council. Each of the following Chinese government agencies is entitled to a seat on CIC’s board of directors: the
Ministry of Finance, the People’s Bank of China (‘‘PBOC’’),
the National Development and Reform Commission, the
Ministry of Commerce, and the State Administration of
Foreign Exchange. In addition, the Ministry of Finance of
the People’s Republic of China supervises CIC’s finances
and accounting, and China’s National Audit Office conducts periodic external audits of CIC. This oversight by the
State Council and by a number of agencies of the Chinese
government, including the Ministry of Finance and the
PBOC, allows for review of the worldwide investment
strategy and portfolio of CIC. On this basis, appropriate
authorities in China would appear to have full access to and
oversight of CIC and its activities.
In considering this issue, the Board has taken into
account that the proposed investment in Morgan Stanley
would be a minority, noncontrolling interest. CIC has
represented that it has no intention to control or exercise a
controlling interest over Morgan Stanley and, as noted, has
provided the Board with Passivity Commitments that help
ensure that CIC cannot exercise control or a controlling
influence. In addition, business relationships between CIC
and Morgan Stanley are limited by the Passivity Commitments.
Based on all the facts of record, the Board has determined that CIC is subject to comprehensive supervision on
a consolidated basis by its appropriate home-country
authorities for purposes of this application.20

CONCLUSION
Based on the foregoing and all the facts of record, the
Board has approved CIC’s application to acquire up to
10 percent of the voting shares of Morgan Stanley pursuant
to section 3(a)(3) of the BHC Act.21 In reaching its
conclusion, the Board has considered all the facts of record
in light of the factors that it is required to consider under
the BHC Act and other applicable statutes.
The Board’s approval is specifically conditioned on
compliance by CIC with the conditions imposed in this
order and the commitments made to the Board in connection with the application. For purposes of this action, the
conditions and commitments are deemed to be conditions
imposed in writing by the Board in connection with its
findings and decision herein and, as such, may be enforced
in proceedings under applicable law.
20. Neither Huijin nor any of the three Chinese banks with U.S.
banking operations that are controlled by Huijin will be a direct or
indirect investor in Morgan Stanley. In evaluating a proposal by Huijin
or any of the Chinese banks owned by Huijin to acquire an insured
depository institution in the United States, the Board would evaluate
whether that entity is subject to consolidated comprehensive homecountry supervision.
21. The Board also has approved the indirect acquisition by CIC of
Morgan’s interests in Chinatrust and Herald.

The proposal may not be consummated before the 15th
calendar day after the effective date of this order, or later
than three months after the effective date of this order,
unless such period is extended for good cause by the Board
or the Federal Reserve Bank of New York, acting pursuant
to delegated authority.
By order of the Board of Governors, August 31, 2010.
Voting for this action: Chairman Bernanke and Governors Kohn,
Warsh, Duke, and Tarullo.

Robert deV. Frierson
Deputy Secretary of the Board

Premier Commerce Bancorp, Inc.
Palos Hills, Illinois
Order Approving the Formation of a Bank
Holding Company
Premier Commerce Bancorp, Inc. (‘‘Premier Commerce’’)
has requested the Board’s approval under section 3 of the
Bank Holding Company Act (‘‘BHC Act’’)1 to become a
bank holding company and to acquire all the voting shares
of G.R. Bancorp, Ltd. (‘‘GRB’’), and thereby indirectly
acquire GRB’s subsidiary bank, The First National Bank of
Grand Ridge (‘‘Bank’’),2 both of Grand Ridge, Illinois.
Notice of the proposal, affording interested persons an
opportunity to comment, has been published (75 Federal
Register 8944-45 (2010)). The time for filing comments has
expired, and the Board has considered the application and
all comments received in light of the factors set forth in
section 3 of the BHC Act.
Premier Commerce is a newly organized corporation
formed for the purpose of acquiring control of GRB. Bank,
with total assets of $35.2 million, is the 545th largest
insured depository institution in Illinois, controlling deposits of approximately $28.4 million, which represent less
than 1 percent of the total amount of deposits of insured
depository institutions in the state.3

COMPETITIVE CONSIDERATIONS
Section 3 of the BHC Act prohibits the Board from
approving a proposal that would result in a monopoly or
that would be in furtherance of an attempt to monopolize
the business of banking in any relevant banking market.
The BHC Act also prohibits the Board from approving a
proposal that would substantially lessen competition in any
relevant banking market, unless the anticompetitive effects
of the proposal are clearly outweighed in the public interest
1. 12 U.S.C. § 1842.
2. GRB owns 83.3 percent of the voting shares of Bank.
3. Asset and deposit data are as of December 31, 2009. Ranking
data are as of June 30, 2009, and reflect merger activity through that
date. In this context, insured depository institutions include commercial banks, savings banks, and savings associations.

Legal Developments: Third Quarter, 2010

by the probable effect of the proposal in meeting the
convenience and needs of the community to be served.4
Premier Commerce does not currently control a depository institution. Based on all the facts of record, the Board
has concluded that consummation of the proposal would
not have a significantly adverse effect on competition or on
the concentration of banking resources in any relevant
banking market and that competitive considerations are
consistent with approval.

FINANCIAL, MANAGERIAL, AND SUPERVISORY
CONSIDERATIONS AND FUTURE PROSPECTS
Section 3 of the BHC Act requires the Board to consider the
financial and managerial resources and future prospects of
the companies and the depository institutions involved in
the proposal and certain other supervisory factors.5 The
Board has considered those factors in light of all the facts
of record, including supervisory and examination information received from the Office of the Comptroller of Currency (‘‘OCC’’), the primary federal supervisor of Bank,
and publicly reported and other available financial information, including information provided by Premier Commerce. In addition, the Board has consulted with the OCC.
In evaluating financial factors in proposals involving
newly formed small bank holding companies, the Board
reviews the financial condition of both the applicant and the
target depository institution. The Board also evaluates the
financial condition of the pro forma organization, including
its capital position, asset quality, and earnings prospects,
and the impact of the proposed funding on the transaction.
In addition, for proposals involving small bank holding
companies, the Board evaluates the institution’s compliance with the Board’s Small Bank Holding Company
Policy Statement, including compliance with those measures that are used to assess capital adequacy and overall
financial strength.6 In assessing financial factors, the Board
consistently has considered capital adequacy to be especially important.
The Board has considered carefully the financial factors
of the proposal. Bank currently is well capitalized and
would remain so on consummation of the proposal, and
Premier Commerce would be in compliance with relevant
capital standards. The transaction will be structured as a
cash purchase funded from proceeds of the issuance of new
holding company stock. Based on its review of the financial
considerations related to the proposal, the Board finds that
Premier Commerce has sufficient financial resources to
effect the acquisition and to comply with the Board’s Small
Bank Holding Company Policy Statement.
The Board also has considered the managerial resources
of the applicant, including the proposed management of the
organization. The Board has reviewed the examination
records of Bank, including assessments of its current
management, risk-management systems, and operations. In
4. 12 U.S.C. § 1842(c)(1).
5. 12 U.S.C. § 1842(c)(2) and (3).
6. 12 CFR 225, Appendix C.

B35

addition, the Board has considered the supervisory experience of the OCC with Bank, including its record of
compliance with applicable banking laws and anti-moneylaundering laws, and the proposed management officials
and principal shareholders of Premier Commerce. The
Board also has considered Premier Commerce’s plan for
implementing the proposal, including the proposed management after consummation.
In addition, the Board has considered carefully the
future prospects of Premier Commerce and Bank. Based on
all the facts of record, the Board concludes that considerations relating to the financial and managerial resources
and future prospects of the institutions involved in the
proposal are consistent with approval, as are the other
supervisory factors under the BHC Act.

CONVENIENCE AND NEEDS CONSIDERATIONS
In acting on proposals under section 3 of the BHC Act, the
Board also must consider the effects of the proposal on the
convenience and needs of the communities to be served and
take into account the records of the relevant insured
depository institutions under the Community Reinvestment
Act (‘‘CRA’’).7 The Board has carefully considered all the
facts of record, including evaluations of the CRA performance record of Bank, information provided by Premier
Commerce, and public comment received on the proposal.
Bank received a ‘‘satisfactory’’ rating at its most recent
CRA performance evaluation by the OCC, as of March 31,
2008.
A commenter expressed concern that Bank would not
adequately serve local credit needs after consummation of
the proposal because few of the proposed directors have
associations with the local community. Premier Commerce
has stated that it intends to maintain Bank’s current location for the indefinite future and that it is contractually
obligated to maintain Bank’s Grand Ridge office for at least
five years. Premier Commerce also has represented that it
expects to increase lending in the Grand Ridge community
after acquiring Bank. In addition, Premier Commerce has
represented that the proposal would benefit Bank’s customers by expanding the bank’s offerings to include internet
banking, remote capture, and other technology-based products and services.
Based on a review of the entire record, the Board has
concluded that convenience and needs considerations and
the CRA performance record of Bank are consistent with
approval of the proposal.

CONCLUSION
Based on the foregoing and all facts of record, the Board
has determined that the application should be, and hereby
is, approved. In reaching its conclusion, the Board has
considered all the facts of record in light of the factors that
it is required to consider under the BHC Act and other
7. 12 U.S.C. § 2901 et seq.

B36

Federal Reserve Bulletin h November 2010

applicable statutes. The Board’s approval is specifically
conditioned on compliance by Premier Commerce with the
conditions in this order and all the commitments it made to
the Board in connection with the application. For purposes
of this action, the conditions and commitments are deemed
to be conditions imposed in writing by the Board in
connection with its findings and decision herein and, as
such, may be enforced in proceedings under applicable law.
The proposed transaction may not be consummated
before the 15th calendar day after the effective date of this
order, or later than three months after the effective date of
this order, unless such period is extended for good cause by
the Board or the Federal Reserve Bank of Chicago, acting
pursuant to delegated authority.
By order of the Board of Governors, effective July 1,
2010.
Voting for this action: Chairman Bernanke and Governors Kohn,
Warsh, Duke, and Tarullo.

Robert deV. Frierson
Deputy Secretary of the Board

The Toronto-Dominion Bank
Toronto, Canada
Order Approving the Acquisition of a Bank
Holding Company
The Toronto-Dominion Bank (‘‘TD’’) and its subsidiary
bank holding companies, TD US P & C Holdings ULC
(‘‘TD ULC’’), Calgary, Canada, and TD Bank US Holding
Company (‘‘TD Bank US HC’’), Portland, Maine (collectively, ‘‘Applicants’’), have requested the Board’s approval
under section 3 of the Bank Holding Company Act (‘‘BHC
Act’’)1 to acquire The South Financial Group, Inc.
(‘‘TSFG’’) and its subsidiary bank, Carolina First Bank
(‘‘Carolina First’’), both of Greenville, South Carolina.2
Notice of the proposal, affording interested persons an
opportunity to submit comments, has been published
(75 Federal Register 30,406 (2010)). The time for filing
comments has expired, and the Board has considered the
proposal and all comments received in light of the factors
set forth in the BHC Act.
TD, with total consolidated assets equivalent to $568 billion, is the second largest depository organization in
Canada.3 TD operates a branch in New York City and an
agency in Houston. Through TD Bank US HC, TD controls
two subsidiary banks in the United States, TD Bank and TD
1. 12 U.S.C. § 1842.
2. TD, TD ULC, and TD Bank US HC are all financial holding
companies within the meaning of the BHC Act. TD filed an application
with the Office of the Comptroller of the Currency (‘‘OCC’’) on
June 18, 2010, for approval under the Bank Merger Act (12 U.S.C.
§ 1828(c)) to merge Carolina First into TD’s subsidiary bank, TD
Bank, N.A., (‘‘TD Bank’’), Wilmington, Delaware.
3. Canadian asset and ranking data are as of April 30, 2010, and are
based on the exchange rate as of that date.

Bank USA, National Association (‘‘TD Bank USA’’),
Portland, Maine. TD Bank US HC, with total consolidated
assets of $155 billion, is the 18th largest depository organization in the United States, controlling $125 billion in
deposits.4 Its subsidiary banks operate in 12 states and the
District of Columbia.5 In Florida, the only state where a
subsidiary depository institution of TD Bank US HC and
TSFG both operate, TD Bank US HC is the 16th largest
depository organization, controlling deposits of approximately $4.4 billion.
TSFG has total consolidated assets of approximately
$12.4 billion, and its subsidiary bank operates in South
Carolina, North Carolina, and Florida. TSFG is the 13th
largest depository organization in South Carolina, controlling deposits of $5.5 billion. In Florida, TSFG is the 20th
largest depository organization, controlling deposits of
$3 billion.
On consummation of the proposal, TD Bank US HC
would become the 17th largest depository organization in
the United States, with total consolidated assets of approximately $167 billion. TD Bank US HC would control
deposits of approximately $134.7 billion, which represent
1.7 percent of the total amount of deposits of insured
depository institutions in the United States.6 In Florida, TD
Bank US HC would become the 11th largest depository
organization, controlling deposits of approximately $7.4 billion, which represent approximately 1.8 percent of deposits
of insured depository institutions in the state.

INTERSTATE ANALYSIS
Section 3(d) of the BHC Act allows the Board to approve
an application by a bank holding company to acquire
control of a bank located in a state other than the bank
holding company’s home state if certain conditions are
met. For purposes of the BHC Act, the home state of TD is
New York,7 and TSFG is located in South Carolina, North
Carolina, and Florida.8
Based on a review of all the facts of record, including
relevant state statutes, the Board finds that the conditions
for an interstate acquisition enumerated in section 3(d) of

4. Asset data and nationwide deposit ranking data are as of
March 31, 2010, and statewide deposit and ranking data are as of
June 30, 2009.
5. TD Bank operates in Connecticut, Delaware, Florida, Maine,
Maryland, Massachusetts, New Hampshire, New Jersey, New York,
Pennsylvania, Vermont, Virginia, and the District of Columbia. TD
Bank USA operates in Maine.
6. In this context, insured depository institutions include commercial banks, savings banks, and savings associations.
7. A bank holding company’s home state is the state in which the
total deposits of all banking subsidiaries of such company were the
largest on July 1, 1966, or the date on which the company became a
bank holding company, whichever is later (12 U.S.C. § 1841(o)(4)(C).
8. For purposes of section 3(d) of the BHC Act, the Board considers
a bank to be located in the states in which the bank is chartered or
headquartered or operates a branch (12 U.S.C. §§ 1841(o)(4)–(7),
1842(d)(1)(A), and 1842(d)(2)(B)).

Legal Developments: Third Quarter, 2010

the BHC Act are met in this case.9 In light of all the facts of
record, the Board is permitted to approve the proposal
under section 3(d) of the BHC Act.

COMPETITIVE CONSIDERATIONS
The BHC Act prohibits the Board from approving a
proposal that would result in a monopoly or would be in
furtherance of any attempt to monopolize the business of
banking in any relevant banking market. The BHC Act also
prohibits the Board from approving a bank acquisition that
would substantially lessen competition in any relevant
banking market, unless the anticompetitive effects of the
proposal are clearly outweighed in the public interest by its
probable effect in meeting the convenience and needs of the
community to be served.10
Applicants and TSFG have subsidiary insured depository institutions that compete directly in five banking
markets in Florida: Miami-Fort Lauderdale, Orlando,
Palatka, St. Augustine, and West Palm Beach. The Board
has reviewed carefully the competitive effects of the proposal in each of these banking markets in light of all the
facts of record. In particular, the Board has considered the
number of competitors that would remain in the banking
markets, the relative shares of total deposits in depository
institutions (‘‘market deposits’’) controlled by Applicants
and TSFG in the markets,11 the concentration levels of
market deposits and the increases in those levels as measured by the Herfindahl–Hirschman Index (‘‘HHI’’) under
the Department of Justice Merger Guidelines (‘‘DOJ Guidelines’’),12 other characteristics of the markets, and commitments that TD has made to divest branches in the Palatka
banking market.
9. 12 U.S.C. §§ 1842(d)(1)(A)–(B) and 1842(d)(2)–(3). TD is
adequately capitalized and adequately managed, as defined by applicable law. TSFG’s subsidiary bank has been in existence and operated
for the minimum period of time required by applicable state laws and
for more than five years. See 12 U.S.C. § 1842(d)(1)(B)(i)–(ii). On
consummation of the proposal, TD would control less than 10 percent
of the total amount of deposits of insured depository institutions in the
United States (12 U.S.C. § 1842(d)(2)(A)). TD also would control less
than 30 percent of, and less than the applicable state deposit cap for,
the total amount of deposits in insured depository institutions the
relevant states (12 U.S.C. § 1842(d)(2)(B)–(D)). All other requirements of section 3(d) of the BHC Act would be met on consummation
of the proposal.
10. 12 U.S.C. § 1842(c)(1).
11. Deposit and market share data are based on data reported by
insured depository institutions in the summary of deposits data as of
June 30, 2009, and are based on calculations in which the deposits of
thrift institutions are included at 50 percent. The Board previously has
indicated that thrift institutions have become, or have the potential to
become, significant competitors of commercial banks. See, e.g.,
Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989);
National City Corporation, 70 Federal Reserve Bulletin 743 (1984).
Thus, the Board regularly has included thrift institution deposits in the
market share calculation on a 50 percent weighted basis. See, e.g.,
First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).
12. Under the DOJ Guidelines, a market is considered unconcentrated if the post-merger HHI is less than 1000, moderately concentrated if the post-merger HHI is between 1000 and 1800, and highly
concentrated if the post-merger HHI is more than 1800. The Depart-

B37

A. Banking Market with Divestiture
Applicants and TSFG compete directly in one banking
market, the Palatka banking market, that warrants a detailed
review of competitive effects.13 TD Bank is the largest
insured depository institution in the Palatka banking market, controlling deposits of approximately $250.2 million,
which represent approximately 34.3 percent of market
deposits. Carolina First is the fourth largest depository
institution in the market, controlling deposits of approximately $92.7 million, which represent approximately
12.7 percent of market deposits. On consummation and
without the proposed divestiture, the HHI in this market
would increase 873 points, from 2071 to 2944, and the pro
forma market share of the combined entity would be
47 percent.
To reduce the potential adverse effects on competition in
the Palatka banking market, TD has committed to divest
branches with no less than $59 million in deposits, in the
aggregate, to an out-of-market insured depository organization.14 On consummation of the proposed merger, and after
accounting for the divestiture, TD would remain the largest
depository institution in the market, controlling deposits of
approximately $283.9 million, which represent 38.9 percent of market deposits. The HHI would increase no more
than 243 points to 2313.
The Board has considered carefully whether other factors either mitigate the competitive effects of the proposal
or indicate that the proposal would have a significantly
adverse effect on competition in the market.15 In this
market, the anticompetitive effects of this proposal are
mitigated by several factors. On consummation of the
proposal and the proposed divestiture to an out-of-market
insured depository institution, five other insured depository
institutions would continue to operate in the market.
ment of Justice (‘‘DOJ’’) has informed the Board that a bank merger or
acquisition generally will not be challenged (in the absence of other
factors indicating anticompetitive effects) unless the post-merger HHI
is at least 1800 and the merger increases the HHI more than 200
points. The DOJ has stated that the higher-than-normal HHI thresholds
for screening bank mergers for anticompetitive effects implicitly
recognize the competitive effects of limited-purpose lenders and other
nondepository financial entities.
13. The Palatka banking market is defined as Putnam County and
the Hastings area of St. Johns County, Florida.
14. TD has committed that, before consummation of the proposed
merger, it will execute an agreement for the proposed divestiture in the
Palatka banking market with a purchaser that the Board determines to
be competitively suitable. TD also has committed to complete the
divestiture within 180 days after consummation of the proposed
merger. In addition, TD has committed that, if it is unsuccessful in
completing the proposed divestiture within such time period, it will
transfer the unsold branches to an independent trustee who will be
instructed to sell the branches to an alternate purchaser or purchasers
in accordance with the terms of this order and without regard to price.
The trust agreement, trustee, and any alternate purchaser must be
deemed acceptable by the Board. See BankAmerica Corporation,
78 Federal Reserve Bulletin 338 (1992); United New Mexico Financial Corporation, 77 Federal Reserve Bulletin 484 (1991).
15. The number and strength of factors necessary to mitigate the
competitive effects of a proposal depend on the size of the increase in
and resulting level of concentration in a banking market.

B38

Federal Reserve Bulletin h November 2010

In addition, the Board notes that three community credit
unions also exert a competitive influence in the Palatka
banking market.16 These credit unions offer a wide range of
consumer products, operate street-level branches, and have
membership open to almost all the residents in the market.
The Board concludes that their activities in this banking
market exert sufficient competitive influence that mitigate,
in part, the potential competitive effects of the proposal.17

B. Banking Markets without Divestiture
Consummation of the proposal would be consistent with
Board precedent and within the thresholds in the DOJ
Guidelines in the four remaining banking markets in which
TD’s subsidiary depository institutions and Carolina First
directly compete.18 On consummation of the proposal,
three markets would remain moderately concentrated, and
one would remain unconcentrated, as measured by the
HHI. The change in the HHI measure of concentration in
each of the banking markets would be small, however, and
numerous competitors would remain in each market.

C. Views of Other Agencies and Conclusion on
Competitive Considerations
The DOJ also has conducted a detailed review of the
potential competitive effects of the proposal and has
advised the Board that consummation of the proposal
would not likely have a significantly adverse effect on
competition in any relevant banking market. In addition,
the appropriate banking agencies have been afforded an
opportunity to comment and have not objected to the
competitive effects of the proposal.
Based on all the facts of record, the Board concludes that
consummation of the proposal would not have a significantly adverse effect on competition or on the concentration of resources in the five banking markets in which TD
and TSFG compete directly or in any other relevant
banking market. Accordingly, the Board has determined
that competitive considerations are consistent with approval.

FINANCIAL, MANAGERIAL, AND SUPERVISORY
CONSIDERATIONS
Section 3 of the BHC Act requires the Board to consider the
financial and managerial resources and future prospects of
the companies and depository institutions involved in the
proposal and certain other supervisory factors. The Board
16. The Board previously has considered the competitiveness of
certain active credit unions as a mitigating factor. See, e.g., Regions
Financial Corporation, 93 Federal Reserve Bulletin C16 (2007);
Wachovia Corporation, 92 Federal Reserve Bulletin C183 (2006);
F.N.B. Corporation, 90 Federal Reserve Bulletin 481 (2004).
17. If credit unions are factored into the market calculations on a
50 percent weighted basis, TD would control approximately 35 percent of market deposits on consummation of the proposal, and the HHI
would increase 196 points to 1920.
18. These banking markets and the effects of the proposal on their
concentrations of banking resources are described in the appendix.

has carefully considered these factors in light of all the
facts of record, including confidential supervisory and
examination information from the U.S. banking supervisors
of the institutions involved and publicly reported and other
financial information, including substantial information
provided by Applicants. The Board also has consulted with
the Office of the Superintendent of Financial Institutions
(‘‘OSFI’’), the agency with primary responsibility for the
supervision and regulation of Canadian banks, including
TD.
In evaluating the financial resources in expansion proposals by banking organizations, the Board reviews the
financial condition of the organizations involved on both a
parent-only and consolidated basis, as well as the financial
condition of the subsidiary insured depository institutions
and significant nonbanking operations. In this evaluation,
the Board considers a variety of information, including
capital adequacy, asset quality, and earnings performance.
In assessing financial resources, the Board consistently has
considered capital adequacy to be especially important. The
Board also evaluates the financial condition of the combined organization at consummation, including its capital
position, asset quality, and earnings prospects, and the
impact of the proposed funding of the transaction.
The Board has considered carefully the financial resources of the organizations involved in the proposal in
light of information provided by Applicants and supervisory information on these organizations available to the
Federal Reserve, including information from the Federal
Deposit Insurance Corporation (‘‘FDIC’’), the primary
federal supervisor of Carolina First. The capital levels of
TD exceed the minimum levels that would be required
under the Basel Capital Accord and are, therefore, considered to be equivalent to the capital levels that would be
required of a U.S. banking organization. TD also plans to
raise an additional $240 million in capital before consummation that will be downstreamed to its U.S. operations. In
addition, the subsidiary depository institutions of TD
involved in the proposal are well capitalized and would
remain so on consummation. The proposed transaction is
structured as a partial share exchange and a partial cash
purchase of shares. Applicants will use existing resources
to fund the cash purchase of shares.19 Based on its review
of the record, the Board finds that Applicants have sufficient financial resources to effect the proposal.
The Board also has considered the managerial resources
of the organizations involved. The Board has reviewed the
examination records of Applicants, TSFG, and their subsidiary depository institutions, including assessments of their
management, risk-management systems, and operations. In
addition, the Board has considered its supervisory experiences and those of other relevant banking supervisory
19. On May 18, 2010, TD entered into a Securities Purchase
Agreement with the U.S. Department of the Treasury (‘‘Treasury’’)
under which TD will purchase from Treasury all the issued and
outstanding shares of TSFG’s preferred stock and the related warrant
issued in connection with the Treasury’s Capital Purchase Program on
December 5, 2008.

Legal Developments: Third Quarter, 2010

agencies, including the OCC and the FDIC, with the
organizations and their records of compliance with applicable banking law and with anti-money-laundering laws.
The Board also has considered carefully the future
prospects of the organizations involved in the proposal in
light of the financial and managerial strength that Applicants will bring to the operations of TSFG. The Board notes
that TSFG and Carolina First have recently experienced
financial and managerial difficulties and are operating
under formal supervisory actions by the Federal Reserve
Bank of Richmond and the FDIC. Consummation of this
proposal would create a combined organization that would
serve as a strong provider of banking and other financial
services in the markets served by Carolina First. Moreover,
the Board has considered Applicants’ plans for implementing the acquisition and managing the integration of TSFG
into the TD organization and the proposed management
after consummation.20 The Board also has considered
Applicants’ experience with acquiring banking organizations and successfully integrating them into the TD organization.
Based on all the facts of record, the Board has concluded
that considerations relating to the financial and managerial
resources and future prospects of the organizations involved
in the proposal are consistent with approval, as are the other
supervisory factors.21
Section 3 of the BHC Act also provides that the Board
may not approve an application involving a foreign bank
unless the bank is subject to comprehensive supervision or
regulation on a consolidated basis by the appropriate
authorities in the bank’s home country.22 As noted, the
20. The Board received a comment expressing concern about a
lawsuit that has been filed by certain shareholders of TSFG concerning
the price that TD has offered for TSFG shares. These allegations are
subject to litigation before a court of competent jurisdiction and are
not within the discretion of the Board to resolve. Western Bancshares,
Inc. v. Board of Governors, 480 F.2d 749 (10th Cir. 1973).
21. Section 3 of the BHC Act also requires the Board to determine
that an applicant has provided adequate assurances that it will make
available to the Board such information on its operations and activities
and those of its affiliates that the Board deems appropriate to determine and enforce compliance with the BHC Act (12 U.S.C.
§ 1842(c)(3)(A)). The Board has reviewed the restrictions on disclosure in the relevant jurisdictions in which TD operates and has
communicated with relevant government authorities concerning access
to information. In addition, TD previously has committed that, to the
extent not prohibited by applicable law, it will make available to the
Board such information on the operations of its affiliates that the Board
deems necessary to determine and enforce compliance with the BHC
Act, the International Banking Act, and other applicable federal laws.
TD also previously has committed to cooperate with the Board to
obtain any waivers or exemptions that may be necessary to enable its
affiliates to make such information available to the Board. Based on all
facts of record, the Board has concluded that TD has provided
adequate assurances of access to any appropriate information the
Board may request.
22. 12 U.S.C. § 1843(c)(3)(B). As provided in Regulation Y, the
Board determines whether a foreign bank is subject to consolidated
home-country supervision under the standards set forth in Regulation K. See 12 CFR 225.13(a)(4). Regulation K provides that a foreign
bank will be considered subject to comprehensive supervision or
regulation on a consolidated basis if the Board determines that the
bank is supervised or regulated in such a manner that its home-country

B39

OSFI is the primary supervisor of Canadian banks, including TD. The Board previously has determined that TD is
subject to comprehensive supervision on a consolidated
basis by its home-country supervisor.23 Based on this
finding and all the facts of record, the Board has concluded
that TD continues to be subject to comprehensive supervision on a consolidated basis by its home-country supervisor.

CONVENIENCE AND NEEDS CONSIDERATIONS
In acting on a proposal under section 3 of the BHC Act, the
Board also must consider the effects of the proposal on the
convenience and needs of the communities to be served and
take into account the records of the relevant insured
depository institutions under the Community Reinvestment
Act (‘‘CRA’’).24 The CRA requires the federal financial
supervisory agencies to encourage insured depository institutions to help meet the credit needs of the local communities in which they operate, consistent with their safe and
sound operation, and requires the appropriate federal financial supervisory agency to take into account a relevant
depository institution’s record of meeting the credit needs
of its entire community, including low- and moderateincome (‘‘LMI’’) neighborhoods, in evaluating expansionary proposals.25
The Board has considered carefully all the facts of
record, including reports of examination of the CRA performance records of TD’s subsidiary insured depository institutions and Carolina First, data reported by TD under the
Home Mortgage Disclosure Act (‘‘HMDA’’),26 other information provided by TD, confidential supervisory information, and public comment received on the proposal. A
commenter alleged, based on 2009 HMDA data, that TD
has engaged in disparate treatment of minority individuals
in home mortgage lending.

A. CRA Performance Evaluations
As provided in the CRA, the Board has considered the
convenience and needs factor in light of the evaluations by
the appropriate federal supervisors of the CRA performance records of the relevant insured depository institusupervisor receives sufficient information on the worldwide operations
of the bank, including its relationship with any affiliates, to assess the
bank’s overall financial condition and its compliance with laws and
regulations. See 12 CFR 211.24(c)(1).
23. See The Toronto-Dominion Bank, 94 Federal Reserve Bulletin
C51 (2008); 92 Federal Reserve Bulletin C100 (2006); and 91 Federal
Reserve Bulletin 277 (2005).
24. 12 U.S.C. § 2901 et seq.; 12 U.S.C. § 1842(c)(2).
25. 12 U.S.C. § 2903. The commenter also criticized TD Bank for
acquiring assets and liabilities of failed insured depository institutions
in FDIC resolution transactions, because those transactions provided
no public comment period to submit comments on the bank’s CRA
performance record. The Board notes that the transactions were
processed under emergency review procedures specifically authorized
by statute. Moreover, in connection with this proposal, the commenter
provided public information about the possible locations of bank’s
future branches.
26. 12 U.S.C. § 2801 et seq.

B40

Federal Reserve Bulletin h November 2010

tions. An institution’s most recent CRA performance evaluation is a particularly important consideration in the
applications process because it represents a detailed, on-site
evaluation of the institution’s overall record of performance under the CRA by its appropriate federal supervisor.27
TD Bank received an ‘‘outstanding’’ rating at its most
recent CRA performance evaluation by the OCC, as of
December 8, 2008.28 Carolina First received an ‘‘outstanding’’ rating at its most recent CRA performance evaluation
by the FDIC, as of September 5, 2006. After the merger
with TD Bank, Carolina First’s operations will adopt the
CRA program of TD Bank, as modified to address issues
specific to the markets served by Carolina First.

B. HMDA and Fair Lending Record
The Board has carefully considered the fair lending records
and HMDA data of TD in light of public comment received
on the proposal. A commenter alleged that, based on 2009
HMDA data, TD has denied the home mortgage loan
applications of African American, Hispanic, and Native
American borrowers more frequently than those of nonminority applicants.29 The commenter also alleged that TD
made higher-cost mortgage loans disproportionately to
African American borrowers than to nonminority borrowers.
Although the HMDA data might reflect certain disparities in the rates of loan applications, originations, denials,
or pricing among members of different racial or ethnic
groups in certain local areas, they provide an insufficient
basis by themselves on which to conclude whether or not
TD is excluding any racial or ethnic group on a prohibited
basis. The Board recognizes that HMDA data alone, even
with the recent addition of pricing information, provide
only limited information about the covered loans.30 HMDA
data, therefore, have limitations that make them an inadequate basis, absent other information, for concluding that
an institution has engaged in illegal lending discrimination.
The Board is nevertheless concerned when HMDA data
for an institution indicate disparities in lending and believes
that all lending institutions are obligated to ensure that their
27. See Interagency Questions and Answers Regarding Community
Reinvestment, 75 Federal Register 11642 at 11665 (2010).
28. TD’s other bank subsidiary, TD Bank USA, received a ‘‘satisfactory’’ rating at its most recent CRA performance evaluation by the
OCC, as of December 8, 2008.
29. The Board reviewed HMDA data for 2009 for TD Bank in its
combined assessment area and in its statewide assessment areas for
Maine, Massachusetts, New Hampshire, New Jersey, and Pennsylvania.
30. The data, for example, do not account for the possibility that an
institution’s outreach efforts may attract a larger proportion of marginally qualified applicants than other institutions attract and do not
provide a basis for an independent assessment of whether an applicant
who was denied credit was, in fact, creditworthy. In addition, credit
history problems, excessive debt levels relative to income, and high
loan amounts relative to the value of the real estate collateral (reasons
most frequently cited for a credit denial or higher credit cost) are not
available from HMDA data.

lending practices are based on criteria that ensure not only
safe and sound lending but also equal access to credit by
creditworthy applicants regardless of their race or ethnicity.
Moreover, the Board believes that all bank holding companies and their affiliates must conduct their mortgage lending operations without any abusive lending practices and in
compliance with all consumer protection laws.
Because of the limitations of HMDA data, the Board has
considered these data carefully and taken into account other
information, including examination reports that provide
on-site evaluations of compliance by TD’s subsidiary
insured depository institutions with fair lending laws. The
Board also has consulted with the OCC, the primary federal
supervisor of TD’s subsidiary banks. In addition, the Board
has considered information provided by TD about its
compliance risk-management systems.
The record of this application, including confidential
supervisory information, indicates that TD has taken steps
to ensure compliance with fair lending and other consumer
protection laws and regulations. TD also represents that its
subsidiary banks have such compliance policies and procedures in place. Specifically, TD Bank maintains a fair
lending compliance program that includes a second-review
process to identify and prevent any discriminatory practices
and a process for resolving fair lending complaints. TD
Bank provides annual fair lending training for all employees and compliance personnel involved in any respect with
mortgage and consumer lending activities and conducts
periodic internal audits of its fair lending and consumer
protection programs, which also are subject to periodic
review by the OCC. TD has stated that Carolina First’s
operations would be integrated into TD’s existing fair
lending and consumer protection compliance programs
after consummation of the proposal.
The Board also has considered the HMDA data in light
of other information, including overall performance records
of the subsidiary banks of TD and TSFG under the CRA.
These established efforts and records of performance demonstrate that the institutions are active in helping to meet
the credit needs of their entire communities.

C. Conclusion on Convenience and Needs and
CRA Performance
The Board has considered carefully all the facts of record,
including the evaluation of the CRA performance records
of TD Bank and TD Bank USA, information provided by
TD, comments received on the proposal, and confidential
supervisory information. TD represented that it would offer
a broader array of banking products and services to the
customers serviced by Carolina First. In addition, consummation of the proposal would allow the combined organization to continue to provide credit and other financial
services in support of the convenience and needs of the
communities served by Carolina First. Based on a review
of the entire record, the Board concludes that considerations relating to the convenience and needs factor and the

Legal Developments: Third Quarter, 2010

CRA performance records of the relevant insured depository institutions are consistent with approval of the transaction.

CONCLUSION
Based on the foregoing, and in light of all the facts of
record, the Board has determined that the application
should be, and hereby is, approved. In reaching its conclusion, the Board has considered all the facts of record in
light of the factors that it is required to consider under the
BHC Act and other applicable statutes. The Board’s
approval is specifically conditioned on compliance by
Applicants with the conditions in this order and all the
commitments made to the Board in connection with the
proposal.31 For purposes of this transaction, these commit31. The commenter requested that the Board hold a public meeting
or hearing on the proposal. Section 3 of the BHC Act does not require
the Board to hold a public hearing on an application unless the
appropriate supervisory authority for the bank to be acquired makes a
written recommendation of denial of the application. The Board has
not received such a recommendation from a supervisory authority.
Under its rules, the Board also may, in its discretion, hold a public
meeting or hearing on an application to acquire a bank if necessary or
appropriate to clarify material factual issues related to the application
and to provide an opportunity for testimony (12 CFR 225.16(e),
262.3(e), and 262.25(d)). The Board has considered carefully the

B41

ments and conditions are deemed to be conditions imposed
in writing by the Board in connection with its findings and
decision and, as such, may be enforced in proceedings
under applicable law.
The proposal may not be consummated before the 15th
calendar day after the effective date of this order, or later
than three months after the effective date of this order,
unless such period is extended for good cause by the Board
or by the Federal Reserve Bank of New York, acting
pursuant to delegated authority.
By order of the Board of Governors, effective July 22,
2010.
Voting for this action: Chairman Bernanke and Governors Kohn,
Warsh, Duke, and Tarullo.

Robert deV. Frierson
Deputy Secretary of the Board
commenter’s request in light of all the facts of record. As noted, the
commenter had ample opportunity to submit its views and, in fact,
submitted written comments that the Board has considered carefully in
acting on the proposal. The commenter’s request fails to demonstrate
why written comments do not present its views adequately or why a
meeting or hearing otherwise would be necessary or appropriate. For
these reasons, and based on all the facts of record, the Board has
determined that a public meeting or hearing is not required or
warranted in this case. Accordingly, the request for a public meeting or
hearing on the proposal is denied.

Appendix
TD AND TSFG BANKING MARKETS IN FLORIDA CONSISTENT WITH BOARD PRECEDENT AND DOJ
GUIDELINES
Market
deposit
shares
(percent)

Bank

Rank

Amount
of deposits
(dollars)

Miami-Fort Lauderdale—Broward and
Miami-Dade counties
TD Bank US HC Pre-Consummation ...
TSFG ............................................
TD Bank US HC Post-Consummation ..

28
33
22

495.7 mil.
398.5 mil.
894.2 mil.

.5
.4
.8

Orlando—Orange, Osceola, and
Seminole counties; the western half of
Volusia County; and the towns of
Clermont and Groveland in Lake County
TD Bank US HC Pre-Consummation ...
TSFG ............................................
TD Bank US HC Post-Consummation ..

20
15
10

266.6 mil.
335.1 mil.
601.7 mil.

.8
1.0
1.8

Change in
HHI

Remaining
number of
competitors

753
753
753

1
1
1

102
102
102

1,199
1,199
1,199

1
1
1

49
49
49

Resulting
HHI

B42

Federal Reserve Bulletin h November 2010

Appendix—Continued
TD AND TSFG BANKING MARKETS IN FLORIDA CONSISTENT WITH BOARD PRECEDENT AND DOJ
GUIDELINES—Continued
Market
deposit
shares
(percent)

Resulting
HHI

Change in
HHI

Remaining
number of
competitors

Bank

Rank

Amount
of deposits
(dollars)

St. Augustine—St. Johns County,
excluding the towns of Fruit Cove,
Ponte Vedra, Ponte Vedra Beach,
Jacksonville, Switzerland, and Hastings
TD Bank US HC Pre-Consummation ...
TSFG ............................................
TD Bank US HC Post-Consummation ..

4
11
4

105.5 mil.
49.2 mil.
154.7 mil.

6.2
2.9
9.1

1,266
1,266
1,266

36
36
36

14
14
14

West Palm Beach—Palm Beach County,
east of Loxahatchee; and the towns of
Indiantown and Hobe Sound in Martin
County
TD Bank US HC Pre-Consummation ...
TSFG ............................................
TD Bank US HC Post-Consummation ..

10
29
8

843.1 mil.
164.7 mil.
1.0 bil.

2.3
.5
2.8

1,100
1,100
1,100

2
2
2

58
58
58

Note: Deposit data are as of June 30, 2009. Deposit amounts are unweighted. Rankings, market deposit shares, and HHIs are based on thrift institution deposits weighted at 50 percent.

ORDER ISSUED UNDER BANK
MERGER ACT

Metcalf Bank
Lee’s Summit, Missouri
Order Approving the Acquisition and
Establishment of Branches
Metcalf Bank,1 a state member bank, has requested the
Board’s approval under section 18(c) of the Federal Deposit
Insurance Act2 (‘‘Bank Merger Act’’) to acquire certain
assets and assume certain liabilities of four branches of The
First National Bank of Olathe (‘‘FNB Olathe’’), Olathe,
Kansas (‘‘Kansas Branches’’).3 In addition, Metcalf Bank
has applied under section 9 of the Federal Reserve Act
(‘‘FRA’’) to establish and operate branches at the locations
of the Kansas Branches.4

1. Metcalf Bank is a subsidiary of First National Bancor, Inc.
(‘‘FNB’’), also of Lee’s Summit, which in turn is a subsidiary of
Central Bancompany (‘‘Central’’), Jefferson City, Missouri. FNB and
Central are bank holding companies.
2. 12 U.S.C. § 1828(c).
3. The Kansas Branches are located at 7800 College Boulevard and
7960 West 135th Street, both in Overland Park, and 15100 West 67th
Street and 6114 Nieman Road, both in Shawnee, all in Kansas.
4. 12 U.S.C. § 321.

Notice of the proposal, affording interested persons an
opportunity to submit comments, has been published in
local publications in accordance with the Bank Merger Act
and the Board’s Rules of Procedure.5 As required by the
Bank Merger Act, a report on the competitive effects of the
merger was requested from the United States Attorney
General, and a copy of the request was provided to the
Federal Deposit Insurance Corporation (‘‘FDIC’’). The
time for filing comments has expired, and the Board has
considered the proposal and all comments received in light
of the factors set forth in the Bank Merger Act.6
Central, the parent bank holding company of Metcalf
Bank, has total assets of approximately $9.1 billion and
operates 13 banks in Missouri, Kansas, Oklahoma, and
Illinois.7 Metcalf Bank, with total assets of $990 million,
operates in Missouri and Kansas. In Missouri, Central is the
fourth largest depository organization, controlling deposits
of approximately $5.8 billion, which represent 4.7 percent
of the total amount of deposits of depository organizations

5. 12 CFR 262.3(b).
6. Although no comments were received in connection with this
application, the Board received comments on Metcalf Bank’s record
of meeting the convenience and needs of its community in connection
with an application by Central to acquire Overland Bancorp, Inc.
(‘‘Overland’’) and thereby indirectly acquire Bank of Belton, both of
Belton, Missouri. The Board has not acted on that application. The
comments regarding Metcalf Bank that were received in connection
with the Overland application have also been considered in connection
with this proposal.
7. Asset data are as of June 30, 2010.

Legal Developments: Third Quarter, 2010

in the state (‘‘state deposits’’).8 In Kansas, Central is the
38th largest depository organization, controlling deposits of
approximately $307.6 million. The Kansas Branches control deposits of $234.1 million. On consummation, Central
would become the 21st largest depository organization in
Kansas, controlling deposits of approximately $541.7 million, which represent less than 1 percent of state deposits.

INTERSTATE ANALYSIS
Section 102 of the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (‘‘Riegle-Neal Act’’)
authorizes a bank to merge with another bank under certain
conditions unless, before June 1, 1997, the home state of
one of the banks involved in the transaction adopted a law
expressly prohibiting merger transactions involving out-ofstate banks.9 For purposes of the Riegle-Neal Act, the home
state of Metcalf Bank is Missouri, and the home state of
FNB Olathe is Kansas.10 Metcalf Bank has provided a copy
of its Bank Merger Act application to the relevant state
agency and has complied with state law. The proposal also
complies with all other requirements of the Riegle-Neal
Act.11 Accordingly, the Riegle-Neal Act authorizes the
proposed interstate branch acquisitions.

COMPETITIVE CONSIDERATIONS
The Bank Merger Act prohibits the Board from approving a
proposal that would result in a monopoly or would be in
furtherance of any attempt to monopolize the business of
banking in any relevant banking market. The act also
prohibits the Board from approving a proposal that would
substantially lessen competition in any relevant banking
market, unless the anticompetitive effects of the proposal
are clearly outweighed in the public interest by its probable
effect in meeting the convenience and needs of the community to be served.12
Metcalf Bank and the Kansas Branches compete directly
in the Kansas City, Missouri banking market (‘‘Kansas City

8. Deposit data and state rankings are as of June 30, 2009.
9. 12 U.S.C. § 1831u.
10. See 12 U.S.C. § 1831u(a)(4) and (g)(4).
11. See 12 U.S.C. § 1831u. Metcalf Bank is adequately capitalized
and adequately managed, as defined in the Riegle-Neal Act. The
Missouri Division of Finance has indicated that this transaction would
comply with applicable Missouri law and on June 22, 2010, indicated
that it would be in a position to act favorably on Metcalf Bank’s
application to establish branches at the locations of the Kansas
Branches. There is no filing requirement with Kansas’s Office of the
State Banking Commissioner when an out-of-state bank acquires a
Kansas branch. See Special Kansas Banking Order 1997-2. On
consummation of the proposal, Metcalf Bank and its affiliated insured
depository institutions would control less than 10 percent of the total
amount of deposits in insured depository institutions in the United
States and less than 30 percent of the total amount of deposits in
insured depository institutions in Kansas. The term ‘‘insured depository institutions’’ includes insured commercial banks, savings banks,
and savings associations. All other requirements of section 102 of the
Riegle-Neal Act would also be met on consummation of the proposal.
12. 12 U.S.C. § 1828(c)(5).

B43

banking market’’).13 The Board has reviewed carefully the
competitive effects of the proposal in this banking market
in light of all the facts of record, including the number of
competitors that would remain and the relative shares of
total deposits in insured depository institutions in the
Kansas City banking market (‘‘market deposits’’) that they
would control,14 the concentration level of market deposits
and the increase in that level, as measured by the Herfindahl–
Hirschman Index (‘‘HHI’’) and the Department of Justice
Bank Merger Competitive Review guidelines (‘‘DOJ Bank
Merger Guidelines’’),15 and other characteristics of the
markets.
Consummation of the proposal would be consistent with
Board precedent and within the thresholds in the DOJ Bank
Merger Guidelines in the Kansas City banking market. On
consummation, the banking market would remain unconcentrated, as measured by the HHI, and numerous competitors would remain in the banking market.16
The DOJ has advised the Board that consummation of
the proposal is not likely to have a significant adverse
competitive effect in the Kansas City banking market. The

13. Central operates two banks in the Kansas City banking market:
Metcalf Bank and First Central Bank, Warrensburg, Missouri. The
Kansas City banking market encompasses Cass, Clay, Jackson, Platte,
and Ray counties, Missouri; the towns of Trimble and Holt in Clinton
County, Missouri; the towns of Chilhowee, Holden, and Kingsville in
Johnson County, Missouri; and Johnson, Leavenworth, and Wyandotte
counties, Kansas.
14. Deposit and market share data are based on data reported by
insured depository institutions in the summary of deposits data as of
June 30, 2009, and are based on calculations in which the deposits of
thrift institutions are included at 50 percent. The Board previously has
indicated that thrift institutions have become, or have the potential to
become, significant competitors of commercial banks. See, e.g.,
Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989);
National City Corporation, 70 Federal Reserve Bulletin 743 (1984).
Thus, the Board regularly has included thrift institution deposits in the
market share calculation on a 50 percent weighted basis. See, e.g.,
First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).
15. Under the DOJ Bank Merger Guidelines, a market is considered
unconcentrated if the post-merger HHI is under 1000, moderately
concentrated if the post-merger HHI is between 1000 and 1800, and
highly concentrated if the post-merger HHI exceeds 1800. The Department of Justice (‘‘DOJ’’) has informed the Board that a bank merger or
acquisition generally would not be challenged (in the absence of other
factors indicating anticompetitive effects) unless the post-merger HHI
is at least 1800 and the merger increases the HHI more than 200
points. Although the DOJ and the Federal Trade Commission recently
issued revised Horizontal Merger Guidelines, the DOJ has confirmed
that the DOJ Bank Merger Guidelines, which were issued in 1995,
were not changed. Press Release, Department of Justice (August 19,
2010), available at www.justice.gov/opa/pr/2010/August/10-at938.html.
16. Central operates the 11th largest depository organization in the
market, controlling deposits of approximately $837 million, which
represent 2.3 percent of market deposits. Metcalf Bank accounts for
$786.8 million of Central’s deposits in this market. The Kansas
Branches control $234.1 million in deposits, which represents less
than 1 percent of market deposits. After consummation, Central would
become the 10th largest depository organization in the market, controlling deposits of approximately $1.1 billion, which represent 3 percent
of market deposits. On consummation of the proposal, the HHI would
decrease 1 point to 559 for the Kansas City banking market, and 109
depository organizations would remain in the market.

B44

Federal Reserve Bulletin h November 2010

Board also has received no objection to the proposal from
any federal banking agency.
Based on all the facts of record, the Board has concluded
that consummation of the proposal would not have a
significantly adverse effect on competition or on the concentration of resources in any relevant banking market.
Accordingly, the Board has determined that competitive
considerations are consistent with approval.

FINANCIAL AND MANAGERIAL RESOURCES
AND FUTURE PROSPECTS
In reviewing the proposal under the Bank Merger Act, the
Board has also carefully considered the financial and
managerial resources and future prospects of the companies
and depository institutions involved in the proposal and
certain other supervisory factors. The Board has considered
these factors in light of all the facts of record, including
confidential reports of examination, other supervisory information from the primary federal and state supervisors of
the organizations involved in the proposal, publicly reported and other financial information, and information
provided by Metcalf Bank.
In evaluating financial factors in expansion proposals by
banking organizations, the Board considers a variety of
measures, including capital adequacy, asset quality, and
earnings performance. In assessing financial factors, the
Board consistently has considered capital adequacy to be
especially important. The Board also evaluates the financial
condition of the combined organization at consummation,
including its capital position, asset quality, and earnings
prospects, and the impact of the proposed funding of the
transaction.
Metcalf Bank is well capitalized and would remain so on
consummation of the proposal. Central, Metcalf Bank’s
parent holding company, also would remain well capitalized on consummation of the proposal. Based on its review
of the record in this case, the Board finds that Metcalf Bank
has sufficient financial resources to effect the proposal. As
noted, the proposed transaction is structured as an asset
purchase and assumption of liabilities. Central will use its
existing resources to contribute approximately $25 million
to Metcalf Bank to fund the transaction.
The Board also has considered the managerial resources
of Metcalf Bank and reviewed the examination records of
the bank, including assessments of its management, riskmanagement systems, and operations. In addition, the
Board has considered its supervisory experiences with the
relevant organizations and the organizations’ records of
compliance with applicable banking law, including antimoney-laundering laws. The Board also has considered
Metcalf Bank’s plans for implementing the proposal,
including the proposed management of the Kansas Branches
after consummation.
Based on all the facts of record, the Board concludes that
considerations relating to the financial and managerial
resources and future prospects of the organizations involved

in the proposal are consistent with approval under the Bank
Merger Act.

CONVENIENCE AND NEEDS CONSIDERATIONS
In acting on the proposal, the Board also must consider its
effects on the convenience and needs of the communities to
be served and take into account the records of the relevant
insured depository institutions under the Community Reinvestment Act (‘‘CRA’’).17 The CRA requires the federal
financial supervisory agencies to encourage insured depository institutions to help meet the credit needs of the local
communities in which they operate, consistent with their
safe and sound operation, and requires the appropriate
federal financial supervisory agency to take into account an
institution’s record of meeting the credit needs of its entire
community, including low- and moderate-income (‘‘LMI’’)
neighborhoods, in evaluating bank expansionary proposals.18
The Board has considered carefully all the facts of
record, including evaluations of the CRA performance
records of Metcalf Bank, data reported by Metcalf Bank
under the Home Mortgage Disclosure Act (‘‘HMDA’’)19
and the CRA, other information provided by the bank,
confidential supervisory information, and public comment.
Two commenters asserted that Metcalf Bank had not
adequately served the credit and investment needs of its
LMI communities. Based on the bank’s record of lending
to small businesses and small farms and the HMDA data
reported by the bank in 2008, the commenters contended
that Metcalf Bank’s percentage of loans in low-income
census tracts was not commensurate with the percentage of
such tracts in the bank’s assessment area and that Metcalf
Bank had made an insufficient number of residential, small
business, and small farm loans to low-income borrowers.
The commenters also expressed concern that Metcalf Bank
did not have a sufficient branch presence in low-income
census tracts.20 In addition, the commenters alleged that
Metcalf Bank had not served the credit needs of African
Americans and had engaged in disparate treatment of
African Americans in its mortgage lending activities.

A. CRA Performance Evaluation
As provided in the CRA, the Board has evaluated the
convenience and needs factor in light of the evaluations by
the appropriate federal supervisors of the CRA performance records of the relevant insured depository institutions. An institution’s most recent CRA performance evaluation is a particularly important consideration in the
applications process because it represents a detailed, on-site
evaluation of the institution’s overall record of perfor-

17.
18.
19.
20.
tract.

12 U.S.C. § 2901 et seq.
12 U.S.C. § 2903.
12 U.S.C. § 2801 et seq.
None of the Kansas Branches is in an LMI or minority census

Legal Developments: Third Quarter, 2010

mance under the CRA by its appropriate federal supervisor.21 Metcalf Bank received a ‘‘satisfactory’’ rating at its
most recent CRA examination by the Federal Reserve Bank
of Kansas City, as of April 13, 2009 (‘‘2009 Examination’’). FNB Olathe also received a ‘‘satisfactory’’ rating at
its most recent CRA examination by the Office of the
Comptroller of the Currency, as of July 6, 2009.
In the 2009 Examination, Metcalf Bank received a ‘‘high
satisfactory’’ rating on its lending test and a ‘‘low satisfactory’’ rating on its investment and service tests.22 Examiners noted that the bank’s primary lending focus was
commercial loans, which represented approximately 80 percent of its total loan portfolio.23 They found that Metcalf
Bank’s lending activity during the evaluation period reflected good responsiveness to the credit needs of its
community.24 Examiners determined that the overall geographic distribution of the bank’s HMDA loans reflected an
adequate penetration throughout all geographies of the
assessment area, including LMI tracts, in light of the
economic and demographic aspects of the assessment area
and in comparison to the aggregate of lenders’ lending
data.25 Examiners noted a number of factors that reasonably limited Metcalf Bank’s ability to increase its mortgage
lending market share in the LMI geographies, including the
small percentage of LMI tracts in the bank’s assessment
area, the lack of affordable housing in the LMI census
tracts, the distance of the bank’s branches from LMI tracts,
and the strong competition in Jackson County, Missouri,
from numerous other institutions. In addition, examiners
noted factors in LMI census tracts that contributed to lower
demand in the bank’s assessment area for mortgage and
related home loans in those areas, including a low percentage of owner-occupied units, a high percentage of rental
units, a large concentration of families below the poverty
line, and high unemployment rates.
In the 2009 Examination, examiners considered the
geographic distribution of Metcalf Bank’s small business

21. The Interagency Questions and Answers Regarding Community Reinvestment provide that a CRA examination is an important and
often controlling factor in the consideration of an institution’s CRA
record. See Interagency Questions and Answers Regarding Community Reinvestment, 75 Federal Register 11,642 at 11,665 (2010).
22. The CRA evaluation for Metcalf Bank includes the record of
three of Central’s subsidiary banks that merged in 2008: Metcalf Bank,
Overland Park, Kansas; First National Bank of Missouri (‘‘FNB
Missouri’’), also in Lee’s Summit; and First Kansas Bank and Trust
Company (‘‘First Kansas Bank’’), Gardner, Kansas. On April 24,
2008, FNB Missouri merged with Metcalf Bank, and on June 21,
2008, First Kansas Bank merged with Metcalf Bank. On April 18,
2009, Metcalf Bank acquired American Sterling Bank, Sugar Creek,
Missouri, a failed federal savings bank, from the FDIC as receiver.
23. Metcalf Bank originated less than 1 percent of total HMDA
loans originated by all financial institutions in its assessment area.
24. The evaluation period for Metcalf Bank was from October 18,
2006, to December 31, 2008; for FNB Missouri from February 24,
2003, to December 31, 2008; and for First Kansas Bank from
December 18, 2007, to December 31, 2008.
25. The lending data of the aggregate of lenders represent the
cumulative lending for all financial institutions that reported HMDA
data in a particular market.

B45

loans,26 which represent the largest percentage of the
bank’s lending activity, to be good and found that the
distribution compared favorably with other lenders in the
assessment area. The examiners found that the bank’s
ability to make small business loans in low-income tracts
was limited, in part, because of the low percentage of
businesses in those tracts and competition from other
institutions.
In addition, examiners found that Metcalf Bank made a
high level of qualified community development loans during the evaluation period, including loans targeted to
affordable housing and community development projects to
help revitalize and stabilize LMI areas. For example,
Metcalf Bank made loans to a community development
corporation that focuses on LMI neighborhood revitalization and improvements in housing availability in LMI areas
through home repair and rehabilitation. Metcalf Bank’s
community development lending during the evaluation
period totaled approximately $13.5 million. Examiners also
determined that Metcalf Bank’s level of community development investments during the evaluation period was
adequate. They noted that the bank made many charitable
contributions, the majority of which were to organizations
that sponsor community services primarily for LMI individuals or support affordable housing projects.
Under the service test, examiners found that the bank’s
delivery systems were accessible to geographies and individuals of different income levels. Examiners noted that
Metcalf Bank’s current branch network, which includes 19
branches in its assessment area, resulted from the merger of
three subsidiary banks of Central in 2008. Metcalf Bank
also acquired a failed savings bank in 2009. Ten percent of
the bank’s branches were in moderate-income tracts, and
the bank had no branches in low-income tracts.27 Examiners noted that, although none of the pre-merger banks had
branches in the central area of Kansas City, where the
substantial majority of LMI census tracts were located,
each bank had a long history of serving the banking needs
of its respective communities. They also found that the
hours of operations and services offered by Metcalf Bank’s
branches did not vary in a way that inconvenienced portions of the assessment area, particularly in LMI geographies or for LMI individuals. In addition, examiners noted
favorably the bank’s community development service
activities with organizations that focused primarily on
affordable housing and economic development.

26. In this context, ‘‘small business loans’’ are business loans that
have an original amount of $1 million or less.
27. The commenters also requested that the Board require Metcalf
Bank to open at least one branch in an LMI or minority census tract.
The Board consistently has stated that neither the CRA nor the federal
banking agencies’ CRA regulations require depository institutions to
make pledges or enter into commitments. See, e.g., The PNC Financial Services Group, Inc., 94 Federal Reserve Bulletin C38 (2008);
Wachovia Corporation, 91 Federal Reserve Bulletin 77 (2005). The
Board focuses on the existing CRA and fair lending performance and
compliance records of an applicant and the programs that an applicant
has in place to serve the credit needs of its assessment area at the time
the Board reviews a proposal under the convenience and needs factor.

B46

Federal Reserve Bulletin h November 2010

B. HMDA Data, Fair Lending Records, and Other
Issues
The Board has carefully considered the HMDA data and
fair lending records of Metcalf Bank, including those data
and records for the institutions that merged to form the
bank in 2008, in light of public comments. Commenters
alleged, based on 2008 HMDA data, disparate treatment of
African Americans by Metcalf Bank involving home mortgage loan originations.28 The Board’s consideration of
HMDA-related comments included a review of 2007, 2008,
and preliminary 2009 HMDA data reported by Metcalf
Bank and the institutions that merged into the bank.
Although the HMDA data might reflect certain disparities in the rates of loan applications, originations, and
denials among members of different racial or ethnic groups
in certain local areas, they provide an insufficient basis by
themselves on which to conclude whether or not Metcalf
Bank is excluding any group on a prohibited basis. The
Board recognizes that HMDA data alone, even with the
recent addition of pricing information, provide only limited
information about the covered loans.29 HMDA data, therefore, have limitations that make them an inadequate basis,
absent other information, for concluding that an institution
has engaged in illegal lending discrimination.
The Board is nevertheless concerned when HMDA data
for an institution indicate disparities in lending and believes
that all lending institutions are obligated to ensure that their
lending practices are based on criteria that ensure not only
safe and sound lending, but also equal access to credit by
creditworthy applicants regardless of their race or ethnicity.
Because of the limitations of HMDA data, the Board has
considered these data carefully and taken into account other
information, including examination reports that provide
on-site evaluations of compliance with fair lending laws by
Metcalf Bank and the CRA performance record of Metcalf
Bank discussed above. In particular, examiners did not find
any evidence that Metcalf Bank engaged in illegal discrimination or in any other illegal credit practices. Examiners
noted that Metcalf Bank’s ability to originate HMDA loans
to minority communities in its assessment area was limited
by the demographics of minority census tracts30 (particularly in Jackson County), including the relatively low

28. The commenters also expressed concern that Metcalf Bank
received only a few applications from African Americans, noting that
the percentage of their residential mortgage loan applications was
significantly less than the population of African Americans within the
bank’s assessment area.
29. The data, for example, do not account for the possibility that an
institution’s outreach efforts may attract a larger proportion of marginally qualified applicants than other institutions attract and do not
provide a basis for an independent assessment of whether an applicant
who was denied credit was, in fact, creditworthy. In addition, credit
history problems, excessive debt levels relative to income, and high
loan amounts relative to the value of the real estate collateral (reasons
most frequently cited for a credit denial or higher credit cost) are not
available from HMDA data.
30. For purposes of this HMDA analysis, a minority census tract is
a census tract with a minority population of 51 percent or more.

availability of owner-occupied housing, the high number of
rental and vacant properties, and the downturn in the
economy.
The record indicates that Metcalf Bank has taken steps
and developed programs to ensure compliance with all fair
lending and other consumer protection laws and regulations. Metcalf Bank has an internal audit program, including comprehensive fair lending reviews on a continuing
basis, to ensure that all applicants are treated fairly and
consistently under prudent underwriting standards and
industry guidelines. Additionally, Metcalf Bank has a designated compliance officer dedicated to ensuring the bank’s
fair lending compliance. Metcalf Bank’s compliance officer, together with its management, completes an annual
compliance risk assessment and participates in compliance
monitoring projects, including a project to monitor bank
compliance with fair lending. Metcalf Bank hires an independent party to perform the fair lending compliance
project.
Since the last examinations of Metcalf Bank, the bank
has continued to make efforts to reach and serve the needs
of the minority and LMI communities in its assessment
area. The bank has enhanced its marketing efforts by
increasing its advertising on public transportation and in
local publications focused on serving minorities; investing
more than $700,000 in targeted mortgage-backed securities
in which all mortgages in the pool are to LMI individuals in
the bank’s assessment area; and donating funds to support a
small-dollar loan program/payday loan alternative initiative, which provides an alternative source of short-term
lending, primarily to LMI individuals.

C. Conclusion on Convenience and Needs
Considerations
The Board has considered carefully the CRA performance,
HMDA data, and fair lending records of Metcalf Bank in
light of all public comments received. The Board also has
considered carefully all facts of record, including the CRA
performance evaluations of the institutions involved, confidential supervisory information, and information provided
by Metcalf Bank on the actions and programs it has
implemented to meet the credit needs of all its communities. As noted above, Metcalf Bank is the result of a recent
merger of three relatively small affiliated banks and a failed
savings bank. Based on the locations and sizes of the
individual institutions before to the merger and the established efforts by Metcalf Bank since the merger, the Board
believes that, on balance, the current record of performance
of Metcalf Bank in meeting the convenience and needs of
its communities is consistent with approval of this proposal. The Board also notes that the proposal would
provide customers of the Kansas Branches with a broader
array of products and services, including expanded options
for loans and additional branch locations.
Based on a review of the entire record, and for the
reasons discussed above, the Board concludes that considerations relating to the convenience and needs factor and

Legal Developments: Third Quarter, 2010

the CRA performance records of the relevant depository
institutions are consistent with approval.
The changes at Metcalf Bank, however, also reflect an
opportunity for Metcalf Bank to continue to improve its
lending and outreach efforts to residents in LMI communities and minority borrowers in its entire assessment area.
Metcalf Bank has outlined several initiatives designed to
enable the bank to increase its lending to minority and LMI
communities. The bank plans to expand further its specialized advertising to minority and LMI applicants; increase
the number of minority and LMI loan applicants by developing more effective systems to track and measure its
success in obtaining loan applications from those applicants; and increase community outreach efforts by partnering with organizations that have close ties to minority
populations. The Federal Reserve System will continue to
monitor and evaluate the lending performance of Metcalf
Bank as part of the supervisory process, including assessments of its performance in subsequent examinations.

OTHER CONSIDERATIONS
Metcalf Bank also has applied under section 9 of the FRA
to establish and operate branches at the locations of the
Kansas Branches. The Board has assessed the factors it is
required to consider when reviewing an application under
section 9 of the FRA and finds those factors to be consistent
with approval.31

CONCLUSION
Based on the foregoing and all facts of record, the Board
has determined that the applications should be, and hereby
are, approved. In reaching its conclusion, the Board has
considered all the facts of record in light of the factors that
it is required to consider under the Bank Merger Act and
the FRA. The Board’s approval is specifically conditioned
on compliance by Metcalf Bank with the conditions
imposed in this order, the commitments made to the Board
in connection with the applications, and receipt of all other
regulatory approvals. For purposes of this action, the
conditions and commitments are deemed to be conditions
imposed in writing by the Board in connection with its
findings and decision herein and, as such, may be enforced
in proceedings under applicable law.
The proposed transactions may not be consummated
before the 15th calendar day after the effective date of this
order, or later than three months after the effective date of
this order, unless such period is extended for good cause by
the Board or the Federal Reserve Bank of Kansas City,
acting pursuant to delegated authority.
By order of the Board of Governors, effective September 2, 2010.

31. 12 U.S.C. § 322; 12 CFR 208.6(b).

B47

Voting for this action: Chairman Bernanke and Governors Kohn,*
Warsh, Duke, and Tarullo.
*Governor Kohn voted before his departure from the Board on
September 1, 2010.

Robert deV. Frierson
Deputy Secretary of the Board

ORDER ISSUED UNDER
INTERNATIONAL BANKING ACT

Banco Davivienda, S.A.
Bogotá Columbia
Order Approving Establishment of a Branch
Banco Davivienda, S.A. (‘‘Bank’’), Bogotá Colombia, a
foreign bank within the meaning of the International Banking Act (‘‘IBA’’), has applied under section 7(d) of the
IBA1 to establish a branch in Miami, Florida, through the
conversion of its wholly owned subsidiary, Bancafé International (‘‘Bancafé’’), a corporation organized under section 25A of the Federal Reserve Act (Edge Act corporation).2 The Foreign Bank Supervision Enhancement Act of
1991, which amended the IBA, provides that a foreign bank
must obtain the approval of the Board to establish a branch
in the United States.
Notice of the application, affording interested persons an
opportunity to comment, has been published in a newspaper of general circulation in Miami (The Miami Herald,
February 10, 2010). The time for filing comments has
expired, and the Board has considered all comments
received.
Bank, with total consolidated assets of approximately
$12.8 billion,3 is the third largest bank in Colombia by asset
size. Sociedades Bolivar S.A. (‘‘Bolivar’’), a company
whose shares are publicly traded in Colombia, effectively
controls Bank through the direct or indirect ownership of
more than 62 percent of Bank’s outstanding voting shares.4
Another group of Colombian companies, collectively known
as the ‘‘Cusezar Group,’’ owns directly and indirectly
approximately 19.1 percent of Bank’s total voting shares
outstanding. No other shareholder or group of shareholders
controls more than 10 percent of Bank’s outstanding
shares. Bank engages in commercial and retail banking
services, and it engages in fund administration, trust, and
1. 12 U.S.C. § 3105(d).
2. 12 U.S.C. § 611 et seq.
3. Unless otherwise indicated, data are as of December 31, 2009.
4. Bolivar owns 9.94 percent of Bank’s outstanding shares directly
and is the parent company of the bank’s largest direct shareholders,
Inversiones Financieras Bolivar, S.A.S. and Inversora Anagrama,
S.A.S., each of which owns 17.29 percent of Bank’s outstanding
shares, as well as other direct and indirect shareholders within the
Bolivar group of companies. The Fundación Universidad Externado de
Colombia, a nonprofit foundation that operates the Universidad Externado de Colombia, an institution of higher education located in Bogotá
is the ultimate parent company of Bolivar, owning 26 percent of
Bolivar’s shares.

B48

Federal Reserve Bulletin h November 2010

securities brokerage services through its subsidiaries. In
addition, Bank has operations in the United States through
Bancafé and in Panama through a wholly owned bank,
Bancafé Panama S.A., Panama City.5 Bank and its parent
companies are qualifying foreign banking organizations
under Regulation K.6
Bank proposes to establish the branch as a means of
continuing and expanding the international banking business currently conducted by Bancafé. Bank intends to use
the branch to provide products and services currently
offered by Bancafé to a larger customer base. In particular,
Bank believes that the proposed branch will enhance its
ability to serve the banking needs of the Colombian
community in the Miami area and to service international
business associated with Colombia. After the establishment
of the branch and the transfer of the existing business of
Bancafé to the branch, Bancafé would voluntarily liquidate.7
Under the IBA and Regulation K, in acting on an
application by a foreign bank to establish a branch, the
Board must consider whether the foreign bank (1) engages
directly in the business of banking outside of the United
States; (2) has furnished to the Board the information it
needs to assess the application adequately; and (3) is
subject to comprehensive supervision on a consolidated
basis by its home-country supervisor.8 The Board may also
take into account additional standards as set forth in the
IBA and Regulation K.9
The IBA includes a limited exception to the general
requirement relating to comprehensive, consolidated supervision.10 This exception provides that, if the Board is
unable to find that a foreign bank seeking to establish a
branch, agency, or commercial lending company is subject
to comprehensive supervision or regulation on a consolidated basis by the appropriate authorities in its home
country, the Board may nevertheless approve an application by such foreign bank, provided (i) the appropriate
authorities in the home country of the foreign bank are
actively working to establish arrangements for the consolidated supervision of such bank and (ii) all other factors are
5. Bank acquired both Bancafé and Bancafé Panama S.A. as part of
its acquisition of Granbanco S.A., Bogotá in 2007.
6. 12 CFR 211.23(a).
7. 12 CFR 211.7.
8. 12 U.S.C. § 3105(d)(2); 12 CFR 211.24(c)(1). In assessing this
standard, the Board considers, among other factors, the extent to which
the home-country supervisors (i) ensure the bank has adequate procedures for monitoring and controlling its activities worldwide; (ii)
obtain information on the condition of the bank and its subsidiaries
and offices through regular examination reports, audit reports, or
otherwise; (iii) obtain information on the dealings with and relationship between the bank and its affiliates, both foreign and domestic; (iv)
receive from the bank financial reports that are consolidated on a
worldwide basis or comparable information that permits analysis of
the bank’s financial condition on a worldwide, consolidated basis; and
(v) evaluate prudential standards, such as capital adequacy and risk
asset exposure, on a worldwide basis. These are indicia of comprehensive, consolidated supervision. No single factor is essential, and other
elements may inform the Board’s determination.
9. 12 U.S.C. § 3105(d)(3)–(4); 12 CFR 211.24(c)(2)–(3).
10. 12 U.S.C. § 3105(d)(6).

consistent with approval. In deciding whether to exercise
its discretion to approve an application under this exception, the Board shall also consider whether the foreign bank
has adopted and implemented procedures to combat money
laundering.11 The Board also may take into account whether
the home country of the foreign bank is developing a legal
regime to address money laundering or is participating in
multilateral efforts to combat money laundering.12
As noted above, Bank engages directly in the business of
banking outside the United States. Bank also has provided
the Board with information necessary to assess the application through submissions that address the relevant issues.
With respect to supervision by home-country authorities,
the Board previously has determined, in connection with
applications involving other banks in Colombia, that those
banks’ home-country authorities were working to establish
arrangements for the consolidated supervision of the
banks.13 Bank is supervised by the Colombian Superintendency of Finance (‘‘Superintendency’’) on substantially the
same terms and conditions as those other banks.
The Colombian government has taken a number of
significant steps to combat money laundering. Colombia
has enacted legislation to prevent money laundering and
has established a regulatory infrastructure to assist in this
effort. Colombia has established a Financial Information
and Analysis Unit in the Ministry of Finance, which is
responsible for gathering and centralizing information from
public and private entities in Colombia, as well as analyzing such information. In addition, the Superintendency has
issued circulars that require financial institutions to establish systems for the prevention of money laundering.
Colombia participates in international fora that address
the issues of asset forfeiture and the prevention of money
laundering. Colombia is a party to the 1988 U.N. Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (the ‘‘Convention’’), and the United States
has certified that Colombia has taken adequate measures to
achieve full compliance with the goals and objectives of the
Convention. Colombia also has signed the U.N. Convention against Transnational Organized Crime and is a member of the Organization of American States Inter-American
Drug Abuse Control Commission Experts Group to Control
Money Laundering. Colombia is not a member of the
Financial Action Task Force (‘‘FATF’’), although Bank has
taken into account FATF’s recommendations in developing
manuals, internal procedures, and training courses.
Bank has taken measures to ensure compliance with
Colombian law and regulations, including implementing
policies and procedures related to ‘‘know-your-customer’’
practices, suspicious transaction reporting, record keeping,
and employee training.14 An internal central compliance
unit monitors Bank’s adherence to these policies and
11. 12 U.S.C. § 3105(d)(6)(B).
12. Id.
13. Bancolombia S.A., 89 Federal Reserve Bulletin 234 (2003);
Banco de Bogotá S.A., 87 Federal Reserve Bulletin 552 (2001).
14. Compliance is mandatory for all offices of the bank, its
affiliates, and representative offices.

Legal Developments: Third Quarter, 2010

procedures. In addition, Colombia enacted laws in 2000
and 2006 that provide for the detection, prevention, investigation, and punishment of terrorist financing activities.
Further, the Superintendency’s predecessor organization
issued regulations in 2002 that emphasized financial institutions’ obligation to adopt all necessary and effective
control mechanisms to avoid being used as a conduit for
financing terrorism.
Based on all the facts of record, the Board has determined that Bank’s home-country authorities are actively
working to establish arrangements for the consolidated
supervision of Bank and that considerations relating to the
steps taken by Bank and its home country to combat money
laundering are consistent with approval under this exemption.
The Board has also taken into account the additional
standards set forth in section 7 of the IBA and Regulation K.15 The Superintendency has no objection to the
establishment of the proposed branch.
Bank must comply with the minimum capital standards
of the Basel Capital Accord (‘‘Accord’’), as implemented
by Colombia. Bank’s capital is in excess of the minimum
levels that would be required by the Accord and is considered equivalent to the capital levels that would be required
of a U.S. banking organization. Managerial and other
financial resources of Bank also are consistent with approval, and Bank appears to have the experience and
capacity to support the proposed branch. Bank has established controls and procedures for the proposed branch to
ensure compliance with U.S. law and for its operations in
general.
With respect to access to information about Bank’s
operations, the Board has reviewed the restrictions on
disclosure in relevant jurisdictions in which Bank operates
15. See 12 U.S.C. § 3105(d)(3)–(4); 12 CFR 211.24(c)(2). These
standards include (i) whether the bank’s home-country supervisor has
consented to the establishment of the office; (ii) the financial and
managerial resources of the bank; (iii) whether the bank has procedures to combat money laundering, whether there is a legal regime in
place in the home country to address money laundering, and whether
the home country is participating in multilateral efforts to combat
money laundering; (iv) whether the appropriate supervisors in the
home country may share information on the bank’s operations with the
Board; (v) whether the bank and its U.S. affiliates are in compliance
with U.S. law; (vi) the needs of the community; and (vii) the bank’s
record of operation.

B49

and has communicated with relevant government authorities regarding access to information. Bank and its parent
companies have committed to make available to the Board
such information on the operations of Bank and any of its
affiliates that the Board deems necessary to determine and
enforce compliance with the IBA, the Bank Holding Company Act, and other applicable federal law. To the extent
that the provision of such information to the Board may be
prohibited by law or otherwise, Bank and its parent companies have committed to cooperate with the Board to obtain
any necessary consents or waivers that might be required
from third parties for disclosure of such information. In
addition, subject to certain conditions, the Superintendency
may share information on Bank’s operations with other
supervisors, including the Board. In light of these commitments and other facts of record, and subject to the conditions described below, the Board has determined that Bank
has provided adequate assurances of access to any necessary information that the Board may request.
On the basis of the foregoing and all the facts of record,
Bank’s application to establish a branch is hereby approved.
Should any restrictions on access to information on the
operations or activities of Bank and its affiliates subsequently interfere with the Board’s ability to obtain information to determine and enforce compliance by Bank or its
affiliates with applicable federal statutes, the Board may
require Bank to terminate any of its direct or indirect
activities in the United States. Approval of this application
also is specifically conditioned on Bank’s compliance with
the conditions imposed in this order and the commitments
made to the Board in connection with this application.16
By order of the Board of Governors, effective September 7, 2010.
Voting for this action: Chairman Bernanke and Governors Warsh,
Duke, and Tarullo.

Robert deV. Frierson
Deputy Secretary of the Board
16. The Board’s authority to approve the branch parallels the
continuing authority of the state of Florida to license offices of a
foreign bank. The Board’s approval of this application does not
supplant the authority of the state of Florida or its agent, the Florida
Office of Financial Regulation, to license Bank’s Florida office in
accordance with any terms or conditions that it may impose.

Index

C1

Index

A

D

Adjustable-rate mortgages (ARMs), A48–51, A53–54
American Recovery and Reinvestment Act (ARRA), A56
Articles
2009 HMDA Data, The: The Mortgage Market in a Time of Low
Interest Rates and Economic Distress, A39–77
The 2009 HMDA data on loan pricing, A47–54
Appendix A: Requirements of Regulation C, A77
Changes in the structure of the mortgage industry, A63−66
Changes in total lending by borrower and area characteristics,
A61–63
The changing role of government in the mortgage market,
A54−61
Differences in lending outcomes by race, ethnicity, and sex of
borrower, A70–76
An overview of the 2009 HMDA data, A40−47
Patterns of lending in distressed neighborhoods, A68−70
Subdued refinance activity in 2009, A66−68
Summary of findings, A40
Profits and Balance Sheet Developments at U.S. Commercial
Banks in 2009, A1–37
Adjustments to balance sheet data for structure activity, A5
Appendix tables, A27–37
Assets, A3–15
Bank failures and measures of banking concentration, A6
Capital, A18–20
Capital Purchase Program and the Supervisory Capital
Assessment Program, A20
Derivatives, A15–17
Developments in early 2010, A25–26
International operations of U.S. commercial banks, A25
Liabilities, A17–18
Trends in profitability, A21–25
Asset-backed securities, A2, A10
Avery, Robert B., article, A39–77

Department of Housing and Urban Development, A68

B
Bank failures and measures of banking concentration, 2009,
A6
Bank Holding Company Act, orders issued under
China Investment Corporation, B31–34
City Holding Company, B21–25
First Niagara Financial Group, Inc., B7–13
Premier Commerce Bancorp, Inc., B34–36
Sandhills Bancshares, Inc., B1–2
The Toronto-Dominion Bank, B36–41
Bank Merger Act, orders issued under
Banco Popular de Puerto Rico, B25–27
Metcalf Bank, B42–47
Bank of America, N.A., A5, A20
Banking industry profits and balance sheets, U.S., A1–37
Bhutta, Neil, article, A39–77
Brevoort, Kenneth P., article, A39–77

E
Economic Stimulus Act, A56
Enforcement actions (See Litigation, final enforcement decisions)

F
Fannie Mae, A40, A44–45, A54
Farm Service Agency loans, A43, A45, A54–55, A61
Farmer Mac, A44
Federal Deposit Insurance Corporation (FDIC), A1, A6, A17–18,
A21, A24–25
Debt Guarantee Program, A18
Federal Financial Institutions Examination Council (FFIEC), A39,
A58
Federal Housing Administration (FHA), A40, A43, A45, A54–61,
A63
Federal Housing Finance Agency (FHFA), A66
Federal Open Market Committee, A2, A26
Federal Reserve
Senior Loan Officer Opinion Survey on Bank Lending Practices
(SLOOS), A8–11, A13, A15, A23
Survey of Terms of Business Lending, A8, A23
Federal Reserve Act, order issued under
The Warehouse Trust Company LLC, B13–15
Freddie Mac, A40, A44, A54, A64

G
Ginnie Mae, A44
Government-sponsored enterprise(s), A2, A24, A26, A54

H
Herfindahl-Hirschman Index (HHI), A66, B8–9, B22, B37–38,
B41–43
HMDA Data, 2009, The: The Mortgage Market in a Time of Low
Interest Rates and Economic Distress, A39–77
The changing role of government in the mortgage market,
A54–61
Home Mortgage Disclosure Act of 1975 (HMDA), A39
Home ownership, A39–77
Home Ownership and Equity Protection Act of 1994 (HOEPA),
A45, A47
Housing and Economic Recovery Act (HERA), A56
Housing data, A39–77
HUD (see Department of Housing and Urban Development)

I
International Banking Act, orders issued under
ABN AMRO Bank N.V., B15–17
Banco Davivienda, S.A., B47−49
Banque Transatlantique, B3–5
National Agricultural Cooperative Federation, B27–29

L
C
Canner, Glenn B., article, A39–77
Capital Purchase Program, A19–21, B38
Commercial and industrial (C&I) loans, A7–9, A11, A23, A26
Commercial real estate, A2, A4–5, A9–11, A15, A20, A26–36
Community Reinvestment Act (CRA), A68, B2, B10, B24, B26–27,
B33, B35, B39–41, B44, B46–47
Country Exposure Lending Survey, A25
Countrywide Bank, F.S.B., A5

Lee, Seung Jung, article, A1–37
Legal Developments
(See also Bank Holding Company Act, orders issued under;
Federal Reserve Act, orders issued under; International
Banking Act, orders issued under)
First quarter, 2010, B7–19
Fourth quarter, 2009, B1–5
Second quarter, 2010, B21–30
Third quarter, 2010, B31–49

C2

Federal Reserve Bulletin

2010

Litigation, final enforcement decisions
Benarroch, Adam L., B17–19
Garcia-Adanez, Antonio, B29–30
Loans, mortgages, A39–77

M
Merrill Lynch Bank and Trust Co., F.S.B., A5
Mortgage data, A39–77
Mortgage Insurance Companies of America (MICA), A57–58
Mortgage-backed securities (MBS), A1–2, A7, A10, A14–16, A28,
A30, A32, A34, A36

Return on equity (ROE), A1
Rose, Jonathan, D., article, A1–A37
Rural Housing Service guarantees, A43, A54–55, A77

S
Supervisory Capital Assessment Program, A3, A18–21

T
Temporary Liquidity Guarantee Program (TLGP), A18
Term Asset-Backed Securities Loan Facility, A2, A9
Troubled Asset Relief Program (TARP), A3, A19, A20–21

N
Neighborhood Stabilization Program (NSP), A68

P

U
U.S. banking industry, A1–37

Primary Mortgage Market Survey (PMMS), A50, A52–54, A71
Private mortgage insurance data, A56–60
Profits and Balance Sheet Developments at U.S. Commercial Banks
in 2009, A1–37

V

R

Wells Fargo & Company, A5, A20
Worker, Homeownership, and Business Assistance Act of 2009,
A56

Regulation C (Home Mortgage Disclosure), A77
Return on assets (ROA), A1, A21–22

Veterans Affairs, A40, A43, A45, A54–58, A60–61, A77

W