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Spring 2005

Monetary Policy Report to the Congress
Profits and Balance Sheet Developments
at U.S. Commercial Banks in 2004
Background on FOMC Meeting Minutes
Trends in the Use of Payment Instruments
in the United States
*

Community Banks and Rural Development:
Research Relating to Proposals to
Revise the Regulations That Implement
the Community Reinvestment Act
Report on the Condition of the U.S. Banking
Industry: Fourth Quarter, 2004

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Volume 91 • Number 2 • Spring 2005

Federal Reserve

BULLETIN

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

PUBLICATIONS COMMITTEE
Lynn S. Fox, Chair • Scott G. Alvarez • Sandra Braunstein • Marianne M. Emerson
• Jennifer J. Johnson • Karen H. Johnson • Stephen R. Malphrus • Vincent R. Reinhart
• Louise L. Roseman • Richard Spillenkothen • David J. Stockton

The Federal Reserve Bulletin is issued quarterly under the direction of the staff publications committee. This committee is responsible for opinions expressed
except in official statements and signed articles. It is assisted by the Publications Department under the direction of Lucretia M. Boyer.

Table of Contents
1 1 7 MONETARY

POLICY

REPORT

TO THE

CONGRESS

The year 2004 was marked by continued expansion in economic activity and appreciable gains
in employment. With fiscal policy stimulative, monetary policy accommodative, and
financial conditions favorable, household spending remained buoyant and businesses increased
investment in capital equipment and inventories, despite the restraint imposed by sizable
increases in oil prices. Labor market conditions
improved significantly, albeit at an uneven pace,
and productivity rose notably further. Consumer
price inflation moved higher with the surge in
energy prices, but core consumer price inflation
(that is, excluding food and energy) remained
well contained, and measures of expected inflation over longer horizons held steady or edged
lower.
Although economic activity had increased
substantially in 2003, the expansion nevertheless appeared somewhat tentative as 2004
opened, in large measure because businesses
still seemed to be reluctant to boost hiring. Over
the course of the spring, however, it became
clearer that the expansion was solidifying. With
slack in labor and product markets somewhat
diminished, the Federal Open Market Committee at its June meeting began to reduce the
substantial degree of monetary accommodation
that was in place. The gradual removal of monetary policy stimulus continued in the second half
of the year as the economy expanded at a
healthy clip on balance. The fundamental factors
underlying the continued strength of the economy last year should carry forward into 2005
and 2006, promoting both healthy expansion of
activity and low inflation.
1 4 3 PROFITS AND BALANCE SHEET
DEVELOPMENTS
AT U.S. COMMERCIAL
BANKS

elevated range that has prevailed since the mid1990s. Profits were trimmed a bit by a narrowing of banks' net interest margins as the yield
curve flattened and competition put pressure on
loan spreads. In addition, gains in non-interest
income were less pronounced than in 2003, and
non-interest expenses increased. However, the
continued improvement in the overall credit
quality of business and household loans allowed
banks to reduce their provisioning for loan and
lease losses, and delinquency and charge-off
rates for all loan categories trended down. Bank
balance sheets also expanded. A robust housing
sector and generally low interest rates supported
residential mortgage lending, and increases in
demand along with an easing of lending standards and terms throughout the year boosted
commercial and industrial loans. Banks also
reported easing their standards and terms on
commercial real estate loans, and such loans
increased despite soft conditions in some markets. Still-low interest rates supported the continued growth of core deposits, but the greater
rise in bank assets required banks to rely more
heavily on managed liabilities, which rose
strongly last year.
1 7 5 BACKGROUND

ON FOMC

MEETING

MINUTES

On December 14, 2004, the Federal Open Market Committee (FOMC) decided to move up the
publication of its minutes to three weeks after
the end of each meeting. That action has cut in
half the average time between the meeting and
publication of the minutes. It has also apparently
heightened public attention to the FOMC minutes. To give additional context to the Committee's decision, this article outlines previous
changes to the release schedule for the minutes
and provides a brief overview of the content of
the minutes and the way they are now produced.

IN 2004

U.S. commercial banks continued to be highly
profitable in 2004. Return on assets and return
on equity declined moderately, but the economy's continued expansion and supportive financial conditions helped keep bank profits in the

1 8 0 TRENDS IN THE USE OF PAYMENT
INSTRUMENTS IN THE UNITED STATES

In 2003, for the first time, the number of electronic payments in the United States exceeded
the number of check payments—a result of sub-

stantial growth in electronic payments (especially by debit card) and a decline in check
payments. The shift toward electronic payments
suggests that, as with other large economies,
many payments formerly made by check are
now being made with electronic payment instruments. As in past years, however, the value of
checks far exceeded the value of commonly
used electronic payments.
Comparisons among groups of depository
institutions of different types and sizes suggest
that the distribution of payments of different
types is linked in part to the types of customers
those institutions tend to serve. For example, at
credit unions, which generally serve individuals
rather than businesses, checks accounted for a
smaller proportion of account debits, and debit
card payments and ATM withdrawals accounted
for a larger proportion, than at institutions of
other types.
Overall, "on us" check payments, those for
which the payer and payee used the same institution, declined slightly. The rate at which checks
are returned also declined, while the rate of
returned ACH payments—almost twice that of
checks—increased, in part because of new types
of ACH payments, including ACH transactions
initiated with a check.
Data gathered in 2004 also reveal some differences among geographic regions. Debit card use
was substantially greater, and check use substantially lower, in the West than in other regions. In
contrast, debit card use was considerably less
common in the Northeast, and the decline in
check payments since 2000 was less pronounced
in that region.
Indirect evidence—data on ATM withdrawals
and cash back from debit card payments—
suggests that cash remains a popular means of
making payments. Industry data showing
increases in ATMs and ATM transactions appear
to reflect a shift toward greater use of ATMs and
less use of checks to obtain cash, and do not
necessarily indicate an increase in the use of
cash.
2 0 2 COMMUNITY BANKS AND RURAL
DEVELOPMENT: RESEARCH RELATING TO
PROPOSALS TO REVISE THE REGULATIONS
THAT IMPLEMENT THE COMMUNITY
REINVESTMENT ACT

Since 1977, the Community Reinvestment Act
(CRA) has required that federally insured bank-

ing institutions be evaluated on their records of
helping to meet the credit needs of their local
communities. In 1995, the agencies responsible
for bank supervision substantially revised the
regulations that implement the CRA. The revisions were intended to emphasize performance
rather than process, to reduce unnecessary regulatory burden, and to increase consistency in
CRA evaluations. Since 1995, "large" institutions, generally those with assets of $250 million or more, have been evaluated under a threepart test, whereas "small" institutions, generally those with assets of less than $250 million,
have been subject to comparatively streamlined
evaluations.
In 2004 and 2005, the agencies put forth
several proposals to extend the eligibility for
streamlined examinations and an exemption
from data reporting to more institutions by raising the asset-size threshold from $250 million to
$500 million or $1 billion. A related issue that
the agencies raised was how to define which
bank activities in rural areas should be considered community development in CRA evaluations. In this article, the authors, having evaluated data to gain insight into the potential effects
of these proposals, report the findings of their
research.
2 3 6 REPORT ON THE CONDITION OF THE U.S.
BANKING INDUSTRY: FOURTH QUARTER,

2004
Assets of reporting bank holding companies
rose $393.2 billion (or 4.0 percent), exceeding
$10.0 trillion for the first time. Loans, which
accounted for roughly half the increase, rose
3.5 percent, led by the commercial real estate,
home equity, and credit card categories. Nearly
all the growth occurred at the fifty large institutions. The increase of 4.7 percent in securities
and money market assets was largely attributable to the addition of a single large foreignowned securities-oriented firm with significant
portfolios of trading and short-term money market assets.
Deposits increased 3.7 percent, while nondeposit borrowings increased 2.5 percent; the latter
influenced by the addition of the large securitiesoriented bank holding company. Net income
declined 1.4 percent from the previous quarter
despite the increases in loans and other interestearning assets, in part because a flatter yield
curve and heightened competitive pressure in

loan pricing eroded net interest margins. Provisions for loan losses declined 2 percent as nonperforming assets fell to 0.82 percent of loans
and related assets. For 2004, net income of
reporting bank holding companies increased
5.1 percent over 2003.
241 ANNOUNCEMENTS

Federal Open Market Committee statements
Amendments to Regulation CC, appendix A

Request for comment on proposed classification
of commercial credit exposures
Answers released to frequently asked questions
about new HMDA data
December 2004 update to the Bank Holding
Company Supervision Manual
Improvements to the Federal Reserve Board's
web site
Posting of Industrial Production and Capacity
Utilization release (G.17)

Request for comments on proposed revisions to
regulations implementing the Community Reinvestment Act

Meeting of the Consumer Advisory Council

Request for comments on proposal to amend
Regulation CC

Approvals of discount rate actions

Adoption of final rule on trust preferred
securities
Proposal to discontinue services for definitive
municipal securities
Passing of Henry Czerwinski, Former First Vice
President, Kansas City Federal Reserve Bank
Implementation of Basel II framework
Implementation of web-based central data
repository
Federal Reserve Board and FDIC issue enforcement actions against The NorCrown Trust and
Charles Kushner
Federal Reserve Board and FDIC issue written
agreement associated with The NorCrown Trust
Comment period extended on proposed data collection changes for shared national credits
Final guidance issued on overdraft protection
programs
Advisory on confidentiality of supervisory
ratings
Proposed revisions to Community Reinvestment
Act regulations
Guidance on response programs for security
breaches

Minutes of the Board's discount rate meetings

Enforcement actions
Changes in Board staff
Revision to the money stock data
258 LEGAL DEVELOPMENTS

Various bank holding company, bank service
corporation, and bank merger orders
300 MEMBERSHIP OF THE BOARD OF
GOVERNORS OF THE FEDERAL RESERVE
SYSTEM, 1913-2004
304 BOARD OF GOVERNORS AND OFFICIAL
STAFF
306 FEDERAL OPEN MARKET COMMITTEE AND
STAFF; ADVISORY COUNCILS
308 FEDERAL RESERVE BOARD PUBLICATIONS
310 ANTICIPATED SCHEDULE OF RELEASE
DATES FOR PERIODIC STATISTICAL
RELEASES
312 MAPS OF THE FEDERAL RESERVE SYSTEM
314 FEDERAL RESERVE BANKS, BRANCHES,
AND OFFICES

Monetary Policy Report to the Congress
Report submitted to the Congress on February 16,
2005, pursuant to section 2B of the Federal Reserve
Act

MONETARY POLICY AND THE
ECONOMIC OUTLOOK
The year 2004 was marked by continued expansion in economic activity and appreciable gains in
employment. With fiscal policy stimulative, monetary policy accommodative, and financial conditions
favorable, household spending remained buoyant and
businesses increased investment in capital equipment
and inventories, despite the restraint imposed by sizable increases in oil prices. Labor market conditions
improved significantly, albeit at an uneven pace, and
productivity rose notably further. Consumer price
inflation moved higher with the surge in energy
prices, but core consumer price inflation (that is,
excluding food and energy) remained well contained,
and measures of expected inflation over longer horizons held steady or edged lower.
Although economic activity had increased substantially in 2003, the expansion nevertheless appeared
somewhat tentative as 2004 opened, in large measure
because businesses still seemed to be reluctant to
boost hiring. Over the course of the spring, however,
it became clearer that the expansion was solidifying. Businesses added appreciably to their payrolls,
boosted investment in equipment and software,
and started restocking inventories. While household
spending growth softened somewhat, residential
construction expanded rapidly. Rising energy prices
boosted overall consumer price inflation, and core
inflation moved up as well. In response to positive economic news and higher inflation during this
period, market participants came to anticipate that
monetary policy tightening would begin sooner than
they had expected, and interest rates increased considerably. With the economic expansion more firmly
established and slack in labor and product markets
somewhat diminished, the Federal Open Market
Committee (FOMC) at its June meeting began to
reduce the substantial degree of monetary accommodation that was in place.
The gradual removal of monetary policy stimulus
continued in the second half of the year as the econ-

omy expanded at a healthy clip on balance. Around
midyear, some measures of growth in activity softened, partly because of the drain on income and
the rise in business costs created by higher oil prices.
The expansion of consumer spending slowed in the
spring, and the pace of hiring and gains in industrial
production dropped back notably during the summer.
Equity prices and longer-term interest rates moved
lower over this period as well. In the event, the
slowdown in household spending growth proved
short lived. Both hiring and increases in factory
output stepped up again in the autumn, and these
gains were extended early this year. With profits
healthy and financial conditions still supportive, capital spending increased at a brisk pace throughout the
year. Over the final quarter of 2004, short-term interest rates rose further as monetary policy was firmed
at each FOMC meeting, but long-term interest rates
were largely unchanged. Equity prices rose appreciably in the fourth quarter, and the dollar depreciated
against most other major currencies. The FOMC
increased the target federal funds rate 25 basis points
again at its meeting this month, bringing the cumulative tightening over the past year to 11⁄2 percentage
points.
The fundamental factors underlying the continued
strength of the economy last year should carry forward into 2005 and 2006, promoting both healthy
expansion of activity and low inflation. Monetary
policy is still accommodative, and financial conditions more generally continue to be advantageous for
households and firms. Profits have been rising briskly,
and corporate borrowing costs are low. Household
net worth has increased with the continued sharp rise
in the value of real estate assets as well as gains
in equity prices, and this will likely help support
consumer demand in the future. Absent a significant
increase in oil prices from current levels, the drag
from last year’s run-up should wane this year. The
lagged effects of the decline in the exchange value
of the dollar since the autumn and sustained foreign
economic growth are likely to boost the demand
for U.S. exports. The prospects for the expansion of
aggregate supply also appear to be quite favorable.
Gains in structural labor productivity should continue, although not necessarily at the pace of recent
years. Economic growth will likely be sufficient to

118

Federal Reserve Bulletin

Spring 2005

generate notable increases in employment, although
any reversal of the decline in labor force participation observed since 2001 would tend to hold up the
unemployment rate. Core consumer price inflation
has remained low since the larger increases posted
in the early months of 2004, and long-term inflation
expectations have been similarly well contained.
With some slack likely remaining in labor and product markets at present and with the indirect effects of
higher oil and import prices diminishing, the prospects for inflation staying low are good. A favorable
economic outcome is, of course, not assured, but
at the most recent FOMC meeting the Committee
again assessed the risks to both output and inflation
as balanced. The Committee also reaffirmed that it
is prepared to respond to events as necessary in its
pursuit of price stability.

Monetary Policy, Financial Markets, and
the Economy in 2004 and Early 2005
In early 2004, against the backdrop of stimulative
fiscal and monetary policy, continued rapid growth in
productivity, and supportive financial market conditions, business outlays appeared to be firming significantly and household spending remained strong. The
FOMC became more confident that the economic
expansion was likely gaining traction and that the
risk of significant further disinflation had been greatly
reduced. In these circumstances, it recognized that
a highly accommodative stance for monetary policy
could not be maintained indefinitely. Nonetheless, the
Committee was concerned about the persistently slow
pace of hiring and viewed underlying inflation pres-

sures as likely to remain subdued. Accordingly, the
Committee left its target for the federal funds rate
unchanged at 1 percent at its January and March
meetings. However, beginning in January, it modified
the language of its policy statement to gain greater
flexibility to tighten policy should circumstances warrant by indicating that monetary policy accommodation would eventually have to be removed. At the
same time, the Committee suggested that it could be
patient in undertaking such actions.
By the time of the May and June FOMC meetings, incoming economic data pointed to a broader
and more firmly established expansion, with continued strength in housing markets and business fixed
investment. Also, the employment reports for March,
April, and May had indicated strong and widespread gains in private nonfarm payrolls, and previous reports for January and February were revised
upward significantly. Overall consumer price inflation in the first quarter was faster than it had been a
year earlier, and core inflation also increased, in part
because of the indirect effects of higher energy prices.
The Committee maintained its target for the federal
funds rate at 1 percent in May, but on the basis of the
evolving outlook for economic activity and prices, it
revised its assessment of risks to indicate that the
upside and downside risks for inflation had moved
into balance. The Committee also stated that monetary policy accommodation could ‘‘be removed at a
pace that is likely to be measured’’ to communicate
its belief, given its economic outlook, that policy
would probably soon need to move toward a more
neutral stance, though probably not at a rapid pace.
The Committee retained this language at the June
meeting while raising its target for the federal funds

Selected interest rates
Percent

Ten-year Treasury

6
5

Two-year Treasury

4
3

Intended federal funds rate

2
1

1/30

3/19

5/7

6/26

2002

8/13 9/24 11/6 12/10 1/29

3/18

5/6

6/25

2003

8/12 9/16 10/28 12/9

1/28

3/16

5/4

6/30 8/10 9/21 11/10 12/14

2/2

2004

2005

NOTE. The data are daily and extend through February 9, 2005. Treasury rates are constant-maturity yields based on the most actively traded securities. The
dates on the horizontal axis are those of FOMC meetings.
SOURCE. Department of the Treasury and the Federal Reserve.

Monetary Policy Report to the Congress

rate from 1 percent to 11⁄4 percent and noting that
it would ‘‘respond to changes in economic prospects
as needed to fulfill its obligation to maintain price
stability.’’
The information that the Committee had received
by the time of its August meeting indicated that
economic growth had softened somewhat earlier
in the summer. Although the housing market had
remained strong and business outlays had continued
to be healthy, consumer spending growth had slowed
significantly, and industrial production had begun to
level off. Also, the June and July labor market reports
revealed that employment growth had slowed considerably. At the same time, core consumer price inflation had moderated in May and June even though
sizable increases in food and energy prices continued.
However, the Committee believed that the softness in
economic activity was caused importantly by higher
prices of imported oil and would prove short lived.
With financial conditions remaining stimulative,
the economy appeared poised to grow at a pace
sufficient to trim slack in resource utilization. In that
regard, given the unusually low level of the federal
funds rate, especially relative to the level of inflation,
policymakers noted that significant cumulative policy
tightening would likely be needed to meet the Federal
Reserve’s long-run objectives of price stability
and sustainable economic growth. The Committee’s
decision at the meeting to raise its target for the
federal funds rate 25 basis points, to 11⁄2 percent, and
to maintain its assessment of balanced risks with
respect to sustainable growth and price stability was
largely anticipated by financial markets. However,
market participants revised up their expectations for
the path of the federal funds rate, reportedly because
the announcement conveyed a somewhat more
optimistic outlook for the economy than many had
anticipated.
By the time of the September FOMC meeting,
available information suggested that the economy
had regained momentum. Real consumer spending
bounced back sharply in July after a weak second
quarter, and incoming data on industrial production
indicated a modest strengthening. Housing activity
had increased further, and business outlays had
picked up significantly in the second quarter. In addition, the labor market showed signs of improvement
in August, as the unemployment rate edged down and
nonfarm payrolls grew moderately. Core consumer
price inflation slowed in June and July, and a decline
in energy prices from record levels pushed down
readings on headline inflation. Although the Committee acknowledged that higher oil prices had damped
the pace of economic activity around midyear, it

119

nonetheless saw the expansion as still on solid footing. Consequently, the Committee agreed to increase
its target for the federal funds rate another 25 basis
points, to 13⁄4 percent; to reiterate its view that the
risks to price stability and to sustainable growth were
balanced; and to repeat its indication that the removal
of policy accommodation would likely proceed at a
‘‘measured’’ pace. The reaction in financial markets
to the policy rate decision and the accompanying
statement was muted.
The information in hand at the time of the November FOMC meeting generally suggested that the
economy had continued to expand at a moderate rate
despite the restraint that higher oil prices imparted
to real incomes and consumer confidence. Consumer
and business spending stayed firm, and the housing
market remained buoyant. However, industrial production was about unchanged, and the news on job
growth was uneven—lackluster increases in nonfarm
payrolls in September were followed by robust
expansion in October. Inflation measures were moderate, although up somewhat from one year earlier.
On balance, the Committee saw the economy as
growing at a pace that would reduce margins of slack
in the utilization of resources. The Committee also
judged that inflationary pressures would likely be
well contained if monetary policy accommodation
were gradually withdrawn. The Committee’s decision to raise its target for the federal funds rate from
13⁄4 percent to 2 percent with minimal change in the
language in the accompanying statement was largely
anticipated by financial markets and elicited little
reaction.
At its December meeting, the Committee viewed
available information as continuing to indicate that
the pace of the economic expansion was sufficient
to further reduce the underutilization of resources,
despite elevated oil prices. Consumer spending
remained solid, investment spending was strong, and
manufacturing production showed modest growth.
Also, employment gains in October and November
were consistent with gradual improvement in the
labor market. Meanwhile, core inflation, while above
the unusually low rates of late 2003, remained subdued. Accordingly, the Committee voted to raise
its target for the federal funds rate 25 basis points, to
21⁄4 percent, and to retain the previous statement that
the removal of policy accommodation would likely
be ‘‘measured.’’ Investors had largely anticipated the
policy rate decision, but a few market participants
had reportedly speculated that the Committee would
signal increased concern about inflationary pressures.
In the absence of any such signal, implied rates on
near-dated futures contracts and longer-term Trea-

120

Federal Reserve Bulletin

Spring 2005

sury yields declined a few basis points after the
release of the December statement.
Also at its December meeting, the Committee considered an accelerated release of the minutes of
FOMC meetings. The Committee’s practice had been
to publish the minutes for each meeting on the Thursday after the next scheduled meeting. The Committee believed that, because the minutes contain a more
nuanced explanation of policy decisions than the
statement released immediately after each meeting,
publishing them on a timelier basis would help market participants interpret economic developments and
thereby better anticipate the course of interest rates.
Earlier release would also provide a context for the
public remarks of individual FOMC members. It was
also recognized, however, that financial markets
might misinterpret the minutes at times and that
earlier release might adversely affect the Committee’s discussions and, perhaps, the minutes themselves. After weighing these considerations, the
Committee voted unanimously to publish the FOMC
minutes three weeks after the day of the policy
decision.
The information that the Committee reviewed at
its February 2005 meeting indicated that the economy had continued to expand at a steady pace. The
labor market showed signs of further improvement,
and consumer spending and the housing market
remained robust. Industrial production accelerated,
particularly at the end of 2004, and growth of business fixed investment was solid in the fourth quarter.
Core inflation stayed moderate, and measures of
inflation expectations remained well anchored. Given
the solid economic expansion and limited price pressures, the Committee voted to continue its removal
of policy accommodation by raising its target for the
federal funds rate from 21⁄4 percent to 21⁄2 percent and
to essentially repeat the language of the December
statement. Futures market quotes indicated that investors had already priced in a 25 basis point increase

in the target federal funds rate at the meeting, and
market participants reportedly expected no substantive changes to the accompanying statement.
Accordingly, the reaction in financial markets to the
announcement was minimal.

Economic Projections for 2005 and 2006
Federal Reserve policymakers expect the economy
to expand moderately and inflation to remain low in
2005 and 2006.1 The central tendency of the forecasts
of real GDP growth made by the members of the
Board of Governors and the Federal Reserve Bank
presidents is 33⁄4 percent to 4 percent over the four
quarters of 2005. The civilian unemployment rate is
expected to average about 51⁄4 percent in the fourth
quarter of 2005. For 2006, the policymakers project
real GDP to increase about 31⁄2 percent, and they
expect the unemployment rate to edge down to
between 5 percent and 51⁄4 percent. With regard to
inflation, FOMC participants project that the chaintype price index for personal consumption expenditures excluding food and energy (core PCE) will
increase between 11⁄2 percent and 13⁄4 percent both
this year and next—about the same as the 1.6 percent
increase posted over 2004.

ECONOMIC AND FINANCIAL DEVELOPMENTS
IN 2004 AND EARLY 2005
The economy proved to be sufficiently resilient to
maintain solid growth and moderate core inflation
in 2004 even as higher oil prices drained consumers’ purchasing power and boosted firms’ costs. Real
1. As a further step to enhance monetary policy communications,
Federal Reserve policymakers will now provide economic projections
for two years, rather than one, in the February Monetary Policy
Report.

Economic projections for 2005 and 2006
Percent
Federal Reserve Governors and Reserve Bank presidents
Indicator

Memo:
2004 actual

2005
Range

Change, fourth quarter to fourth quarter 1
Nominal GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PCE price index excluding food and energy . . . . . . .

6.2
3.7
1.6

Average level, fourth quarter
Civilian unemployment rate . . . . . . . . . . . . . . . . . . . . . .

5.4

5–6
31⁄2–4
1
1 ⁄2–2
5–51⁄2

2006
Central
tendency

Range

Central
tendency

51⁄2–53⁄4
33⁄4–4
11⁄2–13⁄4

5–53⁄4
31⁄4–33⁄4
1
1 ⁄2–2

5–51⁄2
31⁄2
1 ⁄ –13⁄4

5–51⁄4

51⁄4

1. Change from average for fourth quarter of previous year to average for fourth quarter of year indicated.

Monetary Policy Report to the Congress

Change in real GDP
Percent, annual rate

1998

2000

2002

2004

NOTE. Here and in subsequent charts, except as noted, change for a given
period is measured to its final quarter from the final quarter of the preceding
period.
SOURCE. Department of Commerce, Bureau of Economic Analysis.

GDP rose 33⁄4 percent last year after having increased
41⁄2 percent in 2003. Activity was supported by continued robust advances in household spending. In
addition, capital spending by businesses increased
notably. Labor market conditions improved significantly, though at an uneven pace over the course of
the year. Private payrolls, which turned up in late
2003, rose 170,000 per month last year, on average,
and the unemployment rate declined below 51⁄2 percent by year-end and to 51⁄4 percent in January
2005—the lowest rates since 2001.
Consumer price inflation was driven higher last
year by the sharp rise in energy prices. Although core
consumer price inflation moved up somewhat from
unusually low levels recorded in 2003, it remained
well contained. Price increases were restrained by
Change in PCE chain-type price index
Percent

121

continuing, though diminishing, slack in labor and
product markets, which tended to offset the effects
of higher energy and commodity prices, as well as
the weaker dollar, on firms’ overall costs. In addition,
solid productivity gains implied that unit labor costs
rose only modestly, even if up from the declines
in the preceding two years. The decline in crude oil
prices, on balance, since October points to some
easing of cost pressures on firms from that source in
the period ahead.
Several forces likely contributed to last year’s
impressive economic performance in the face of the
sizable adverse oil shock. The growth of real output
continued to be undergirded by gains in structural
labor productivity. Moreover, fiscal policy remained
stimulative last year through the combination of the
lagged effect of earlier cuts in personal tax rates, the
rise in defense spending, and perhaps also the partialexpensing tax incentives for business investment.
Monetary policy was highly accommodative in the
early part of the year and remained accommodative,
though progressively less so throughout the year, and
credit remained readily available at favorable terms.
Consumer demand was also boosted by the strong
increases in asset values during the past two years.
Financial conditions remained stimulative last year
even as market participants revised up their expectations for the near-term path of monetary policy. Interest rates on longer-term Treasury securities remained
low, risk spreads on corporate bonds narrowed, and
commercial banks eased terms and standards on business loans. In this environment, household debt again
increased briskly. The borrowing needs of nonfinancial businesses were damped by their strong cash
flows. Equity values rose, especially toward the end
of the year. At the same time, the exchange value of
the dollar declined, on net, over the year as market
participants apparently focused on the financing
implications of the large and growing U.S. current
account deficit.

Total
Excluding food and energy
3

The Household Sector
Consumer Spending

1998

2000

2002

2004

NOTE. The data are for personal consumption expenditures (PCE).
SOURCE. Department of Commerce, Bureau of Economic Analysis.

Consumer spending grew substantially last year. Personal consumption expenditures (PCE) advanced
nearly 4 percent in real terms, about the same as
the increase in 2003. Sales of new motor vehicles
remained brisk, on average, at 163⁄4 million units.
Excluding motor vehicles, consumer spending on
most categories of durable and nondurable goods
rose rapidly, as gains in real expenditures for food

122

Federal Reserve Bulletin

Spring 2005

Change in real income and consumption

Personal saving rate
Percent, annual rate

Percent

Disposable personal income
Personal consumption expenditures
12
6
9
4
6
2
3

1998

2000

2002

2004

SOURCE. Department of Commerce, Bureau of Economic Analysis.

and clothing both exceeded 5 percent; however,
spending on computing equipment increased less
in 2004 than in preceding years, and consumers
responded to the high cost of gasoline and heating
fuel by cutting back on real spending for these items.
Real outlays for services also increased rapidly last
year, and medical services posted especially large
gains.
Real disposable personal income (DPI) rose nearly
4 percent last year, but this figure is exaggerated by
Microsoft’s $32 billion special dividend payment in
December (the bulk of which is estimated to have
accrued to U.S. households). If this one-time event
is excluded from the calculation, real DPI rose only
23⁄4 percent in 2004, well below the increase posted
in 2003. Faster job growth helped to support increases
in households’ incomes last year in nominal terms,
and the Jobs and Growth Tax Relief Reconciliation
Act of 2003 (JGTRRA), which brought lower personal tax rates forward into 2003, led to larger
refunds and smaller final payments in the spring of
2004. However, real income gains were held down,
as higher oil prices siphoned off household purchasing power.
With the growth of real consumption spending
outpacing that of real income through most of last
year, the personal saving rate moved lower, from
11⁄2 percent, on average, in 2003 to only 1⁄2 percent
in the third quarter of last year. (The fourth-quarter
surge in income associated with the Microsoft dividend payments pushed the saving rate back up to
11⁄4 percent, but this increase will likely be reversed
early this year as dividend income falls back. Because
the company’s share price declined in step with
the dividend payouts, the dividends had no effect on
shareholders’ overall financial resources and so probably had little effect on consumption.)

1984

1988

1992

1996

2000

2004

NOTE. The data are quarterly and extend through 2004:Q4.
SOURCE. Department of Commerce, Bureau of Economic Analysis.

Low interest rates were one factor that helped to
support consumption growth—especially for durable
goods—despite comparatively slow gains in real
income. Higher household wealth was also an important force that propelled consumer spending last year.
According to the Federal Reserve’s flow of funds
accounts, the ratio of household net worth to disposable income rose sharply in 2003, as corporate equity
values rebounded and home prices continued to rise.
Moreover, although equity values were little changed,
on net, through much of 2004 before rising notably
in the final quarter, home prices continued to rise
throughout the year, and the wealth-to-income ratio
moved up further; by the third quarter (the most
recent period for which the complete wealth data
Wealth-to-income ratio
Ratio

1984

1988

1992

1996

2000

2004

NOTE. The data are quarterly and extend through 2004:Q3. The wealthto-income ratio is the ratio of household net worth to disposable personal
income.
SOURCE. For net worth, Federal Reserve Board, flow of funds data; for
income, Department of Commerce, Bureau of Economic Analysis.

123

Monetary Policy Report to the Congress

Consumer sentiment

Mortgage rates
1966 = 100

1985 = 100

Percent

Fixed rate

140

7
120

Conference Board

120
5

100

Adjustable rate
Michigan SRC

80
3
60

1993

1996

1999

2002

2005

NOTE. The data are monthly and extend through January 2005.
SOURCE. The Conference Board and University of Michigan Survey
Research Center.

are available), the ratio had reversed nearly half its
decline since the stock market peak in 2000. Because
wealth feeds through into household spending over a
period of several quarters, the wealth increases in
both 2003 and 2004 were important in supporting
consumer spending last year. The rise in house prices,
together with continued low interest rates, also led
consumers to extract additional equity from their
homes, in particular through home equity loans. Such
actions provided many households with a readily
available and relatively low-cost source of funds for
financing consumption.
Consumer confidence, which had improved in
2003, remained at generally favorable levels last year,
according to surveys by both the Michigan Survey
Research Center (SRC) and the Conference Board.
Confidence tended to dip at times during the year
when energy prices were moving up most rapidly, but
it recovered soon after those episodes.

2001

2002

2003

2005

In the single-family sector, housing starts
amounted to 1.6 million units last year, a rate faster
than the already rapid pace of 1.5 million units started
in 2003. In the multifamily sector, starts totaled
a solid 350,000 units last year, a figure in line with
that of the preceding several years. Sales of both new
and existing single-family homes hit new highs last
year, and home prices moved up sharply. The repeattransactions price index for existing homes (limited
to purchase transactions only), which is published
by the Office of Federal Housing Enterprise Oversight, climbed more than 10 percent over the four
quarters ending in the third quarter of last year (the
latest quarter for which data are available) and is up a
cumulative 65 percent since 1997, when it started to
rise notably more rapidly than overall inflation. These
price increases have also outstripped by a wide marPrivate housing starts

Residential Investment
Residential investment remained robust last year.
Real expenditures increased 53⁄4 percent in 2004—the
third straight year of strong gains. Demand for housing was influenced by the same factors that affected
household spending more generally, but it was especially supported by nominal mortgage interest rates
that have remained near their lowest levels since the
late 1960s. Rates on thirty-year fixed-rate mortgages
fluctuated between about 51⁄2 percent and 61⁄4 percent
over the past two years; they edged up to the high end
of that range during the spring but dropped back to
under 6 percent by the end of summer and now stand
below 53⁄4 percent.

2004

NOTE. The data, which are weekly and extend through February 9, 2005,
are contract rates on thirty-year mortgages.
SOURCE. Federal Home Loan Mortgage Corporation.

Millions of units, annual rate

1.6
Single-family
1.2

.8
Multifamily
.4

1992

1994

1996

1998

2000

2002

NOTE. The data are quarterly and extend through 2004:Q4.
SOURCE. Department of Commerce, Bureau of the Census.

2004

124

Federal Reserve Bulletin

Spring 2005

Change in house prices

Household financial obligations ratio
Percent

Percent

12
Repeat-transactions index

18
6
17
3
New home price
index

1984

1988

1992

1996

2000

+
0
_

2004

NOTE. The repeat-transactions index includes purchase transactions only
and extends through 2004:Q3. The new home price index extends through
2004:Q4. Change is over four quarters.
SOURCE. For repeat transactions, Office of Federal Housing Enterprise
Oversight; for new home prices, Department of Commerce, Bureau of the
Census.

gin the increases in household incomes and rents.
Another nationwide price index, the Census Bureau’s
constant-quality price index for new homes, rose
only 63⁄4 percent last year. Because this index does
not adjust for the location of new homes within
metropolitan areas and because new homes constitute only a small fraction of the overall housing
stock, this index is probably a less reliable indicator
of overall home values than is the repeat-transactions
index.
Household Finance
Household debt is estimated to have increased about
93⁄4 percent in 2004, a touch less than in the previous
year. Mortgage debt again paced this advance. The
brisk expansion of mortgages reflected continued
strong activity in housing markets and rising house
prices. However, the growth rate of mortgage debt
did not quite match that registered in 2003. Refinancing activity fell off sharply last year, as the pool
of outstanding mortgages with interest rates above
current market rates shrank considerably. Mortgages
with adjustable interest rates, including hybrids that
feature both fixed and adjustable interest rate components, were increasingly popular in 2004. Consumer credit continued to expand at a moderate pace
by historical standards, restrained in part by the substitution of other forms of debt, such as home equity
loans. Higher interest rates on some consumer loans
and credit cards in the second half of 2004 may have
also damped the growth of consumer credit.

1992

1995

1998

2001

2004

NOTE. The data are quarterly and extend through 2004:Q4. The final
observation, 2004:Q4, is a projection. The financial obligations ratio equals
the sum of required payments on mortgage and consumer debt, automobile
leases, rent on tenant-occupied property, homeowners’ insurance, and
property taxes, all divided by disposable personal income.

Relatively low interest rates and further gains
in disposable personal income limited pressures on
household balance sheets in 2004. Measures of aggregate household financial obligations and debt service,
which capture pre-committed expenditures relative
to disposable income, were little changed last year,
on balance, though they remained high by historical
standards. Nevertheless, measures of household credit
quality either held steady or improved during the
course of the year. The latest available data indicate
that delinquency rates on credit card loans, consumer
loans, and residential mortgages at commercial banks
declined, while those on auto loans at captive finance
companies were about unchanged at a low level.
Delinquency rates on selected types of household loans
Percent

Credit card pools

5
4

Auto loans at domestic auto finance companies

3
2

Mortgages

1992

1994

1996

1998

2000

2002

2004

NOTE. The data are quarterly. The rates for credit card pools and mortgages
extend through 2004:Q3; the rate for auto loans extends through 2004:Q4.
SOURCE. For credit cards, Moody’s Investors Service; for auto loans, Big
Three automakers; for mortgages, Mortgage Bankers Association.

Monetary Policy Report to the Congress

Household bankruptcy filings ran below the elevated
levels of 2003, although they stayed generally above
the rates posted in earlier years.

The Business Sector
Fixed Investment
Business fixed investment rose robustly for a second
consecutive year in 2004. Real spending on equipment and software (E&S) increased 131⁄2 percent,
about as much as in 2003, as firms’ final sales continued to increase, profits and cash flow rose further,
and many businesses reported a need to replace or
upgrade existing equipment and software. Although
many firms had little need to seek outside financing
given their flush cash situation, those that did generally found financial markets to be receptive—interest
rates remained low, and other terms and conditions
stayed relatively favorable. The partial-expensing tax
incentives, which covered new equipment and software installed by the end of 2004, boosted profits and
Change in real business fixed investment
Percent, annual rate

Structures
Equipment and software

20
10
+
0
_
10
20

High-tech equipment and software
Other equipment excluding transportation

10
+
0
_
10

1999

2000

2001

2002

2003

cash flow and may have also stimulated some investment spending.
Increases in E&S spending were fairly widespread
across categories of capital goods. Spending on
high-technology equipment increased 151⁄2 percent
last year after having risen 19 percent in 2003; these
gains followed two years of declines. Although the
pattern of spending was uneven over the four quarters of 2004, for the year as a whole, business outlays for computing equipment rose 25 percent in real
terms, while spending on software and communications equipment posted increases of 13 percent
and 10 percent respectively. Outside of the high-tech
sector, business spending on aircraft moved lower
for the third consecutive year, as airlines continued
to struggle with a highly competitive market environment and high fuel prices. In contrast, business
outlays on motor vehicles rose substantially last
year, with the demand for trucks exceptionally strong.
Investment in equipment other than high-tech and
transportation goods—a category that includes industrial machinery and a wide range of other types of
equipment—moved up 11 percent last year, the most
in more than ten years.
In contrast to the rebound in equipment spending,
real outlays in the nonresidential construction sector
were about unchanged for a second year in 2004 and
have yet to recover from their sharp downturn during
2001 and 2002. In the office sector, where construction increased rapidly in the late 1990s, spending has
remained especially weak; vacancy rates for these
properties, although down a touch over the past year,
are still quite elevated. Construction of industrial
buildings has also remained low as a result of high
vacancy rates. In contrast, demand for new retail
and wholesale properties has been firmer, reportedly
a reflection of the steady increases in consumer
spending, and outlays for these types of buildings
moved higher last year. In addition, investment in the
drilling and mining sector rose last year in response
to high prices for natural gas.

30
20

1998

125

2004

NOTE. High-tech equipment consists of computers and peripheral equipment and communications equipment.
SOURCE. Department of Commerce, Bureau of Economic Analysis.

Inventory Investment
Businesses added appreciably to inventories last year
for the first time since running down their holdings
sharply in 2001. As economic activity strengthened
during 2002 and 2003, many businesses chose to
operate with inventories that were increasingly lean
relative to sales. In 2004, when stocks had become
quite spare—even after taking into account the ongoing improvements in inventory management that have
allowed firms to economize on stockholding—and

126

Federal Reserve Bulletin

Spring 2005

Change in real business inventories

Before-tax profits of nonfinancial corporations
as a percent of sector GDP

Billions of chained (2000) dollars, annual rate
Percent

75
14
50
12
25
10

+
0
_

8
25
6
1998

2000

2002

2004

SOURCE. Department of Commerce, Bureau of Economic Analysis.

businesses had apparently grown more confident in
the durability of the recovery, businesses accumulated
$45 billion of inventories (in real terms), according to
preliminary data. The step-up in the pace of stockbuilding contributed about 1⁄4 percentage point to
GDP growth last year.

Corporate Profits and Business Finance
Strong growth of corporate profits again allowed
many firms to finance capital spending with internal
funds last year. As a result, nonfinancial business
debt rose at only a moderate pace. Net equity issuance dropped further into negative territory in 2004,
and on balance nonfinancial corporations are estimated to have raised no net funds in credit and equity
markets. However, short-term business debt, including commercial paper and commercial and industrial
(C&I) loans, expanded last year after three years of
contraction, and commercial mortgage debt continued to increase rapidly. The credit quality of businesses remained strong.
Corporate profits held up well in 2004 after surging
in the previous year. The ratio of before-tax profits of
nonfinancial corporations to that sector’s gross value
added increased for a second consecutive year. In the
fourth quarter of 2004, operating earnings per share
for S&P 500 firms were nearly 20 percent above their
level four quarters earlier. Analysts’ earnings forecasts began to moderate somewhat in the second
half of 2004 after several months of strong upward
revisions.
In equity markets, net issuance of shares by nonfinancial firms turned more negative in 2004. Although
initial public offerings rebounded from the sluggish
pace of the past two years, ample profits and sizable

1980

1984

1988

1992

1996

2000

2004

NOTE. The data are quarterly and extend through 2004:Q3. Profits are from
domestic operations of nonfinancial corporations, with inventory valuation
and capital consumption adjustments.
SOURCE. Department of Commerce, Bureau of Economic Analysis.

cash holdings helped boost share retirements from
mergers and repurchases.
Net corporate bond issuance was sluggish in 2004,
as firms evidently relied heavily on their considerable
profits to fund investment in fixed capital and inventories. The timing of gross bond issuance was influenced by interest rate movements during the year, as
firms took advantage of occasional dips in longerterm yields to issue bonds. Firms reportedly used a
large portion of the proceeds to pay down existing
debt, although some companies used the funds raised
in the bond market to repurchase equity shares or to
finance mergers.
Financing gap and net equity retirement
at nonfinancial corporations
Billions of dollars

300
250

Net equity retirement

200
150
100

Financing gap

50
+
0
_
50
1990

1992

1994

1996

1998

2000

2002

2004

NOTE. The data are annual; 2004 is based on partially estimated data. The
financing gap is the difference between capital expenditures and internally
generated funds. Net equity retirement is the difference between equity
retired through share repurchases, domestic cash-financed mergers, or foreign
takeovers of U.S. firms and equity issued in public or private markets,
including funds invested by venture capital partnerships.

127

Monetary Policy Report to the Congress

Net interest payments of nonfinancial corporations
as a percent of cash flow

Selected components of net business financing
Billions of dollars

Percent

Commercial paper
Bonds
Bank loans
Sum of selected
components

400
20
200

2002

2003

+
0
_

200

2004

NOTE. Seasonally adjusted annual rate for nonfinancial corporate business.
The data for the sum of selected components are quarterly. The data for
2004:Q4 are estimated.
SOURCE. Federal Financial Institutions Examination Council, Consolidated
Reports of Condition and Income (Call Report).

Short-term business borrowing revived in 2004
after a prolonged contraction. Commercial paper
outstanding turned up in the first half of the year,
although it flattened out over the second half. Business loans at banks rebounded over the course of last
year. According to results from the Federal Reserve’s
Senior Loan Officer Opinion Survey on Bank Lending Practices, commercial banks eased terms and
standards on business loans during the course of 2004
in response to the improved economic outlook and to
increased competition from other banks and nonbank
Net percentage of domestic banks tightening
standards on commercial and industrial loans
to large and medium-sized firms

1980

1984

1988

1992

1996

2000

2004

NOTE. The data are quarterly and extend through 2004:Q3.
SOURCE. Department of Commerce, Bureau of Economic Analysis.

lenders. Survey responses also indicated an increase
in demand for C&I loans that reflected firms’ need
to fund rising accounts receivable, inventories, capital expenditures, and merger activity. Concerns over
loan quality seemed to diminish further in 2004, as
spreads on leveraged deals in the syndicated loan
market edged down from already low levels.
Corporate credit quality remained solid in 2004
amid strong earnings, low interest rates, and a further buildup of already substantial cash positions on
firms’ balance sheets. The delinquency rate on C&I
loans declined further, and the twelve-month trailing
default rate on corporate bonds fell to historically low
levels before edging up late in the year. Net upgrades
of bonds by Moody’s Investors Service for both
Default rate on outstanding corporate bonds

Percent
Percent

60
4
40
3
20
2
+
0
_

1991

1993

1995

1997

1999

2001

2003

+
0
_

2005

NOTE. The data are based on a survey generally conducted four times per
year; the last reading is from the January 2005 survey. Large and
medium-sized firms are those with annual sales of $50 million or more. Net
percentage is the percentage reporting a tightening less the percentage
reporting an easing.
SOURCE. Federal Reserve, Senior Loan Officer Opinion Survey on Bank
Lending Practices.

1992

1994

1996

1998

2000

2002

2004

NOTE. The data are monthly and extend through December 2004. The rate
for a given month is the face value of bonds that defaulted in the twelve
months ending in that month divided by the face value of all bonds
outstanding at the end of the calendar quarter immediately preceding the
twelve-month period.
SOURCE. Moody’s Investors Service.

128

Federal Reserve Bulletin

Spring 2005

investment- and speculative-grade nonfinancial firms
increased last year.
The stock of commercial mortgage debt outstanding grew at a rapid pace in 2004. Some firms reportedly continued to find mortgages an attractive source
of long-term funding. The expansion of commercial mortgage credit helped propel issuance of
commercial-mortgage-backed securities (CMBS) to
near-record levels. Delinquency rates on commercial
mortgages on the books of banks and insurance companies remained low throughout the year, and those
on loans backing mortgage securities fell. Considerable gains in commercial real estate prices increased
owners’ equity and largely kept pace with the sizable
increase in mortgage debt obligations. Yield spreads
of CMBS over comparable Treasury securities
remained moderate.

The Government Sector
Federal Government
The federal budget position deteriorated slightly further in 2004, as spending increases and further tax
reductions offset the effects of stronger economic
growth on revenues. The unified budget deficit widened from $378 billion in fiscal 2003 to $412 billion
in fiscal 2004. As a share of GDP, the federal unified deficit stood close to 31⁄2 percent in both years.
Receipts increased 51⁄2 percent in fiscal 2004 after
two years of declines. Corporate receipts surged
more than 40 percent, or $58 billion, reflecting
the improvement in corporate profits; individual tax
receipts—restrained by JGTRRA, which pulled forFederal receipts and expenditures
Percent of nominal GDP

ward reductions of personal tax rates that had
been scheduled for the second half of the decade—
rose only about 2 percent. Overall federal receipts
increased less rapidly than nominal GDP, and the
ratio of receipts to GDP edged down to 161⁄4 percent,
the lowest level in more than forty years.
Meanwhile, nominal federal outlays increased
about 6 percent in fiscal 2004. Spending for national
defense increased especially sharply, but spending
also increased notably for Medicare and Medicaid.
Debt service costs, which fell sharply from 1997
through 2003 as a result of reduced debt and declining interest rates, edged higher last year. Federal
government purchases of goods and services—the
part of spending that is counted in GDP—rose about
4 percent in real terms in 2004 after larger increases
in the preceding two years. (Government spending
on items such as interest payments and transfers is
excluded from GDP because these items do not constitute a direct purchase of final production.)
Regarding legislative initiatives, two new tax bills
were enacted in the fall of 2004. First, the Working
Families Tax Relief Act extended through 2010 a
variety of personal tax reductions that had previously
been set to expire earlier. Second, the American Jobs
Creation Act replaced the exclusion of extraterritorial
income (which the World Trade Organization had
declared an illegal export subsidy) with numerous
other tax reductions for domestic manufacturers and
U.S. multinationals. The first bill is expected to have
a ten-year budget cost of around $150 billion, while
the second bill was scored as being revenue neutral.
As for federal spending in fiscal 2005, the regular
appropriations bills provided for sizable increases in
spending on defense and homeland security and for
modest increases in nondefense discretionary expenChange in real government expenditures
on consumption and investment
Percent

Federal
State and local

Expenditures
22

Receipts
Expenditures
excluding net interest

1986

1989

1992

1995

1998

2001

+
0
_

2004

NOTE. The budget data are from the unified budget and are for fiscal years
(October through September); GDP is for the year ending in Q3.
SOURCE. Office of Management and Budget.

1998

2000

2002

2004

SOURCE. Department of Commerce, Bureau of Economic Analysis.

Monetary Policy Report to the Congress

ditures. In addition, emergency legislation passed in
the autumn provided disaster aid for victims of hurricanes and for ranchers and farmers affected by
drought conditions.
The recent sizable deficits in the unified budget
mean that the federal government, which had been
contributing to the pool of national saving from 1997
through 2000, has been drawing on that pool since
2001. Net federal saving—essentially the unified budget balance adjusted to the accounting practices of
the national income and product accounts (NIPA)—
dropped from positive 2 percent of GDP in 2000 to a
level below negative 3 percent of GDP in 2003 and
2004. Personal saving moved lower over this period
as well, while business net saving rose with the
rebound in corporate profits. In all, net national saving edged up in 2004 but remained near its postwar
lows. Because net national saving has fallen increasingly short of net domestic investment over the past
several years, the inflow of foreign funds needed to
finance that investment has risen. The growing inflow
of foreign capital is mirrored in the widening of the
nation’s current account deficit. Over time, the low
national saving rate could eventually slow the rise
in living standards either by increasing the burden
of servicing U.S. foreign debt or by impinging on
domestic capital formation.
The growth rate of Treasury debt moderated
slightly last year after increasing substantially in
2003. Nonetheless, federal debt held by the public as
a percentage of GDP continued to edge higher over
the course of 2004 and currently stands at about
361⁄2 percent. To help finance substantial budget
deficits, the Treasury issued a considerable volume
of bills as well as two-, three-, five-, and ten-year

129

Federal government debt held by the public
Percent of nominal GDP

1964

1974

1984

1994

2004

NOTE. Through 2003, the data for debt are year-end figures, and the
corresponding value for GDP is for Q4 at an annual rate; the final observation
is for 2004:Q3. Excludes securities held as investments of federal government accounts.

nominal notes. In addition, the Treasury expanded its
borrowing program in 2004 by adding semiannual
auctions of twenty-year inflation-protected bonds and
five-year inflation-protected notes.
Various indicators suggested a continued strong
appetite for Treasury securities among foreign investors last year. Indirect bidding at Treasury auctions,
which includes bidding by the Federal Reserve Bank
of New York on behalf of foreign official institutions,
remained robust, and Treasury securities held in
custody at the Federal Reserve Bank of New York
on behalf of such institutions increased just over
$200 billion in 2004. Also, data from the Treasury
International Capital System showed a substantial
increase in holdings of Treasury securities by foreign
official and private investors, particularly those in
Japan. The proportion of Treasury securities held

Net saving
Percent of nominal GDP

Treasury securities held by foreign investors
as a share of total outstanding
Percent

12
Nonfederal saving

9
45
6
3

Total
Federal saving

+
0
_

3
30
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
NOTE. The data are quarterly and extend through 2004:Q3. Nonfederal
saving is the sum of personal and net business saving and the net saving of
state and local governments.
SOURCE. Department of Commerce, Bureau of Economic Analysis.

1997

1998

1999

2000

2001

2002

2003

NOTE. The data are quarterly and extend through 2004:Q3.

2004

130

Federal Reserve Bulletin

Spring 2005

by foreign investors is estimated to have risen to a
record 431⁄2 percent by the third quarter of 2004.
Treasury debt reached its statutory ceiling late last
year. To cope with the constraint, the Treasury temporarily resorted to accounting devices, suspended issuance of state and local government series securities,
and postponed a four-week bill auction. In midNovember, Congress raised the debt ceiling from
$7.4 trillion to $8.1 trillion, and the Treasury subsequently resumed normal financing operations.

State and Local Governments
Pressures on the budgets of state and local governments have eased as economic activity has strengthened. Tax receipts have been spurred by the increases
in household income, consumer spending, and property values. As a result, many states seem to be on
track to meet balanced budget requirements in the
current fiscal year (which ends June 30 for all but
a few states) without using as much borrowing or
other extraordinary measures as in recent years.
Nevertheless, a number of states still must deal with
lingering fiscal problems, particularly depleted
reserve funds, the expiration of temporary tax
hikes, and rising Medicaid costs. In addition, several
states still face serious structural imbalances in their
budgets.
Real expenditures by state and local governments
as measured in the NIPAs remained about flat for a
second year in 2004. Real spending on current operations rose less than 1 percent last year, while real
investment spending declined. However, even as they
were holding the line on spending increases, states
State and local government net saving

and localities were able to resume net hiring in 2004
after having left employment about unchanged in
2003.
Net issuance of debt by state and local governments edged down from the rapid pace set in 2003,
as improved budget positions permitted some contraction in short-term debt. Advance refunding offerings were again strong during the year, as states and
municipalities took advantage of low long-term interest rates and moderate credit spreads. Credit quality
of tax-exempt borrowers improved in 2004. Rating
upgrades of tax-exempt bonds outpaced downgrades,
especially later in the year.

The External Sector
After narrowing in 2003, the U.S. current account
deficit widened again last year and was $660 billion
(annual rate), or 5.6 percent of GDP, in both the
second and third quarters. Much of this widening
reflected a considerable increase in the deficit on
goods and services trade, as a marked rise in imports
more than offset solid increases in exports. The trade
deficit expanded from $500 billion during the fourth
quarter of 2003 to more than $650 billion, on average, during the second half of 2004.

International Trade
Real exports of goods and services rose an estimated
51⁄2 percent in 2004 despite a deceleration in the
fourth quarter. In the first half, exports were supported by the lagged effect of the fall in the dollar’s
U.S. trade and current account balances

Percent of GDP
Percent of nominal GDP

+
0
_

1
2

+
0
_

Trade
3

Current
account

4
.5
5
6
1983

1986

1989

1992

1995

1998

2001

2004

NOTE. The data, which are quarterly, are on a national income and product
account basis and extend through 2004:Q3. Net saving excludes social
insurance funds.
SOURCE. Department of Commerce, Bureau of Economic Analysis.

1997

1998

1999

2000

2001

2002

2003

2004

NOTE. The data are quarterly. The trade data extend through 2004:Q4, and
the current account data extend through 2004:Q3.
SOURCE. Department of Commerce.

Monetary Policy Report to the Congress

value in 2003. Strong expansion of foreign economic
activity also helped boost exports in the first half,
but that stimulus diminished in the second half of
the year when foreign growth slowed. For the year as
a whole, exports of industrial supplies and capital
goods posted solid growth. Exports to Canada,
Mexico, and western Europe rose smartly in 2004,
whereas exports to Japan were relatively weak. Real
exports of services increased about 31⁄2 percent
through 2004 as a whole.
After increasing at an annual rate of almost 6 percent in the first half of 2004, prices of exported goods
moved up at just a 21⁄2 percent rate in the second half.
This deceleration was due in large part to a reversal
of the run-up in the prices of agricultural products
that had occurred in late 2003 and early 2004. Better
harvests last year returned prices of agricultural products to levels near those that had prevailed before the
spike.
Solid growth in income in the United States
spurred growth of real imports of 91⁄2 percent in
2004. The increase primarily reflected higher imports
of goods that occurred despite a notable rise in their
prices. Real oil imports expanded almost 10 percent
in 2004. Imports of capital equipment increased
throughout the year, but imports of consumer goods
suffered a period of weakness through the middle
of the year before rebounding in the fourth quarter.
Imports of services moved up only 13⁄4 percent in
2004.
Prices of imported non-oil goods increased at an
annual rate of just over 4 percent in the first half of
2004, but the pace slowed to 2 percent in the second
half. This step-down largely reflected a deceleration
in the prices of industrial supplies, driven by a leveling off of nonfuel commodity prices at the elevated

131

levels reached in March. Declines in the prices of
foods offset continued price increases for metals.
The spot price of West Texas intermediate (WTI)
crude oil moved up during most of 2004 and surged
temporarily to a record high of $55 per barrel in
October. Since then, it has fluctuated somewhat
below that peak but still at levels well above $33 per
barrel, the price at which it started 2004. Oil prices
were driven up by intensified concerns that oil supply
would not keep pace with surprisingly strong global
demand. Oil consumption in China grew nearly
15 percent in 2004, pushing that economy past Japan
as the world’s second-largest consumer. As oil prices
rose, OPEC increased its oil production, diminishing
the cartel’s estimated spare capacity to historically
low levels. Increased OPEC production damped particularly the rise in prices of heavier, more sulfurous
grades of crude oil but had less effect on prices of
lighter grades like WTI. Supply disruptions also
played a role in the run-up of oil prices. In October,
Hurricane Ivan extensively damaged oil and gas production facilities in the Gulf of Mexico, boosting the
price of WTI relative to other grades of crude oil.
Sabotage of production and distribution facilities in
Iraq hindered oil exports from that country, which
remain below pre-war levels. In Nigeria, ethnic violence and community protests shut down some production. Russian oil output, however, continued
despite the breakup of Yukos, formerly Russia’s largest oil company. Late in the year, oil prices declined
from their October highs, as production recovered in
the Gulf of Mexico and OPEC added new capacity.
The price of the far-dated NYMEX oil futures contract (currently for delivery in December 2011) rose
Prices of oil and of nonfuel commodities
Dollars per barrel

January 2001 = 100

Change in real imports and exports of goods and services
Percent

Imports
Exports

160

140

120

100

+
0
_

Oil

30
20

Nonfuel

5
10

1998

2000

2002

2004

SOURCE. Department of Commerce and Federal Reserve staff estimates.

2001

2002

2003

2004

2005

NOTE. The data are monthly and extend through January 2005. The oil
price is the spot price of West Texas intermediate crude oil. The price of
nonfuel commodities is an index of forty-five primary-commodity prices.
SOURCE. For oil, Wall Street Journal; for nonfuel commodities, International Monetary Fund.

132

Federal Reserve Bulletin

Spring 2005

U.S. net international securities transactions

Prices of major nonfuel commodities

Billions of dollars

January 2001 = 100

Net private foreign purchases of U.S. securities
145
Metals
Beverages

Bonds
Equities

175
150
125

130

100
115

Food
Agricultural
raw materials

2001

2002

2003

2004

100

25
+
0
_
2001

2005

NOTE. The data are monthly and extend through January 2005. The metals
category includes aluminum, copper, and iron ore; food includes cereals,
vegetable oils and protein meals, seafood, and meat; agricultural raw
materials consists of timber, cotton, wool, rubber, and hides; and beverages
consists of coffee, cocoa beans, and tea.
SOURCE. International Monetary Fund.

about $10 per barrel during 2004, possibly reflecting expectations of greater oil demand in Asian
emerging-market economies. The far-dated futures
contract averaged about $38 per barrel in January
2005, while the spot price of WTI averaged about
$48 per barrel.

The Financial Account
In 2004, the U.S. current account deficit was financed
once again largely by foreign purchases of U.S.
bonds. Foreign official inflows picked up further last
year and were especially strong in the first quarter,
reflecting sizable bond purchases by Asian central
banks. Private foreign purchases of U.S. bonds
U.S. net financial inflows
Billions of dollars

Official
Private

2002

2003

2004

SOURCE. Department of Commerce and the Federal Reserve Bank of New
York.

rebounded in 2004 from a slight decline in 2003, with
especially large purchases coming late in the fourth
quarter. In contrast, foreign demand for U.S. equities
weakened further in 2004, although this also picked
up late in the year. Net purchases of foreign securities
by U.S. investors remained strong in 2004, with most
of the strength coming in the second half of the year.
U.S. direct investment abroad continued at a strong
pace, as reinvested earnings remained sizable. Direct
investment into the United States rebounded in the
first three quarters of 2004 from its anemic pace in
2003; global mergers and acquisitions revived, and
reinvested earnings picked up. Overall, net direct
investment outflows continued over the first three
quarters of 2004 but at a lower pace than in 2003.
Net inflows of portfolio capital exceeded net outflows of direct investment and represented the financial counterpart to the U.S. current account deficit.
These net financial inflows imply a further decline in
the U.S. net international investment position, which
began 2004 at a reported level of negative $2.4 trillion (22 percent of GDP).

200
175

The Labor Market

150
125

Employment and Unemployment

100
75
50
25
+
0
_
25
2001

2002

SOURCE. Department of Commerce.

2003

2004

The labor market improved notably in 2004. Private
payrolls, which began to post sustained increases
in late 2003, rose an average of 170,000 per month
last year. Progress was not steady over the course of
the year, however. Employment growth stepped up
sharply in the spring to a pace of almost 300,000 per
month in March, April, and May; net hiring then
dropped back to subpar rates of about 100,000 per

133

Monetary Policy Report to the Congress

Net change in payroll employment

Civilian unemployment rate
Thousands of jobs, monthly average

Percent

Private nonfarm
Jan.

300
9

200
100

+
0
_
100

200

1999

2001

2003

2005

SOURCE. Department of Labor, Bureau of Labor Statistics.

month in June through September. In the four months
since then, increases in private payrolls have averaged 165,000 per month.
The improved pace of hiring was widespread, as
all major industry groups contributed to faster
employment growth relative to that of the latter part
of 2003. The largest gains were in professional and
business services and health services. The construction sector also posted substantial gains. In the manufacturing sector—where employment had declined
almost continuously since early 2000—payrolls
increased in the spring when overall employment was
rising sharply but were about unchanged, on net, over
the second half of the year. Employment gains in
retail trade and in food services were also brisk over
the first half of the year but tapered off in the second
half. Meanwhile, state and local governments added
substantially to their payrolls last year, especially for
education, but civilian employment in the federal
government edged lower.
The unemployment rate fell from near 6 percent in
late 2003 to less than 51⁄2 percent by late last year;
joblessness fell further in January 2005, to 51⁄4 percent. The decline in the unemployment rate over the
past year reflected both the pickup in hiring and a
labor force participation rate that remained surprisingly low. From 2001 through 2003, the participation
rate declined by more than would have been predicted on the basis of past relationships with indicators of labor demand, and in 2004, when the pace of
hiring increased, the participation rate leveled off but
failed to rise. These considerations suggest that there
may be a persistent component to the recent softness in participation. However, participation had been
quite strong through 2000, when the labor market
was extremely tight, and the fact that participation

1975

1985

1995

2005

NOTE. The data are monthly and extend through January 2005.
SOURCE. Department of Labor, Bureau of Labor Statistics.

Labor force participation rate
Percent

1975

1985

1995

2005

NOTE. The data are monthly and extend through January 2005.
SOURCE. Department of Labor, Bureau of Labor Statistics.

turned down at the same time that labor demand
weakened suggests that at least some of the recent
low participation is cyclical. To the extent that some
of this low participation proves to be transitory, the
resumption of more-rapid labor force growth will
limit the speed at which employment gains further
push down the unemployment rate.

Productivity and Labor Costs
Labor productivity rose solidly again last year. Output per hour in the nonfarm business sector increased
an estimated 21⁄2 percent over the year. This increase
was somewhat below the outsized 4 percent average pace of increase from 2001 through 2003. Those
earlier huge productivity gains were not associated
with especially large accumulations of new capital

134

Federal Reserve Bulletin

Spring 2005

Change in output per hour
Percent, annual rate

5
4
3
2
1

1948–73

1973–95

1995–2000

2002

2004

NOTE. Nonfarm business sector.
SOURCE. Department of Labor, Bureau of Labor Statistics.

equipment, as had been the case during the late
1990s; instead, to a large degree, the gains seem
to have been related to more effective use of capital
equipment that had been acquired earlier and to onetime organizational innovations induced by firms’
earlier reluctance to commit to increased hiring. Still,
last year’s 21⁄2 percent increase in productivity was
impressive by long-run standards: It was in line with
the pace of the late 1990s and well above rates that
had prevailed during the preceding two decades.
Increases in hourly labor compensation remained
moderate last year. As measured by the employment cost index (ECI), which is based on a quarterly survey from the Bureau of Labor Statistics,
hourly compensation in private nonfarm businesses
increased 33⁄4 percent in 2004, a bit less than in 2003.
Measures of change in hourly compensation
Percent

8
Nonfarm compensation per hour
6

4
Employment
cost index

1996

1998

2000

2002

2004

NOTE. The data are quarterly and extend through 2004:Q4. For nonfarm
compensation, change is over four quarters; for the employment cost index
(ECI), change is over the twelve months ending in the last month of each
quarter. Nonfarm compensation is for the nonfarm business sector; the ECI is
for private industry excluding farm and household workers.
SOURCE. Department of Labor, Bureau of Labor Statistics.

An alternative measure is compensation per hour in
the nonfarm business sector as derived from compensation data in the NIPAs. This measure of hourly
compensation rose 31⁄2 percent last year, an increase
similar to that in the ECI but substantially less than
the 51⁄2 percent rise in 2003.
As has been the case for several years, the cost of
employee benefits rose considerably more than did
wages and salaries last year. The benefits component of the ECI increased nearly 7 percent, while the
wages and salaries component posted a much more
moderate 3 percent increase. The rise in hourly wages
and salaries was about the same as increases in the
preceding two years; although probably boosted by
last year’s higher rate of price inflation, wages were
likely held down by the continued, though diminishing, labor market slack and also by employers’
attempts to offset continued large increases in benefits costs. Health insurance costs continued to rise
rapidly. As measured by the ECI, employers’ costs of
health insurance, which account for about 6 percent
of overall compensation costs, rose 7 percent last
year after having increased more than 10 percent per
year in 2002 and 2003.

Prices
Overall consumer prices rose notably more in 2004
than they did in 2003, and the sharp increase in
energy prices accounted for much of the step-up. The
chain-type price index for personal consumption
expenditures (PCE) rose 21⁄2 percent last year, compared with an increase of 13⁄4 percent in 2003. The
increase in PCE prices excluding food and energy
was considerably smaller—only 11⁄2 percent, up a
little more than 1⁄4 percentage point from the increase
in 2003. Inflation as measured by the market-based
component of core PCE prices—which excludes a
collection of erratic prices that are unobservable
from market transactions and which the Bureau of
Economic Analysis began to publish early last year—
was in line with overall core PCE inflation last
year. The core consumer price index (CPI) rose about
2 percent last year after having increased 11⁄4 percent in 2003. (The CPI differs from PCE prices in a
number of respects, but one factor that boosted
CPI inflation relative to PCE inflation last year was
a difference in the way the two indexes measure
the prices of medical services, especially physicians’
services, which rose much more rapidly in the CPI
than in the PCE index.) The rise in core consumer
prices was largest in the early months of 2004: Core
PCE prices increased at an annual rate of nearly

Monetary Policy Report to the Congress

Change in consumer prices

135

Alternative measures of price change
Percent
Percent

Price measure

Consumer price index
Chain-type price index for PCE

Chain-type
Gross domestic product . . . . . . . . . . . . . .
Gross domestic purchases . . . . . . . . . . . .
Personal consumption expenditures . . .
Excluding food and energy . . . . . . . . .
Market-based PCE excluding
food and energy . . . . . . . . . . . . . . . .
Fixed-weight
Consumer price index . . . . . . . . . . . . . . . .
Excluding food and energy . . . . . . . . .

2002

2003

2004

1.6
1.8
1.8
1.5

1.7
1.8
1.7
1.2

2.4
2.9
2.5
1.6

1.4

1.0

1.6

2.2
2.0

1.9
1.2

3.4
2.1

Note. Changes are based on quarterly averages of seasonally adjusted data.
Source. For chain-type measures, Department of Commerce, Bureau of
Economic Analysis; for fixed-weight measures, Department of Labor, Bureau of
Labor Statistics.

1998

2000

2002

2004

SOURCE. For consumer price index, Department of Labor, Bureau of Labor
Statistics; for chain-type measure, Department of Commerce, Bureau of
Economic Analysis.

2 percent over the first half of the year and then
decelerated to a 11⁄4 percent rate of increase in the
second half.
The price index for GDP was less affected by last
year’s rise in energy prices than was the PCE measure; much of the energy price increase was attributable to the higher prices of imported oil, which
are excluded from GDP because they are not part of
domestic production. GDP prices increased 21⁄2 percent last year, 3⁄4 percentage point faster than in 2003.
In addition to the rise in PCE prices (excluding the
influence of imported oil), GDP prices were affected
by a sizable increase in construction prices for residential and nonresidential structures.
The jump in consumer energy prices in 2004 was
driven by the run-up in crude oil prices. The prices
of both gasoline and fuel oil increased approximately 30 percent over the year, and higher oil
Change in PCE prices excluding food and energy
Percent, annual rate

1998

2000

2002

SOURCE. Department of Labor, Bureau of Labor Statistics.

2004

costs accounted for the bulk of the increase. Prices of
natural gas, which can often substitute for fuel oil in
the industrial sector, rose notably as well last year
despite the restraining influence of ample inventories.
Electricity prices, which tend to reflect fuel costs
with a lag, also moved higher through most of the
year but dropped back some near year-end.
Consumer food prices rose around 3 percent for a
second consecutive year in 2004. Exports of beef
dropped sharply last year when most of the largest
importing countries placed restrictions on U.S. beef
after a case of mad cow disease was discovered.
Nevertheless, domestic demand was sufficiently
strong to support consumer meat prices last year.
Fruit and vegetable prices trended sideways through
most of the year but then rose sharply in the fall
because of crop damage associated with the series of
hurricanes that hit the Southeast in August and September. In addition, prices for food away from home,
which are driven more by labor costs than by raw
food prices, increased more rapidly last year than in
2003.
Core consumer prices were influenced by a variety
of forces last year. Price increases were likely
restrained by continuing slack in labor markets and in
some product markets, but businesses faced considerable pressure from several sources of increased costs.
First, the indirect effects of the large jump in energy
prices fed through to businesses throughout the
economy and were especially important for firms in
energy-intensive industries, such as those that produce plastics and fertilizers. Second, prices were up
sharply for a number of other industrial commodities,
including lumber and a variety of metals. These price
increases reflected strengthening economic activity
abroad as well as in the United States. Although these
non-oil commodities represent a small part of businesses’ overall costs, some businesses likely felt
the pinch of sustained price increases in these areas.

136

Federal Reserve Bulletin

Spring 2005

Change in unit labor costs

TIPS-based inflation compensation
Percent

Percentage points

3.5
4

Five-year, five-year ahead
3
2.5

2
2
+
0
_

1.5
1

Five-year

1998

2000

2002

2004

NOTE. Nonfarm business sector.
SOURCE. Department of Labor, Bureau of Labor Statistics.

Third, the declining exchange value of the dollar
boosted import prices, including those of many inputs
to production. Finally, the deceleration in labor
productivity boosted unit labor costs after two years
of declines; nevertheless, last year’s 1 percent rise in
unit labor costs was quite modest.
Taken together, these influences left their clearest
mark on the prices of goods rather than services.
Core goods prices were about unchanged, on average, last year, but this period of stability followed a
period of unusually large declines in 2003. In particular, the prices of new motor vehicles leveled
off after falling notably in 2003, and the prices of
used vehicles reversed some of their sharp 2003
declines. Prices of non-energy PCE services rose
about 2 percent in 2004—a smaller increase than in
2003.
Last year’s rise in inflation showed through to
short-term measures of expected inflation, but longerterm measures remained stable. According to the
Michigan SRC, households’ median expectations for
inflation over the next year moved up considerably in
the spring as inflation was rising, but then they eased
back and ended the year near 3 percent—up from
around 21⁄2 percent in late 2003. In contrast, the
median expectation for inflation over the next five to
ten years held about steady near 23⁄4 percent throughout this period. Inflation compensation as measured
by spreads between yields on nominal Treasury securities and inflation-indexed securities—another indicator of expected inflation, albeit one that is also
influenced by perceptions of inflation risk and perhaps also by the development of the market for
inflation-indexed debt—showed a similar pattern.
Inflation compensation over the next five years
moved up about 1⁄2 percentage point during 2004, to

2002

2003

2004

2005

NOTE. The data are daily and extend through February 9, 2005. Based on a
comparison of the yield curve for Treasury Inflation-Protected Securities
(TIPS) to the nominal off-the-run Treasury yield curve.

21⁄2 percent, while compensation at the five- to tenyear horizon edged lower, on net, over the year.

U.S. Financial Markets
Domestic financial conditions were supportive of
economic growth in 2004. Interest rates on longerterm Treasury securities remained low, corporate risk
spreads fell, and stock prices, on balance, registered
gains. These developments occurred even as market
participants revised up their expectations for the path
of the federal funds rate. At the beginning of 2004,
futures market quotes implied that investors expected
a 13⁄4 percent target for the federal funds rate at
year-end, 50 basis points below the target actually
established at the FOMC meeting in December 2004.
Interest rates on selected Treasury securities
Percent

Ten-year

5
4
3
Two-year
2
Three-month

2002

2003

2004

NOTE. The data are daily and extend through February 9, 2005.
SOURCE. Department of the Treasury.

2005

Monetary Policy Report to the Congress

Consistent with the revision in policy expectations,
yields on two-year Treasury notes increased about
11⁄4 percentage points in 2004. Yields on longerdated Treasury securities, however, ended the year
essentially unchanged. Despite the run-up in oil
prices, equity prices registered solid gains in 2004
after rising sharply the year before. Risk spreads on
investment-grade corporate debt declined a touch,
and those on speculative-grade debt fell more noticeably. Moreover, banks appreciably eased terms and
standards for lending to businesses.

Interest Rates
Most market interest rates rose, on balance, over the
first half of 2004, particularly at shorter maturities.
The FOMC’s decision at its January meeting to shift
from a statement that monetary policy could remain
accommodative for ‘‘a considerable period’’ to an
indication that it could be ‘‘patient’’ in removing
policy accommodation prompted a rise in market
interest rates. In early February and March, yields fell
substantially in response to employment reports that
indicated tepid job growth. Prices of federal funds
and Eurodollar futures contracts implied that investors placed only small odds on an increase in the
target funds rate before late 2004 and that they envisioned only moderate monetary policy tightening
thereafter. Longer-term interest rates and the expected
path for the federal funds rate were considerably
marked up later in the spring in response to data
suggesting a pickup in aggregate demand and hiring,
readings on core inflation that came in above expectations, and rising oil prices. In the statement released
after its May meeting, the Committee indicated that
policy accommodation was likely to be removed at a
‘‘measured’’ pace. At its June meeting, the Committee raised the target for the federal funds rate from
1 percent to 11⁄4 percent, but it continued to assess
the risks to sustainable growth and to price stability
as balanced and reiterated the ‘‘measured pace’’
language. Interest rates across the term structure
declined somewhat immediately after the announcement, reportedly because some market participants
had expected the FOMC to mention upside risks to
growth or inflation in its statement.
Chairman Greenspan’s congressional testimony
in July on monetary policy, which suggested that
recent softness in consumer spending would likely
prove short lived, sparked a jump in yields on Treasury securities. However, interest rates subsequently
moved lower, on balance, as incoming data pointed to
weaker spending and employment than investors had

137

expected as well as to more-subdued core inflation.
Apart from the August employment report, which
seemed to hint that the economy was emerging from
its ‘‘soft patch,’’ incoming economic news remained
somewhat lackluster through the end of the third
quarter. However, investors reportedly viewed FOMC
statements and comments by FOMC officials as more
sanguine on near-term prospects for the economy
than they had expected. In particular, the release of
the minutes from the August FOMC meeting, which
referenced the probable need for ‘‘significant cumulative tightening,’’ prompted investors to mark up
their expectations for the near-term path of monetary
policy.
Short-term Treasury yields rose a bit further over
the fall in association with actual and expected
policy tightening, but long-term Treasury yields were
little changed on net. Investors’ expectations for the
path of monetary policy firmed a bit more in the
fourth quarter in response to higher-than-anticipated
inflation and remarks from Federal Reserve officials
that were reportedly interpreted as suggesting that an
imminent pause in the tightening cycle was unlikely.
As the economic expansion gathered momentum
and measures of corporate credit quality improved,
investors’ perception of risk seemed to diminish, and
their willingness to bear risk apparently increased.
Risk spreads on investment-grade corporate debt
over comparable Treasuries ended the year slightly
below their levels at the end of 2003. Spreads of
speculative-grade yields declined further after narrowing sharply during 2003.

Spreads of corporate bond yields over
comparable off-the-run Treasury yields
Percentage points

10
8
High-yield
6
BBB

4
2

+
0
_

1997 1998 1999 2000 2001 2002 2003 2004 2005
NOTE. The data are daily and extend through February 9, 2005. The
high-yield index is compared with the five-year Treasury yield, and the BBB
and AA indexes are compared with the ten-year Treasury yield.
SOURCE. Merrill Lynch AA and BBB indexes and Merrill Lynch Master II
high-yield index.

138

Federal Reserve Bulletin

Spring 2005

In early 2005, market participants boosted their
expectations for the path of the federal funds rate,
partly in response to the publication of the minutes
of the December FOMC meeting, which investors
reportedly interpreted as pointing to greater concerns about inflation than had been expected. Shortand intermediate-term Treasury yields rose along
with expectations for the path of monetary policy,
but longer-term yields edged lower. Yields on
investment- and speculative-grade corporate bonds
largely moved with those on comparable Treasury
securities, and hence risk spreads remained at low
levels.

Implied S&P 500 volatility
Percent

1998

Equity Markets
After surging as much as 30 percent in 2003, broad
stock market indexes climbed modestly over the first
half of 2004. The boost to equity prices from robust
earnings reports and analysts’ upward revisions for
future profits during this period was offset in part
by rising interest rates in the second quarter, worries
about geopolitical developments, and sharply higher
oil prices. Stock prices dipped early in the second
half in response to softer economic data, further
concerns about energy prices, and guidance from
corporations that pointed to a less optimistic trajectory for earnings than investors had reportedly been
expecting. However, as oil prices pulled back toward
the end of 2004 and news on the economy improved,
stock prices rebounded to post solid gains for the
year. The increases were led by stocks with comparatively small market capitalizations; the Russell 2000
index climbed 17 percent in 2004 to a record high.
The S&P 500 and the technology-laden Nasdaq
advanced about 9 percent and 81⁄2 percent respecStock price indexes
January 2, 2003 = 100

160

Russell 2000

140

120
Wilshire 5000
100

2003

2004

2005

NOTE. The data are daily and extend through February 9, 2005.

1999

2000

2001

2002

2003

2004 2005

NOTE. The data are daily and extend through February 9, 2005. The series
shown is the implied thirty-day volatility of the S&P 500 stock price index as
calculated from a weighted average of options prices.
SOURCE. Chicago Board Options Exchange.

tively. To date in 2005, equity prices have edged
lower, on balance, as investors have responded to
a rebound in oil prices, lackluster earnings reports,
cautious guidance for future profits, and indications
of continued monetary policy tightening.
Expected volatility implied by options prices for
both the Nasdaq 100 and the S&P 500 declined
further in 2004 from already low levels. The difference between the earnings–price ratio and the real
ten-year Treasury yield—a crude measure of the premium investors require for holding equity shares—
changed little, on balance, remaining close to its
average value over the past two decades but above its
level during the late 1990s.

Debt, Bank Credit, and M2
The aggregate debt of domestic nonfinancial sectors
is estimated to have increased about 73⁄4 percent in
2004, somewhat faster than nominal income but a bit
slower than the pace set the year before. Household
and federal debt expanded rapidly. Borrowing by
nonfinancial businesses was moderate, although it
picked up in the fourth quarter.
Commercial bank credit rose about 9 percent in
2004, a larger advance than in the previous year.
Expansion of mortgage and home equity loans on
banks’ books remained strong, as activity in the
housing market stayed robust while mortgage originations shifted somewhat toward adjustable-rate
products. After several years of runoffs, business
loans began to grow in the second quarter of the year.
According to survey evidence, commercial banks
eased terms and standards on business loans as the

Monetary Policy Report to the Congress

Growth of domestic nonfinancial debt

139

M2 growth rate
Percent

Percent

10
8
8

Total
6

6
4

4
2

Percent

15
Nonfederal

Federal,
held by public

5
10

1992

1994

1996

1998

2000

1992

1994

1996

1998

2000

2002

2004

+
0
_

1990

NOTE. The data are annual and extend through 2004. M2 consists of
currency, traveler’s checks, demand deposits, other checkable deposits,
savings deposits (including money market deposit accounts), smalldenomination time deposits, and balances in retail money market funds.

2002

2004

NOTE. For 2004, change is from 2003:Q4 to 2004:Q3 at an annual rate. For
earlier years, the data are annual and are computed by dividing the annual
flow for a given year by the level at the end of the preceding year. The total
consists of nonfederal debt and federal debt held by the public. Nonfederal
debt consists of the outstanding credit market debt of state and local governments, households, nonprofit organizations, and nonfinancial businesses.
Federal debt held by the public excludes securities held as investments of
federal government accounts.

economic outlook improved and competition from
other banks and nonbank lenders intensified. Also,
banks reported a pickup in demand for business loans
that was said to be driven by customers’ needs to
fund rising accounts receivable, inventories, capital
expenditures, and mergers. After adjusting for certain
reclassifications of securities as loans, the growth
of consumer loans on banks’ books remained sluggish. Despite reports of increased competition
among banks and nonbank intermediaries, bank profits were again strong in 2004. Banks experienced
further improvements in asset quality and, as a result,
reduced their provisions for loan losses.
M2 grew at a pace roughly in line with that of
nominal GDP during the first half of 2004. A resurgence of mortgage refinancing spurred by the firstquarter decline in mortgage rates likely boosted
liquid deposit growth, as proceeds from refinancing
were temporarily held in deposit accounts pending

disbursement to the holders of mortgage-backed
securities. M2 growth slowed in the second half of
the year in response to a drop in mortgage refinancing
activity and the increased opportunity cost of holding
M2 assets, as returns available on market instruments
rose more than those on M2 components. For example, yields on retail money market mutual funds
moved up more slowly than did short-term market
interest rates, and assets of money funds accordingly
continued to shrink. Small time deposits, which had
contracted over the previous three years, resumed
expansion in the second half of the year, as their
yields began to rise in association with the increase in
other market rates. Currency grew at its slowest rate
since 2000, apparently reflecting sluggish demand by
both domestic and foreign holders. On balance, M2
growth from the fourth quarter of 2003 to the fourth
quarter of 2004 was about 51⁄4 percent. The velocity
of M2 rose 1 percent, on net, roughly in line with the
historical relationships among money, income, and
opportunity cost.

International Developments
Foreign economic activity expanded in 2004 at a
faster pace than in the preceding three years. The
pickup in growth was widespread—global manufacturing and trade rebounded across industrial
and emerging economies, in part because of strong
demand from the United States and China. In the
second half of the year, trade and foreign GDP
growth slowed, partly as a result of higher oil prices
and the appreciation of some foreign currencies

140

Federal Reserve Bulletin

Spring 2005

against the dollar. The run-up in oil prices and other
commodity prices contributed to higher, though still
moderate, inflation across industrial and emerging
economies.
Monetary policy in many foreign economies tightened over the course of 2004. Citing high rates of
capacity utilization and mounting inflationary pressures, the Bank of England raised its target interest
rate 100 basis points but has been on hold since
August amid signs that housing prices and consumer
spending are cooling. After cutting official interest
rates earlier in the year, the Bank of Canada raised
rates in the fall in response to diminishing slack in
the economy. The Bank of Mexico tightened policy
throughout the year to resist rising inflation, and
Chinese authorities made monetary policy more
restrictive to rein in soaring investment demand. In
the euro area and Japan, central banks kept policy
interest rates unchanged in 2004.
Foreign equity price indexes recorded moderate
net gains last year after larger increases in 2003.
Equity markets started the year strong, but prices
declined in the spring as interest rates rose. The
run-up in oil prices between July and October
appeared to weigh on foreign equity prices, but the
subsequent decline in oil prices helped support a rise
in equity prices late in the year. Foreign long-term
interest rates declined, on net, during 2004. Rates
rose in the second quarter as new data (including
reports from the United States) that showed faster
growth and higher inflation led market participants
to expect more-aggressive monetary tightening. However, foreign long-term interest rates slipped after
midyear, when foreign growth slowed and foreign

Equity indexes in selected foreign industrial countries
Week ending January 4, 2002 = 100

Canada

115

Japan
100
United Kingdom
85
70
Euro area

2002

2003

2004

2005

NOTE. The data are weekly. The last observation for each series is the
average of trading days through February 9, 2005.
SOURCE. Bloomberg L.P.

currencies appreciated against the dollar. Over the
first half of the year, spreads on internationally issued
sovereign debt of emerging-market economies over
U.S. Treasuries moved up somewhat from low levels,
but spreads more than reversed those increases in the
second half.
The path of the exchange rate was uneven over the
course of 2004. The dollar rose slightly in the first
half of the year on perceptions that monetary policy
would tighten more quickly in the United States than
abroad. Beginning in September, however, the dollar
resumed the depreciation that had started in 2002, as
market participants focused on the financing implicaSpread on internationally issued sovereign debt
of emerging-market economies

Official interest rates in selected foreign industrial countries

Percentage points

Percent

6
5
United Kingdom

Euro area

4
1
+
0
_

Japan

2002

2003

Canada

2001

2004

2005

NOTE. The data are as of month-end; the last observation for each series is
the average of trading days through February 9, 2005. The data shown are the
call money rate for Japan, the overnight rate for Canada, the refinancing rate
for the euro area, and the repurchase rate for the United Kingdom.

2002

2003

2004

2005

NOTE. The data are weekly averages. The last observation is the average of
trading days through February 9, 2005. The series shown is the spread of the
yield of certain dollar-denominated sovereign debt instruments of emerging-market economies over U.S. Treasury securities; over the period shown,
the index encompassed nineteen countries.
SOURCE. J.P. Morgan Emerging Market Bond Index Plus (EMBI+).

Monetary Policy Report to the Congress

U.S. dollar nominal exchange rate, broad index

Industrial Economies

January 2001 = 100

105

100

2001

2002

2003

2004

2005

NOTE. The data are monthly and are in foreign currency units per dollar.
The last observation is the average of trading days through February 9, 2005.
The broad index is a weighted average of the foreign exchange values of the
U.S. dollar against the currencies of a large group of major U.S. trading
partners. The index weights, which change over time, are derived from U.S.
export shares and from U.S. and foreign import shares.

tions of the large and growing U.S. current account
deficit. In 2004, the dollar depreciated about 7 percent, on net, against the euro, the U.K. pound, and
the Canadian dollar. The dollar declined 4 percent,
on net, against the Japanese yen and 13 percent
against the Korean won, but some other Asian
central banks, most notably the People’s Bank of
China, kept their currencies stable against the dollar.
So far in 2005, the dollar has rebounded, with market
commentary focusing on the positive differential
between U.S. economic growth and that in Europe
and Japan.
U.S. dollar exchange rate against
selected major currencies
Week ending January 4, 2002 = 100

Canadian
dollar

100

90
Japanese yen
Euro

70
U.K.
pound
2002

2003

2004

141

2005

NOTE. The data are weekly and are in foreign currency units per dollar.
The last observation for each series is the average of trading days through
February 9, 2005.
SOURCE. Bloomberg L.P.

After increasing strongly in the first quarter, Japanese
GDP growth stagnated in the remainder of 2004.
Growth in exports and business investment slowed
over the year, and government investment contracted.
However, corporate profits and balance sheets
improved, and labor market conditions also brightened, with the job-offers-to-applicants ratio rising
to a twelve-year high. Consumer prices continued
to decline in 2004, though only slightly. In contrast,
higher commodity prices helped push twelve-month
wholesale price inflation up to 2 percent late in the
year, its highest rate since 1990. The yield on the
ten-year bellwether government bond rose from its
June 2003 record low of about 1⁄2 percent to nearly
2 percent in midyear before retreating to about
11⁄2 percent recently. After making substantial sales
of yen for dollars in the first quarter, Japanese
authorities ceased intervention in mid-March and
remained on the sidelines even as the yen appreciated
significantly against the dollar in the fall.
Economic conditions in the euro area firmed during the first half of 2004 but weakened in the second
half. Private consumption and investment spending
continued to rise, but export growth slowed after
midyear. German GDP growth slowed to a crawl in
the second half, as German consumer spending
remained anemic, held down by a weak labor market
and low consumer confidence. In contrast, French
GDP growth was strong in the fourth quarter. The
euro-area unemployment rate has been near 9 percent
since rising to that level in early 2003. Inflation for
the euro area remained just above the European Central Bank’s medium-term goal of less than, but close
to, 2 percent.
With the exception of a slowdown in the third
quarter, economic expansion in the United Kingdom
stayed strong during 2004, largely because of the
brisk growth of consumption and government spending. Labor markets remained tight in 2004; the unemployment rate ticked down to its lowest level in
almost three decades, and labor earnings posted solid
gains. Consumer price inflation over the twelve
months ending in December was 11⁄2 percent, below
the central bank’s official target rate of 2 percent.
Housing price rises slowed sharply from rapid rates
and were muted during the second half of 2004.
Household net mortgage borrowing declined to a
level 20 percent below its 2003 peak.
The Canadian economy expanded at a healthy pace
throughout 2004. Sizable gains in consumption
and investment boosted output throughout the year.
Export growth, supported by demand from the United

142

Federal Reserve Bulletin

Spring 2005

States, was strong in the first half of the year but
stagnated in the second half as U.S. manufacturing
growth slowed and the Canadian dollar’s appreciation hurt Canadian trade. The unemployment rate
declined moderately over the year, and employment
posted strong gains. Consumer price inflation has
settled at about 2 percent, the midpoint of the Bank
of Canada’s inflation target range, whereas inflation
excluding food, energy, and indirect taxes declined to
around 11⁄2 percent by year-end.

Equity indexes in selected emerging-market economies
Week ending January 3, 2003 = 100

255

Argentina

210
Mexico
165
Asian emergingmarket economies
120
Brazil

Emerging-Market Economies
Growth of real GDP in China remained very robust
in 2004, supported by strong domestic demand and
exports. The Chinese government took steps early
in the year to slow investment spending, curbing
investment approvals and lending. Investment growth
slowed significantly but remained rapid. At the same
time, indicators of personal consumption spending
strengthened, and Chinese exports and imports continued to soar in 2004. Consumer price inflation
peaked at a twelve-month change of more than 5 percent in July but has fallen since then to less than
3 percent, as food prices have moderated. Inflation
excluding food is only about 1 percent.
Supported by exports to China, economic growth
in other Asian emerging-market economies was generally strong in 2004. Economic expansion in Korea
remained heavily dependent on external demand
because high levels of consumer debt continued to
weigh on consumption spending. Inflation across
emerging Asia, though still moderate, was pushed
up by higher energy prices and strong aggregate
demand.
The Mexican economy grew rapidly in the first
half of the year in response to strong demand from
the United States. In the third quarter, Mexican GDP
growth slowed somewhat, as manufacturing exports
stagnated, but domestic demand remained buoyant.
Increases in energy and food prices pushed up
twelve-month consumer price inflation to more than
5 percent, above the Bank of Mexico’s target range
of 2 percent to 4 percent. Monetary policy tightened
throughout the year, and inflation began to fall near
year-end. Oil revenues boosted the Mexican public-

2002

2003

2004

2005

NOTE. The data are weekly. The last observation for each series is the average of trading days through February 9, 2005. The Asian emerging-market
economies are China, Hong Kong, India, Indonesia, Malaysia, Pakistan, the
Philippines, Singapore, South Korea, Taiwan, and Thailand; the index weight
for each of these economies is its market capitalization as a share of the
group’s total.
SOURCE. Asian emerging-market economies, Morgan Stanley Capital
International (MSCI) index; for others, Bloomberg L.P.

sector fiscal surplus and allowed Mexican government spending to provide stimulus while still meeting
fiscal targets.
In Brazil, economic activity continued to expand
robustly in 2004. Domestic demand was supported
by the monetary loosening that occurred in the second half of 2003 and early 2004. Export growth was
boosted by demand for commodities and the recovery
in Argentina. Brazilian asset prices declined through
May on expectations that higher global interest rates
would make it more difficult for the Brazilian government to finance its debt, but stock prices have moved
up sharply since May, and the currency has appreciated. Concerns over inflation pressures have
prompted the central bank to tighten monetary policy
since September.
In Argentina, the economic recovery picked up
steam last year, as exports were supported by strong
demand for commodities. The country continues,
however, to grapple with difficult structural problems. After more than three years in default, the
government launched a debt swap in January with
the goal of restructuring more than $80 billion in
defaulted bonds.

Profits and Balance Sheet Developments
at U.S. Commercial Banks in 2004
Elizabeth C. Klee and Fabio M. Natalucci, of the
Board's Division of Monetary Affairs, prepared this
article. Thomas C. Allard assisted in developing the
database underlying much of the analysis. Arshia A.
Burney provided research assistance.
U.S. commercial banks continued to be highly profitable in 2004. Return on assets and return on equity
declined moderately from the previous year's levels,
but they remained in the elevated range that has
prevailed since the mid-1990s (chart 1). Banks' profitability and balance sheets benefited from a brisk
expansion of the economy and supportive financial conditions during 2004. Although the Federal
Reserve gradually raised its target for the federal
funds rate over the second half of the year, the stance
of policy remained accommodative (chart 2). Shortand intermediate-term interest rates rose over the
course of the year, but yields on longer-term Treasury securities were little changed on net, and the
Treasury yield curve flattened noticeably. Interest
rates on residential mortgages ended the year a
touch lower, on balance, and continued to support
robust housing activity. Risk spreads on corporate
bonds—particularly high-yield bonds—narrowed
substantially.

NOTE. Except where otherwise indicated, data in this article are
f r o m the quarterly Reports of Condition and Income (Call Report) for
insured domestic commercial banks and nondeposit trust companies
(hereafter, banks). The data consolidate information f r o m foreign and
domestic offices and 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 ten largest banks, large banks
(those ranked 11 through 100), medium-sized banks (those ranked 101
through 1,000), and small banks. At the start of the fourth quarter of
2004, the approximate asset sizes of the banks in those groups were as
follows: the ten largest banks, more than $96 billion; large banks,
$6.7 billion to $96 billion; medium-sized banks, $422 million to
$6.6 billion; and small banks, less than $422 million.
Data shown in this article may not match data published in earlier
years because of revisions and corrections. In the tables, components
may not sum to totals because of rounding. Appendix table A.1, A—E,
reports portfolio composition, income, and expense items, all as a
percentage of overall net consolidated assets. Appendix table A.2
reports income statement data for all banks.[endofnote.]

Favorable financial market conditions, accompanied by a stimulative fiscal policy and continued
rapid growth in productivity, supported economic
activity. Buoyant consumer spending on durable and
nondurable goods reflected solid income growth,
improvements in labor market conditions, and greater
household wealth; the greater wealth, in turn, arose
from gains in the stock market and continued sharp
increases in house prices. Healthy profits and cash
flows encouraged business investment in equipment
and software, which rose smartly throughout the year.
Businesses also added considerably to inventories for
the first time since 2001. With the financial obligations ratio of households stabilizing below the peak
reached at the end of 2002 and the debt burden for
nonfinancial corporations continuing to fall, households and businesses had relatively strong financial
positions overall during 2004.
These economic and financial conditions were
reflected in the changes in bank balance sheets over
the year. The robust activity in the housing sector and
generally low mortgage interest rates buoyed residential mortgage lending at banks despite the ebbing
of the 2003 refinancing wave. Even though consumer
spending was strong, consumer loans advanced at
only a moderate pace and likely were restrained by
the substitution of mortgage debt for higher-rate con-

Chart 1.

Bank profitability, 1990-2004

[graph plotting two lines: return on equity and return on
assets. Return on assets started 1990 at about .48%, rose
to about 1.2% in 1993, then stayed around there until
2002, then rose to about 1.35% in 2004. Return on equity
started at about 7.5% in 1990, then rose to about 15.5%
in 1993, then stayed around there until dropping to about
13.5% in 2001, then ends 2004 at about 14.5%.]

NOTE. The data are annual.[endofnote.]

on managed liabilities, which rose strongly last
year.
Economic and financial developments also strongly
[graph plotting five lines: ten-year treasury securities, Intended
influenced banks' profitability in 2004. As the yield
federal funds rage, High-yield bonds, Moody's Baa corporate
curve flattened markedly, the net interest margin
bonds, and Thirty-year fixed-rate mortgages.
narrowed a bit further. The net interest margin may
Ten-year Treasury securities started 2000 at about 6.75%, then
dropped to about 3.3% in 2003, then ended 2005 at about also have been eroded by increased competition in
4.25%. Intended federal funds rate started 2000 at about 5.5%
then up to about 6.5% from mid 2000 through early 2001. the C&I loan market, which contributed to a narrowThen drops and starts 2002 at about 1.75%. By mid 2003 it ing of loan spreads over reference rates. Gains in
dropped to about 1%. Then mid 2004 it started rising and
non-interest income were less pronounced than in
ended mid 2005 at about 2.75%. High-yield bonds started 2000
at about 11.5%, up to about 14.25% early 2001, then down to2003. Despite contributions from fiduciary activities,
about 11.6% in mid 2002, then up to about 14% in early 2003,
then down to about 7.5% in 2005, then ended mid 2005 at loan-servicing fees, and securitization activities, the
about 8.5%. Moody's Baa corporate bonds starts 2000 at about
growth of non-interest income was restrained by
8.3%, dropped fairly steadily ending mid 2005 at about 6%. weakness in investment banking revenue, a marked
Thirty-year fixed-rate mortgages started 2000 at about 8.3%,
Then dropped to about 5.25% in mid 2003, then ended 2005 contraction in trading income, and a decline in gains
at about 6%.]
from loan sales. Meanwhile, non-interest expense,
which rose briskly, was boosted by provisions for
litigation and expenses related to sizable mergers at
a few large banks. However, the continued improvement in overall credit quality throughout the year
allowed banks to trim their provisioning for loan and
lease losses, and delinquency and charge-off rates for
all loan categories trended down. Realized gains on
investment-account securities declined last year but
still contributed to income.

Chart 2.

Selected interest rates, 2000-05

NOTE. The data are monthly and extend through March 2005.[endofnote.]
SOURCE. For Treasury securities, mortgages, and Moody's corporate
bonds, Federal Reserve Board, Statistical Release H.15, "Selected Interest
Rates" (www.federalreserve.gov/releases/h15); for federal funds, Federal
Reserve Board (www.federalreserve.gov/fomc/fundsrate.htm); for high-yield
bonds, Merrill Lynch Master II index.

sumer credit. Strong cash flows and profits allowed
many nonfinancial corporations to finance capital
spending with internal funds and thus reduce their
borrowing needs. Nonetheless, after three years of
retrenchment, short-term business debt—consisting
of commercial and industrial (C&I) loans from banks
and commercial paper—rose last year to meet firms'
greater need to fund accounts receivable, inventories,
capital expenditures, and merger and acquisition
activity. C&I loans also received a boost from the
supply side, as banks reported easing their lending
standards and terms throughout the year. Banks also
reported easing their standards and terms on commercial real estate loans, and such loans increased
despite soft conditions overall in that sector. Stilllow interest rates fueled the growth of core deposits,
but the rise was insufficient to fund the increase
in bank assets. As a result, banks relied more heavily

Although more new commercial banks were chartered in 2004 than in 2003, merger activity increased,
and the number of banks fell to 7,678 at year-end
(chart 3). Some of the merger activity involved very
large banks and thus contributed to an increase in the
concentration of industry assets. The share of induschart 3. Number of banks, and share of assets at the largest
banks, 1990-2004

[chart is made of two graphs, one plotting number and
one plotting share of assets with lines 100 largest and
10 largest.
Number started 1990 at about 12.5 thousand, then drops
steadily ending 2004 at about 7.5 thousand.
Share of Assets has 100 largest start 1990 at about 50%
then rise steadily ending 2004 at about 78%. 10 largest
started 1990 at about 20% then rose steadily ending
2004 at about 50%.]

[footnote] 1. C o r e deposits are transaction deposits, savings deposits (includ- NOTE. The data are annual. For the definition of bank size, see the general
ing m o n e y market deposit accounts), and small time deposits.[endoffootnote.] note on the first page of the main text.[endofnote.]

Table 1.

Annual rates of growth of balance sheet items, 1995-2004

Percent
MEMO:

Item

1995

1996

1997

1998

1999

2000

2001

Assets
7.59
6.13
9.22
8.18
5.44
8.76
5.12
Assets Interest-earning assets
7.82
5.82
8.66
8.20
5.83
8.66
3.95
AssetsInterest-earningassetsLoans and leases 10.61
(net)
8.17
5.32
8.76
8.03
9.24
1.82
AssetsInterest-earningassetsLoansandleases(net)
12.25Commercial
7.24 and 12.02
industrial 12.94
7.88
8.54
-6.73
AssetsInterest-earningassetsLoansandleases(net)
8.28Real estate
5.45
9.30
12.22
10.74
7.94
7.99
AssetsInterest-earningassetsLoansandleases
8.43
(net)Realestate
5.51Booked
9.53
in domestic
7.97offices12.36
11.02
8.02
AssetsInterest-earningassetsLoansandleases(net)RealestateBookedindomesticofficesOne- to four-family
residential
10.01
4.66
9.67
6.36
9.70
9.28
5.70
AssetsInterest-earningassetsLoansandleases
6.21(net)Real6.75
estateBooked
9.32indomestic
10.29
officesOther
16.06
13.31
10.95
AssetsInterest-earningassetsLoansandleases
2.81
(net)Realestate
3.18Booked.34
in foreign8.79
offices 6.28
-1.62
3.97
AssetsInterest-earningassetsLoansandleases(net)
10.01Consumer
5.12
-2.19
.34
-1.49
8.04
4.16
AssetsInterest-earningassetsLoansandleases(net)
14.22Other loans
22.28 and -7.91
leases
13.95
6.71
7.01
-2.02
AssetsInterest-earningassetsLoansandleases(net)Loan-loss reserves and
.46
.04
-.45
3.11
2.34
13.15
unearned income
7.99
AssetsInterest-earningassetsSecurities
.56
.86
8.85
8.40
5.11
6.36
7.22
AssetsInterest-earningassetsSecuritiesInvestment
-1.58 account
-1.10
8.66
12.06
6.68
2.86
8.88
AssetsInterest-earningassetsSecuritiesInvestment
-19.21 account
-14.28
U.S. Treasury
-8.85
-25.17
-1.89
-32.72
-40.27
AssetsInterest-earningassetsSecuritiesInvestmentaccountU.S. government agency and
corporation obligations
6.42
3.63
14.18
17.00
1.83
3.75
12.84
AssetsInterest-earningassetsSecuritiesInvestment
4.19 account
1.83
Other 11.21
20.90
13.39
12.18
26.99
AssetsInterest-earningassetsSecuritiesTrading
18.51
account 14.44
10.00
-13.32
-6.93
37.16
-3.72
AssetsInterest-earningassetsOther
8.61
1.06
38.54
3.79
-8.37
10.30
13.00
Assets Non-interest-earning assets
6.06
8.29
13.03
8.10
2.90
9.45
12.81

Dec.
2004
(billions
of
dollars)

2002

2003

2004

7.19
7.54
5.90
-7.41
14.43
14.85

7.19
7.29
6.52
-4.56
9.78
9.68

10.77
11.29
11.21
4.40
15.38
15.05

8,258
7,157
4,736
899
2,595
2,547

19.85
8.81
-7.41
6.58
-.02

10.05
9.20
15.74
9.31
8.30

15.79
14.07
35.59
10.12
3.64

1,468
1,079
48
782
533

5.74
16.20
13.54
41.92

-2.68
9.44
8.70
14.18

-4.19
10.58
6.15
-15.86

73
1,838
1,510
61

18.10
2.72
36.02
-2.92
5.06

9.67
5.98
14.05
6.83
6.62

9.47
3.01
36.80
14.31
7.54

989
461
328
584
1,101

Liabilities
7.22
5.99
Liabilities Core deposits
3.94
4.13
LiabilitiesCoredepositsTransaction deposits -3.11
-3.44
LiabilitiesCoredepositsSavings and small time8.35
deposits 8.35
Liabilities Managedliabilities[seefootnote]1
10.61
9.73
LiabilitiesManagedliabilitiesDeposits booked in foreign
offices
5.13
4.27
LiabilitiesManagedliabilitiesLarge time
19.60
21.17
LiabilitiesManagedliabilitiesSubordinated notes and
debentures
6.61
17.74
LiabilitiesManagedliabilitiesOther managed liabilities
11.63
8.38
LiabilitiesManagedliabilitiesFederal Home Loan Bank
advances
n.a.
n.a.
Liabilities Other
20.49
2.60

9.11
4.52
-4.55
9.04
13.79

8.06
7.04
-1.41
10.73
9.44

5.58
.23
-8.97
3.80
15.54

8.59
7.53
-1.31
10.54
8.79

4.45
10.55
10.20
10.66
-2.73

7.12
7.58
-5.12
11.42
5.34

7.25
7.30
2.90
8.43
6.97

9.54
8.24
3.18
9.48
12.06

7,428
3,974
744
3,230
2,911

11.13
20.15

8.71
9.09

14.60
14.19

7.84
19.37

-10.96
-3.65

4.49
5.05

12.63
1.43

16.84
21.82

865
705

21.05
12.14

17.00
9.49

5.07
17.76

13.98
3.90

9.56
2.47

-.59
6.55

5.08
6.62

10.49
4.42

109
1,232

n.a.
23.80

n.a.
8.57

n.a.
-6.37

n.a.
15.40

n.a.
3.10

17.21
13.55

3.74
8.38

3.68
6.06

244
543

Equity capital

12.06

7.77

10.44

9.53

3.89

10.65

12.32

7.83

6.61

23.16

830

6.32
.66

7.67
2.06

10.13
14.16

11.37
22.12

15.42
-3.34

12.16
3.29

13.10
29.05

6.82
15.56

8.99
10.10

13.81
13.01

1,075
861

MEMO

Commercial real estate loans[seefootnote]2
MEMO Mortgage-backed securities

NOTE. Data are from year-end to year-end.
1. Measured as the sum of deposits in foreign offices, large time deposits in
domestic offices, federal funds purchased and securities sold under repurchase
agreements, demand notes issued to the U.S. Treasury, subordinated notes and
debentures, 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.

try assets held by the 10 largest banks rose 3.9 percentage points, to 48.0 percent; the share held by
the 100 largest banks rose 1.6 percentage points, to
76.9 percent. Three banks failed in 2004 with combined assets of just $151 million.
Merger activity also continued at the bank holding
company level, and the number of top-tier bank holding companies declined by 4 in 2004, to 5,148. As
they did at the bank level, mergers drove up the
concentration of assets at bank holding companies.
The share of assets of all bank holding companies
held by fifty large bank holding companies rose
to about 77 percent. The Gramm-Leach-Bliley Act

of 1999 created the option for bank holding companies to become financial holding companies; as such,
they are allowed to engage in activities related to
securities underwriting, insurance sales and underwriting, and merchant banking. During 2004 the

large b a n k holding companies are defined as the fifty largest b a n k
holding companies as m e a s u r e d by total consolidated assets after the
exclusion of a f e w institutions w h o s e c o m m e r c i a l b a n k i n g operations
account f o r only a small portion of their assets and earnings. T h e
article ''Report on the Condition of the U.S. B a n k i n g Industry: F o u r t h
Quarter 2004,'' also in this issue, provides information on the fifty
large b a n k holding c o m p a n i e s and on the b a n k i n g industry f r o m the
perspective of b a n k holding companies (including financial holding companies) that file reports F R Y - 9 C and F R Y - 9 L P ; currently,
only about 2 , 2 0 0 top-tier b a n k holding c o m p a n i e s are required t o file
[footnote] 2. T h e n u m b e r of b a n k holding companies and related statisticsthose reports (see ' ' R e p o r t on the Condition,'' table 1, last row, and
note 1).[endoffootnote.]
s h o w n h e r e include all top-tier b a n k holding companies. T h e fifty

number of financial holding companies increased to
636, and by the end of the year, more than 80 percent
of assets at bank holding companies were held by
financial holding companies.

BALANCE SHEET

DEVELOPMENTS

Loans to Businesses
The net financing gap—the difference between capital expenditures and internally generated funds of the
U.S. nonfinancial sector—increased last year from
the low point it had reached in the third quarter of
2003 (chart 4). In addition, net bond issuance in
2004 was lower than in 2003. Firms relied more on
commercial paper and bank loans to meet their funding needs; C&I loans grew 4.4 percent in 2004.
Responses to the Federal Reserve' s quarterly
Senior Loan Officer Opinion Survey on Bank Lend-

Total assets of U.S. commercial banks grew 10.8 percent in 2004, about 3 percentage points faster than
the growth in total debt of the domestic nonfinancial sector and the fastest rate in more than a decade
(table 1). Securities expanded 10.6 percent, and loans
3. T h e net financing gap rose in the fourth quarter because of a
and leases advanced 11.2 percent. Reflecting the
special dividend p a y m e n t by M i c r o s o f t that reduced internal f u n d s by
growth in both business and household spending last
$ 3 2 billion. E v e n after excluding this special p a y m e n t , however, the
year, all major loan categories advanced for the first
financing g a p increased over 2 0 0 4 .
time since the late 1990s.
Liabilities grew 9.5 percent last year. Low opporChart 5. Demand and supply conditions for C&I loans at
tunity costs supported growth in core deposits, but
selected banks, large and medium-sized borrowers,
the rate of increase was insufficient to meet the rise
1990-2005
in assets. Remaining funding needs were met with a
rapid expansion of managed liabilities—most notably
large time deposits.
[Thischarthastwographs:N e t p e r c e n t a g e of b a n k s reporting s t r o n g e r
demand, and Net percentage of banks that tig
Bank capital rose to 9.4 percent of average net
Net percentage of banks reporting stronger demand (Series begins with the
consolidated assets in 2004, and that gain also helped
November 1991 survey.) starts the end of 1991 at about -30%. It rises to
about 40" by 1993, down to about -5% by early 1996, then up to about
fund asset growth. Capital expanded because of the
30% in 1998, with a drop to about -10% by the end of that year, a jump back
growth in retained earnings as well as increases in
up to about 30% in early 1999, then a steady drop, reaching about -70%
goodwill resulting from significant merger activity.
in late 2001. Then rising, beginning 2005 at about 50%.
Goodwill and other intangible assets boost Net
reported
percentage of banks that tightened standards (Series begins with the
1990 survey.) begins in 1990 at about 57%, then drops, reaching mid
assets and capital but are not included in May
regulatory
1993
at
capital ratios. These ratios were little changedabout
and -20%. Then it rises, reaching about 60% in 2001, then a drop,
beginning 2005 at about -25%.]
thus remained in the very high ranges seen in recent
years.
Chart 4. Financing gap at nonfarm nonfinancial corporations,
1990-2004

[graph starts 1990 at about $40 billion. It drops to about
$20 billion in late 1991, stays there until beginning of
1993. It rises a little reaching about $80 billion in mid
1995, drops to about $25 billion in mid 1996, then rises
steeply, reaching about $325 billion in early 2001.
Then it drops sharply, reaching about -$25 billion in
early 2004. It rises and ends 2004 at about $25 billion.]

NOTE. The data are drawn from a survey generally conducted four times
per year; the last observation is for the January (Q1) 2005 survey. 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 medium-sized firms have sales of
$50 million or more.[endofnote.]

NOTE. The data are four-quarter moving averages. The financing gap is the
difference between capital expenditures and internally generated funds.[endofnote.]
SOURCE. Federal Reserve Board, Statistical Release Z.1, "Flow of Funds
SOURCE. Federal Reserve Board, "Senior Loan Officer Opinion Survey on
Accounts of the United States," table F. 102 (www.federalreserve.gov/
Bank Lending Practices" (www.federalreserve.gov/boarddocs/snloansurvey).
releases/z1).

ing Practices (BLPS) suggest that both stronger
demand and easier standards and terms contributed
to the growth in business loans. The share of respondents reporting stronger demand for C&I loans
rose significantly in the 2004 surveys and exceeded
40 percent in the January 2005 survey (chart 5).
Reasons cited for increased demand included
increases in inventories and accounts receivable,
plant and equipment expenditures, and mergers and
acquisitions.
Small and medium-sized banks—which typically
lend to smaller businesses—saw substantial increases
in C&I loans in 2004 (13.6 percent for small banks
and 9.9 percent for medium-sized banks). In contrast,
C&I loans at the ten largest banks were essentially
flat, but they had previously been in a period of
sustained decline. This difference across bank sizes is
consistent with data from the June 2004 Call Report,
which show that small business loans (original
amounts of $1 million or less) grew from mid-2003
to mid-2004, while larger C&I loans contracted.
Throughout the year, larger net percentages of BLPS
respondents reported increased demand for C&I loans

from small borrowers (those with sales of less than
$50 million) than from large- and medium-sized
borrowers.
Significant fractions of banks responding to the
BLPS in 2004 reported also having eased C&I lending standards, in large part because of a firmer economic outlook (chart 5). Moreover, appreciable fractions of respondents reported throughout 2004 and
into 2005 that they had eased C&I loan terms—
including loan sizes, costs of credit lines, spreads,
covenants, and collateralization requirements (data
not shown in chart). This easing of loan terms is
confirmed by results from the Federal Reserve' s quarterly Survey of Terms of Business Lending, which
show that banks extended C&I loans of increasing
maturity and larger size throughout the year. Another
factor influencing C&I lending terms, according to
BLPS respondents, was increased competition from
other banks and from nonbanks.

Commercial real estate (CRE) loans rose 13.8 percent in 2004. Growth rates of real-estate-secured
loans for construction and land development and of
loans secured by multifamily properties were particularly strong in the second half of the year as the
economy improved. As in previous years, growth
rates at medium-sized and small banks were more
Chart 6. Demand and supply conditions for commercial
than twice those posted at larger banks (see box
real estate loans at selected banks, 1996-2005
''Commercial Real Estate Loans'').
Responses to the BLPS indicated that demand for
[Thecharthastwographs:Net p e r c e n t a g e of b a n k s reporting s t r o n g e r d e m a n dCRE
,
loans increased throughout the year, although
and Net Percentage of banks that tightened standards.
theatnet
percentage
of banks reporting increases in
Net percentage of banks reporting stronger demand starts 1996
about
10%,
of 2001, then
rises to about 50% by 1998, drops to about -50% by the end demand
dipped a bit in early 2005 (chart 6). Responrises to about 15% in 2005.
Net percentage of banks that tightened standards started 1996 at about 15%, dents also said that they had eased standards and
then dropped to about -10% in 1997, then rises to about 50% in early 1999, terms on these loans over 2004. The reasons given
drops to about 5% by mid 1999, then up to about 50% by early 2002, then
for easing were similar to those for C&I loans,
drops to about -25% by 2005.]
including more competition from other lenders and
an improved economic outlook.

NOTE. See general note and source note to chart 5.[endofnote.]

[footnote] 4. F o r m o r e details, see the discussion in ''Interest I n c o m e and
E x p e n s e ' ' b e l o w in the section ' ' T r e n d s in Profitability.''[endoffootnote.]

[beginningofbox]Commercial Real Estate Lending by Smaller Banks
At the 100 largest banks, the share of assets that consists of
commercial real estate (CRE) loans has changed little in
recent years, while the share at medium-sized and small
banks (hereafter, smaller banks) has increased substantially
(chart A). This discussion explores some of the possible
reasons for, and consequences of, the rapid accumulation of
CRE loans at smaller banks. The growth in CRE loans at
smaller banks as a group masks considerable variation
across banks. We examined the distribution of growth rates
of CRE loans at more than 5,000 smaller banks that had at
least 1 percent of assets invested in CRE loans at the end of
1996 and remained in existence through the end of 2004.
The median quarterly (annualized) growth rate of CRE
loans over that period was between 5 percent and 20 percent
for more than half of these banks; but about 15 percent of
the banks saw runoffs in these loans, while roughly 10 percent of the banks had growth rates exceeding 25 percent
(chart B). To facilitate the analysis, we classified each bank
as ''high growth'' or ''low growth'' depending on whether
the median rate of growth of its CRE loans was above or
below the distribution's median value of 10.6 percent for all
smaller banks in the 1997-2004 period. We then investi-

gated the relative performance of the two groups over that
period.
The return on assets at high-growth banks has generally
been higher than the return on assets at low-growth banks in
recent years (chart C). Similarly, the return on equity (not
shown) has been markedly higher at high-growth banks, in
part because of their generally greater leverage. This better
performance also reflects higher net interest margins at
high-growth banks than at low-growth banks over the same
period (data not shown). Delinquency rates on CRE loans
have been relatively low by historical standards for both
groups of banks. The delinquency rate at high-growth banks
has been consistently below the rate at low-growth banks
(chart D). The better performance of the high-growth
banks in this regard may reflect, in part, the very fact of
more rapid growth in such loans because new loans are
presumably unlikely to default for a time.
A portion of CRE loans consists of C&I loans that are
collateralized by real estate—that is, loans the proceeds of

chart B. Distribution of median growth rates of CRE loans
at smaller banks, 1997-2004

NOTE. Thomas F. Brady, of the Division of Monetary Affairs, prepared
this material.[endofnote.]

[graph of the distribution rates based on median
quarterly growth, 1997-2004 (annual rate, percent)
chart A. Commercial real estate loans as a proportion of assets, of low-growth banks (10.6% or less) and high-growth
banks (greater than 10.6%). The median growth rate
by bank size, 1985-2004
of distribution is 10.6%. For banks with -15 to -10%
growth the distribution was about 2.5%, for banks with
-10 to -5% the distribution was about 6%, for banks
with -5 to 0% the distribution was about 8%, for banks
with 0 to 5% the distribution was about 12.5%. For
[graph plotting two lines: smaller banks and 100 larger banks.
banks with 5 to 10% the distribution was about 17.5%.
Smaller banks started 1985 at about 9.5%, rises to about 14%
For banks with 10-15% the distribution was about 19%.
in 1991, then up to about 26% in 2004.
For banks with 15-20% the distribution was about 14%.
100 largest banks started 1985 at about 8.5%, rose to about
for banks with 20-25% the distribution was about 10%.
13.5% in 1991, dropped to about 9.5% in 1996, then rose to
For banks with 25-30% the distribution was about 5%.
about 11% in 2001, then ended 2004 at about 10%.]
For banks with 30-35% the distribution was aobut 6%.]

NOTE. The data are annual. For the definition of CRE loans, see table 1,
note 2. Smaller banks are those smaller than the 100 largest; for more
detail on size categories, see general note on the first page of the main text.
[end of note.]

NOTE. For the definition of CRE loans and smaller banks, see chart A.
The growth rates are those of the 5,731 smaller banks that had at least
1 percent of assets invested in CRE loans at the end of 1996 and remained
in existence through the end of 2004; these banks corresponded to about
76 percent of the total number of smaller banks and roughly 82 percent of
their total assets at the end of 2004. For each bank, we calculated the
merger-adjusted growth rate of CRE loans for each quarter and then took
the median of its thirty-two quarterly growth rates.[endofnote.]

which were not used to purchase or improve the securing
real estate. (Call Report instructions specify that any loan
secured by real estate is to be reported as a real estate loan.)
In March 2005, Federal Reserve System staff members
contacted nine smaller banks that had high concentrations
of, and rapid growth in, CRE loans to inquire about their
CRE lending. Asked what percentage of their CRE loans
were C&I loans secured by real estate, the nine smaller
banks gave answers that ranged from about 2 percent to
about 30 percent, with most less than 10 percent.
A few of these banks indicated that over the three years
ending in the first quarter of 2005, they had tightened CRE
lending standards somewhat, on net, but similar fractions
noted some tendency to ease loan terms by, for example,
raising maximum loan sizes, trimming loan spreads over
costs of funds, and boosting loan-to-value ratios. However,
these banks had tightened debt-service coverage ratios, on
net. They also indicated that their CRE lending over the
past three years had been secured by properties located in
both urban and suburban areas and to a lesser extent in
exurban areas. The types of securing properties most frequently mentioned were warehouses and other industrial

structures; also mentioned were office buildings as well as
nursing homes and other medical facilities.
The two most frequently mentioned reasons for the rapid
growth of CRE lending over the past three years were
generally favorable economic conditions and population
growth in the banks' lending markets. Banks also mentioned that profitable investment in office buildings sometimes coincided with high vacancy rates because some of
the vacant offices were less well suited for the types of
businesses expanding in their markets. The banks generally
did not attribute much of the growth to an increase in the
share of CRE loans that represented real-estate-secured
C&I loans. Banks reporting an increase in that share cited
two factors: rising values of commercial structures, which
increased the capacity of their owners to borrow, and
the banks' imposition of stricter collateral requirements on
borrowers.

The rapid run-up in CRE loans over the past three years
raises questions about its effects on other aspects of banks'
balance sheets. The responses of the banks contacted suggest that the growth was accommodated in part by reducing
capital-to-asset ratios, although banks also reported raising
new capital to meet the rising demand for CRE credit. The
[footnote] 1. A similar question was asked in the Federal Reserve Board's August
banks generally reported that they had not reduced acquisi2002 Senior Loan Officer Opinion Survey on Bank Lending Practices;
tions of securities or limited the growth of other types of
the institutions responding to the survey are generally much larger than the
loans to accommodate the additional CRE assets.[endofbox.]
smaller banks under discussion here. For the fifty-three banks answering the
question, the answer ranged from less than 2 percent to more than 30 percent,
with most less than 20 percent. The average for all fifty-three respondents
was about 15 percent.[endoffootnote.]

Chart C.

Chart D. Delinquency rates on CRE loans at smaller banks,
1997-2004

Return on assets at smaller banks, 1997-2004

[graph plotting high-growth banks and low-growth
banks. High-growth banks starts 1997 at about
1.32%, drops to about 1.26% in 1999, up to about
1.28% in 2000, drops to about 1.21% in 2001, up
to about 1.31% in 2002, then ends 2004 at about
1.27%.
Low-growth banks starts 1997 at about 1.32%,
drops to about 1.16% in 2001, up to about 1.22% in
2002, down to about 1.16% in 2003, then ends
2004 at about 1.2%.]

NOTE. For definitions, see charts A and B.[endofnote.]

[graph plotting high-growth banks and low-growth
banks. High-growth banks starts 1997 at about 1.8%,
drops to about 1.3% in 1999 stays around there till
2000, then rises to about 1.6% in 2001, then drops to
about 1.15% in 2004.
Low-growth banks starts 1997 at about 2.7%, drops
to about 1.95% in 1999, stays around there until 2000,
rises to about 2.4% in 2001, then ends 2004 at about
1.75%.]

NOTE. The data are annual. For the definition of delinquency rates
on CRE loans, see the note to chart 22; for other definitions, see charts A
and B.[endofnote.]

Loans to Households
Mortgage rates remained low over the course of 2004, and with income and employment advancing, the housing sector expanded strongly again.
Against this favorable backdrop, residential mortgage loans grew 15.8 percent in 2004, the fifth consecutive year of gains and an even faster
growth rate than in 2003. Residential mortgages, which are loans secured by one- to four-family residential properties and include first-lien
mortgages and home equity loans, represent the largest share of bank loans to house-

Chart 7.

Residential mortgage refinancing activity, 1990-2004

Chart 9. Net percentage of selected banks tightening standards
for consumer lending, 1996-2005

[graph based on January 26, 1990 = 1.
Starts 1990 at 1, rises to about 15 by late 1993, drops to about
1 in early 1995, rises to about 9 in early 1996, drops to about
2 by mid 1996, rises to about 28 by late 1998, drops to about
3 by early 2000, up to about 42 in late 2001, drops to about
11 in early 2002, up to about 97 in mid 2003, then ends 2004
at about 21.]

[thischarthastwographs:C o n s u m e r l o a n s other t h a n creditcards,and
credit card loans.
Consumer loans other than credit cards starts 1996 at about 16%, then rises to
about 24.5% in late 1996, then drops to about -2.5% in early 1999, then rises
to about 19% in 2001, then varies between about 10 and 20% until late 2003
when it continues dropping and ends early 2005 at about -2.5%.
Credit card loans starts 1996 at about 25%, then rises to about 49% in late
1996, then drops to about -3% in 2000, then up to about 20% in 2001, then
drops to about -4% in early 2005.]

NOTE. The data are four-week moving averages. For definition of residential mortgages, see text.[endofnote.]
SOURCE. Mortgage Bankers Association.

holds. Much of the acceleration in residential mortgages resulted from growth in revolving home equity
loans, which rose more than 40 percent. Mortgage
loans grew especially fast early in the year, when
long-term interest rates had declined to a very low
level. The low rates generated a renewed flurry of
refinancing activity (chart 7) that was accompanied
by strong demand for mortgages to finance home
purchases. As these rates backed up a bit in anticipation of monetary policy tightening, growth slowed
somewhat but remained elevated through the end of
the year.
On net, BLPS respondents reported decreased
demand for residential mortgages throughout the year
(chart 8). Fluctuations over the course of the year in
the percentage of banks reporting demand increases
seemed to reflect changes in the trend of refinancing

NOTE. See general note and source note to chart 5.[endofnote.]

activity. In the first half of 2004, the net percentage
of banks reporting increased demand rose somewhat,
but it dropped back a bit over the latter half of the
year.
Residential mortgages have expanded at a doubledigit rate since 2002. Responses to special questions
on the January 2005 BLPS indicate that several facChart 8. Net percentage of selected banks reporting stronger
tors contributed to banks' increased holdings of residemand for residential mortgages, 1990-2005
dential mortgages over the previous three years. First,
according to 75 percent of the respondents, many
mortgages
originated over this period had adjustable
[graph starts late 1990 at about -45%, rises to about 60% in
rates, making them relatively attractive to hold as
mid 1991, then varies between about 40 and 5% until it
passes through 0 in early 1994 and reaches about -78% in
assets. Second, sustained demand for mortgages had
early 1995. By late 1995 it was up to about 50%, then drops
to about -20% in mid 1996, then up to about 62% in mid 1998supported their returns. Finally, many banks noted
then drops to about -63% in early 2000, then rises to about that a widening of spreads between mortgages and
45% in mid 2001, then varies between about 0 and 45% until
it passes through 0 in late 2003, and then ends 2004 at about mortgage-backed securities made the underlying
-50%.]
loans more attractive to hold.
Consumer loans at banks grew 10.1 percent last
year. However, after adjustment for the effect of a

NOTE. Series begins with the October 1990 survey. For definition of residential mortgages, see text. See also general note and source note to chart 5.
[end of note.]

[footnote] 5. B L P S respondents are instructed to consider only n e w loans f o r
h o m e purchase, not refinancings of existing mortgages. In m a n y cases,
however, the refinanced m o r t g a g e m a y not be held by the originating
bank, making it difficult for the respondents to m a k e this distinction
easily.[endoffootnote.]

large merger in the third quarter, the growth rate of
consumer loans was a more moderate 5.8 percent.
Banks' standards and terms for consumer loans
changed little on net last year according to the BLPS:
Approximately the same proportion of banks tightened standards for credit card loans and other
consumer loans as eased them (chart 9). Changes
in terms reflected a similar trend, with a slight net
percentage of domestic respondents having tightened
credit card terms and a similarly slight net percentage
having done so for other consumer loans (not shown
in chart). Overall, demand for consumer loans reportedly moderated.

Chart 10. Bank holdings of securities as a proportion of total
bank assets, 1990-2004

[graph begins 1990 at about 19%, rises to about 25.75%
in early 1994, then drops to about 19% in mid 2001,
then up to about 23.8$ in early 2004, and ends 2004 at
about 22.3%.]

Other Loans and Leases
NOTE. The data are quarterly.[endofnote.]

Banks' holdings of other loans and leases grew
3.6 percent in 2004. Although the rate marks a slowdown from 2003, growth in that year was heavily
influenced by an accounting change that shifted into
this category an estimated $42 billion in assets that
were previously off-balance-sheet items. A 5 percent
rise in farm loans reversed a downward trend seen
since 2001. Improved overall economic conditions
strengthened the fiscal situation of many state and
local governments and contributed to a slowing in the
growth of loans to this sector from 16.8 percent in
2003 to a still-rapid 13.9 percent in 2004.

Securities
Banks expanded their securities holdings considerably again in 2004. Last year's 10.6 percent advance
was more than 1 percentage point faster than the
2003 pace and about in line with total asset growth.
Much of the growth reflected a substantial rise in
securities held in trading accounts, which jumped
36.8 percent on the year; securities held in investment accounts advanced 6.2 percent. As a share of
average net consolidated assets, securities holdings in
2004 increased for the third year in a row, to 22.6 percent (chart 10).
Mortgage-backed
securities
in
investment
accounts, which grew 13 percent over the year, rose
to a 10.4 percent share of bank assets at the end of the

fourth quarter. As with mortgage loans, banks' holdings of mortgage-backed securities followed the
swings of long-term interest rates. Banks accumulated mortgage-backed securities at a rapid clip in
the first quarter; as longer-term interest rates rose in
anticipation of the policy tightening, such holdings
shrank in the second quarter, and they fell further
in the third quarter. Growth returned strongly in the
fourth quarter after rates declined.
From a longer-term perspective, bank involvement
in residential mortgage products has increased dramatically over the past twenty years. In 1985, residential mortgages accounted for 7.3 percent of
average net consolidated assets, while agency passthroughs—one type of mortgage-backed security
available to investors at the time—were less than
1 percent. By the end of 1995, the share of residential
mortgage products on banks' books had risen to
22.2 percent—14.4 percent in mortgages and 7.8 percent in securities. By the end of 2004, banks' asset
share of these products had risen to more than
28 percent.

Liabilities

Commercial bank liabilities grew 9.5 percent last
year, with all classes of liabilities posting increases.
The 8.2 percent growth in core deposits outpaced the
previous year's strong advance by about 1 percentage
point, but it lagged the expansion in total assets.
[footnote] 6. The merger was of two large bank holding companies and
Some of the run-up in core deposits in the first half of
caused a reclassification of certain securitized credit card receivables
the year was attributable to the decline in mortgage
as credit card loans; credit card outstandings j u m p e d 46.2 percent in
the third quarter as a result.[endoffootnote.]
rates in the first quarter (chart 2). The drop in rates
[footnote] 7. For details, see Mark Carlson and Roberto Perli (2004), ''Profits
led to an increase in refinancing. When securitized
and Balance Sheet Developments at U.S. Commercial Banks in 2003,''
mortgages are refinanced, the proceeds are held temFederal Reserve Bulletin, vol. 90 (Spring), p. 168.[endoffootnote.]

The tier 1 ratio is the ratio of tier 1 capital to risk-weighted assets;
the total ratio is the ratio of tier 1 plus tier 2 capital to risk-weighted
assets. The leverage ratio is the ratio of tier 1 capital to tangible
assets. Tangible assets are equal to total assets less assets excluded
from common equity in the calculation of tier 1 capital. [end of footnote.]
Chart 11. Selected domestic liabilities at banks as a proportion
of their total domestic liabilities, 1990-2004

ties at domestic banks—but the proportion was much
higher at medium-sized banks (23.9 percent) and at
small banks (22.1 percent).

[graph plotting three lines: savings deposits, small time deposits,
and transaction deposits.
Savings deposits starts 1990 at about 20%, then up to aboutCapital
26%
in 1993, then down to about 22% in 1995, then up to about 39%
the end of 2004.
Given the slower growth of liabilities relative to
Small time deposits starts 1990 at about 24%, goes up to about
26% in 1991, then down to about 19% in 1994, up to aboutassets,
21% equity capital at banks surged more than
23 percent in 2004. However, much of this increase
in 1995, then ends 2004 at about 10%.
Transaction deposits starts 1990 at about 23%, goes up to about
reflected the effects of accounting for several large
29% in 1994, then ends 2004 at about 11%.]
mergers, which boosted the value of goodwill Riskweighted assets grew 10.5 percent; tier 1 capital
(which excludes goodwill) grew 10.0 percent, and
tier 2 capital advanced 6.7 percent. As a result, the
tier 1 ratio was basically unchanged at about 10 perNOTE. The data are quarterly. Savings deposits include money market
cent, and the total ratio (tier 1 plus tier 2) ticked down
deposit accounts.[endofnote.]
slightly; the leverage ratio remained about constant
(chart 12). Thus, overall, the share of industry assets
porarily in a liquid deposit account before disbursement to the securities holders, thereby boosting
deposits for a time; the slower pace of refinancing in
the second half of the year diminished this effect to
some extent. As a share of total liabilities, savings
deposits grew during the four quarters of 2004, while
the shares of transaction and small-denomination
time deposits fell a bit (chart 11).
With the growth of assets outstripping that of core
deposits, banks relied more heavily on managed
liabilities—defined as the sum of demand notes
issued to the U.S. Treasury and other borrowed
money, federal funds purchased and securities sold
under repurchase agreements, subordinated notes and
debentures, large time deposits, and deposits booked
in foreign offices. This sum grew 12.1 percent last
year, and its share of total liabilities rose to 39.2 percent. For all banks, large time deposits posted the
fastest gain, 21.8 percent; at the ten largest banks,
such deposits grew even more rapidly, 30.6 percent.
Banks again expanded their use of Federal Home
Loan Bank (FHLB) advances in 2004. These loans
grew approximately 3.7 percent last year, about the
same rate as in 2003, but well below the growth rate
of 17.2 percent in 2002. On average last year, FHLB
advances equaled 8.6 percent of total managed liabili-

[footnote] 9. The Financial Accounting Standards Board defines goodwill as
an intangible asset equal to the excess of the cost of an acquired entity
over the net of the amounts assigned to assets acquired and liabilities
assumed—in other words, the premium paid by the acquirer of a firm.
For details on how this affected banks' accounting, see Mark Carlson
and Roberto Perli (2003), ''Profits and Balance Sheet Developments
at U.S. Commercial Banks in 2002,'' Federal Reserve Bulletin, vol. 89
(June), p. 255.[endoffootnote.]
[footnote] 10. Tier 1 and tier 2 capital are regulatory measures. Tier 1 capital
consists primarily of c o m m o n 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.
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 item) by the risk
weight for each category. The risk weights rise f r o m 0 to 1 as the
credit risk of the assets increases.

Chart 12.

Regulatory capital ratios, 1990-2004

[graph following three lines: Total (tier 1 + tier 2),
Tier 1, and Leverage.
Total starts 1990 at about 9.8%, rises to about 13.2% in
1993, then down to about 12% in 2000, then up to about
12.6% in 2004.
Tier 1 starts 1990 at about 7.7%, rises to about 10.7% in
1993, then down to about 9.2% in 1998, then up to about
10% in 2004.
Leverage starts 1990 at about 6.3%, then rises to about
7.8% in 1993 then stays around there for the rest of the
graph.]
government-sponsored

[footnote] 8. The F H L B s were established in 1932 as
enterprises chartered to provide a low-cost source of funds, primarily
for mortgage lending. They are cooperatively owned b y their member
financial institutions, a group that originally was limited to savings
and loans associations, savings banks, and insurance companies. C o m mercial banks were first able to join F H L B s in 1989, and since then
F H L B advances have b e c o m e a significant source of funding for them,
particularly for medium-sized and small banks.[endoffootnote.]

NOTE. The data are as of year-end. For the components of the ratios, see
text note10.[endofnote.]

Chart 13. Assets and regulatory capital at well-capitalized banks, Derivatives
1990-2004

The market for innovative financial products has
continued to expand. Banks have increased their off[chartismadeoftwographs:S h a r e of i n d u s t r y assets at well-capitalized b a n k sbalance-sheet
,
derivatives positions over the past
and Average margin by which banks were well capitalized.
Share of industry assets at well-capitalized banks starts 1990 at about 26%,
decade,
and
this
trend continued last year. At the end
rose to about 99% in 1996, and stays around there for the rest of the graph.
Average margin by which banks are well capitalized starts 1990 at about 2.9%,
of
2004,
the
notional
value of all derivatives congoes up to about 3.05% in 1991, then drops to about 1.8% in 1998, then
rises to about 2.2% in 2002, then ends 2004 at about 2%.]
tracts held by banks was more than $88 trillion, up
about $19 trillion from the end of 2003. The ten
largest banks held the lion's share of these contracts,
which increased to 98 percent in 2004. The largest
proportion of notional value for these contracts
continues to be in interest rate derivatives. Investors
use these contracts, in part, to hedge interest rate
risk. The continued growth in holdings of mortgages
and mortgage-backed securities—instruments whose
prices are particularly sensitive to interest rates—
likely contributed to an increase in hedging activity
by banks' customers in interest rate derivatives markets. As intermediaries in such instruments, banks
would therefore see their holdings rise.

NOTE. The data are annual. For the definitions of "well capitalized" and of
the margin by which banks remain well capitalized, see text notes 11 and 12.
[end of note.]

held by banks that were considered well capitalized
for regulatory purposes remained largely unchanged
from the very high level of 2003 at about 96 percent (chart 13). The estimated average margin by
which banks exceeded the well-capitalized standard
declined slightly in 2004 (chart 13).

[footnote] 11. Well-capitalized b a n k s are those with a total capital
greater than 10 percent, a tier 1 ratio greater than 6 percent, a leverage
ratio greater than 5 percent, and a composite C A M E L S rating of 1 or
2. E a c h letter in C A M E L S stands f o r a key element of b a n k financial
condition—Capital adequacy, A s s e t quality, M a n a g e m e n t , Earnings,
Liquidity, and Sensitivity t o market risks.[endoffootnote.]
[footnote] 12. T h e estimated average margin by w h i c h b a n k s e x c e e d e d
dards f o r being well capitalized was c o m p u t e d as f o l l o w s : A m o n g the
leverage, tier 1, and total capital ratios of each well-capitalized bank,
the institution's ''tightest'' capital ratio is defined as the one closest to
the regulatory standard for being well capitalized. T h e b a n k ' s margin
is then defined as the percentage point difference b e t w e e n its tightest
capital ratio and the corresponding regulatory standard. T h e average
margin a m o n g all well-capitalized b a n k s is the weighted average of all

Credit derivatives are agreements in which default
risks associated with a given borrower are transferred
from a beneficiary to a protection provider. The market for credit derivatives continues to develop, and
banks' holdings of credit derivatives surged in 2004,
increasing at a rate not seen since the beginnings of
the market for them, around 1998. Notional holdings
still remain small, however, relative to those of
some other types of derivatives (see box ''Credit
Derivatives").
The notional value of banks' holdings of foreign
exchange contracts, equity derivatives, and commodity and other contracts—which constitute the
remainder of banks' derivatives portfolios—advanced
strongly in 2004. Foreign exchange contracts
increased 21.0 percent, and equity and commodity
contracts combined moved up 33.9 percent.
The notional value of derivatives contracts is one
measure of overall market activity; another measure,
the fair value of these contracts—which measures
the value of all contracts if settled at the reporting
date—is substantially smaller. Moreover, banks'
derivatives positions tend to be offsetting because of
ratio
their activity as dealers. At the end of 2004, the gross
positive fair value of banks' derivatives contracts
totaled about $1.33 trillion and exceeded the negative
fair value by $26 billion, up from $23 billion in 2003.
stanBanks have had a positive net fair value in these
contracts for the past five years.

the individual margins, and the weights are each b a n k ' s share of the
total assets of well-capitalized banks.[endoffootnote.]

[BEGINNINGOFBOX]Credit Derivatives
Credit derivatives are over-the-counter agreements in
which the risk of credit loss of a reference entity is transferred from one party (the beneficiary) to another (the
protection provider). The Bank for International Settlements estimates that the total notional amount of credit
derivatives outstanding worldwide was about $4.6 trillion in June 2004. According to surveys of market participants conducted last year by the British Bankers' Association and Fitch Ratings, banks held the largest share
of credit derivatives at the end of 2003. Securities firms,
insurance companies, and hedge funds were also active
participants in the market. Banks and securities firms were
active on both sides of the market, while insurance companies were mostly sellers of protection. Hedge funds
have been active as protection buyers for some time, but
recently they became major players as protection sellers,
too.
The Fitch survey reveals that about two-thirds of all
credit derivatives held at the end of 2003 by U.S. and
Canadian banks and broker-dealers were credit default
swaps (CDS) referenced to an individual entity. Those
contracts generally allow the beneficiary to deliver to the
protection provider an obligation of the reference entity
upon default of the latter and receive its par value in
exchange. Portfolio CDS products, such as traded indexes
of CDS, baskets of CDS, and synthetic collateralized debt
obligations (CDos) accounted for a further 25 percent of all

credit derivatives. Some portfolio products are popular
because they allow investors to trade credit risk on a potentially large number of reference entities in just one transaction; others are popular because their value is sensitive to
default correlation risk and thus can be used as a hedge
against the tendency of different reference entities to default
at the same time.
In recent years the total notional amount of credit derivatives held by U.S. commercial banks has expanded very
rapidly. According to regulatory reports, it exceeded
$2.3 trillion at the end of 2004—more than double the total
at the end of 2003—and more than 99 percent of the 2004
total was held at the ten largest institutions. Banks were
beneficiaries on more than $1.2 trillion of the 2004 notional
amount, and they were protection providers on about
$1.1 trillion (chart A). o n net, therefore, banks were recipients of credit protection, as they typically have been in the
past, and only a handful of banks were net protection
providers. As the credit quality of U.S. firms improved and
credit spreads declined in 2004, the market value of credit
derivatives contracts for which banks were the protection
provider more than doubled, to about $15.5 billion. Conversely, the market value of contracts for which banks were
the beneficiary declined a similar amount, and those positions showed a loss of about $15 billion at year-end
(chart B). The aggregate net fair value of all credit deriva-

[footnote] 3. A CDS basket is a contract that is referenced to more than one entity.
Typically, the buyer of protection has the right to deliver a defaulted bond
NOTE. Roberto Perli, of the Division of Monetary Affairs, prepared this
and receive par in exchange upon the default of any of the entities referenced
material.[endofnote.]
in the basket. Such contracts are called ''first-to-default baskets.'' Investors
[footnote] 1. See Bank for International Settlements, ''Triennial Central Bank Surcan also trade ''nth-to-default baskets,'' whereby they can deliver a bond for
vey: Foreign Exchange and Derivatives Market Activity in 2004, available at
par upon the nth default among the reference entities. Synthetic C D o s are
www.bis.org.[endoffootnote.]
contracts that transfer credit risk on portfolios of CDS on a large number of
[footnote] 2. See the British Bankers' Association, ''Credit Derivatives Report 2003/
reference entities.[endoffootnote.]
2004,'' available at www.bba.org.uk; and Fitch Ratings, ''Global Credit
Derivatives Survey,'' Special Report, September 7, 2004, available at
Chart B. Net fair value of credit derivatives contracts in
www.fitchratings.com.[endoffootnote.]

which banks were beneficiaries or protection
providers, 2002-04

Chart A. Notional amounts of credit derivatives for which
banks were beneficiaries or protection providers,
2002-04

[graph plotting two lines: beneficiary and protection
provider. Beneficiary starts 2002 at about
$.23 trillion and rises to about $1.21 trillion by the end
of 2004.
Protection provider starts 2002 at about $.22 trillion
and rises to about $1.13 trillion by the end of 2004.]

NOTE. The data are quarterly.[endofnote.]

[graph plotting two lines: net positive fair value of
protection-provider contracts, and Net negative fair
value of beneficiary contracts.
Net positive fair value of protection-provider contracts
starts 2002 at about -$1 billion, dropped to about
-$6 billion in mid 2002. Then up to about $9 billion
the end of 2003, down to about$6.5 billion in mid 2004,
then ended 2004 at about $16 billion.
Net negative fair value of beneficiary contracts starts 2004
at about -$2 billion, then drops to about -$10 billion mid
2002, then up to about $8 billion in the end of 2003, then
down to about $6 billion in mid 2004, then ends 2004 at
about $15 billion.]

NOTE. The data are quarterly. The net positive fair value
protection-provider contracts is computed as the difference between
gross fair value of such contracts with positive fair values and the gross
value of such contracts with negative fair values. The net negative
value of beneficiary contracts is computed similarly.[endofnote.]

on
the
fair
fair

tives contracts on banks' books was thus only about
$500 million, down from a little more than $900 million a
year earlier.
As with most other types of derivatives contracts, banks
enter into credit derivatives both in their role as dealers and
for their own account. The large notional amount of credit
derivatives held on banks' books, combined with the small
net market value of those contracts, is consistent with banks
having a substantial dealer role. Indeed, banks that are
engaged in that type of activity would generally aim at
keeping a balanced book by entering into at least partially
offsetting contracts with a variety of counterparties.

extending C&I loans. About 70 percent of global banks
do so, according to Fitch, but again only a minority of those
said this was their main reason for participating in the
market.
A third important reason that banks may want to enter
into credit derivatives contracts, mentioned by about half
the global banks surveyed by Fitch, is regulatory capital
management. Under the 1988 Basel Capital Accord, which
determines the amount of regulatory capital that banks are
required to hold against their credit exposures, loans to
corporations carry a risk-based capital charge of 8 percent,
which is largely independent of the credit quality of the
borrower. For loans to highly rated corporations, this capital
Banks may choose to enter into credit derivative concharge likely exceeds the amount of economic capital that
tracts for their own account for a number of reasons. First,
a prudent bank would choose to hold against the credit
banks that wish to reduce their exposure to credit risk may
exposure. Although credit derivatives are not covered by
find it less costly to buy protection in the CDS market than
the 1988 accord, national bank regulators have treated them
to reduce the size of their loan or bond portfolios. Buying
in a way that is consistent with the spirit of the accord. If a
such protection, unlike securitizing or selling loans in the
bank holds a loan on which it has purchased protection in
secondary market, has the added advantage of enabling
the credit derivatives market from another bank, its only
banks to retain and service the loans and thus avoid comproexposure, from a regulatory as well as an economic permising their relationships with clients About three-fourths
spective, is to the counterparty bank. Since, under the 1988
of the global banks that responded to the Fitch survey stated
accord, exposures to o E C D banks (that is, banks regulated
that they use credit derivatives to some extent for credit risk
by a member country of the organization for Economic
management purposes, although less than one-fifth menCo-operation and Development) carry only a 1.6 percent
tioned it as a dominant reason for their involvement in the
capital charge, credit protection purchased from those banks
market.
allows banks to reduce considerably the capital they are
Second, credit derivatives can be viewed as an alternative
required to hold against corporate loans and at the same
asset class, and banks seeking to gain exposure to corporate
time retain those loans on their balance sheets. The return
credit risk or further diversify their existing credit portfolios
earned on such loans, however, net of the cost paid for
can sell protection in the single-name or portfolio CDS
protection, is far below the loan rate. When implemented,
market as an alternative to buying corporate bonds or
the New Basel Capital Accord, or Basel II, will likely
reduce the incentive to use credit derivatives for regulatory
capital management of this sort because it provides for
[footnote] 4. In their responses to a special question in the Federal Reserve Board's
January 2003 Senior Loan officer opinion Survey on Bank Lending Pracrisk-based capital charges that are more closely matched
tices, most banks indicated that purchasing a CDS is superior to selling a
with true economic risk.[endofbox.]
loan because it preserves the bank' s relationship with the borrower.[endoffootnote.]

net income shrank for the third consecutive year, to
5.8 percent, and accounted for less than 1 percent of
industry assets.
The banking industry continued to be very profitable
in 2004. Although return on assets (RoA) and
The slight weakening in profitability occurred
return on equity (RoE) were both slightly below the
mainly at the 100 largest banks. The net interest
previous year's levels, they remained well within
margin declined a bit further at these banks, likely
the high range prevailing since the mid-1990s. ROA,
in part because of additional flattening of the yield
at 1.34 percent, was only 5 basis points below the
curve; a possible further contributor was an intensifiprevious year's record. RoE, which was damped by
cation of competitive pressure in the C&I loan marmerger-related increases in reported equity, declined
ket. Gains in non-interest income were outpaced by
more than 1 percentage point but was still a healthy
a rise in non-interest expense. Income from fiduciary
14.23 percent. The fraction of banks with negative
and securitization activities rose, but income from
investment banking was essentially flat, gains from
sales of loans fell, and trading revenue contracted
[footnote] 13. T h e adjustments to the data to take account of mergers and the
effects of p u s h - d o w n accounting w e r e relatively large f o r 2004.[endoffootnote.]sharply. An increase in nonrecurring charges—
TRENDS IN PROFITABILITY

Chart 14. Bank stock prices, by market value of bank,
and the S & P 500, 2000-05

[graph plotting three lines: S&P 500, Top 50 Banks, and Top
225 Banks, based on January 2004=100. S&P 500 started
2000 at about 125, then down to about 75 by late 2002, then
ending in 2005 at about 108. Top 50 banks started 2000 at
about 65, went up to about 86 in mid 2001, then down to
about 69 in early 2003, then up to 105 by 2005. Top 225
banks started in 2000 at about 34, rose to about 72 in early
2002, down to about 57 in early 2003, then up to about 123
in late 2004, then ending at about 110 in 2005.]

changes in market interest rates, and the realization
of past gains through the sale of securities.
Despite substantial earnings, banks—particularly
the top ten—trimmed the share of profits paid out
as dividends. As a result, retained earnings almost
doubled as a share of net income and boosted equity
capital. Industry equity was also augmented considerably by the revaluation of assets and liabilities that
resulted from some large merger transactions, which
in turn were accompanied by sizable increases in
goodwill. Supported by solid profitability, bank holding company stocks again outperformed the S&P 500
during 2004 (chart 14). The spread of rates on subordinated debt over rates on comparable-maturity Treasury securities remained at very low levels in 2004
(chart 15).

NOTE. The data are monthly and extend through March 2005. Stock prices
are weighted by market value.[endofnote.]
SOURCE. Standard & Poor's and American Banker.

Interest Income and Expense
including merger-related expenses and litigation provisions at a few of the largest banks—contributed to
the rise in non-interest expense.
Partially compensating for these developments was
the continued improvement in overall credit quality.
This trend, which has been driven by the strengthening of household and business balance sheets and the
ongoing economic expansion, has allowed banks to
further reduce their provisions for loan and lease
losses. Realized gains on investment account securities, even though not as strong as in 2003, continued
to boost income. Unrealized gains on available-forsale securities declined somewhat; in part, the drop
probably reflected adjustments to securities portfolios
resulting from the repositioning of interest rate risk,
Chart 15. Average spread of rates on subordinated debt at
selected bank holding companies, 2002-05

[graph starts at about 100 basis points beginning of 2002,
rises to about 150 late 2002, then drops and ends in 2005
at about 55 basis points.]

NOTE. The data are monthly and extend through March 2005. Spreads are
over comparable-maturity Treasury securities.[endofnote.]
SOURCE. Merrill Lynch bond data.

Despite an increase in short-term market interest
rates following the onset of monetary policy tightening in June of last year, the average rate paid on
banks' liabilities and earned on banks' assets for
2004 as a whole moved lower. As the average rate
earned declined more than the average rate paid,
the industry's net interest margin narrowed for the
second consecutive year, falling 12 basis points, to
3.66 percent (chart 16). Much of the narrowing came
in the first half of 2004, however, and the net interest
margin changed little over the second half of the year
despite a considerable flattening of the yield curve.
The further narrowing of the net interest margin is
also consistent with a reported increase of competitive pressure in the C&I loan market, which appears
to have led some banks to trim spreads of loan rates
over reference rates despite a pickup in loan demand
(chart 17). In the October 2004 BLPS, banks were
asked about the increase in competition in the C&I
loan market. Respondents that had experienced
greater competition during the year reported that the
largest increase came from other U.S. commercial
banks and that the second-largest increase, especially for the largest commercial banks, came from
investment banks. About half of the respondents
felt that the persistence of this shift in competition
was not well established, but the majority of banks
expressing an opinion indicated that the increase
reflected a permanent change in the structure of the
C&I loan market. In the January 2005 BLPS, banks

[footnote] 14. F o r a discussion of the effects of market interest rates on the net
interest margin, see Carlson and Perli (2004), ''Profits and Balance
Sheet D e v e l o p m e n t s , ' ' p. 173.[endoffootnote.]

Chart 16.

Net interest margin, by size of bank, 1990-2004

[graphplots5lines:Allb a n k s ,small,medium,large,and10largest.All
banks starts 1990 at about 3.85%, up to about 4.30% in 1992, drops to
about 3.90% in 2000, then up to about 4.05% in 2002, then down to about
3.65% in 2004.
Small starts 1990 at about 4.40%, then went up to about 4.70% in 1992,
then up to about 4.75% in 1995, then down to about 4.23 in 2004.
Medium starts 1990 at about 4.26%, then up to about 4.74% in 1993, then
down to about 4.35% in 1999, 4.45% in 2001 then ends 2004 at about
4.05%.
Large starts 1990 at about 3.60%, rises to about 4.3% in 1992, down to
about 4.25% in 1995, then up to about 4.45 in 1997, then down to about
3.8% in 2004.
10 largest starts 1990 at about 3.5%, rises to about 3.65% in 1994,
then drops to about 3.3% in 1997, then up to about 3.8% in 2002,
then ends 2004 at about 3.25%.]

Chart 17. Net percentage of selected domestic banks increasing
spread of rates on C&I loans over cost of funds, by
size of borrower, 1990-2005
[Graph plots two lines: Large and medium sized, and small.
Large and medium sized starts 1990 at about 11%, then rises to
about 60% in 1991, then drops, reaching about -60% in 1993. Then
a slow trend upwards, reaching about -40% in 1997, then a sharper
rise reaching about 45% in 1999. Then it drops to about 7% in late
1999, then rises to about 60% in early 2002, then drops, ending early
2005 at about -50% .
Small starts 1990 at about 7%, then rises to about 40% in 1991. then
drops reaching about -30% in early 1994, by 1999 it is up to about
20%. It drops to about 0 in 2000, then rises to about 40% in late
2001. then ends early 2005 at about -30%.]

NOTE. See general note and source note to chart 5.[endofnote.]

fell from 15.9 percent to 12.6 percent over the year
at the ten largest banks. The large drop was only
partially offset by a shift toward higher-yielding
loans, such as credit card loans. The ten largest banks
also increased their share of interest-earning assets
that consisted of investment-account securities
(including mortgage-backed securities); because rates
of return on securities are generally lower than those
on loans (in particular, C&I loans), this shift contribNOTE. The data are annual. Net interest margin is net interest income
divided by average interest-earning assets. For definition of bank size, see the
uted
to the narrowing of the net interest margin.
general note on the first page of the main text.[endofnote.]
At large banks, the average rate earned on assets
was essentially unchanged, and the average rate paid
were asked why nonbank lenders had become more
on liabilities ticked down relative to 2003. As a
aggressive competitors. Respondents pointed to the
result, the net interest margin for such banks was
senior status of loans in bankruptcy and restructuring
little changed. Large banks did not experience runproceedings, increased liquidity in the secondary
offs of C&I loans, and they benefited from an
market, and a trend toward market-based pricing.
increase in the share of credit card loans, the yields
The fall in the banking sector's net interest margin
on which are higher than those on other loans and
was driven by a decline of 25 basis points at the ten
were higher in 2004 than in 2003. In addition, these
largest banks. These institutions rely on managed
institutions boosted the share of interest-earning
liabilities for their funding more than other banks
assets that consisted of relatively high-yielding real
do. Because rates paid on these liabilities are more
estate loans by 1.7 percentage points, to 36.5 percent;
sensitive to changes in market interest rates than are
the increase was equally distributed between residenrates paid on core deposits, the net interest margin
tial and commercial real estate loans.
at the ten largest banks was more adversely affected
As with large banks, the net interest margin was
than that at other banks by the increase in short-term
little
changed at medium-sized and small banks; the
interest rates during 2004. The net interest margin at
decline
in the average rate paid on liabilities was
the ten largest banks was also eroded by continued
about
in
line with the fall in the average rate earned
runoffs of their C&I loans: Despite a pickup in busion
assets.
Relative to larger banks, medium-sized and
ness lending in the second half of the year, the share
small
banks
benefited from their greater reliance on
of interest-earning assets attributable to such loans
core deposits, whose rates adjust slowly to changes
in market rates. In addition, these banks further
[footnote] 15. A t the ten largest banks, the share of interest-bearing liabilities
increased the share of commercial real estate loans
that consisted of m a n a g e d liabilities was about 58 percent in 2004,
in their portfolios. Investing in these assets, which
c o m p a r e d with a share of 53 percent at large banks, 3 6 percent at
appear to have relatively higher yields than residenm e d i u m - s i z e d banks, and 2 6 percent at small banks.[endoffootnote.]

tial real estate loans, allowed them to limit the decline
in the overall rate of return on their assets.

Non-interest Income and Expense
Non-interest income grew 2.6 percent in 2004, a
notable slowing from the previous year's 8.9 percent
rise. An 11 percent increase at the ten largest banks
was partially offset by an almost 4 percent contraction at large banks and by smaller declines
at medium-sized and small banks. As a share of
total revenue (chart 18, top panel), non-interest
income edged down but remained within the range
maintained over the past few years following the
[footnote] 16. Yields on residential and c o m m e r c i a l real estate loans
available separately f r o m the Call Report; only i n c o m e data f o r the
broader ''real estate l o a n ' ' category are available. To investigate the
relationship b e t w e e n the concentration of c o m m e r c i a l real estate loans
in b a n k s ' real estate portfolios and the yield on real estate loans, w e
ran a cross-sectional regression of the latter on the share of real estate
loans that are b a c k e d b y c o m m e r c i a l real estate. W e f o u n d that the
coefficient is b o t h positive and statistically significant for small and
m e d i u m - s i z e d banks.[endoffootnote.]

strong uptrend of the 1980s (not shown) and 1990s.
Deposit fees continued to grow about in line with
total revenue (chart 18, bottom panel), although the
ratio of fees to deposits moved down for the second
consecutive year (chart 19). A 12 percent rise in
fiduciary income was likely attributable, in part, to
gains in equity prices, which pushed up the value of
assets held in bank trusts. Trading revenue contracted
13 percent, however, as income from interest rate
exposures dropped sharply at the 100 largest banks.
Growth in the ''other'' component of non-interest
income declined more than 9 percentage points, to
1.6 percent. Revenue from investment banking activities was almost flat, and gains from sales of loans
fell sharply across the industry, probably in part
because of reduced mortgage originations. Positive
contributions included an 11.5 percent rise in loan
are not
servicing fees as well as an increase in securitization income. The remaining component of other
non-interest income—which includes, among other
things, safe deposit box rent, rent and other income
from other real estate owned, and income and fees
from automated teller machines—increased about
4 percent.

The rate of growth of non-interest expense
increased almost 3 percentage points, to 8.3 percent,
in 2004, lifting the ratio of non-interest expense to
total revenue roughly 2 percentage points, to 60 percent (chart 20). The cost of premises and fixed assets
as a share of revenue was essentially unchanged, and
[Chart has two panels. Top panel is Total, bottom isthe number of branches continued to grow at a modSelected components.
est pace. Salary and benefit expenses grew 6.3 perTop panel: Total started 1990 at about 32.5%, then rose
cent, a slightly slower rate than in 2003, and their
to about 43% in 1999, down to about 42% in 2002, up
ratio to total revenue edged up only a few basis
to about 44% in 2003, then ends 2004 at about 42.5%.]
points. The number of bank employees expanded
roughly 3 percent, a touch higher than in 2003, but

Chart 18. Non-interest income and selected components as
a proportion of revenue, 1990-2004

[bottom panel plots three lines: other non-interest
income, fiduciary income plus trading income, and Chart 19. Deposit fee income as a proportion of total domestic
deposit fees.
deposits, 1990-2004
Other non-interest income started 1990 at about 18%,
rises to about 27.5% in 1999, down to about 26% in
2001, then up to about 28% in 2003, then ends 2004
at about 27%.
Fiduciary income plus trading income starts 1990 at
about 8%, then stays between 8 and 10% for the rest
[the line starts in 1990 at about .51%, then rises to
of the graph, ending 2004 at about 7%.
about .78% in 2002, then ends 2004 at about .75%.]
Deposit fees starts 1990 at about 6%, goes down to
about 5.5% in 1999, then ends 2004 at about 7%.]

NOTE. The data are annual. Revenue is calculated as the sum of noninterest income and net interest income.[endofnote.]

NOTE. The data are annual.[endofnote.]

Chart 20. Non-interest expense and selected components as
a proportion of revenue, 1990-2004

Chart 21. Debt burden for businesses and financial obligations
ratio for households, 1990-2004

[this chart has two panels: top panel is Total, bottom is
Selected components.
[This chart has two panels: top panel is Debt Burden for
Top panel: Total. Starts 1990 at about 68%, rises to nonfinancial corporations, bottom panel is Financial
about 69% in 1991, drops to about 61.25% in 1997,obligations
up
ratio for households.
to about 63.5% in 1998, then down to about 57.75%Top
in panel: Debt Burden for nonfinancial corporations.
2002, then ends 2004 at about 60%.]
starts 1990 at about 20%, drops to about 11% in 1994,
stays around there until 1998, then rises again reaching
about 17.5% in 2002. Then it drops, ending 2004 at
about 11.5%.]

[Bottom chart: Selected components. Plots three lines:
Premises and fixed assets, Salaries and benefits,
[bottomand
panel: Financial obligations ratio for households.
other.
Begins 1990 at about 17.25%, drops to about 16.15% in
Premises and fixed assets starts 1990 at about
risesthen
to about 18.8% in 2002, then ends 2004 at
1992,10%,
slowly drops and ends 2004 at about 8%. about
18.35%.]
Salaries and benefits starts 1990 at about 31% then
slowly drops to about 26% in 2004.
Other starts 1990 at about 27.5%, rises to about 30% in
1991, drops to about 27% in 1997, rises to about 29%
in 1998, then ends 2004 at bout 26%.]

NOTE. The data are annual.[endofnote.]

the growth of salaries and benefits per employee,
which was about 6 percent in 2003, decelerated to
3.3 percent last year, and was about flat at the
ten largest banks.
The moderation in the growth of salaries and benefits was more than offset by a brisk rise in other
non-interest expense, which increased about 1.5 percentage points as a share of total revenue, to 26.2 percent. An increase in nonrecurring charges—including
merger-related expenses and litigation provisions
related to settlements of alleged failures of corporate
governance and conflicts of interest—contributed to
the rise in other non-interest expense. Non-interest
expense also was reportedly boosted somewhat by
increased costs for regulatory compliance as banks
responded to the Bank Secrecy Act, the USA Patriot
Act, and the Sarbanes-Oxley Act.

Loan Performance and Loss Provisioning
The ongoing economic expansion and a further
strengthening of household and business balance
sheets contributed to the continued improvement of

NOTE. The data are quarterly. The debt burden is calculated as interest
payments as a percentage of cash flow. 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 and consumer debt, as well as
rent, auto leases, and property taxes.
SOURCE. For debt burden, national income and product accounts and the
Federal Reserve Board; for financial obligations ratio, Federal Reserve Board
(www.federalreserve.gov/releases/housedebt).[endofnote]

credit quality in 2004 and allowed banks to reduce
their provisions for loan and lease losses. The debtservice burden of businesses continued to decline,
while the financial obligations ratio of households,
although still high, was below the peak reached at the
end of 2002 (chart 21). Presumably reflecting these
developments, delinquency rates for all major loan
categories moved down, with that for C&I loans
posting the largest decline. Delinquency rates on both
residential and commercial real estate loans moved
down further. Net charge-off rates for nearly all types
of loans fell, and those for real estate loans dropped
to historically low levels. Nonetheless, total net
charge-offs surpassed provisioning, and so total
reserves for loan and lease losses fell last year.
But with asset quality improving, the ratio of
reserves to net charge-offs and to delinquent loans
both rose.

real estate loans fell 39 basis points, to 1.4 percent, the lowest level since the beginning of the
1990s (chart 23).

C&I Loans
The delinquency rate on C&I loans continued to
decline during 2004; by the end of the year, it had
fallen 1 percentage point, to 1.9 percent, the lowest
level since the first quarter of 1999 (chart 22). The
decline was driven primarily by developments at the
100 largest banks, as the substantial increase in such
delinquencies at those entities in the aftermath of the
2001 economic slowdown receded. The net chargeoff rate on these loans fell sharply, reaching 0.3 percent in the fourth quarter, the lowest level since the
first quarter of 1998. As with delinquency rates, the
improvement occurred mostly at the 100 largest
banks.
Banks were asked in the October 2004 BLPS about
their outlook for C&I loan quality over the next year.
The majority of respondents indicated that loan qual-

ity was likely to stabilize around current levels if
economic activity progressed in line with consensus
forecasts, while the remaining banks, on net, expected
credit quality to continue to improve.
Commercial Real Estate Loans
The credit quality of commercial real estate loans
improved further in 2004, even though rents on office
buildings continued to contract (albeit at a slower
pace). Vacancy rates in the office sector declined in
2004, although they remained elevated, and vacancy
rates on retail properties remained relatively low. The
delinquency rate on these loans fell 29 basis points,
to 1.1 percent last year (chart 22). The net charge-off
rate on such loans moved down during 2004 and, by
year-end, was near zero across the banking industry.
Loans to Households

Chart 22. Delinquency and charge-off rates for loans to
businesses, by type of loan, 1990-2004

The credit quality of loans to households continued
to improve last year. The delinquency rate on residential

[chart has two panels: top panel is Delinquencies
and
Chart
23.bottom
Delinquency and charge-off rates for loans
is Net charge-offs.
to households, by type of loan, 1990-2004
Top panel: Delinquencies. Plots two lines: commercial real
estate and C&I. Commercial real estate starts 1991 at about
12 percent then drops to about 1.5% in 200, then stays around
there for the rest of the graph, ending 2004 at about 1%.
has two panels: top panel is Delinquencies and bottom
C&I starts 1990 at about 5%, then rises to about 6.5% in 1991 [chart
is Net charge-offs.
then drops to about 1.5% in 1998, then rises to about 4.5% in
Top panel: Delinquencies. Plots three lines: Credit card, other consume
2002, then ends 2004 at about 2%.]
and residential real estate. Credit card starts 1991 at about 5.5%, drops

about 3.2% in 1994, then up to about 4.8% in 1998, then down to abou
in 2000, up to about 5% in 2001, then end 2004 at about 4.1%.
Other consumer starts 1999 at about 3.6%, then drops to about 2.3% in
1994, up to about 3.2% in 1999, then ends 2004 at about 2.3%.
Residential real estate started 1991 at about 3.2%, then dropped to abou
2.1% in 1994, then up to about 2.3% in 1996, then down to about 2% in
2000, then up to about 2.4% in 2001, then ended 2004 at about 1.4%.]

[bottom panel: Net charge-offs. Plots two lines: Commercial
real estate and C&I. Commercial real estate starts 1991 at
about 1.7%, then rises to about 2.5% by 1992, then dropping to
about 1.8% mid 1992, then up to about 2.55% in 1993. Then it
drops to about 0 in 1997, stays around there until 1999 when it
rises slightly, reaching about 0.2% in 2002, and ending 2004 at
about 0.05%.
C&I starts 1990 at about 1.4%, rises to about 2% in 1992, then
drops to about 0.2% in 1994, then rises to about 2.2% in 2002
then ends 2004 at about 0.4%.]

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 thirty
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).[endofnote.]

[bottom panel: Net charge-offs. Plots three lines: credit card, other
consumer, and residential real estate.
Credit card starts 1990 at about 3.2%, rises to about 5% in 1992, dro
to about 3% in 1994, rises to about 5.6% in 1998, lowers to about
4.1% in 2000, then up to about 7.8% in 2002, then lowers to about 4
in 2004.
Other consumer starts at about 1% in 1990, up to about 1.2% in 1991
down to about 0.5% in 1994, then ends 2004 at about 1.5%.
Residential real estate starts 1991 at about 0.1%, then varies between
and 0.5%, ending 2004 at about 0.]

NOTE. Data for delinquencies and for net charge-offs of residential real
estate loans begin in 1991. For definitions of delinquencies and net
charge-offs, see note to chart 22.[endofnote.]

Chart 24. Credit card delinquency rate and household
bankruptcy filings, 1995-2004

Chart 25. Provisions for loan and lease losses as a
proportion of total revenue, 1990-2004

[chart plots two lines: credit card delinquencies, and
household bankruptcy filings. Credit card delinquencies starts
1995 at about 3.5%, rises to about 4.8% in 1997, then lowers
to about 4.4% in 2000, then rises to about 5% in 2001, and
ends 2004 at about 4%.
Household bankruptcy filings starts 1995 at about 300 filings
per 100000 persons, rose to about 500 filings per 100000
persons in 1998, then down to about 420 filings per 100000
persons in 2000, then up to about 560 filings per 100000
persons in 2003, then ending 2004 at about 500 filings per
100000 persons.]

NOTE. The data are quarterly and seasonally adjusted. For definition of
delinquencies, see note to chart 22.
SOURCE. Call Report and Visa Bankruptcy Notification Service.[endofnote.]

tial real estate loans fell 39 basis points, to 1.4 percent, the lowest level since the beginning of the
1990s (chart 23). The improvement was presumably
aided in part by the lower loan costs afforded by
continued, although slowing, mortgage refinancing.
Net charge-off rates on residential real estate loans
averaged 10 basis points for the year, and remained
in the range that had prevailed over the past several
years. Losses were probably restrained in part by
rising house prices, which boosted borrowers' equity
stakes in their homes and made foreclosures less
costly for banks.
Tracking a decline in the household bankruptcy
rate, the delinquency rate on credit card loans fell
about 40 basis points, to 4.1 percent, in the fourth
quarter of last year, the lowest level since the first
quarter of 1996 (charts 23 and 24). The delinquency
rate on other consumer loans fell as well, to 2.3 percent, in the fourth quarter (chart 23). On average in
2004, charge-off rates on credit card loans were down
75 basis points, to almost 5 percent, while chargeoff rates on other consumer loans were essentially
unchanged.

Securitized Loans
A decline in the delinquency rates on securitized
loans on which banks retained servicing rights or
provided credit enhancements—a large majority of
these loans are to households—also pointed to an
improvement in credit quality. The delinquency rate
on securitized credit card receivables was 3.9 percent

[chart starts 1990 at about 18%, drops to about 5% in 1994,
up to about 11% in 2001, then ends 2004 at 5%.]

NOTE. The data are annual.[endofnote.]

in the fourth quarter of 2004, down more than
70 basis points from the previous year and below the
delinquency rate on loans held on banks' books.
Despite an uptick in the fourth quarter, the delinquency rate on securitized residential real estate loans
averaged 4 percent in 2004, about 50 basis points less
than in 2003. The delinquency rate on securitized
auto loans averaged 1 percent, about 40 basis points
below the average rate in 2003.

Loss Provisioning
With the further improvement in overall credit quality in 2004, banks in all size classes continued to
reduce provisions for loan and lease losses. The
biggest reduction was at the ten largest banks, and a
few of those institutions posted negative provisions
for one or more quarters in 2004. The ratio of provisions for loan and lease losses to total revenue fell to
the lowest level since the mid-1990s (chart 25), and
the ratio of provisions to loans moved down for the
third consecutive year.
Net charge-offs exceeded provisioning in 2004,
so reserves for loan and lease losses declined roughly
4 percent, and the ratio of such reserves to loans fell
to 1.6 percent, the lowest level since the beginning of
the 1990s (chart 26). Nonetheless, with the continued
improvement in credit quality, the ratio of reserves
to delinquent loans moved up about 10 percentage
points, to 85 percent, the top end of its recent range.
Reserves rose noticeably as a share of net charge-offs
as well, surpassing the level that prevailed before the
economic slowdown.

Chart 26.

Reserves for loan and lease losses, 1990-2004

losses was an important contributor to the gain in
earnings from foreign operations.
RECENT

[this chart has three parts]
[part one: As a percentage of total loans and leases.
Starts 1990 at about 2.5%, rises to about 2.8% in 1992,
down to about 1.6% in 2000, up to about 1.9% in 2002,
then ends 2004 at about 1.6%.]

[part two: As a percentage of delinquent loans. Starts
1990 at about 50%, drops to about 42% in 1992, rises
to about 85% in 1995, drops to about 65% in 2001,
then rises to about 85% in 2004.]

[part three: As a percentage of net charge-offs. Starts
1990 at about 180%, down to about 170% in 1991, up
to about 470% in 1994, down to about 180% in 2002,
then ends 2004 at about 280%.]

NOTE. The data are annual. For definitions of delinquencies and net
charge-offs, see note to chart 22.[endofnote.]

INTERNATIONAL
OPERATIONS
OF U.S. COMMERCIAL BANKS

The share of bank assets booked in foreign offices
increased about 40 basis points, to 11.4 percent, in
2004. The dollar volume of exposure to selected East
Asian countries about doubled, mostly because of the
acquisition of a Korean bank by a large U.S. commercial bank (table 2, memo item). Exposure to eastern
Europe expanded briskly, while exposure to India
grew a bit less than in the previous year. A rise in
exposure to Latin American countries after two years
of contraction was mostly attributable to rising exposure to Brazil. As a share of tier 1 capital, exposure to
selected East Asian countries surged, while exposure
to Latin America fell a bit.
The share of net income due to foreign operations
rose almost 1 percentage point, to 7.9 percent (data
not shown in table), but it continued to be well below
the levels reached in the mid-1990s. As was the case
domestically, lower provisioning for loan and lease

DEVELOPMENTS

In the first few months of 2005, output grew at a
moderate pace, and labor market conditions continued to improve gradually. Although oil prices and
overall inflation pressures picked up during the
first quarter, longer-term inflationary expectations
remained well contained. Against this backdrop, the
Federal o p e n Market Committee decided to raise its
target for the federal funds rate 25 basis points at
each of its first two meetings in 2005. Longer-term
interest rates rose appreciably—the ten-year Treasury
rate rose 24 basis points in the first quarter, and the
rate on thirty-year fixed-rate mortgages rose 16 basis
points.
Data from the Federal Reserve's H.8 statistical
release indicate that the growth of bank credit accelerated to a double-digit pace in the first three months
of 2005 and that C&I lending and revolving home
equity loans were particularly strong. Securities holdings also expanded rapidly, as domestically chartered
banks continued to accumulate mortgage-backed
securities in investment accounts.
Core deposits were about flat, on balance, in early
2005. As a consequence, banks continued to ramp up
large time deposits and other liabilities at a brisk rate.
Profitability at large bank holding companies generally remained robust in the first quarter of 2005.
Profits were boosted by hefty revenues from trading and mortgage servicing, while additional gains
in asset quality allowed these institutions to reduce
further their loan loss reserves. o n the other hand,
many institutions reported tighter net interest margins, and increased competition in the credit card
market further squeezed profits for some issuers.
Nonrecurring expenses also damped profitability in
some cases.
Despite banks' strong balance sheets and robust
profitability in recent quarters, bank stock prices
declined in the first quarter of 2005; the American
Banker stock index of the 225 banks with the highest
market value underperformed the S&P 500 stock
index by almost 11 percent. In large part, the weakness in bank stocks likely reflected investor concerns
about future profitability because of rising interest
rates and a consequent slowing in the pace of the
expansion. In contrast to 2004, merger activity was
relatively quiet in the first part of 2005.

Table 2.

Exposure of banks to selected economies at year-end relative to tier 1 capital, by bank size, 1998-2004

Percent

Bank and year

All:
1998
All:
All:
All:
All:
All:
All:

1999
2000
2001
2002
2003
2004

Money center and other large banks:
1998
Moneycenterandotherlargebanks:1999
Moneycenterandotherlargebanks:2000
Moneycenterandotherlargebanks:2001
Moneycenterandotherlargebanks:2002
Moneycenterandotherlargebanks:2003
Moneycenterandotherlargebanks:2004
other banks:
1998
otherbanks:1999
otherbanks:2000
otherbanks:2001
otherbanks:2002
otherbanks:2003
otherbanks:2004

Selected
India
Asian
countries[see footnote]1

Eastern Europe
Eastern Europe
and Russia
and Russia

Latin America
Latin America
Total

Argentina
All

Russia

Mexico
LatinAmerica
All

LatinAmericaBrazil

15.49
14.37
13.17
12.09
11.44
11.15
20.33

2.35
2.39
2.63
2.55
2.74
3.86
4.16

3.49
2.85
4.35
4.29
5.53
5.44
6.09

.43
.37
.49
.60
1.06
1.48
1.54

42.93
39.00
37.88
54.06
38.90
32.85
31.78

9.88
9.50
9.08
25.97
20.80
17.95
16.65

9.66
9.40
8.41
6.61
2.44
1.73
1.47

11.27
10.49
11.15
2.99
8.36
6.77
6.51

64.26
58.61
58.03
72.99
58.61
53.30
62.36

24.02
20.73
19.98
17.88
16.96
16.98
30.95

4.19
3.56
4.14
3.86
4.18
5.93
6.31

5.61
4.25
6.83
6.47
8.17
8.41
9.34

.68
.55
.77
.91
1.63
2.29
2.36

64.20
53.90
54.98
79.08
57.32
49.19
46.96

14.10
12.62
12.69
34.54
31.14
27.13
24.99

15.19
13.63
12.68
9.79
3.65
2.64
2.22

17.04
14.53
16.40
18.74
12.38
10.02
9.59

98.02
82.44
85.93
107.29
86.63
80.51
93.56

2.08
1.75
1.41
1.07
1.03
.90
.90

.05
.07
.03
.06
.08
.24
.21

.16
.08
.08
.14
.65
.21
.14

.00
.01
.00
.00
.00
.06
.04

9.51
9.41
8.35
6.45
5.00
4.20
4.00

3.24
3.31
2.84
2.04
1.86
1.53
1.39

.97
1.01
1.04
.57
.02
.13
.09

.00
2.47
2.08
2.05
.96
1.05
.85

11.80
11.31
9.87
7.72
6.76
5.55
5.25

37.87
37.45
37.30
36.32
36.32
39.12
79.57

5.43
6.23
7.46
7.66
8.70
13.55
16.27

8.53
7.43
12.33
12.88
17.55
19.07
23.85

1.05
.95
1.39
1.80
3.37
5.20
6.02

104.69
101.63
107.31
162.39
123.53
115.23
124.39

24.15
24.77
25.71
78.00
66.15
62.98
65.17

23.62
24.51
23.82
19.87
7.75
6.07
5.75

27.55
27.34
31.59
39.01
26.55
23.74
25.46

156.52
152.74
164.40
219.25
186.10
186.97
244.07

MEMO:

Total exposure (billions of dollars):
1998
MEMO: Total exposure (billions of dollars):1999
MEMO: Total exposure (billions of dollars):2000
MEMO: Total exposure (billions of dollars):2001
MEMO: Total exposure (billions of dollars):2002
MEMO: Total exposure (billions of dollars):2003
MEMO: Total exposure (billions of dollars):2004

NOTE. For the definition of tier 1 capital, see text note 10. Exposures consist
of lending and derivatives exposures for cross-border and local-office operations. Respondents may file information on one bank or on the bank holding
company as a whole.
The year-end 2004 data cover seventy banks with a total of $391.4 billion in
tier 1 capital; of these institutions, five were money center banks, with
$195.9 billion in tier 1 capital, and four were other large banks, with

$57.2 billion in tier 1 capital; the remaining sixty-one (''other'') banks had
$138.3 billion in tier 1 capital. The average ''other'' bank at year-end 2004 had
$29 billion in assets.[endofnote]
[footnote] 1. Indonesia, Korea, Malaysia, Philippines, and Thailand.[endoffootnote.]
SOURCE. Federal Financial Institutions Examination Council Statistical Release E.16, ''Country Exposure Lending Survey,'' available at
www.ffiec.gov/E16.htm.

Appendix tables start on page 164

Table A.1.

Portfolio composition, interest rates, and income and expense, all U.S. banks, 1995-2004

A. Allbanks.Balancesheetitemsasapercentageofaveragenetconsolidatedassets
Item

1995

2000

2001

2002

2003

2004

Interest-earning assets:
86.98
87.38
87.15
86.76
87.03
87.13
Interest-earningassets:Loans and leases, net:
58.72
58.33
59.34
60.48
58.39
59.91
Interest-earningassets:Loansandleases,net:Commercial and
15.20industrial:
15.59
15.77
16.36
17.07
17.16
Interest-earningassets:Loansandleases,net:Commercialand
12.87
industrial:U.S.
13.06addressees
13.17
13.61
14.43
14.67
Interest-earningassets:Loansandleases,net:Commercialand2.33
industrial:Foreign
2.53 addressees
2.60
2.75
2.64
2.49
Interest-earning assets: Loans and leases, net: Consumer:
12.12
12.27
11.50
10.41
9.71
9.38
Interest-earningassets:Loansandleases,net:Consumer:Credit
4.73card
4.93
4.62
4.02
3.51
3.52
Interest-earningassets:Loansandleases,net:Consumer:Installment
7.39
and7.34
other
6.88
6.39
6.20
5.87
Interest-earningassets:Loansandleases,net:Real estate: 25.00
25.04
25.00
24.85
25.44
27.04
Interest-earningassets:Loansandleases,net:Realestate:In 24.36
domestic 24.42
offices:
24.39
24.28
24.87
26.49
Interest-earningassets:Loansandleases,net:Realestate:In1.59
domesticoffices:
1.63Construction
1.73 and land
1.86 development
2.18
2.51
Interest-earningassets:Loansandleases,net:Realestate:Indomestic
.56
offices:
.56Farmland.55
.55
.56
.56
Interest-earningassets:Loansandleases,net:Realestate:In
14.41
domesticoffices:
14.42One- to
14.41
four-family
14.25
residential:
14.10
14.96
Interest-earningassets:Loansandleases,net:Realestate:1.88
Indomesticoffices:
1.85 One-to
1.94
four-family1.89
residential:Home
1.76 equity1.96
Interest-earningassets:Loansandleases,net:Realestate:
12.54
Indomestic12.57
offices:One-12.47
tofour-family
12.37
residential:12.34
Other
13.00
Interest-earningassets:Loansandleases,net:Realestate:Indomestic
.81
offices:
.85Multifamily
.83 residential
.82
.88
.99
Interest-earningassets:Loansandleases,net:Realestate:In6.97
domesticoffices:
6.96Nonfarm
6.88
nonresidential
6.80
7.15
7.48
Interest-earningassets:Loansandleases,net:Realestate:In foreign
.65 offices
.63
.61
.57
.57
.54
Interest-earningassets:Loansandleases,net:To depository institutions and acceptances
of other banks
1.92
2.33
1.93
1.96
1.87
1.91
Interest-earningassets:Loansandleases,net:Foreign governments
.30
.26
.18
.15
.16
.12
Interest-earningassets:Loansandleases,net:Agricultural production
.83
.78
.96
.92
.90
.89
Interest-earningassets:Loansandleases,net:Other loans
3.11
3.32
2.80
2.78
2.75
2.58
Interest-earningassets:Loansandleases,net:Lease-financing 1.19
receivables1.51
1.87
2.13
2.52
2.63
Interest-earningassets:Loansandleases,net:LESS: Unearned - .income
on- . loans
14
12
-.07
-.06
-.05
-.09
Interest-earningassets:Loansandleases,net:LESS: Lossreserves
- 1 . 2 [see
7 footnote]1
-1.21
-1.13
-1.07
-1.04
-1.02
Interest-earning assets: Securities:
21.94
21.00
20.40
20.37
20.40
20.01
Interest-earningassets:Securities:Investment account:
19.38
18.19
17.23
17.48
18.33
17.59
Interest-earning assets: Securities: Investment account:
18.97
Debt: 17.74
16.74
16.93
17.73
16.93
Interest-earningassets:Securities:Investmentaccount:Debt:
5.25
U.S. Treasury:
4.19
3.38
2.71
2.14
1.66
Interest-earningassets:Securities:Investmentaccount:Debt:U.S. government agency and
corporation obligations:
9.81
9.74
9.73
10.28
10.85
10.31
Interest-earning assets: Securities: Investment account:4.46
Debt: U.S. government
agency
4.80
4.93 and 5.16
5.24
4.75
corporationassets:
obligations:
Government-backed
mortgage
pools
Interest-earning
Securities:
Investment account:
Debt: U.S.
government
agency
2.67
2.11
1.93 and 2.12
2.15
1.92
corporation
obligations:
Collateralized
mortgage
obligations
Interest-earning assets: Securities: Investment account:2.68
Debt: U.S. government
agency
2.83
2.86 and 2.99
3.46
3.63
corporationobligations:Other
Interest-earningassets:Securities:Investmentaccount:Debt:
1.80
State and1.68
local government
1.57
1.62
1.52
1.59
Interest-earningassets:Securities:Investmentaccount:Debt:.62
Private mortgage-backed
.61
.50 securities
.67
.88
.95
Interest-earningassets:Securities:Investmentaccount:Debt:
1.49
Other
1.51
1.54
1.70
2.24
2.48
Interest-earningassets:Securities:Investmentaccount:Equity.41
.45
.50
.55
.61
.66
Interest-earningassets:Securities:Trading account
2.55
2.81
3.16
2.90
2.06
2.43
Interest-earningassets:Gross federal funds sold and reverse3.93
RPs
3.81
5.18
5.37
4.61
4.12
Interest-earningassets:Interest-bearing balances at depositories
2.73
2.66
2.86
2.69
2.68
2.52
Non-interest-earning assets:
13.02
12.62
12.85
13.24
12.97
12.87
Non-interest-earningassets:Revaluation gains held in trading
2.90
accounts2.24
2.59
2.95
2.57
2.28
Non-interest-earningassets:Other
10.12
10.37
10.26
10.29
10.40
10.58

86.48
58.95
16.08
13.69
2.39
9.23
3.63
5.60
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
29.46
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
30.78
30.25
3.25
.54
17.42
4.34
13.09
1.06
7.97
.53

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
-1.04
21.89
18.97
18.72
.90

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

10.08
5.13
1.95
2.99
1.49
1.09
2.98
.34
2.72
5.11
2.89
13.52
2.37
11.15

11.46
6.09
2.35
3.02
1.49
1.25
3.01
.31
2.97
4.81
2.51
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
2.45
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

91.58
73.30
54.66
10.92
43.74
2.46
20.64
12.49
8.16
7.83
10.81
18.28
8.61
2.29
7.37

91.25
72.47
54.59
10.18
44.42
2.36
22.28
11.59
8.18
7.95
9.92
18.78
8.00
2.21
8.57

90.85
71.20
53.87
8.92
44.95
2.39
24.92
10.13
7.51
7.77
9.56
19.66
7.67
2.09
9.90

90.96
70.48
53.34
8.90
44.44
2.47
26.12
8.65
7.19
7.75
9.39
20.48
7.27
2.30
10.92

90.57
71.58
54.14
9.72
44.42
2.53
27.14
7.63
7.13
7.24
10.20
18.98
6.58
1.95
10.45

1996

1997

1998

1999

Liabilities:
91.73
91.57
91.51
91.52
91.99
Liabilities: Interest-bearing liabilities:
71.87
71.63
71.37
71.33
72.52
Liabilities: Interest-bearing liabilities: Deposits:
56.28
55.83
54.96
54.62
54.78
Liabilities:Interest-bearingliabilities:Deposits:In foreign10.27
offices 10.01
10.01
10.14
10.46
Liabilities:Interest-bearingliabilities:Deposits:In domestic
46.01offices:
45.83
44.95
44.48
44.32
Liabilities:Interest-bearingliabilities:Deposits:Indomestic
6.63
offices:Other
4.75checkable
3.61deposits3.11
2.81
Liabilities:Interest-bearingliabilities:Deposits:Indomestic
17.47
offices:Savings
18.70 (including
19.11 MMDAs)
21.00
19.89
Liabilities:Interest-bearingliabilities:Deposits:Indomestic
16.14
offices:Small-denomination
15.96
15.16 time
14.14
deposits 13.10
Liabilities:Interest-bearingliabilities:Deposits:Indomestic
5.77
offices:Large-denomination
6.41
7.07 time7.33
deposits 7.42
Liabilities:Interest-bearingliabilities:Gross federal funds purchased
7.70
and
7.18RPs 8.13
7.98
7.97
Liabilities:Interest-bearingliabilities:Other
7.88
8.62
8.27
8.73
9.76
Liabilities: Non-interest-bearing liabilities:
20.12
20.10
20.20
20.17
19.00
Liabilities:Non-interest-bearingliabilities:Demand deposits
12.68
in domestic
12.81offices 12.15
9.78
10.99
Liabilities:Non-interest-bearingliabilities:Revaluation losses
2.88held in trading
2.14
accounts
2.64
2.97
2.52
Liabilities:Non-interest-bearingliabilities:Other
4.57
5.14
5.41
6.21
6.70
Capital account

8.01

8.27

8.43

8.49

8.48

8.42

8.75

9.15

9.04

9.43

Commercial real estate loans
9.83
MEMO: Other real estate owned
.19
MEMO: Managed liabilities:
32.10
MEMO:Managedliabilities:Federal Home Loan Bank advances
n.a.
MEMO: Average net consolidated assets
(billions of dollars)
4,149

9.91
.14
32.77
n.a.

9.98
.11
34.13
n.a.

10.11
.08
34.97
n.a.

10.87
.06
36.59
n.a.

11.58
.05
38.83
n.a.

12.09
.05
37.42
2.89

12.57
.06
35.05
3.17

12.47
.06
34.61
3.19

12.78
.06
35.69
3.07

4,379

4,737

5,148

5,439

5,906

6,334

6,635

7,249

7,879

MEMO:

Table A.1.—Continued
A. Allbanks.Effectiveinterestrate(percent)[seefootnote]2
Item

1995

1996

1997

1998

1999

2000

2001

Effective interest rate (perc ent)
Rates earned:
Interest-earning assets:
8.33
8.16
8.17
8.02
Ratesearned:Interest-earningassets:Taxable equivalent 8.41
8.22
8.23
8.07
Ratesearned:Interest-earningassets:Loans and leases, gross:
9.25
9.01
9.03
8.85
Ratesearned:Interest-earningassets:Loansandleases,gross:
8.93Net of loss
8.56provisions
8.50
8.30
Rates earned: Interest-earning assets: Securities:
6.51
6.46
6.54
6.45
Ratesearned:Interest-earningassets:Securities:Taxable6.73
equivalent6.66
6.73
6.63
Ratesearned:Interest-earningassets:Investment account:6.35
6.39
6.50
6.38
Ratesearned:Interest-earningassets:Investmentaccount:U.S. Treasury securities and U.S.
government agency obligations
(excluding MBS)
n.a.
n.a.
n.a.
n.a.
Ratesearned:Interest-earningassets:Investmentaccount:n.a.
Mortgage-backed
n.a.
securities
n.a.
n.a.
Ratesearned:Interest-earningassets:Investmentaccount:n.a.
Other
n.a.
n.a.
n.a.
Ratesearned:Interest-earningassets:Securities:Trading account
7.73
6.86
6.75
6.85
Ratesearned:Interest-earningassets:Gross federal funds sold
5.63 and reverse
5.21 RPs 5.45
5.29
Ratesearned:Interest-earningassets:Interest-bearing balances
6.84 at depositories
6.20
6.23
6.32
Rates paid:
Interest-bearing liabilities:
4.82
4.92
4.88
4.99
Ratespaid:Interest-bearingliabilities:Interest-bearing deposits
4.47
4.34
4.39
4.31
Ratespaid:Interest-bearingliabilities:In foreign offices 6.12
5.54
5.44
5.66
Ratespaid:Interest-bearingliabilities:In domestic offices: 4.11
4.07
4.16
4.01
Ratespaid:Interest-bearingliabilities:Indomesticoffices:2Other
.06
checkable
2.04 deposits
2.25
2.29
Ratespaid:Interest-bearingliabilities:Indomesticoffices:3.19
Savings (including
3.00
MMDAs)
2.93
2.79
[seefootnote]3
Ratespaid:Interest-bearingliabilities:Indomesticoffices:5.47
Large time5.39
deposits 5.45
5.22
[seefootnote]3
Ratespaid:Interest-bearingliabilities:Indomesticoffices:5.44
Other time5.40
deposits
5.54
5.48
Ratespaid:Interest-bearingliabilities:Gross federal funds 5.65
purchased 5.12
and RPs 5.17
5.19
Ratespaid:Interest-bearingliabilities:Other interest-bearing
7.45
liabilities6.92
6.94
6.89
Item
1995
1996
1997
1998

2002

2003

2004

7.71
7.76
8.47
7.97
6.27
6.46
6.25

9.00
8.33
6.47
6.65
6.45

7.38
7.43
8.16
7.15
6.05
6.23
6.05

6.11
6.16
6.90
5.85
4.96
5.12
5.04

5.30
5.34
6.16
5.48
3.96
4.10
4.00

5.11
5.15
5.92
5.48
3.89
4.02
3.96

n.a.
n.a.
n.a.
6.47
4.78
5.95

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

5.76
6.45
5.60
6.08
3.86
4.01

4.42
5.44
4.74
4.47
1.93
2.79

3.29
4.24
4.08
3.70
1.43
2.09

3.11
4.38
3.76
3.51
1.43
1.98

4.47
3.87
4.91
3.63

5.17
4.45
5.61
4.17
2.34

2.54

5.78
5.69
5.77
6.97
2000

4.15
3.61
3.95
3.54
1.96
2.19
5.04
5.43
3.84
5.92
2001

2.38
2.07
1.06
1.13
3.37
3.73
1.88
4.32
2002

1.87
1.48
1.64
1.45
.75
.74
2.59
2.91
1.30
3.59
2003

2.08

2.49
4.92
5.09
4.73
6.48
1999

8.20
8.26

2.86

2.12

1.77
1.37
1.77
1.29
.77
.72
2.35
2.56
1.55
3.26
2004

Gross interest income:
7.29
Grossinterestincome:Taxable equivalent
7.35
Grossinterestincome:Loans
5.48
Grossinterestincome:Securities
1.23
Grossinterestincome:Gross federal funds sold and reverse
.23RPs
Grossinterestincome:Other
.35

7.16
7.22
5.48
1.16
.21
.32

7.15
7.21
5.41
1.11
.29
.35

6.99
7.04
5.27
1.10
.29
.32

6.73
6.78
5.12
1.14
.23
.24

7.18
7.22
5.53
1.15
.23
.27

6.39
6.43
4.92
1.00
.20
.27

5.28
5.32
4.07
.89
.09
.22

4.55
4.59
3.56
.74
.07
.18

4.44
4.48
3.42
.74
.07
.21

Gross interest expense:
3.57
Grossinterestexpense:Deposits
2.54
Grossinterestexpense:Gross federal funds purchased and.44
RPs
Grossinterestexpense:Other
.58

3.43
2.46
.38
.59

3.48
2.48
.43
.57

3.46
2.43
.43
.60

3.22
2.20
.39
.63

3.76
2.56
.45
.75

2.98
2.09
.31
.58

1.79
1.23
.15
.41

1.30
.87
.10
.33

1.26
.81
.12
.33

Net interest income:
Netinterestincome:Taxable equivalent

3.72
3.79

3.73
3.79

3.68
3.73

3.53
3.57

3.51
3.56

3.41
3.46

3.41
3.45

3.48
3.53

3.25
3.28

3.18
3.22

.31

.37

Lossprovisioning

[seefootnote]4

.41

.42

.39

.50

.68

.45

.30

Non-interest income:
2.02
2.18
2.23
Non-interestincome:Service charges on deposits
.39
.39
.39
Non-interestincome:Fiduciary activities
.31
.33
.35
Non-interestincome:Trading revenue:
.15
.17
.17
Non-interestincome:Tradingrevenue:Interest rate exposures
n.a.
.08
.09
Non-interestincome:Tradingrevenue:Foreign exchangen.a.
rate exposures
.06
.08
Non-interestincome:Tradingrevenue:Other commodityn.a.
and equity .02
exposures *
Non-interestincome:Other
1.17
1.29
1.32

2.40
.38
.37
.15
.05
.09
.01
1.49

2.66
.40
.38
.19
.07
.09
.03
1.69

2.59
.40
.38
.21
.08
.08
.04
1.61

2.53
.42
.35
.20
.10
.07
.03
1.56

2.54
.45
.33
.16
.08
.07
.01
1.61

2.53
.44
.31
.16
.06
.07
.02
1.63

2.39
.42
.32
.13
.01
.08
.04
1.52

Non-interest expense:
3.64
Non-interestexpense:Salaries, wages, and employee benefits
1.54
Non-interestexpense:Occupancy
.48
Non-interestexpense:Other
1.62

3.71
1.55
.48
1.69

3.61
1.53
.47
1.62

3.77
1.55
.47
1.75

3.76
1.58
.48
1.70

3.66
1.51
.45
1.70

3.57
1.49
.44
1.64

3.47
1.51
.44
1.52

3.36
1.50
.43
1.43

3.34
1.46
.42
1.46

Net non-interest expense

1.62

1.54

1.38

1.36

1.11

.01

.03

.04

.06

Income before taxes and extraordinary items:
1.81
1.85
1.92
Incomebeforetaxesandextraordinaryitems:Taxes
.63
.65
.68
Incomebeforetaxesandextraordinaryitems:Extraordinary items,
net of *income taxes
*
*

1.81
.62
.01

Net income:
Netincome:Cash dividends declared
Netincome:Retained income

Gains on investment account securities

MEMO: Return on equity

1.07

1.04

.93

.82

.95

-.04

.07

.10

.08

.05

2.02
.72
*

1.81
.63
*

1.76
.59
-.01

1.97
.65

2.05
.67
.01

1.98
.63

1.18
.75
.43

1.20
.90
.30

1.25
.90
.35

1.20
.80
.40

1.31
.96
.35

1.18
.89
.29

1.17
.87
.30

1.32
1.01
.30

1.39
1.07
.31

1.34
.76
.59

14.69

14.51

14.83

14.08

15.39

13.97

13.34

14.41

15.33

14.23

* In absolute value, less than 0.005 percent.
n.a. Not available.
MMDA Money market deposit account.
RP Repurchase agreement.
CD Certificate of deposit.
[footnote] 1. Includes allocated transfer risk reserves.[endoffootnote.]
[footnote] 2. When possible, based on the average of quarterly balance sheet data reported on schedule RC-K of the quarterly Call Report.[endoffootnote.]
[footnote] 3. Before 1997, large time open accounts included in other time deposits.[endoffootnote.]
[footnote] 4. Includes provisions for allocated transfer risk.[endoffootnote.]

Income and expense as a percentage of net consolidated assets.

Table A.1.

Portfolio composition, interest rates, and income and expense, all U.S. banks, 1995-2004

B. Ten largest banks byassets.Balancesheetitemsasapercentageofaveragenetconsolidatedassets
Item

2001

2002

2003

2004

Interest-earning assets:
77.12
80.12
81.84
81.25
82.23
81.49
Interest-earningassets:Loans and leases, net:
50.05
53.51
50.91
50.76
53.37
55.22
Interest-earningassets:Loansandleases,net:Commercial 16.16
and industrial:
17.17
16.90
18.07
19.20
19.87
Interest-earningassets:Loansandleases,net:Commercialand
8.66industrial:
U.S. addressees
10.24
11.76
13.14
13.95
9.59
Interest-earningassets:Loansandleases,net:Commercialand
7.50industrial:
7.59
Foreign addressees
6.66
6.31
6.06
5.92
Interest-earning assets: Loans and leases, net: Consumer:
6.60
6.22
6.40
6.04
5.94
5.43
Interest-earningassets:Loansandleases,net:Consumer:Credit
1.96 card 1.23
1.34
1.30
1.36
1.34
Interest-earningassets:Loansandleases,net:Consumer:Installment
4.65
and
4.74
4.58
4.09
4.99other 5.06
Interest-earningassets:Loansandleases,net:Real estate: 15.82
16.53
17.42
16.51
16.96
19.82
Interest-earningassets:Loansandleases,net:Realestate:In
13.48
domestic14.44
offices: 15.69
15.08
15.55
18.48
Interest-earningassets:Loansandleases,net:Realestate:In
.58
domesticoffices:
.51 Construction
.68
and.77
land development
.90
.98
Interest-earningassets:Loansandleases,net:Realestate:In
.06
domesticoffices:
.06 Farmland
.10
.11
.09
.09
Interest-earningassets:Loansandleases,net:Realestate:9.62
Indomestic10.43
offices:One11.02
to four-family
10.33 residential:
10.77
13.37
Interest-earningassets:Loansandleases,net:Realestate:
1.40Indomestic
1.53
offices:One1.70tofour-family
1.72 residential:
1.54Home equity
1.61
Interest-earningassets:Loansandleases,net:Realestate:
8.22Indomestic
8.90
offices:One9.31tofour-family
8.61 residential:
9.22Other 11.76
Interest-earningassets:Loansandleases,net:Realestate:In
.38
domesticoffices:
.38 Multifamily
residential
.38
.43
.60
.39
Interest-earningassets:Loansandleases,net:Realestate:2.83
Indomesticoffices:
3.05 Nonfarm
3.52 nonresidential
3.51
3.35
3.42
Interest-earningassets:Loansandleases,net:Realestate:In2.35
foreign offices
2.09
1.73
1.43
1.41
1.34
Interest-earningassets:Loansandleases,net:To depository institutions and acceptances
of other banks
5.04
6.14
4.20
4.05
4.34
3.78
Interest-earningassets:Loansandleases,net:Foreign governments
.45
.35
.38
.28
.90
.69
Interest-earningassets:Loansandleases,net:Agricultural production
.21
.23
.31
.28
.26
.23
Interest-earningassets:Loansandleases,net:Other loans 5.76
6.34
4.15
3.74
3.96
3.75
Interest-earningassets:Loansandleases,net:Lease-financing
1.14
receivables
2.24
2.81
3.40
3.07
1.59
Interest-earningassets:Loansandleases,net:LESS: Unearned
income -.11
on loans -.07
-.14
-.06
-.05
-.04
[seefootnote]1
Interest-earningassets:Loansandleases,net:LESS: Lossreserves
-1.45
-1.30
-1.08
-1.01
-1.03
-.97
Interest-earning assets: Securities:
19.53
19.83
20.00
19.72
18.34
18.98
Interest-earningassets:Securities:Investment account: 10.65
10.60
10.97
12.12
13.08
13.71
Interest-earning assets: Securities: Investment account:
10.27
Debt: 10.22
10.55
11.64
12.57
13.03
Interest-earningassets:Securities:Investmentaccount:Debt:
2.03 U.S. Treasury
1.93
1.56
1.70
1.98
1.96
Interest-earningassets:Securities:Investmentaccount:Debt:U.S. government agency and
corporation obligations:
4.46
4.59
5.34
6.31
6.35
6.59
Interest-earning assets: Securities: Investment account:
government
2.89Debt: U.S.
3.58
4.26agency and
5.13
5.03
4.88
corporationassets:
obligations:
Government-backed
mortgage
pools
Interest-earning
Securities:
Investment account:
government
1.50Debt: U.S.
.95
.93agency and
.93
.79
.93
corporationassets:
obligations:
Collateralized
mortgage
Interest-earning
Securities:
Investment
account:
Debt: U.S..06
government
.08obligations
.15agency and
.26
.52
.78
corporationassets:
obligations:
Other
Interest-earning
Securities:
Investmentaccount:Debt:
.51
.47
.45
.51
.49 State and
.39local government
Interest-earningassets:Securities:Investmentaccount:Debt:
.32 Private .30
mortgage-backed
.32
securities
.60
.57
.51
Interest-earningassets:Securities:Investmentaccount:Debt:
2.97 Other 3.01
2.81
2.57
3.22
3.47
Interest-earningassets:Securities:Investmentaccount:Equity
.38
.38
.42
.47
.51
.68
Interest-earningassets:Securities:Trading account
8.88
9.23
9.03
7.60
5.25
5.26
Interest-earningassets:Gross federal funds sold and reverse
3.20
RPs
3.10
7.56
7.81
6.64
5.02
Interest-earningassets:Interest-bearing balances at depositories
4.34
3.68
3.37
2.96
3.14
3.01
Non-interest-earning assets:
22.88
19.88
18.16
18.75
18.51
17.77
Non-interest-earningassets:Revaluation gains held in trading
10.77accounts
7.63
7.36
7.62
6.66
5.66
Non-interest-earningassets:Other
12.11
12.25
10.80
11.13
11.85
12.11

81.74
53.86
18.82
13.42
5.41
6.17
1.64
4.53
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
10.53
7.48
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

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
14.36
14.13
.59

3.54
.17
.19
2.87
2.87
-.06
-1.02
21.22
15.31
15.11
.82

4.10
.16
.22
3.31
2.10
-.04
-.80
22.95
15.99
15.83
.86

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
.95
3.53
.16
6.96
6.37
2.93
16.46
4.45
12.01

Liabilities:
93.04
92.61
92.58
92.28
93.59
Liabilities: Interest-bearing liabilities:
63.37
64.45
65.83
65.81
66.87
Liabilities: Interest-bearing liabilities: Deposits:
47.49
47.87
47.36
47.65
48.79
Liabilities:Interest-bearingliabilities:Deposits:In foreign
28.36
offices 26.41
22.18
20.17
21.04
Liabilities:Interest-bearingliabilities:Deposits:In domestic
19.12 offices:
21.46
25.18
27.48
27.76
Liabilities:Interest-bearingliabilities:Deposits:Indomestic
2.30offices:Other
1.61 checkable
1.21 deposits
.72
.99
Liabilities:Interest-bearingliabilities:Deposits:Indomestic
10.56offices:12.31
Savings (including
14.26
MMDAs)
15.83
16.84
Liabilities:Interest-bearingliabilities:Deposits:Indomestic
4.04offices:4.68
Small-denomination
5.82
time
6.03 deposits
5.66
Liabilities:Interest-bearingliabilities:Deposits:Indomestic
2.23offices:2.86
Large-denomination
3.89
time
4.62 deposits
4.54
Liabilities:Interest-bearingliabilities:Gross federal funds6.17
purchased5.88
and RPs 10.26
9.78
8.84
Liabilities:Interest-bearingliabilities:Other
9.71
10.69
8.20
8.37
9.24
Non-interest-bLiabilities:
earing liabilities: 30.22
28.59
26.78
26.77
25.41
Liabilities:Non-interest-bearingliabilities:Demand deposits
8.88in domestic
9.73 offices8.98
8.46
7.83
Liabilities:Non-interest-bearingliabilities:Revaluation losses
10.68 held in7.27
trading accounts
7.53
7.67
6.51
Liabilities:Non-interest-bearingliabilities:Other
10.66
11.59
10.27
10.65
11.06

92.36
67.81
49.27
21.62
27.66
.74
16.73
5.38
4.80
8.89
9.65
24.56
7.28
5.69
11.59

92.14
66.76
49.09
19.22
29.88
.90
19.23
5.11
4.63
9.04
8.62
25.38
7.50
5.10
12.79

91.52
65.42
48.96
16.27
32.70
.95
22.81
4.71
4.22
8.83
7.63
26.10
7.40
4.63
14.07

91.94
65.55
49.11
15.68
33.43
1.02
24.28
3.68
4.45
8.62
7.82
26.40
6.72
4.88
14.80

91.64
68.18
51.26
16.20
35.05
1.22
26.42
3.24
4.18
7.79
9.13
23.46
5.43
3.95
14.08

Capital account

1995

6.41

1996

1997

1998

1999

2000

6.96

7.39

7.42

7.72

7.64

7.86

8.48

8.06

8.36

4.65
.18
47.39
n.a.

5.45
.13
46.02
n.a.

5.61
.09
44.42
n.a.

5.69
.06
45.49
n.a.

5.87
.04
46.84
n.a.

6.68
.04
43.41
.82

6.92
.03
38.89
.82

6.31
.03
38.60
.84

5.99
.03
39.33
.79

1,189

1,514

1,820

1,935

2,234

2,527

2,785

3,148

3,654

MEMO:

Commercial real estate loans
4.40
MEMO: Other real estate owned
.27
MEMO: Managed liabilities:
47.94
MEMO:Managedliabilities:Federal Home Loan Bank advances
n.a.
MEMO: Average net consolidated assets
(billions of dollars)
1,051

Table A.1.—Continued
B. Ten largest banks byassets.Effectiveinterestrate(percent)[seefootnote]2
Item

1999

2000

2001

2002

2003

2004

assets:
8.20
7.72
7.57
7.55
7.37
Ratesearned:Interest-earningassets:Taxable equivalent 8 . 2 2
7.74
7.60
7.57
7.39
Ratesearned:Interest-earningassets:Loans and leases, gross:
8.84
8.32
8.25
8.21
7.99
Ratesearned:Interest-earningassets:Loansandleases,gross:
8.88
Net of loss
8.31provisions
8.10
7.77
7.65
Rates earned: Interest-earning assets: Securities:
7.40
6.80
6.78
6.83
6.58
Ratesearned:Interest-earningassets:Securities:Taxable7.47
equivalent6.85
6.85
6.89
6.65
Ratesearned:Interest-earningassets:Securities:Investment 7.04
account: 6.70
6.76
6.78
6.59
Ratesearned:Interest-earningassets:Securities:Investmentaccount:U.S. Treasury securities and U.S.
government agency obligations
(excluding MBS)
n.a.
n.a.
n.a.
n.a.
n.a.
Ratesearned:Interest-earningassets:Securities:Investment
n.a.account:Mortgage-backed
n.a.
n.a. securities
n.a.
n.a.
Ratesearned:Interest-earningassets:Securities:Investment
n.a.account:Other
n.a.
n.a.
n.a.
n.a.
Ratesearned:Interest-earningassets:Securities:Trading account
7.83
6.90
6.81
6.92
6.56
Ratesearned:Interest-earningassets:Gross federal funds sold
5.20 and reverse
4.92 RPs 5.45
5.20
4.52
Ratesearned:Interest-earningassets:Interest-bearing balances
7.15 at depositories
6.71
6.91
7.16
7.22

7.76
7.78
8.46
7.92
6.48
6.55
6.40

6.85
6.87
7.52
6.56

5.85
5.87
6.54
5.32
5.09
5.16
5.30

5.01
5.03
5.78
5.21
4.15
4.21
4.26

4.74
4.77
5.53
5.30
4.11
4.17
4.37

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

5.01
6.42
6.34
6.33
3.86
3.73

3.74
5.55
5.30
4.60

2.62

2.92
4.83
3.76
3.52
1.47
1.80

Ratespaid:Interest-bearing liabilities:
5.88
5.44
5.41
5.29
4.79
Ratespaid:Interest-bearingliabilities:Interest-bearing deposits:
4.57
4.54
4.40
3.82
4.99
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
6.07
In foreign5.62
offices
5.52
5.83
4.99
3.42
3.32
offices: 3.69
3.39
3.04
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
In domestic
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
1.29 Indomestic
1.32 offices:Other
1.97 checkable
1.67 deposits
1.44
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
3.11 Indomestic
2.76 offices:Savings
2.68
(including
2.45
MMDAs)
2.11
[seefootnote]3
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
3.73 Indomestic
4.62 offices:Large
5.17 timedeposits
4.53
4.36
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
5.08 Indomestic
4.58 offices:Other
5.45 timedeposits
5.21 [seefootnote]3
4.95
Ratespaid:Interest-bearingliabilities:Gross federal funds 5.22
purchased 4.93
and RPs 5.02
5.18
4.53
Ratespaid:Interest-bearingliabilities:Other interest-bearing
9.80
liabilities8.86
9.13
8.85
8.61

5.37
4.40
5.67
3.51
1.61
2.43
5.32
5.53
5.47
8.15

4.09
3.27
4.02
2.85
1.67
1.92
4.40
5.14
3.81
7.00

2.55
1.95
2.59
1.68
.93
1.02
3.26
3.55

1995

1996

1997

1998

Ratesearned:Interest-earning

Item

1995

1996
1997

1998

1999

2000

6.26

6.34
6.23

2001

2.20

3.40

2.02

5.39
2002

4.51
4.28
3.87
1.66
2.49
1.86
1.36
1.76
1.20
.80

.73
2.36
2.86

1.39
4.26
2003

1.80
1.30
1.87
1.08
.97
.71
2.14
2.61
1.71
3.69
2004

Gross interest income:
6.42
Grossinterestincome:Taxable equivalent
6.43
Grossinterestincome:Loans
4.44
Grossinterestincome:Securities
.75
Grossinterestincome:Gross federal funds sold and reverse
.21RPs
Grossinterestincome:Other
1.00

6.26
6.27
4.48
.71
.18
.88

6.31
6.33
4.31
.73
.45
.82

6.21
6.22
4.27
.81
.42
.70

6.01
6.03
4.35
.85
.30
.51

6.39
6.41
4.74
.88
.25
.51

5.56
5.58
4.14
.72
.25
.44

4.78
4.80
3.58
.73
.12
.35

4.06
4.08
3.05
.63
.10
.28

3.95
3.97
2.86
.69
.10
.30

Gross interest expense:
3.74
Grossinterestexpense:Deposits
2.43
Grossinterestexpense:Gross federal funds purchased and.35
RPs
Grossinterestexpense:Other
.95

3.52
2.26
.31
.95

3.55
2.26
.54
.75

3.48
2.20
.54
.74

3.16
1.97
.40
.79

3.60
2.33
.49
.78

2.69
1.74
.35
.59

1.65
1.06
.18
.41

1.20
.75
.13
.33

1.22
.74
.14
.33

Net interest income:
Netinterestincome:Taxable equivalent

2.68
2.70

2.73
2.75

2.76
2.79

2.73
2.75

2.84
2.86

2.78
2.80

2.87
2.89

3.13
3.15

2.86
2.88

2.73
2.75

.11

Lossprovisioning

[seefootnote]4

.16

.31

.26

.38

.59

.73

.35

.16

Non-interest income:
2.16
2.34
2.12
Non-interestincome:Service charges on deposits
.25
.28
.32
Non-interestincome:Fiduciary activities
.30
.31
.34
Non-interestincome:Trading revenue:
.46
.52
.43
Non-interestincome:Tradingrevenue:Interest rate exposures
n.a.
.30
.23
Non-interestincome:Tradingrevenue:Foreign exchangen.a.
rate exposures
.17
.20
Non-interestincome:Tradingrevenue:Other commodityn.a.
and equity .05
exposures *
Non-interestincome:Other
1.15
1.23
1.04

2.15
.33
.32
.33
.10
.20
.03
1.17

2.55
.37
.31
.46
.17
.19
.09
1.41

2.54
.40
.27
.48
.20
.18
.11
1.39

2.23
.44
.29
.43
.21
.14
.08
1.06

2.32
.48
.26
.32
.15
.14
.03
1.25

2.31
.46
.26
.30
.12
.14
.04
1.29

2.21
.45
.24
.22
.03
.14
.06
1.30

Non-interest expense:
3.32
Non-interestexpense:Salaries, wages, and employee benefits
1.58
Non-interestexpense:Occupancy
.50
Non-interestexpense:Other
1.24

3.57
1.57
.50
1.50

3.24
1.45
.47
1.33

3.47
1.45
.47
1.54

3.45
1.57
.50
1.38

3.31
1.46
.47
1.39

3.13
1.38
.45
1.30

3.16
1.41
.46
1.28

3.02
1.39
.45
1.18

3.11
1.34
.43
1.33

Net non-interest expense

1.16

1.23

1.12

1.32

.90

.77

.90

.84

.71

.90

.03

.04

.08

.11

.03

-.03

.08

.13

.11

.08

Income before taxes and extraordinary items:
1.44
1.44
1.56
Incomebeforetaxesandextraordinaryitems:Taxes
.55
.52
.58
Incomebeforetaxesandextraordinaryitems:Extraordinary items,
net of *income taxes
*
*

1.22
.44
*

1.71
.66
*

1.60
.60
*

1.46
.48
-.01

1.69
.57
*

1.91
.62
*

1.74
.55
*

Gains on investment account securities

Net income:
Netincome:Cash dividends declared
Netincome:Retained income
MEMO: Return on equity

.88
.57
.31

.92
.70
.21

.98
.82
.15

.78
.53
.25

1.05
.79
.26

1.00
.86
.13

.97
.66
.31

1.12
1.05
.07

1.29
.99
.30

1.19
.65
.55

13.78

13.21

13.22

10.53

13.58

13.04

12.34

13.24

16.01

14.28

Income and expense as a percentage of average net consolidated assets.

Table A.1.

Portfolio composition, interest rates, and income and expense, all U.S. banks, 1995-2004

C. Banks ranked 11 through 100 byassets.Balancesheetitemsatapercentageofaveragenetconsolidatedassets.
Item

2003

2004

Interest-earning assets:
88.71
88.26
87.50
87.87
88.41
88.67
88.08
88.34
88.10
Interest-earningassets:Loans and leases, net:
62.68
64.24
63.89
64.38
64.23
64.88
62.14
60.00
59.48
Interest-earningassets:Loansandleases,net:Commercial 19.26
and industrial:
18.95
19.01
18.92
19.40
18.19
15.84
13.27
11.96
Interest-earningassets:Loansandleases,net:Commercial18.10
andindustrial:
17.71
U.S. addressees
17.78
17.59
18.18
17.64
15.36
12.94
11.66
Interest-earningassets:Loansandleases,net:Commercialand
1.16industrial:
1.24
Foreign addressees
1.22
1.33
1.22
.55
.48
.33
.30
Interest-earning assets: Loans and leases, net: Consumer:
14.23
15.67
15.62
14.52
13.57
13.79
13.20
12.79
12.57
Interest-earningassets:Loansandleases,net:Consumer:Credit
7.34 card 8.26
8.50
7.67
6.78
6.97
6.97
6.56
6.35
Interest-earningassets:Loansandleases,net:Consumer:Installment
6.89
and
7.40other 7.12
6.86
6.79
6.82
6.23
6.22
6.21
Interest-earningassets:Loansandleases,net:Real estate:23.25
23.26
22.99
24.59
24.80
26.21
27.29
28.94
30.67
Interest-earningassets:Loansandleases,net:Realestate:In
23.10
domestic23.10
offices: 22.85
24.42
24.62
26.12
27.21
28.88
30.54
Interest-earningassets:Loansandleases,net:Realestate:1.50
Indomesticoffices:
1.55 Construction
1.69
and
2.03
land development
2.43
3.00
3.31
3.36
3.22
Interest-earningassets:Loansandleases,net:Realestate:In
.13
domesticoffices:
.13 Farmland
.14
.17
.22
.23
.22
.20
.19
Interest-earningassets:Loansandleases,net:Realestate:
14.16
Indomestic14.15
offices:One13.88
to four-family
14.86 residential:
14.15
14.51
15.51
17.05
18.79
Interest-earningassets:Loansandleases,net:Realestate:
2.19Indomestic
2.08
offices:One2.22tofour-family
2.17 residential:
2.08Home equity
2.49
2.90
3.92
4.74
Interest-earningassets:Loansandleases,net:Realestate:
11.97Indomestic
12.07
offices:One11.65tofour-family
12.69 residential:
12.07Other 12.02
12.60
13.13
14.05
Interest-earningassets:Loansandleases,net:Realestate:In
.77
domesticoffices:
residential
1.00
1.02
1.11
1.16
1.20
1.32
.89 Multifamily
.93
Interest-earningassets:Loansandleases,net:Realestate:6.54
Indomesticoffices:
6.37 Nonfarm
6.21 nonresidential
6.36
6.82
7.28
7.05
7.00
6.99
Interest-earningassets:Loansandleases,net:Realestate:In .15
foreign offices
.16
.15
.18
.06
.13
.19
.09
.09
Interest-earningassets:Loansandleases,net:To depository institutions and acceptances
of other banks
1.61
1.53
1.30
1.09
1.05
1.40
1.44
1.21
.93
Interest-earningassets:Loansandleases,net:Foreign governments
.20
.20
.06
.06
.03
.03
.02
.02
.09
Interest-earningassets:Loansandleases,net:Agricultural production
.26
.28
.33
.33
.37
.32
.27
.23
.29
Interest-earningassets:Loansandleases,net:Other loans 3.29
3.27
3.18
3.35
2.57
2.03
1.80
2.99
1.59
Interest-earningassets:Loansandleases,net:Lease-financing
1.96
receivables
2.41
2.70
2.72
3.29
3.82
3.18
2.65
2.35
Interest-earningassets:Loansandleases,net:LESS: Unearned
income -.06
on loans -.05
-.07
-.04
-.04
-.03
-.02
-.02
-.02
[seefootnote]1
Interest-earningassets:Loansandleases,net:LESS: Lossreserves
-1.32
-1.27
-1.24
-1.16
-1.11
-1.12
-1.13
-1.17
-1.10
Interest-earning assets: Securities:
18.64
16.87
15.80
16.66
17.79
17.32
19.00
20.30
21.16
Interest-earningassets:Securities:Investment account: 17.88
16.06
15.07
16.13
17.28
16.10
17.71
19.17
20.09
Interest-earning assets: Securities: Investment account:
17.51
Debt: 15.62
14.58
15.58
16.64
15.50
17.32
18.82
19.88
Interest-earningassets:Securities:Investmentaccount:Debt:
4.82 U.S. Treasury
3.34
2.81
2.25
1.70
1.12
.67
.74
.95
Interest-earningassets:Securities:Investmentaccount:Debt:U.S. government agency and
corporation obligations:
9.40
9.12
8.98
10.57
9.70
10.09
11.45
9.93
12.99
Interest-earningassets:Securities:Investmentaccount:Debt:
5.06 U.S.government
5.42
agency
5.17 andcorporation
4.98 obligations:
5.12 Government-backed
4.31
6.00 pools 6.08
5.19 mortgage
Interest-earningassets:Securities:Investmentaccount:
2.82
Debt:U.S.2.16
government2.13
agencyandcorporation
2.83
obligations:
2.89
Collateralized
2.55
2.42
mortgage
2.79
obligations
3.72
Interest-earningassets:Securities:Investmentaccount:
1.51
Debt:U.S.1.54
government1.68
agencyandcorporation
2.12
obligations:
2.56
Other
2.84
2.48
2.65
3.19
Interest-earningassets:Securities:Investmentaccount:Debt:
1.11 State and
.88
.99local government
.92
.99
.96
.99
.97
.95
Interest-earningassets:Securities:Investmentaccount:Debt:
1.02 Private .96
mortgage-backed
.73
securities
1.35
1.66
2.01
2.13
2.14
.96
Interest-earningassets:Securities:Investmentaccount:Debt:
1.16 Other 1.21
1.18
1.53
2.02
2.06
3.56
3.53
2.85
Interest-earningassets:Securities:Investmentaccount:Equity
.37
.44
.55
.65
.60
.34
.21
.49
.39
Interest-earningassets:Securities:Trading account
.76
.80
.73
.54
.51
1.22
1.29
1.13
1.07
Interest-earningassets:Gross federal funds sold and reverse
4.52
RPs
4.26
4.38
3.57
3.34
3.76
4.06
4.71
4.20
Interest-earningassets:Interest-bearing balances at depositories
2.87
2.89
3.43
3.24
3.06
2.71
2.88
3.33
3.26
Non-interest-earning assets:
11.29
11.74
12.50
12.13
11.59
11.33
11.92
11.66
11.90
Non-interest-earningassets:Revaluation gains held in trading
.50accounts.51
.75
.56
.40
.55
.47
.60
.69
Non-interest-earningassets:Other
10.78
11.23
11.81
11.38
11.03
10.92
11.37
11.19
11.30

88.19
60.63
11.91
11.65
.26
12.73
6.90
5.83
32.16
31.96
3.51
.19
19.52
5.90
13.62
1.34
7.41
.20

1995

1996

1997

1998

1999

Liabilities:
92.23
92.02
91.85
91.63
91.66
Liabilities: Interest-bearing liabilities:
74.05
73.14
72.60
73.40
74.97
Liabilities: Interest-bearing liabilities: Deposits:
52.32
51.81
51.45
51.50
51.50
Liabilities:Interest-bearingliabilities:Deposits:In foreign
8.12
offices 7.52
7.85
8.15
7.96
Liabilities:Interest-bearingliabilities:Deposits:In domestic
44.20 offices:
44.30
43.60
43.35
43.53
Liabilities:Interest-bearingliabilities:Deposits:Indomestic
5.62offices:3.06
Other checkable
1.75
1.60
1.95 deposits
Liabilities:Interest-bearingliabilities:Deposits:Indomestic
18.78offices:
20.76
Savings (including
21.08
MMDAs)
21.40
22.46
Liabilities:Interest-bearingliabilities:Deposits:Indomestic
14.24offices:14.09
Small-denomination
13.43
12.84
time deposits
11.85
Liabilities:Interest-bearingliabilities:Deposits:Indomestic
5.55offices:6.39
Large-denomination
7.15
time
7.36 deposits
7.62
Liabilities:Interest-bearingliabilities:Gross federal funds
11.37
purchased
10.00
and RPs 9.36
9.48
9.77
Liabilities:Interest-bearingliabilities:Other
10.36
11.32
11.79
12.43
13.70
Liabilities: Non-interest-bearing liabilities:
18.18
18.89
19.24
18.23
16.70
Liabilities:Non-interest-bearingliabilities:Demand deposits
14.26in domestic
14.47 offices
14.17
12.39
10.52
Liabilities:Non-interest-bearingliabilities:Revaluation losses
trading accounts
.68
.76
.58
.49 held in .49
Liabilities:Non-interest-bearingliabilities:Other
3.43
3.93
4.39
5.07
5.59
Capital account

7.77

2000

2001

2002

.54
.01
.19
1.88
2.28
-.02
-1.06
21.28
20.12
19.96
.89
12.80
5.74
3.42
3.64
.96
2.65
2.66
.16
1.16
2.98
3.29
11.81
.42
11.39

91.57
76.46
51.57
7.34
44.23
1.32
22.34
11.80
8.77
9.28
15.61
15.12
8.61
.41
6.09

91.15
75.98
51.94
6.86
45.08
1.20
24.36
10.66
8.86
9.71
14.32
15.17
7.17
.52
7.49

90.79
74.69
50.48
6.09
44.38
1.17
26.45
8.78
7.98
9.66
14.55
16.10
6.32
.44
9.34

90.65
73.18
49.81
6.33
43.48
1.33
27.52
7.47
7.16
9.69
13.68
17.47
5.97
.56
10.95

89.87
74.10
50.78
6.99
43.79
1.41
27.63
6.94
7.81
8.96
14.36
15.77
5.63
.40
9.74

7.98

8.15

8.37

8.34

8.43

8.85

9.21

9.35

10.13

9.38
.08
35.60
n.a.

9.44
.06
36.60
n.a.

10.11
.04
38.11
n.a.

11.00
.03
39.83
n.a.

12.06
.03
41.98
n.a.

12.06
.04
40.81
4.07

12.24
.05
39.48
4.85

12.10
.06
38.12
4.75

12.85
.05
39.29
4.65

1,450

1,604

1,745

1,881

2,031

2,130

2,124

2,287

2,376

MEMO:

Commercial real estate loans
9.42
MEMO: Other real estate owned
.13
MEMO: Managed liabilities:
35.68
MEMO:Managedliabilities:Federal Home Loan Bank advances
n.a.
MEMO: Average net consolidated assets
(billions of dollars)
1,338

Table A.1.—Continued
C. Banks ranked 11 through 100 byassets.Effectiveinterestrate(percent)[seefootnote]2
Item

1999

2000

2001

2002

2003

2004

assets:
8.31
8.18
8.33
8.13
7.84
Ratesearned:Interest-earningassets:Taxable equivalent 8.37
8.23
8.36
8.17
7.88
Ratesearned:Interest-earningassets:Loans and leases, gross:
9.10
8.88
9.03
8.82
8.50
Ratesearned:Interest-earningassets:Loansandleases,gross:
8.67Net of loss
8.21provisions
8.27
8.15
7.80
Rates earned: Interest-earning assets: Securities:
6.38
6.49
6.55
6.31
6.32
Ratesearned:Interest-earningassets:Securities:Taxable6.56
equivalent6.66
6.70
6.46
6.46
Ratesearned:Interest-earningassets:Securities:Investment account:
6.35
6.49
6.57
6.33
6.34
Ratesearned:Interest-earningassets:Securities:Investmentaccount:U.S. Treasury securities and U.S.
government agency obligations
(excluding MBS)
n.a.
n.a.
n.a.
n.a.
n.a.
Ratesearned:Interest-earningassets:Securities:Investment
n.a.account:Mortgage-backed
n.a.
n.a. securities
n.a.
n.a.
Ratesearned:Interest-earningassets:Securities:Investment
n.a.account:Other
n.a.
n.a.
n.a.
n.a.
Ratesearned:Interest-earningassets:Securities:Trading account
7.27
6.53
6.05
5.86
5.58
Ratesearned:Interest-earningassets:Gross federal funds sold
5.31 RPs 5.45
5.46
5.12
5.91 and reverse
Ratesearned:Interest-earningassets:Interest-bearing balances
6.78 at depositories
5.82
5.76
5.67
4.81

8.44
8.48
9.14
8.25
6.64
6.77
6.66

7.54
7.58
6.96
5.96
6.08
6.04

6.04
6.07
6.80
5.59
4.79
4.91
4.86

5.30
5.33
6.11
5.11
3.80
3.91
3.87

5.26
5.29
5.98
5.19
3.63
3.73
3.64

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

2.94
4.02
3.29
3.43
1.25
2.27

5.22
4.42
5.38
4.26
2.57
2.94
5.88
5.73

2.41
1.96
1.70
1.99
.94
1.08
3.36
3.68
1.73
3.54
2002

1.79
1.35
1.23
1.36
.64

6.36
2000

4.16
3.60
3.67
3.60
2.32
2.30
5.11
5.42
3.86
5.30
2001

2.70
2.95
1.20
3.02
2003

1995

1996

1997

1998

Ratesearned:Interest-earning

Ratespaid:Interest-bearing liabilities:
4.94
4.70
4.79
4.77
4.38
Ratespaid:Interest-bearingliabilities:Interest-bearing deposits:
4.35
4.15
4.22
4.15
3.76
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
6.30
In foreign5.29
offices
5.23
5.22
4.70
4.01
3.96
offices: 4.04
3.96
3.60
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
In domestic
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
1.89 Indomestic
1.78 offices:Other
2.01 checkable
2.41 deposits
2.03
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
3.10 Indomestic
2.91 offices:Savings
2.84
(including
2.76
MMDAs)
2.49
[seefootnote]3
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
5.70 Indomestic
5.50 offices:Large
5.47 timedeposits
5.32
4.96
[seefootnote]3
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
5.35 Indomestic
5.26 offices:Other
5.43 timedeposits
5.35
5.03
Ratespaid:Interest-bearingliabilities:Gross federal funds 5.86
purchased 5.19
and RPs 5.29
5.22
4.87
Ratespaid:Interest-bearingliabilities:Other interest-bearing
6.43
liabilities5.95
5.85
5.81
5.41
Item
1995
1996
1997
1998
1999

6.02

8.26

2.62

1.14
1.93

.66

1.71
1.29
1.42
1.27
.72
.65
2.48
2.58
1.37
2.76
2004

Gross interest income:
7.40
Grossinterestincome:Taxable equivalent
7.45
Grossinterestincome:Loans
5.79
Grossinterestincome:Securities
1.13
Grossinterestincome:Gross federal funds sold and reverse
.27RPs
Grossinterestincome:Other
.21

7.24
7.28
5.80
1.03
.23
.18

7.26
7.30
5.87
.98
.22
.19

7.16
7.19
5.79
1.00
.19
.18

6.98
7.02
5.56
1.10
.18
.14

7.54
7.57
6.05
1.09
.22
.18

6.70
6.73
5.28
1.06
.15
.21

5.31
5.34
4.15
.90
.08
.18

4.67
4.70
3.72
.75
.04
.15

4.67
4.70
3.72
.73
.03
.19

Gross interest expense:
3.62
Grossinterestexpense:Deposits
2.29
Grossinterestexpense:Gross federal funds purchased and.67
RPs
Grossinterestexpense:Other
.66

3.39
2.18
.55
.66

3.41
2.23
.51
.68

3.45
2.23
.51
.71

3.26
2.02
.51
.74

3.96
2.41
.56
.99

3.14
2.01
.38
.75

1.77
1.09
.17
.51

1.30
.77
.12
.41

1.26
.74
.13
.40

Net interest income:
Netinterestincome:Taxable equivalent

3.78
3.84

3.84
3.89

3.85
3.89

3.71
3.74

3.72
3.75

3.58
3.61

3.56
3.59

3.54
3.57

3.37
3.40

3.41
3.44

.39

.54

[seefootnote]4

.60

.54

.55

.68

.91

.80

.67

.55

Non-interest income:
2.38
2.61
2.76
Non-interestincome:Service charges on deposits
.44
.44
.44
Non-interestincome:Fiduciary activities
.40
.43
.44
Non-interestincome:Trading revenue:
.08
.08
.09
Non-interestincome:Tradingrevenue:Interest rate exposures
n.a.
.03
.02
Non-interestincome:Tradingrevenue:Foreign exchangen.a.
rate exposures
.04
.05
Non-interestincome:Tradingrevenue:Other commodityn.a.
and equity .01
exposures *
Non-interestincome:Other
1.45
1.67
1.79

3.07
.42
.49
.09
.03
.06

3.36
.41
.48
.08
.02
.05

3.18
.42
.52
.07
.02
.04

3.36
.42
.42
.08
.04
.03

3.30
.42
.42
.08
.04
.04

2.07

2.39

2.18

2.44

2.37

3.29
.42
.37
.09
.04
.04
.01
2.41

3.05
.40
.42
.07
-.01
.05
.03
2.16

Non-interest expense:
3.79
Non-interestexpense:Salaries, wages, and employee benefits
1.47
Non-interestexpense:Occupancy
.47
Non-interestexpense:Other
1.85

3.85
1.51
.48
1.86

3.85
1.51
.46
1.88

4.03
1.53
.46
2.04

4.12
1.53
.45
2.14

4.00
1.44
.43
2.14

3.95
1.47
.42
2.07

3.73
1.49
.40
1.84

3.64
1.47
.41
1.76

3.55
1.45
.39
1.70

Net non-interest expense

1.41

1.24

1.10

.96

.76

.82

.59

.43

.35

.50

.02

.03

-.01

-.05

.09

.10

.06

.03

Income before taxes and extraordinary items:
2.01
2.09
2.18
Incomebeforetaxesandextraordinaryitems:Taxes
.70
.75
.77
Incomebeforetaxesandextraordinaryitems:Extraordinary items,
net of *income taxes
*
*

2.24
.78
*

2.40
.86
*

2.02
.70
*

2.15
.74
*

2.41
.82
*

2.39
.82
*

Net income:
Netincome:Cash dividends declared
Netincome:Retained income

Lossprovisioning

Gains on investment account securities

MEMO: Return on equity

1.31
.85
.46

1.34
1.07
.26

1.42
.93
.48

1.45
.96
.50

1.54
1.16
.38

1.32
.94
.38

1.40
.96
.44

1.59
.99
.60

1.59
1.05
.54

1.58
.95
.63

16.84

16.78

17.36

17.38

18.46

15.72

15.79

17.26

17.01

15.56

Income and expense as a percentage of average net consolidated assets.

A.1.

Portfolio composition, interest rates, and income and expense, all U.S. banks, 1995-2004
D. Banks ranked 101 through 1,000 byassets.Balancesheetitemsasapercentageofaveragenetconsolidatedassets
Item

1995

1996

1997

1998

1999

2000

Interest-earning assets:
90.98
91.34
91.38
91.68
91.50
91.11
Interest-earningassets:Loans and leases, net:
62.24
62.72
62.34
61.23
61.48
62.15
Interest-earningassets:Loansandleases,net:Commercial 12.68
and industrial:
12.76
12.38
12.45
12.64
12.95
Interest-earningassets:Loansandleases,net:Commercial12.52
andindustrial:
12.58
U.S. addressees
12.14
12.12
12.32
12.60
Interest-earningassets:Loansandleases,net:Commercialand
.16industrial:.18
Foreign addressees
.23
.32
.32
.36
Interest-earning assets: Loans and leases, net: Consumer:
16.39
16.11
14.36
12.56
10.79
10.19
Interest-earningassets:Loansandleases,net:Consumer:Credit
6.45 card 6.92
5.87
4.78
3.37
3.27
Interest-earningassets:Loansandleases,net:Consumer:Installment
and
7.78
7.41
6.92
9.94
9.19other 8.49
Interest-earningassets:Loansandleases,net:Real estate:30.77
31.28
33.10
33.83
35.90
36.93
Interest-earningassets:Loansandleases,net:Realestate:In
30.75
domestic31.26
offices: 33.08
33.81
35.87
36.91
Interest-earningassets:Loansandleases,net:Realestate:2.21
Indomesticoffices:
2.38 Construction
2.68
and
2.87
land development
3.48
4.15
Interest-earningassets:Loansandleases,net:Realestate:In
.40
domesticoffices:
.46 Farmland
.52
.56
.58
.65
Interest-earningassets:Loansandleases,net:Realestate:
17.47
Indomestic17.29
offices:One18.08
to four-family
18.14 residential:
18.26
17.17
Interest-earningassets:Loansandleases,net:Realestate:
2.36Indomestic
2.30
offices:One2.29tofour-family
2.14 residential:
2.10
1.99Home equity
Interest-earningassets:Loansandleases,net:Realestate:
15.11Indomestic
offices:One15.78tofour-family
16.00 residential:
16.26Other 15.06
14.99
Interest-earningassets:Loansandleases,net:Realestate:1.21
Indomesticoffices:
1.28 Multifamily
1.28
residential
1.25
1.44
1.58
Interest-earningassets:Loansandleases,net:Realestate:9.46
Indomesticoffices:
9.85 Nonfarm
10.52 nonresidential
12.12
13.36
10.99
Interest-earningassets:Loansandleases,net:Realestate:In .02
foreign offices
.02
.02
.02
.02
.02
Interest-earningassets:Loansandleases,net:To depository institutions and acceptances
of other banks
.36
.50
.52
.46
.37
.59
Interest-earningassets:Loansandleases,net:Foreign governments
.02
.02
.02
.03
.03
.03
Interest-earningassets:Loansandleases,net:Agricultural production
.70
.73
.80
.78
.82
.69
Interest-earningassets:Loansandleases,net:Other loans 1.78
1.67
1.47
1.30
1.25
1.22
Interest-earningassets:Loansandleases,net:Lease-financing.90
receivables
1.00
.78
.75
.99
.99
Interest-earningassets:Loansandleases,net:LESS: Unearned
income -.10
on loans -.10
-.12
-.08
-.08
-.09
[seefootnote]1
Interest-earningassets:Loansandleases,net:LESS: Lossreserves
-1.23
-1.23
-1.15
-1.06
-1.04
-1.19
Interest-earning assets: Securities:
23.04
22.61
23.37
24.18
25.17
24.34
Interest-earningassets:Securities:Investment account: 22.84
22.49
23.26
24.08
25.09
24.25
Interest-earning assets: Securities: Investment account:
22.38
Debt: 21.97
22.65
23.39
24.33
23.46
Interest-earningassets:Securities:Investmentaccount:Debt:
6.47 U.S. Treasury
5.59
4.94
3.91
2.53
1.81

2001

2002

2003

2004

91.16
62.46
13.03
12.65
.38
9.76
3.61
6.15
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
2.64
5.50
38.92
38.90
5.40
.73
15.39
2.51
12.88
1.83
15.55
.03

91.34
61.32
11.51
11.20
.31
6.80
1.82
4.97
40.96
40.91
5.89
.80
15.71
2.92
12.79
2.00
16.51
.05

91.58
63.34
11.52
11.21
.31
6.34
1.92
4.42
43.38
43.32
6.98
.91
15.37
3.46
11.90
2.24
17.82
.06

.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
-1.03
24.36
24.23
23.79
1.00

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

Interest-earningassets:Securities:Investmentaccount:Debt:U.S. government agency and
corporation obligations:
12.21
12.62
13.91
15.08
16.29
15.56
14.70
15.85
16.96
Interest-earningassets:Securities:Investmentaccount:
5.42
Debt:U.S.5.67
government6.20
agencyandcorporation
6.45
obligations:
6.72
Government-backed
6.22
6.27
mortgage
6.55
pools
7.03
Interest-earningassets:Securities:Investmentaccount:
3.55
Debt:U.S.3.11
government3.00
agencyandcorporation
3.21
obligations:
3.52
Collateralized
3.04
3.08
mortgage
3.69
obligations
3.69
Interest-earningassets:Securities:Investmentaccount:
3.25
Debt:U.S.3.84
government4.71
agencyandcorporation
5.42
obligations:
6.05
Other
6.30
5.35
5.60
6.24
Interest-earningassets:Securities:Investmentaccount:Debt:
2.13 State and
2.23local government
2.43
2.69
2.91
2.91
2.90
2.89
2.95
Interest-earningassets:Securities:Investmentaccount:Debt:
.68 Private .76
mortgage-backed
securities
.65
1.00
.94
.87
.59
.99
.99
Interest-earningassets:Securities:Investmentaccount:Debt:
.78
1.06
1.60
2.19
2.42
2.34
2.01
.89 Other .76
Interest-earningassets:Securities:Investmentaccount:Equity
.47
.52
.61
.77
.43
.50
.43
.69
.79
Interest-earningassets:Securities:Trading account
.20
.12
.10
.11
.08
.11
.06
.14
.09
Interest-earningassets:Gross federal funds sold and reverse
3.91
RPs
3.86
3.59
4.16
3.35
3.40
4.20
4.15
3.85
Interest-earningassets:Interest-bearing balances at depositories
1.78
1.93
2.05
1.80
1.68
1.60
1.68
1.89
1.81
Non-interest-earning assets:
9.02
8.89
8.66
8.62
8.32
8.50
8.84
8.64
8.66
Non-interest-earningassets:Revaluation gains held in trading
.05accounts.02
.01
.02
.01
.01
*
*
*
Non-interest-earningassets:Other
8.98
8.86
8.66
8.62
8.31
8.49
8.84
8.64
8.65
Liabilities:
91.36
91.06
90.78
90.55
90.90
Liabilities: Interest-bearing liabilities:
75.02
75.09
75.23
75.45
76.76
Liabilities: Interest-bearing liabilities: Deposits:
59.82
61.24
62.20
61.93
59.59
Liabilities:Interest-bearingliabilities:Deposits:In foreign
1.71
offices 1.33
1.22
1.31
1.20
Liabilities:Interest-bearingliabilities:Deposits:In domestic
57.88 offices:
58.49
60.02
60.89
60.73
Liabilities:Interest-bearingliabilities:Deposits:Indomestic
8.53offices:6.19
Other checkable
4.94 deposits
4.22
3.75
Liabilities:Interest-bearingliabilities:Deposits:Indomestic
20.72 offices:
22.43
Savings (including
23.51
MMDAs)
25.57
27.35
Liabilities:Interest-bearingliabilities:Deposits:Indomestic
21.08offices:
21.55
Small-denomination
21.95
21.15
time deposits
19.60
Liabilities:Interest-bearingliabilities:Deposits:Indomestic
7.55offices:8.32
Large-denomination
9.62
time
10.03
9.96 deposits
Liabilities:Interest-bearingliabilities:Gross federal funds8.29
purchased8.17
and RPs 7.06
6.15
6.90
Liabilities:Interest-bearingliabilities:Other
7.14
7.10
6.92
7.10
7.92
Liabilities: Non-interest-bearing liabilities:
16.34
15.96
15.55
15.10
14.15
Liabilities:Non-interest-bearingliabilities:Demand deposits
14.05in domestic
13.80 offices
13.11
11.87
10.19
Liabilities:Non-interest-bearingliabilities:Revaluation losses
.05 held in .02
trading accounts
.01
.01
.01
Liabilities:Non-interest-bearingliabilities:Other
2.24
2.14
2.44
3.22
3.95
Capital account

8.64

16.70
6.80
3.41
6.49
2.92
1.08
1.46
.36
.05
2.95
1.69
8.42
*

8.42

89.93
76.35
62.83
.88
61.95
3.32
30.17
16.83
11.63
5.27
8.25
13.58
8.05
.01
5.52

89.69
75.76
61.93
.64
61.29
3.55
31.42
15.03
11.29
5.35
8.48
13.93
7.97

4.55

90.32
77.01
63.10
1.24
61.86
3.25
27.67
18.79
12.14
5.77
8.15
13.31
8.23
.01
5.08

5.95

6.06

90.95
77.43
62.67
1.28
61.40
3.32
27.03
19.44
11.61
6.30
8.45
13.52
8.97
*

89.19
75.00
60.79
.65
60.14
3.65
31.65
13.45
11.39
5.53
8.69
14.20
8.13
*

8.94

9.22

9.45

9.10

9.05

9.68

10.07

10.31

10.81

13.80
.13
24.96
n.a.

14.72
.11
24.89
n.a.

15.33
.09
24.65
n.a.

17.28
.08
26.33
n.a.

19.32
.07
28.01
n.a.

21.03
.08
27.75
5.27

23.05
.10
26.57
5.71

24.62
.11
26.40
6.29

27.25
.10
26.98
6.46

1,078

971

938

972

986

1,002

1,022

1,072

1,080

MEMO:

Commercial real estate loans
13.17
MEMO: Other real estate owned
.17
MEMO: Managed liabilities:
24.71
MEMO:Managedliabilities:Federal Home Loan Bank advances
n.a.
MEMO: Average net consolidated assets
(billions of dollars)
1,094

A.1.—Continued
D. Banks ranked 101 through 1,000 byassets.Effectiveinterestrate(percent)[seefootnote]2
Item

1995

1999

2000

2001

2002

2003

2004

assets:
8.44
8.44
8.54
8.38
7.83
Ratesearned:Interest-earningassets:Taxable equivalent 8.53
8.52
8.63
8.47
7.92
Ratesearned:Interest-earningassets:Loans and leases, gross:
9.45
9.41
9.53
9.42
8.74
Ratesearned:Interest-earningassets:Loansandleases,gross:
8.94
Net of loss
8.77provisions
8.79
8.79
8.26
Rates earned: Interest-earning assets: Securities:
6.24
6.34
6.43
6.31
6.03
Ratesearned:Interest-earningassets:Securities:Taxable6.50
equivalent6.60
6.69
6.57
6.29
Ratesearned:Interest-earningassets:Securities:Investment 6.24
account: 6.34
6.43
6.30
6.03
Ratesearned:Interest-earningassets:Securities:Investmentaccount:U.S. Treasury securities and U.S.
government agency obligations
(excluding MBS)
n.a.
n.a.
n.a.
n.a.
n.a.
Ratesearned:Interest-earningassets:Securities:Investment
n.a.account:Mortgage-backed
n.a.
n.a. securities
n.a.
n.a.
Ratesearned:Interest-earningassets:Securities:Investment
n.a.account:Other
n.a.
n.a.
n.a.
n.a.
Ratesearned:Interest-earningassets:Securities:Trading account
5.50
5.94
6.37
6.84
7.33
Ratesearned:Interest-earningassets:Gross federal funds sold
5.45 and reverse
5.29 RPs 5.42
5.31
4.98
Ratesearned:Interest-earningassets:Interest-bearing balances
6.07 at depositories
5.69
5.44
5.77
5.07

8.48
8.56
9.42
8.75
6.45
6.71
6.45

7.86
7.94
8.76
7.88
5.97
6.25
5.96

6.43
6.51
7.33
6.57
4.93
5.19
4.93

5.60
5.68
6.58

5.46
5.53

6.02

3.80
4.05
3.82

5.86
3.77
4.02
3.77

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

5.85
6.33
5.40
6.60
3.91
3.94

4.54
5.38
4.51
3.82
1.73
1.79

3.42
3.95
4.07
1.67
1.27
1.26

3.15
4.01
4.21
3.63
1.57
1.47

Ratespaid:Interest-bearing liabilities:
4.64
4.58
4.67
4.60
4.19
4.93
Ratespaid:Interest-bearingliabilities:Interest-bearing deposits:
4.26
4.27
4.34
4.28
3.84
4.46
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
5.94
In foreign5.72
offices
5.42
5.55
5.07
6.13
4.21
4.23
offices: 4.32
4.25
3.82
4.43
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
In domestic
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
2 . 0 2 Indomestic
1.96 offices:Other
2.17 checkable
2.15 deposits
2.27
1.99
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
3.24 Indomestic
3.11 offices:Savings
3.08
(including
2.96
MMDAs)
2.65
3.07
[seefootnote]3
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
5.62 Indomestic
5.48 offices:Large
5.56 timedeposits
5.51
5.17
6.00
[seefootnote]3
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
5.53 Indomestic
5.57 offices:Other
5.57 timedeposits
5.64
5.11
5.74
Ratespaid:Interest-bearingliabilities:Gross federal funds 5.61
purchased 5.16
and RPs 5.20
5.14
4.82
5.95
Ratespaid:Interest-bearingliabilities:Other interest-bearing
6 . 2 liabilities
8
5.90
6.08
5.36
6.45
5.99
Item
1995
1996
1997
1998
1999
2000

4.11
3.82
4.45
3.81
1.81

2.54

1.88
1.61
1.43
1.61
.74
.76
2.58

1.73
1.44
1.43
1.44
.72
.74
2.33
2.51
1.45
3.37
2004

1996

1997

1998

Ratesearned:Interest-earning

2.28

2.14
2.28

5.27
5.51
3.83
5.41
2001

1.06
1.17
3.34
3.77
1.83
4.17
2002

1.29
3.60
2003

2.22

2.86

6.26

Gross interest income:
7.70
Grossinterestincome:Taxable equivalent
7.78
Grossinterestincome:Loans
6.00
Grossinterestincome:Securities
1.42
Grossinterestincome:Gross federal funds sold and reverse
.21RPs
Grossinterestincome:Other
.07

7.70
7.78
6.01
1.42
.20
.06

7.79
7.87
6.05
1.49
.19
.06

7.66
7.74
5.89
1.50
.22
.06

7.19
7.27
5.47
1.51
.17
.04

7.79
7.86
5.96
1.58
.21
.04

7.16
7.24
5.59
1.33
.16
.08

5.85
5.93
4.58
1.15
.07
.05

5.08
5.16
4.08
.91
.05
.05

4.99
5.06
4.02
.88
.05
.04

Gross interest expense:
3.46
Grossinterestexpense:Deposits
2.55
Grossinterestexpense:Gross federal funds purchased and.46
RPs
Grossinterestexpense:Other
.45

3.41
2.57
.43
.42

3.47
2.69
.37
.42

3.45
2.70
.32
.42

3.20
2.44
.34
.42

3.79
2.87
.38
.54

3.14
2.48
.22
.44

1.92
1.49
.09
.34

1.41
1.04
.07
.30

1.29
.92
.08
.29

Net interest income:
Netinterestincome:Taxable equivalent

4.24
4.32

4.29
4.37

4.32
4.39

4.22
4.29

3.99
4.07

4.00
4.07

4.02
4.10

3.93
4.00

3.68
3.75

3.70
3.77

.43

.52

Lossprovisioning

[seefootnote]4

.58

.49

.39

.52

.65

.55

.41

.31

Non-interest income:
1.84
1.88
2.07
Non-interestincome:Service charges on deposits
.42
.41
.40
Non-interestincome:Fiduciary activities
.27
.32
.29
Non-interestincome:Trading revenue:
.03
.02
.01
Non-interestincome:Tradingrevenue:Interest rate exposures
n.a.
.01
.01
Non-interestincome:Tradingrevenue:Foreign exchangen.a.
rate exposures
.01
*
Non-interestincome:Tradingrevenue:Other commodityn.a.
and equity *exposures *
Non-interestincome:Other
1.12
1.16
1.34

2.26
.39
.37
.02
.01

2.31
.38
.38
.02
.01

2.35
.36
.44
.01
.01

2.37
.39
.40

2.37
.41
.35

2.31
.41
.34
.01
.01

2.27
.39
.37
.01
.01

1.49

1.53

1.55

1.58

1.61

1.55

1.50

Non-interest expense:
3.68
Non-interestexpense:Salaries, wages, and employee benefits
1.44
Non-interestexpense:Occupancy
.45
Non-interestexpense:Other
1.79

3.69
1.44
.45
1.80

3.73
1.50
.46
1.77

3.86
1.56
.47
1.83

3.70
1.56
.47
1.68

3.84
1.59
.47
1.78

3.88
1.61
.46
1.81

3.73
1.64
.45
1.64

3.60
1.64
.43
1.53

3.54
1.64
.43
1.48

Net non-interest expense

1.84

1.81

1.66

1.60

1.39

1.48

1.52

1.36

1.29

1.28

Gains on investment account securities

-.01

.02

.04

-.01

-.04

.05

.04

.05

.02

Income before taxes and extraordinary items:
1.96
1.98
2.10
Incomebeforetaxesandextraordinaryitems:Taxes
.68
.73
.69
Incomebeforetaxesandextraordinaryitems:Extraordinary items,
net of *income taxes
*
*

2.16
.74
.06

2.20
.74
.01

1.96
.67

1.90
.66
.01

2.06
.67

2.03
.66
.03

2.13
.69

Net income:
Netincome:Cash dividends declared
Netincome:Retained income
MEMO: Return on equity

-.01

*
*

1.28
.87
.41

1.29
1.04
.25

1.37
1.10
.28

1.47
1.01
.46

1.47
1.06
.40

1.29
.92
.37

1.25
1.33
-.08

1.39
1.19
.19

1.40
1.64
-.25

1.45
.78
.67

14.82

14.42

14.89

15.60

16.11

14.21

12.93

13.75

13.54

13.39

Income and expense as a percentage of average net consolidated assets.

Table A.1.

Portfolio composition, interest rates, and income and expense, all U.S. banks, 1995-2004

E. Banks not ranked among the 1,000 largest byassets.Balancesheetitemsasapercentageofaveragenetconsolidatedassets
Item

1995

2003

2004

Interest-earning assets:
92.48
92.45
92.45
92.64
92.55
92.52
92.26
92.22
Interest-earningassets:Loans and leases, net:
56.60
57.38
58.76
59.11
59.76
62.31
62.67
62.72
Interest-earningassets:Loansandleases,net:Commercial and9.65industrial:
10.16
10.33
10.64
11.09
11.10
10.71
9.98
Interest-earningassets:Loansandleases,net:Commercialand9.59
industrial:U.S.
10.08
10.25
10.55
11.02
11.02
10.64
9.91addressees
Interest-earningassets:Loansandleases,net:Commercialandindustrial:
.06
Foreign
.07 addressees
.08
.08
.08
.07
.08
.06
Interest-earning assets: Loans and leases, net: Consumer:
9.54
9.42
8.98
8.46
8.16
7.98
7.42
6.76
Interest-earningassets:Loansandleases,net:Consumer:Credit
1.01card
1.04
.85
.70
.57
.69
.59
.49
Interest-earningassets:Loansandleases,net:Consumer:Installment
8.53
and8.39
other
8.14
7.76
7.47
7.39
6.85
6.28
Interest-earningassets:Loansandleases,net:Real estate: 33.54
34.10
35.55
36.04
36.84
39.29
40.30
41.52
Interest-earningassets:Loansandleases,net:Realestate:In 33.54
domestic 34.10
offices:
35.55
36.04
36.83
39.29
40.30
41.52
Interest-earningassets:Loansandleases,net:Realestate:In2.38
domesticoffices:
2.61Construction
2.82 and land
3.02 development
3.28
3.70
4.23
4.51
Interest-earningassets:Loansandleases,net:Realestate:In2.48
domesticoffices:
2.55Farmland
2.69
2.83
2.95
3.06
3.04
3.08
Interest-earningassets:Loansandleases,net:Realestate:In
17.45
domesticoffices:
17.47One- to
18.16
four-family
18.04
residential:
17.66
18.43
18.25
17.91
Interest-earningassets:Loansandleases,net:Realestate:1.20
Indomesticoffices:
1.20 One-to
1.24
four-family1.21
residential:Home
1.17 equity1.28
1.37
1.62
Interest-earningassets:Loansandleases,net:Realestate:
16.25
Indomestic16.28
offices:One-16.92
tofour-family
16.83
residential:16.49
Other
17.15
16.87
16.29
Interest-earningassets:Loansandleases,net:Realestate:Indomestic
offices:
1.04
1.06
1.16
.95
.92Multifamily
.95 residential
.93
.98
Interest-earningassets:Loansandleases,net:Realestate:In
10.28
domesticoffices:
10.54Nonfarm
10.93
nonresidential
11.22
11.96
13.06
13.71
14.86
*
Interest-earningassets:Loansandleases,net:Realestate:In foreign offices
*
*
*
*
*
*
*
Interest-earningassets:Loansandleases,net:To depository
institutions and acceptances
of.19other banks
.21
.20
.14
.14
.12
.12
.10
Interest-earningassets:Loansandleases,net:Foreign governments
.01
.01
*
*
*
*
*
*
Interest-earningassets:Loansandleases,net:Agricultural production
3.95
3.92
4.05
4.27
4.06
3.85
3.76
3.64
Interest-earningassets:Loansandleases,net:Other loans
.72
.67
.67
.67
.67
.65
.69
.69
Interest-earningassets:Loansandleases,net:Lease-financing receivables
.22
.23
.25
.24
.26
.27
.27
.31
Interest-earningassets:Loansandleases,net:LESS: Unearned- .income
on- . loans
30
27
-.24
-.20
-.15
-.11
-.07
-.09
[seefootnote]1
Interest-earningassets:Loansandleases,net:LESS: Lossreserves
-.93
-.87
-.86
-.87
-.88
-.88
-.90
-.90
Interest-earning assets: Securities:
30.52
29.53
28.24
26.70
26.91
25.40
22.80
23.34
Interest-earningassets:Securities:Investment account: 30.48
29.50
28.21
26.66
26.88
25.38
22.79
23.33
Interest-earning assets: Securities: Investment account:
30.03
Debt: 29.01
27.69
26.12
26.34
24.82
22.49
23.05
Interest-earningassets:Securities:Investmentaccount:Debt:
U.S. Treasury
7.85
6.70
5.05
3.34
2.12
1.33
1.04
9.19
Interest-earning assets: Securities: Investment account: Debt:
U.S. government agency and
corporation obligations:
15.13
15.67
15.58
15.43
16.89
16.95
15.27
16.07
Interest-earningassets:Securities:Investmentaccount:4.19
Debt:U.S.government
4.21
agency
4.01andcorporation
3.90 obligations:
3.95 Government-backed
3.47
3.78 mortgage
4.54pools
Interest-earningassets:Securities:Investmentaccount:2.76
Debt:U.S.government
2.46
agency
2.19andcorporation
2.02 obligations:
2.00 Collateralized
1.70
mortgage
1.94
obligations
2.30
Interest-earningassets:Securities:Investmentaccount:8.18
Debt:U.S.government
9.00
agency
9.38andcorporation
10.93 Other11.78
9.56
9.23
9.51 obligations:
Interest-earningassets:Securities:Investmentaccount:Debt:
4.69
State and4.62
local government
4.60
4.80
4.96
4.64
4.51
4.56
Interest-earningassets:Securities:Investmentaccount:Debt:
.20
Private mortgage-backed
.18
.20 securities
.16
.26
.23
.27
.26
Interest-earningassets:Securities:Investmentaccount:Debt:
.81
Other
.68
.61
.68
.88
1.11
1.12
.89
Interest-earningassets:Securities:Equity
.45
.52
.54
.53
.56
.30
.27
.49
Interest-earningassets:Securities:Trading account
.03
.03
.03
.04
.03
.02
.01
.01
Interest-earningassets:Gross federal funds sold and reverse3.91
RPs
4.04
3.95
5.12
4.17
3.22
5.01
4.26
Interest-earningassets:Interest-bearing balances at depositories
1.45
1.51
1.49
1.72
1.71
1.77
1.89
1.59
Non-interest-earning assets:
7.52
7.55
7.55
7.36
7.45
7.48
7.74
7.78
Non-interest-earningassets:Revaluation gains held in trading* accounts *
*
*
*
*
*
*
Non-interest-earningassets:Other
7.52
7.55
7.55
7.36
7.45
7.48
7.74
7.78

92.13
62.33
10.42
10.37
.05
6.16
.51
5.64
42.32
42.31
4.99
3.12
17.10
1.80
15.30
1.28
15.82

92.34
63.81
10.29
10.25
.04
5.45
.40
5.05
44.76
44.76
6.00
3.22
17.20
2.12
15.08
1.41
16.93

7.87

7.66

Liabilities:
90.04
89.82
89.63
89.54
89.75
Liabilities: Interest-bearing liabilities:
75.74
75.58
75.47
75.35
75.89
Liabilities: Interest-bearing liabilities: Deposits:
72.69
72.47
72.06
71.77
71.40
Liabilities:Interest-bearingliabilities:Deposits:In foreign offices
.11
.10
.07
.07
.09
Liabilities:Interest-bearingliabilities:Deposits:In domestic
72.58offices:
72.37
71.97
71.70
71.33
Liabilities:Interest-bearingliabilities:Deposits:Indomestic
12.37
offices:Other
11.75checkable
11.39deposits
11.18
11.07
Liabilities:Interest-bearingliabilities:Deposits:Indomestic
20.41
offices:Savings
19.58 (including
18.98 MMDAs)
19.01
19.69
Liabilities:Interest-bearingliabilities:Deposits:Indomestic
30.91
offices:Small-denomination
31.28
31.09
time
30.42
deposits 29.07
Liabilities:Interest-bearingliabilities:Deposits:Indomestic
8.89
offices:Large-denomination
9.76
10.50 time
11.10
deposits 11.50
Liabilities:Interest-bearingliabilities:Gross federal funds purchased
1.79
and
1.71 RPs 1.67
1.49
1.79
Liabilities:Interest-bearingliabilities:Other
1.26
1.41
1.75
2.09
2.71
Liabilities: Non-interest-bearing liabilities
14.30
14.23
14.16
14.19
13.86
Liabilities: Demand deposits in domestic offices
13.23
13.13
13.09
13.08
12.80
Liabilities: Revaluation losses held in trading accounts*
*
*
*
*
Liabilities: Other
1.07
1.10
1.06
1.10
1.06

89.88
76.04
70.53
.05
70.48
10.57
19.03
28.41
12.47
2.06
3.45
13.84
12.64

89.58
75.47
69.82
.05
69.77
10.60
22.00
24.20
12.97
1.52
4.13
14.11
12.58

89.55
75.22
68.87
.07
68.80
10.59
22.71
22.46
13.04
1.76
4.59
14.33
12.77

1.20

1.44

1.47

1.53

1.55

Capital account

1996

1997

1998

1999

2000

2001

89.59
76.00
70.93
.06
70.88
10.19
19.13
28.07
13.48
1.55
3.51
13.59
12.16
*

2002

89.72
76.01
70.50
.06
70.44
10.42
20.99
25.90
13.13
1.51
4.00
13.71
12.24
*

.09

.07

3.39
.66
.26
-.06
-.92
23.46
23.43
23.11
.90

3.26
.68
.25
-.06
-.89
23.33
23.32
23.06
.81

16.22
4.84
2.20
9.18
4.73
.21
1.05
.31
.03
4.26
2.08
7.87

16.56
4.75
1.96
9.85
4.67
.19
.83
.26
.01
3.33
1.86
7.66

9.96

10.18

10.37

10.46

10.25

10.12

10.41

10.27

10.42

10.45

Commercial real estate loans
13.72
MEMO: Other real estate owned
.25
MEMO: Managed liabilities:
12.06
MEMO:Managedliabilities:Federal Home Loan Bank advances
n.a.
MEMO: Average net consolidated assets
(billions of dollars)
666

14.18
.20
12.99
n.a.

14.80
.16
14.02
n.a.

15.27
.13
14.76
n.a.

16.33
.11
16.09
n.a.

17.91
.11
18.08
n.a.

19.15
.12
18.67
3.34

20.67
.14
18.79
3.71

22.23
.15
18.78
3.87

24.50
.14
19.57
4.33

661

647

644

651

655

675

704

742

769

MEMO:

Table A . 1 . — C o n t i n u e d
E. Banks not ranked among the 1,000 largest byassets.Effectiveinterestrate(percent)[seefootnote]2
Item

1995

1996

1997

1998

1999

Rates earned:
Interest-earning assets:
8.39
8.37
8.50
8.35
8.05
Ratesearned:Interest-earningassets:Taxable equivalent 8.53
8.50
8.63
8.48
8.18
Ratesearned:Interest-earningassets:Loans and leases, gross:
9.80
9.75
9.80
9.28
9.69
Ratesearned:Interest-earningassets:Loansandleases,gross:
9.54Net of loss
9.47provisions
9.34
8.89
9.49
Rates earned: Interest-earning assets: Securities:
6.10
6.14
6.26
6.04
5.88
Ratesearned:Interest-earningassets:Securities:Taxable6.49
equivalent6.52
6.65
6.46
6.29
Ratesearned:Interest-earningassets:Securities:Investment 6.10
account: 6.14
6.26
6.04
5.89
Ratesearned:Interest-earningassets:Securities:Investmentaccount:U.S. Treasury securities and U.S.
government agency obligations
(excluding MBS)
n.a.
n.a.
n.a.
n.a.
n.a.
Ratesearned:Interest-earningassets:Securities:Investment
n.a.account:Mortgage-backed
n.a.
n.a. securities
n.a.
n.a.
Ratesearned:Interest-earningassets:Securities:Investment
n.a.account:Other
n.a.
n.a.
n.a.
n.a.
Ratesearned:Interest-earningassets:Securities:Trading account
6.07
6.47
6.33
5.26
3.60
Ratesearned:Interest-earningassets:Gross federal funds sold
5.95 and reverse
5.34 RPs 5.51
5.36
4.96
Ratesearned:Interest-earningassets:Interest-bearing balances
5.88 at depositories
5.63
5.62
5.67
5.69
Rates paid:
Interest-bearing liabilities:
4.46
4.49
4.61
4.60
4.28
Ratespaid:Interest-bearingliabilities:Interest-bearing deposits:
4.39
4.44
4.54
4.53
4.22
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
5.73
In foreign5.34
offices
4.77
5.08
4.34
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
4.39
In domestic
4.44
offices: 4.53
4.53
4.22
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
2.50 Indomestic
2.41 offices:Other
2.46 checkable
2.44 deposits
2.28
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
3.32 Indomestic
3.26 offices:Savings
3.36
(including
3.39
MMDAs)
3.21
[seefootnote]3
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
5.55 Indomestic
5.48 offices:Large
5.53 timedeposits
5.53
5.21
Ratespaid:Interest-bearingliabilities:Interest-bearingdeposits:
5.51 Indomestic
5.61 offices:Other
5.66 timedeposits
5.63 [seefootnote]3
5.25
Ratespaid:Interest-bearingliabilities:Gross federal funds 5.61
purchased 5.11
and RPs 5.22
4.73
4.99
Ratespaid:Interest-bearingliabilities:Other interest-bearing
6.45
liabilities5.77
6.32
6.45
5.64
Item
1995
1996
1997
1998
1999

2000

2001

2002

2003

2004

8.44
8.56
9.51
9.14
6.15
6.54
6.15

7.94
8.05
9.03
8.59
5.86
6.28
5.86

6.79
6.91
7.84
7.39
5.02
5.43
5.02

5.94
6.05
7.08
6.72
3.86
4.26
3.87

5.73
5.84
6.72
6.45
3.73
4.11
3.73

n.a.
n.a.
n.a.
4.01
6.25
6.38

5.97
6.20
5.29
6.43
3.83
4.56

4.80
5.47
4.87
4.80
1.63
2.68

3.74
3.58
4.43
.66
1.08
1.96

3.39
3.90
4.18
7.23
1.32
2.03

4.80
4.67
5.13
4.67
2.47
3.56
5.89
5.70
5.69
6.24
2000

4.40
4.32
3.97
4.32
1.97
2.81
5.53
5.60
3.92
5.74
2001

2.92
2.78
1.67
2.79
1.16
1.72
3.61
3.88
1.84
5.32
2002

2.13
2.02
.85
2.02
.78
1.13
2.78
2.96
1.31
4.06
2003

1.87
1.75
1.04
1.75
.70
1.04
2.47
2.55
1.44
3.67
2004

Gross interest income:
7.78
Grossinterestincome:Taxable equivalent
7.91
Grossinterestincome:Loans
5.63
Grossinterestincome:Securities
1.86
Grossinterestincome:Gross federal funds sold and reverse
.25RPs
Grossinterestincome:Other
.04

7.77
7.89
5.68
1.80
.24
.04

7.90
8.02
5.86
1.76
.24
.04

7.75
7.87
5.80
1.59
.29
.06

7.48
7.60
5.62
1.58
.22
.06

7.83
7.95
5.99
1.57
.21
.05

7.35
7.45
5.75
1.32
.20
.08

6.31
6.41
5.02
1.16
.07
.06

5.46
5.56
4.47
.89
.05
.05

5.32
5.42
4.35
.87
.05
.05

Gross interest expense:
3.37
Grossinterestexpense:Deposits
3.19
Grossinterestexpense:Gross federal funds purchased and.10
RPs
Grossinterestexpense:Other
.08

3.39
3.22
.08
.08

3.48
3.28
.08
.11

3.46
3.25
.07
.13

3.26
3.02
.08
.15

3.64
3.30
.12
.21

3.34
3.08
.06
.20

2.22
1.98
.03
.21

1.60
1.42
.02
.17

1.41
1.22
.02
.17

Net interest income:
Netinterestincome:Taxable equivalent

4.41
4.54

4.38
4.50

4.42
4.54

4.28
4.41

4.22
4.35

4.20
4.31

4.01
4.12

4.08
4.19

3.86
3.96

3.91
4.01

.24

.25

Lossprovisioning

[seefootnote]4

.27

.29

.31

.32

.36

.35

.29

.23

Non-interest income:
1.38
1.42
Non-interestincome:Service charges on deposits
.44
.44
Non-interestincome:Fiduciary activities
.22
.19
Non-interestincome:Trading revenue:
.01
*
Non-interestincome:Tradingrevenue:Interest rate exposures
n.a.
*
Non-interestincome:Tradingrevenue:Foreign exchangen.a.
rate exposures
*
Non-interestincome:Tradingrevenue:Other commodityn.a.
and equity *exposures
Non-interestincome:Other
.71
.79

1.41
.44
.20

1.52
.42
.23

1.44
.42
.26

1.32
.43
.21
.01

1.31
.44
.25

1.39
.45
.27

1.47
.43
.28

1.39
.43
.32

Non-interest expense:
3.80
Non-interestexpense:Salaries, wages, and employee benefits
1.79
Non-interestexpense:Occupancy
.50
Non-interestexpense:Other
1.51
Net non-interest expense

.77

.86

.75

.68

.62

.67

.76

.64

3.70
1.77
.49
1.44

3.69
1.80
.49
1.40

3.74
1.82
.49
1.43

3.73
1.82
.49
1.42

3.58
1.78
.47
1.32

3.55
1.79
.47
1.29

3.57
1.82
.46
1.28

3.56
1.82
.45
1.28

3.52
1.81
.45
1.27

2.28

2.23

2.29

2.14

.01

.02

Income before taxes and extraordinary items:
1.75
1.85
1.89
Incomebeforetaxesandextraordinaryitems:Taxes
.55
.59
.59
Incomebeforetaxesandextraordinaryitems:Extraordinary items,
net of *income taxes
*
*

1.79
.53
*

Net income:
Netincome:Cash dividends declared
Netincome:Retained income

Gains on investment account securities

MEMO: Return on equity
[footnote]
[footnote]
[footnote]
[footnote]
[footnote]
[footnote]

2.42
*

2.26

2.24

2.18

2.09

-.01

.04

.05

.04

.02

1.62
.47
*

1.61
.45
*

1.45
.39
*

1.60
.41
-.01

1.53
.38
*

1.56
.38
*

1.20
.62
.58

1.26
.64
.62

1.30
.74
.56

1.26
.82
.44

1.15
.70
.45

1.17
.79
.38

1.06
.64
.42

1.18
.68
.50

1.14
.67
.47

1.18
.64
.54

12.05

12.37

12.53

12.02

11.26

11.52

10.16

11.47

10.97

11.29

* In absolute value, less than 0.005 percent.[endoffootnote.]
n.a. Not available.
MMDA Money market deposit account.
RP Repurchase agreement.
CD Certificate of deposit.[endoffootnote.]
1. Includes allocated transfer risk reserves.[endoffootnote.]
2. When possible, based on the average of quarterly balance sheet data reported on schedule RC-K of the quarterly Call Report.[endoffootnote.]
3. Before 1997, large time open accounts included in other time deposits.[endoffootnote.]
4. Includes provisions for allocated transfer risk.[endoffootnote.]

Income and expense as a percentage of average net consolidated assets

Table A.2.

Report of income, all U.S. banks, 1995-2004

Millions of dollars
Item

1995

Gross interest income:
302,530
Grossinterestincome:Taxable equivalent
305,166
Grossinterestincome:Loans
227,376
Grossinterestincome:Securities
51,029
Grossinterestincome:Gross federal funds sold
and reverse
9,744
Grossinterestincome:Other
14,382

1996

1997

1998

1999

2000

2001

2002

2003

2004

313,696
316,156
239,850
50,631

338,865
341,298
256,141
52,660

359,675
362,140
271,441
56,598

366,137
368,764
278,537
62,116

423,839
426,476
326,800
67,665

404,606
407,288
311,876
63,086

350,091
352,838
269,942
59,316

329,770
332,553
258,158
53,315

350,041
353,029
269,746
58,583

repurchase
agreements
13,658
12,330
14,999
16,406
16,637
13,155

13,546
15,829

12,649
16,994

6,223
14,610

5,122
13,175

5,245
16,467

9,272
13,944

Gross interest expense:
148,010
150,249
Grossinterestexpense:Deposits
105,326
107,512
Grossinterestexpense:Gross federal funds
purchased and repurchase
agreements
18,424
16,780
Grossinterestexpense:Other
24,259
25,956

164,692
117,350

178,161
125,217

174,946
119,665

222,159
151,145

188,824
132,390

118,915
81,894

94,462
62,744

99,245
63,986

20,439
26,903

22,182
30,760

21,130
34,149

26,860
44,155

19,590
36,841

9,919
27,101

7,590
24,128

9,203
26,055

Net interest income:
Netinterestincome:Taxable equivalent

174,173
176,606

181,514
183,979

191,191
193,818

201,680
204,317

215,782
218,464

231,176
233,923

235,308
238,091

250,796
253,784

Loss provisioning

154,520
157,156

163,447
165,907

12,667

16,395

19,402

21,427

21,186

29,386

43,238

45,298

32,790

23,996

Non-interest income:
83,850
Non-interestincome:Service charges on deposits 16,056
Non-interestincome:Fiduciary activities
12,889
Non-interestincome:Trading revenue
6,337
Non-interestincome:Other
48,568

95,313
17,050
14,296
7,525
56,444

105,640
18,558
16,584
8,018
62,480

123,668
19,769
19,268
7,693
76,939

144,429
21,497
20,502
10,429
92,001

153,163
23,719
22,220
12,235
94,988

160,298
26,873
21,989
12,547
98,889

168,543
29,631
21,637
10,735
106,541

183,586
31,693
22,455
11,446
117,991

188,391
33,457
25,101
9,956
119,877

Non-interest expense:
151,162
162,581
Non-interestexpense:Salaries, wages, and employee
64,017
benefits67,826
Non-interestexpense:Occupancy
19,761
20,892
Non-interestexpense:Other
67,384
73,865

171,060
72,346
22,080
76,634

193,833
79,538
24,164
90,129

204,632
86,151
25,865
92,616

216,432
89,036
26,765
100,631

226,057
94,239
27,944
103,875

230,315
100,485
29,317
100,514

243,299
108,469
31,319
103,510

263,400
115,305
33,257
114,838

65,420

70,165

60,203

63,269

65,759

61,772

59,713

75,009

Net non-interest expense

67,312

67,268

481

1,123

1,825

3,090

250

-2,280

4,625

6,415

5,633

3,822

Income before taxes:
75,024
80,908
Incomebeforetaxes:Taxes
26,241
28,447
Incomebeforetaxes:Extraordinary items, net of income
28 taxes
88

91,177
32,001
56

93,016
31,965
506

110,055
39,211
169

106,744
37,250
-31

111,411
37,105
-324

130,521
42,980
-78

148,438
48,450
427

155,614
49,887
63

Gains on investment account
securities

Net income:
Netincome:Cash dividends declared
Netincome:Retained income

48,812

52,550

59,230

61,556

71,012

69,463

73,980

87,464

100,416

105,791

31,106
17,706

39,419
13,131

42,801
16,430

41,205
20,351

52,101
18,912

52,547
16,916

54,844
19,137

67,231
20,232

77,757
22,659

59,585
46,206

Background on FOMC Meeting Minutes
Deborah J. Danker and Matthew M. Luecke, of the
Board's Division of Monetary Affairs, prepared this
article.
On December 14, 2004, the Federal Open Market
Committee (FOMC) decided to move up the publication of its minutes to three weeks after the end of
each meeting. That action has cut in half the average
time between the meeting and publication of the
minutes. It has also apparently heightened public
attention to the FOMC minutes. To give additional
context to the Committee's decision, this article outlines previous changes to the release schedule for the
minutes and provides a brief overview of the content
of the minutes and the way they are now produced.
From the inception of the FOMC, the Federal
Reserve has had an obligation to maintain records of
the Committee's policymaking actions and to publish
those records in its annual report to the Congress.
Accordingly, the Federal Reserve initially published
a summary of FOMC proceedings once a year. Over
time, however, as views about public access to information changed and as financial markets matured,
broadened, and deepened, the FOMC provided more
information more promptly, going well beyond the
basic information required by the Federal Reserve
Act.
This article focuses on the minutes and their production, but the minutes are by no means the sole
source of public information about FOMC policymaking. For example, the Committee releases a statement on the same day that policy decisions are made,
the Chairman provides semiannual testimony to the
Congress, and the Board submits semiannual Monetary Policy Reports, which include a summary of the
economic projections of the Board members and
N O T E . The authors are grateful for helpful comments received,
especially from their former colleagues Normand Bernard and David
Lindsey.[endofnote.]
[footnote] 1. Section 10, paragraph 10 of the Federal Reserve Act
''The Board of Governors of the Federal Reserve System shall keep a
complete record of the action taken by the Board and by the Federal
Open Market Committee upon all questions of policy relating to
open-market operations and shall record therein the votes taken in
connection with the determination of open-market policies and the
reasons underlying the action of the Board and the Committee in each
instance. The Board shall . . . include in its annual report to the
Congress . . . a copy of the records required to be kept under the
provisions of this paragraph.''[endoffootnote.]

Reserve Bank presidents. In addition, the Chairman
testifies on the economy and other topics on several
occasions during the year; Committee members regularly give public speeches; and a wide range of
documents, including FOMC meeting transcripts, is
made available after a five-year lag.
HISTORY

The Federal Open Market Committee was created
in its modern form by the Banking Act of 1935, and
for much of its history, the publicly available reports
from its meetings were the ''Records of Policy
Actions''—also known as the ''Policy Record.'' (See
timeline chart of past and present nomenclature.)
For its own use, the Committee initially maintained
extensive ''minutes,'' which were detailed records of
attendance, discussions, and decisions at each meeting. These minutes remained confidential, and the
Records of Policy Actions, which were published
once a year, were the official statement of FOMC
policymaking for decades. At first, the Records of
Policy Actions included only a paragraph or two of
background or reasoning behind each action. However, these records grew over time and had reached
an average of about five pages per meeting by
the mid-1960s, when the Committee reviewed its
information-disclosure practices.
1967—Release of Record of Policy
after Ninety Days

Actions

In discussions undertaken in light of the pending
effective date of the Freedom of Information Act, the
Committee agreed that information about monetary
policy decisions should be made available to the
public on a timely basis but that caution was needed
so that the information released would not impair the
Committee's ability to formulate and implement polstates:
icy. The consensus that emerged was that the time lag
on the release of information should be shortened.
Accordingly, in June 1967, the Committee
announced that it would release the Record of Policy
Actions about ninety days after each meeting and
[footnote] 2. In 1964, the FOMC made the minutes for the years 1936-60
available to the public through the National Archives.[endoffootnote.]

[beginningofbox]Reports from FOMC Meetings: Past and Present Nomenclature
Published
Summaries of
from
Meetings

Record of Policy Actions
1936

1993

Minutes of Actions
from 1967

1993

Minutes
from 1993

Detailed Internal
Minutes
Accounts of
from 1936
to
Meetings

Present

1967

Memorandum
of Discussion
from 1967

1976

Transcript
from 1976

Present[endofbox.]

*Also referred to as ''Policy Record.''

would also publish it in the Federal Reserve Bulletin.
The Committee believed that a ninety-day lag would
be a relatively safe starting point and that, as experience was gained, it might be possible to reduce the
lag between policy action and publication.
The Committee also began to make available on
the same schedule a new document—a companion
piece to the Record of Policy Actions—that was
called ''Minutes of Actions.'' This document included
summaries of all actions (both policy actions and
nonpolicy actions, such as procedural or organizational votes) as well as a list of attendees. The document did not state the reasoning behind the actions
or give any indication of the discussion at the meeting; that information was covered in the Record of
Policy Actions. The material previously included in
the FOMC's internal minutes was now in effect split
into two documents—the Minutes of Actions and the
''Memorandum of Discussion,'' a detailed account
of the discussion at each meeting. Subsequently, the
Committee began releasing its internal minutes, and
later the Memorandum of Discussion, to the public
with a lag of about five years.

1975—Release of Record of Policy
after Forty-Five Days

Actions

In the years after the passage of the Freedom of
Information Act, it became clear that there was a
substantial public appetite for further and moretimely information related to the Committee' s meetings. Committee discussions about the schedule and
content of existing information releases resulted in a
decision to cut the lag on the release of the Record of
Policy Actions from ninety days to forty-five days.
The March 1975 announcement about shortening the
release lag time noted that''in the light of experience,
the Committee decided that a delay as long as 90 days
was no longer necessary to avoid an unacceptable
degree of risk that speculators would be able to take
unfair advantage of the information or that market
reactions would impair the effectiveness of the Committee's functions.''

1976—Earlier Release of Lengthened
of Policy Actions

Record

In May 1976, the Committee announced that an
expanded version of the Record of Policy Actions for
each meeting would be released a few days after the

[footnote] 3. I n 1 9 6 7 , t h e C o m m i t t e e s e n t t h e i n t e r n a l m i n u t e s f o r 1 9 6 1 t o t h e
N a t i o n a l A r c h i v e s . I n 1 9 7 0 , it t r a n s m i t t e d t h o s e f o r 1 9 6 2 - 6 5 a n d
d e c i d e d o n a r e g u l a r s c h e d u l e of r e l e a s i n g t h e m a f t e r a b o u t five y e a r s .[endoffootnote.]

subsequent meeting. Because the Committee was
meeting monthly at that point, the lag shortened to an
average of just over thirty days. The expanded document, which was approximately doubled in length,
included a fuller discussion of economic and financial developments and more information on members' views on current and longer-run policy issues.
At the same time, the Committee decided that continued production of the Memorandum of Discussion
was no longer merited.

1993—Combination of the Record of
Policy Actions and Minutes of Actions
Congressional interest in FOMC information disclosure picked up substantially in the early 1990s. To
dispel some confusion that arose in the midst of
discussions with the Congress about information
release and to simplify its procedures, the Committee
decided to combine the content of the Record of
Policy Actions and that of the Minutes of Action into
a single document called the ''Minutes of the FOMC
Meeting.'' Also, the Committee agreed to construct
lightly edited transcripts of its previous meetings
from unedited transcripts dating back to 1976, which
would be released to the public with a lag of about
five years. In early 1995, the Committee decided to
follow the same publication practice for future transcripts as well.

2004—Release
Three Weeks

of the Minutes

after

In December 2004, the Committee announced that it
would expedite the release of the minutes of its
meetings to three weeks after each meeting, a reduction of between two and five weeks in the lag (the
previous release schedule had depended on the timing of the subsequent meeting, which could vary by
several weeks). In support of this decision, participants at that FOMC meeting noted that the minutes
contained a more complete and more nuanced expla-

nation of the reasons for the Committee's decisions
and views of the risks to the outlook than was possible to include in the post-meeting announcement.
They also noted that the earlier release would help
markets interpret economic developments and predict
the course of interest rates and that the minutes would
provide a more up-to-date context for public remarks
by individual policymakers. Some concern was
expressed, however, that the financial markets could
misinterpret the minutes and that the specter of early
release could either impair the discussion at FOMC
meetings or lead to less-comprehensive, and therefore less-useful, minutes over time. On balance, the
Committee viewed the pluses as outweighing the
minuses and decided unanimously to expedite the
release of the minutes.

CONTENT

The FOMC expressed its views on the content of the
minutes years ago when it said that the document
''contains a full and accurate report of all matters of
policy discussed and views presented, clearly sets
forth all policy actions taken by the FOMC and the
reasons therefor, and includes the votes by individual
members on each policy action.'' In practice, this
means that the minutes cover all policy-related topics
that receive a significant amount of attention at the
meeting and they record the policy decisions and the
reasoning supporting those decisions. All policy votes
are recorded. If there is a dissent, the reason for the
dissent as expressed at the meeting is included in the
minutes. All attendees at the meeting are named and
identified by title and affiliation. Because the objective of the minutes is to provide a fair, accurate, and
complete record of the FOMC meeting, only information that was available at the time of the meeting
is reflected in the content of the minutes, and only
opinions that were expressed at the meeting are
included. Subsequent information—such as a market
reaction to the post-meeting statement, new economic data, or any notation votes or unscheduled
FOMC meetings that might occur before the publication date of the minutes—would not be included
in the minutes for that meeting; it would be reflected
released
in the minutes of the next regularly scheduled
meeting.

[footnote] 4. In practice, this decision meant that the minutes were
on the Friday after the next meeting. They continued to be released on
that schedule until early 1997, when the release was shifted to the
Thursday after the next meeting.[endoffootnote.]
[footnote] 5. In 1981, when the FOMC cut its meeting schedule back to eight
regularly scheduled meetings each year, the lag on releasing the policy
record lengthened concomitantly: ''A few days after the subsequent
[footnote] 7. From the March 10, 1977, FOMC—Statements of Policy, which
meeting'' came to mean a publication date that was once again about
is available in the Federal Reserve Regulatory Service, vol. 4, loc.
forty-five days, on average, after the meeting.[endoffootnote.]
no. 8-830. That statement referred specifically to the Record of Policy
Actions, which at the time was the functional equivalent of the current
[footnote] 6. To date, transcripts for 1979-99 have been released; 1976-78
minutes.[endoffootnote.]
are pending.[endoffootnote.]

Conventions

of Language

The minutes try to convey clearly the content of the
meeting through commonly used language. At times,
the minutes use specific terms in the interest of
precision. For example, the minutes distinguish
among the terms ''members,'' ''meeting participants,'' and ''staff.'' ''Members'' refers only to the
twelve members of the FOMC—namely, the individuals eligible to vote at that meeting—whereas
''meeting participants'' includes both the members
and the seven nonvoting Reserve Bank presidents
(or those attending in their stead). The views of all
meeting participants are included in the discussion of
current economic conditions and the outlook. When
it comes to the description of the policy discussion
(usually the final few paragraphs of the minutes),
however, the views of the twelve members are the
focus. This focus reflects the intention of this section,
which is to provide the specific reasons underlying
the policy action decided upon by those voting at the
meeting. Comments by other meeting participants
may be mentioned by way of background in this
section when it is felt that they provide important
context for the policy discussion, but such comments
would not be attributed to members.
To give an indication of how widely expressed
a particular view is at a meeting, the minutes
use common quantitative wording: ''all,'' ''most,''
''many,'' ''several,'' ''few,'' or ''one,'' in descending
order. Often, other similar words are used for stylistic
purposes, and care should be used by readers to avoid
over-interpreting specific wording. Moreover, tracking expressions of support for particular viewpoints
in the give-and-take of a meeting tends to be an
imprecise science. For example, a meeting participant speaking relatively late in a meeting may choose
not to repeat views expressed earlier by others, or
speakers may alter or amend their views in the course
of the meeting. Therefore, these quantitative words
should be read as indicative rather than definitive.
Document

Structure

The minutes follow a structure that is fairly consistent from one meeting to the next. The initial section
includes a list of attendees and any noteworthy organizational or procedural items. For the FOMC's
annual organizational meeting, this initial section is
appreciably longer because it also includes the election of Committee officers and the approval of various Committee documents.
The second section of the minutes follows a moreor-less standard format in presenting an overview of

the economic and financial information provided to
the Committee. This section ends with a summary of
the staff forecast at the time of the meeting. In the
case of the two-day meetings, during which the Committee discusses a special topic, the opening paragraphs of this section typically summarize the staff
presentation and the Committee discussion of the
special topic.
The third section covers meeting participants' perspectives on current economic developments and the
outlook. The structure of this section is less standard
because it depends upon the focus of the discussion.
Nevertheless, the section typically includes paragraphs on such topics as business investment, consumer spending, the labor market, the external sector,
and inflation. For the two-day meetings, the third
section tends to be longer, in part because the minutes
cover participants' projections for the economy.
The fourth section of the minutes focuses directly
on the policy decision. It includes a few paragraphs
covering members' views on policy and any discussion of the post-meeting statement. It also records the
vote, including the language that the Committee
voted on and the vote of each member by name. The
minutes then conclude with confirmation of the date
for the FOMC's next scheduled meeting.
A record of any notation votes that occurred during
the period between regularly scheduled meetings
would be included at the end of the minutes of the
later meeting, as would the minutes of any unscheduled FOMC meetings, such as conference calls, that
occurred during that period.
PROCESS

The minutes of each FOMC meeting are now prepared on an accelerated timetable in order for the
document to be approved by the Committee and
published on time, twenty-one days after the end of
the meeting. An internal experiment covering most of
the 2004 FOMC meetings preceded the decision
to expedite the release, and that experiment was an
essential element in providing the Committee with
the necessary confidence that the shortened schedule
could be met reliably.
Staff Draft
The minutes are drafted by staff members of the
Board of Governors who attend the FOMC meeting.
But the process of producing the minutes begins even
before the meeting, as the standard staff summaries
of the economic and financial situation (for example,

the Greenbook and the Bluebook) prepared for each
meeting become available a few days ahead of the
meeting. A Board staff member uses those summaries, along with the staff presentations prepared for
the FOMC meeting and other input, to draft the
section of the minutes that reviews the information
provided to the Committee. Shortly after the meeting,
a draft of this section is completed, and several senior
staff members review it for accuracy and pass it on to
be incorporated with the other sections.
The writing of the third and fourth sections of the
minutes, which cover the discussion of the economic
outlook and the policy decision, begins as soon as the
meeting ends. Several senior staff members gather
and discuss major themes from the meeting and the
way they will be covered in the minutes. The author
of these sections, an officer from the Board's Division of Monetary Affairs serving on a rotating basis,
begins a draft based initially on notes taken at the
meeting. By the day after the meeting, however, a
rough transcript of the meeting has been prepared,
and the author typically relies on the transcript to
complete the draft. By the end of the week of the
meeting, a draft that includes all sections of the
minutes is circulated among the officers in the Division of Monetary Affairs for review.

Policymaker

Review

A series of several rounds of policymaker review of
the draft minutes begins during the week after the

meeting. After the minutes have been reviewed by
the Chairman, the Secretary of the FOMC sends the
draft to the meeting participants for comments late
in the week after the FOMC meeting (typically on
Thursday of that week, or nine days after a Tuesday
meeting). Early in the subsequent week, the Secretary
sends out a revised draft that incorporates input
received from meeting participants. By the end of
the second week after the meeting, a final version
is produced and provided to the Committee for
approval by a notation vote. The notation voting
period lasts about four calendar days and closes at
noon on the day before publication. After the processes of preparation and coordination for the release
of the minutes are completed, the approved minutes
are published at 2:00 p.m., twenty-one days after the
policy decision was made.
This shortened schedule for release has required
the Federal Reserve to devote additional resources to
produce the minutes. A wider circle of drafters is
engaged to ensure that the deadline is met, and logistics are closely coordinated to ensure that policymakers are available for timely review and approval
of the minutes. The Committee believed that the
costs and risks associated with the new schedule were
outweighed by the benefits of additional policy transparency and openness. As such, the earlier release of
the minutes was viewed as consistent with the evolution of the FOMC's communication strategy over the
years.

Trends in the Use of Payment Instruments
in the United States
Geoffrey R. Gerdes and Jack K. Walton II, of the
Board's Division of Reserve Bank Operations and
Payment Systems, and May X. Liu and Darrel W.
Parke, of the Board's Division of Research and Statistics, prepared this article. Namirembe Mukasa, of
the Board's Division of Reserve Bank Operations and
Payment Systems, provided research assistance.
An efficient payments system is important for the
smooth functioning of the large and complex U.S.
economy. As the availability and use of technology
evolves, the payments system adapts to the changing needs and expectations of individuals, businesses, and governments. In the United States,
many payments traditionally made with paper
instruments—checks and cash—are now being made
electronically—with debit or credit cards or via the
automated clearinghouse (ACH).
Until recently, paper checks accounted for the
majority of noncash payments. A Board of Governors study published in 2002 concluded that the
number of checks paid annually in the United
States likely began to decline during the mid-1990s
(chart 1). A more recent study conducted by the
Federal Reserve System, which estimated and compared the number of checks paid in 2000 with the
number paid in 2003, showed that the decline in the
number of checks paid may have accelerated over the
past few years. The average annual rate of decline in
the number of checks paid is estimated to have been
3.3 percent between 1995 and 2000 and 4.3 percent

Chart 1. Annual number of noncash payments in the United States,
selected years

[bar graph showing Electronic payments and checks. In
1979 checks is about 35 billion of payments, electronic
payments is about 5 billion. In 1995 Checks is about 50
billion of payments, electronic payments about 15 billion.
In 2000 checks is about 42 billion of payments, electronic
payments about 29 billion. In 2003 checks is about 38
billion of payments, electronic payments about 43 billion.]

SOURCE. Federal Reserve Board.

between 2000 and 2003. Although growth rates for
electronic payments have been high for decades, the
cumulative effect of this growth has only recently
become large enough to substantially affect the number of checks paid. By 2003, led by rapid growth in
debit card payments, the number of electronic payments exceeded the number of check payments for
the first time in U.S. history (chart 1, table 1).
The large number of electronic payments generally
indicates growing efficiency of the payments system.
The processing of paper payments typically requires
extensive physical handling. Automation has created
opportunities for depository institutions and other
payments processors not only to introduce new payment instruments, but also to reduce their costs in
[footnote] 1. Because some checks are converted to electronic payments at
processing
paper and electronic payments. Future
the point of sale or during the process of collection, the number of
innovations are expected to continue to help decrease
checks paid differs from the number of checks written. This point is
discussed in the box ''Changes in the Processing of Payments.''
costs and add value and functionality. (See box
Unless otherwise noted, statements in this article about the number of
''Changes in the Processing of Payments.'')
checks refer to the number of paid checks.[endoffootnote.]
[footnote] 2. Geoffrey R. Gerdes and Jack K. Walton II (2002), ''The Use
This article analyzes the results of two payments
of Checks and Other Noncash Payment Instruments in the United
surveys
conducted in 2004, one of depository instiStates,'' Federal Reserve Bulletin, vol. 88 (August), pp. 360-74,
www.federalreserve.gov/pubs/bulletin/2002/0802 2nd.pdf.[endoffootnote.] tutions (the 2004 depository institution survey) and
[footnote] 3. Federal Reserve System (2004), The 2004 Federal Reserve
Payments Study: Analysis of Noncash Payments Trends in the United
States: 2000-2003, Federal Reserve System Study, December 15,
[footnote] 4. Rates of change (for example, rates of decline and rates of
www.frbservices.org/Retail/pdf/2004PaymentResearchReport.pdf.
growth) reported in this article are computed as the average comSome figures reported in this article are revised from that earlier study
pounded annual rate of change, that is, the constant rate that if
because of improvements to the statistical imputation procedure,
compounded annually would yield the observed change for the indidescribed in the appendix.[endoffootnote.]
cated time period.[endoffootnote.]

one of electronic payments networks, processors, and
credit card issuers (the 2004 electronic payment
survey). It also draws on the results of two similar
Average,
surveys conducted in 2001. The primary purposes of
in
dollars
the 2004 surveys were to estimate the number and
value of payments made by means of several types of
noncash payment instruments in 2003 and to estimate
951
651
rates of change from 2000 to 2003. (See the appendix
42
40
for details on the surveys.)
46
82
The 2004 depository institution survey allowed
87
for comparisons among different types and sizes. It
62
2,984
also made possible an analysis of regional differences
12,585
1,005
in
the number and value of check, ACH, and debit
26
card payments and automated teller machine (ATM)
withdrawals. The 2004 electronic payment survey
824
provided additional information on the use of ACH,
1,065
cash back from debit cards, and different types of
609
credit cards.
40
42
The surveys have focused on the amount of and
38
89
trends
in noncash payments. Indirect evidence dis93
76
cussed later, however, suggests that the use of cash
2,766
has declined as a share of all payments in recent
11,424
1,108
decades. Whether the total number of cash trans26
actions has begun to decline, as has the number of
checks, is less clear.
815

Number and value of noncash payments, 2000 and 2003
Value

Value

N
Number
umber
Type of payment

Billions
of
payments

Value

Percent
of
total

Trillions
of

Percent
of
dollars
total

2000
Check [ s e e f o o t n o t e ] 1
41.9
57.8
39.8
2000 Electronic
30.5
42.2
19.9
2000ElectronicDebit card
8.3
11.4
.3
2000ElectronicDebitcardSignature
5.3
7.3
.2
2000ElectronicDebitcardPIN 3.0
4.2
.1
2000ElectronicCredit card
15.6
21.6
1.3
[seefootnote]2
2000 Electronic Credit card
12.3
General-purpose
17.0
1.1
2000 Electronic Credit card 3.3
Private-label
4.6[see footnote]2.2
2000 Electronic ACH[see footnote]4 6.1
8.4
18.2
2000ElectronicACH[seefootnote]4CCD
1.0
1.4
13.1
2000ElectronicACH[seefootnote]4Retail
5.1
7.0
5.1
2000 Electronic EBT[see footnote]5
.5
.7
.0
2000 Total noncash
payments

72.4

100.0

59.7

66.7
33.3
.6
.4
.2
2.1
1.8
.3
30.6
22.0
8.5
.0

100.0

2003
Check [ s e e f o o t n o t e ] 1
36.6
45.3
39.0
2003 Electronic
44.3
54.7
27.0
19.3
.6
2003ElectronicDebit card
15.6
2003ElectronicDebitcardSignature
10.3
12.7
.4
2003ElectronicDebitcardPIN 5.3
6.6
.2
2003ElectronicCredit card
19.0
23.4
1.7
[seefootnote]2
2003 Electronic Credit card
15.2
General-purpose
18.8
1.4
2003 Electronic Credit card 3.8
Private-label
4.6[see footnote]3.3
2003 Electronic ACH[see footnote]4 8.9
11.0
24.6
2003ElectronicACH[seefootnote]4CCD
1.4
1.8
16.4
[seefootnote]4
2003ElectronicACH
Retail
7.5
9.2
8.3
[see footnote]5
2003 Electronic EBT
.8
1.0
.0
2003 Total noncash
payments

80.9

Type of Payment

100.0

66.0

100.0

N
Number
umber

Change
over
period
(billions of
payments)

Value
Value

Change
Annual
over
rate of
period
change
(trillions of
(percent) [see footnote]6
dollars)

Change, 2000-2003
Check
-5.2
-4.3
Change,2000-2003Electronic 13.8
13.2
Change,2000-2003ElectronicDebit
7.3card
23.5
Change,2000-2003ElectronicDebit5.0
cardSignature
24.9
Change,2000-2003ElectronicDebit2.3
cardPIN
21.0
Change,2000-2003ElectronicCredit
3.4 card
6.7
Change,2000-2003ElectronicCredit
cardGeneral-purpose
7.3
2.9
Change,2000-2003ElectronicCredit.5
cardPrivate-label
4.4
Change,2000-2003ElectronicACH2.8
13.4
Change,2000-2003ElectronicACHCCD
.4
11.1
Change,2000-2003ElectronicACH2.4
Retail
13.8
Change,2000-2003ElectronicEBT .3
15.4
Change,2000-2003Total noncash
payments
8.6

59.1
40.9
1.0
.6
.3
2.6
2.1
.4
37.3
24.8
12.6
.0

3.8

TRENDS IN PAYMENT INSTRUMENT

Annual
rate of
change
(percent) [see footnote]6

USE

Checks

-.8
7.1
0.3
.2
.1
.4
.3
.1
6.4
3.2
3.2
.0

-.7
10.7
21.9
26.7
13.9
9.9
9.5
11.5
10.5
7.5
17.6
16.2

6.3

3.4

The total number of checks paid annually in the
United States is estimated to have declined from
41.9 billion in 2000 to 36.6 billion in 2003 (table 1).
As noted earlier, the annual rate of decline was
4.3 percent, compared with an estimated 3.3 percent
between 1995 and 2000. Although the use of checks
declined, checks remained the most commonly used
type of noncash payment in 2003.
Checks also continued to be the largest noncash
payment type by value. In fact, the value of checks
exceeded the combined value of all the other noncash

NOTE. T h e number and value of checks and ACH payments for 2000 are
revised downward from figures reported in Gerdes and Walton, ' ' T h e Use of
Checks,'' because of revisions to data and improvements in estimation. T h e
number and value of checks and ACH payments for 2003 are revised from
[footnote] 5. Although the 2004 depository institution survey collected data
figures reported in Federal Reserve System, 2004 Federal Reserve
Payments
on the number and value of ATM withdrawals, the surveys generally
Study because of improvements to the imputation procedure. See the appendix
did not collect data that could be used to estimate the number or value
for details.
of cash payments.[endoffootnote.]
[footnote] 1. Includes checks paid by depository institutions, U.S. Treasury checks, and
[footnote] 6. The number and value of checks for 2000 are revised downward
postal money orders.[endoffootnote.]
[footnote] 2. Includes the four widely accepted general-purpose credit and charge cards.
from figures reported in Gerdes and Walton, ''The Use of Checks,''
[end of footnote.]
based on revisions to earlier data by several large commercial banks.[endoffootnote.]
[footnote] 3. Includes private-label credit cards issued by oil companies and many large [footnote] 7. T h e e s t i m a t e d n u m b e r of c h e c k s p a i d i n 1 9 9 5 w a s 4 9 . 5 b i l l i o n .[endoffootnote.]
retailers and specialized charge cards for travel and entertainment.[endoffootnote.]
[footnote] 8. The value of payments made via large-value funds transfer
[footnote] 4. CCDs are cash concentration or disbursement transactions, about half of
systems was $763 trillion in 2003, much greater than the value of
which are internal corporate transfers. Retail includes all other payments.[endoffootnote.]
payments made by other types of instruments, but those payments are
[footnote] 5. Electronic benefit transfer.[endoffootnote.]
outside the scope of this article. The overall number of these transfers,
[footnote] 6. Compound annual growth rate.[endoffootnote.]

however, was 188 million in 2003, negligible compared with the
number of payments described in this study. The check collection
system is no longer used extensively for large-value funds transfers
because most such transfers are uniquely suited to the large-value
systems. [end of footnote.]

[beginningofbox]Changes in the Processing of Payments
Automation of ACH, Credit Card, and
Check Processing
Twenty-five years ago, all the major payment instruments in
use today—cash, checks, credit cards, automated clearinghouse (ACH), and debit cards—were being used in commercial activity for some segments of the U.S. economy.
Improvements in the processing of payments by cash,
check, credit cards, and A C H over the past several decades
have decreased the amount of physical processing and
increased the amount of electronic processing. Because
processing of payments has become more electronic generally, the rise in the share of noncash payments made with
so-called electronic instruments understates the extent of
the transition of the payments industry from physical to
electronic processing.
Debit card networks were originally based on automated
electronic systems that linked ATMs together, and the processing of these payments did not include a significant
physical processing component. However, the processing
of the other two types of electronic payments—ACH and
credit cards—which once included considerable physical
activity, now is wholly electronic.
The ACH system has evolved from the physical exchange
of computer tapes within and among regional associations
of depository institutions to an integrated electronic network for clearing and settlement that connects depository
institutions around the country. Similarly, credit card processing has evolved from a largely physical activity—one
in which accumulated paper transaction slips were deposited into a merchant's bank and then cleared and settled in
a process similar to the process for paper checks—to an
activity in which the availability of funds is almost always
verified in real time over an electronic network and clearing
and settlement occur electronically.
Changes that increase automated, electronic processing
within the check collection system have come relatively
slowly. Over the past twenty-five years, technology has
evolved to allow the exchange by mutual agreement of
electronic information on checks between depository insti-

payment types. The value of checks was an estimated
$39.0 trillion in 2003, compared with $39.8 trillion
in 2000, indicating an annual decline of 0.8 percent.
In constant (2003) dollars the value of checks
declined almost 3 percent annually.
The average value of checks increased slightly,
reaching $1,065 in 2003, up from $951 in 2000

tutions. Despite this capability, the collection of most
checks, in the absence of an agreement between depository
institutions, has involved extensive physical processing,
transportation, and delivery because state laws require that
the original check be presented to the paying depository
institution for settlement. However, the Check Clearing for
the 21st Century Act, Public Law 108-100 (Check 21), is
expected to facilitate use of electronics in the processing of
checks, because the original paper check is no longer necessary for settlement. Instead, when a paper check is required,
a depository institution may satisfy that requirement by
providing a special paper copy of the original check known
as a substitute check. A substitute check that meets specified standards is the legal equivalent of the original. Thus, it
is possible for depository institutions to truncate checks and
collect them electronically, but also to present paper checks
when necessary. As this article is written, seven months
after the effective date of Check 21, the use of new electronic processing methods provided for in the act is growing
only slowly. However, depository institutions are expected
to increase their use of electronic check-clearing methods
over time to further automate the check collection and
settlement process by exchanging check images. These and
other efforts will make check processing increasingly similar to the processing of other noncash payments.

Conversion of Checks
Recently, technological innovations have occurred that
allow the use of information from a check to initiate an
electronic payment. This process, known as check conversion, was typically initiated by merchants at point-of-sale
registers and by back-office transaction processors for large
billers, into payments that are processed by A C H or the
debit card networks and has contributed significantly to
the recent acceleration in the growth of electronic payments. The conversion of checks began to take hold in
the late 1990s, eventually resulting in changes to A C H
network rules and in payments regulations that govern the
practice.[endofbox.]

($1,009 in 2003 dollars). This small change in average value suggests that the use of smaller-value
checks (for amounts less than $1,000) declined more
rapidly than the use of larger-value checks. Indeed,
calculations show that at least 87 percent of the
decline in checks paid, by number, resulted from a
decline in the number of checks for less than
$1,000. The greater decline of smaller-value checks

[footnote] 9. Over the period 2000 to 2003, inflation, as measured broadly by [footnote] 10. According to a 2001 survey of checks collected, about
the implicit price deflator for gross domestic product, averaged 2 per87 percent of checks in 2000 were for amounts less than $1,000. See
cent per year.[endoffootnote.]
Gerdes and Walton, ''The Use of Checks.''[endoffootnote.]

suggests that checks involving an individual and a
business—checks written by individuals to pay businesses and by businesses to pay individuals—were
being replaced by other types of payments in substantially greater numbers than checks written by businesses to pay businesses.

Automated

Clearinghouse

(ACH)

Payments

The number of ACH payments increased from
6.1 billion in 2000 to 8.9 billion in 2003, for an
annual growth rate of 13.4 percent. The value of
ACH payments grew at a slower pace, increasing
from $18.2 trillion to $24.6 trillion, an annual growth
rate of 10.5 percent. The average value of an ACH
payment declined from $2,984 in 2000 ($3,110 in
2003 dollars) to $2,766 in 2003.
The decline in the average value of ACH payments
was due almost entirely to a decline in the value of
ACH transactions called cash concentration or disbursement (CCD) transactions. Most CCD transactions are large-value financial transfers conducted by
large corporations, and include nonpayment activity,
such as internal corporate account balance transfers. They may be made by check, but over time
they have increasingly been made over large-value
funds transfer systems. The decline in average value
may reflect movement of large-value ACH CCD
transactions to large-value funds transfer systems or a
trend toward the concentration of corporate accounts
at fewer depository institutions.
The number of retail ACH payments—ACH payments not classified as CCD payments—increased
from 5.1 billion in 2000 to 7.5 billion in 2003, for an
annual rate of growth of 13.8 percent. In both years,
retail ACH payments constituted more than 80 per-

cent of ACH payments. Such payments are comparable to certain types of recurring payments typically
made by check, such as payroll and remittance payments by businesses and remittance payments by
consumers (for example mortgage payments, bill payments to credit card accounts, and utility payments).
The average value of retail ACH payments was
$1,108 in 2003, up from $1,005 in 2000 ($1,064
in 2003 dollars). The average value increased at a
slower rate than that of checks, so that by 2003 the
average values of retail ACH payments and checks
were roughly the same.
Recently, new uses of the ACH to convert checks
to ACH payments and to make nonrecurring payments over the telephone or Internet (typically made
by credit or debit card) have contributed significantly
to the growth of ACH payments. The number of ACH
payments identified as check conversion transactions was more than 300 million in 2003 and rose
to at least 1.1 billion in 2004. The number of
ACH payments for Internet or telephone purchases
accounted for at least 600 million payments in 2003
and at least 900 million in 2004.

Debit Card

Payments

Among electronic payments, debit card transactions
grew the most in terms of number, from 8.3 billion in
2000 to 15.6 billion in 2003. The growth in debit card
payments accounted for more than half the growth in
electronic payments over the period.
Debit cards are used primarily by consumers for
everyday purchases at retail stores. Credit cards and
checks are also used for this purpose, but, with an
average value in 2003 of $40, debit card payments
were used for small-value payments more commonly
than other payment instruments except electronic
benefits transfers and, perhaps, cash.
[footnote] 11. Payments by individuals to other individuals are generallyMost debit cards can be used not only to make
made by check or cash. It is possible for individuals to pay other
payments, but also to access an ATM network by
individuals electronically, but the number of such payments was too
entering a personal identification number (PIN).
small in 2003 to have contributed significantly to the decline in the
number of small-value checks.[endoffootnote.]
Depending on the arrangements made by the deposi[footnote] 12. The number and value of ACH payments for 2000 are revised
tory institution that issues the card, payments by
from earlier figures reported in Gerdes and Walton, ''The Use of
debit card may be routed through one or more netChecks.''[endoffootnote.]
[footnote] 13. CCD payments are traditionally used by large corporations
to
works.
Payments authorized with a PIN may flow

move funds between their own accounts for internal business and
financial purposes and, as such, are of limited interest to this article.
However, results of a survey of members of the Association of
Financial Professionals (AFP), conducted by Dove Consulting and the
[footnote] 15. National Automated Clearing House Association. Figures
AFP in 2003, suggested that around half of CCDs are payments
include check conversion transactions at the point of sale, in the back
between two counterparties and not just internal transfers. The portion
offices of billers, and at ''lockbox'' services provided by depository
of the value of CCDs that represent payments between counterparties
institutions and others. The figures understate total transactions
is unknown.[endoffootnote.]
because they include only those transactions processed on an ACH
network and exclude transactions processed internally by only one
[footnote] 14. This portion of ACH transactions is considered separately
depository institution (on-us). An unknown—but likely small—
because of the mixing of nonpayment transactions with payments in
number of checks were converted to debit card network payments.[endoffootnote.]
ACH CCD transactions.[endoffootnote.]

through regional or national debit card networks.
Some debit cards may also be used to make
signature-based payments (including remote payments that the cardholder authorizes over the Internet
or telephone). Almost all such payments are routed
through networks operated by VISA or MasterCard.
Such cards, therefore, may be used in the same way
as credit cards. They have different financial characteristics, however, as they are linked to a transaction (deposit) account rather than a credit account.
The number of signature-based debit card payments almost doubled between 2000 and 2003, from
5.3 billion to 10.3 billion for an annual growth rate
of almost 25 percent. This growth accounted for most
of the increase in debit card payments. The average
value of a signature-based debit payment increased
from $40 in 2000 to $42 in 2003.
The number of debit card payments authorized
by a PIN increased from 3.0 billion in 2000 to
5.3 billion in 2003, an annual growth rate of 21 percent. Although PIN-based debit card payments had
a higher growth rate than both ACH and credit card
payments, they started from a smaller base. PINbased payments grew more slowly than signaturebased payments, accounting for less than one-third
of the growth in debit card payments from 2000 to
2003. The average value of PIN-based debit card
payments declined from $46 in 2000 ($49 in 2003
dollars) to $38 in 2003.
When a debit card is used to make a purchase and
the card user authorizes payment with a PIN, some
merchants may, on request, return part of the payment in cash, sometimes called cash back. In such
cases, the value of the payment includes both the
value of the purchase and the value of the cash
returned. Most debit card networks could not report
the value of cash back, nor could they report the
number of PIN debit payments that involved the
return of cash. The data provided by a few networks
suggest that in 2003, about 11 percent of PIN-based
debit payments involved the return of some cash to
the card user and that about 7 percent of the total
value of PIN-based debit payments was returned
to card users as cash (a corresponding 93 percent of
PIN debit value was used for purchases). For PINbased debit payments that included some cash back,
the value of the cash returned averaged about $30.
From 2000 to 2003, the increase in the average
value of signature-based debit card payments was
small ($2), indicating little change. The decline in the

average value of PIN-based debit card payments was
larger ($8), however, indicating an increasing proportion of small-value payments. How much of the
decline for PIN-based payments should be attributed
to declines in the cash-back or purchase portion of
the payments is unclear.
Changes in fees charged to card users and merchants may help to explain the greater use and faster
rise in signature-based compared with PIN-based
debit card payments. Most depository institutions do
not charge account holders for using a debit card—
among those that do, fees are much more common
for PIN-based purchases than for signature-based
purchases. The trend in fees charged to card users is
unknown. Fees charged to merchants for accepting
signature-based payments declined between 2000 and
2003, while fees for accepting PIN-based payments
increased.

Credit Card

Payments

The number of credit card payments increased from
15.6 billion in 2000 to 19.0 billion in 2003, an annual
growth rate of 6.7 percent. Among electronic payment instruments, payments by credit card grew at
the slowest rate over the period. Credit card payments have shown high rates of growth in the past,
and credit cards have been an important payment
type for decades. Growth rates are no longer influenced by the high rates of adoption that occurred in
earlier decades, however, and the overall slowdown
in growth is likely a result, in part, of the maturity of
the credit card as a payment instrument.
The tapering off of the growth in credit card payments also corresponds to the rapid rise in the use of
signature-based debit cards. Just as debit card payments may have replaced many check and cash payments, they may have replaced some credit card
payments as well.
Of the 19.0 billion credit card transactions in 2003,
3.8 billion were private-label card transactions, up
from 3.3 billion in 2000, for an annual growth rate
of 4.4 percent. Private-label credit cards, which were
in common use before general-purpose credit cards
were introduced, are the most mature type of credit
card. During the 1990s, the use of private-label credit
cards declined, in part because card users increasingly began to use general-purpose credit cards and
debit cards in their place. The recent resurgence of

[footnote] 16. Because cash back was reported as a separate aggregate, it was[footnote] 17. Board of Governors of the Federal Reserve System (2004),
not possible from the survey data to compare the average value of
Report to the Congress
on the Disclosure
of
Point-of-Sale
PIN-based debit card payments that included cash back with the
Debit
Fees (Washington: Board of Governors, November),
average value of ones that did not.[endoffootnote.]
www.federalreserve.gov/boarddocs/rptcongress/posdebit2004.pdf.[endoffootnote.]

private-label credit card payments may have been
influenced by programs that give discounts or
rewards for purchases made with the cards or by
relatively liberal credit provided by merchants to
otherwise-credit-constrained consumers.
Electronic Benefits

Transfers

The average (nominal) value of an electronic benefits
transfer (EBT) was $26 in both 2000 and 2003,
implying that the average value in 2003 dollars
declined. EBTs are used to disburse federal and state
government benefits, such as food stamp benefits.
The number of EBTs rose from 0.5 billion in 2000 to
0.8 billion in 2003, for an annual growth rate of about
15 percent. Much of the growth was due to replacement of paper food stamps. As most states have
completed conversion to EBTs, future growth is not
likely to be influenced by high rates of adoption and,
barring substantial growth in the food stamp program, is likely to taper off in the future.

The number of electronic payments per capita is
higher in the United States than in Japan and the
EMU, but lower than in the United Kingdom and
Canada. Detailed data (not shown) indicate that the
number of electronic payments per capita in some
countries of the EMU, such as Finland, Germany, and
the Netherlands, is higher than in the United States.
Similarly, the use of electronic payments may be
higher in some regions of the United States than in
others, as is discussed later.
Between 2000 and 2003, the number of electronic
payments per capita in all these economies increased,
whereas the number of checks per capita declined.
Without reliable measures of cash use, however, a
comprehensive comparison across countries of the
extent to which electronic payments have replaced all
forms of paper-based payments (mostly cash and
checks) is not possible.

PAYMENTS AND WITHDRAWALS FROM
ACCOUNTS

Payments in Other

AT DEPOSITORY

INSTITUTIONS

Countries

The 2004 depository institution survey provided
enough information to estimate the number and value
A look at noncash payments in other countries proof check payments (including money orders, cashvides some perspective on the use of checks and
iers, certified, official, travelers, rebate, and credit
electronic payments in the United States. Compared
card checks), ACH payments (credit and debit transwith other industrialized economies—Japan, the
actions), debit card payments (signature and PIN),
European Monetary Union (EMU), the United Kingand ATM withdrawals by type and size of depository
dom, and Canada—the number of checks per capita
institution (table 2). In the following discussion,
is considerably higher in the United States (chart 2).
all these means of debiting accounts are referred to
collectively as account debits. The survey collected
chart 2. N u m b e r of n o n c a s h p a y m e n t s p e r capita,
information on account debits for March and April
selected e c o n o m i e s , 2003
2004, and the estimates are expressed as annual rates
by multiplying the two-month totals by six. The data
reported here should be viewed as annualized figures
for March and April 2004, and they may not well
represent either calendar year 2003 or calendar year
[bar graph showing number per capita of checks and 2004, particularly in the case of ACH and debit card
electronic payments. Japan has about 30 electronic
payments which had high rates of growth in both
payments and about 1 check. European Monetary Union
(Includes Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxemburg,years.
The Netherlands, Portugal, and Spain.) has about 120 electronic payments
Depository institution survey estimates of the total
and 32 checks. United Kingdom has about 160 electronic
value of ACH payments reported in this section,
payments and 40 checks. Canada has about 175 electronic
payments and 40 checks. United states has about 150 however, are much greater than estimates reported for
electronic payments and 130 checks.]

SOURCES. European Central Bank, Payment and Securities Settlement Systems in the European Union, June 2004; Bank for International Settlement,
Statistics on Payment Systems in the Group of Ten Countries; and Federal
Reserve Board.

[footnote] 18. ACH payments may be credit transfers originated by a payer or
debit transfers originated by a payee. ACH payments that result in
account debits at a responding depository institution are credits originated on instructions of an account holder (payee) or debits received,
possibly from another depository institution, on instructions of a
payee.[endoffootnote.]
[footnote] 19. The average number of checks processed by the Federal
Reserve Banks in March and April is roughly equal to the average
processed in other months of the year, so the sum of March and April
is representative of other months for these checks.[endoffootnote.]

Table 2.

A n n u a l n u m b e r and v a l u e of d e b i t s to t r a n s a c t i o n a c c o u n t s held at d e p o s i t o r y i n s t i t u t i o n s

Type and size
of institution
(transaction deposits
in millions of dollars)

Checks paid
Number
(billions)
Number of
institutions

Commercial banks

Checks paid ACH payments
ACH payments
Checks paid
Average
Number A C H payments
(billions)
Value
(trillions of
dollars)

value
(dollars)

Value
(trillions of
dollars)

Average
value
(dollars)

Debit card payments
Debit card payments
Debit card payments

Number
(billions)

Value
(trillions of
dollars)

Average
value
(dollars)

6,580

29.06

36.253

1,248

9.07

84.175

9,277

12.42

.497

Commercialbanks600 and above 99
173
Commercialbanks2 0 0 - 5 9 9
Commercialbanks100-199
389
Commercialbanks0 - 9 9
5,919

19.89
2.19
1.83
5.15

29.070
2.119
1.491
3.573

1,461
967
816
694

7.54
.49
.38
.66

79.988
2.545
.590
1.053

10,607
5,149
1,561
1,594

10.33
.79
.49
.82

.418
.030
.019
.030

40
39
38
37

1,129

2.95

1.510

511

.51

2.161

4,230

2.14

.087

Savingsinstitutions600 and above 15
Savingsinstitutions2 0 0 - 5 9 9
39
52
Savingsinstitutions100-199
1,023
Savingsinstitutions0 - 9 9

1.37
.46
.25
.87

.627
.253
.140
.489

457
545
570
562

.21
.07
.04
.19

1.774
.129
.060
.199

8,591
1,741
1,492
1,044

1.49
.21
.10
.33

.061
.009
.004
.013

41
41
41
39

Credit unions

6,411

4.17

.915

219

.88

.316

358

3.45

.131

Creditunions600 and above
Creditunions2 0 0 - 5 9 9
Creditunions100-199
Creditunions0 - 9 9

3
31
80
6,297

.19
.43
.54
3.01

.050
.108
.136
.621

256
253
252
207

.05
.10
.13
.60

.021
.040
.049
.206

416
383
375
346

.25
.49
.60
2.11

.010
.019
.023
.079

38
39
39
38

14,120

36.18

38.677

1,069

10.47

86.653

8,279

18.01

.715

Savings institutions

All institutions
Type and size
of institution
(transaction deposits
in millions of dollars)

ATM withdrawals
ATM withdrawals
Total debits
Totaltodebits
transaction
to transaction
accountsaccounts
Memo
ATM withdrawals
Totaldebitstotransactionaccounts
Transaction
Number of
institutions

6,580

3.87

.345

54.43

121.270

2,228

680

4,866

8,031

Commercialbanks600 and above 99
173
Commercialbanks2 0 0 - 5 9 9
Commercialbanks100-199
389
Commercialbanks0 - 9 9
5,919

3.11
.25
.17
.34

.291
.019
.013
.023

93
75
73
69

40.87
3.72
2.87
6.97

109.766
4.713
2.112
4.679

2,686
1,268
736
671

409
55
53
163

3,155
409
289
1,013

5,445
709
403
1,474

1,129

.71

.058

6.32

3.815

604

135

800

1,332

Savingsinstitutions600 and above 15
Savingsinstitutions2 0 0 - 5 9 9
39
52
Savingsinstitutions100-199
1,023
Savingsinstitutions0 - 9 9

.40
.10
.06
.15

.038
.007
.004
.010

93
73
63
63

3.48
.85
.45
1.55

2.499
.397
.208
.711

719
469
467
460

89
13
7
25

325
122
63
289

608
207
101
416

Savings institutions

Average
value
(dollars)

Memo Total
assets
(billions of
dollars)

Value
(trillions of
dollars)

Number
(billions)

Value
(trillions of
dollars)

Total
deposits
(billions of
dollars)

Number
(billions)

Commercial banks

Average
value
(dollars)

Memo

deposits
(billions of
dollars)

Credit unions

6,411

1.29

.094

9.79

1.455

149

540

623

Creditunions600 and above
Creditunions2 0 0 - 5 9 9
Creditunions100-199
Creditunions0 - 9 9

3
31
80
6,297

.10
.17
.20
.83

.008
.013
.015
.057

79
79
78
69

.60
1.19
1.47
6.54

.089
.180
.224
.963

148
152
152
147

5
9
11
45

32
65
80
363

38
75
93
417

14,120

5.87

.497

70.53

126.541

1,794

885

6,205

9,985

All institutions

NOTE. Annualized figures based on survey data for March 2004 and April
2004. Excludes institutions that had no transaction deposits. The number and
value of debits are revised from figures reported in Federal Reserve System,

2004 Federal Reserve Payments Study because of improvements to the imputation procedure. See the appendix for details.

2003 and much greater than growth rates would
imply (table 1). Some of the large commercial banks
that responded to the 2004 depository institution
survey had difficulty distinguishing ACH payments
from other (large-value) funds transfers called offset
entries. The 2003 estimates of ACH value are

believed to be more accurate because they are based,
in large part, on aggregate values reported by the
ACH operators.
Shares of Account Debits among Depository
Institutions, by Type and Size of Institution

Depository institutions are grouped into three types
[footnote] 20. The difficulty in separating offset entries from ACH payments
is due to use of a shared platform to process both, a common practice
(commercial banks, savings institutions, and credit
of some of the largest depository institutions. The difficulty, which
unions)
and, within each type, into four categories
involves a small number of very large-value entries, did not substanaccording to size: largest, large, medium, and small.
tially affect the estimates of the number of ACH payments. See the
appendix for more information.[endoffootnote.]
The largest depository institutions (those with trans-

action deposits of $600 million or above) accounted
for the majority of account debits (table 3). This
group of 117 institutions (99 commercial banks,
15 savings institutions, and 3 credit unions) represents fewer than 1 percent of the 14,120 depository
institutions that had transaction deposits during the
survey period, yet these institutions held 57 percent
of transaction deposits, and accounted for 64 percent of account debits by number and 89 percent
by value. Moreover, the largest depository institutions accounted for most of the debits of each type
(check, ACH, debit card, or ATM withdrawal), by
both number and value. The debit type for which this
group had the largest share by number was ACH
payments (a little less than 75 percent), and the smallest share by number was checks (almost 60 percent).
The average value of account debits varied with
depository institution size. For ACH payments in
particular, a substantial amount of value was concentrated at the largest commercial banks (table 2). The
greater average value of ACH payments at the largest
banks was due, in part, to the exceptionally high
values reported by some banks, as noted above, but
the average value of checks was also considerably
greater at these largest banks. Generally, the increase
in the average value of ACH payments and checks
with increasing size of commercial banks appears to
have been driven by the greater presence of large

Table 3.

business customers at larger commercial banks.
Larger commercial banks are more likely to have
large corporations as customers, and these customers
are more likely to make larger-value payments by
check or ACH.
Savings institutions appear to have lower proportions of business customers than commercial banks,
shown by the lower average values of their check and
ACH payments. The average value of ACH payments
was substantially greater at the largest savings institutions, compared with the large savings institutions
while the average value of checks was smaller.
Credit unions, which generally do not handle transaction accounts for businesses, had the lowest average values of check and ACH payments. They did not
show material increases in the average value of check
payments with increasing institution size. However,
they did show increases in the average value of ACH
payments with increasing size.

[footnote] 21. We estimate that in 2000 the average value of checks
written by individuals was about $350 and by businesses, $1,700.
These are the authors' estimates based on a study in which individual checks that could be classified were sorted by payer.
See Federal Reserve System (2002), Retail Payment Research
Project: A Snapshot of the U.S. Retail Payment Landscape, Federal
Reserve System Study, pp. 12-14, www.frbservices.org/Retail/pdf/
RetailPaymentsResearchProject.pdf.[endoffootnote.]

Distribution of debits to transaction accounts among depository institutions, by number and value

Percent
Type and size
of institution
(transaction
deposits
in millions
of dollars)

Commercial

Distribution
of
institutions,
by
number
banks
46.6

Checks paid
Checks paid

ACH payments
ACH payments

Value

Value
Number

Number

ATM withdrawals
DebittDebit
card card
ATM withdrawals
payments
payments

Total debits
Memo
Total
debits
to transaction
Transaction
to transaction
accountsdeposits
accounts

Memo

Memo
Total
assets

Value
Number

Value

Number

Total
deposits

Value

80.3

93.7

86.7

97.1

69.0

69.6

65.9

69.5

77.2

95.8

76.9

78.4

80.4

55.0
6.1
5.0
14.2

75.2
5.5
3.9
9.2

72.0
4.7
3.6
6.3

92.3
2.9
.7
1.2

57.3
4.4
2.7
4.5

58.4
4.3
2.6
4.2

53.0
4.2
3.0
5.8

58.5
3.7
2.6
4.7

57.9
5.3
4.1
9.9

86.7
3.7
1.7
3.7

46.2
6.2
6.0
18.5

50.8
6.6
4.7
16.3

54.5
7.1
4.0
14.8

8.2

3.9

4.9

2.5

11.9

12.1

11.6

9.0

3.0

15.3

12.9

13.3

3.8
1.3
.7
2.4

1.6
.7
.4
1.3

2.0
.7
.4
1.8

2.0
.1
.1
.2

8.3
1.2
.6
1.8

8.5
1.2
.6
1.8

6.9
1.6
1.0
2.6

7.6
1.4
.7
2.0

4.9
1.2
.6
2.2

2.0
.3
.2
.6

10.1
1.5
.8
2.8

5.2
2.0
1.0
4.7

6.1
2.1
1.0
4.2

45.4

11.5

2.4

8.4

19.1

18.3

22.0

18.8

13.9

1.2

7.8

8.7

6.2

Creditunions600 and above .0
.2
Creditunions200-599
.6
Creditunions100-199
44.6
Creditunions0 - 9 9

.5
1.2
1.5
8.3

.1
.3
.4
1.6

.5
1.0
1.2
5.7

.0
.0
.1
.2

1.4
2.7
3.3
11.7

1.4
2.6
3.3
11.1

1.7
2.8
3.3
14.2

1.6
2.6
3.1
11.6

.8
1.7
2.1
9.3

.1
.1
.2
.8

.5
1.0
1.2
5.1

.5
1.0
1.3
5.9

.4
.7
.9
4.2

100.0

Commercialbanks600 and above
.7
1.2
Commercialbanks200-599
2.8
Commercialbanks100-199
Commercialbanks0 - 9 9 41.9
Savings

institutions

8.0

Savingsinstitutions600 and above
.1
Savingsinstitutions200-599.3
Savingsinstitutions100-199.4
Savingsinstitutions0 - 9 9 7.2
Credit unions

All institutions

100.0

NOTE. See general note to table 2.

Distribution of Depository
Institutions'
Account Debits, by Type and Size of Institution
Overall, about 51 percent of account debits were
made by check, 15 percent were ACH payments,
26 percent were debit card payments, and 8 percent
were cash withdrawals from ATMs (table 4). The
distribution of account debits, by number, at commercial banks differed markedly from the distributions
at savings institutions and credit unions.
The proportion of checks at commercial banks was
about 53 percent, compared with 47 percent at savings institutions and 43 percent at credit unions. For
commercial banks, the proportion of checks declined
noticeably with increasing size. The proportion at
small banks (those with less than $100 million in
deposits) was about 74 percent, and at the largest
banks, 49 percent. The proportion of checks also
declined with increasing size at savings institutions
and credit unions. The proportion of checks may be
smaller at larger depository institutions because they
provide (and perhaps encourage) greater use of ACH
and debit cards. Larger depository institutions may
also serve more sophisticated customers, including
large businesses, that may be more willing or able
to take advantage of cost savings or other benefits
afforded by other types of payment.
For commercial banks, the proportion of ACH
payments by number increased with increasing size,
[footnote] 22. These figures do not represent percentages in total
payments primarily because debits to deposit accounts include ATM
withdrawals and do not include credit card payments.[endoffootnote.]

Table 4.

the reverse of the relationship for checks, and payments at larger banks were more likely to be made
via ACH. The greater proportion of ACH payments
at the largest banks may have had much to do with
greater use of ACH by large corporate account holders. The proportion of ACH payments, by number,
did not increase with increasing size at savings institutions and credit unions; it was generally flat across
size categories for credit unions, and it declined with
increasing size for savings institutions.
Debit card payments and ATM withdrawals are
made primarily by individuals—and as a proportion
of debits, are more prevalent at credit unions, because
generally these institutions do not have large business
customers. About 35 percent of payments at credit
unions and 34 percent of payments at savings institutions were made by debit card. In contrast, the proportion of debit card payments for commercial banks,
which as a category have more business customers,
was smaller, at 23 percent. Similarly, the proportion
of ATM withdrawals was greater for savings institutions and credit unions—11 percent and 13 percent,
respectively, compared with 7 percent for commercial banks.
Overall, as estimated from the 2004 depository
institution survey, signature-based debit card payments, at 11.7 billion, were almost twice as common
as PIN-based debit card payments, at 6.3 billion. The
ratio of signature-based to PIN-based debit card
payments was roughly similar across institutions of
noncash
different types and sizes, indicating that use of signature and PIN authorization for debit card purchases

Distribution of debits to transaction accounts at depository institutions, by number and value

Percent
Type and size
of institution
(transaction deposits
in millions of dollars)

Checks
Checks paid paid

Total debits to
Totaldebitstotransaction accounts
payments
cardpayments
ATM withdrawals
ACH payments
ACH payments Debit card Debit
ATM withdrawals
transaction accounts

Number

Value

Number

Value

Number

Value

Number

Value

Commercial banks

53.4

29.9

16.7

69.4

22.8

7.1

100.0

600 and above
200-599
100-199
0-99

48.7
58.9
63.6
73.9

26.5
45.0
70.6
76.4

18.5
13.3
13.2
9.5

72.9
54.0
27.9
22.5

25.3
21.1
17.1
11.8

.4
.6
.9
.6

7.6
6.6
6.1
4.8

.3
.4
.6
.5

100.0
100.0
100.0
100.0

Savings institutions

46.8

39.6

8.1

56.6

33.9

600 and above
200-599
100-199
0-99

39.5
54.9
55.2
56.3

25.1
63.7
67.4
68.9

5.9
8.7
9.1
12.3

71.0
32.4
28.9
27.9

42.9
25.2
23.2
21.5

2.3

11.2

1.5

100.0

2.4
2.2
2.0
1.8

11.6
11.2
12.6
10.0

1.5
1.7
1.7
1.4

100.0
100.0
100.0
100.0

Number

Value

Credit unions

42.6

62.8

9.0

21.7

35.2

9.0

13.2

6.4

100.0

600 and above
200-599
100-199
0-99

32.6
36.0
36.9
45.9

56.2
60.0
60.9
64.4

8.6
8.8
8.9
9.1

24.0
22.3
21.8
21.4

42.3
41.2
40.9
32.2

10.9
10.5
10.4
8.2

16.5
14.0
13.4
12.7

8.8
7.3
6.9
6.0

100.0
100.0
100.0
100.0

All institutions

51.3

30.6

14.8

68.5

25.5

8.3

100.0

NOTE. See general note to table 2.

does not vary with the size or type of institution.
Although the ratio of signature to PIN debits did not
vary with size or type, there was substantial variation
among responding institutions. (Figures referred to in
this paragraph are not shown in the tables.)
Variation in the use of signature-based and PINbased debit card payments from institution to institution reflects card user preferences but can be
influenced by incentives to use one or the other
authorization method offered by either merchants or
depository institutions. Merchants, for example, may
or may not accept both authorization methods, or
may limit acceptance of cards to certain purchase
values or to certain products. Card associations or
depository institutions may offer more benefits to
users that authorize debit card payments with a signature. In 2003, per-transaction fees charged to merchants generally increased with the value of the payment for signature-based debit card payments but
were generally fixed for PIN-based payments. Some
depository institutions charge their customers fees for
their debit card purchases authorized with a PIN
Depository institutions and card associations also
offer benefits to customers who authorize with a
signature.

"On Us"

Payments

The proportions of account debits that are on-us—
that is, those that involve only one depository
institution—are interesting because clearing and
settlement of such payments occur internally at the
depository institution and, therefore many of the costs
associated with coordinating payments with other
depository institutions are not incurred. For example, when a check needs to be collected from another
depository institution, float cost and risk-reduction
incentives lead depository institutions to use fast and
costly transportation channels to expedite check presentment and collection. Float costs and some risks
are absent when a check is on-us, allowing depository institutions to avoid expensive transportation
channels.
Commercial banks as a group generally had the
highest proportion of on-us account debits, by number and value, while credit unions had the lowest

proportion (table 5). Banks with both businesses
and consumers as customers are more likely to have
on-us payments. About 13 percent of checks collected in 2000 were from one individual to another.
Thus, 87 percent involved a business or government.
The relatively high proportions of on-us check and
ACH payments at commercial banks were influenced by these institutions' larger share of business
customers.
Overall, 23 percent of checks paid were on-us,
about 4 percentage points lower than the estimate
from the 2001 depository institution survey. The
on-us proportion declined for all types of institution,
but the proportion reported by credit unions declined
considerably—from an estimated 6 percent in 2000
to 2 percent in 2003. The decline in the proportion of
on-us checks could be one consequence of a possible
decline in the cashing of personal checks as a means
of obtaining cash at a teller window in an individual' s
own depository institution (discussed later). However, some evidence suggests that respondents
reported more accurate on-us figures in the 2004
survey, implying that estimates of the proportion of
on-us payments from the 2001 survey may have been
too large.
The proportion of on-us ACH payments in terms
of value was notably larger for the largest commercial banks and savings institutions than for their
smaller counterparts. The larger proportions appear
to have resulted from data reported by some very
large depository institutions that apparently generate
a significantly larger share of large-value on-us ACH
payments than other similarly sized institutions. As
noted earlier, some of the reported ACH payments
also included large-dollar account entries, called offset entries, conducted for internal account-balancing
and settlement purposes. Institutions that had problems distinguishing offset entries appear to have overestimated the value of both on-us and interbank ACH
payments.
The largest proportions of on-us account debits,
both by number and value, were for ATM withdrawals except by value for large savings institutions.
Most of the other types of account debits involve
payments to other parties, who choose the depository
institution in which to deposit funds. In the case of
ATM withdrawals, the account holder plays the role
of payee and payer, choosing the depository institu-

[footnote] 23. Board of Governors of the Federal Reserve System, Point-ofSale Debit Fees.[endoffootnote.]
[footnote] 24. For checks and ACH payments, ''on us'' means that the payer
[footnote] 2 5 . F e d e r a l R e s e r v e S y s t e m , Retail Payment
Research
Project.[endoffootnote.]
and the payee use the same depository institution. For ATMs, the term
[footnote] 26. The survey definition of ''on-us'' focuses on both the payer and
means that the withdrawal occurred at a proprietary ATM (owned by
the payee. It appears that some depository institutions interpreted the
the account holder's depository institution). Data on on-us debit card
term to mean any check the depository institution is responsible for
payments were not collected. On-us account debits plus interbank
paying. Respondents may have become more familiar with the survey
account debits sum to total account debits.[endoffootnote.]
definition of on-us over time.[endoffootnote.]

Table 5.

Proportion of selected debits to transaction accounts at depository institutions that were on-us, by number and value

Percent
Type and size
of institution
(transaction deposits
in millions of dollars)

Checks paid
Checks paid

ACH payments
ACH payments

ATM withdrawals
ATM withdrawals

Value

Number

Value

Number

Commercial banks

26.9

32.4

21.9

42.1

67.9

Commercialbanks600 and above
Commercialbanks2 0 0 - 5 9 9
Commercialbanks100-199
Commercialbanks0 - 9 9

28.7
20.7
21.5
24.5

32.8
27.5
32.6
31.5

24.8
13.0
5.2
5.3

42.9
33.9
16.8
17.4

Savings institutions

10.9

19.1

6.7

Savingsinstitutions600 and above
Savingsinstitutions2 0 0 - 5 9 9
Savingsinstitutions100-199
Savingsinstitutions0 - 9 9

11.4
9.4
11.6
10.6

21.8
16.0
18.8
17.4

Credit unions

2.4

Creditunions600 and above
Creditunions2 0 0 - 5 9 9
Creditunions100-199
Creditunions0 - 9 9

.6
2.3
2.7
2.5
22.8

All institutions

Total debits to
to
Totaldebits
transaction
accounts
transaction accounts
Number

Value

69.4

29.6

39.3

70.4
63.2
60.7
52.6

71.7
60.8
62.1
51.3

32.0
23.0
21.8
23.9

40.3
31.1
28.3
28.4

68.1

54.1

57.5

17.8

48.4

10.8
4.8
4.8
3.5

79.2
22.9
19.8
12.2

57.4
53.7
49.9
47.2

57.7
59.3
59.6
54.9

20.7
15.6
17.3
14.2

64.4
19.1
19.8
16.4

4.4

1.7

4.3

37.0

38.6

9.4

6.8

1.6
3.8
4.3
4.7

.3
2.3
2.8
1.6

2.0
6.5
7.7
3.4

52.9
46.3
44.2
31.6

41.7
44.0
44.7
35.4

15.5
12.8
12.1
7.8

5.7
7.7
8.2
6.4

31.2

19.5

42.7

59.5

62.2

26.2

39.2

Number

NOTE. See general note to table 2.

tion in both cases. Not surprisingly, therefore, these
payments are more likely to be on-us. For commercial banks, 68 percent of ATM withdrawals are on-us
(69 percent by value), much higher than their on-us
shares for other types of account debits. Commercial
banks also generally have the largest networks of
ATMs. Even credit unions, which own relatively
few ATMs and for which the on-us shares for check
and ACH payments were negligible, as a group had
an on-us share for ATM withdrawals of 37 percent
(39 percent by value). The larger on-us shares for
ATM withdrawals also appear to reflect account
holder avoidance of the fees commonly charged for
using an ATM owned by another depository institution or other company (nonproprietary ATM).

Regional

which collected data sufficient to study regional
variation in the use of checks but not in the use of
other types of account debits.

Variation by Geographic Division
Estimates of account debits were constructed for each
region after allocating depository institution data to
regions according to the location of their branches.
These regional estimates, along with other regional
data, provided the basis for comparing the use of
payments in different regions of the country.
The estimate for checks as a proportion of total
account debits at depository institutions ranged from
a low of 46 percent in the West to a high of 55 percent in the Midwest. By value, the shares of checks

Variation

Estimates of the number and value of account debits
by region are useful because they may help identify
the ways in which differences in regional characteristics may influence the use of payment instruments.
The 2004 depository institution survey yielded
enough information to estimate the number and value
of debits to accounts located in the four geographic
divisions of the United States defined by the U.S.
Census Bureau: Northeast, South, Midwest, and West
(table 6). Estimation of debits from accounts in urban
and rural locations was also possible (table 7). The
2004 survey gives a much clearer picture of the ways
payment use differs by region than earlier surveys,

[footnote] 27. As no region-specific data were collected from multiregion
depository institutions, it was necessary to make an assumption about
the way payments were allocated within responding multiregion
depository institutions. For commercial banks and savings institutions, data on the regional distribution of deposits were available,
so account debits at these institutions were allocated to regions in
proportion to their deposits. For credit unions, account debits were
allocated to regions according to the distribution of their branches. See
the appendix for a discussion of the method used and assumptions
required to allocate the figures for multiregion depository institutions
to regions.[endoffootnote.]
[footnote] 28. A preliminary multivariate statistical analysis that controlled
for other factors correlated with depository institutions' share of
checks in total reported account debits, by number, including depository institution size and type, showed that the greater share of checks
for institutions in the Midwest is significantly different (in the statistical sense) from the shares in other regions.[endoffootnote.]

appear to cluster into two groups: The West and
Midwest had the lowest proportions, at 20 percent
and 25 percent, respectively, and the South and
Northeast had the highest proportions, at 41 percent and 40 percent respectively. The average
value of checks was lowest in the West ($923) and
highest in the Northeast ($1,355). One explanation
for the high value of checks in the Northeast may
be that use of a special type of corporate checking
account—the controlled-disbursement account—is
concentrated in this region.
The regions are not equal in population. One way
to put them on a comparable basis is to express the
figures in terms of number or value per capita. The
annual number of account debits per capita ranged
from a low of 231 in the South to a high of 262 in the
Midwest. The annual number of checks per capita
was lowest in the West, at 110, and highest in the
Midwest, at 144. The value of checks per capita was
also lowest in the West, but it was highest in the
Northeast.
The regions also vary by amount of economic
output (defined as the sum of gross state output for
the states in each region) and can be put on a comparable basis by expressing the figures in terms of
number or value of account debits per $1,000 of
economic output. The annual number of account debits per $1,000 of regional output ranged from 5.9 in
the Northeast to 7.2 in the Midwest. The number of
checks per $1,000 of economic output was lowest in
the West, at 2.8 and highest in the Midwest, at 3.9.
The value of checks per $1,000 of economic output
was also lowest in the West, at $2,618, but was
highest the Northeast, at $4,042.
Debit card payments accounted for 33 percent of
account debits by number in the West, compared with
a range of 21 percent to 25 percent in the other
regions. The proportion of debit card payments by
value in the West was driven down by the extremely
high value for ACH payments. The annual number
and value of debit card payments per capita in the
West, however, highlights the more prevalent use of
debit cards in that region. The West had about 79
debit card payments per capita; the South and Mid-

west were well behind at 59. The Northeast, at 51
debit card payments per capita, showed the lowest
use, only 65 percent of the per capita figure in the
West. Depository institutions in the West began offering debit card payments earlier than those in other
regions, providing one explanation for the high debit
card use in the West compared with other regions.
Evidence from a different study also suggests that
fees charged to cardholders for PIN debit use are
least prevalent in the West and most prevalent in the
Northeast.
The average value of a debit card payment was
$45 in the Northeast, compared with $39 in the other
regions. The reason for the difference is unknown,
but it could be that there were more cash-back transactions or a larger proportion of higher-value debit
payments in the Northeast.
The annual number of ATM withdrawals per capita
was highest in the Northeast, at 24, and lowest in the
South, at 18. The average value of ATM withdrawals
was highest in the Northeast, at $93, and lowest in
the Midwest and South, at $78 and $79 respectively.
The ATM data suggest that cash is used relatively
more frequently in the Northeast, but individuals in
other regions may obtain cash through other means,
such as by writing checks, making debit card purchases with a PIN for cash back, or obtaining cash
directly from a teller at a local depository institution
branch.
Although data on ATM withdrawals provide indirect evidence of cash use, data on frequency and
value of cash payments would better contribute to our
understanding of which payment types are preferred
in the different regions. The other important payment
type missing from the regional analysis, of course, is
credit card payments. Although the data presented
here provide the most comprehensive and detailed
information to date on the regional distribution of
payments, evidence on payment use across regions
remains incomplete because of the lack of cash payment and credit card payment data by region.

Urban and Rural Variation
The total number and value of payments were much

[footnote] 29. One important caveat to the comparison of check shares by
smaller for rural areas than for urban areas, reflecting
value is that the two institutions that reported the highest ACH values,
much higher than other institutions of similar size, operated in the
West and Midwest and likely contributed substantially to the low
share of value for checks. Thus, the comparison of shares by value is
[footnote] 31. While estimates for subregions are too unreliable to report in
sensitive to errors in reporting ACH payments, whereas the share by
detail, they show that the Pacific region (Alaska, California, Hawaii,
number and other results reported in this section are not.[endoffootnote.]
Oregon, and Washington) had the highest use of debit cards per capita
in the United States and the Middle Atlantic region (New York, New
[footnote] 30. Note that per capita figures are based on the entire population
Jersey, and Pennsylvania) had the lowest.[endoffootnote.]
and include all payments, not just those made by individuals. Thus,
figures do not represent averages of adult individuals or heads of
[footnote] 32. Board of Governors, Point-of-Sale Debit Fees, p. 16 and p. 17,
household.[endoffootnote.]
table 3.[endoffootnote.]

Table 6.

Annual number and value of debits to transaction accounts at depository institutions, by geographic region

Item

Northeast
Northeast
Northeast
South
MultiAll
region
institutions
Single
South MultiSingle
region
region
region

Midwest
South All Midwest MultiSingle
institutions
region
region

West
Midwest All West MultiSingle
institutions
region
region

West All
institutions

Number (billions)

8.7

4.8

13.4

11.1

13.1

24.2

8.6

17.2

7.6

8.1

15.8

Number(billions)Checks
Number(billions)ACH
Number(billions)Debit card
Number(billions)ATM

4.3
1.9
1.7
.8

2.5
.6
1.1
.6

6.8
2.5
2.8
1.3

5.2
2.0
3.0
.9

7.5
1.5
3.1
1.0

12.7
3.5
6.1
1.9

4.0
1.7
2.2
.6

5.4
.9
1.6
.6

9.4
2.6
3.9
1.3

3.3
1.2
2.5
.7

3.9
.7
2.8
.7

7.3
1.8
5.3
1.4

18.87

4.27

23.15

21.89

10.75

32.64

31.68

5.79

37.47

25.29

7.99

33.29

Value(trillionsofdollars)Checks 7.18
Value(trillionsofdollars)ACH 11.54
Value(trillionsofdollars)Debit card
.08
Value(trillionsofdollars)ATM .08

2.07
2.10
.05
.05

9.25
13.64
.13
.12

7.30
14.39
.12
.08

5.94
4.63
.11
.07

13.23
19.02
.24
.15

6.07
25.48
.09
.05

3.40
2.28
.06
.05

9.47
27.75
.15
.10

3.92
21.21
.10
.06

2.8
5.02
.11
.06

6.72
26.23
.20
.12

100.0

52.3
12.4
23.6
11.7

50.8
18.6
20.7
9.9

46.8
18.0
27.5
7.8

57.2
11.7
23.5
7.7

52.4
14.6
25.3
7.7

46.8
19.8
25.9
7.5

62.7
10.7
19.1
7.5

54.8
15.3
22.5
7.5

43.8
15.2
32.3
8.7

48.5
8.2
34.4
9.0

46.2
11.6
33.4
8.9

100.0

48.5
49.3
1.2
1.1

40.0
58.9
.5
.5

33.3
65.8
.6
.4

55.2
43.1
1.1
.6

40.5
58.3
.7
.5

19.2
80.4
.3
.2

58.7
39.4
1.1
.8

25.3
74.1
.4
.3

15.5
83.9
.4
.2

35.0
62.8
1.4
.8

20.2
78.8
.6
.4

159

247

106

125

231

131

262

115

122

237

80
35
30
14

46
11
21
10

126
46
51
24

50
19
29
8

72
15
29
10

121
34
59
18

61
26
34
10

82
14
25
10

144
40
59
20

50
17
37
10

59
10
42
11

110
27
79
21

78,487

425,266

209,466

102,828

312,294

484,242

88,438

572,681

380,660

120,306

500,965

38,085
38,656
916
830

170,018
250,675
2,298
2,275

69,831
137,725
1,160
750

56,796
44,272
1,095
665

126,626
181,997
2,256
1,415

92,752
389,360
1,319
812

51,923
34,827
961
727

144,675
424,187
2,280
1,539

59,018
319,260
1,449
933

42,164
75,571
1,634
937

101,182
394,830
3,082
1,870

2,178

894

1,722

1,974

821

1,349

3,693

675

2,185

3,309

985

2,113

Average(dollars)Checks
1,658
Average(dollars)ACH
6,031
Average(dollars)Debit card
46
Average(dollars)ATM
102

829
3,565
44
81

1,355
5,450
45
93

1,407
7,211
40
91

792
3,028
37
69

1,044
5,397
39
79

1,511
14,972
39
83

632
2,486
38
74

1,008
10,601
39
78

1,171
18,319
39
93

713
7,578
39
85

923
14,410
39
89

Value (trillions
of dollars)

Distribution by
number
(percent)
100.0
Distribution by
number
50.0
(percent)
Distribution
by Checks
22.1
numberby
Distribution
19.1
(percent) ACH
number
Distribution
by
8.9
(percent)
number Debit card
(percent) ATM
Distribution by
value
(percent)
100.0

Distribution by
value
Distribution
by
(percent) Checks
value
Distribution
by
value
Distribution
(percent) ACH
by
value
(percent) Debit card
(percent) ATM
Number
per
capita
NumberpercapitaChecks
NumberpercapitaACH
NumberpercapitaDebit card
NumberpercapitaATM

38.0
61.1
.4
.4

NumberpercapitaValue per capita
(dollars)
346,779
Number per capita Value per capita
(dollars) Checks 131,933
Number per capita Value per
capita
212,018
(dollars)
ACH
Number
per capita
Value per capita
1,382
(dollars)
Debit
card
Number
per capita
Value
per capita
1,445
(dollars) ATM
Average (dollars)

the smaller population and lower economic output in
rural areas (table 7). The relative use of checks was
lower and the relative use of electronic debits was
higher in urban areas. The proportion of checks, by
number, was 60 percent in rural areas and 49 percent
in urban areas. The proportions of ACH and debit
card payments and ATM withdrawals, by number,
were all higher in urban areas, with debit card payments having the largest difference in share—27 percent in urban areas, compared with 21 percent in
rural areas.

[footnote] 33. Note that rural areas include some areas surrounding
[end of footnote.]

Generally, the number and value of payments per
capita were higher in urban areas, reflecting the
greater amount of wealth and business activity in
those areas.
Comparison with Earlier Findings
The annual number of check payments declined in
all divisions between the 2001 and 2004 depository
institution surveys. The most pronounced changes
occurred in the South and West, with declines of
32 and 29 checks per capita, respectively, compared
with 25 checks per capita in the Midwest. The decline
was by far the smallest in the Northeast, at only
cities.7 checks per capita.

Table 6.—Continued
Item

Number per $1,000
of output
Number per $1,000
ofoutputChecks
Number per $1,000
ofoutput
ACH
Number
per
$1,000
ofoutput
Debit card
Number
per $1,000
of output ATM

Northeast
Northeast
South
Multiregion
Single
Northeast AllSouth MultiSingle
region
institutions
region
region

West
Midwest All West MultiSingle
institutions
region
region

West All
institutions

3.8

2.1

5.9

3.0

3.6

6.6

3.6

7.2

3.0

3.2

6.1

1.9
.8
.7
.3

1.1
.3
.5
.2

3.0
1.1
1.2
.6

1.4
.5
.8
.2

2.0
.4
.8
.3

3.5
1.0
1.7
.5

1.7
.7
.9
.3

2.2
.4
.7
.3

3.9
1.1
1.6
.5

1.3
.5
1.0
.3

1.5
.3
1.1
.3

2.8
.7
2.0
.5

1,866

10,111

5,987

2,939

8,925

13,216

2,414

15,629

9,850

3,113

12,963

906
919
22
20

4,042
5,960
55
54

1,996
3,936
33
21

1,623
1,265
31
19

3,619
5,201
64
40

2,531
10,626
36
22

1,417
950
26
20

3,948
11,577
62
42

1,527
8,261
37
24

1,091
1,956
42
24

2,618
10,217
80
48

62.0

71.5

109.8

71.2

84.9

126.2

68.0

88.4

125.3

54.8

75.4

32.5
7.7
14.6
7.3

36.3
13.3
14.8
7.1

51.3
19.8
30.2
8.5

40.7
8.3
16.7
5.5

44.5
12.4
21.5
6.5

59.1
25.0
32.6
9.4

42.7
7.3
13.0
5.1

48.4
13.5
19.9
6.6

54.9
19.0
40.5
10.9

26.6
4.5
18.8
4.9

34.8
8.7
25.2
6.7

55,477

123,115

216,762

58,409

114,527

465,933

45,924

193,144

414,622

54,009

159,260

26,920
27,324
647
587

49,220
72,571
665
659

72,263
142,522
1,201
776

32,262
25,148
622
378

46,437
66,744
827
519

89,245
374,638
1,269
781

26,963
18,085
499
378

48,793
143,062
769
519

64,283
347,744
1,578
1,017

18,929
33,926
733
421

32,166
125,519
980
595

. 2,096
..
...

2,229

. 248
..
...

4,540

...
...

4,788

. 186
..
...

5,007

5,193

. 155
..
...

1,960

Value per $1,000
of output
(dollars)
8,245
Value per $1,000
of output
3,137
(dollars)
Value per
Checks
$1,000
5,041
of output
Value per $1,000
33
(dollars)
ACH
output
Valueof
per
$1,000
34
(dollars)
of output Debit card
(dollars)
ATM
Number-todeposits
ratio [see footnote]1
78.1
Number-todeposits
39.0
Number-toratio[seefootnote]1Checks 17.2
deposits
Number-to[seefootnote]1
14.9
ratio
ACH
deposits
Number-toratio[seefootnote]1Debit card 6.9
deposits
ratio[seefootnote]1ATM
Value-to-deposits
ratio [see footnote]2
170,035
Value-to-deposits
[seefootnote]2
ratio
Checks64,690
Value-to-deposits
103,958
ratio[seefootnote]2ACH
Value-to-deposits
678
ratio[seefootnote]2Debit card
Value-to-deposits
709
[seefootnote]2
ratio
ATM
Number of
institutions
Population
(millions)
Output (billions of
dollars) [see footnote]3
Transaction
deposits
(billions of
dollars)

Midwest
Midwest
Multiregion
South All
Single
institutions
region

.133
..
...

54.4
2,289

111

188

104.5

...
...

3,657

101

184

285

65.4

...
...

2,397

126

194

2,115
66.4
2,568

148

209

NOTE. Annualized figures based on survey data for March 2004 and April
2004. Multiregion institutions are those that have deposits in more than one
region; single-region institutions have deposits in only one region. The Northeast region includes Connecticut, Maine, Massachusetts, New Hampshire, New
Jersey, New York, Pennsylvania, Rhode Island, and Vermont. The South region
includes Alabama, Arkansas, Delaware, the District of Columbia, Florida,
Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, and West Virginia. T h e
Midwest region includes Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota,

Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin. The
West region includes Alaska, Arizona, California, Colorado, Hawaii, Idaho,
Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming.
[footnote] 1. Annual number of debits per $1,000 of transaction deposits.[endoffootnote.]
[footnote] 2. Annual value of debits per $1,000 of transaction deposits.[endoffootnote.]
[footnote] 3. Output is measured as the sum of the gross state products in the region.
[end of footnote.]
SOURCES. Federal Reserve; and Department of Commerce, Bureau of
and Bureau of the Census.

Recall that in the 2004 survey, the number of debit
card payments per capita was considerably lower
in the Northeast than in other regions and that ATM
withdrawals were higher. These findings suggest that
the Northeast has lagged other regions in the replacement of checks (and cash) with debit card payments
and that the declines in checks in the other regions
were being led by a replacement of checks written
by individuals rather than businesses. The number of
checks per capita also declined more in rural areas
than in urban areas, 34 checks per capita compared
with 23, suggesting that the replacement of checks
with other payment types happened with greater frequency in rural areas.

Returned Check and ACH

Payments

Some checks that are presented for payment are
returned unpaid because of insufficient funds, closed
accounts, fraud, or other reasons. The same is true for
ACH payments.

[footnote] 34. Credit card and debit card payments also may fail because of
credit limits or insufficient funds, closed accounts, disputes, or fraud.
Because most of these types of payments are approved in real time
and are not returned in the same sense as checks and ACH payments,
they are outside the scope of this discussion.[endoffootnote.]

Economic

Table 7. Annual number and value of debits to transaction accountsReturned
at depository institutions, in urban and rural areas
Item

Urban

Rural

Total

Number (billions)

58.4

12.2

70.5

Number(billions)Checks
Number(billions)ACH
Number(billions)Debit card
Number(billions)ATM

28.9
9.0
15.5
5.0

7.3
1.5
2.5
.8

36.2
10.5
18.0
5.9

111.7

14.9

126.5

33.3
77.3
.6
.4

5.4
9.3
.1
.1

38.7
86.7
.7
.5

100.0

49.4
15.4
26.5
8.6

60.2
12.2
20.7
6.9

51.3
14.8
25.5
8.3

100.0

29.8
69.2
.6
.4

36.1
62.9
.6
.4

30.6
68.5
.6
.4

Value (trillions of dollars)
Value(trillionsofdollars)Checks
Value(trillionsofdollars)ACH
Value(trillionsofdollars)Debit card
Value(trillionsofdollars)ATM
Distribution by number (percent)
Distributionbynumber(percent)Checks
Distributionbynumber(percent)ACH
Distributionbynumber(percent)Debit card
Distributionbynumber(percent)ATM
Distribution by value (percent)
Distributionbyvalue(percent)Checks
Distributionbyvalue(percent)ACH
Distributionbyvalue(percent)Debit card
Distributionbyvalue(percent)ATM
Number per capita

248

221

243

NumberpercapitaChecks
NumberpercapitaACH
NumberpercapitaDebit card
NumberpercapitaATM

122
38
66
21

133
27
46
15

124
36
62
20

Value per capita (dollars)

473,857

269,636

435,165

Valuepercapita(dollars)Checks
Valuepercapita(dollars)ACH
Valuepercapita(dollars)Debit card
Valuepercapita(dollars)ATM

141,369
328,016
2,628
1,844

97,229
169,547
1,732
1,128

133,006
297,992
2,458
1,708

Average value (dollars)

1,913

1,221

1,794

Averagevalue(dollars)Checks
Averagevalue(dollars)ACH
Averagevalue(dollars)Debit card
Averagevalue(dollars)ATM

1,155
8,609
40
86

731
6,287
38
74

1,069
8,279
40
85

82.1

74.2

80.6

40.6
12.6
21.8
7.1

44.7
9.1
15.3
5.1

41.3
12.0
20.6
6.7

157,083

203,172

144,618

46,864
108,737
871
611

32,663
56,957
582
379

44,202
99,032
817
568

9,745
235.7

6,206
55.1

15,951
290.8

711

164

875

Number-to-depositsratio [ s e efootnote]1
[seefootnote]1

Number-to-depositsratio
Checks
Number-to-depositsratio[seefootnote]1ACH
Number-to-depositsratio[seefootnote]1Debit card
Number-to-depositsratio[seefootnote]1ATM
Value-to-depositsratio [seefootnote]2
[seefootnote]2

Value-to-depositsratio
Checks
Value-to-depositsratio[seefootnote]2ACH
Value-to-depositsratio[seefootnote]2Debit card
Value-to-depositsratio[seefootnote]2ATM
Number of institutions
Population (millions)
Transaction deposits (billions
of dollars)

NOTE. Annualized figures based on survey data collected March 2004 and
April 2004. Urban areas are those defined as metropolitan statistical areas or
New England county metropolitan statistical areas; rural areas are defined as
those outside urban areas.
[footnote] 1. See table 6, note 1.[endoffootnote.]
[footnote] 2. See table 6, note 2.[endoffootnote.]
SOURCES. Federal Reserve; and Department of Commerce, Bureau of Economic Analysis and Bureau of the Census.

Checks

Checks were returned an estimated 187 million times
in 2003 down from about 240 million times in 2000.
Some checks returned for insufficient funds are presented again (re-presented) and returned again if
funds are still unavailable. Because some checks are
returned more than once, and therefore would have
been counted more than once in the depository institution survey, the ratio of the number of times checks
are returned to total checks is an upper bound on the
probability that a check will be returned. It is estimated that check returns constituted, at most,
0.52 percent of estimated total checks in 2003 (or
about 5.2 returns for every 1,000 checks presented),
compared with 0.58 percent of estimated total checks
in 2000 (or about 5.8 returns for every 1,000 checks
presented). Thus, the number of returned checks
processed through the check collection system
declined faster than the total number of checks
presented.
One reason for the decline in the proportion of
checks returned through the check collection system
is that some checks are now being re-presented
through the ACH system. When such ACH payments
are returned, they are returned through the ACH
network and are no longer identified as check returns.
In 2003, just less than 23 million checks were
re-presented through the ACH. More than half of
these ACH check re-presentments (about 12 million)
were returned. Thus, the returned checks processed
through the check collection system (187 million)
and ACH systems totaled close to 200 million, or 5.5
returns for every 1,000 checks presented. The num-

[footnote] 35. The 2004 depository institution survey also collected data on
the portion of returned checks that were on-us. Such checks would
be returned directly to the depositing customer rather than another
depository institution. An estimated 21 million returned checks, or
about 11 percent of all returned checks, were on-us. Data on on-us
returned checks were not collected in the 2001 depository institution
survey. In Gerdes and Walton, ''The Use of Checks,'' reports discussing returned checks for 2000 assumed that the estimates of returns
reported by depository institutions did not include on-us returns, and
the proportion of returned checks was computed as a percentage of
interbank checks, resulting in a larger percentage than reported here.
On the basis of the 2004 survey results and a reexamination of the
2001 survey, we believe that depository institutions did include on-us
checks in the returned checks reported.[endoffootnote.]
[footnote] 36. National Automated Clearing House Association.[endoffootnote.]
[footnote] 37. It is not known how many of these returned check representments were themselves re-presented.[endoffootnote.]

ber of checks re-presented (and possibly returned)
through the ACH system was negligible in 2000.

Returned ACH Payments
About 1.05 percent of retail ACH payments were
returned in 2003 (estimated from the electronic payments survey), or 10.5 returns for every 1,000 payments, about twice the rate that checks were returned.
Only about 0.06 percent of ACH CCD transactions
were returned, a considerably smaller return rate than
for checks or for retail ACH payments. Most ACH
returns were debit transactions.
When comparing return rates for check and ACH
payments, it is important to recognize that differences
in technological and industry practice are partly
responsible for any differences in observed return
rates. The total number of ACH returns is understated because the number of on-us ACH returns
is unknown. But ACH returns include certain returns
that have no counterpart in the check collection
system.
By industry rule, paying depository institutions
and their customers have sixty days to return unauthorized retail ACH debits received (debits to an
account on the instruction of the payee) but must
return checks by midnight of the next business day
following presentment. The extra time for ACH
returns may allow for the detection and return of
erroneous or fraudulent ACH payments—payments
that if made by check would have to be pursued
through other means and therefore would not be
identified as returned checks. Business associations
commonly voice more concern about check fraud
than ACH fraud because businesses often use
accounts that block ACH debits from being received,
avoiding any type of fraud or error. Depository
institutions typically do not offer accounts that block
all ACH debit receipts to individuals but instead
require that a specific payment be identified and
block ACH payments only on a case-by-case basis.
In contrast to the decline in the rate of returned
checks, the rate of returned retail ACH payments

increased from 0.79 percent in 2000 to 1.05 in 2003.
The increase appears to have been due primarily to
higher return rates for new categories of payments. A
number of new rules and technological innovations in
the ACH system have begun to provide explicitly for
and separately identify one-time, nonrecurring ACH
debit transactions originated remotely either over the
Internet or by telephone or by converting a check to
an ACH payment. Such payments may be more likely
than recurring payments (which are typically either
payroll or mortgage or other bill payments) to be
disputed, or to involve erroneous or fraudulent payments, and therefore to be returned. The rate of
returned ACH CCDs, which as noted earlier are
either internal transfers or business payments,
declined slightly from 2000 to 2003.

USE OF CASH
About 5.9 billion ATM withdrawals were made in
2003. About two-thirds of these withdrawals were
on-us (that is, made from proprietary ATMs belonging to the account holder's depository institution).
Therefore, about one-third were from ATMs owned
by another depository institution or other company
(nonproprietary) and likely involved a withdrawal
fee, charged either by the account holder's depository
institution or the owner of the ATM, or both The
overall average ATM withdrawal was $85, and the
average on-us withdrawal was about $89.
ATM cash withdrawals provide funding for an
unknown number of cash transactions. If the average
value of payments by cash were known, the number
of cash payments that would be funded by the ATM
withdrawals could be estimated. For example, if the
average cash payment in 2003 was $85, equal to the

[footnote] 40. Certain types of recurring check payments, such as payroll
or mortgage payments, are also less likely to be returned unpaid.
Selected data on checks sent to billers that were converted to ACH
payments showed a return rate slightly lower than the estimated return
rate for checks in 2003.[endoffootnote.]
[footnote] 41. There are exceptions to the practice of charging fees for nonproprietary ATM withdrawals. Some Internet banks, for example,
reimburse a portion of withdrawal fees charged by nonproprietary
ATM owners, and some ATM owners may waive fees for withdrawals
from accounts at certain classes of institution. A Federal Reserve
[footnote] 38. Precise allocations of returns by debits and credits werestudy
not showed that fees for on-us ATM withdrawals are negligible.
See Board of Governors of the Federal Reserve System (2003),
available.[endoffootnote.]
Annual Report to the Congress on Retail Fees and Services of
[footnote] 39. If the account does not contain sufficient funds for payment,
Depository Institutions (June), www.federalreserve.gov/boarddocs/
ACH debits must be returned the day after the transaction was
rptcongress/2003fees.pdf.[endoffootnote.]
received.[endoffootnote.]

average value of ATM withdrawals, the total number
of cash payments supported by ATM withdrawals
in 2003 would have been 5.9 billion. If the average value of payments from these ATM withdrawals
was equal to the average value of PIN-based debit
card payments ($38), then the number of cash payments would have been just over two cash payments
for each ATM withdrawal, or more than 12 billion.
But cash transactions are commonly used for lowvalue payments. If the average value of cash transactions supported by ATM withdrawals was around
$5—about seventeen payments for each ATM
withdrawal—then the resulting cash transactions
would have totaled more than 100 billion in 2003,
compared with an estimated 81 billion noncash transactions in that year.
As the calculations show, a reasonable guess for
the average value of a cash transaction could imply
a large number of transactions funded by ATM withdrawals. Without supporting data, however, guesses
about the average value and implied number of cash
transactions are highly speculative and should be
viewed as such.
ATM withdrawals do not fund all cash transactions. But, as shown earlier, only a small amount of
cash is obtained via PIN-based debit payments compared with the amount obtained from ATMs. Fewer
than 600 million PIN-based debit card payments
involved cash returned to the card holder. The cash
returned to card holders averaged $30. Besides ATM
withdrawals and cash back from debit card purchases, the most common means of obtaining cash
appears to be cashing payroll checks or personal
checks at depository institutions or merchants.
According to one study, the means of obtaining cash
used most often by individuals in 1984 was cashing a
personal or payroll check (77 percent), followed by
ATM withdrawals (11 percent).
Industry data show increases throughout the 1990s
and early 2000s in the number of ATMs and ATM
transactions (which are made for other purposes
besides withdrawals), suggesting that the use of
ATMs to obtain cash has likely also increased. The

use of ATM withdrawals as a means of obtaining
cash relative to other means has likely increased
since the early 2000s, although how much it has
increased is unknown.
Increases in the number and use of ATMs shown
by industry data may be an indication that ATMs are
replacing checks as a means of obtaining cash. The
cashing of personal checks at the teller window of an
individual's depository institution results in an on-us
check. Recall that the share of on-us checks declined
from 2000 to 2003, especially at credit unions (from
6 percent to 2 percent), as the use of ATMs was
growing. Therefore, the increases in the number of
ATMs and ATM transactions do not necessarily indicate that the use of cash is increasing.

SUMMARY

FINDINGS

Confirming the results of earlier studies, recent survey data show that the number of checks paid in the
United States has been declining, although the number of electronic payments has been increasing. Led
by growth in debit card payments, the number of
electronic payments exceeded the number of check
payments in 2003. However, the value of check payments continued to exceed the combined value of the
electronic payment instruments studied—debit and
credit cards, ACH, and electronic benefits transfers.
Some payments that were made by check in the past
are now being made with these electronic instruments. Although the surveys discussed in this article
provided no direct evidence on cash use, some cash
payments likely have been replaced as well.

The 2004 depository institution survey allowed for
more detailed study of payments and withdrawals
from transaction accounts. For each type of account
debit studied—checks, debit card payments, ACH
payments, and ATM withdrawals—most were made
from accounts at the largest 1 percent of depository
institutions (as ranked by value of transaction deposits). Commercial banks showed decreasing shares of
checks paid and increasing shares of electronic payments with increasing size. Other differences existed
between depository institutions of different types. For
[footnote] 42. See Robert B. Avery and others (1986), ''The Use of Cash example,
and
credit unions, which are generally used by
Transaction Accounts by American Families,'' Federal Reserve Bulleindividuals and not by businesses, had the smallest
tin, vol. 72 (February), p. 97, table 9.
shares of checks and greater shares of debit card
The authors of this article estimate, on the basis of a survey on
individual checks, that in 2000 fewer than 2 percent of checks written
and ATM use than commercial banks and savings
had ''Cash'' as the payee. Writing "Cash" on the payee line is
institutions.

common when obtaining cash via check at a depository institution
teller but may not be done when obtaining cash via check at other
On-us account debits, for which the payer and
venues. Thus, checks made out to ''Cash'' represent only a portion of
payee use the same depository institution, were genall checks written for cash in 2000.[endoffootnote.]
erally more common at the largest depository institu[footnote] 43. ATM and Debit News, EFT Data Book, 2005 Edition, Thomtions. Credit unions had very small shares of on-us
son Media, www.cardforum.com.[endoffootnote.]

account debits compared with the other types of
institutions, likely reflecting the relatively small number of person-to-person payments made by check and
ACH. The on-us share of ATM withdrawals was high
for all types and sizes of depository institutions,
reflecting the existence of fees for withdrawals from
nonproprietary ATMs.
The use of different types of payment instruments
varies across regions of the country, suggesting differences in the cost, availability, willingness to use,
or willingness to accept various payment instruments.
The 2004 depository institution survey showed that
the use of debit cards was significantly more common, per capita, in the West than in other regions.
In this region and others, some debit card payments
were likely being made in lieu of payments by check,
but debit cards may also have been used instead of
cash or credit cards. The Northeast showed significantly less use of debit cards than other regions and,
compared with estimates from the 2001 depository
institution survey, a significantly slower decline in
the use of checks. Individuals in the Northeast
obtained more cash from ATMs, and the average
value of their debit card payments was higher.
While check and ACH returns are not entirely
comparable, it is interesting to note that the proportion of ACH payments that were returned was almost
twice the proportion of checks that were returned.
The proportion of returned checks declined from
2000 to 2003, but the proportion of returned ACH
payments increased. The increase in the proportion of returned ACH payments was related not to
an increase for traditional types of ACH payments,
but rather for new types of ACH transactions, such as
the conversion of checks to ACH payments and onetime payments over the Internet and telephone.
Data on the use of the payments system such as
those presented in this article are important to policymakers, the public, and the payments industry for a
variety of reasons. The information may aid in understanding the purposes for which different payment
types are used, helping financial institutions, payments networks, service providers, and other payments organizations better understand and serve the
public. Depository institutions can use the information to compare the relative use of payments with the
relative use of payments at groups of similar depository institutions. Historical trends in the use of payments and information on patterns of substitution and
replacement among payment types may aid in forecasting trends. Forecasts based on the information
may help in planning payments system infrastructure
and in the timing and appropriateness of new investments in determining infrastructure. Finally, the data

may help policymakers and the public better understand and monitor the significant changes occurring
in the U.S. payments system.

APPENDIX: SOURCES OF DATA
AND METHODS OF ESTIMATION
Both the 2003 and 2000 data used to estimate the
number and value of noncash payments came from
two separate surveys. The estimates for 2003 came
from two surveys conducted in 2004—one of depository institutions (the 2004 depository institution survey) and the other of electronic payments networks,
card issuers, and card processors (the 2004 electronic
payment survey). The estimates for 2000 came
from 2001 surveys, one of depository institutions (the
2001 depository institution survey) and the other of
electronic payments networks, card issuers, and card
processors (the 2001 electronic payment survey).
The 2001 and 2004 depository institution surveys
were similar in most respects. However, the 2001
survey collected information only about checks,
whereas the 2004 survey also collected information
about other debits to transaction accounts. The 2001
and 2004 electronic payment surveys were also
similar. Except as noted, the descriptions of the 2004
surveys presented below also apply to the 2001
surveys.

2004 Depository

Institution

Survey

Survey Design
The 2004 depository institution survey collected
information from three types of institutions: commercial banks (including agencies and branches of foreign banks); savings institutions (savings banks and
[footnote] 44. Global Concepts, Inc., and International Communications
Research (ICR) assisted the Federal Reserve System with the 2004
depository institution survey. See Federal Reserve System (2004), The
Depository Institutions Payments Study: A Survey of Depository
Institutions for 2004 Federal Reserve Payments Study, Global Concepts and Federal Reserve System, www.frbservices.org/Retail/pdf/
2004DIPaymentStudy.pdf. Dove Consulting assisted with the 2004
electronic payment survey. See Federal Reserve Bank of Atlanta
(2004), 2004 Electronic Payments Study for Retail Payments Office at
the Federal Reserve Bank of Atlanta: Study Methods and Results
Summary Report, Federal Reserve Bank of Atlanta Study (December 14), www.frbservices.org/Retail/pdf/2004EPStudy.pdf.[endoffootnote.]
[footnote] 45. Global Concepts, Inc., and Westat assisted the Federal Reserve
System with the 2001 depository institution survey, and Dove Consulting assisted with the 2001 electronic payment survey.[endoffootnote.]
[footnote] 46. See Gerdes and Walton, ''The Use of Checks,'' for a discussion
of the 2001 surveys. Also see Federal Reserve System, Retail Payment Research Project.[endoffootnote.]

savings and loan associations); and credit unions.
The types of debits surveyed were checks, ACH
payments, debit card payments (both signature-based
and PIN-based), and ATM withdrawals. (Wire transfers and teller window withdrawals, which create
debits, as well as credit card and currency payments,
were outside the scope of the survey.)
Depository institutions were asked to report, by
questionnaire, the number and dollar value of debits
to their accounts by each type of debit during each of
the months March and April 2004. They were also
asked to report the number and value of returned
checks and, for all debit types except debit card
transactions, the number and value of on-us debits.
The population from which the 2004 sample was
drawn comprised 14,117 depository institutions (bank
subsidiaries of multibank holding companies were
treated as a single entity) that reported transaction
deposits greater than zero as of September 2003
(June 2003 for credit unions). Based on experience
with the 2001 depository institution survey, which
had a 54 percent response rate, a stratified random
sample of 2,700 depository institutions was estimated
to be needed to produce national estimates of the
number and value of debits made via check with a
desired precision of at least ±5 percent for a 95 percent level of confidence.
For sampling and estimation purposes, depository
institutions were separated into five groups. Commercial banks were divided into two types—
domestically chartered banks and branches of foreign
banks—and savings institutions were divided into
two types—those federally regulated by the Office
of Thrift Supervision and those regulated by states.
Credit unions made up the fifth group. The largest
institutions in each group, as determined by the value
of their transaction deposits, and some institutions
known to have highly unusual check volumes, such
as issuers of rebate checks, were sampled with
certainty. The remaining institutions in each group
were then stratified by the value of their transaction
deposits—nine strata for commercial banks (including three for foreign bank branches), five strata for
credit unions, and six strata for savings institutions
(three for federally regulated institutions and three
for state-regulated).
Data from the 2001 survey were used to approximate the standard error that would be achieved for
different sample allocations (the number of depository institutions to be sampled in each stratum, based
on a sample size of 2,700), and the final sample
allocation was determined so as to minimize the
approximate standard error of the estimated total
number of checks. Because the strata with the larger

depository institutions typically had greater numbers
of checks paid in the 2001 sample, and had greater
variance between them, they were assigned a larger
proportion of the sample by the minimization algorithm. The allocation of the sample between the
depository institution types gave more weight to commercial banks because they were expected to account
for a disproportionate share of checks and other
account debits; but it also took into account the
desirability of producing estimates for each depository institution type.
In all, 1,572 commercial banks, 328 savings institutions, and 800 credit unions were included in the
sample. Responses were received from 869 commercial banks, 193 savings institutions, and 438 credit
unions, giving response rates slightly higher than for
the 2001 survey. All of the 44 largest commercial
banks responded (this group accounted for more than
half the estimated total for nearly every item in the
survey). The largest savings institutions and credit
unions also responded.
By the time survey data were available, data on
transaction deposits as of March 31, 2004, were also
available. Using those transaction deposits data, the
sample and population were re-stratified to produce
estimates for the 14,120 depository institutions in
existence on April 30, 2004, the end of the period for
which data were collected. The major change resulting from the re-stratification was an adjustment to
the largest size stratum for each depository institution
group so that it would be a certainty stratum (that is,
all members of the stratum must have responded to
the survey, although not necessarily to each item).
The makeup of the strata also changed somewhat
as a result of the entry and exit of some institutions
between November 2003, when the sample was
drawn, and April 2004, and of changes in the value of
transaction deposits that occurred between September 2003, when transaction deposits used for the
sample selection were reported, and March 2004.

Item Nonresponse and Imputation
Once the figures for March and April were aggregated (and annualized by multiplying the sums by 6),
the desired sample dataset consisted of 42,000 cells—
(1,500 depository institutions)times(14 debit categories)
times (number + value). Of these, data for 12,274 cells,
or 29.2 percent, were not reported. For the totals by
instrument, incidence of nonresponse varied from a
low of 5.6 percent for the number of checks to a high
of 45.4 percent for the value of PIN-based debit card
payments.

The nonresponse rates suggest that for checks, and
to a lesser extent for debit cards and ATM transactions, numbers are easier to report than values,
whereas for ACH transactions, values are slightly
easier to report than numbers.
But, as noted in the text, some depository institutions could not accurately report ACH payments.
Discussions with respondents indicated that at least
some of them had difficulty distinguishing between
true ACH payments and some very large-value
internal funds transfers, called offset entries (which
are not considered payments) that were processed
in-house (on-us) on a shared platform. These offset
entries were large in value but small in number,
resulting in elevated average values for both on-us
and total ACH transactions for some institutions.
Not all depository institutions have an automated
capability to report the number and value of payments by instrument as requested by the survey.
Some respondents could not report the requested
items at all. Of those that could, many needed to
request the information from a payments processing
service provider or a correspondent depository institution or had to set up systems to collect the information specifically to respond to the survey.
To create a rectangular dataset suitable for a
variety of analyses, each of the missing items was
imputed using a multiple imputation procedure. For
each missing item, the imputation procedure used
information from the other depository institutions
in the same stratum that reported the missing item
and from any related items that were reported by the
institution with the missing item. The imputation
procedure fit a linear regression model of the logarithm of the missing item (the dependent variable) to
the logarithms of related items (the independent variables) and a constant term. (At least one independent variable—transaction deposits—was always
available.) The fitted regression yielded a predicted
value and an associated standard deviation for the
missing item. To arrive at an imputed value, a random deviate, drawn from a normal distribution with
a mean of zero and the standard deviation from the
fitted regression, was added to the predicted value.
Occasionally the regressions yielded inconsistent
imputations for items known to be subsets of totals
(for example, for some institutions the imputations

of on-us checks exceeded their total checks). In this
relatively small number of cases, a different imputation was used—the one for which the ratio of the
imputed subset to the total was equal to the mean of
the same ratio for other depository institutions in the
stratum.
This imputation procedure was repeated five times,
each time using a newly drawn deviate in the calculation, to obtain five datasets containing both actual
responses and imputations. All the summary statistics based on this 2004 depository institution survey
are averages of estimates calculated from the five
datasets. The variation among the five estimates provides information about the uncertainty in the overall
estimate arising from the imputations.

Estimation
The actual and imputed data for respondents were
converted to estimates for the population using a
separate ratio estimator, with the value of transaction
deposits being the covariate for each item. That is, for
a given item and within a depository institution typesize stratum, the sum of the respondents' data was
multiplied by the ratio of the transaction deposits
in the population to the transaction deposits at the
responding institutions. The associated sampling
standard error was based on a classical statistical
formula that accounts for the uncertainty arising from
the use of a sample rather than a census, and on the
variation among imputed figures that accounts for
the uncertainty arising from the fact that some items
needed to be imputed.

In terms of sampling error, the estimates turned out
to be more precise than expected at the time the
sample size was set. The 95 percent confidence
intervals for the national estimate of checks were
±1.8 percent of the number of checks paid and
±2.2 percent of the value. This better-than-expected
performance appears to be a result of a larger-thanexpected number of respondents (20 percent more
than for the 2001 survey), greater-than-expected
response rates for the largest institutions, and less
within-sample variation than for the 2001 depository
institution survey. The confidence intervals for the
national estimates of other debit activity were narrower than ±5 percent with four exceptions: number
[footnote] 47. For an overview of multiple imputation techniques, and
see value of on-us ACH credit and debit transactions
Donald B. Rubin (1987), Multiple Imputation for Nonresponse in
that were cleared through the ACH network rather
Surveys, John Wiley and Sons (New York).[endoffootnote.]
than in-house. These survey items were much less
[footnote] 48. Using the logarithms of the data is a common approach in the
regression analysis of models that posit a constant linear relationship
between the percent change of the dependent variable and the percent
changes of the independent variables and in which all variables are
limited to nonzero values.[endoffootnote.]

[footnote] 49. ACH credit and debit transactions were estimated separately
but were aggregated in the tables in this article.[endoffootnote.]

correlated with the level of transaction deposits than
were the other items.

Estimates by Geographic Region and
Urban or Rural Location of Deposits
Although the survey was not explicitly designed to
facilitate geographic analysis of account debit patterns, the responses were sufficient, when combined
with external data on each depository institution's
total deposits distributed by region, to make broad
comparisons possible. For each of the four regions—
Northeast, South, Midwest, and West—separate estimates were calculated for single-region depository
institutions (those having deposits in only one region)
and multiregion depository institutions (the 322 institutions having deposits in more than one region).
The survey did not directly collect regional data
from multiregion depository institutions. The geographic distribution of depository institutions' total
deposits (including both transaction and savings
deposits) were available, so each type of account
debit for each multiregion depository institution in
the population was assumed to be distributed across
regions in proportion to the location of its deposits,
and were allocated to regions accordingly. (No such
assumption was necessary to allocate data for singleregion depository institutions.)
To produce the regional estimates, depository institutions' regionally allocated data were restratified
by region, type, and size and by multiregion or singleregion status. For each region, separate estimates
were produced for single-region depository institutions and the allocated portion of multiregion depository institutions' data. New, separate ratio estimators
were produced using these strata following the procedure described in the preceding section. It turned out
that national estimates obtained from aggregating
these regional estimates were about the same as those
obtained from the original analysis and were adjusted
to make the aggregates match without affecting the
proportions allocated.
The assumption that the payments and transaction
deposits of depository institutions are regionally distributed in proportion to the distribution of their
deposits is consistent with the hypothesis that customers of multiregion depository institutions who are
located in different regions exhibit payments behavior more similar to each other than do customers

of different depository institutions who are located
in different regions. The assumption used to construct
these regional aggregates—namely, that each regional
fraction of a depository institution' s customers
exhibit similar payments behavior—may be overly
restrictive and could affect the accuracy of regional
estimates. That is because the assumed allocation of
transaction deposits or account debits would be too
large (too small) for a region if the true allocations
for the institution were lower (higher) in that region.
The uncertainties that arise from allocation of data
to regions described above cause difficulties for the
statistical analysis of the estimated differences among
regions. If large differences actually exist between
the proportions of payments a depository institution
processes for a pair of regions, the assumption mutes
the estimated differences between that pair of
regions. It makes the two regions appear more similar
than they really are. The same assumption may also
create the appearance of a difference with a third
region that may not exist in reality. This potential
problem can be illustrated by the following hypothetical example: Suppose that check activity is higher in
the Northeast than in the South and that there is no
difference (in fact) between the South and the Midwest. Then our procedure for allocating the data of a
depository institution with a presence in the Northeast and South may mask the difference between the
Northeast and South while creating an apparent difference between the South and the Midwest.
Sampling standard errors were not calculated for
the regional estimates because of uncertainty about
the effects of the allocation of data for multiregion
depository institutions. However, the results of crosssectional regressions, one of which is mentioned in
the body of this article, together with the similarity
between the patterns of multiregion and single-region
estimates as well as the regional patterns for checks
identified in both the 2004 and 2001 surveys, demonstrate that regional differences do exist.
Estimates of urban and rural account debit activity
were constructed using a method similar to that used
to construct estimates by region. Urban areas were
defined as metropolitan statistical areas, and rural
areas as all other areas. Thus, some urbanized areas,
such as certain outlying suburbs that surround metropolitan statistical areas, were included in the rural
regions.

The 2004 Electronic Payment

Survey

[footnote] 50. For credit unions, the geographic distribution of an institution's
The 2004 electronic payments survey sent
branches served as a proxy for the geographic distribution of its total
deposits.[endoffootnote.]
naires to all electronic payments networks,

questioncard issu-

ers, and card processors to estimate the number
and value of electronic payments originated in the
United States in 2003 with commonly used payment instruments—general-purpose and private-label
credit cards, signature-based and PIN-based debit
cards, ACH payments, and electronic benefits
transfers.
The collection of these data was straightforward
because the processing of electronic payments is
largely centralized and the respondents can generally
supply accurate data on the number and value of
these payments from business records. Payments for
issuers that did not respond to the survey were estimated from available information, but they represented a small share of the estimated totals.

For estimates of total ACH payments, data from
the 2004 depository institution survey were used to
estimate the fractions of ACH transactions, by number, that were on-us and cleared in-house (separately
for debit and credit transactions). The estimated fractions were combined with electronic payment survey
data to estimate on-us ACH payments for 2003, and
these data were added to the network ACH payments
in 2003 to yield estimates for all ACH. The same
fractions were used to estimate on-us ACH payments
for 2000; the resulting estimates of the total number
and value of ACH payments for that year are a
revision from estimates provided in earlier reports.

Community Banks and Rural Development:
Research Relating to Proposals to
Revise the Regulations That Implement
the Community Reinvestment Act
Robert B. Avery, Glenn B. Canner, and Shannon C.
Mok, of the Division of Research and Statistics, and
Dan S. Sokolov, of the Division of Consumer and
Community Affairs, prepared this article. Onka L.
Tenkean provided research assistance.
Since 1977, the Community Reinvestment Act
(CRA) has required that federally insured banking institutions—commercial banks and savings
associations—be evaluated on their records of helping to meet the credit needs of their local communities, including low- and moderate-income (hereafter,
lower-income) neighborhoods. In 1995, the four federal agencies responsible for bank supervision substantially revised the regulations that implement the
CRA. The revisions were intended to emphasize
performance rather than process, to reduce unnecessary regulatory burden, and to increase consistency in
CRA evaluations.
Under the 1995 regulations, "large" institutions,
generally those with assets of $250 million or more,
have been evaluated under a three-part test, whereas
"small" institutions, generally those with assets of
less than $250 million, have been subject to comparatively streamlined evaluations. Large institutions
have been required to report data annually on certain
types of CRA-related loans (small-business, smallfarm, and community development loans) and on the
geographic areas (for example, census tracts) that
constitute their local communities, whereas small
institutions have been exempt from such reporting.
In 2001, the agencies began reviewing the CRA
regulations to determine whether they were successful in meeting the objectives that the agencies set
forth in 1995. The review focused in part on the
possibility of extending the eligibility for streamlined
examinations and the exemption from data reporting

to more institutions. In 2004 and 2005, the agencies
put forth several proposals to implement these
changes by raising the asset-size threshold from
$250 million to $500 million or $1 billion. The
proposals, and the public's comments on them, paid
particular attention to how and when to evaluate the
community development performance of banking
institutions with assets of less than $1 billion, especially in rural areas, where such institutions have a
proportionately larger presence than in urban areas. A
related but separate issue that the agencies presented
for public comment was how to define which bank
activities in rural areas should be considered community development in CRA evaluations.
We have evaluated a large amount of data to gain
insight into the potential effects of these proposals,
and in this article we report the key findings of our
research. Our intent is to inform deliberation over the
recent proposals, not to advocate any particular view.

BRIEF DESCRIPTION

OF THE CRA

The CRA encourages federally insured banking institutions to help meet the credit needs of their communities, including lower-income neighborhoods, in a
way that is consistent with the safe and sound operation of those institutions. In particular, the CRA
directs the federal agencies responsible for bank
supervision (1) to assess through examinations every
institution's record of meeting such community credit
needs and (2) to consider the institution's CRA record
when evaluating its application for deposit insurance
or for a charter, branch or other deposit facility, office
relocation, or merger or acquisition.
The CRA gives the agencies broad discretion to
implement the law. For example, the act does not

[footnote] 2. For a more expansive overview of the history of the CRA, see
[footnote] 1. The agencies are the Board of Governors of the Federal Reserve
Griffith L. Garwood and Dolores S. Smith (1993), ''The Community
System (Board), the Federal Deposit Insurance Corporation (FDIC),
Reinvestment Act: Evolution and Current Issues,'' Federal Reserve
the Office of the Comptroller of the Currency (OCC), and the Office of
Bulletin, vol. 79 (April), pp. 251-67.[endoffootnote.]
Thrift Supervision (OTS).[endoffootnote.]

define ''low- or moderate-income neighborhood" or
a banking institution's ''community''; rather, the act
leaves those definitions to the agencies. The act also
leaves to the agencies the establishment of criteria for
rating an institution's record of meeting its community's credit needs. Each agency has separate rulewriting authority for the institutions it supervises; but
with one recent exception, the four agencies have
adopted identical regulations.
The 1995 regulations establish objective standards
for measuring performance. Rather than providing
specific lending thresholds for particular CRA ratings, however, the standards are flexible and are
applied in the context of information about an institution, its community, and its competitors (broadly
referred to as the institution's ''performance context'' ). Moreover, the standards relate not only to the
quantity of an institution's activities (for example,
the dollar amount of mortgage loans extended) but
also to the quality of those activities (that is, their
correlation with the community's needs for credit).
Examiners evaluate institutions primarily on their
performance in their local communities, which the
regulations define as the institutions' "assessment
areas.'' Assessment areas encircle an institution's
deposit-taking facilities, such as its branches and, if
applicable, its automated teller machines (ATMs).
Assessment areas are composed of census tracts or
aggregations of census tracts, such as counties or
metropolitan statistical areas. Examiners consider an
institution' s performance outside its assessment area
only in limited circumstances.
Transparency is an important aspect of the regulations. Every institution's CRA rating—either ''outstanding," ''satisfactory," "needs to improve,'' or
''substantial noncompliance''—is made public, as is
a written evaluation that explains the basis of the
rating.

small-business and small-farm loans by individual
census tract. They must also report the total number and dollar amount, but not the geographic distribution, of their community development loans. In
addition, if an institution is subject to the reporting
requirements of the Home Mortgage Disclosure Act
(HMDA), it is required to disclose detailed information about its mortgage loans; if the institution is also
large for CRA purposes, it must report geographic
information for rural mortgage loans, which it otherwise does not need to report.
The criteria in the 1995 regulations for evaluating
an institution's performance incorporate four key
distinctions. First, the criteria distinguish large banking institutions from small ones. Large banking
institutions are subject to a three-part test that looks
at lending, investments, and services, whereas small
banking institutions face a streamlined test that
concentrates on lending (see boxes ''The LargeInstitution Evaluation'' and ''The Small-Institution
Evaluation''). Moreover, large banking institutions
must report data to the agencies; small banking institutions need not do so.
Second, the criteria distinguish among types of
banking activity: lending, investing, and providing
services. The regulations require the agencies to give
large banking institutions explicit sub-ratings on each
of these types of activity. Although small banking
institutions are not usually evaluated on their investments or services, they may improve their chances of
receiving an ''outstanding'' CRA rating if they elect
to be evaluated in those areas.
Third, the evaluation criteria reflect a distinction
between area-based and recipient-based measures
of performance. The CRA's measure of area is
the census tract. Key area-based criteria in CRA
evaluations include the proportion of an institution's
retail loans, and the proportion of its branches, in
lower-income census tracts. Categories of census
tract income are determined by the ratio of a census
tract's median family income to the median family
income of the relevant surrounding area as established at the most recent decennial census. The ranges
[footnote] 3. Office of the Comptroller of the Currency, Board of Governors
are 0-49 percent (low), 50-79 percent (moderate),
of the Federal Reserve System, Federal Deposit Insurance Corpora80-119 percent (middle), and 120 percent or more
tion, Office of Thrift Supervision (1995), ''Community Reinvestment
Act Regulations," Federal Register, vol. 60 (May 4), pp. 22156,
(upper). For a census tract in a metropolitan (urban)
22178.[endoffootnote.]
area, the relevant surrounding area is the metropoli-

[footnote] 4. CRA ratings, the type of evaluation (for example, smallinstitution or large-institution), the date of the evaluation, and the
name of the agency that conducted the evaluation are available from
[footnote] 5. Institutions that are large under the CRA and are covered by
the Federal Financial Institutions Examination Council (FFIEC) at
HMDA must report the census tracts of all properties for which loans
www.ffiec.gov. Comprehensive written evaluations, including ''subhave been extended or for which loan applications have been received
ratings,'' are available through links from the FFIEC' s website to the
unless the loan is made or the application is received in a county with
websites of the supervisory agencies, which post the evaluations as
a population of 30,000 or less, in which case reporting the census tract
PDF files. The sub-ratings are available in written form only; they are
is optional. Small institutions covered by HMDA may, but need not,
unavailable in a quantitative, easy-to-use format that would facilitate
report the property locations (census tracts and counties) for their rural
analysis.[endoffootnote.]
loans.[endoffootnote.]

[beginningofbox]The Large-Institution Evaluation

[beginningofbox]The Small-Institution Evaluation

The regulations that implement the CRA establish three
tests by which the performance of most large retail banking institutions is evaluated: a lending test, an investment
test, and a service test.
The lending test measures lending activity for many
types of loan, including home mortgage, small-business,
and small-farm loans. The assessment criteria are the
proportion of an institution's loans in its assessment
areas, the distribution of lending across borrowers of
different incomes, the distribution of lending across census tracts of different incomes, the extent of community
development lending, and the use of innovative or flexible lending practices to address the credit needs of
lower-income individuals or areas.

Small institutions are eligible for streamlined CRA evaluations and are exempt from CRA data reporting obligations. The performance of a small institution is measured
by its efforts to help meet the credit needs of its assessment area. These efforts are evaluated according to the
following criteria:

The investment test considers a banking institution' s
qualified investments that benefit its assessment area or a
broader statewide or regional area that includes its assessment area. A qualified investment is a lawful investment,
deposit, membership share, or grant that has community
development as its primary purpose.
The service test considers the availability of an institution's system for delivering retail banking services and
judges the extent of its community development services
and their innovativeness and responsiveness. Among the
assessment criteria for retail banking services are the
geographic distribution of an institution's branches and
the availability and effectiveness of alternative systems
for delivering retail banking services, such as automated
teller machines, in lower-income areas and to lowerincome persons.[endofbox.]

tan area. For a census tract in a nonmetropolitan
(rural) area, the relevant surrounding area is the
entire nonmetropolitan region of the state. Baseline
classifications of census tract income change every
ten years with the release of the census.6
In addition to area-based measures of performance,
CRA evaluations use analogous recipient-based measures. Examples include the proportion of an institution' s loans extended to lower-income borrowers
(in the case of mortgage and consumer loans) and
to enterprises of different sizes (in the case of smallbusiness and small-farm loans) and the proportion of
an institution's services offered to lower-income individuals. The evaluation criteria classify borrowers by
income in relation to the median family income of the
relevant surrounding area. In doing so, the criteria
use the same percentage breakdowns used to classify
census tracts by income and the same metropolitannonmetropolitan distinction to construct the baseline.

• the institution's overall ratio of loan dollars to deposits
• the percentage of loans or, as appropriate, other
lending-related activities in the assessment area
• the institution's record of lending to borrowers of different income levels and to businesses and farms of
different sizes
• the geographic distribution of the institution's loans
• the institution's record of responding to written complaints about its performance in helping to meet credit
needs in assessment areas[endofbox.]

The main difference between the classifications for
borrowers and those for census tracts is that baseline
classifications for borrowers are updated every year,
when the Department of Housing and Urban Development publishes the estimates of area family
income, whereas those for census tracts are updated
every ten years.
Fourth, the evaluation criteria distinguish between
retail activities, which are often regarded as the traditional business of a banking institution, and community development activities, which are intended
primarily to improve the welfare of lower-income
people or areas. The regulation recognizes four categories of community development activity, three of
which (affordable housing, community services, and
economic development through small-business or
small-farm financing) target certain recipients—
lower-income people, small businesses, or small
farms—and one of which (revitalization and stabilization) targets certain areas—lower-income census
tracts. For a large institution, community development performance is a factor in the CRA sub-rating
on each of the three activity-based tests (lending,
investment, and service). In the case of the investment test, the sub-rating depends entirely on the
institution's record of making community development investments, whereas in the case of the lending
and service tests, the sub-rating depends, respectively, on the institution's record of providing retail
and community development loans and on its record
of providing retail and community development
services.
For a small institution, unlike for a large one,
community development performance is not a man-

[footnote] 6. S o m e t r a c t c l a s s i f i c a t i o n s a d j u s t m o r e f r e q u e n t l y t h a n o n c e a

d e c a d e b e c a u s e of c h a n g e s i n t h e b o u n d a r i e s of m e t r o p o l i t a n a r e a s .[endoffootnote.]

datory part of the evaluation. But a small institution
may choose to be evaluated on its community development loans, investments, or services as a basis for
possibly boosting the institution's rating from ''satisfactory'' to ''outstanding.''

THE AGENCIES' PROPOSALS TO AMEND THE
CRA REGULATIONS
In 1995, when the four banking agencies adopted
major amendments to the regulations that implement
the CRA, they committed themselves to reviewing
the amended regulations to assess the regulations'
effectiveness in emphasizing performance over
process, promoting consistency in evaluations, and
eliminating unnecessary regulatory burden. They
began that review in July 2001 with the publication in
the Federal Register of an advance notice of proposed rulemaking. Since early 2004, the agencies
have issued several proposals.

Recent CRA Proposals
In February 2004, the banking agencies issued identical proposals to amend their respective CRA regulations to increase the number of institutions classified
as small. Under the 1995 regulations, an institution
is defined as small if it has less than $250 million
in assets and is not a member of a holding company
that has $1 billion or more in assets. Institutions not
defined as small are classified as large. The four
agencies proposed to expand the definition of ''small
institution'' to cover those institutions with assets
of up to $500 million and to eliminate the holding
company criterion.
Commenters on that proposal were deeply split.
Industry commenters, seeking to reduce their regulatory burden, wanted to raise the large-institution
threshold higher than was proposed (as high as $2 billion). But community groups opposed any increase

in the threshold, asserting that an increase would lead
institutions newly classified as small to reduce their
investments in community development.
In July 2004, the OTS announced that it would
raise the large-institution threshold for savings associations to $1 billion, the OCC announced that it
would refrain from adopting the February proposal,
and the Board stated that it would formally withdraw the proposal from consideration. The Board
explained that raising the large-institution threshold
to $500 million was not guaranteed to yield significant cost savings for institutions and that it might
significantly reduce investments in community
development in some rural communities.
A month later, the FDIC issued a new proposal
to raise the large-institution threshold to $1 billion
for FDIC-supervised institutions and to continue to
evaluate institutions with assets between $250 million and $1 billion on their community development
records but on a modified basis. Again, commenters
were divided over the proposal. Many industry commenters opposed evaluating these institutions on their
community development records; many community
group commenters contended that the proposed
evaluation was not rigorous.
Also in August 2004, the FDIC proposed that a
bank activity that benefits an individual or a community in a rural area be considered community
development under the CRA, even if neither the
individual nor the community is of lower income.
Commenters also split on that proposal. Some
expressed concern that the agency would give
CRA recognition to bank investments in affluent
rural areas. Some supported the proposal, however, because they favored recognizing institutions' support of infrastructure, business development, and other needs in rural areas as community
development.
In November 2004, the OTS, too, proposed to
recognize as community development a bank activity
that benefits an individual or a community in a rural
area, even if neither the individual nor the community is of lower income.

[footnote] 7. OCC, Board, FDIC, OTS (1995), ''Community Reinvestment
[footnote] 11. The OTS implemented its increase in a final rule published on
Act Regulations," pp. 22156, 22178.[endoffootnote.]
August 18, 2004. See Office of Thrift Supervision (2004), ''Commu[footnote] 8. Office of the Comptroller of the Currency, Board of Governors
nity Reinvestment Act Regulations,'' Federal Register, vol. 69
of the Federal Reserve System, Federal Deposit Insurance Corpora(Aug. 18), p. 51155.[endoffootnote.]
tion, Office of Thrift Supervision (2001), ''Community Reinvestment
Act Regulations,'' advance notice of proposed rulemaking, Federal
[footnote] 12. See Board of Governors of the Federal Reserve System (2004),
Register, vol. 66 (July 19), p. 37602.[endoffootnote.]
press release, July 16, www.federalreserve.gov/boarddocs/press/all/
2004.[endoffootnote.]
[footnote] 9. Office of the Comptroller of the Currency, Board of Governors
[footnote] 13. Federal Deposit Insurance Corporation (2004), ''Commuof the Federal Reserve System, Federal Deposit Insurance Corporanity Reinvestment Act Regulations,'' Federal Register, vol. 69
tion, Office of Thrift Supervision (2004), ''Community Reinvestment
Act Regulations,'' Federal Register, vol. 69 (Feb. 6), p. 5729.[endoffootnote.](Aug. 20), p. 51611.[endoffootnote.]
[footnote] 14. Office of Thrift Supervision (2004), ''Community Reinvest[footnote] 10. To be considered large, an institution must fail to meet the
ment Act—Community Development, Assigned Ratings,'' Federal
criteria for a small institution as of December 31 of both of the
Register, vol. 69 (Nov. 24), p. 68257.[endoffootnote.]
previous two calendar years.[endoffootnote.]

The Three-Agency Proposal of February 2005
In February 2005, the Board, the OCC, and the FDIC
published for public comment a joint proposal, which
again addressed the definitions of ''small institution''
and ''community development'' in rural areas. The
proposal would modify the CRA regulations in three
ways:
1. It would raise the asset threshold for a large institution from $250 million to $1 billion and would
eliminate the holding company criterion. Thus, all
banking institutions with less than $1 billion in
assets would be exempt from CRA data reporting
obligations.
2. It would create a subcategory of small institutions
called ''intermediate small institutions,'' those
with assets between $250 million and $1 billion,
and would subject such institutions to a two-part
evaluation.
• One part would evaluate the institution's retail
lending. The evaluation would use the criteria
now used for small institutions (those with less
than $250 million in assets)—for example, the
ratio of overall loan dollars to deposits and the
distribution of loans across borrowers and areas
of different relative incomes. Those criteria differ little in substance from the criteria applied to
the retail lending of large institutions, but the
evaluation of small institutions' retail lending is,
in practice, more streamlined because of their
exemption from the requirement to collect or
report data on loans and assessment areas.
• A second part, given equal weight in assigning an overall CRA rating, would evaluate
an intermediate small institution's community
development record. Instead of considering that
record in three separate tests (as does the largeinstitution evaluation, which now applies to
intermediate small institutions), the evaluation
would gather into one test all community development activities, regardless of type, including
lending, investing, and providing services.
3. It would revise the definition of ''community
development'' in rural areas—for institutions of

any size. The definition in the 1995 regulations
imposes a lower-income restriction on bank activities that may be credited as community development in CRA evaluations: Such activities must
primarily benefit either lower-income people or
lower-income areas. The agencies proposed to
relax that restriction in rural areas.
• Under the proposal, bank activities would be
considered community development if they
revitalized or stabilized any ''underserved rural
area'' or provided affordable housing for any
individual in any such area, even if the area was
not defined as ''low or moderate income.'' The
agencies sought comment on how to identify
underserved rural areas not already classified as
lower-income tracts. The agencies specifically
sought comment on criteria adapted from the
Community Development Financial Institutions
Fund's definition of an ''investment area.'' The
criteria, as adapted, would identify as underserved an area that has at least one of the
following characteristics: (1) an unemployment
rate of at least 1.5 times the national average,
(2) a poverty rate of 20 percent or more, or (3) a
population loss of 10 percent or more between
the previous and most recent decennial censuses or a net migration loss of 5 percent or
more over the five-year period preceding the
most recent census.
• The agencies also sought comment on an alternative proposal to liberalize the definition of a
''low or moderate income'' rural census tract
in one of two ways, at least for the purpose
of determining which area-based activities in
rural areas are considered community development: (1) change the baseline for defining
rural tract incomes from the nonmetropolitan
state median income to the statewide median
income, which is the higher of the two statistics
in all but one state, or (2) raise the ''low or
moderate income'' limit from its current level of
80 percent.

EFFECTS OF RAISING THE ASSET-SIZE
THRESHOLD

As noted earlier, the 2005 proposal would raise the
asset-size threshold for a large institution from
[footnote] 15. T h e p r o p o s a l w o u l d l e a v e u n c h a n g e d t h e c r i t e r i a f o r e v a l u a t i n g
$250 million to $1 billion and would eliminate the
s m a l l i n s t i t u t i o n s ( t h o s e w i t h l e s s t h a n $ 2 5 0 m i l l i o n i n a s s e t s ) ; as
n o t e d earlier, t h e s e c r i t e r i a c o n c e n t r a t e o n r e t a i l l e n d i n g ( s e e b o x
holding company criterion. Institutions with asset
''The Small-Institution Evaluation''). The proposal w o u l d also leave
sizes below the $1 billion threshold would be subject
u n c h a n g e d the criteria f o r evaluating large institutions (those with
to a streamlined CRA lending test equivalent to that
m o r e than $ 1 billion in assets), w h i c h w o u l d continue to be subject to
a t h r e e - p a r t e v a l u a t i o n ( s e e b o x ' ' T h e L a r g e - I n s t i t u t i o n E v a l u a t i o n ' ' ) .[endoffootnote.]
now used for small institutions; they would also be

exempt from the evaluation of branching under the
service test now applied to institutions with assets of
more than $250 million. The proposal would also
create a new community development test for intermediate small institutions.
In the first part of this section, we analyze several
issues related to this portion of the proposal. First,
we identify and describe the institutions and banking
markets that would be affected by raising the threshold to $1 billion and eliminating the holding company criterion. Second, we examine the potential
effect of using a streamlined version of the CRA
lending test and eliminating the service (branching)
test for institutions with asset sizes below the threshold. Specifically, we examine the effect of the current
$250 million threshold on the retail lending and
branching activities of institutions within a narrow
range of the current threshold. Third, we consider
whether the role of community development lending
in CRA ratings has been significant.

Parties Affected by Raising the Threshold and
Eliminating the Holding Company Criterion
Raising the threshold and eliminating the holding
company criterion would affect both banking institutions and the communities they serve. Using 2003 as
a test year, we looked at the characteristics of institutions that would have been subject to a different CRA
evaluation process had the regulations proposed in
February 2005 been in effect. We also identified the
local banking markets that might have been most
affected had the threshold been raised.

Banking Institutions

of those, 1,621 institutions that were considered large
as of that date would be considered intermediate
small or small under the agencies' 2005 CRA proposal (columns 1-3). These ''status-changing'' institutions constituted 18 percent of all institutions subject to the CRA, and they held 13 percent of the
deposits held by all such institutions. Intermediate
small institutions consisted of 1,264 institutions that
had between $250 million and $1 billion in assets
(column 2) and 116 institutions that had more than
$1 billion in assets but which would not be considered large under the proposal because of a proposed
requirement to exceed the asset threshold for two
consecutive years (column 3). The "newly small''
institutions consisted of the 241 institutions that had
assets of less than $250 million but which nonetheless were subject to the large-institution CRA examination in 2003, generally because they were part of
a bank holding company with assets of more than
$1 billion (column 1). These institutions would be
considered small under the 2005 proposal.
The 1,621 status-changing institutions differ from
other CRA-covered institutions along a number of
dimensions. First, 28 percent of the status-changing
institutions had headquarters in nonmetropolitan
areas, compared with 7 percent of institutions with
assets exceeding $1 billion and 52 percent of small
banking institutions. Of the status-changing institutions with headquarters in nonmetropolitan areas,
60 percent had headquarters in exurban counties (nonmetropolitan counties adjacent to metropolitan areas)
and 40 percent in remote counties (counties not adjacent to metropolitan areas). Second, 14 percent
of the status-changing institutions had ''outstanding''
CRA performance ratings at their last examinations,
compared with 37 percent of larger institutions and
11 percent of small institutions.

As of December 31, 2003, 9,095 banking institutions
were subject to the CRA (table 1). We estimate that,

[footnote] 16. Under the proposal, intermediate small institutions would not
be subject to the large-institution service test. The service test evaluates, among other things, the geographic distribution of an institution's branches and its record of opening and closing branches, as well
[footnote] 19. Fourteen of the 241 institutions were not part of a multibank
as its record of providing community development services—that is,
holding company. They had exceeded the asset-size threshold for the
financial services targeted to lower-income people. Under the prolarge-institution examination as of the beginning of 2003, but their
posal, the branching of intermediate small institutions would no
assets had fallen below $250 million as of the end of the year. Under
longer be evaluated although, under the proposed community developthe 1995 regulations, these institutions had reverted to the smallment test, the community development services of such institutions
institution examination as of the beginning of 2004.[endoffootnote.]
would be.[endoffootnote.]
[footnote] 20. Nearly 380 of the status-changing institutions, although cov[footnote] 17. For convenience, our research ignored the changes that ered
the by the large-institution examination as of December 31, 2003,
had last been evaluated under the CRA as small banking institutions
OTS made to its regulations and assumed that the OTS regulations are
(data shown under the ''small-institution'' subcategory); consequently,
the 1995 regulations.[endoffootnote.]
[footnote] 18. We used 2003 as a test year because at press time it wasthey
the had not yet been evaluated as ''large.''[endoffootnote.]
latest year for which public data on retail lending activities related to
[footnote] 21. In classifying rural counties, the U.S. Department of Agriculthe CRA were available.[endoffootnote.]
ture makes the distinction between exurban and remote, among others.[endoffootnote.]

Table 1. B a n k i n g i n s t i t u t i o n s c o v e r e d b y t h e C R A , g r o u p e d b y s e l e c t e d c h a r a c t e r i s t i c s and d i s t r i b u t e d b y asset size,
as of D e c e m b e r 3 1 , 2 0 0 3
Number except as noted
Type of institution, by asset
Type
sizeof(millions
institution,
of dollars)
by asset size (millionsType
of dollars)
of institution,
Type Type
of institution,
byofasset
institution,
size
by(millions
asset
by size
asset
of(millions
size
dollars)
(millions
of dollars)
Type
of dollars)
of institution, by asset size (millions of dollars)
Small Institution[see footnote]1
Type ofinstitution,byassetsize(millionsofdollars)
Large Institution[see footnote]1
Characteristic

Location
(headquarters)
Urban (metropolitan area)
Center city
Location (headquarters)
Urban(metropolitanarea)Suburban
Location(headquarters)Rural[seefootnote]5

[see[see
footnote]1
footnote]1
Large Institution [see footnote]1
Small
Small
Institution
Institution

MEMO:

Total
Total

Morethan1,000
footnote]1
LargeInstitution[seeLess
MoreThan1,000 More
LargeInstitution[seefootnote]1Less
250150[seefootnote]3
than
than
than
Recent
250
[seefootnote]2 1,000
250
150
250[see footnote]4
Number
Nonrecent

Share
of
deposits
(percent)

Percent

71
81

463
456

53
47

316
101

766
1,633

294
415

121
153

2,084
2,886

22.9
31.7

74.7
15.0

61
28
0

199
144
2

10
5
1

23
8
9

1,649
1,417
6

273
182
0

67
41
0

2,282
1,825
18

25.1
20.1
.2

5.8
3.7
.8

Rating on most recent CRA exam
Outstanding
34
RatingonmostrecentCRAexamSatisfactory
185
RatingonmostrecentCRAexamNeeds to improve
0
RatingonmostrecentCRAexamSubstantial noncompliance
0
RatingonmostrecentCRAexamNone (no exam in 5 years) 22

164
1,050
7
0
43

26
84
1
0
5

168
282
0
1
6

573
4,405
27
3
463

165
918
0
0
81

50
293
1
0
38

1,180
7,217
36
4
658

13.0
79.4
.4
.0
7.2

54.3
42.9
.1
.0
2.7

Exurban
Location(headquarters)RuralRemote
Location(headquarters)U.S.-affiliatedarea [seefootnote]6

Type of most recent CRA exam
Large-institution
TypeofmostrecentCRAexamSmall-institution
Type of most recent CRA exam Other [see footnote]7
TypeofmostrecentCRAexamNone (no exam in 5 years)

129
79
11
22

909
291
21
43

95
9
7
5

412
3
36
6

6
4,973
29
463

2
1,075
6
81

2
339
3
38

1,555
6,769
113
658

17.1
74.4
1.2
7.2

80.2
12.8
4.3
2.7

Currentregulator [ s e efootnote]8
Board
CurrentregulatorFDIC
CurrentregulatorOCC
CurrentregulatorOTS

20
136
70
15

162
639
298
165

14
57
22
23

62
163
145
87

497
3,413
1,100
461

124
627
280
133

46
222
77
37

925
5,257
1,992
921

10.2
57.8
21.9
10.1

17.4
24.4
44.1
14.2

All
Number
All Percent

241
2.7

1,264
13.9

116
1.3

457
5.0

5,471
60.1

1,164
12.8

382
4.2

9,095

1,703
.5

963
9.6

927
2.9

1,035
75.6

1,734
6.0

1,734
3.6

1,657
1.9

1,645

...

100
100

...

100

MEMO

Median number of days between exams
MEMO Share of deposits (percent)

...

a narrow product line, such as one composed of credit card or motor vehicle
NOTE. Here and in subsequent tables, ''CRA'' means Community Reinvestloans, to a regional or broader market. Exams for wholesale and limitedment Act, and components may not sum to totals because of rounding.
institutions are limited to community development activities.[endoffootnote.]
[footnote] 1. Large institutions are banking institutions that reported 2003 data purpose
on
small-business, small-farm, or community development lending as required of
[footnote] 8. Current regulators are the Board of Governors of the Federal Reserve
large institutions under the CRA. All other institutions are small institutions.[endoffootnote.]
System (Board), the Federal Deposit Insurance Corporation (FDIC), the
Office of the Comptroller of the Currency (OCC), and the Office of Thrift
[footnote] 2. These institutions are generally part of multibank holding companies
Supervision (OTS).[endoffootnote.]
with assets of more than $1 billion and are currently covered by the largeinstitution CRA exam.[endoffootnote.]
. . . Not applicable.
[footnote] 3. ''Recent'' institutions are banking institutions that had more than $1 bil-SOURCES. Here and in subsequent tables, except as noted, analyses
incorporate data from one or more of the following sources: unemployment,
lion in assets as of December 31, 2003, but not in the two consecutive years
Bureau of Labor Statistics (2002); assets and business loans (as of June 30,
before 2003. If the asset-size threshold had been raised to $1 billion as of year2003; data adjusted through December 31, 2003, to reflect changes in bankend 2003, these institutions would not yet have qualified for the largeing institution structure), Consolidated Reports of Condition and Income (Call
institution CRA exam.[endoffootnote.]
Report), Federal Deposit Insurance Corporation (2003); branches and deposits
[footnote] 4. These institutions had more than $250 million in assets as of Decem(as of June 30, 2003; data adjusted through December 31, 2003, to reflect
ber 31, 2003, but failed to qualify for the large-institution CRA exam because
changes in banking institution structure), Summary of Deposits, Federal
they had not held this amount of assets for two consecutive years.[endoffootnote.]
Deposit Insurance Corporation (2003); filings under the Home Mortgage
[footnote] 5. Exurban areas are counties adjacent to metropolitan areas; remote areas
Disclosure Act and the Community Reinvestment Act, Federal Financial Instiare counties not adjacent to metropolitan areas.[endoffootnote.]
tutions Examination Council (2003); metropolitan statistical areas, Office of
[footnote] 6. In this article, U.S.-affiliated areas consist of American Samoa, Guam, the
Management and Budget (2004); census tracts, U.S. Census Bureau (2000); net
Commonwealth of the Northern Mariana Islands, Puerto Rico, and the U.S.
migration, Estimated Components of Population Change, Population Estimates
Virgin Islands.[endoffootnote.]
program, U.S. Census Bureau (2000); poverty, Small Area Income and Poverty
[footnote] 7. ''Other'' exams cover strategic-plan, wholesale, and limited-purpose
Estimates program, U.S. Census Bureau (2002); rural area designations, Urban
institutions. A strategic-plan institution develops its own plan, subject to the
Influence Codes, Economic Research Service, U.S. Department of Agriculture
approval of a supervising agency, for evaluating its CRA performance. A
(2003).
wholesale institution does not extend h o m e mortgage, small-business, smallfarm, or consumer loans to retail customers; a limited-purpose institution offers

is no universally accepted geographic definition of
definitions in our analysis. Not all parts of the
local banking markets, but the Federal Reserve Banks
country have been defined for this purpose; however,
have constructed a list of local banking market defini[footnote] 22. Local banking markets are not necessarily equivalent to CRA
tions for reviews of the competitive effects of proassessment areas. Unlike CRA assessment areas, local banking markets are not drawn from the perspective of a particular institution.[endoffootnote.]
posed mergers and acquisitions, and we used these
Local Banking Markets
Another way to look at the effect of raising the threshold is in terms of local banking markets. There

the 1,873 defined markets account for 96.7 percent of
the branches and 97.7 percent of the deposits held by
banking institutions nationwide (table 2). Seventy
percent of banking markets are rural, but such markets account for a relatively small proportion of banking deposits nationwide (about one-eighth—data
omitted from table) because most people and businesses are located in metropolitan areas.
For the market analysis, we focused on markets
in which status-changing institutions play a significant role. We used two methods to characterize the
roles of status-changing institutions in their markets: the percentage of a market's deposits held by
status-changing institutions and the determination of
whether a status-changing institution is the largest
institution in the market.
The first method, the ''market-share method,'' classifies markets by the percentage of each market's
deposits held by status-changing institutions. This
method assumes that an institution's propensity to
invest in its market is directly related to its share
of the market's deposits. (Here, we use the word
''invest'' in its broadest sense to include extensions
of credit, services, grants, and equity investments.)
The method further assumes that all institutions that
shift from a large-institution examination to a smallinstitution examination experience the same proportional change in their propensity to invest in the
market. These assumptions imply that the markets
with the greatest presence (as measured by share of
market deposits) of status-changing institutions will
experience the largest proportional changes in banking institutions' lending and investing in the market.

Table 2. Bank branches and deposits, grouped by location
and distributed by market status of location,
as of December 31, 2003
Rural
Rural
Item

Urban

Branches
Number
In defined markets . . 66,815
Branches Number
Not in defined
markets
612
Branches
67,427
Number Total
Branches Percent
In defined markets
99.1
Branches Percent
Not in defined
markets
.9
BranchesPercentTotal
100
Share of deposits
(percent)
In defined markets
99.4
Share of deposits (percent)
Not in defined
markets
.6
Share of deposits
100
(percent) Total

U.S.affiliated
area

Total

Exurban

Remote

10,234

7,806

84,855

1,034
11,268

606
8,412

641
641

2,893
87,748

90.8

92.8

96.7

9.2
100

7.2
100

100
100

3.3
100

91.8

92.7

97.7

8.2
100

7.3
100

100
100

2.3
100

693

617

1,873

6.9

4.4

100

26.3

14.9

37.7

100

7.0

6.3

10.4

MEMO

Number of defined
markets
563
MEMO Share of deposits in
defined markets
(percent)
88.7
MEMO Share of deposits not in
defined markets
(percent)
21.1
MEMO Average number of
banking institution
headquarters per
defined market
19.1

NOTE. In this article, markets are those defined as local banking markets by
the Federal Reserve Banks; these defined areas do not cover all parts of the
country. For markets that span more than one type of area, location is determined by the area with the largest percentage of market deposits. For definitions of ''exurban'' and ''remote,'' see table 1, note 5. For definition of ''U.S.affiliated area,'' see table 1, note 6.
The second method of market analysis, the ''largest-institution method,'' classifies markets by the size of
the largest institution with a presence (office) in the market regardless of the market share of that institution.
This method assumes that if raising the threshold has an effect, the effect is particularly large in those
markets that go from having one or more institutions that are subject to the three-part large-institution
examination to having no such institutions.
As noted earlier, the market-share method identifies the share of market deposits held by statuschanging institutions (table 3).

Table 3. Banking markets grouped by location and distributed by share of market deposits held by institutions that would shift
from large-institution to small-institution CRA examinations under the agencies' 2005 proposal, as of December 31, 2003
Percent except as noted
Share of market deposits Share
Share
ofof
market
market
deposits
deposits
affected
affected
(percent)
(percent)
affected(percent)0Share ofmarketdepositsaffected(percent)
Location of market 1

11 - 2 0

21 - 5 0

Share of market deposits
affected(percent)51-100
Total

1-10
Urban
Number
Urban Percent
Urban Percent weighted by market deposits

88
15.6
.7

145
25.8
60.8

123
21.9
26.3

173
30.7
11.1

34
6.0
1.1

563
100
100

Rural
Exurban
Number
RuralExurbanPercent
RuralExurbanPercent weighted by market deposits
Rural Remote
Number
RuralRemotePercent
RuralRemotePercent weighted by market deposits

215
31.0
16.9

100
14.4
28.9

95
13.7
14.1

196
28.3
28.5

87
12.6
11.5

693
100
100

218
35.3
17.7

61
9.9
15.7

88
14.3
17.3

185
30.0
39.6

65
10.5
9.8

617
100
100

All
Number
All Percent
All Percent weighted by market deposits

521
27.8
2.6

306
16.3
56.6

306
16.3
25.0

554
29.6
13.6

186
9.9
2.2

1,873
100
100

NOTE. See note to table 2.

[footnote]
its in the market location as a share of total deposits.[endoffootnote.]

Table 4. Banking markets, grouped by location and distributed
by change in CRA reporting status of largest banking
institution with an office in the market, as of
December 31, 2003
Percent except as noted

Remains
small

Location of market

Urban

Number

Urban Percent
Urban Percent weighted
by market deposits

As of December 31,
2003, 28 percent of the nation's 1,873 banking
markets (with 3 percent of nationwide deposits)
had no status-changing institution located within
the market (column 1). Under either the marketshare or the largest-institution method, those markets would presumably be unaffected by raising
the threshold to $1 billion. In another one-third
of markets (with 82 percent of nationwide deposits),
status-changing institutions held less than 20 percent of deposits and thus, under the market-share
method, would likely not see major effects (columns 2 and 3). But in roughly 10 percent of markets (with 2 percent of nationwide deposits),

Rural

Large
changes
to
small

Remains
large

Total

25
4.4

19
3.4

519
92.2

563
100

99.9

100

51
7.4

50
7.2

592
85.4

693
100

2.2

3.0

94.8

100

98
15.9

89
14.4

430
69.7

617
100

4.3

7.5

88.2

100

174
9.3

158
8.4

1,541
82.3

1,873
100

99.0

100

Exurban

Number
RuralExurbanPercent
RuralExurbanPercent weighted
by market deposits
Rural Remote
Number
RuralRemotePercent
RuralRemotePercent weighted
by market deposits
All
Number
All Percent
All Percent weighted
by market deposits
NOTE. See notes to table 3.

status-changing institutions held more than 50 percent of market deposits and, consequently, those markets have the potential to be most affected (column 5).

Table 5. Characteristics of counties in markets considered potentially most affected by an increase in the large-institution threshold
to $1 billion, by method of market analysis
Percent except as noted

Characteristic

footnote]1
Method of market analysis
Method
and location
of marketofanalysis
market[see
and
location of market[see footnote]1 Method of market analysis and location of market[see footnote]1
Method of market analysis and location of market [ s e e f o o t n o t e ] 1
National
Market-share
Largest-institution
Largest Institution
average
Market-share
for rural
Urban
counties
Urban
Rural
Rural

Demographic
Poverty rate, 2002
Demographic Income per capita, 2001 (dollars)
Demographic Real income growth rate
1996-2001
DemographicRealincomegrowthrate1981-2001
Demographic Unemployment rate, 2001
Demographic Population growth rate
1996-2001
DemographicPopulationgrowthrate1981-2001
Demographic Net migration rate, 1995-99[seefootnote]2

12.6
24,304

14.0
25,481

12.5
21,827

16.0
21,040

15.0
21,908

6.8
33.3
5.2

7.0
33.0
5.4

6.2
30.0
5.4

5.7
26.9
5.4

1.7
28.1
5.7

5.8
22.6
2.4

2.8
22.5
1.6

4.6
13.5
4.5

-.1
.1
.7

1.7
10.5
1.2

Banking
Branches per 10,000 persons
Number, 2003
BankingBranchesper10,000personsChange, 1998-2003
Banking Deposits
Per capita (thousands of dollars), 2003
BankingDepositsChange, 1998-2003

4.0
-.3

5.0
-.2

4.6
-.3

6.2
.0

5.4
-.1

12.8
-.1

14.5
-.2

10.9
-.1

15.2
.0

14.0
-.1

MEMO: Counties (data as of 2000)
Number
MEMO:Counties(dataasof2000)Percent with no lower-income tracts
MEMO:Counties(dataasof2000)Percent with only lower-income tracts

56
21.4
.0

199
48.2
3.0

14
50.0
7.1

160
55.0
7.5

2,051 3
48.23
5.5 3

deposits. Under the large-institution method, potentially most-affected mar[footnote] 1. For markets that span more than one type of area, location is determined by the area with the largest percentage of market deposits. Hence, rural
kets are markets in which the largest institution with an office in the market
was a status-changing institution (one with assets between $250 million and
counties may be located in urban markets. When market boundaries do not
$1 billion).[endoffootnote.]
correspond to county boundaries, the county is assigned to the market with the
largest share of deposits. Under the market-share method, potentially most[footnote] 2. Net migration rate is calculated as the difference in migration between
affected markets are markets in which status-changing institutions (those with
1999 and 1995 relative to the estimated population in 1997.[endoffootnote.]
assets between $250 million and $1 billion) held more than 50 percent of market
[footnote] 3. U.S. total.[endoffootnote.]

1. Banking markets analyzed by the market-share method: Share of deposits held
by status-changing institutions, as of December 31, 2003
[Map of the United States, with blue marking the areas with at least 50 percent (potentially most-affected markets) and the rest of the space marked in white,
representing less than 50 percent. Most of the map is white, with a few blue patches in Washington state, Idaho, California, Utah, Montana, Wyoming,
Colorado, New Mexico, North Dakota, South Dakota, Nebraska, Kansas, Oklahoma, Texas, Minnesota, Iowa, Missouri, Arkansas, Louisiana, Wisconsin,
Illinois, Indiana, Kentucky, Tennessee, Mississippi, Alabama, Florida, Georgia, South Carolina, North Carolina, Virginia, Delaware, New York,
Pennsylvania, Connecticut, Massachusetts, Vermont, New Hampshire, and Maine. Maine had the largest amount of blue, and it along with New Hampshire
and Massachusetts all had almost half the state in blue.]

NOTE. See table 5, note 1.

2. Banking markets analyzed by the largest-institution method: Current status of largest institution and the effect
on reporting status of raising the asset-size threshold, as of December 31, 2003

[Map of the United States, with white marking small-stays small, blue marking large-changes to small (potentially most-affected markets) and black
marking large-stays large. Alaska is about 2/3 black and 1/3 white, Hawaii is all black. The rest of the map is all black, with a few blue and white patches
in Washington State, California, Montana, Utah, Colorado, New Mexico, North Dakota, South Dakota, Nebraska, Minnesota, Iowa, Montana, Arkansas,
Louisiana, Mississippi, Alabama, Georgia, South Carolina, Tennessee, Kentucky, Virginia, Indiana. There are particularly large groupings of the white
and blue in Kansas, Oklahoma, and Texas. There are only white patches in West Virginia, Nevada, Idaho, and Michigan. There are blue patches only in
Wyoming, Ohio, North Carolina, and Florida.]

NOTE. See table 5, note 1.

The largest-institution method yields a different
group of potentially most affected markets (table 4).
The largest institution was a status-changing institution in about 8 percent of all markets (with less than
1 percent of nationwide deposits) (column 2).
Although there is little overlap between the groups
of potentially most affected markets defined by the
two methods, the groups have several characteristics
in common (table 5). In both groups, the markets are
overwhelmingly rural, are served by few banking
institutions (data omitted from table), have unemployment rates near the national rural average, and
have bank branches per capita similar to the national
rural average. Yet the groups of markets differ in key
respects. Whereas population growth is much higher
than the national rural average in the potentially most
affected markets identified by the market-share
method, it is notably lower than the national rural
average in such markets identified by the largestinstitution method. Moreover, under the market-share
method, the potentially most affected markets are
scattered throughout the country (figure 1), but under
the largest-institution method, such markets are concentrated substantially in the Great Plains region,
with much smaller concentrations in Iowa, Louisiana,
Kentucky-Tennessee, and southern Georgia-northern
Florida (figure 2).

Results of Threshold Tests
The 2005 proposal would subject intermediate small
banking institutions to the streamlined lending test
currently applied to smaller institutions and would
eliminate the service (branching) test for intermediate
small institutions. Testing directly to determine how
those changes would affect activities of intermediate small institutions is impossible. However, an
inference might be drawn from the effect of the
current $250 million threshold on the retail lending
and branching activities of institutions with assets
near this threshold. Of particular interest are the
retail lending activities covered by both the largeinstitution and the streamlined lending tests. Our tests
compare the retail lending and branching of institutions just above and just below the current largeinstitution threshold of $250 million (table 6). Institu-

tions ''just below'' the threshold are defined here as
those that had between $150 million and $250 million in assets as of December 31, 2003, and were
deemed small as of that date and for the purposes
of their most recent CRA performance evaluation
(group 1); institutions ''just above'' the threshold are
defined as those that had between $250 million and
$350 million in assets and were deemed large as of
that date and for the purposes of their most recent
examination (group 2).
Banking institutions in these two groups were
restricted to institutions that were independent of
multibank holding companies, that had a CRA examination completed between January 1, 1999, and
June 30, 2004, and that received a ''satisfactory"
CRA performance rating on their most recent examination in that period. Institutions with ''outstanding''
ratings were excluded to control for the possibility
that such institutions were influenced less by the
nature of their CRA examinations and more by other
factors, such as institution philosophy, than were
institutions with ''satisfactory" ratings. Institutions
with less than ''satisfactory" ratings were excluded
for similar reasons. Institutions with headquarters in
U.S.-affiliated areas were also excluded.
The threshold test relies on sources of data that
provide the same types of information for institutions
just above the threshold as for institutions just below.
The information consists of five balance sheet ratios
constructed from dollar values provided in Call
Report data supplied to federal banking agencies.24
The ratios compose two categories: loan dollars to
deposits (overall; consumer; and business, including
small commercial and industrial [C&I], small commercial real estate [CRE], and small farm) and mortgage dollars to deposits (one- to four-family and
multifamily).
In addition, five measures of retail lending to
lower-income populations were constructed from filings pursuant to HMDA: the percentage of an institution's home-purchase and home-improvement loans
extended to lower-income borrowers or census tracts
and a comparable calculation for loans extended for
multifamily housing in lower-income census tracts.
Each of the HMDA-based measures was expressed
as the difference between the percentage of the institution's retail loans made to lower-income borrowers
(or borrowers that live in lower-income tracts) and
the percentage of the families that live in the areas

[footnote] 24. ''Call Report'' is the informal name for the Report of Condition
and Income, which commercial banking institutions must file each
quarter with federal and state banking agencies. It is essentially
[footnote] 23. The figures use counties, which approximate, rather than equivalent to the Thrift Financial Report, which savings institutions
precisely match, banking markets.
[end
of
footnote.] must file each quarter with the Office of Thrift Supervision.[endoffootnote.]

Table 6. Lending and branching activities of banking institutions with asset sizes close to the current large-institution threshold
for C R A exams, as of December 31, 2003
Percent except as noted
Asset size
Asset size
Asset size (millions of dollars)
(millions of dollars)
(millionsofdollars)150-250Asset size
Less than 250[seefootnote]2
( Group 1)
(Group 4)
(millionsofdollars)
Item
250-350
(Group 2)
Ratio of loan dollars to deposits, by type of loan
c
All
78.6[seefootnotes]a,capitalB 83.7
7.0 c
Ratioofloandollarstodeposits,bytypeofloanConsumer
5.6[seefo tnotes]a,capiBtal
Ratioofloandollarstodeposits,bytypeofloanBusiness[seefootnote]3
Commercial and industrial
Overall
11.2
9.9
footnote]a
Ratioofloandollarstodeposits,bytypeofloanBusiness[seefootnote]3Commercialandindustrial
9.3[seeSmall
7.5
[seefootnote]3
Ratioofloandollarstodeposits,bytypeofloanBusiness
Commercial real estate
Overall
19.0
20.9
Ratioofloandollarstodeposits,bytypeofloanBusiness[seefootnote]3Commercialreal
13.9
estateSmall
13.1
Ratioofloandollarstodeposits,bytypeofloanBusiness[seefootnote]3Farm[seefootnote]4
[see footnote]a
5.5
3.3
Overall
Ratioofloandollarstodeposits,bytypeofloanBusiness[seefootnote]3Farm[seefootnote]4Small
6.6[see footnote]a
4.1
Ratio of mortgage dollars to deposits, by type of mortgage
1 - 4 family
Ratioofmortgagedollarstodeposits,bytypeofmortgageMultifamily

Loans in lower-incomeareas [seefootnote]5
Home-purchase
Loansinlower-incomeareas[seefootnote]5Home-improvement
Loansinlower-incomeareas[seefootnote]5Multifamily

-7.8
-4.5
1.6

88.5
8.6

85.3
6.4[seefootnote]d

85.4
5.1

10.3
7.5

12.3
9.7

11.4
9.3

10.7
8.0

19.8
11.8

20.4
13.2

17.9[see footnote]d
12.8

20.9
13.5

3.8
5.9

6.0
5.6

6.9
8.4

27.6
2.5

31.8
2.2

33.0
4.0

-3.3
10.8

-3.2
7.6

-10.6
-7.5
7.3

Branching activity[seefootnote]6
Branches per $100 million of deposits (number)
2.7
2.9
Branchingactivity[seefootnote]6Branches in lower-income areas (percentage- 1points)
.7
1.0
[seefootnote]6
Branchingactivity
Branchesinlower-incomeareas(percentagepoints)5-year.0 change in such
- 1 branches
.0
Number of institutions

646

2001

78.5
5.0

27.0[seef o o t n o t e s ] a , b 29.9
2.2
2.6

Loans to lower-income borrowers (percentage points)[seefootnote]5
Home-purchase
-3.7
Loanstolower-incomeborrowers(percentagepoints)[seefootnote]5Home-improvement
10.0

350-450
(Group 3)

MEMO:

Crossed threshold[see footnote]1
after end of 2001
Crossed threshold
2003
after endof2001[seefootnote]1
MEMO:

6.4
7.3

...

-4.5
4.6

...
...

-4.8
-6.9
8.1

-14.2
-.7
-.6

...
...

2.7
-3.5
-2.0

3.0
-1.8
-1.5

.3.1. .
...

...
...

142

100

29.9
4.7

2.9

100

[footnote] 5. Data cover only urban tracts and institutions that report data under the
NOTE. Data are group means adjusted for state, institution (savings associaH o m e Mortgage Disclosure Act. Data are the difference between the average
tion or commercial bank), location (center city, suburban, exurban, or remote),
percentage of lending to borrowers in lower-income census tracts and the averand charter effects. Analysis is restricted to institutions that were examined in
age percentage of families that live in lower-income census tracts in the areas
the past five years, that were in existence for at least one year, and that received
that the institutions serve.[endoffootnote.]
a ''satisfactory'' rating on the small- or large-institution exam. Data exclude
institutions with headquarters in U.S.-affiliated areas and strategic-plan,
[footnote] 6. Branch data are measured as of June 30, 1998; June 30, 2001; or June 30,
wholesale, and limited-purpose institutions (see table 1, note 7).
2003. Data have been adjusted through December 1998, December 2001, or
December 2003 to reflect changes in banking institution structure. Data on
[footnote] 1. Data are for the 100 banking institutions that were subject to the smalllower-income areas are the difference between the percentage of branches in
institution evaluation in 2001 but were subject to the large-institution evalualower-income census tracts and the percentage of families that live in lowertion in 2002 and 2003. Differences are omitted for retail loans extended to
income census tracts in the areas that the institutions serve.[endoffootnote.]
lower-income borrowers, retail loans extended in lower-income areas, and some
categories of branching activity because the lower-income classifications of
[footnote] a. Difference between group 1 and group 2 is statistically significant at the
2001 were based on the 1990 census, whereas those of 2003 were based on the
10 percent level.[endoffootnote.]
2000 census.[endoffootnote.]
[footnote] b. Difference between group 1 and group 4 is statistically significant at the
[footnote] 2. These institutions are part of multibank holding companies with assets 10
of percent level.[endoffootnote.]
[footnote]uppoercaseB. Difference between group 1 and group 4 is statistically significant at the
more than $1 billion and are currently covered by the large-institution C R A
1 percent level.[endoffootnote.]
exam.[endoffootnote.]
[footnote] 3. Business loan ratios are calculated as of June 30, 2001, or June 30, 2003,[footnote] c. Difference between group 2 and group 3 is statistically significant at the
10 percent level.[endoffootnote.]
for comparability with small-loan data. Data have been adjusted through
December 2001 or December 2003 to reflect changes in banking institution
[footnote] d. Difference between ratio in 2001 and that in 2003 is statistically significant
structure.[endoffootnote.]
at the 10 percent level.[endoffootnote.]
[footnote] 4. Farm lending is measured only for rural commercial banks. Small farm. . . Not applicable.
contains some loans not in overall farm.[endoffootnote.]

served by the institution who have lower incomes (or
live in lower-income tracts). Because of limitations
on reporting requirements for rural institutions under
HMDA, the comparisons that use the HMDA-based
lower-income lending measures were restricted to
retail lending activities in urban areas.
We present means of these metrics for the groups
above and below the threshold, adjusted to remove
effects related to state, institution type (savings
association or commercial bank), and headquarters

location (center city, suburban, exurban, remote) as
rough controls for economic and demographic factors. The results are of three types. First, overall
C&I lending, CRE lending (overall or small), multifamily housing, and the HMDA data measures show
no statistically significant differences. Second, the
[footnote] 25. Every institution in the analysis had at least one comparable
institution on the other side of the threshold in the same state, of the
same institution type, and in the same area type.[endoffootnote.]

other business loan categories do show differences
that are statistically significant; however, the direction of the differences is the opposite of what would
have been expected had the differences been caused
by tougher evaluation criteria in the large-institution
evaluation.
Third, statistically significant differences exist in
the groups' ratios of overall loan dollars to deposits,
consumer loan dollars to deposits, and one- to fourfamily mortgage dollars to deposits, and these differences go in the direction that might suggest a threshold effect. To confirm that this result reflects differences in CRA evaluation criteria and not merely in
asset size, we conducted an additional comparison
test. We constructed a third group of banking institutions that had between $350 million and $450 million in assets and that otherwise met the same requirements as the institutions in group 2 (group 3). A
comparison of adjusted means for group 3 with those
for group 2 isolates the effects of size differences
because banking institutions in both groups are subject to the same type of CRA evaluation. Institutions
in group 3 have lower ratios of overall loan dollars
to deposits, consumer loan dollars to deposits, and
one- to four-family mortgage dollars to deposits than
have institutions in group 2 (and, in two out of three
cases, lower than those of group 1 institutions), an
indication that the difference between groups 1 and 2
may be caused by a factor other than the difference in
CRA examination types.
We also compared adjusted means for groups 1 and
2 (and for groups 2 and 3) on three measures of
branching activity: (1) the number of branches per
$100 million of deposits, (2) the difference between
the percentage of branches in lower-income census
tracts and the percentage of the population that lives
in lower-income census tracts in the areas that the
institutions serve, and (3) the five-year change in the
percentage of branches in lower-income areas. None
of the three measures shows a significant difference
among any of the groups.
As a further test for the effects of differences in
CRA evaluation types, we compared independent
institutions that had between $150 million and
$250 million in assets (group 1) with similarly sized
institutions that were subject to the large-institution
evaluation criteria because of their affiliation with
holding companies with assets of $1 billion or more
(group 4). The ratios of overall loan dollars to deposits, consumer loan dollars to deposits, and one- to
four-family mortgage dollars to deposits are the only
measures with a statistically significant difference:
Group 4 has higher ratios than does group 1. One
should interpret these results cautiously, as they may

mean only that banking institutions in holding companies are more likely than independent banking
institutions to raise funds through wholesale, nondeposit markets and to be institutions focused on
retail lending.
A final test for the effects of differences in CRA
evaluation types examined whether banking institutions that passed the $250 million threshold measurably changed their retail lending and branching
activities. Specifically, one hundred institutions covered by the large-institution CRA evaluation (though
not necessarily yet evaluated as large institutions) at
the end of 2002 and at the end of 2003 had been
subject to the small-institution evaluation in 2001.
This test, unlike the other tests, looked for any change
in an individual institution's behavior induced by a
change in evaluation type. We restricted the comparison to institutions covered by the large-institution
examination for both 2002 and 2003 to ensure that
ample time had elapsed for behavioral changes to
result in measurable changes in balance sheet variables. We found only two statistically significant
changes in retail lending or branching behavior as an
institution passed through the $250 million threshold
(compare columns 5 and 6), but the changes were in
opposite directions: Consumer lending fell, and overall CRE lending rose.
Taken together, the threshold tests provide little
evidence that the nature of the CRA examination
influences the retail lending and branching activities
of banking institutions in the size range near the
$250 million threshold. However, the threshold tests
have an important limitation. The tests are limited to
inferences about the behavior of institutions around
the margin of the current threshold, $250 million.
They suggest that raising the threshold some amount
above $250 million would not have a significant
effect on retail lending or branching. However, they
fail to reveal what amount of increase in the threshold, if any, would result in a significant effect.

The Role of Community Development Lending
The 1995 regulations require that, for a large institution, community development lending be evaluated
as only one component of the CRA lending test,
which includes a wide range of other, retail types of
[footnote] 26. We refrained from conducting the comparison for any of the
measures that use lower-income classifications because 2001 classifications were based on the 1990 census and 2003 classifications were
based on the 2000 census. The change in classifications makes a
comparison of lower-income activity in 2001 with lower-income
activity in 2003 problematic.[endoffootnote.]

lending (see box ''The Large-Institution Evaluation" ). Under the 2005 proposal, intermediate small
institutions would be subject to a new community
development test. Instead of considering community
development loans, investments, and services in
three separate tests, the proposal is for the three types
of activity to be considered in a single test. The
proposal responds in part to the argument that community development lending is more like community
development investments—both are primarily for the
benefit of lower-income people or areas—than like
retail lending. It also responds to the argument that
evaluating community development investments
separately from retail lending places too much
emphasis on investment vehicles, especially for
smaller institutions that have limited experience with
and opportunities for investments and substantially
more experience with and opportunities for retail
lending.
We could not test for the effects of adopting a
community development test on community development loans, investments, or services. We could, however, consider whether the number or dollar amount
of community development loans have played a
significant role in CRA ratings. Our sample was
restricted to institutions examined under the largeinstitution examination between January 1, 2001, and
December 31, 2003. We looked at the institutions'
community development lending records over the
same period (table 7). The data suggest that an institution' s community development lending record is
largely unrelated to its overall CRA rating. The lack
of relationship is most apparent among institutions
with assets of more than $5 billion: Nearly one-half
Table 7. Rating on most recent CRA exam and community
development lending during 2 0 0 1 - 0 3 at large
institutions, by rating and asset size of institution,
as of December 31, 2003
Percent except as noted

Number of institutions
and status of community
development lending,
by CRA rating

of the institutions with ''outstanding" ratings had
community development lending activity in the bottom half of their asset-size group. Among intermediate small institutions, those with ''outstanding" ratings were a little more likely than their counterparts
with ''satisfactory" ratings to do community development lending. However, fully one-fourth of the institutions rated ''outstanding'' in this category did no
community development lending, and about 40 percent had community development lending activity in
the bottom half of their asset-size group.
Although the data provide no information about
how community development lending should be
treated in CRA evaluations, they do suggest that such
lending is not currently critical in overall CRA ratings. The likely explanation is that, because examiners consider community development loans as part
of a comprehensive lending test, other types of lending may have compensated for an institution's lack
of community development loans. Another possibility is that, despite the mandate of the regulations
to treat community development loans and community development investments separately, examiners
implicitly treat them as substitutes.

COMMUNITY DEVELOPMENT AND RURAL AREAS

Another part of the agencies' 2005 proposal would
expand the definition of ''community development''
in rural, though not urban, areas. This part of the
proposal would cover banking institutions of all sizes,
not just intermediate small institutions.

The Problem and the Agencies'
Proposed Solution
The regulations' current definition of ''community
development'' is identical for urban and rural areas.
As noted earlier, the definition covers four categories
of activity, three of which (affordable housing, com-

Asset sizeAsset
of institution
size of
Asset
institution
size of institution
(millions of dollars)
Asset size
of institution
(millions
(millions
of dollars)of dollars)
(millions of dollars)
250500

5001,000

1,0005,000

More
than
5,000

Outstanding
Number of institutions
23
Outstanding M a d e no loans
26.1
Outstanding Ranked in bottom half of asset-size 39.1
class

50
22.0
44.0

92
8.7
38.0

65
6.2
46.2

Satisfactory
Number of institutions
241
Satisfactory M a d e no loans
29.9
Satisfactory Ranked in bottom half of asset-size 51.0
class

316
19.0
51.0

254
11.0
54.3

69
5.8
53.6

NOTE. Analysis is restricted to institutions that were subject to the largeinstitution CRA exam each year from 2001 through 2003, that were in existence for at least one year, that received an ''outstanding'' or ''satisfactory'' rating on the exam, and that had assets of more than $250 million in 2003. Data
exclude strategic-plan, wholesale, or limited-purpose institutions (see table 1,
note 7) and institutions with headquarters in U.S.-affiliated areas.

[footnote] 27. Some empirical support exists for the substitutability explanation. We examined the CRA performance evaluation reports (PEs) for
the twenty-three institutions in our sample that had assets between
$250 million and $500 million and that received ''outstanding''
CRA ratings (column 1, row 1, of table 7). There is a mild negative
correlation (-.2) between the dollar volume of community development lending and the investments reported in the PEs. However, some
evidence also suggests that the substitutability explanation applies
only to smaller institutions. An examination of the dollar volume of
community development lending and the investments reported in the
PEs of the fifty institutions in our sample that had assets between
$500 million and $1 billion and that received ''outstanding'' CRA
ratings (column 2, row 1) shows a significant positive correlation
of .5.[endoffootnote.]

Table 8. Distribution of census tracts, population, and families, Table 8.—Continued
by location of tract and tract income relative to wider
area, as of December 31, 2003
Percent except as noted

Percent except as noted
Census tracts
Census tracts

Census tract location
and percent of median
family income inarea [ s e efootnote]1

Percent

Population

Families

Number

Urban
Center city tracts
I n c o m e relative to
MSA
Less than 50
3,437
Urban
8,004
Center city tracts
Urban
2,622
Income
relative
to
Center
Urban city tracts
2,503
MSA
5 0relative
- 7 9 to
CenterIncome
city tracts
Urban
3,898
Income
8 0relative
- 9 0 to
Urban
CenterMSA
city tracts
5,814
MSA
9 0relative
- 1 0 0 to
Center
UrbanIncome
city tracts
26,278
UrbanIncome
Center
MSA
city tracts
1 0relative
0 - 1 1 9to
CenterMSA
citytracts
I nor
c omtooe r relative
to
Income
120
relative
e
state
MSA Total
10,938
UrbanLess than 80
4,851
Center
to
Urban city tracts Income relative3,900
0 - 9 9Income relative6,589
Urban
Centerstate
city 8tracts
to
Urban
Centerstate
city 1tracts
0 0 - 1Income
19
relative
to
26,278
Center
city
tracts
m
o r erelative to
Urbanstate
S u b120
u r b aor
nIncome
tracts
state
Total
I n c o m e relative to

13.1
30.5
10.0
9.5
14.8
22.1
100

10.0
29.7
10.4
10.0
16.3
23.6
100

8.7
27.7
10.3
10.2
17.4
25.7
100

78.2
60.5
45.8
39.4
31.6
19.0
42.7

41.6
18.5
14.8
25.1
100

37.8
19.2
15.9
27.0
100

34.8
19.3
16.7
29.2
100

64.8
42.9
31.8
18.0
41.4

MSA
Less than 50
444
1.7
Urban Suburban tracts
4,456
16.9
Income relative to
M S AUrban
5 0 - 7 9Suburban tracts
3,384
12.9
IncomeSuburban
relative to
M S AUrban
8 0 - 9 0 relative totracts
4,069
15.5
Income
tracts
M S AUrban
9 0 - 1 0Suburban
0
6,563
25.0
Income relative to
tracts
M S AUrban
1 0 0 - 1Suburban
19
7,382
28.1
Income relative to
Urban Suburban
MSA120
or m o rtracts
e
26,298
100
Income relative to
MSATotal
UrbanSuburbantractsI n c o m e relative to
state
Less than 80
4,592
17.5
Urban Suburban tracts Income
relative to24.1
6,333
state 8 0Suburban
-99
Urban
tracts Income
relative
to
6,100
23.2
state 1 0 0 - 1 1 9
Urban Suburban tracts Income
relative to35.3
9,273
state 120 or m o r e
Urban Suburban tracts Income
relative to
26,298
100
state Total
Rural
E x u r b a n tracts
I n c o m e relative to
non-MSA
Less than 50
57
Rural
912
Rural
Exurban tracts
1,157
Exurban
RuralIncome
tractsrelative to
1,780
Exurban
Income
non-MSA
tractsrelative
5 0 - 7to
9
Rural
2,720
Rural
non-MSA
Income
8 0 - 9to
0
Exurban
tractsrelative
1,035
Exurban
non-MSA
tractsrelative
9 0 - 1to
00
Rural
Income
7,661
Income
Exurban
Rural
non-MSA
tractsrelative
1 0 0 -to
119
non-MSA
orrelative
m o r e to
Exurban
Income
tractsrelative
I n c120
o m eto
state
non-MSA Total
3,051
Rural Less than 80
3,394
Exurban tracts Income relative to1,006
Rural
statetracts
8 0 -Income
99
Rural
Exurban
relative to 210
Rural
Exurban
statetracts
1 0 0Income
- 1 1 9 relative to7,661
Exurban
or
m orelative
re
to
Ruralstate
R etracts
m120
o t eIncome
tracts
I nstate
c o m eTotal
relative to
non-MSA
Less than 50
39
Rural Remote tracts
794
RuralIncome
Remoterelative
tracts to
927
non-MSA
5 0 - 7to
9
RuralIncome
Remoterelative
tracts
1,136
RuralIncome
non-MSA
Remoterelative
tracts
8 0 - 9to
0
1,285
RuralIncome
non-MSA
Remoterelative
tracts
9 0 - 1to
00
469
RuralIncome
non-MSA
Remoterelative
tracts
1 0 0 -to
119
4,650
non-MSA
Income
relative
120
to
or
m
o
r
e
RuralRemotetractsI n c o m e relative to
non-MSA Total
state
Less than 80
2,240
Rural Remote tracts Income1,764
relative to
state 8 0 - 9 9
Rural Remote tracts Income relative
4 8 7 to
state
1
0
0
1
1
9
Rural Remote tracts Income relative
159 to
state 120 or m o r e
Rural Remote tracts Income
relative to
4,650
state Total

Memo:
Families
with
incomes
less
than
80 percent
of MSA
or
non-MSA
median[seefootnote]2

1.2
15.9
12.5
15.5
25.6
29.2
100

1.0
14.6
12.3
15.5
26.2
30.4
100

76.9
57.9
45.6
38.9
30.7
18.5
34.5

15.9
23.5
23.8
36.8
100

14.4
23.3
24.1
38.2
100

59.7
42.2
30.8
17.6
32.6

.7
11.9
15.1
23.2
35.5
13.5
100

.5
10.5
14.4
22.7
36.9
15.0
100

.4
9.8
14.1
22.8
37.4
15.5
100

72.9
55.1
45.8
39.8
32.6
23.7
37.1

39.8
44.3
13.1
2.7
100

37.5
45.0
14.5
3.0
100

36.3
45.7
14.9
3.1
100

57.4
43.4
33.0
22.9
46.3

.8
17.1
19.9
24.4
27.6
10.1
100

.6
15.0
18.7
23.4
29.6
12.7
100

.4
14.4
18.7
23.8
30.0
12.8
100

72.0
55.8
46.1
39.9
32.9
23.3
39.3

48.2
37.9
10.5
3.4
100

44.6
38.4
12.5
4.6
100

43.9
38.9
12.6
4.5
100

58.6
43.7
33.1
23.5
48.0

Census tractsCensus tracts

Census tract location
and percent of median
Number
family income inarea [seefootnote]1

Total urban
I n c o m e relative to
MSA
Less than 50
3,881
Total urban
12,460
Income relative to
Total
MSA urban
50-79
6,006
Income
relative to
Total urban
MSA
- 9 0 to
6,572
Income8 0relative
Total
MSA urban
90-100
10,461
Income relative to
Total
urban
MSA 1 0 0 - 1 1 9
13,196
Income relative to
Total
MSA urban
120 or m o r e
52,576
Income relative to
MSAurban
TotalI n c o m e relative to
Total
state
Less than 80
15,530
Total urban Income relative 11,184
to
state 8 0 - 9 9
Total urban Income relative 10,000
to
state 1 0 0 - 1 1 9
Total urban Income relative 15,862
to
state 120
m o r e relative to
Total
urbanorIncome
52,576
state Total
Total rural
I n c o m e relative to
non-MSA
Less than 50
96
Total rural
1,706
Income relative to
Total
rural
non-MSA 5 0 - 7 9
2,084
Income relative to
Total rural8 0 - 9 0
non-MSA
2,916
Income relative to
Total
rural9 0 - 1 0 0
non-MSA
4
,005
Income relative to
Total
rural1 0 0 - 1 1 9
non-MSA
1,504
Income relative to
Total
rural120 or m o r e 12,311
non-MSA
Income relative to
non-MSA
Total
ruralITotal
n c o m e relative to
state
Less than 80
5,291
Total rural Income relative to 5,158
state 8rural
0 - 9 9Income relative to
Total
1,493
state 1 0 0 - 1 1 9
Total rural Income relative to 369
state 120 or m o r e
Total rural Income relative to12,311
state Total

Memo:
Families
with
incomes
less
than
80 percent
of MSA
or
non-MSA
median [see footnote]2

Percent

Population

Families

7.4
23.7
11.4
12.5
19.9
25.1
100

5.4
22.4
11.5
12.9
21.3
26.6
100

4.4
20.4
11.4
13.1
22.3
28.3
100

78.0
59.5
45.7
39.1
31.0
18.7
38.2

29.5
21.3
19.0
30.2
100

26.2
21.5
20.1
32.2
100

23.5
21.5
20.8
34.2
100

63.1
42.5
31.2
17.7
36.5

.8
13.9
16.9
23.7
32.5
12.2
100

.5
12.1
15.9
22.9
34.4
14.2
100

.4
11.4
15.7
23.1
34.9
14.6
100

72.6
55.4
45.9
39.8
32.7
23.6
37.9

43.0
41.9
12.1
3.0
100

40.0
42.7
13.8
3.5
100

39.0
43.3
14.1
3.6
100

57.9
43.5
33.1
23.1
46.9

NOTE. Data f r o m t h e 2000 census are reported for census tracts and
metropolitan statistical areas as determined b y 2 0 0 4 definitions. Data e x c l u d e
census tracts in U.S.-affiliated areas.
[footnote] 1. I n c o m e standard is t h e m e d i a n family i n c o m e in t h e metropolitan statistical area (MSA), nonmetropolitan portion of t h e state ( n o n - M S A ) , or state in
w h i c h t h e census tract is located.[endoffootnote.]
[footnote] 2. For calculations in this c o l u m n , even w h e n tracts are classified b y state
standards, families are still classified b y t h e i n c o m e in the M S A or n o n - M S A in
w h i c h t h e family is located.[endoffootnote.]

munity services, and economic development) are
defined in terms of the activity' s targeting of certain
recipients (lower-income people, small businesses, or
small farms) and the fourth of which (revitalization
and stabilization) is defined in terms of the activity' s
targeting of certain areas—namely, lower-income
census tracts.
Some have said that the lower-income-area limitation in the fourth category, revitalization and stabilization, may unduly constrain the effectiveness of the
regulations in promoting community development
activities in rural areas. In response to such concerns,
the agencies proposed to expand the definition of
''community development'' to include revitalizing or
stabilizing activities in underserved rural areas. No
such change was proposed for urban areas.

The problem that the agencies sought to address
stems in part from the way rural census tracts are
classified. As applied to rural areas, the 1995 regulations' system for classifying census-tract income has
two defining characteristics. The first characteristic
is that the system ignores the fact that rural areas are
generally poorer than urban areas. Forty-three percent of rural census tracts in the United States
(containing 40 percent of the rural population) have
a median family income below 80 percent of the
median family income of the state in which the tracts
are located; in contrast, 30 percent of urban census
tracts (containing 26 percent of the urban population)
have a median family income below 80 percent of the
statewide median (table 8, ''Total rural'' and ''Total
urban'' categories). But the 1995 regulations classify
rural census tracts relative only to a state's rural
median income, not relative to the median income of
the entire state, including its urban areas. Thus, the
current rule classifies only 15 percent of rural tracts,
not 43 percent, as lower income. In contrast, despite
the higher absolute incomes of urban areas, double
the proportion of urban tracts (31 percent), which are
classified relative to the relevant metropolitan area
income, are currently classified as lower income.
The second characteristic is that the census tract
identifies pockets of lower-income populations less
effectively in rural areas than in urban areas. Compared with urban census tracts, rural tracts are drawn

over relatively large geographic areas, have lower
population densities, and often have relatively heterogeneous populations that, when averaged, tend
toward the middle (table 9). Indeed, 73 percent of
all rural tracts are defined as middle income; in
contrast, 44 percent of urban tracts are defined as
such (percentages derived from table 8).
The large size of rural census tracts and the relative
heterogeneity within them have another consequence:
uneven distribution of lower-income tracts among
areas that define banking institutions' markets, such
as counties and assessment areas. Most rural counties
(almost 60 percent) have no tracts that are classified
as lower income under the current definition; in contrast, only 18 percent of urban counties are without
any such tracts (table 9). About 44 percent of the
rural assessment areas that large institutions reported
under the CRA regulation in 2003 lacked any tracts
classified as lower income, whereas only 14 percent
of the urban assessment areas that these institutions
reported lacked any such tracts. Small institutions
do not report their assessment areas, though the areas
are described in their performance evaluations. A
rough approximation of a small institution's assessment areas—one that uses the counties in which
its branches are located—suggests that 54 percent of
small institutions also lack any lower-income tracts
in rural areas.
The relative lack of lower-income tracts in rural
areas could have different consequences. Banking
institutions might invest less, or less efficiently, in

Table 9. Characteristics of census tracts and the share of selected areas and of banking institutions without lower-income tracts,
by location of tract, as of December 31, 2003
Percent except as noted
Urban
Urban

Rural
Rural

Total

Item
Center city
Characteristic of census tract
Number of tracts
26,278
CharacteristicofcensustractAverage land area per tract (square miles)5.5
CharacteristicofcensustractAverage population density per tract
(population per square mile)
9,812.3
CharacteristicofcensustractAverage population per tract
4,145.3
CharacteristicofcensustractPercent of national population
38.7

Suburban

Exurban

Remote

26,298
28.5

7,661
147.8

3,097.3
4,693.8
43.9

Share without lower-income census tracts
Area
County
12.0
31.9
footnote]1
Sharewithoutlower-incomecensustractsIndividual assessment area of large
6.2 institution [see
26.5
Sharewithoutlower-incomecensustractsAggregate
assessment area
Large institution
5.8
14.3
Share without lower-income census
tracts Aggregate
assessmentareaSmallinstitution [seefootnote]2

...

total Urban

Rural

total All

4,650
322.7

52,576
17.0

12,311
213.9

64,887
54.3

494.5
4,163.7
11.3

423.4
3,639.6
6.0

6,454.4
4,419.6
82.6

467.7
3,965.7
17.4

5,318.4
4,333.4
100.0

56.9
45.1

61.3
45.7

18.0
13.8

59.0
43.8

44.8
23.4

36.0
55.0

32.7
56.9

5.4
7.9

30.2
53.9

13.9
28.3

NOTE. Data exclude U.S.-affiliated areas and tracts without income
ment and Budget, have been mapped onto the 2004 tract definitions, which use
information.
the Office of Management and Budget' s 2004 designations of metropolitan
[footnote]1.
An assessment area consists of the area in which a banking institution has statistical areas. Large institutions report their assessment areas each year and
its main office, branches, and deposit-taking automated teller machines, as well
may have multiple assessment areas corresponding to cities or states.[endoffootnote.]
as the surrounding areas in which the institution has originated or purchased [footnote]2.
Aggregate assessment areas were approximated by the counties in which
a substantial portion of its loans. Assessment areas reported in the 2003
small institutions had branches.[endoffootnote.]
geographies, which were determined from information supplied by the U.S.
. . . Not applicable.
Census Bureau, the U.S. Department of Agriculture, and the Office of Manage-

community-improving activities in rural areas than
they might under a standard more appropriate for
rural community development. Or they might shift
more of their community-improving loans or investments to urban areas than they might under a standard that would give more equal area-based CRA
consideration in urban and rural areas. A third possibility is that, even if the first and second possibilities
failed to occur, banking institutions might receive
inadequate recognition of their community-improving
activities in rural areas because the activities did not
meet the exact requirements to qualify as community
development.
Perhaps to address these possible consequences,
the 2005 proposal would expand, in two ways, the
criteria under which banking institutions receive
CRA consideration for community-improving activities in rural areas. First, CRA consideration would
be available for activities that revitalize or stabilize
''underserved rural areas,'' in the words of the proposal, even if the areas lack lower-income tracts.
Second, the proposal would extend CRA consideration to affordable housing for any individual in
an underserved rural area. The 1995 regulations
limit affordable housing consideration to housing
for lower-income individuals; consideration does
not depend on where the lower-income individuals
reside. The proposal would leave unchanged the recognition of community development activities in
urban areas and the non-community-development
CRA measures.
In this section, we analyze several issues related
to the agencies' proposal to expand the criteria for
recognizing rural community-improving activities
as community development. First, we test the proposal's premise that the 1995 regulations ''disfavor''
community-improving activities in rural areas relative to those in urban areas. Second, we explore the
implications of various options to revise the regulations on which the agencies sought public comment.

Concern about Whether the 1995 Regulations
''Disfavor'' Rural Areas
Research on the question of whether the 1995 regulations disfavor rural areas is constrained by the
difficulties in gathering comprehensive data on
community-improving activities that fail to qualify
for CRA consideration and by the lack of geographic
data on community development loans, investments,
and services. However, geographic data are available
for all other CRA-related loan products and branches,
such as loans to purchase or improve homes or to
finance small businesses or small farms. We used

these data to test whether large institutions whose
assessment areas include both urban and rural areas
(''urban-rural institutions'') appear to favor urban
areas over rural areas in retail lending and branching
activities. We also tested whether large institutions
with headquarters in rural areas (''rural institutions'')
were less likely than similarly situated institutions
with headquarters in urban areas (''urban institutions'' ) (1) to receive ''outstanding'' CRA ratings or
(2) to engage in community development lending.
The first test was based on the distribution of
urban-rural institutions' activities between urban and
rural parts of their assessment areas. We restricted
the analysis to institutions covered by the largeinstitution examination as of December 31, 2003,
because such institutions are required to report the
geographic location of most of their CRA-related
loans, with the notable exception of community
development loans. The test involved two distinct
comparisons. First, the test compared the distribution
of numbers of retail loans between urban and rural
parts with the distributions of offices, populations
(families), and housing structures (owner-occupied or
multifamily) between the parts. This comparison
tested whether urban-rural institutions extend retail
loans in the same proportion to the offices, populations, and housing structures of those areas
(table 10). Second, the test compared, for various
types of retail loan in those institutions' assessment
areas, the distribution of loan dollars between urban
and rural parts with the distribution of deposits
between the parts. The comparison tested whether
urban-rural institutions extend loan dollars in the
same proportion that they receive deposits in rural
and urban areas (table 11). We conducted both comparisons separately for banking institutions in four
asset-size categories: $250 million to $500 million,
$500 million to $1 billion, $1 billion to $5 billion,
and more than $5 billion.
We found that remote areas receive more retail
loans as measured against the distributions of offices,
populations, and housing structures and more loan
dollars as measured against the distribution of deposits than do urban areas in the aggregate for banking institutions of every size category and for retail
loans of almost every type considered (tables 10 and
11). For example, urban-rural institutions with assets
between $500 million and $1 billion received
13.6 percent of their deposits from branches in
[footnote] 28. We also conducted a similar analysis that restricted the
comparisons to retail loans, retail loan dollars, offices, families, housing structures, and deposits in lower-income tracts. The results for this
comparison are substantially the same as those for the comparison
based on the full set of census tracts.[endoffootnote.]

Table 10. Number of retail loans, offices, families, and housing structures in the assessment areas of large banking institutions
with both urban and rural branches, grouped by asset size of institution and distributed by location of assessment area,
as of December 31, 2003
Percent
Urban
Urban

Total
Total

Rural
Rural

Asset size of institution and characteristic
Center city

Suburban

Exurban

Remote

Urban

Rural

30.6
32.6
25.2
24.7
28.2
40.8

27.7
38.3
31.6
24.1
35.8
14.6

19.5
18.6
29.6
8.8
15.1
9.4

52.9
43.0
38.8
67.0
49.2
76.0

47.1
57.0
61.1
33.0
50.9
24.0

42.4
29.6

15.5
5.8

9.8
5.2

74.7
89.0

25.3
11.0

25.7
21.5
19.2
51.6
24.2
33.6

31.1
30.6
23.1
20.6
31.6
46.3

22.2
28.4
27.1
13.5
29.4
11.5

21.1
19.5
30.6
14.3
14.8
8.5

56.8
52.1
42.3
72.2
55.8
79.9

43.2
47.9
57.7
27.8
44.2
20.1

30.9
54.2

47.5
38.0

12.6
3.9

9.1
3.8

78.3
92.7

21.7
7.3

34.6
23.7
31.4
55.9
32.7
39.0

38.4
36.6
28.2
24.5
34.2
48.7

15.6
23.4
20.0
9.4
22.2
7.4

11.4
16.3
20.4
10.2
10.9
4.9

73.0
60.3
59.5
80.3
66.9
87.7

27.0
39.7
40.5
19.7
33.1
12.3

36.2
57.8

50.8
37.1

7.9
2.6

5.2
2.5

87.0
94.9

13.0
5.1

36.7
29.9
39.1
59.7
41.2
40.0

53.7
54.6
44.8
34.0
45.2
52.6

4.7
8.9
8.2
3.1
9.0
4.0

4.8
6.6
8.0
3.1
4.5
3.3

90.4
84.5
83.9
93.8
86.4
92.7

9.6
15.5
16.1
6.2
13.5
7.3

36.0
59.3

55.9
38.2

4.4
1.2

3.7
1.3

91.9
97.5

8.1
2.5

$250 million to $500 million
Loans
Home-purchase
22.3
$250millionto$500millionLoansHome-improvement
10.5
$250millionto$500millionLoansSmall-business or small-farm
13.7
$250millionto$500millionLoansMultifamily
42.4
$250 million to $500 million Offices [see footnote]1
20.9
$250millionto$500millionFamilies
35.1
$250millionto$500millionHousing structures
Owner-occupied
32.2
$250millionto$500millionHousingstructuresMultifamily
59.4
$500 million to $1 billion
Loans
Home-purchase
$500millionto$1billionLoansHome-improvement
$500millionto$1billionLoansSmall-business or small-farm
$500millionto$1billionLoansMultifamily
$500 million to $1 billion Offices [see footnote]1
$500millionto$1billionFamilies
$500millionto$1billionHousing structures
Owner-occupied
$500millionto$1billionHousingstructuresMultifamily
$1 billion to $5 billion
Loans
Home-purchase
$1billionto$5billionLoansHome-improvement
$1billionto$5billionLoansSmall-business or small-farm
$1billionto$5billionLoansMultifamily
$1 billion to $5 billion Offices [see footnote]1
$1billionto$5billionFamilies
$1billionto$5billionHousing structures
Owner-occupied
$1billionto$5billionHousingstructuresMultifamily
More than $5 billion
Loans
Home-purchase
Morethan$5billionLoansHome-improvement
Morethan$5billionLoansSmall-business or small-farm
Morethan$5billionLoansMultifamily
More than $5 billion Offices [see footnote]1
Morethan$5billionFamilies
Morethan$5billionHousing structures
Owner-occupied
Morethan$5billionHousingstructuresMultifamily

NOTE. Analysis is restricted to institutions that were examined in the past
five years under the large-institution CRA exam, that were in existence for at
least one year, that received an ''outstanding'' or ''satisfactory'' rating on the
exam, and that had assets of more than $250 million in 2003. Data exclude
strategic-plan, wholesale, and limited-purpose institutions (see table 1, note 7)

and institutions with headquarters in U.S.-affiliated areas. Data also exclude
census tracts in U.S.-affiliated areas. For definition of assessment area, see
table 9, note 1.
[footnote] 1. Offices consist of headquarters and branches.[endoffootnote.]

remote areas and extended 18.0 percent of their
home-purchase loans, 20.6 percent of their homeimprovement loans, and 23.9 percent of their smallfarm or small-business loans in such areas.
The data for exurban areas are more difficult to
interpret than are the data for remote areas. Generally, urban-rural institutions make more retail loans
per family in exurban areas than in urban areas (data
derived from table 10). But such institutions extend

fewer retail loan dollars per deposit dollar in exurban
areas than in urban areas (data derived from table 11).
This apparent inconsistency may be explained by the
fact that the majority of the urban-rural institutions
in our sample, particularly the smaller ones, have
headquarters in exurban areas. The deposit data may
reflect a practice by some of those institutions of
booking deposits to their headquarters regardless of
the locale from which deposits originated.

[footnote] 29. In two size classes (the largest and the smallest), remote areas
received fewer multifamily loans as measured against the distribution
of families than did other areas. However, in both cases, remote areas
received more multifamily loans as measured against multifamily
housing structures, arguably a better measure of comparison.[endoffootnote.]

Table 11. Retail loan amounts and deposits in the assessment areas of large banking institutions with urban and rural branches,
grouped by asset size of institution and distributed by location of assessment area, as of December 31, 2003
Percent

Asset size of institution and
loan amounts and deposits

Urban
Urban

Rural
Rural

Total
Total

Center city

Suburban

Exurban

Remote

Urban

Rural

$250 million to $500 million
Loans
Home-purchase
$250millionto$500millionLoansHome-improvement
$250millionto$500millionLoansSmall-business or small-farm
$250millionto$500millionLoansMultifamily
$250millionto$500millionDeposits

24.9
12.1
19.4
38.0
20.1

34.4
40.6
26.0
32.9
23.7

24.8
33.0
27.0
23.9
40.3

16.0
14.2
27.6
5.2
15.9

59.2
52.7
45.3
71.0
43.8

40.8
47.3
54.7
29.0
56.2

$500 million to $1 billion
Loans
Home-purchase
$500millionto$1billionLoansHome-improvement
$500millionto$1billionLoansSmall-business or small-farm
$500millionto$1billionLoansMultifamily
$500millionto$1billionDeposits

27.2
20.7
26.6
58.9
29.8

36.0
31.6
25.7
20.5
29.1

18.8
27.1
23.7
9.8
27.5

18.0
20.6
23.9
10.7
13.6

63.2
52.3
52.3
79.4
58.9

36.8
47.7
47.6
20.5
41.1

$1 billion to $5 billion
Loans
Home-purchase
$1billionto$5billionLoansHome-improvement
$1billionto$5billionLoansSmall-business or small-farm
$1billionto$5billionLoansMultifamily
$1billionto$5billionDeposits

34.9
24.5
40.0
57.8
43.3

43.3
43.5
32.2
29.4
29.3

12.0
19.2
14.3
6.0
18.8

9.7
12.8
13.6
6.8
8.5

78.2
68.0
72.2
87.2
72.6

21.7
32.0
27.9
12.8
27.3

More than $5 billion
Loans
Home-purchase
Morethan$5billionLoansHome-improvement
Morethan$5billionLoansSmall-business or small-farm
Morethan$5billionLoansMultifamily
Morethan$5billionDeposits

36.5
27.1
41.7
59.8
59.8

57.1
61.1
43.6
37.2
32.7

2.9
6.2
7.4
1.3
5.2

3.4
5.5
7.2
1.7
2.3

93.6
88.2
85.3
97.0
92.5

6.4
11.7
14.6
3.0
7.5

NOTE. See general note to table 10.

The tendency of urban-rural institutions to make more retail loans to their rural components than to their urban components
also holds true at the level of the individual institution. With one exception, more than one-half of the institutions in every size category
extended more retail loans per family, per owneroccupied housing structure, or per multifamily housing structure to the rural parts of their assessment
areas than to the urban parts (table 12). The exception
was multifamily loans for institutions in the smallest
size category. When measured in terms of retail loan
dollars per deposit dollar, the results were somewhat
mixed. For example, the rural parts appeared to get
more home-improvement loans but fewer homepurchase loans than did the urban parts.
The second test compared rural institutions with
similarly situated urban institutions in two respects:
the likelihood of receiving an ''outstanding'' CRA
rating and the level of engagement in community
development lending. The sample in this test used the
same size categories as the sample in the first test and
was also restricted to institutions covered under the
large-institution evaluation procedures. The second
test, however, eliminated the requirement that an
institution have both urban and rural parts in its
assessment areas.

The evidence suggests that rural banking institutions with assets of less than $1 billion are not
less likely to receive ''outstanding'' ratings than are
urban institutions with assets of less than $1 billion
(table 13). Exurban institutions with assets between
$250 million and $500 million are somewhat less
likely to receive ''outstanding'' ratings than are their
urban counterparts, but exurban institutions with
assets between $500 million and $1 billion are significantly more likely to do so. Few institutions with
assets exceeding $1 billion have headquarters in rural
areas; those in that category are less likely to receive
''outstanding'' CRA ratings than are institutions that
have assets exceeding $1 billion and headquarters in
urban areas.

The evidence offers modest support for the conclusion that rural institutions do less community development lending than do similarly sized urban institutions. In each asset-size category under $5 billion, the
percentage of rural institutions that reported no community development lending in 2003 was comparable
to the percentage of similarly sized urban institutions
[footnote] 30. The calculations of retail loan dollars per deposit dollars that
tend did so (data derived from table 13). However,
to show higher lending to the urban part than do the calculations of
for every asset-size category, with one exception,
retail loan numbers per population because retail loans in urban areas
rural institutions that reported community developare generally larger than in rural areas, a reflection of higher property
ment lending for 2003 made a smaller dollar amount
values.[endoffootnote.]

Table 12. Proportion of large banking institutions with both
urban and rural branches that overserve parts
of their assessment areas in terms of either number
of loans or loan amount, by asset size of institution,
type of loan, and location of assessment area,
as of December 31, 2003

Table 13. Share of large banking institutions that received
an ''outstanding'' rating on their most recent
large-institution CRA exam and the extent
of community development lending among large
institutions, by asset size of institution and location
of headquarters, as of December 31, 2003

Percent
Urban
Urban
Loan measure and
loan type

Rural
Urban
Exurban

Remote

Number of loans, by asset size
of institution
$250 million to $500 million
Home-purchase
55.6
35.5
Number of loans, by asset size
63.2
35.1
of
institution
$250million
to$500
Number
of loans,
by asset
size millionHome-improvement
ofinstitution$250millionto$500millionSmall-business
51.8
38.7or
small-farm
Number
of loans, by asset size
32.1
17.3
of
institution
$250
million
to
$500
million
Multifamily
Number of loans, by asset size
ofinstitution$500 million to $1 billion
53.8
43.2
Number
of loans, by asset size
Home-purchase
55.3
42.7
ofinstitution
$500million
to$1
billionHome-improvement
Number
of loans,
by asset
size
ofinstitution$500millionto$1billionSmall-business
or
56.2
43.8
small-farm
Number
of loans, by asset size
39.3
29.5
ofinstitution
$500million
to$1
billionMultifamily
Number
of loans,
by asset
size
ofinstitution$1 billion to $5 billion 65.8
44.7
Home-purchase
Number of loans, by asset size
67.6
47.9
of
institution
$1billion
to$5billion
Number
of loans,
by asset
size Home-improvement
ofinstitution$1billionto$5billionSmall-business
or
60.8
45.8
small-farm
Number
of loans, by asset size
40.6
32.3
of
institution
$1billion
to$5billion
Number
of loans,
by asset
size Multifamily
ofinstitutionMore than $5 billion 49.5
49.5
Home-purchase
Number
of loans, by asset size
66.7
51.9
ofinstitution
Morethan
$5billion
Number
of loans,
by asset
size Home-improvement
ofinstitutionMorethan$5billionSmall-business
or 64.0
64.0
small-farm
Number
of loans, by asset size
51.8
43.5
ofinstitutionMorethan$5billionMultifamily
Loan amount, by asset size
of institution
$250 million to $500 million
Home-purchase
29.0
32.3
Loan amount, by asset size
39.5
37.7
ofinstitution
$250
to$500millionHome-improvement
Loan
amount,
by million
asset size
ofinstitution$250millionto$500millionSmall-business
28.5
37.2or
small-farm
Loan amount,
by asset size
19.8
17.3
ofinstitution
$250
to$500millionMultifamily
Loan
amount,
by million
asset size
ofinstitution$500 million to $1 billion
26.0
37.9
Loan
Home-purchase
amount, by asset size
36.7
38.0
ofinstitution
$500
to$1billionHome-improvement
Loan
amount,
by million
asset size
ofinstitution$500millionto$1billionSmall-business
or
31.5
43.8
small-farm
Loan amount,
by asset size
23.2
21.4
of
institution
$500
million
to
$1
billion
Multifamily
Loan amount, by asset size
ofinstitution$1 billion to $5 billion 30.3
46.1
Home-purchase
Loan amount, by asset size
50.0
49.3
of
institution
$1by
billion
to$5
billionHome-improvement
Loan
amount,
asset
size
ofinstitution$1billionto$5billionSmall-business
or
26.8
47.1
small-farm
Loan amount,
by asset size
15.0
22.6
ofinstitution
$1by
billion
to$5
billionMultifamily
Loan
amount,
asset
size
ofinstitutionMore than $5 billion 34.4
62.4
Home-purchase
Loan amount, by asset size
54.3
77.8
ofinstitution
More
than$5size
billionHome-improvement
Loan
amount,
by asset
ofinstitutionMorethan$5billionSmall-business
or 75.3
40.4
small-farm
Loan amount,
by asset size
11.8
31.8
ofinstitutionMorethan$5billionMultifamily

Total

62.9
77.2

37.1
22.8

59.9
43.2

40.1
56.8

65.1
68.0

34.9
32.0

66.9
53.6

33.1
46.4

71.1
76.8

28.9
23.2

67.3
53.4

32.7
46.6

53.8
64.2

46.2
35.8

67.4
61.2

32.6
38.8

37.9
52.6

62.1
47.4

48.2
29.6

51.8
70.4

44.4
52.7

55.6
47.3

49.4
34.8

50.6
65.2

41.4
62.0

58.6
38.0

41.8
26.3

58.2
73.7

50.5
66.7

49.5
33.3

69.7
21.2

30.3
78.8

NOTE. See general note to table 10. Overserving by an institution in part of
its assessment areas is measured by the ratio of the number of loans or the
aggregate loan amount in that part to the number of owner-occupied housing
structures (in the case of home-purchase and home-improvement loans), or to
the number of families (in the case of small-business or small-farm loans), or to
the number of multifamily housing structures (in the case of multifamily loans)
in that part. An institution overserves in part of its assessment areas for a
particular loan type if the ratio in the part, either for number of loans or loan
amount, exceeds the average ratio for all the institution's assessment areas.

of community development loans than did urban
institutions. The exception was remote institutions
with assets between $500 million and $1 billion.
These institutions had higher community development loan dollar amounts than did the combination of
same-sized center-city and suburban institutions.

Characteristic and
asset size of institution

Center
city

Rural
Rural

Suburban

''Outstanding" rating
$250 million to $500 million
Number
137
''Outstanding" rating
8.0
$250
million
to
$500
million
Percent
''Outstanding"rating$500 million to $1 billion
Number
184
''Outstanding"rating$500millionto$1billionPercent
13.0
''Outstanding"rating$1 billion to $5 billion
Number
217
''Outstanding"rating$1billionto$5billionPercent
29.0
''Outstanding"ratingMore than $5 billion
Number
144
''Outstanding"ratingMorethan$5billionPercent
52.1

Exurban

Remote

163
9.8

95
6.3

62
14.5

171
13.5

47
29.8

39
15.4

113
28.3

32
3.1

12
16.2

24
45.8

7
.0

1
.0

Made community
development
loans in2003 [seefootnote]1
$250 million to $500 million
Percent
63.0
53.8
56.3
53.8
Made community development
[seefootnote]1
loansin2003
$250millionto$500
millionAverage
3,833
3,164 amount
2,074 (thousands
1,346
Made community
of dollars)development
loansin2003[seefootnote]1$500 million 74.7
to $1 billion
65.3
55.6
73.5
Percent
Made community development
[seefootnote]1
loansin2003
$500millionto$1
billionAverage
(thousands
7,321
5,117 amount
2,363
7,009
Made community
of dollars)development
loansin2003[seefootnote]1$1 billion to $5 billion
68.0
72.7
84.0
74.5
Percent
Made community development
[seefootnote]1
loansin2003
$1billionto$524,073
billionAverage
amount 9,070
(thousands
22,106
13,338
Made community
of dollars)development
loansin2003[seefootnote]1More than $590.8
billion
84.2
100.0
100.0
Percent
Made community development
[seefootnote]1
loansin2003
Morethan$5291,814
billionAverage
amount 19,945
(thousands 6,716
188,318
of dollars)
NOTE. See general note to table 10.
[footnote] 1. Average amount of loans was among institutions with such lending.[endoffootnote.]

This evidence on community development lending,
however, is indirect and inconclusive. For example,
it excludes any measure of community development
investments or services. Moreover, because we lack
information about the location of community development loans, inferences drawn from locations of
institutions' headquarters are subject to dispute.
In sum, the retail lending and branching measures
used here provide little evidence that banking institutions collectively or individually underserve rural
areas, with the possible exception of community
development lending. Moreover, there is no evidence
that a lower percentage of rural-based institutions
receive ''outstanding'' CRA performance ratings (at
least for such institutions with less than $1 billion in
assets).

Rural Areas That Would Be Affected by the
Agencies' Proposed Options
The agencies sought comment on several alternative
definitions of CRA-eligible rural census tracts. Each

alternative satisfies five basic principles. First, each
alternative would permit an institution to know, when
it decided to make a loan or investment, whether
or not the loan or investment would qualify as community development. Second, each alternative would
rely on measures that change no more often than
annually and in most cases change much less frequently than that. Third, each alternative would
rely on purely objective statistical criteria that could
be applied mechanically and without judgment.
Fourth, each alternative would be easy to apply: Any
required calculations would be straightforward or
would be obviated by the government' s publication
of a list of eligible areas. Fifth, each alternative
would rely on readily available, governmentproduced data.
The three alternatives that we considered were
(1) moving the income threshold for CRA-eligible
rural tracts from 80 percent to 90 percent or 100 percent of the statewide nonmetropolitan median family
income, (2) changing the baseline for determining
the CRA eligibility of rural tracts from the statewide
nonmetropolitan median family income to the statewide median family income, and (3) adopting a modified version of the criteria used by the Community
Development Financial Institutions Fund (CDFI
Fund) to identify ''investment areas.''
The fund uses four alternative criteria of interest
here to classify geographic areas (tracts, counties, or
other aggregations) as investment areas. According
to the fund, an area qualifies as an investment area
if it has (1) a median family income that is less than
80 percent of the relevant metropolitan median family
income or the national metropolitan median family
income, whichever is higher, in the case of a metropolitan area, or a median family income that is less
than 80 percent of the relevant statewide nonmetropolitan median family income or the national nonmetropolitan median family income, whichever is
higher, in the case of a nonmetropolitan area; (2) an
unemployment rate of at least 1.5 times the national
average; (3) a poverty rate of 20 percent or more;
(4) a population loss of 10 percent or more between
the previous and most recent censuses or a net migration loss of 5 percent or more over the five-year
period preceding the most recent census. Data for
unemployment, poverty, and population are updated

annually at the county level and decennially at the
tract level.
To permit comparison with the current rule, we
modified the fund's criteria. Instead of using the
fund' s income criterion, we used the CRA' s. That is,
we treated as CRA-eligible any tracts currently classified as lower income (using, in rural areas, the current
CRA baseline of the nonmetropolitan statewide
median family income) and any tracts currently classified as middle income that are located in a county
that meets any of criteria 2 through 4. Thus, in this
article, when we refer to the ''modified CDFI Fund
criteria,'' we use a modification of the first fund
criterion, the one based on income.
There are two key differences between the fund' s
criteria, which use non-income measures of community need, and the other alternatives, each of which
relies solely on a relative tract-income criterion. First,
the fund' s criteria use measures for which data are
at the county level, not the tract level. Second, the
fund' s county-level criteria use measures that are
updated annually; income data at the tract level, in
contrast, are updated only every ten years. Consequently, the way in which the fund' s criteria identify CRA-eligible areas is different from that in which
the income-based alternatives do, and the difference
can result in different outcomes.
Our analysis expands on the agencies' proposal in
two main respects. The agencies proposed to apply
the alternatives outlined earlier only to rural areas
and only for the purpose of qualifying activities as
community development. Our analysis evaluates the
alternatives on those terms but goes beyond those
terms. In particular, we show the implications of
adopting these alternatives in urban areas, divided
into central-city and suburban components, and in
rural areas, divided into exurban and remote components. We also show the implications of adopting the
alternatives for the purpose of evaluating other CRArelated activities, such as retail lending (table 14).
We computed the effects of the alternatives on the
coverage of rural and urban census tracts and on the
retail lending activities that would have counted as
CRA-related if the alternatives had been in effect in
2003 (we assumed that banking institutions had not
altered their behavior). We compared each alternative
with actual 2003 retail lending activities adjusted
for changes, implemented in 2004, in the definitions
U.S. boundaries of metropolitan statistical areas.
and

[footnote] 31. Community Development Financial Institutions Fund,
Department of the Treasury (2004), ''Community Development Financial Institutions Program,'' Federal Register, vol. 69 (May 11),
p. 26259. The fund's definition of an investment area contains an
[footnote] 32. The two population criteria that we use in our adaptation of the
additional criterion, which states that the area has ''significant unmet
fund's criteria are based on 2000 census data.[endoffootnote.]
needs for loans, equity investments, or financial services.'' We disre[footnote] 33. Institutions that filed 2003 HMDA and CRA small-business
garded this criterion because the fund refrained from defining it in
data used census tract definitions based on the 2000 census. Metropoliobjective, quantitative terms.[endoffootnote.]
tan area boundaries based on the 2000 census were not implemented

Table 14. Comparison of effects, on census tracts and on counties, of options for defining census tracts as CRA-eligible,
by location of tract, as of December 31, 2003
Percent
Urban
Urban

Rural
Rural

Total

Item

Current rule
Less than 80 percent of M S A or non-MSAmedian [ s e efootnote]1
CRA-eligible tracts

Center city

Suburban

Exurban

Remote

43.5

18.6

12.6
11.1

17.9
15.6

31.1
27.7

14.6
12.6

28.0
25.1

16.7

10.9
9.1
14.9
13.8
15.2
56.9
1.7

13.1
12.7
13.3
15.7
16.7
61.3
4.8

22.5
16.8
33.5
25.8
30.0
18.0
2.4

11.9
10.7
14.3
14.7
15.9
59.0
3.2

15.8
12.9
25.5
18.6
20.9
44.8
2.9

37.8
34.3

42.5
39.3

31.6
28.5

40.4
37.4

36.4
34.7
30.7
40.8
41.6
31.3
18.3

38.7
33.0
48.0
43.9
48.3
5.9
8.5

31.6
29.5
29.1
36.4
37.5
30.4
12.4

34.2
30.7
40.1
39.0
41.3
21.9
11.1

62.3
57.7

55.0
52.1

55.3
51.4

55.1
52.0

65.8
62.4
53.8
69.4
69.8
10.3
42.3

56.7
50.2
63.9
61.7
64.9
1.3
17.1

58.8
56.1
51.2
63.6
64.6
10.1
31.5

58.1
54.0
58.6
63.0
64.7
7.1
26.5

39.8
37.5

48.2
44.6

29.5
26.2

43.0
40.0

32.1
28.6

40.0
38.3
38.3
46.2
47.3
18.7
15.3

46.9
45.5
37.6
51.8
52.4
24.4
28.2

21.4
16.4
32.3
24.8
28.7
23.2
2.8

43.2
41.6
38.0
48.9
49.8
21.5
21.6

35.2
32.8
34.7
40.5
42.4
22.1
15.0

Current rule
39.7
17.2
Lessthan
80percentofMSAornon-MSAmedian[seefootnote]1CRA-eligibletractsPopulation
Current
rule
Lessthan80percentofMSAornon-MSAmedian[seefootnote]1CRA-eligible30.7
tractsLoans

Small-business
or small-farm
Current
rule
20.3
13.8
Lessthan
80percentofMSAornon-MSAmedian[seefootnote]1CRA-eligible43.2
tractsLoansHome-purchase
Current
rule
23.0
Lessthan
80percentofMSAornon-MSAmedian[seefootnote]1CRA-eligible33.1
tractsLoansMultifamily
Current
rule
20.6
Current
rule
Lessthan
80percentofMSAornon-MSAmedian[seefootnote]1CRA-eligible38.9
tractsBranches 22.1
Lessthan
80percentofMSAornon-MSAmedian[seefootnote]1CRA-eligible12.0
tractsDeposits 31.9
Current
rule
[seef o o t n o t e ] 1
Current
rule
Lessthan
80percentofMSAornon-MSAmedian
Countieswithout
.6
CRA-eligible
2.8 tracts

Lessthan80percentofMSAornon-MSAmedian[seef o o t n o t e ] 1 Countieswith only CRA-eligible tracts
Options
Less than 90 percent of M S A or non-MSAmedian [ s e efootnote]1
CRA-eligible tracts
53.5
31.5
27.8
Options
50.1
29.7
25.4
Lessthan90percentofMSAornon-MSAmedian[seefootnote]1CRA-eligibletractsPopulation
Options
[seefootnote]1
Lessthan90percentofMSAornon-MSAmedian
CRA-eligible41.2
tractsLoans
33.5
27.4
Small-business or small-farm
Options
30.2
30.4
25.2
Lessthan90percentofMSAornon-MSAmedian[seefootnote]1CRA-eligible54.7
tractsLoansHome-purchase
Options
39.6
28.2
Lessthan90percentofMSAornon-MSAmedian[seefootnote]1CRA-eligible43.9
tractsLoansMultifamily
Options
39.7
32.3
[seefootnote]1
Options
Lessthan90percentofMSAornon-MSAmedian
CRA-eligible50.0
tractsBranches 41.5
33.7
[seefootnote]1
Less
than
90
percent
of
MSA
or
non-MSA
median
CRA-eligible
tracts
Deposits
Options
8.5
13.2
29.5
Options
Lessthan90percentofMSAornon-MSAmedian[seefootnote]1Counties without
9.7 tracts
6.8
1.9 CRA-eligible
Lessthan90percentofMSAornon-MSAmedian[seefootnote]1Counties with only CRA-eligible tracts
[ s e efootnote]1
Options Less than 100 percent of M S A or non-MSAmedian
CRA-eligible tracts
63.0
47.0
51.0
OptionsLessthan100percentofMSAornon-MSAmedian[seefootnote]1CRA-eligible
60.0
tractsPopulation
45.2
48.1
OptionsLessthan100percentofMSAornon-MSAmedian[seefootnote]1CRA-eligibletractsLoans
Small-business or small-farm
52.5
54.2
52.8
OptionsLessthan100percentofMSAornon-MSAmedian[seefootnote]1CRA-eligible
42.4
tractsLoans
49.8
Home-purchase
50.7
OptionsLessthan100percentofMSAornon-MSAmedian[seefootnote]1CRA-eligible
65.9
tractsLoans
58.9
Multifamily 49.7
[seefootnote]1
OptionsLessthan100percentofMSAornon-MSAmedian
CRA-eligible
56.1
tractsBranches
59.7
58.3
OptionsLessthan100percentofMSAornon-MSAmedian[seefootnote]1CRA-eligible
60.7
tractsDeposits
60.9
59.7
[seefootnote]1
OptionsLessthan100percentofMSAornon-MSAmedian
Counties
5.8 without CRA-eligible
3.2
tracts
10.0
OptionsLessthan100percentofMSAornon-MSAmedian[seefootnote]1Counties
4.1 with only20.4
CRA-eligible 21.3
tracts
Options Less than 80 percent of state median[seefootnote]2
CRA-eligible tracts
41.6
17.5
OptionsLessthan80percentofstatemedian[seefootnote]2CRA-eligibletracts37.8
Population
15.9
[seefootnote]2
OptionsLessthan80percentofstatemedian
CRA-eligibletractsLoans
Small-business or small-farm
32.4
15.9
OptionsLessthan80percentofstatemedian[seefootnote]2CRA-eligibletracts22.0
LoansHome-purchase
13.8
OptionsLessthan80percentofstatemedian[seefootnote]2CRA-eligibletracts44.1
LoansMultifamily
21.4
[seefootnote]2
OptionsLessthan80percentofstatemedian
CRA-eligibletracts34.6
Branches
19.6
OptionsLessthan80percentofstatemedian[seefootnote]2CRA-eligibletracts40.4
Deposits
20.9
OptionsLessthan80percentofstatemedian[seefootnote]2Counties without
12.2
CRA-eligible37.4
tracts
OptionsLessthan80percentofstatemedian[seefootnote]2Counties with only
1.2 CRA-eligible
3.2tracts
Options Modified CDFI Fundcriteria [seefootnote]3
Combined
CRA-eligible tracts
Options Modified CDFI Fund criteria[see footnote]3
Combined
CRA-eligible
Options
Modified
CDFItracts
FundPopulation
criteria[see footnote]3
CombinedCRA-eligibletractsLoans
Small-business
or
small-farm
Options Modified CDFI Fund criteria[see footnote]3
[see footnote]3
Combined
CRA-eligible
Home-purchase
Options Modified
CDFItracts
FundLoans
criteria
[see footnote]3
Combined
CRA-eligible
Loans
Multifamily
Options
Modified
CDFI Fundtracts
criteria
[see
footnote]3
Combined
CRA-eligible
Options Modified
CDFItracts
FundBranches
criteria
Combined
CRA-eligible
Options Modified
CDFItracts
FundDeposits
criteria[see footnote]3
[see footnote]3 tracts
Combined
Counties
without
CRA-eligible
Options Modified
CDFI
Fund criteria
Combined Counties with only CRA-eligible tracts

Total Urban

Rural

Total All

49.1
45.1

22.9
21.5

29.6
27.9

38.1
34.5

36.0
32.6

32.8
30.2

35.4
32.1

36.4
26.6
49.0
38.9
44.2
11.2
1.6

22.5
20.3
28.8
26.5
27.9
29.6
7.8

31.1
30.3
29.1
33.9
34.9
45.9
24.3

38.6
36.1
31.3
41.3
42.1
44.1
33.7

28.0
23.3
39.1
31.6
35.4
16.9
6.8

34.6
33.0
29.9
37.5
38.3
45.1
28.9

32.2
29.6
35.3
35.4
37.3
35.3
21.2

for filings related to HMDA and the CRA until 2004. In constructing
the numbers we report here, we use the 2004 definitions of metropolitan statistical areas.[endoffootnote.]

14.—Continued

Urban
Urban

Rural
Rural

Total

Item
Center city

Suburban

Modified CDFI Fund criteria
Unemployment
CRA-eligible tracts
46.0
20.5
ModifiedCDFIFundcriteriaUnemploymentCRA-eligibletractsPopulation
42.1
19.1
ModifiedCDFIFundcriteriaUnemploymentCRA-eligibletractsLoans
Small-business or small-farm
33.2
20.0
ModifiedCDFIFundcriteriaUnemploymentCRA-eligibletractsLoans
22.9
Home-purchase
17.6
ModifiedCDFIFundcriteriaUnemploymentCRA-eligibletractsLoans
45.7
Multifamily 26.4
ModifiedCDFIFundcriteriaUnemploymentCRA-eligibletractsBranches
35.3
23.9
ModifiedCDFIFundcriteriaUnemploymentCRA-eligibletractsDeposits
40.8
25.3
ModifiedCDFIFundcriteriaCounties without CRA-eligible tracts 11.6
30.6
ModifiedCDFIFundcriteriaCounties with only CRA-eligible tracts 1.2
5.7
ModifiedCDFIFundcriteriaPoverty
CRA-eligible tracts
45.5
ModifiedCDFIFundcriteriaPovertyCRA-eligibletractsPopulation41.5
ModifiedCDFIFundcriteriaPovertyCRA-eligibletractsLoans
Small-business or small-farm
31.6
ModifiedCDFIFundcriteriaPovertyCRA-eligibletractsLoansHome-purchase
21.2
ModifiedCDFIFundcriteriaPovertyCRA-eligibletractsLoansMultifamily
44.3
ModifiedCDFIFundcriteriaPovertyCRA-eligibletractsBranches 33.7
ModifiedCDFIFundcriteriaPovertyCRA-eligibletractsDeposits 39.4
ModifiedCDFIFundcriteriaCounties without CRA-eligible tracts 12.0
ModifiedCDFIFundcriteriaCounties with only CRA-eligible tracts .6

Exurban

Remote

Total Urban

Rural

Total All

23.7
22.4

26.8
24.3

33.3
29.9

24.9
23.1

31.7
28.7

23.7
22.2
24.5
26.4
27.6
49.3
14.7

22.8
23.4
21.9
25.1
25.9
55.9
16.3

25.5
20.4
36.6
28.7
32.7
17.3
5.1

23.3
22.8
23.6
25.8
26.8
52.5
15.5

24.1
21.9
31.1
26.8
28.9
40.3
11.8

19.1
17.7

19.0
17.3

25.8
23.7

32.3
28.9

21.6
19.5

30.3
27.2

17.7
15.1
23.6
21.7
23.2
31.5
4.4

18.0
17.1
19.8
20.9
22.1
54.9
12.3

22.4
21.6
19.7
25.1
25.9
57.0
17.6

23.5
18.1
34.3
26.9
31.0
17.8
3.9

20.1
19.2
19.8
22.9
23.9
55.9
14.9

21.3
18.8
28.2
24.3
26.4
42.7
11.1

15.2
13.3

25.7
22.0

34.4
30.7

19.2
16.3

31.5
28.2

14.5
12.9
16.5
17.8
19.1
54.1
5.7

24.9
22.3
20.5
28.3
29.2
51.2
17.8

24.7
19.3
35.9
28.2
32.3
17.8
3.1

19.4
17.2
18.0
22.9
24.0
52.7
11.6

21.3
17.9
28.4
24.7
26.9
40.6
8.6

7,661

4,650

52,576

12,311

64,887

ModifiedCDFIFundcriteriaPopulation loss
CRA-eligible tracts
47.8
21.0
ModifiedCDFIFundcriteriaPopulationlossCRA-eligibletractsPopulation
43.5
19.4
ModifiedCDFIFundcriteriaPopulationlossCRA-eligibletractsLoans
Small-business or small-farm
33.9
18.8
ModifiedCDFIFundcriteriaPopulationlossCRA-eligibletractsLoans24.1
Home-purchase16.0
ModifiedCDFIFundcriteriaPopulationlossCRA-eligibletractsLoans46.2
Multifamily 25.1
ModifiedCDFIFundcriteriaPopulationlossCRA-eligibletractsBranches
36.7
22.7
ModifiedCDFIFundcriteriaPopulationlossCRA-eligibletractsDeposits
42.3
24.2
ModifiedCDFIFundcriteriaCounties without CRA-eligible tracts 11.6
31.1
ModifiedCDFIFundcriteriaCounties with only CRA-eligible tracts 1.0
3.9
MEMO

Number of tracts

26,278

26,298

[footnote] 2. Median family income in census tract as a percentage of the median famNOTE. See general note to table 9, and for description of lending and branch
data reported in 2003 geographies, see related description for assessment areas
ily income in the state in which the census tract is located.[endoffootnote.]
in table 9, note 1. Analysis is restricted to lending done within assessment areas
[footnote] 3. For description of modification to CDFI Fund criteria, see text.
and excludes institutions not covered by the CRA.
CDFI Fund Community Development Financial Institutions Fund.[endoffootnote.]
[footnote] 1. Median family income in census tract as a percentage of the median
family income in the metropolitan statistical area (MSA) or nonmetropolitan
portion of the state (non-MSA) in which the census tract is located.[endoffootnote.]

wide median but retaining the 80 percent thresholdwould qualify 43 percent of rural tracts as CRAeligible.
We also calculated the effects of adopting the
modified CDFI Fund criteria. Using the criteria to
identify middle-income tracts that would be CRAeligible would classify 33 percent of rural census
tracts as lower income, a proportion nearly equal to
the 31 percent of urban census tracts currently classified as CRA-eligible (see ''Current rule'' and ''Modified CDFI Fund criteria'' categories). When each of
the unemployment, poverty, and population loss
criteria is applied separately, the proportion of rural
tracts classified as CRA-eligible is 25 percent, 22 per-

cent, and 19 percent respectively. Applying the
modified CDFI Fund criteria to urban tracts would
have a comparatively modest effect, increasing the
number of urban tracts classified as CRA-eligible
from 31 percent to 36 percent. The general patterns
described in this paragraph and in the previous one
are also found when the unit of analysis is the proportion of population in CRA-eligible tracts.
We also profiled the economic and demographic
characteristics of the tracts now classified as lower
income and of the additional tracts that would
be CRA-eligible under each of the alternatives
(table 15).

[footnote] 3 4 . R h o d e I s l a n d is t h e o n l y s t a t e i n w h i c h t h e n o n m e t r o p o l i t a n
a r e a m e d i a n i n c o m e is h i g h e r t h a n t h e o v e r a l l s t a t e m e d i a n i n c o m e .[endoffootnote.]

Each of the proposals would substantially increase the number of rural tracts that are CRA-eligible—that is, eligible for area-based community development activities.
Currently, 14.6 percent of rural census tracts are classified as CRA-eligible; these tracts contain 12.6 percent of the rural population. Raising the threshold to 90 percent
for rural areas would roughly equate the percentages of urban and rural tracts classified as CRA-eligible, at about 31 percent; raising the threshold to 100 percent would
qualify 55 percent of rural tracts as CRA-eligible. Similarly, changing the baseline for classifying rural tracts to the state-

Table 15. Characteristics of CRA-eligible census tracts and counties and of those that would be added under options for defining
census tracts as CRA-eligible, by location of tract, as of December 31, 2003
Percent except as noted
Urban
Urban
Item

Center
city

Rural
Rural

Suburban

Exurban

Total

Remote

Total Urban Rural

Current rule
Less than 80 percent of MSA or non-MSAmedian [seefootnote]1
Tract (average characteristics)
Number added
11,441
4,900
833
16,341
969
Current rule Less than 80 percent of MSA or non-MSA median[see footnote]1
Tract(averagecharacteristics)Share of families with income
15.6
22.9
23.1
21.4
23.9
Less than or equal to poverty level
Current rule Less than 80 percent of MSA or non-MSA median[see footnote]1
43.8
35.3
34.5
34.7
41.3
[see footnote]1
Tract(average
characteristics)
Shareof
ofMSA
families
incomemedian
Less than
50 percent of MSA or non-MSAmedian [seefootnote]1
Current
rule Less
than 80 percent
orwith
non-MSA
22.7
24.8
22.2
22.6
23.3
[see footnote]1
Tract
(average
characteristics)
Shareof
ofMSA
families
incomemedian
Between
50 percent and 80 percent of MSA or non-MSAmedian [seefootnote]1
Current
rule Less
than 80 percent
orwith
non-MSA
30,067
36,343
27,741
27,090
31,949
[see footnote]1
Tract
(average
characteristics)
Median
family
income median
(dollars)
Current
rule Less
than 80 percent
of MSA
or non-MSA
57.5
66.6
69.6
69.0
60.2
[see footnote]1
Tract(average
characteristics)
Median
relative
to MSAmedian
or non-MSA
Current
rule Less
than 80 percent
of MSA
or non-MSA
Tract(averagecharacteristics)Housing
98,973
94,019
53,528
51,056
97,480
Median house value (dollars)
Current rule Less than 80 percent of MSA or non-MSA median[see footnote]1
30.6
33.1
33.9
35.1
31.4
[see footnote]1
Tract
(average
characteristics)
Housing
Median
house age
(years)
Current
rule Less
than 80 percent
of MSA
or non-MSA
median
35.3
48.1
53.5
53.3
39.2
Tract(average
characteristics)
Housing
Occupancy
by owner
Current
rule Less
than 80 percent
of MSA
or non-MSA
median[see footnote]1
9.8
9.2
15.6
18.4
9.7
[seefootnote]2
rate
Tract(average
characteristics)
Housing
Vacancy
Current
rule Less
than 80 percent
of MSA
or non-MSA
median[see footnote]1
Tract(averagecharacteristics)Population
10.7
12.7
14.1
14.6
11.3
Over age 65
[see footnote]1
Current rule Less than 80 percent of MSA or non-MSA median
66.7
45.9
40.8
33.4
60.4
footnote]3
Tract (average characteristics) Population Minority [see
CurrentruleLessthan80percentofMSAornon-MSAmedian[seefootnote]1County (average characteristics)
Population change, 1990-2000
1.1
1.2
1.1
1.0
1.1
- 1 . 3 Net migration
2.4
- . 2
CurrentruleLessthan80percentofMSAornon-MSAmedian[seefootnote]1County(averagecharacteristics)
rate, .8
1995-99[seefootnote]4
-.9
CurrentruleLessthan80percentofMSAornon-MSAmedian[seefootnote]1County(averagecharacteristics)
14.1 Poverty11.4
rate, 200217.5
19.3
13.3
CurrentruleLessthan80percentofMSAornon-MSAmedian[seefootnote]1County(averagecharacteristics)
6.0 Unemployment
5.6
rate,
7.62001
7.2
5.9
Options
Less than 90 percent of MSA median or non-MSAmedian [seefootnote]1
Tract (average characteristics)
Number added
2,622
3,384
1,157
927
6,006
Options Less than 90 percent of MSA median or non-MSA median[see footnote]1
Tract(averagecharacteristics)Share of families with income
10.0
8.2
13.7
13.3
9.0
Less than or equal to poverty level
Options Less than 90 percent of MSA median or non-MSA median[see footnote]1
23.9
22.8
24.4
24.1
23.3
Tract
(average
characteristics)
offamilies
incomeLess
than[see50footnote]1
percent of MSA or non-MSAmedian [seefootnote]1
Options
Less than
90 percentShare
of MSA
medianwith
or non-MSA
median
21.9
22.9
21.4
21.9
22.4
Tract(average
characteristics)
offamilies
incomeBetween
50 footnote]1
percent and 80 percent of MSA or non-MSAmedian [seefootnote]1
Options
Less than
90 percentShare
of MSA
medianwith
or non-MSA
median[see
44,231
34,668
34,489
45,178
45,911
Tract
(average
characteristics)
family or
income
(dollars)
Options
Less than
90 percentMedian
of MSA median
non-MSA
median[see footnote]1
85.1
85.2
85.6
85.3
85.2
footnote]1 to MSA or non-MSA
Tract(average
family
income
(dollars)Median
relative
Options
Less characteristics)
than 90 percentMedian
of MSA
median
or non-MSA
median[see
Tract(averagecharacteristics)Housing
121,304
103,360
64,487
59,496
111,172
Median house value (dollars)
Options Less than 90 percent of MSA median or non-MSA median[see footnote]1
34.1
35.9
37.2
38.2
35.1
Tract
(average
characteristics)
house
age median
(years)[see footnote]1
Options
Less than
90 percentHousing
of MSAMedian
median or
non-MSA
52.3
63.8
61.3
59.3
58.8
[see footnote]1
Tract
(average
characteristics)
Housing
Occupancy
by
owner
Options Less than 90 percent of MSA median or non-MSA
median
6.4
15.4
18.6
7.3
[seefootnote]2
Tract(average
Options
Less characteristics)
than 90 percentHousing
of MSAVacancy
median rate
or non-MSA median[see footnote]1
Tract(averagecharacteristics)Population
13.0
14.0
15.8
16.7
13.6
Over age 65
Options Less than 90 percent of MSA median or non-MSA median[see footnote]1
40.5
24.7
19.7
15.6
31.6
Tract (average characteristics) Population Minorit[see footnote]y 3
OptionsLessthan90percentofMSAmedianornon-MSAmedian[seefootnote]1County (average characteristics)
Population change, 1990-2000
1.1
1.2
1.1
1.0
1.1
.1
2.4 1995-99[see
.3footnote]4
1.8
OptionsLessthan90percentofMSAmedianornon-MSAmedian[seefootnote]1County(averagecharacteristics)
Net 3.0
migration rate,
OptionsLessthan90percentofMSAmedianornon-MSAmedian[seefootnote]1County(averagecharacteristics)
13.0
Poverty
10.5 rate, 2002
14.7
15.4
11.6
OptionsLessthan90percentofMSAmedianornon-MSAmedian[seefootnote]1County(averagecharacteristics)
5.8
Unemployment
5.4
6.6
rate, 2001
5.6

8.1

6.1

Options Less than 100 percent of MSA median or non-MSAmedian [seefootnote]1
Tract (average characteristics)
Number added
5,125
7,453
2,937
2,063
12,578
Options Less than 100 percent of MSA median or non-MSA median[see footnote]1
Tract(averagecharacteristics)Share of families with income
9.0
7.1
11.7
11.9
7.9
Less than or equal to poverty level
Options Less than 100 percent of MSA median or non-MSA median[see footnote]1
21.8
20.3
21.7
21.8
20.9
Tract
(average
characteristics)
Share
offamilies
with
Lessmedian
than [see
50 footnote]1
percent of MSA or non-MSAmedian [seefootnote]1
Options
Less than
100 percent
of MSA
median
orincome
non-MSA
20.9
21.6
20.4
20.8
21.3
[see percent
footnote]1 and 80 percent of MSA or non-MSAmedian [seefootnote]1
Tract(average
characteristics)
Share
offamilies
with
Between
Options
Less than
100 percent
of MSA
median
orincome
non-MSA
median50
46,727
48,883
36,962
36,682
48,004
Tract
(average
characteristics)
Median
(dollars)
Options
Less than
100 percent
of MSAfamily
medianincome
or non-MSA
median[see footnote]1
89.0
90.6
91.3
90.6
90.3
[see footnote]1
Tract(average
Median
family
income
Median
to MSA or non-MSA
Options
Less characteristics)
than 100 percent
of MSA
median
or (dollars)
non-MSA
medianrelative
Tract(averagecharacteristics)Housing
125,857
110,561
68,236
64,522
116,781
Median house value (dollars)
Options Less than 100 percent of MSA median or non-MSA median[see footnote]1
34.6
36.1
37.4
38.5
35.5
Tract
(average
characteristics)
Housing
Median
age (years)
Options
Less than
100 percent
of MSA
medianhouse
or non-MSA
median[see footnote]1
54.6
66.4
63.0
61.1
61.6
Tract
(average
characteristics)
Housing
Occupancy
by ownermedian[see footnote]1
Options
Less than
100 percent
of MSA
median or non-MSA
7.5
15.0
17.5
7.0
[seefootnote]2
Tract(average
Housing
Vacancy
Options
Less characteristics)
than 100 percent
of MSA
medianrate
or non-MSA median[see footnote]1
Tract(averagecharacteristics)Population
13.2
13.7
15.7
16.8
13.5
Over age 65
Options Less than 100 percent of MSA median or non-MSA median[see footnote]1
37.2
21.5
16.6
13.5
27.9
Tract (average characteristics) Population Minority [see footnote]3
OptionsLessthan100percentofMSAmedianornon-MSAmedian[seefootnote]1County (average characteristics)
Population change, 1990-2000
1.1
1.2
1.1
1.0
1.1
[seefootnote]4
.2
1.7
OptionsLessthan100percentofMSAmedianornon-MSAmedian[seefootnote]1County(averagecharacteristics)
Net2.8
migration 2.3
rate, 1995-99.5
OptionsLessthan100percentofMSAmedianornon-MSAmedian[seefootnote]1County(averagecharacteristics)
12.8
Poverty
10.3 rate, 14.1
2002
14.4
11.3
OptionsLessthan100percentofMSAmedianornon-MSAmedian[seefootnote]1County(averagecharacteristics)
5.8
Unemployment
5.3
6.4
rate, 2001 5.7
5.5

6.1

See footnotes on page 228.

Total All

1,802

18,143

23.0
34.6
22.4
27,440
69.3

21.6
40.6
23.2
31,501
61.1

52,389
34.5
53.5
16.9

92,969
31.7
40.6
10.4

14.4
37.4

11.6
58.1

1.1
.0
18.3
7.4

13.8
6.1

2,084

8,090

13.5
24.3
21.6
34,588
85.5

10.2
23.5
22.2
42,450
85.3

62,269
37.6
60.4
16.8

98,569
35.7
59.2
9.8

16.2
17.9

14.2
28.1

1.1
1.5
15.0
6.3

1.1
1.7
12.5
5.8

5,000

17,578

11.8
21.7
20.6
36,847
91.0

9.0
21.1
21.1
44,830
90.5

66,704
37.8
62.2
16.1

102,523
36.2
61.8
9.6

16.1
15.3

14.3
24.4

1.1
1.5
14.2
6.1

1.1
-.2

1.1
1.7

12.1
5.7

Table 15.—Continued
Percent except as noted
Urban
Urban
Item

Center
city

Rural
Rural

Suburban

Exurban

Total

Remote

Total Urban Rural

Less than 80 percent of statemedian [seefootnote]5
Tract (average characteristics)
Number added
902
1,100
2,082
1,407
2,002
Less than 80 percent of state median[see footnote]5
Tract(averagecharacteristics)Share of families with income
14.2
11.8
12.7
12.4
12.9
Less than or equal to poverty level
Less than 80 percent of state median[see footnote]5
23.9
22.9
22.5
22.6
23.4
footnote]5
Tractthan
(average
characteristics)
of[see
families
withincomeLess than 50 percent of MSA or non-MSAmedian [seefootnote]1
Less
80 percent
of state Share
median
20.6
21.2
20.5
21.1
20.9
[see
footnote]1
footnote]5
Tractthan
(average
characteristics)
of[see
families
withincomeBetween 50 percent and 80 percent of MSA or non-MSAmedian
Less
80 percent
of state Share
median
37,626
39,441
35,969
35,755
38,623
footnote]5 income (dollars)
Tract
(average
characteristics)
Less than
80 percent
of state Median
median[seefamily
88.0
88.6
90.3
89.0
88.3
[see
footnote]5
Tract
(average
characteristics)
Median
family
income
(dollars)Median relative to MSA or non-MSA
Less than 80 percent of state median
Tract(averagecharacteristics)Housing
98,707
92,916
66,651
62,111
95,517
Median house value (dollars) [see footnote]5
Less than 80 percent of state median
32.9
35.5
37.4
38.2
34.3
footnote]5 house age (years)
Tract
(average
characteristics)
Median
Less than
80 percent
of state Housing
median[see
51.7
59.6
61.9
60.8
56.1
footnote]5
Tract
(average
characteristics)
Occupancy
by owner
Less than
80 percent
of state Housing
median[see
7.6
15.7
18.1
8.8
9.9
[see
footnote]2
footnote]5 rate
Tractthan
(average
characteristics)
Vacancy
Less
80 percent
of state Housing
median[see
Tract(averagecharacteristics)Population
12.8
14.1
16.7
13.5
15.9
Over age 65
Less than 80 percent of state median[see footnote]5
48.5
33.9
18.7
14.5
40.5
Tract (average characteristics) Population Minority [see footnote]3
Lessthan80percentofstatemedian[seefootnote]5County (average characteristics)
Population change, 1990-2000
1.1
1.1
1.1
1.1
1.1
[seefootnote]4
.8
2.5
.0
Lessthan80percentofstatemedian[seefootnote]5County(averagecharacteristics)Net migration -rate,
1995-99.6
.9
Lessthan80percentofstatemedian[seefootnote]5County(averagecharacteristics)Poverty rate, 2002
16.6
14.0
14.6
15.0
15.2
Lessthan80percentofstatemedian[seefootnote]5County(averagecharacteristics)Unemployment7.2
rate, 2001 6.9
6.5
6.0
7.1
Modified CDFI Fundcriteria [seefootnote]6
Combined
Tract (average characteristics)
Number added
[see footnote]6

1,466

1,133

1,296

939

2,599

Modified CDFI Fund criteria
Combined
10.8
13.6
13.3
10.1
9.2
[see footnote]6
Modified
Tract(average
CDFIcharacteristics)
Fund criteria
Share[see
of families
with income
20.8
18.4
21.6
22.0
19.8
footnote]6
LessCDFI
than orFund
equal criteria
to poverty level
Combined
Modified
18.4
19.0
18.4
19.2
18.6
[see footnote]6
[seefootnote]1
Modified
Combined
Tract(average
CDFIcharacteristics)
Fund criteria
Shareof
familieswithincomeLess than 50 percent of MSA
or non-MSA
46,066
46,384median
36,635
36,788
46,204
[see footnote]6
[seefootnote]1
Combined
Modified
Tract(average
CDFIcharacteristics)
Fund criteria
Shareof
familieswithincomeBetween 50 percent and 80 97.2
percent of MSA
96.7 median
94.3
98.2
99.5 or non-MSA
[see footnote]6
Combined
Modified
Tract(average
CDFIcharacteristics)
Fund criteria
Median family income (dollars)
Combined
Tract(averagecharacteristics)Median
familyincome(dollars)Median relative to MSA
or non-MSA
125,820
107,152
66,391
62,328
117,679
[see footnote]6
Tract(average
Housing
Modified
CDFIcharacteristics)
Fund criteria
34.8
35.2
36.9
38.1
35.0
[see footnote]6
Median
house
valuecriteria
(dollars)
Combined
Modified
CDFI
Fund
53.8
65.2
64.4
60.8
58.8
[see footnote]6
Combined
Tract(average
HousingMedian house
age (years)
Modified
CDFIcharacteristics)
Fund criteria
Combined
6.6
8.2
15.2
18.3
7.3
[see footnote]6 [seefootnote]2
Tract(average
HousingOccupancy
Modified
CDFIcharacteristics)
Fund criteria
Vacancyrateby owner
Combined
13.7
13.0
14.7
13.4
15.9
[see footnote]6
Modified
CDFIcharacteristics)
Fund criteria
Combined
Tract(average
Population
47.2
32.2
25.6
19.6
40.6
[see footnote]3
Over
age 65
Tract
(average
characteristics)
Population
Modified
CDFI
Fund
criteria[seefootnote]6
CombinedMinority
County (average characteristics)
Population change, 1990-2000
Modified CDFI Fund criteria[see footnote]6
[see footnote]6
Combined
County
(average
characteristics)
Net migration rate, 1995-99[seefootnote]4
Modified CDFI
Fund
criteria
[see footnote]6
Combined
County
(average
characteristics)
Poverty rate, 2002
Modified CDFI
Fund
criteria
CombinedCounty(averagecharacteristics)Unemployment rate, 2001

1.1
-4.7
18.6
7.8

1.1

Total All

3,489

5,491

12.6
22.6
20.7
35,883
89.7

12.7
22.9
20.8
36,882
89.2

64,821
37.7
61.4
16.6

76,000
36.5
59.5
13.8

16.2
17.0

15.3
25.6

1.1
1.9
14.7
6.3

1.1
1.2
14.9
6.6

2,235

4,834

13.5
21.8
18.8
36,699
95.7

11.7
20.7
18.7
41,810
97.1

64,686
37.4
62.9
16.5

93,151
36.1
60.7
11.6

15.2
23.1

14.3
32.5

1.1
.9
17.6
8.6

1.0
-2.1
17.0
7.3

1.1
-3.4
17.0
7.9

1.1
-.3
17.3
8.0

1.1
-2.0
17.2
8.0

848

412

1,155

1,260

2,415

Tract(averagecharacteristics)Share of families with income
13.3
11.4
12.4
13.5
12.5
[see
footnote]6
LessCDFI
than orFund
equal criteria
to poverty
level
Modified
Unemployment
21.8
19.8
21.0
22.3
20.9
[see footnote]6
[seefootnote]1
Modified
CDFIcharacteristics)
Fund criteria
Unemployment
median
Tract(average
Shareof
families
with
income
Less
than
50
percent
of
MSA
or
non-MSA
17.5
19.0
18.7
19.4
18.1
[see footnote]6
[seefootnote]1
Modified
Tract(average
CDFIcharacteristics)
Fund criteria
Shareof
familieswithincome
Unemployment
Between 50 percent and 80
percent of43,430
MSA or non-MSA
44,263
37,586 median
37,341
43,901
[see footnote]6
Modified
Tract(average
CDFIcharacteristics)
Fund criteria
Median
family income
Unemployment
(dollars)
98.1
98.0
96.8
93.6
98.0
[see footnote]6
Modified
Tract(average
CDFIcharacteristics)
Fund criteria
Medianfamilyincome(dollars)
Unemployment
Median relative to MSA or non-MSA
Tract(averagecharacteristics)Housing
157,326
110,582
71,274
72,214
136,980
[see footnote]6
Median
house
valuecriteria
(dollars)
Modified
CDFI
Fund
Unemployment
33.8
34.0
37.5
38.3
33.9
[see footnote]6
Modified
Tract(average
CDFIcharacteristics)
Fund criteria
HousingMedian house
Unemployment
age (years)
49.4
64.1
65.8
60.3
55.8
[see footnote]6
Tract(average
HousingOccupancy Unemployment
by owner
Modified
CDFIcharacteristics)
Fund criteria
6.4
10.2
14.5
20.5
8.0
[see footnote]6 [seefootnote]2
Modified
Tract(average
CDFIcharacteristics)
Fund criteria
HousingVacancyrateUnemployment
Tract(averagecharacteristics)Population
Over age 65
12.9
15.0
15.5
12.4
11.9
Modified CDFI Fund criteria[see footnote]6 Unemployment
53.2
33.9
21.4
22.0
44.9
[see footnote]3
Tract (average
characteristics)
Population
Minority
Modified
CDFIFund
criteria[seefootnote]6
Unemployment
County
(average characteristics)
Population change, 1990-2000
1.1
1.2
1.1
1.1
1.2
footnote]4
ModifiedCDFIFundcriteria[seefootnote]6UnemploymentCounty(averagecharacteristics)Net migration
-2.0
rate,2.41995-99[see2.1
.8
-.1
[seefootnote]6
ModifiedCDFIFundcriteria
UnemploymentCounty(averagecharacteristics)Poverty
21.5rate, 200216.0
16.3
17.2
19.1
ModifiedCDFIFundcriteria[seefootnote]6UnemploymentCounty(averagecharacteristics)Unemployment
rate,
10.8 2001 10.0
10.2
10.3
9.9

12.8
21.5
18.9
37,506
95.7

12.6
21.2
18.6
40,564
96.8

71,581
37.8
64.0
16.5

102,828
35.9
60.1
12.4

15.2
21.6

13.9
32.7

1.1
1.7

1.1
.8
17.8
10.2

-1.6

14.9

8.1

[seefootnote]6

ModifiedCDFIFundcriteria
Unemployment
Tract (average characteristics)
Number added
[see footnote]6

Modified CDFI Fund criteria

See footnotes on page 228.

Unemployment

653

502

16.6
10.0

Table 15.—Continued

The profile reveals that, in rural areas, the exurban and remote tracts currently classified as lower income
have similar average characteristics along most dimensions (although the number of tracts in exurban and
remote areas is different). In urban areas, however, the center-city and suburban tracts with this classificatio
are largely dissimilar. Further, a comparison of lower-income tracts in urban and rural areas reveals
differences in most characteristics.

Percent except as noted
Urban
Urban
Item

Center
city

Poverty
Tract (average characteristics)
Number added

521

Rural
Rural

Suburban

131

Exurban

485

Total

Remote

368

Poverty
Tract(averagecharacteristics)Share of families with income
15.0
18.8
17.4
18.1
Less than or equal to poverty level
Poverty
23.1
22.6
24.1
24.9
Tract(averagecharacteristics)ShareoffamilieswithincomeLess than 50 percent of M S A 17.1
or non-MSA
median
Poverty
18.3
17.6
18.4
Poverty
Tract(averagecharacteristics)ShareoffamilieswithincomeBetween 50 percent and 8042,919
percent of M
S A or non-MSA
34,671
33,820 median
32,122
Tract(averagecharacteristics)Medianfamily income (dollars)
Poverty
97.3
96.0
95.0
91.8
Poverty
Tract(averagecharacteristics)Medianfamilyincome(dollars)Median relative to M S A or non-MSA
Tract(averagecharacteristics)Housing
165,803
74,434
56,220
51,471
Median house value (dollars)
Poverty
33.7
31.2
35.9
36.5
Poverty
Tract(averagecharacteristics)HousingMedian house age (years)
45.9
61.1
63.7
63.9
Tract(averagecharacteristics)HousingOccupancy by owner
Poverty
6.7
16.0
15.5
11.9
Tract(averagecharacteristics)HousingVacancyrate
Poverty
Tract(averagecharacteristics)Population
12.8
11.1
14.3
14.7
Over age 65
Poverty
60.9
37.7
28.7
59.1
[ s e efootnote]1

[ s e efootnote]1

Total Urban Rural

Total All

652

853

1,505

15.8
23.0
17.3
41,262
97.1

17.7
24.4
17.9
33,087
93.7

16.9
23.8
17.7
36,629
95.1

147,360
33.2
49.0
7.7

54,172
36.2
63.8
15.8

94,491
34.9
57.4
12.3

12.5
60.6

14.5
33.8

13.6
45.4

[seefootnote]2

Tract
(average
characteristics)
Population Minority [ s e e f o o t n o t e ] 3
Poverty
County
(average
characteristics)
Population change, 1990-2000
PovertyCounty(averagecharacteristics)Net migration rate, 1995-99[seefootnote]4
PovertyCounty(averagecharacteristics)Poverty rate, 2002
PovertyCounty(averagecharacteristics)Unemployment rate, 2001

Population loss
Tract (average characteristics)
Number added

1.1
-4.0
24.7
9.0

1.2
1.3
24.0
11.5

1.1
.6
22.3
7.8

23.2
7.7

1.0

1.1
-2.9
24.6
9.5

1.1
.1
22.7
7.8

1.1
-1.2
23.5
8.5

1,124

613

194

364

1,737

558

2,295

8.5
19.4
18.7
48,561
98.3

12.1
20.5
18.9
38,252
97.3

9.4
19.7
18.7
46,055
98.1

125,444
36.0
57.3
6.3

58,046
37.3
58.8
17.0

109,067
36.3
57.6
8.9

14.3
39.5

15.7
21.2

14.6
35.1

1.0

.9
-7.4
15.4
5.5

-.6

Population loss
Tract(averagecharacteristics)Share of families with income
7.1
14.1
11.1
9.3
Less thanloss
or equal to poverty level
20.8
17.0
21.1
20.2
Population
Population
loss
Tract(average
characteristics)ShareoffamilieswithincomeLess than 50 percent of M S A 18.6
or non-MSA
19.0
median
18.0
19.3
Tract(average
characteristics)ShareoffamilieswithincomeBetween 50 percent and 8048,241
percent of M
S A or non-MSA
Population
loss
49,149
36,513 median
39,179
Population
Tract(averageloss
characteristics)Median family income (dollars)
101.1
98.7
96.5
96.9
Population
Tract(average
loss
characteristics)Medianfamilyincome(dollars)Median relative to M S A or non-MSA
Tract(averagecharacteristics)Housing
135,845
106,363
55,698
59,298
Median house
Population
loss value (dollars)
35.8
36.3
35.6
38.2
Population
loss
Tract(average
characteristics)HousingMedian house age (years)
52.5
65.9
58.8
58.9
Tract(average
characteristics)HousingOccupancy by owner
Population
loss
6.2
6.5
16.7
17.2
Population
loss
Tract(average
characteristics)HousingVacancyrate
Tract(averagecharacteristics)Population
14.5
14.0
14.3
16.4
Over ageloss
65
Population
44.6
30.3
28.1
17.6
[ s e efootnote]1

[ s e efootnote]1

[seefootnote]2

Tractloss
(average
Population Minority [ s e e f o o t n o t e ] 3
Population
Countycharacteristics)
(average characteristics)
Population change, 1990-2000
PopulationlossCounty(averagecharacteristics)Net migration rate, 1995-99[seefootnote]4
PopulationlossCounty(averagecharacteristics)Poverty rate, 2002
PopulationlossCounty(averagecharacteristics)Unemployment rate, 2001

1.0

-6.8

-6.1

18.2
6.8

13.8

6.1

1.0
-7.1
17.0
6.3

.9
-7.6
14.5
5.1

-6.6

16.6
6.6

1.0
-6.8

16.3
6.3

NOTE. Data exclude tracts in U.S.-affiliated areas and tracts without income
[footnote] 4. Difference between net migration in 1999 and net migration in 1995 as a
information.
percentage of the population in 1997.[endoffootnote.]
[footnote] 1. See table 14, note 1.[endoffootnote.]
[footnote] 5. See table 14, note 2.[endoffootnote.]
[footnote] 2. Vacant housing units as a percentage of total housing units.[endoffootnote.][footnote] 6. For description of modification to CDFI Fund criteria, see text.
CDFI Fund Community Development Financial Institutions Fund.[endoffootnote.]
[footnote] 3. Non-whites or people of Hispanic origin.[endoffootnote.]

demographic characteristics, and location.

tives for expanding the class of rural CRA-eligible
of median family income and 80 percent of statewide
tracts, the rural tracts that would be newly classimedian family income) show, not unexpectedly, the
fied as CRA-eligible show more-favorable economic
most-favorable economic characteristics.
characteristics than do the rural tracts currently classiWhen compared with the current rule (figure 3),
fied as such. The relationship of the newly classified
each alternative adds a different set of newly CRArural CRA-eligible tracts to urban tracts currently
eligible rural tracts with significantly different geoclassified as CRA-eligible is complicated. Under
graphic distributions. That is, with one exception,
any of the alternatives, the newly added rural CRAeach alternative—raising the threshold from the
eligible tracts would have lower poverty, unemploycurrent level to 90 percent (figure 4) or 100 percent
ment, and population growth rates and higher owner(figure 5), changing the baseline to the statewide
occupancy and vacancy rates than would the current
median income (figure 6), and adding the CDFI
urban CRA-eligible tracts; median incomes for both
Fund's non-income criteria to the current 80 percent
types of tract would be about the same. Moreover, the
income rule (figure 7)—adds a set of tracts that
rural tracts that would be added under the alternatives
differs from the other sets in terms of composithat contribute the most rural tracts (100 percent
tion (the tracts that make it up), economic and
The differences between suburban and exurban tracts are a case in point: Exurban tracts have higher poverty rates, vacancy rates, and unem
incomes, house values, and population growth rates than do suburban tracts.
Although the specific tracts added by each alternative are different, their economic and demographic characteristics are similar. Under any

3. Census tracts in rural counties: Share that is CRA-eligible under current rule, as of December 31, 2003

[Map of the United States with color patches marking Counties: white is urban, light blue is rural none, dark blue is rural less than 25 percent,
black is rural at least 25 percent. Alaska is mostly black with patches in the other colors. Hawaii has a large island in black, a smaller island in
white, and all the rest in dark blue. The continental states have mixes of all colors, with larger patches in the west than the east, and a larger
percentage of space in the light blue color.]

NOTE. Under the current rule, a rural census tract is CRA-eligible if the median family income in the tract is less than 80 percent of the
median family income in the nonmetropolitan portion of the state.

4. Census tracts in rural counties: Share that is CRA-eligible if the income standard is set to less than 90 percent
of the median in the nonmetropolitan portion of the state, as of December 31, 2003

[Map of the United States with color patches marking Counties: white is urban, light blue is rural none, dark blue is rural less than 25 percent,
black is rural at least 25 percent. Alaska is mostly black with patches in the other colors. Hawaii has a large and smaller island in black, a smaller island in
white, and all the rest in dark blue. The continental states have mixes of all colors, with larger patches in the west than the east, and a larger percentage in
black.]

NOTE . Under this option, a rural census tract would be CRA-eligible if the median family income in the tract was less than 90 percent of the median family
income in the nonmetropolitan portion of the state.

5. Census tracts in rural counties: Share that is CRA-eligible if the income standard is set to less than 100 percent
of the median in the nonmetropolitan portion of the state, as of December 31, 2003

[Map of the United States with color patches marking Counties: white is urban, light blue is rural none, dark blue is rural less than 25 percent,
black is rural at least 25 percent. Alaska is mostly black with patches in the other colors. Hawaii has most islands in black, and one smaller island in
white. The continental states have mixes of all colors, with larger patches in the west than the east, and a larger percentage in black and white.]

NOTE. Under this option, a rural census tract would be CRA-eligible if the median family income in the tract was less than 100 percent of the median family
income in the nonmetropolitan portion of the state.

6. Census tracts in rural counties: Share that is CRA-eligible if the current 80 percent income standard is broadened
f r o m the nonmetropolitan portion of the state to the entire state, as of December 31, 2003

[Map of the United States with color patches marking Counties: white is urban, light blue is rural none, dark blue is rural less than 25 percent,
black is rural at least 25 percent. Alaska is mostly black with patches in the other colors. Hawaii has a large and smaller island in black, a smaller island in
white, and all the rest in dark blue. The continental states have mixes of all colors, with larger patches in the west than the east, and a larger percentage in
black and white.]

NOTE. Under this option, a rural census tract would be CRA-eligible if the median family income in the tract was less than 80 percent of the median family
income in the entire state.

7. Census tracts in rural counties: Share that would be CRA-eligible if the standard is broadened f r o m the current 80 percent
income standard to include any of the C D F I Fund's non-income criteria, as of December 31, 2003

[Map of the United States with color patches marking Counties: white is urban, light blue is rural none, dark blue is rural less than 25 percent,
black is rural at least 25 percent. Alaska is mostly black with patches in the other colors. Hawaii has a large and smaller island in black, a smaller island in
white, and all the rest in dark blue. The continental states have mixes of all colors, with larger patches in the west than the east, and a larger percentage in
light blue.]

N O T E . Under this option, a rural census tract would be CRA-eligible if it met the income criteria specified by the current rule (see note to figure 3) or if it met one
of the following non-income criteria established by the Community Development Financial Institutions Fund (CDFI Fund) for determining an investment area:
an unemployment rate of at least 1.5 times the national average; a poverty rate of 20 percent or more; or a population loss of 10 percent or more between the previous
and most-recent censuses or a net migration loss of 5 percent or more over the five-year period preceding the most recent census (see text discussion of table 14).

Table 16. Number and share of rural banking institutions whose number of CRA-eligible census tracts in their assessment areas
would increase under options for defining census tracts as CRA-eligible, as of December 31, 2003

Item

Income-based optionsIncome-based
Income-based
optionsoptions
Percent of non-MSA
median
Percent of non-MSA
Less than
median
80 percent
of state
Less than
Less than
median
100
90

Large institutions
Currently with no CRA-eligible tracts
Number
300
300
Large institutions Currently with no CRA-eligible tracts
Rural institutions with increase in CRA-eligible tracts
Number
155
231
Large institutions
51.7
77.0
Currently
Large institutions
withnoCRA-eligibletractsRuralinstitutionswithincreaseinCRA-eligibletracts
21.2Percent 41.9
CurrentlywithnoCRA-eligibletractsAverage increase (percentage points)

Modified
Modified CDFI
Modified CDFI Fund criteria
CDFI
Fund criteria
CDFI
Fund criteria Modified
Individual
Fund criteria
Combined
Individual
Individual
Unemployment
Poverty

Population

300

200
66.7
32.4

49
16.3
54.4

27
9.0
62.6

11
3.7
42.9

18
6.0
40.7

695

369
53.1
27.5

243
35.0
23.7

183
26.3
20.0

152
21.9
14.8

1,268

110
8.7
77.0

37
2.9
82.0

66
5.2
72.4

1,629

412
25.3
37.7

303
18.6
35.0

192
11.8
26.1

2,141

389
18.2
83.8

161
7.5
85.7

75
3.5
88.4

201
9.4
80.7

1,831

306
16.7
42.8

421
23.0
45.6

192
10.5
40.0

LargeinstitutionsCurrently with some CRA-eligible tracts
Number
695
695
695
LargeinstitutionsCurrentlywithsomeCRA-eligibletractsRural institutions with increase in CRA-eligible tracts
Number
650
629
679
LargeinstitutionsCurrentlywithsomeCRA-eligibletractsRuralinstitutionswithincrease
90.5
inCRA-eligible
97.7
tractsPercent 93.5
LargeinstitutionsCurrentlywithsomeCRA-eligibletractsAverage increase (percentage
16.4
points)
37.2
27.0

LargeinstitutionsAssessment areas currently with no CRA-eligible tracts
Number
1,268
1,268
1,268
1,268
LargeinstitutionsAssessmentareascurrentlywithnoCRA-eligibletractsRural assessment areas with increase in CRA-eligible tracts
Number
615
976
788
194
LargeinstitutionsAssessmentareascurrentlywithnoCRA-eligibletractsRuralassessment
48.5areaswithincrease
77.0 inCRA-eligible
62.1tractsPercent
15.3
LargeinstitutionsAssessmentareascurrentlywithnoCRA-eligibletractsAverage increase
31.2
(percentage
51.7 points) 43.7
77.1
LargeinstitutionsAssessment areas currently with some CRA-eligible tracts
Number
1,629
1,629
1,629
1,629
LargeinstitutionsAssessmentareascurrentlywithsomeCRA-eligibletractsRural assessment areas with increase in CRA-eligible tracts
Number
1,312
1,557
1,406
658
LargeinstitutionsAssessmentareascurrentlywithsomeCRA-eligibletractsRuralassessment
80.5 areaswith95.6
increaseinCRA-eligible
86.3 tractsPercent
40.4
LargeinstitutionsAssessmentareascurrentlywithsomeCRA-eligibletractsAverage18.5
increase (percentage
36.7
points)
28.3
40.3

loss

Smallinstitutions[seefootnote]1Currently with no CRA-eligible tracts
Number
2,141
2,141
2,141
Smallinstitutions[seefootnote]1CurrentlywithnoCRA-eligibletractsRural institutions with increase in CRA-eligible tracts
Number
1,152
1,870
1,476
Smallinstitutions[seefootnote]1CurrentlywithnoCRA-eligibletractsRuralinstitutionswith
53.8
increaseinCRA-eligible
87.3 tractsPercent
68.9
Smallinstitutions[seefootnote]1CurrentlywithnoCRA-eligibletractsAverage increase32.7
(percentage points)
57.4
47.9

Smallinstitutions[seefootnote]1Currently with some CRA-eligible tracts
Number
1,831
1,831
1,831
1,831
Smallinstitutions[seefootnote]1CurrentlywithsomeCRA-eligibletractsRural institutions with increase in CRA-eligible tracts
Number
1,409
1,731
1,551
681
Smallinstitutions[seefootnote]1CurrentlywithsomeCRA-eligibletractsRuralinstitutionswith
77.0increaseinCRA-eligible
94.5
tracts84.7
Percent
37.2
Smallinstitutions[seefootnote]1CurrentlywithsomeCRA-eligibletractsAverage increase
23.2(percentage
41.4
points)
34.1
47.6
NOTE. See general note to table 9. A rural banking institution is an institution whose assessment area contains at least one rural census tract. For definition of relative tract income, see table 8, note 1. For description of CDFI Fund
criteria, see text discussion of table 14. For definition of large and small institutions, see table 1, note 1. For description of assessment areas, see table 9, note 1.

1. Rural assessment areas were approximated by the rural counties in which
small institutions had branches. These approximations were used to determine
whether any of the census tracts served by small institutions would become
CRA-eligible.
CDFI Fund Community Development Financial Institutions Fund.

For example, of the 3,559 rural tracts added by adopting the
modified CDFI Fund criteria or raising the threshold
to 90 percent, only 760 (one-fifth) would be added
by both options (data omitted from tables). Moreover,
the modified CDFI Fund criteria themselves would
add largely dissimilar sets of tracts: 18 percent of
rural tracts that meet one or more of the criteria meet
two or more of them, and less than 2 percent of rural
tracts that meet one or more of the criteria meet all
three criteria. The exception to the pattern is that

substantial overlap exists between raising the threshold to 100 percent and using the statewide median
income as the baseline. Of the 5,188 rural tracts that
would be added by either alternative, 64 percent
would be added by both options.
The alternatives can also be evaluated from the
perspective of banking institutions. For example,
30 percent of large institutions with at least one
branch in a rural area currently have no CRA-eligible
tracts in any of their rural assessment areas
(table 9). Under each of the three income-based

[footnote] 35. See David A. McGranahan and Calvin L. Beale (2002),
authors found that the rural areas with population loss are distinct
''Understanding Rural Population Loss,'' Rural America, vol. 17 (Winfrom those with high poverty.[endoffootnote]
ter). The article is available on the website of the Economic Research
[footnote] 36. Assessment areas of small institutions are approximated by the
Service, U.S. Department of Agriculture (www.ers.usda.gov). The
counties in which they have branches.[endoffootnote.]
alternatives (raising the threshold to 90 percent or 100 percent or changing the baseline to the statewide median income),
more than one-half of those institutions would have at least one CRA-eligible tract in at least one of their rural assessment areas (table 16).

In
contrast, under the alternative of the modified CDFI
Fund criteria, only 16 percent of those institutions
now without any rural CRA-eligible tracts would
have at least one; however, the 16 percent would on
average have 54 percent of the rural tracts they serve
classified as CRA-eligible. Although the incomebased measures affect many more institutions, the
average effect on each institution is much smaller.
For example, the typical institution that experienced
a change under the statewide-median-income alternative would end up with 30 percent of its tracts classified as CRA-eligible. The difference arises from the
operation of the modified CDFI Fund criteria at the
county level: In our analysis, if a county meets a
criterion, then all of its middle-income tracts become
CRA-eligible. Each of the other, income-based alternatives is likely to affect only a portion of the middleincome tracts in a given county.

SUMMARY OF FINDINGS

The data and the analyses reported in this article may
be useful in evaluating recent proposals to revise the
CRA regulations. Because of data limitations, much
of the analysis uses indirect rather than direct tests.
From these tests, several findings emerge.
First, we found little evidence of differences
in retail lending or branching between institutions just below and just above the $250 million
threshold that currently distinguishes institutions with
small-institution evaluations from those with largeinstitution evaluations. Nor did we find evidence that
institutions graduating from the small-institution
evaluation to the large-institution evaluation significantly change their retail lending or branching behavior, at least in the first two years in which they are
covered by the large-institution evaluation. However,
the analysis was limited to inferences about the

behavior of institutions around the margin of the
current threshold, $250 million. Although the evidence suggests that raising the threshold some
amount above $250 million would not have a significant effect on retail lending or branching, it fails to
reveal what amount of increase in the threshold, if
any, would result in a significant effect.
Second, in our investigation of the relationship
of community development lending to overall CRA
ratings for institutions examined under the largeinstitution examination, we found fairly consistent
evidence that such lending plays a relatively limited
role in determining overall CRA ratings. Indeed, a
significant minority of institutions received ''outstanding" ratings and reported no community development loans for three years; this finding holds true
in each of several categories of institution asset size.
Third, we found little evidence to support the
hypothesis that rural areas receive fewer retail loans
or branches from CRA-covered institutions than do
urban areas or that rural institutions have more
difficulty in achieving ''outstanding" ratings. Indeed,
smaller rural institutions are equally or more likely to
receive ''outstanding" ratings than are smaller urban
institutions. However, we found modest evidence
that rural institutions are somewhat less likely to do
any community development lending than are comparable urban institutions and that they make a
lower volume of community development loans.
These facts support the agencies' restriction of proposed revisions in the criteria for area-based CRA
consideration to community development activities.
Finally, in our comparison of several proposals to
expand area-based CRA consideration in rural areas,
we found that all of the proposals would raise the
number of CRA-eligible tracts in rural areas to the
same percentage (or higher) as in urban areas. And
all would add tracts with better economic characteristics than the tracts classified as lower-income
under the 1995 regulations. However, each proposal
adds a different set of tracts, affects a different number of banking institutions, and, in the case of institutions that are affected, affects them to different
degrees.

Report on the Condition of the U.S. Banking
Industry: Fourth Quarter, 2004
Total assets of reporting bank holding companies
rose $393.2 billion (or 4.0 percent) in the fourth
quarter of 2004, to $10.3 trillion—the first time that
this total has exceeded $10 trillion. The two largest
asset categories—loans, and securities and money
market assets—each increased roughly $170 billion,
accounting for most of total asset growth.
For loans, this increase represented growth of
3.5 percent, with $152.3 billion of the increase occurring at the fifty large bank holding companies.
Growth was most pronounced in the commercial
real estate, home equity, and credit card categories.
A sign of the invigorated lending market, reporting
bank holding companies increased their unused commitments to lend $253.4 billion (5.5 percent) for the
quarter and $725.8 billion (17.7 percent) for the full
year. Over both intervals, nearly all the growth took
place at the fifty large institutions.
The increase of 4.7 percent in securities and money
market assets was largely attributable to a large
foreign-owned securities-oriented firm (Barclay's
Group US, Inc.) with total assets of $180.7 billion
becoming a bank holding company in the fourth
quarter. This event coincided with the exit of a
smaller foreign-owned securities-oriented firm (CIBC
Delaware Holdings, Inc., with $37.4 billion in assets)
that ceased being a bank holding company with the
sale during the period of its U.S. bank subsidiary. The
entering firm had a larger trading portfolio ($42.0 billion) and much larger holdings of short-term money
market assets ($90.0 billion), contributing considerably to aggregate growth. These effects aside, the
fifty large bank holding companies added $30.6 billion (1.0 percent) to their holdings of securities and
money market assets, while all other bank holding
companies added $7.4 billion (1.6 percent).
Deposits increased significantly but less rapidly
than assets, growing $186.2 billion (3.7 percent).
Core deposits rose over the quarter, but largedenomination time deposits increased more sharply.
Borrowings increased $76.8 billion (2.5 percent)
overall, also influenced by developments at a few
firms. The addition of the large securities-oriented

bank holding company (and exit of a smaller one)
added $58.3 billion, and increased borrowing at a
large insurance-oriented bank holding company
(MetLife) added $35.4 billion. Similarly, the aforementioned change in the population of reporting bank
holding companies was the primary reason that other
liabilities increased $94.2 billion. Risk-based regulatory capital ratios remained steady over the quarter.
Although the leverage ratio declined 12 basis points,
to 6.64 percent, all three regulatory capital ratios
remained considerably above the standards for wellcapitalized companies.
Net income fell off modestly in the fourth quarter,
declining 1.4 percent from the previous quarter, to
$28.8 billion. Net interest income fell despite the
increases in loans and other interest-earning assets,
as a flatter yield curve and heightened competitive
pressure in loan pricing eroded net interest margins
to 3.26 percent (down 0.21 percent). Non-interest
expense rose a modest 1.0 percent, even including
expenses related to 2004's many mergers. Cushioning the negative factors, non-interest income rose
1.2 percent (reflecting better trading and mortgageservicing revenues), and provisions for loan losses
declined 2 percent.
Asset quality improved yet again in the quarter as
nonperforming assets fell to 0.82 percent of loans and
related assets. Despite the decline in provisions,
improved asset quality allowed reporting bank holding companies to reduce their allowance for loan
losses by a further $1.3 billion.
For the full year, net income of reporting bank
holding companies reached $113.5 billion, an
increase of 5.1 percent over 2003 despite an 11-basispoint narrowing of net interest margins. Return
on average assets and return on average equity
declined somewhat, reflecting robust asset growth
and merger-related expansion of stockholder's equity
respectively.
[footnote] 1. To better reflect the components of net income, the accompanying tables have been adjusted so that non-interest income no longer
includes realized gains and losses on securities.[endoffootnote.]

Table 1.

Financial characteristics of all reporting bank holding companies in the United States

M i l l i o n s o f d o l l a r s e x c e p t as n o t e d , n o t s e a s o n a l l y a d j u s t e d
2003
Account or ratio[seefootnote]21

2000

2001

2002

2003

2003 Q2
Balance

2004
2004

2004
Q3

2003 Q4

2004 Q1

2004 Q4

sheet

Total assets

6,745,836

7,486,952

7,990,945

8,880,545

10,339,429

8,726,133

8,751,183

8,880,545

9,348,190

9,699,421

9,946,162

10,339,429

BalancesheetLoans
3,728,570
BalancesheetSecurities and money market 2,197,434
BalancesheetAllowance for loan losses
-60,376
BalancesheetOther
880,209

3,832,553
2,568,705
-68,833
1,154,528

4,080,049
2,866,857
-74,798
1,118,837

4,435,863
3,302,240
-73,835
1,216,278

5,111,690
3,850,580
-74,610
1,451,770

4,301,114
3,230,018
-74,627
1,269,628

4,376,319
3,190,602
-73,926
1,258,189

4,435,863
3,302,240
-73,835
1,216,278

4,606,523
3,592,416
-76,617
1,225,867

4,792,622
3,628,469
-76,398
1,354,729

4,937,021
3,678,595
-75,902
1,406,448

5,111,690
3,850,580
-74,610
1,451,770

BalancesheetTotal liabilities

6,227,975

6,901,281

7,350,200

8,177,562

9,450,301

8,046,202

8,063,922

8,177,562

8,603,836

8,925,650

9,093,036

9,450,301

BalancesheetDeposits
BalancesheetBorrowings
Balance sheet Other [see footnote]3

3,771,749
1,991,564
464,662

4,025,769
2,073,770
801,743

4,357,245
2,244,331
748,624

4,705,043
2,630,168
842,351

5,249,255
3,091,158
1,109,889

4,599,696
2,525,842
920,664

4,605,545
2,572,084
886,293

4,705,043
2,630,168
842,351

4,846,062
2,867,443
890,331

5,003,107
2,917,437
1,005,107

5,063,083
3,014,311
1,015,641

5,249,255
3,091,158
1,109,889

517,861

585,671

640,745

702,983

889,128

679,932

687,261

702,983

744,354

773,771

853,126

889,128

Off-balance-sheet
3,297,511
Unused commitments tolend [ s e efootnote]4
Securitizationsoutstanding [seefootnote]5
n.a.
Derivatives (notional value,billions) [seefootnote]6 43,608

3,481,744
276,717
48,276

3,650,669
295,001
57,886

4,097,531
298,348
72,914

4,823,303
353,978
89,124

3,756,486
285,286
68,353

3,887,357
290,328
69,452

4,097,531
298,348
72,914

4,350,930
308,543
79,271

4,420,733
314,258
83,107

4,569,881
313,436
84,721

4,823,303
353,978
89,124

66,510
224,535
40,758
219,016
302,146
4,352

85,731
246,048
45,107
221,532
296,964
4,598

107,950
257,537
33,075
250,639
316,330
5,771

113,497
286,253
28,784
273,524
364,862
5,524

26,983
64,685
9,197
64,372
79,972
2,694

28,177
66,120
8,246
65,423
81,678
596

29,545
68,072
8,944
69,991
86,323
655

30,826
68,769
7,163
68,023
84,262
1,987

25,808
73,217
6,989
73,195
102,042
997

29,186
73,755
7,489
67,714
90,373
1,960

28,767
72,246
7,846
68,549
91,263
508

BalancesheetTotal equity

Income statement
Netincome [seefootnote]7
IncomestatementNet interest income
IncomestatementProvisions for loan losses
IncomestatementNon-interest income
IncomestatementNon-interest expense
IncomestatementSecurity gains or losses

73,168
197,759
27,699
200,903
258,213
-606

Ratios (percent)
Return on average equity
15.19
Ratios(percent)Return on average assets
1.13
Ratios(percent)Net interestmargin [ s e efootnote]8
3.58
Ratios(percent)Efficiencyratio [seefootnote]7
62.77
Ratios(percent)Nonperforming assets to loans and
related assets
1.09
Ratios(percent)Net charge-offs to average loans .66
Ratios(percent)Loans to deposits
98.86

11.86
.91
3.61
66.03

14.11
1.11
3.74
62.50

16.28
1.26
3.51
61.67

14.27
1.16
3.41
62.60

16.37
1.27
3.56
62.36

16.81
1.29
3.53
61.91

17.25
1.34
3.59
62.33

17.13
1.34
3.46
61.69

13.47
1.06
3.52
62.11

14.06
1.18
3.47
63.54

13.31
1.11
3.26
64.21

1.44
.91
95.20

1.44
1.04
93.64

1.15
.84
94.28

.82
.67
97.38

1.33
.88
93.51

1.23
.86
95.02

1.15
.98
94.28

1.09
.72
95.06

.97
.66
95.79

.89
.61
97.51

.82
.71
97.38

Regulatory capital ratios
Tier 1 risk-based
RegulatorycapitalratiosTotal risk-based
RegulatorycapitalratiosLeverage

8.84
11.80
6.81

8.92
11.92
6.68

9.22
12.28
6.72

9.58
12.60
6.87

9.41
12.28
6.64

9.31
12.32
6.79

9.53
12.54
6.77

9.58
12.60
6.87

9.53
12.48
6.88

9.38
12.28
6.67

9.40
12.30
6.76

9.41
12.28
6.64

RegulatorycapitalratiosNumber of
reporting bank holding

1,727

1,842companies
1,979

2,134

2,253

2,064

2,120

2,134

2,192

2,210

2,240

2,253

Footnotes appear on p. 240.

Table 2.

Financial characteristics of fifty large bank holding companies in the United States

M i l l i o n s o f d o l l a r s e x c e p t as n o t e d , n o t s e a s o n a l l y a d j u s t e d
2003
Account or ratio[seefootnote]29,

2000

2001

2002

2003

2004
2004

2004
2003 Q2

2003 Q4

2004 Q1

2004 Q4

Balance sheet
Total assets

5,507,787

5,882,246

6,243,212

6,901,577

7,940,955

6,806,767

6,825,187

6,901,577

7,338,392

7,528,335

7,726,752

7,940,955

BalancesheetLoans
2,934,979
BalancesheetSecurities and money market 1,849,888
BalancesheetAllowance for loan losses
-49,186
BalancesheetOther
772,107

2,953,665
2,054,945
-56,512
930,150

3,136,678
2,285,222
-61,091
882,404

3,381,963
2,633,690
-59,233
945,157

3,925,111
2,968,226
-59,380
1,106,999

3,290,399
2,567,101
-60,138
1,009,406

3,348,415
2,538,590
-59,235
997,418

3,381,963
2,633,690
-59,233
945,157

3,534,690
2,910,826
-61,757
954,633

3,668,300
2,895,327
-61,338
1,026,046

3,772,804
2,937,667
-60,692
1,076,974

3,925,111
2,968,226
-59,380
1,106,999

BalancesheetTotal liabilities

5,096,893

5,433,581

5,756,182

6,370,790

7,251,931

6,294,212

6,304,621

6,370,790

6,770,661

6,938,022

7,069,330

7,251,931

BalancesheetDeposits
BalancesheetBorrowings
Balance sheet Other [see footnote]3

2,845,631
1,813,934
437,329

3,021,096
1,878,921
533,564

3,257,657
2,042,479
456,046

3,508,261
2,360,766
501,764

3,942,375
2,721,165
588,392

3,435,534
2,267,749
590,929

3,431,483
2,316,577
556,561

3,508,261
2,360,766
501,764

3,624,929
2,610,435
535,297

3,754,261
2,637,680
546,082

3,787,308
2,735,250
546,772

3,942,375
2,721,165
588,392

410,894

448,665

487,030

530,787

689,025

512,555

520,567

530,787

567,731

590,313

657,423

689,025

Off-balance-sheet
3,075,664 3,238,472
Unused commitments tolend [ s e efootnote]4
Off-balance-sheet Securitizationsoutstanding [seefootnote]5
n.a.
271,825
Off-balance-sheet Derivatives (notional value, billions)
43,559 [seefootnote]6
48,195

3,386,455
289,320
57,801

3,802,454
292,312
72,750

4,489,800
348,986
88,744

3,470,355
279,083
68,213

3,594,931
284,134
69,308

3,802,454
292,312
72,750

4,049,808
304,545
79,090

4,106,493
307,878
82,887

4,240,809
307,325
84,512

4,489,800
348,986
88,744

52,619
166,608
35,852
174,504
224,451
4,316

68,451
183,719
39,380
172,705
215,807
5,008

87,857
192,171
28,563
195,908
229,270
5,190

90,492
213,810
25,338
213,393
267,909
4,634

21,760
48,327
8,010
50,465
58,241
2,349

23,169
49,963
7,070
51,758
60,254
483

24,498
51,206
7,871
55,618
63,204
632

25,364
51,864
6,394
54,154
61,979
1,636

19,490
54,023
6,205
56,152
75,404
677

23,171
55,177
6,698
52,088
65,503
1,707

23,557
54,478
6,744
54,954
68,101
541

BalancesheetTotal equity

60,436
153,462
24,108
181,707
216,969
-601

Ratios (percent)
Return on average equity
15.86
Ratios(percent)Return on average assets
1.14
Ratios(percent)Net interestmargin [ s e efootnote]8
3.44
Ratios(percent)Efficiencyratio [seefootnote]7
62.67
Ratios(percent)Nonperforming assets to loans and
related assets
1.17
Ratios(percent)Net charge-offs to average loans .75
Ratios(percent)Loans to deposits
103.14

12.24
.92
3.39
63.43

14.72
1.13
3.56
59.65

17.52
1.32
3.35
58.59

14.77
1.19
3.25
59.51

17.52
1.32
3.40
59.29

18.27
1.35
3.40
59.03

18.88
1.43
3.47
58.97

18.43
1.40
3.31
58.72

13.31
1.03
3.32
58.27

14.42
1.20
3.32
60.50

14.02
1.19
3.16
61.60

1.57
1.04
97.77

1.56
1.21
96.29

1.22
.97
96.40

.84
.80
99.56

1.41
1.04
95.78

1.30
1.00
97.58

1.22
1.13
96.40

1.14
.88
97.51

1.00
.78
97.71

.91
.72
99.62

.84
.83
99.56

Regulatory capital ratios
Tier 1 risk-based
RegulatorycapitalratiosTotal risk-based
RegulatorycapitalratiosLeverage

8.24
11.59
6.25

8.52
11.95
6.26

8.83
12.20
6.38

8.59
11.85
6.17

8.57
11.93
6.31

8.83
12.19
6.30

8.83
12.20
6.38

8.79
12.06
6.38

8.64
11.89
6.15

8.64
11.86
6.24

8.59
11.85
6.17

Footnotes appear on p. 240.

8.21
11.46
6.43

Table 3.

Financial characteristics of all other reporting bank holding companies in the United States

M i l l i o n s o f d o l l a r s e x c e p t as n o t e d , n o t s e a s o n a l l y a d j u s t e d
2003
Account [ s e e f o o t n o t e ] 1 , 1 0

2000

2001

2002

2003

2004
2004

2004
2003 Q2

2003 Q4

2004 Q1

2004 Q4

Balance sheet
Total assets
BalancesheetLoans
BalancesheetSecurities and money market
BalancesheetAllowance for loan losses
BalancesheetOther
BalancesheetTotal liabilities

1,179,815

1,291,472

1,415,874

1,551,826

1,708,712

1,511,952

1,518,413

1,551,826

1,589,816

1,634,419

1,674,192

1,708,712

769,242
319,020
-10,922
102,476

824,735
357,476
-11,957
121,218

889,216
406,422
-13,269
133,505

974,580
444,967
-14,185
146,464

1,104,277
466,243
-14,830
153,022

936,117
448,650
-13,957
141,141

950,786
439,584
-14,206
142,249

974,580
444,967
-14,185
146,464

1,001,254
459,839
-14,475
143,199

1,039,136
457,512
-14,718
152,489

1,076,582
458,796
-14,915
153,729

1,104,277
466,243
-14,830
153,022

1,078,257

1,175,659

1,285,653

1,410,440

1,551,059

1,372,657

1,379,967

1,410,440

1,444,354

1,489,548

1,519,841

1,551,059

BalancesheetDeposits
BalancesheetBorrowings
Balance sheet Other [see footnote]3

914,290
143,028
20,939

990,558
159,229
25,873

1,081,607
172,810
31,237

1,174,218
201,634
34,589

1,286,968
223,481
40,609

1,143,286
194,844
34,528

1,152,364
194,470
33,133

1,174,218
201,634
34,589

1,207,152
197,959
39,244

1,233,046
218,586
37,916

1,259,508
220,193
40,140

1,286,968
223,481
40,609

BalancesheetTotal equity

101,558

115,813

130,221

141,385

157,653

139,294

138,446

141,385

145,462

144,870

154,351

157,653

Off-balance-sheet
212,784
233,098
Unused commitments tolend [ s e efootnote]4
Off-balance-sheet Securitizationsoutstanding [seefootnote]5
n.a.
4,567
Off-balance-sheet Derivatives (notional value, billions)
32 [seefootnote]6 51

252,308
4,942
53

282,164
4,893
67

320,132
2,877
79

273,591
5,205
74

278,701
5,116
67

282,164
4,893
67

287,740
2,875
71

299,222
3,000
65

311,754
2,757
67

320,132
2,877
79

13,752
46,324
4,469
22,339
44,446
745

16,492
51,106
5,094
24,528
47,066
670

17,692
53,266
4,295
27,514
51,551
989

19,340
57,492
3,215
26,392
53,647
552

4,633
13,295
1,098
7,282
12,995
400

4,506
13,207
1,056
6,944
12,735
131

4,144
13,665
1,133
6,679
13,461
187

4,770
13,888
804
6,700
13,178
291

4,763
14,026
792
6,620
13,157
117

4,956
14,582
805
6,530
13,347
129

4,851
14,996
814
6,542
13,965
15

12.50
1.12
4.21
63.86

13.47
1.23
4.26
61.26

13.00
1.19
4.00
63.10

13.08
1.19
3.94
62.85

13.59
1.25
4.02
63.69

13.24
1.20
3.93
62.84

11.91
1.08
3.98
65.98

13.44
1.22
3.98
63.19

13.14
1.19
3.90
63.11

13.27
1.20
3.93
63.15

12.51
1.15
3.96
63.88

.97
.43
83.26

1.02
.46
82.21

.98
.39
83.00

.77
.25
85.80

1.09
.37
81.88

1.03
.36
82.51

.98
.51
83.00

.96
.22
82.94

.87
.25
84.27

.85
.23
85.48

.77
.31
85.80

12.18
13.76
8.76

12.42
14.06
8.87

12.47
14.20
8.99

12.35
14.01
9.11

12.51
14.21
8.93

12.46
14.18
8.91

12.47
14.20
8.99

12.51
14.23
9.04

12.38
14.08
9.05

12.36
14.03
9.09

12.35
14.01
9.11

RegulatorycapitalratiosNumber of other reporting bank holding
companies
1,652
1,779

1,916

2,071

2,198

2,001

2,057

2,071

2,130

2,148

2,182

2,198

Income statement
Netincom[seefootnote]e7
IncomestatementNet interest income
IncomestatementProvisions for loan losses
IncomestatementNon-interest income
IncomestatementNon-interest expense
IncomestatementSecurity gains or losses

12,436
43,566
3,420
16,090
38,132
-10

Ratios (percent)
Return on average equity
13.09
Ratios(percent)Return on average assets
1.11
Ratios(percent)Net interestmargin [ s e efootnote]8
4.32
Ratios(percent)Efficiencyratio [seefootnote]7
62.27
Ratios(percent)Nonperforming assets to loans and
related assets
.77
Ratios(percent)Net charge-offs to average loans .32
Ratios(percent)Loans to deposits
84.14
Regulatory capital ratios
Tier 1 risk-based
RegulatorycapitalratiosTotal risk-based
RegulatorycapitalratiosLeverage

Footnotes appear on p. 240.

11.76
13.24
8.49

Nonfinancial characteristics of all reporting bank holding companies in the United States
M i l l i o n s o f d o l l a r s e x c e p t as n o t e d , n o t s e a s o n a l l y a d j u s t e d
2003
Account

2000

2001

2002

2003

2003 Q2

Bank holding companies that qualify as
financial holding companies[seefootnote]11,12
Domestic
Number
300
389
Bank holding companies that qualify as 4,497,781 5,440,842
financialBank
holding
companies
Domestic
holding
companies
thatTotal
qualifyassets
as
financialholdingcompaniesForeign-owned[seefootnote]13
9
10
Number
Bank holding companies that qualify as
502,506
621,442
financialholdingcompaniesForeign-ownedTotal assets
Bank holding companies that qualify as
financialholdingcompaniesTotal U.S. commercial bank
assets [see footnote]14
6,129,534 6,415,909
By ownership
Reporting bank holding companies
5,657,210
ByownershipOther bank holding companies 229,274
ByownershipIndependent banks
243,050
Assets associated with nonbanking
activities[seef o o t n o t e ] 1 2 , 1 5
Insurance
n.a.
Assets associated with nonbanking
n.a.
activities Securities
broker-dealers
Assets associated
with nonbanking
102,218
activities Thrift
Assetsinstitutions
associated with nonbanking
132,629
activities Foreign
nonbank with
institutions
Assets associated
nonbanking 1,234,714
activities Other nonbank institutions

Assets of fifty large bank holding
companies[seef o o t n o t e ] 9 , 1 7
Fixed panel (from table 2)
5,507,787
Assets of fifty large bank holding 5,319,129
companies Fifty
large
as of
reporting
date
Assets
of fifty
large
bank holding
companies Percent of all reporting
78.90
bank holding companies

2003 Q4

2004 Q1

2004 Q4

435
5,921,277

452
6,610,312

474
7,462,510

441
6,438,319

449
6,451,785

452
6,610,312

465
6,845,700

471
7,069,908

477
7,264,913

474
7,462,510

11
616,254

12
710,441

14
1,376,325

11
732,695

11
729,244

12
710,441

13
995,454

14
1,117,732

14
1,194,542

14
1,376,325

6,897,447

7,397,818

8,207,170

7,325,350

7,293,920

7,397,818

7,614,504

7,850,644

8,040,967

8,207,170

5,942,575
230,464
242,870

6,429,738
227,017
240,692

6,940,992
219,222
237,604

7,785,424
209,251
212,495

6,863,154
222,998
239,198

6,842,727
217,035
234,157

6,940,992
219,222
237,604

7,165,651
213,193
235,660

7,409,186
211,725
229,733

7,599,384
208,764
232,819

7,785,424
209,251
212,495

426,462
n.a.
91,170
138,977
1,674,267

372,405
630,851
107,422
145,344
561,712

437,503
656,775
133,056
170,600
686,367

579,113
719,242
191,201
216,758
1,128,279

405,297
659,701
124,640
160,515
737,434

419,575
686,049
143,578
162,789
736,515

437,503
656,775
133,056
170,600
686,367

468,168
713,794
139,713
195,472
837,269

583,073
710,485
156,033
226,055
861,333

579,785
756,869
162,396
230,566
873,677

579,113
719,242
191,201
216,758
1,128,279

143
n.a.
38
32
743

96
47
32
37
880

102
50
27
41
1,042

99
43
27
39
1,031

93
50
31
40
945

102
46
29
39
992

102
50
27
41
1,042

100
49
29
41
1,009

101
48
27
40
1,030

98
45
25
40
1,049

99
43
27
39
1,031

23
764,411

26
762,901

27
934,088

29
1,537,203

27
946,847

27
947,254

27
934,088

27
1,146,258

28
1,271,844

28
1,350,458

29
1,537,203

1,985,981

1,992,559

2,034,358

2,162,036

2,019,953

2,031,029

2,034,358

2,099,072

2,085,671

2,133,267

2,162,036

5,882,246
5,732,621

6,243,212
6,032,000

6,901,577
6,666,488

7,940,955
7,940,955

6,806,767
6,587,000

6,825,187
6,602,255

6,901,577
6,666,488

7,338,392
7,045,844

7,528,335
7,385,384

7,726,752
7,644,504

7,940,955
7,940,955

76.60

75.50

75.10

75.50

75.40

75.10

75.40

76.10

76.90

76.80

Number of bank holding
companies
engaged in nonbanking activities[seefootnote]12,15
Insurance
n.a.
Number of bank holding companies
n.a.
engagedinnonbanking
Securities
broker-dealers
Number ofactivities
bank holding
companies
50
engagedinnonbanking
Thriftcompanies
institutions
Number ofactivities
bank holding
25
engagedinnonbanking
Foreign
nonbank institutions
Number ofactivities
bank holding
companies
633
engagedinnonbankingactivitiesOther nonbank institutions
Foreign-owned bank holding
companies[seefootnote]13
Number
21
Foreign-owned bank holding
636,669
companies Total assets
Foreign-owned bank holding
companies Employees of reporting bank holding
1,859,930
companies (full-time equivalent)

2004
2004

2004

76.80

[footnote] 10. Excludes predecessor bank holding companies that were subsequently merged into
NOTE. All data are as of the most recent period shown. The historical figures may not
other bank holding companies in the panel of fifty large bank holding companies. Also
match those in earlier versions of this table because of mergers, significant acquisitions or
excludes those bank holding companies excluded from the panel of fifty large bank holddivestitures, or revisions or restatements to bank holding company financial reports. Data for
ing companies because commercial banking operations represent only a small part of their
the most recent period may not include all late-filing institutions.
consolidated operations.[endoffootnote.]
[footnote] 1. Covers top-tier bank holding companies except (1) those with consolidated assets of less
than $150 million and with only one subsidiary bank and (2) multibank holding companies
[footnote] 11. Exclude qualifying institutions that are not reporting bank holding companies.[endoffootnote.]
with consolidated assets of less than $150 million, with no debt outstanding to the general
[footnote] 12. No data related to financial holding companies and only some data on nonbanking
public and not engaged in certain nonbanking activities.[endoffootnote.]
activities were collected on the FR Y-9C report before implementation of the G r a m m Leach-Bliley Act in 2000.[endoffootnote.]
[footnote] 2. Data for all reporting bank holding companies and the fifty large bank holding companies reflect merger adjustments to the fifty large bank holding companies. Merger adjust[footnote] 13. A bank holding company is considered ''foreign-owned'' if it is majority-owned by a
ments account for mergers, acquisitions, other business combinations and large divestitures
foreign entity. Data for foreign-owned companies do not include data for branches and agenthat occurred during the time period covered in the tables so that the historical information on
cies of foreign banks operating in the United States.[endoffootnote.]
each of the fifty underlying institutions depicts, to the greatest extent possible, the institu[footnote] 14. Total assets of insured commercial banks in the United States as reported in the comtions as they exist in the most recent period. In general, adjustments for mergers among bank
mercial bank Call Report (FFIEC 031 or 041, Reports of Condition and Income). Excludes
holding companies reflect the combination of historical data from predecessor bank holddata for a small number of commercial banks owned by other commercial banks that file
ing companies.
separate call reports yet are also covered by the reports filed by their parent banks. Also
excludes data for mutual savings banks.[endoffootnote.]
The data for the fifty large bank holding companies have also been adjusted as necessary to match the historical figures in each company's most recently available financial
[footnote] 15. Data for thrift, foreign nonbank, and other nonbank institutions are total assets of each
statement.
type of subsidiary as reported in the FR Y-9LP report. Data cover those subsidiaries in which
the top-tier bank holding company directly or indirectly owns or controls more than
In general, the data are not adjusted for changes in generally accepted accounting
50 percent of the outstanding voting stock and that has been consolidated using generally
principles.[endoffootnote.]
accepted accounting principles. Data for securities broker-dealers are net assets (that is, total
[footnote] 3. Includes minority interests in consolidated subsidiaries.[endoffootnote.]
assets, excluding intercompany transactions) of broker-dealer subsidiaries engaged in activ[footnote] 4. Includes credit card lines of credit as well as commercial lines of credit.[endoffootnote.]
ities pursuant to the Gramm-Leach-Bliley Act, as reported on schedule HC-M of the
[footnote] 5. Includes loans sold to securitization vehicles in which bank holding companies retain
FR Y-9C report. Data for insurance activities are all insurance-related assets held by the bank
some interest, whether through recourse or seller-provided credit enhancements or by servicholding company as reported on schedule HC-I of the FR Y-9C report.
ing the underlying assets. Securitization data were first collected on the FR Y-9C report for
June 2001.[endoffootnote.]
Beginning in 2002:Q1, insurance totals exclude intercompany transactions and subsidiaries engaged in credit-related insurance or those engaged principally in insurance agency
[footnote] 6. The notional value of a derivative is the reference amount of an asset on which an interactivities. Beginning in 2002:Q2, insurance totals include only newly authorized insurance
est rate or price differential is calculated. The total notional value of a bank holding
activities under the Gramm-Leach-Bliley Act.[endoffootnote.]
company's derivatives holdings is the sum of the notional values of each derivative contract
regardless of whether the bank holding company is a payor or recipient of payments under the
[footnote] 16. Aggregate assets of thrift subsidiaries were affected significantly by the conversion of
contract. The actual cash flows and fair market values associated with these derivative
Charter One's thrift subsidiary (with assets of $37 billion) to a commercial bank in the second
contracts are generally only a small fraction of the contract's notional value.[endoffootnote.]
quarter of 2002 and the acquisition by Citigroup of Golden State Bancorp (a thrift institution with assets of $55 billion) in the fourth quarter of 2002.[endoffootnote.]
[footnote] 7. Income statement subtotals for all reporting bank holding companies and the fifty large
bank holding companies exclude extraordinary items, the cumulative effects of changes in
[footnote] 17. Changes over time in the total assets of the time-varying panel of fifty large bank holdaccounting principles, and discontinued operations at the fifty large institutions and therefore
ing companies are attributable to (1) changes in the companies that make up the panel and
will not sum to Net income. The efficiency ratio is calculated excluding nonrecurring income
(2) to a small extent, restatements of financial reports between periods.[endoffootnote.]
and expenses.[endoffootnote.]
n.a. Not available
SOURCE. Federal Reserve Reports FRY-9C and FR Y-9LP, Federal Reserve National
[footnote] 8. Calculated on a fully-taxable-equivalent basis.[endoffootnote.]
Information Center, and published financial reports.
[footnote] 9. In general, the fifty large bank holding companies are the fifty largest bank holding
companies as measured by total consolidated assets for the latest period shown. Excludes a
few large bank holding companies whose commercial banking operations account for only a
small portion of assets and earnings.[endoffootnote.]

Announcements
FEDERAL OPEN MARKET
STATEMENTS

COMMITTEE

The Federal Open Market Committee decided on
February 2, 2005, to raise its target for the federal
funds rate 25 basis points, to 21/2percent.
The Committee believes that, even after this action,
the stance of monetary policy remains accommodative and, coupled with robust underlying growth in
productivity, is providing ongoing support to economic activity. Output appears to be growing at a
moderate pace despite the rise in energy prices, and
labor market conditions continue to improve gradually. Inflation and longer-term inflation expectations
remain well contained.
The Committee perceives the upside and downside
risks to the attainment of both sustainable growth and
price stability for the next few quarters to be roughly
equal. With underlying inflation expected to be relatively low, the Committee believes that policy
accommodation can be removed at a pace that is
likely to be measured. Nonetheless, the Committee
will respond to changes in economic prospects as
needed to fulfill its obligation to maintain price
stability.
Voting for the FOMC monetary policy action were:
Alan Greenspan, Chairman; Timothy F. Geithner,
Vice Chairman; Ben S. Bernanke; Susan S. Bies;
Roger W. Ferguson, Jr.; Edward M. Gramlich; Jack
Guynn; Donald L. Kohn; Michael H. Moskow;
Mark W. Olson; Anthony M. Santomero; and
Gary H. Stern.
In a related action, the Board of Governors unanimously approved a 25-basis-point increase in the
discount rate, to 31/2percent. In taking this action, the
Board approved the requests submitted by the Boards
of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond,
Atlanta, Chicago, St. Louis, Minneapolis, Kansas
City, Dallas, and San Francisco.
The Federal Open Market Committee decided on
March 22, 2005, to raise its target for the federal
funds rate 25 basis points, to 23/4percent.
The Committee believes that, even after this action,
the stance of monetary policy remains accommodative and, coupled with robust underlying growth in

productivity, is providing ongoing support to economic activity. Output evidently continues to grow at
a solid pace despite the rise in energy prices, and
labor market conditions continue to improve gradually. Though longer-term inflation expectations
remain well contained, pressures on inflation have
picked up in recent months and pricing power is more
evident. The rise in energy prices, however, has not
notably fed through to core consumer prices.
The Committee perceives that, with appropriate
monetary policy action, the upside and downside
risks to the attainment of both sustainable growth and
price stability should be kept roughly equal. With
underlying inflation expected to be contained, the
Committee believes that policy accommodation can
be removed at a pace that is likely to be measured.
Nonetheless, the Committee will respond to changes
in economic prospects as needed to fulfill its obligation to maintain price stability.
Voting for the FOMC monetary policy action were:
Alan Greenspan, Chairman; Timothy F. Geithner,
Vice Chairman; Ben S. Bernanke; Susan S. Bies;
Roger W. Ferguson, Jr.; Edward M. Gramlich; Jack
Guynn; Donald L. Kohn; Michael H. Moskow;
Mark W. Olson; Anthony M. Santomero; and
Gary H. Stern.
In a related action, the Board of Governors unanimously approved a 25-basis-point increase in the
discount rate, to 33/4percent. In taking this action, the
Board approved the requests submitted by the Boards
of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond,
Atlanta, Chicago, St. Louis, Minneapolis, and
San Francisco.

AMENDMENTS
APPENDIX A

TO REGULATION

CC,

The Federal Reserve Board announced on February 8, 2005, amendments to appendix A of Regulation CC (Availability of Funds and Collection of
Checks) that reflect the restructuring of the Federal
Reserve's check-processing operations in the Sixth
District. These amendments are the first in a series of
amendments to appendix A that will take place
through the first quarter of 2006, associated with the

previously announced restructuring of the Reserve
Banks' check-processing operations.
Appendix A provides a routing number guide that
helps depository institutions determine the maximum
permissible hold periods for most deposited checks.
As of March 26, 2005, the Birmingham Branch office
of the Federal Reserve Bank of Atlanta no longer
processes checks, and banks served by that office
have been reassigned to the Reserve Bank's head
office in Atlanta. To ensure that the information in
appendix A accurately describes the structure of
check-processing operations within the Federal
Reserve System, the final rule deletes the reference in
appendix A to the Atlanta Reserve Bank's Birmingham Branch office and reassigns the routing numbers
listed thereunder to the Reserve Bank's head office.
To coincide with the effective date of the underlying
check-processing changes, the amendments became
effective March 26, 2005. As a result of these
changes, some checks deposited in the affected
regions that were nonlocal checks became local
checks subject to shorter permissible hold periods.
The Federal Reserve Board announced on February 17, 2005, amendments to appendix A of Regulation CC that reflect the restructuring of the Federal
Reserve's check-processing operations in the Fourth,
Seventh, and Eleventh Districts.
As of April 16, 2005, the Detroit Branch office of
the Federal Reserve Bank of Chicago no longer processes checks, and banks served by that office have
been reassigned to the head office of the Federal
Reserve Bank of Cleveland. As of April 23, 2005, the
Houston Branch office of the Federal Reserve Bank
of Dallas no longer processes checks, and banks
served by that office have been reassigned to that
Reserve Bank's head office. To ensure that the information in appendix A accurately describes the structure of check-processing operations within the Federal Reserve System, the final rule (1) deletes the
reference in appendix A to the Chicago Reserve
Bank's Detroit Branch office and reassigns the routing numbers listed thereunder to the Cleveland
Reserve Bank's head office, and (2) deletes the reference in appendix A to the Dallas Reserve Bank's
Houston Branch office and reassigns the routing numbers listed thereunder to that Reserve Bank's head
office. To coincide with the effective date of the
underlying check-processing changes, the amendments became effective April 16, 2005, and April 23,
2005, respectively. As a result of these changes, some
checks deposited in the affected regions that were
nonlocal checks became local checks subject to
shorter permissible hold periods.

REQUEST FOR COMMENTS ON PROPOSED
REVISIONS TO REGULATIONS
IMPLEMENTING
THE COMMUNITY REINVESTMENT ACT

The Federal Reserve Board invited public comment
on February 25, 2005, on proposed revisions to its
regulations implementing the Community Reinvestment Act (CRA) that are intended to reduce regulatory burden on community banks while making CRA
evaluations more effective in encouraging banks to
meet community development needs.
The Board's notice of proposed rulemaking is identical to proposals approved by the Office of the
Comptroller of the Currency and the Federal Deposit
Insurance Corporation on February 22, 2005. The
proposal would introduce the following:
• Exempt banks with assets between $250 million
and $1 billion, referred to as intermediate-small
banks, from the data reporting obligations the current
CRA regulations imposed on banks with assets larger
than $250 million.
• Subject intermediate small banks to a two-part
test (retail lending and community development)
instead of the current three-part test (lending, investment, and service). For intermediate-small banks, a
satisfactory community development rating, as well
as a satisfactory retail lending rating, would be necessary for an overall rating of ''satisfactory.''
• Revise the definition of community development
for all banks of any size to make it more responsive
to the community development needs of rural areas.
• Clarify when illegal lending practices—for
example, by a bank's affiliate—might reduce the
bank's CRA rating.
The proposal addresses concerns expressed by the
Board in July 2004 when it withdrew a February
2004 proposal to raise the small-bank threshold to
$500 million. The Board expressed concern in July
that the proposal was not certain to yield significant
cost savings for banks, but might reduce community
development capital in some rural communities. The
current proposal would deliver greater cost savings
while maintaining scrutiny of banks' community
development records, though on a more flexible basis.
The proposal would also refine the definition of
community development in rural areas to make the
regulations more effective in encouraging rural
development.

REQUEST FOR COMMENTS ON PROPOSAL TO
AMEND REGULATION CC

The Federal Reserve Board requested public comment on March 1, 2005, on a proposal to amend its
Regulation CC (Availability of Funds and Collection
of Checks) to set forth rules governing remotely
created checks. In place of a signature, a remotely
created check generally bears a statement that the
customer authorized the check or the check bears the
customer' s printed or typed name.
Remotely created checks can be useful payment
devices. For example, a debtor can authorize a credit
card company to create a remotely created check by
telephone. This may enable the debtor to pay the
credit card bill in a timely manner and avoid late
charges. However, remotely created checks are vulnerable to fraud because they do not bear a signature
or other readily verifiable indication that payment has
been authorized.
To help reduce the potential for fraud, the proposed
amendments to Regulation CC would create transfer
and presentment warranties under which the depository bank would warrant that the remotely created
check that it is transferring or presenting to the paying bank is authorized by the person on whose
account the check is drawn. The proposed warranties
would apply only to banks and would ultimately shift
liability for losses attributable to an unauthorized
remotely created check from the paying bank to the
depository bank. These amendments would not affect
the rights of checking account customers, as they are
already not liable for unauthorized checks drawn on
their accounts.
ADOPTION OF FINAL RULE ON
TRUST PREFERRED SECURITIES

The Federal Reserve Board adopted on March 1,
2005, a final rule that allows the continued limited
inclusion of trust preferred securities in the tier 1
capital of bank holding companies (BHCs). Under
the final rule, trust preferred securities and other
restricted core capital elements will be subject to
stricter quantitative limits.
The Board's final rule limits restricted core capital
elements to 25 percent of all core capital elements,
net of goodwill less any associated deferred tax liability. Internationally active BHCs, defined as those
with consolidated assets greater than $250 billion
or on-balance-sheet foreign exposure greater than
$10 billion, will be subject to a 15 percent limit. But
they may include qualifying mandatory convertible
preferred securities up to the generally applicable

25 percent limit. Amounts of restricted core capital
elements in excess of these limits generally may be
included in tier 2 capital. The final rule provides a
five-year transition period, ending March 31, 2009,
for application of the quantitative limits.
The requirement for trust preferred securities to
include a call option has been eliminated, and standards for the junior subordinated debt underlying
trust preferred securities eligible for tier 1 capital
treatment have been clarified.
The final rule addresses supervisory concerns,
competitive equity considerations, and the accounting for trust preferred securities. The final rule also
strengthens the definition of regulatory capital by
incorporating longstanding Board policies regarding
the acceptable terms of capital instruments included
in banking organizations' tier 1 or tier 2 capital.

PROPOSAL TO DISCONTINUE SERVICES FOR
DEFINITIVE MUNICIPAL SECURITIES

The Federal Reserve Board approved on February 28,
2005, the Federal Reserve Banks' proposal to stop
providing services to depository institutions for the
collection and processing of definitive municipal
securities. The Reserve Banks will stop accepting
deposits of bonds and coupons on September 30,
2005, and will complete the withdrawal from the
noncash collection service on December 30, 2005.
Definitive municipal securities are registered or
bearer bonds that have been issued by state and local
governments with interest coupons in certificated or
physical form. Municipal bond and coupon volume
has been declining since the passage of the Tax
Equity and Fiscal Responsibility Act of 1982, which
effectively eliminated the issuance of municipal
bearer bonds. The noncash collection service is provided centrally by the Jacksonville Branch of the
Federal Reserve Bank of Atlanta and, in 2004, represented less than 0.2 percent of the Reserve Banks'
total priced financial services costs.
The withdrawal from this service is prompted by
the declining volume of definitive municipal securities, the Reserve Banks' expected underrecovery of
costs for providing the service in future years, and the
availability of reasonable private-sector alternatives.
With the exit of the Reserve Banks, depository institution customers of the noncash collection service
could instead use a private-sector service provider,
such as the Depository Trust Company or a correspondent bank, to collect their definitive municipal
bonds and coupons or could present these items for
payment directly to the paying agent.

PASSING OF HENRY CZERWINSKI, FORMER
FIRST VICE PRESIDENT, KANSAS CITY
FEDERAL RESERVE BANK

On February 11, 2005, Henry Czerwinski, Former
First Vice President, Federal Reserve Bank of Kansas
City, died as a result of a massive heart attack at his
home in Nokomis, Florida. Former First Vice President Czerwinski joined the Bank in 1959 as an audit
trainee and retired in 1994 after thirty-four years of
service.
IMPLEMENTATION

OF BASEL II

FRAMEWORK

The federal banking and thrift institution agencies
released on January 27, 2005, an interagency statement on implementation of the Basel II framework
and the qualification process for the framework's
''advanced approaches.''
IMPLEMENTATION OF WEB-BASED
DATA REPOSITORY

CENTRAL

The federal banking agencies announced on January 28, 2005, a new implementation plan for the
Central Data Repository (CDR)—an Internet-based
system created to modernize and streamline the ways
that agencies collect, validate, manage, and distribute
financial data submitted by banks in quarterly ''Call
Reports.'' Although banks will not be required to
submit Call Report data to the CDR until October
2005, the agencies plan to make the CDR available
for testing by banks and software vendors beginning
early summer 2005.
Originally scheduled for implementation in October 2004, rollout of the CDR was postponed to
address industry feedback and allow more time for
system testing and enrollment. The new implementation plan resulted from discussions with industry
representatives, including software vendors, trade
associations, and a number of banks from across the
country that participate in the Financial Institutions Focus Group for the CDR project. The new
plan provides additional time for each group to participate in testing to help ensure a smooth integration of the new technology into the Call Reporting
process.
Beginning this summer, the CDR will be made
available to banks for enrollment and testing of their
ability to access the system. Also, during this period,
software vendors will be working with the agencies
to prepare for the final test of system readiness in
August 2005. Full system implementation, planned

for October, will mark the first time all institutions
will be required to file their Call Report data using
the new CDR.
Through the use of new open data exchange standards (known as ''eXtensible Business Reporting
Language,'' or XBRL), the CDR system will facilitate faster delivery of accurate Call Report data. All
users of the data—financial institutions, the public,
and banking regulators—are expected to benefit from
this improved, more timely flow of financial institution information.
This initiative—the Call Report Modernization
Project—is an interagency effort under the auspices
of the Federal Financial Institutions Examination
Council (FFIEC). Additional project details and other
important information are posted on the FFIEC's web
site at www.FFIEC.gov/FIND.

FEDERAL RESERVE BOARD AND FDIC ISSUE
ENFORCEMENT ACTIONS AGAINST THE
NORCROWN TRUST AND CHARLES KUSHNER

The Federal Reserve Board and the Federal Deposit
Insurance Corporation announced on February 10,
2005, the issuance of joint enforcement actions
against The NorCrown Trust and Charles Kushner.
The NorCrown Trust controls NorCrown Bank,
Livingston, New Jersey. Charles Kushner is the
trustee of The NorCrown Trust and a former chairman of NorCrown Bank.
The joint order requires that The NorCrown Trust
and Charles Kushner pay civil money penalties totaling at least $12.5 million, to divest The NorCrown
Trust's shares of NorCrown Bank, and to transfer the
shares to a voting trust administered by an independent trustee until the divestiture is completed. The
joint order also prohibits Mr. Kushner from participating in the conduct of the affairs of any financial
institution or holding company.
The Federal Reserve Board also issued an order
upon consent under the Bank Holding Company Act
requiring other individuals and trusts with relationships to The NorCrown Trust to cooperate in implementing the divestiture plan.
The enforcement actions resolve allegations that
The NorCrown Trust and Charles Kushner violated
the Change in Bank Control Act, the Bank Holding
Company Act, or both, in a series of transactions
from 1995 through 1997, that led to the formation of
The NorCrown Trust, which never received the Federal Reserve' s approval to become a bank holding
company. The joint order also resolves allegations of
violations of Regulation O (Loans to Executive Offi-

cers, Directors, and Principal Shareholders of Member Banks) and sections 23A and 23B of the Federal
Reserve Act relating to transactions with NorCrown
Bank.

FEDERAL RESERVE BOARD AND FDIC ISSUE
WRITTEN AGREEMENT ASSOCIATED
THE NORCROWN TRUST

WITH

The Federal Reserve Board and the Federal Deposit
Insurance Corporation announced on February 25,
2005, the execution of a joint written agreement
by and among the Federal Reserve Bank of New
York and the Federal Deposit Insurance Corporation
with David Bodner and Murray Huberfeld. The
written agreement requires that Mr. Bodner and
Mr. Huberfeld comply with the prior approval
requirements of section 19 of the Federal Deposit
Insurance Act.
The agreement pertains to allegations that Mr. Bodner and Mr. Huberfeld did not seek the prior approval
of the FDIC under section 19 of the Federal Deposit
Insurance Act before an investment was made in
what became The NorCrown Trust, an unregistered
bank holding company that owns more than 99 percent of the voting shares of NorCrown Bank, Livingston, New Jersey, an insured state nonmember
bank.
This joint written agreement follows joint enforcement actions announced on February 10, 2005,
against The NorCrown Trust and Charles Kushner.

COMMENT PERIOD EXTENDED ON PROPOSED
DATA COLLECTION CHANGES FOR SHARED
NATIONAL CREDITS

The federal banking and thrift institution regulatory
agencies agreed on February 11, 2005, to extend the
comment period for forty-five days on the proposed
changes to the data collection process that supports
the Shared National Credit review of large syndicated
loans. The proposal was published in the Federal
Register on December 20, 2004.
The deadline was extended in response to requests
from several banks asking the agencies to provide an
additional period to review, analyze, and submit comments on the proposed interagency statement.
The public comment period on the interagency
statement ended on April 7, 2005. The scope and
comment process for this interagency statement
remained as stated in the original Federal Register
notice of December 20, 2004.

FINAL GUIDANCE ISSUED ON OVERDRAFT
PROTECTION PROGRAMS

The federal bank and credit union regulatory agencies announced on February 18, 2005, final joint
guidance to assist insured depository institutions in
the disclosure and administration of overdraft protection programs.
Depository institutions may offer overdraft protection programs to transaction account customers as an
alternative to traditional ways of covering overdrafts.
In response to concerns about the marketing, disclosure, and implementation of these programs, the
agencies published for comment proposed interagency guidance on overdraft protection programs in
June 2004. The final joint guidance responds to comments received by consumer and community groups,
individual consumers, depository institutions, trade
associations, vendors offering overdraft protection
products, other industry representatives, and state
agencies.
The final joint guidance contains three primary
sections: Safety and Soundness Considerations; Legal
Risks; and Best Practices. The Safety and Soundness
discussion seeks to ensure that financial institutions
offering overdraft protection programs adopt adequate policies and procedures to address credit,
operational, and other associated risks.
The Legal Risks discussion alerts institutions of
the need to comply with all applicable federal and
state laws, and advises institutions to have their overdraft protection programs reviewed by legal counsel
to ensure overall compliance before implementation.
Several federal consumer compliance laws are outlined in the guidance.
The Best Practices section addresses the marketing
and communications that accompany the offering of
overdraft protection programs as well as the disclosure and operation of these programs. Some of these
best practices include: avoiding the promotion of
poor account management; providing a clear explanation of the discretionary nature of the overdraft protection program; clearly disclosing fees; explaining
the effect of transaction clearing policies on the overdraft fees consumers may incur; and monitoring program usage. The agencies also advise insured depository institutions to distinguish overdraft protection
services from ''free'' account features, to prominently distinguish balances from overdraft protection
funds availability, and to alert consumers before a
transaction triggers any fees.
The guidance is being issued by the Federal
Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration,

and the Office of the Comptroller of the Currency
and was published in the Federal Register. The
joint document is on the Board's web site at
www.federalreserve.gov/boarddocs/press/bcreg/2005/
20050218/attachment.pdf.

ADVISORY ON CONFIDENTIALITY
SUPERVISORY RATINGS

The federal banking and thrift institution regulatory
agencies issued on February 28, 2005, an interagency
advisory to remind financial institutions that they are
prohibited by law from disclosing their CAMELS
rating and other nonpublic supervisory information
without permission from the appropriate federal
banking agency.
The advisory is prompted by insurers who have
requested or required banks and savings associations
to disclose their CAMELS rating during the underwriting process for directors and officers liability
coverage.
As a result of actions by insurers, the agencies
have requested the assistance of the National Association of Insurance Commissioners in notifying
insurance companies that the practice of requesting or requiring CAMELS ratings should be
discontinued.

PROPOSED REVISIONS TO COMMUNITY
REINVESTMENT ACT REGULATIONS

The federal banking agencies published on March 11,
2005, a joint notice of proposed rulemaking in the
Federal Register that would revise certain provisions
in their regulations implementing the Community
Reinvestment Act (CRA).
The revisions are intended to reduce regulatory
burden on community banks while making CRA
evaluations more effective in encouraging banks to
meet community development needs.

GUIDANCE ON RESPONSE PROGRAMS FOR
SECURITY BREACHES

The federal banking and thrift institution regulatory
agencies jointly issued on March 23, 2005, Interagency Guidance on Response programs for unauthorized Access to Customer information and Customer Notice.
The guidance interprets the agencies' customer
information security standards and states that finan-

cial institutions should implement a response program to address security breaches involving customer
information.
The response program should include procedures
to notify customers about incidents of unauthorized
access to customer information that could result in
substantial harm or inconvenience to the customer.
The guidance provides that ''when a financial institution becomes aware of an incident of unauthorized
access to sensitive customer information, the institution should conduct a reasonable investigation to
promptly determine the likelihood that the information has been or will be misused.''
''If the institution determines that misuse of its
information about a customer has occurred or is
reasonably possible, it should notify the affected customer as soon as possible,'' the guidance states. However, notice may be delayed if an appropriate law
enforcement agency determines that notification will
interfere with a criminal investigation.
Under the guidance, a financial institution should
notify its primary federal regulator of a security
breach involving sensitive customer information,
whether or not the institution notifies its customers.
The guidance was issued by the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Office of the
Comptroller of the Currency, and the Office of Thrift
Supervision.

REQUEST FOR COMMENT ON PROPOSED
CLASSIFICATION OF COMMERCIAL CREDIT
EXPOSURES

The federal banking and thrift institution regulatory
agencies requested comment on March 28, 2005, on
proposed changes to the supervisory framework for
the classification of commercial credit exposures.
The proposed guidance would replace the current
commercial loan classification system categories—
''special mention,'' ''substandard,'' and ''doubtful''—
with a two-dimensional framework. The twodimensional rating system has one dimension that
measures the risk of the borrower defaulting (borrower rating) and a second focuses on the loss severity the institution would likely incur in the event
of the borrower' s default (facility rating). Facility
ratings would be required for only those borrowers
rated default, typically a very small proportion of all
commercial exposures.
The proposed framework would increase consistency among the agencies in assessing the credit risk
in an institution's commercial loan portfolio. It also

more closely aligns the determination of a facility' s
accrual status with an institution' s allowance for loan
and lease loss methodology and rating assessment
process.
Comments on the proposed guidance are requested
by June 30, 2005. Specific information on how to file
a comment is contained in the Federal Register
notice.

ANSWERS

RELEASED

TO FREQUENTLY

QUESTIONS ABOUT NEW HMDA

ASKED

DATA

The federal banking, credit union, and thrift institution supervisory agencies, along with the Department
of Housing and Urban Development, released on
March 31, 2005, a set of ''Answers to Frequently
Asked Questions'' (FAQs) that addresses the new
home loan price data disclosed this year for the first
time under the Home Mortgage Disclosure Act
(HMDA).
This release coincides with the date that lenders
must make their HMDA data available to the public
upon request. The FAQs will aid users with their
evaluation and interpretation of the data and will be
posted on each of the agencies' web sites.
The new loan price data are intended to advance
enforcement of consumer protection and antidiscrimination laws and improve mortgage market
efficiency. Loan price data and other HMDA data can
be used by the agencies and others as a screening tool
to identify aspects of the higher-priced mortgage
market that warrant a closer look to determine
whether there is abuse or discrimination. Also, lenders, community groups, government agencies, and
others can use the data to identify opportunities for
private or public investment.
A full understanding of the data, including its
limitations, will help ensure that the data are used
effectively to advance the goals of HMDA. The data,
for example, do not include certain determinants of
credit risk that may explain higher loan prices, such
as the borrower' s credit history, loan-to-propertyvalue ratio, and consumer debt-to-income ratio. Consequently, the HMDA data are not, by themselves, a
basis for definitive conclusions regarding whether a
lender discriminates unlawfully against particular
borrowers or takes unfair advantage of them.
The FAQs are part of a larger effort by the Federal
Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the
Office of the Comptroller of the Currency, the Office
of Thrift Supervision, and the Department of Housing and Urban Development to promote the informed

use of the 2004 data. The agencies will also engage in
educational outreach to state and local agencies, trade
associations, and consumer- and community-based
organizations.
In September 2005 the Federal Financial Institutions Examination Council will release the annual
summary statistical reports for each lender and an
aggregate report for each Metropolitan Statistical
Area. Concurrently, staff of the Federal Reserve
Board will publish an article analyzing the 2004 data
in the Federal Reserve Bulletin.
HMDA, which was enacted by the Congress in
1975, requires most mortgage lenders located in metropolitan areas to collect data about their housingrelated lending activity, report the data annually to
the government, and make the data publicly available. Initially, HMDA required reporting of the geographic location of originated and purchased home
loans. In 1989 the Congress expanded HMDA data to
include information about denied home loan applications and the race, sex, and income of applicants and
borrowers. In 2002 the Federal Reserve Board
amended the HMDA regulations to require lenders to
report price data for certain higher-priced home mortgage loans, and other new data.

DECEMBER 2 0 0 4 UPDATE TO THE
BANK HOLDING COMPANY
SUPERVISION
MANUAL

The December 2004 update to the Bank Holding
Company supervision Manual has been published
(supplement no. 27). The new supplement includes
supervisory and BHC inspection guidance on the
following subjects:
1. Revised Uniform Agreement on the Classification of
Assets and Appraisal of Securities Held by Banks and
Thrift Institutions. The section on the inspection reporting
of consolidated classified and special-mention assets and
other transfer-risk problems has been revised to incorporate this June 15, 2004, revised Uniform Agreement (the
uniform agreement) that was jointly issued by the federal
banking and thrift institution agencies. The uniform agreement sets forth the definitions of the classification categories and the specific examination procedures and information for classifying bank assets, including securities. The
June 2004 revision did not change the classification of
loans in the uniform agreement. The uniform agreement
addresses, among other items, the treatment of rating differences, multiple security ratings, and split or partially rated
securities. It also eliminates the automatic classification for
sub-investment-grade debt securities. The uniform agreement's classification categories also apply to the classification of assets held by the subsidiaries of banks and bank
holding companies. See SR letter 04-9.

2. Tying Arrangements. The section on ''Tie-In Considerations of the BHC Act'' has been revised to incorporate
an August 18, 2003, Board interpretation and a February 2,
2004, Board staff interpretation on tying arrangements
pertaining to section 106 of the Bank Holding Company
Act Amendments of 1970 (section 106). These two interpretations state that bank customers that receive securitiesbased credit can be required to hold their pledged securities
as collateral at an account of a bank holding company's or
bank's broker-dealer affiliate. Section 106 generally prohibits a bank from conditioning the availability or price of
one product or service (the tying product, or the desired
product) on a requirement that a customer obtain another
product or service (the tied product) from the bank or an
affiliate of the bank.
3. " Guidance on Accepting Accounts from Foreign Governments, Foreign Embassies, and Foreign Political Figures' A new section "Establishing Accounts for Foreign
Governments, Embassies, and Political Futures" conveys
the June 15, 2004, interagency advisory that was issued by
the federal bank and thrift institution agencies (agencies)
and the U.S. Department of the Treasury's Financial
Crimes Enforcement Network (FinCEN). The advisory
responds to inquiries the agencies and FinCEN received on
whether financial institutions should do business and establish account relationships with those foreign customers
cited in the advisory. Banking organizations are advised
that the decision to accept or reject such a foreign-account
is a decision they should make after considering the factors
outlined in the advisory, including the institution's business objectives and its ability to manage the risk.
Financial institutions should be aware that there are
varying degrees of risk associated with these accounts,
depending on the customer and the nature of the services
provided. Institutions should take appropriate steps to manage these risks, consistent with sound practices and applicable anti-money-laundering laws and regulations. This
advisory is primarily directed to financial institutions
located in the United States. The boards of directors of
bank holding companies, however, should consider
whether the advisory should be applied to their other U.S.
subsidiaries' financial and other services. See SR letter
04-10.
4. Risk-Based Capital Requirements for Asset-Backed
Commercial Paper Programs. The sections ''Examiners'
Guidelines for Assessing the Adequacy of Capital of
BHCs'' and ''Credit-Supported and Asset-Backed Commercial Paper'' have been updated to include the Board's
July 17, 2004, approval (effective September 30, 2004)
of its revisions to the risk-based capital requirements for
asset-backed commercial paper (ABCP) programs sponsored by state member banks and bank holding companies
(collectively, banking organizations). See appendix A of
the Board's Regulation Y (12 CFR 225, appendix A).
Under the Board's revised risk-based capital rule, a
banking organization that qualifies as a primary beneficiary
and must consolidate an ABCP program that is defined as a
variable interest entity under generally accepted accounting principles (see the Financial Accounting Standards
Board's Interpretation FIN 46-R) may exclude the consolidated ABCP program's assets from risk-weighted assets,
provided that it is the sponsor of the ABCP program. Such

banking organizations must hold risk-based capital against
any credit enhancement or liquidity facility that they provide to the ABCP program. In particular, a banking organization must hold risk-based capital against eligible ABCP
liquidity facilities with an original maturity of one year or
less that provide liquidity support to ABCP by applying a
new 10 percent credit-conversion factor to such facilities.
When calculating the banking organization's tier 1 and
total capital, any associated minority interests must also be
excluded from tier 1 and total capital. Certain inspection
objectives and inspection procedures were also revised to
incorporate this revised rule for ABCP programs.
5. Providing Limited Fleet-Management
Services to
Nonleased Vehicles. The section on ''Leasing Personal or
Real Property'' has been revised to incorporate a Board
staff legal opinion that was requested by a foreign banking
organization (FBO) that is treated as a bank holding company (BHC). The FBO, as a BHC, engages in leasing
activities that the Board has authorized in Regulation Y,
section 225.28(b)(3) (12 CFR 225.28(b)(3)). The FBO
asked if a BHC may provide, as an incidental nonbank
activity, fleet-management services to some nonleased
vehicles in accordance with its Regulation Y-authorized
leasing activities. In a December 19, 2003, opinion, the
Board stated that the provision of fleet-management services to some nonleased vehicles is an activity incidental to
the BHC's authorized leasing activities, provided the
BHC's leasing subsidiary limits its fleet-management services involving vehicles not subject to a Regulation Y
permissible lease to no more than 15 percent of the fleetmanagement revenues, and to 5 percent of the total leasing
revenues of the leasing subsidiary. See the December 19,
2003, Board staff opinion and Regulation Y, 12 CFR
225.28(b)(3), footnote 5.

A more detailed summary of changes is included
with the update package. Copies of the new supplement were shipped directly by the publisher to the
Reserve Banks for the distribution to examiners
and other System staff members. The public may
obtain the Manual and the updates (including pricing information) from Publications Fulfillment,
Mail Stop 127, Board of Governors of the Federal Reserve System, 20th and C Streets, N.W.,
Washington, DC 20551; telephone (202) 452-3244;
or send facsimile to (202) 728-5886. The Manual
is also available on the Board's public web site at
www.federalreserve.gov/boarddocs/supmanual/. The
manual's next update will be issued with an effective
date of July 2005. Thereafter, semiannual updates are
planned.

IMPROVEMENTS
TO THE FEDERAL
BOARD'S WEB SITE

RESERVE

The Federal Reserve Board announced on February 17, 2005, improvements to its web site to make

the statistical releases and historical data easier to
use.
The statistical releases are now grouped by subject
area instead of frequency of release (for example,
daily or weekly). The subject areas are principal
economic indicators, bank asset quality, bank assets
and liabilities, bank structure data, business finance,
exchange rates and international data, flow of funds
accounts, household finance, industrial activity,
interest rates, and money stock and reserve balances.
The redesigned page also now incorporates links
to Board surveys, such as the Survey of Consumer Finances. The redesigned index is online at
www.federalreserve.gov/releases/default.htm.
Since 1914 the Board has published statistical
information on the U.S. economy and banking industry in various formats. Titles and numbers of the
statistical releases have changed through the years. A
new publication on the Board's web site, The Federal
Reserve Board Statistical Release Publications History, can be used to trace these changes. The publications history is online at www.federalreserve.gov/
releases/releasehistory/about.htm

POSTING OF INDUSTRIAL PRODUCTION

CAPACITY UTILIZATION RELEASE

AND

• Community Reinvestment Act and Community
Development
• Electronic Fund Transfer Act

MINUTES OF THE BOARD'S DISCOUNT
MEETINGS

RATE

The Federal Reserve Board released on March 2,
2005, the minutes of its discount rate meetings from
January 3, 2005, through February 2, 2005.

APPROVALS OF DISCOUNT RATE

ACTIONS

The Federal Reserve Board approved on March 23,
2005, an action by the Board of Directors of the
Federal Reserve Bank of Kansas City increasing the
discount rate at the Bank from 31/2percent to 33/4percent, effective immediately.
The Federal Reserve Board approved on March 24,
2005, an action by the Board of Directors of the
Federal Reserve Bank of Dallas increasing the discount rate at the Bank from 31/2percent to 33/4percent, effective immediately.

(G17)

The Federal Reserve Board's report on Industrial
Production and Capacity Utilization (G.17) for March
2005, was inadvertently posted, as the result of
human error, on the Board's public web site fifteen
minutes before the release time of 9:15 a.m. EDT on
April 15, 2005.

ENFORCEMENT

MEETING OF THE CONSUMER
COUNCIL

The Federal Reserve Board announced on March 1,
2005, the issuance of a final decision and order of
prohibition against Kenneth L. Coleman, a former
employee of PNC Bank and Mellon Bank, N.A., both
of Pittsburgh, Pennsylvania. The order, the result of
an action brought by the Office of the Comptroller of
the Currency, prohibits Mr. Coleman from participating in the conduct of the affairs of any financial
institution or holding company.

ADVISORY

The Federal Reserve Board announced on February 23, 2005, that the Consumer Advisory Council
would hold its next meeting on Thursday, March 17,
2005. The meeting was held in Dining Room E,
Terrace level, in the Board's Martin Building. The
session began at 9:00 a.m. and was open to the
public.
The Council's function is to advise the Board on
the exercise of its responsibilities under various consumer financial services laws and on other matters on
which the Board seeks its advice. Time permitting,
the Council planned to discuss the following topics:
• Home Mortgage Disclosure Act Data
• Truth in Lending Act

ACTIONS

The Federal Reserve Board and the Federal Deposit
Insurance Corporation announced enforcement
actions against The NorCrown Trust and other individuals on February 10, 2005, and February 25, 2005.
The enforcement actions appear on pages 244-45.

Assessments of Civil Money Penalties
The Federal Reserve Board announced on March 16,
2005, the issuance of a consent order of assessment
of a civil money penalty against the First Interstate
Bank, Billings, Montana, a state member bank. First
Interstate Bank, without admitting to any allegations,

consented to the issuance of the order in connection
with its alleged violations of the Board's Regulations
implementing the National Flood Insurance Act.
The order requires First Interstate Bank to pay a
civil money penalty of $15,750, which will be remitted to the Federal Emergency Management Agency
for deposit into the National Flood Mitigation Fund.
The Federal Reserve Board announced on
March 16, 2005, the issuance of a consent order of
assessment of a civil money penalty against the
HomeFederal Bank, Columbus, Indiana, a state member bank. HomeFederal Bank, without admitting to
any allegations, consented to the issuance of the
order in connection with its alleged violations of the
Board's Regulations implementing the National
Flood Insurance Act.
The order requires HomeFederal Bank to pay a
civil money penalty of $57,250, which will be remitted to the Federal Emergency Management Agency
for deposit into the National Flood Mitigation Fund.
The Federal Reserve Board announced on
March 16, 2005, the issuance of a consent order
of assessment of a civil money penalty against
the Midwest Bankcentre, St. Louis, Missouri, a state
member bank. Midwest Bankcentre, without admitting to any allegations, consented to the issuance of
the order in connection with its alleged violations of
the Board's Regulations implementing the National
Flood Insurance Act.
The order requires Midwest Bankcentre to pay a
civil money penalty of $2,450, which will be remitted
to the Federal Emergency Management Agency for
deposit into the National Flood Mitigation Fund.

Cease and Desist Orders
The Federal Reserve Board announced on January 27, 2005, the issuance of a consent order to
cease and desist against Riggs National Corporation,
Washington, D.C., a bank holding company. Riggs
National Corporation, without admitting to any allegations, consented to the issuance of the order to
address management, capital, and contingency planning matters.
The Federal Reserve Board simultaneously
announced the termination of the May 14, 2004,
consent order to cease and desist against Riggs
National Corporation and Riggs International Banking Corporation, Miami, Florida, an Edge corporation. This action reflects the closing of the Edge
corporation as of December 31, 2004.

In a separate, coordinated action, the Office of the
Comptroller of the Currency announced on January 27, 2005, the modification of its consent order to
cease and desist dated May 13, 2004, against Riggs
Bank, N.A., McLean, Virginia.
In another action, Riggs Bank, N.A., pleaded guilty
on January 27, 2005, to criminal violations of the
Bank Secrecy Act relating to the bank's failure to
timely and accurately report suspicious transactions.
The Federal Reserve Board announced on February 2, 2005, the issuance of a consent cease and
desist order against Banco de Chile, Santiago, Chile,
and Banco de Chile's Miami branch. The order
addresses Bank Secrecy Act and anti-moneylaundering compliance at Banco de Chile's Miami
branch.
In a separate, coordinated action, the Office of the
Comptroller of the Currency announced on February 2, 2005, the issuance of a consent order against
Banco de Chile and Banco de Chile's New York
branch.
The Federal Reserve Board announced on
March 31, 2005, the issuance of a cease and desist
order against Eagle National Holding Company,
Doral, Florida, a registered bank holding company
that owns and controls the Eagle National Bank of
Miami, Doral, Florida.

Written Agreements
The Federal Reserve Board announced on January 28, 2005, the execution of a written agreement by
and between the Asian Bank, Philadelphia, Pennsylvania, and the Federal Reserve Bank of Philadelphia.
The Federal Reserve Board announced on February 9, 2005, the execution of a written agreement by
and between Bank of America Corporation, Charlotte, North Carolina, a bank holding company, and
the Federal Reserve Bank of Richmond.
In separate, coordinated actions, the Office of the
Comptroller of the Currency announced the execution of a formal agreement with Bank of America,
N.A., Charlotte, North Carolina, a wholly owned
subsidiary of Bank of America Corporation, and
the U.S. Securities and Exchange Commission
announced the execution of an administrative cease
and desist order against Banc of America Capital
Management, LLC, a registered investment adviser,
BACAP Distributors, LLC, a registered investment
adviser, and Banc of America Securities, LLC, a
registered investment adviser and broker-dealer.

The Federal Reserve Board announced on March 1,
2005, the execution of a written agreement by
and between Huntington Bancshares, Incorporated,
Columbus, Ohio, a bank holding company, and the
Federal Reserve Bank of Cleveland.
The written agreement addresses deficiencies relating to the company's corporate governance, internal
audit, risk management, and internal controls over
financial reporting, accounting policies and procedures, and regulatory reporting.
In a separate, coordinated action, the Office of the
Comptroller of the Currency announced the execution of a formal agreement with Huntington National
Bank, Columbus, Ohio, a wholly owned subsidiary
of Huntington Bancshares, Incorporated.

• Banco Atlantico, S.A., Barcelona, Spain, and
Banco Atlantico, S.A. New York Agency,
New York, New York
Written agreement dated June 3, 1999
Terminated August 20, 2004
On February 23, 2005, the Federal Reserve Board
announced the termination of the enforcement action
below.
• Rurban Financial Corp., Defiance, Ohio, and
The State Bank and Trust Company,
Defiance, Ohio
Written agreement dated July 5, 2002
Terminated February 17, 2005

Termination of Enforcement Actions
CHANGES IN BOARD STAFF
The Federal Reserve Board announced on January 28, 2005, the termination of the enforcement
actions listed below. The Federal Reserve's enforcement action web site, www.federalreserve.gov/
boarddocs/enforcement, reports the terminations as
they occur.
• Citizens Deposit Bank and Trust Company,
Vanceburg, Kentucky
Written agreement dated September 29, 2000
Terminated October 29, 2004
• Southern Commercial Bank, St. Louis, Missouri
Written agreement dated June 10, 2003
Terminated December 29, 2004
• BANKFIRST Corporation, Sioux Falls,
South, Dakota
Written agreement dated April 23, 2003
Terminated January 6, 2005
On February 16, 2005, the Federal Reserve Board
announced the termination of the following enforcement actions.
• Metamora Bancorp, Inc., Metamora, Ohio, and
The Metamora State Bank, Metamora, Ohio
Written agreement dated December 10, 2002
Terminated January 31, 2005
• Independent Southern Bancshares, Inc.,
Employee Stock Ownership Trust and
Independent Southern Bancshares, Inc.,
Brownsville, Tennessee
Written agreement dated September 6, 2000
Terminated August 18, 2004

The Board of Governors approved on January 19,
2005, the following officer actions in the Division
of Consumer and Community Affairs (DCCA) in
conjunction with a reorganization of the division to
enhance effectiveness:
Tonda Price was promoted to associate director for
Consumer Compliance Supervision. She joined the
Board in 1983 and was employed in the Division of
Information Technology. Ms. Price joined DCCA as
a manager in 1993 and was promoted to assistant
director in 2002. She holds a BS in mathematics and
economics from Norfolk State College and an MBA
from the New York Institute of Technology.
Terri Johnsen was appointed associate director for
Analysis and Communications. Ms. Johnsen joined
the Board's staff in 1998 as a senior community
affairs analyst and was promoted to manager in 1999.
Before joining the Board, Ms. Johnsen was manager of the consumer compliance examination function at the Federal Reserve Bank of Kansas City.
Ms. Johnsen has a BA in English and an MPA, both
from the University of Kansas. She is also a graduate
of the Stonier Graduate School of Banking.
Suzanne Killian was appointed assistant director
for Consumer Compliance Supervision Oversight.
Ms. Killian joined the Board in 1993 and was
employed in the Board's Office of Inspector General
before moving to DCCA as a manager in 1998.
Ms. Killian has a BS in accounting from Bloomsburg
University.
Adrienne D. Hurt assumed the position of associate counsel and adviser and has responsibility for
projects in the consumer protection area and provides
technical assistance and expertise to other Board and

Systemwide functions. She reports to the director.
Ms. Hurt joined the Board in 1983. She was
appointed to the official staff as assistant director in
1998 and promoted to associate director in 2002.
Ms. Hurt has a law degree from the American
University.
Irene (Shawn) McNulty assumed the position of
senior adviser and has responsibility for a variety of
supervision projects. She reports to the deputy director. Ms. McNulty joined the Board in 1980 and was
employed in DCCA as a consumer examination analyst. Before joining the Board, she worked at the
Federal Reserve Bank of Dallas as a consumer examination analyst. Ms. McNulty has a BBA from Southern Methodist University. She is also a graduate of
the Stonier Graduate School of Banking.
The Division of Consumer and Community Affairs
announced a new structure on January 31, 2005. The
division has three branches reflecting the major functions performed by staff. These branches are: Regulations, Consumer Compliance Supervision, and
Analysis and Communications.
The Board of Governors approved on January 31,
2005, the following officer actions in the Division of
Reserve Bank Operations and Payment Systems
(RBOPS).
Jeffrey Marquardt was promoted to deputy director, with continuing responsibility for the division's
Cash, Retail Payments, Wholesale Payments, Fiscal
Agency, Clearance and Settlement Systems, and Payments System Studies programs, and new responsibility for the Payment System Risk program. Mr. Marquardt joined the Board in 1981 as an economist
in the Division of International Finance. He was
appointed as assistant director in RBOPS in 1991 and
was promoted to associate director in 2001. Mr. Marquardt received a BA from Michigan State University
and an MA and PhD in economics from the University of Wisconsin. He also has a JD from the University of Wisconsin.
Paul Bettge was promoted to senior associate director with responsibility for Federal Reserve Bank
Financial Accounting, Planning and Control, Human
Resources, Oversight Coordination, and Audit
Review programs. Mr. Bettge joined the Board in
1982. He became the manager of the Financial
Accounting program in 1989 and the manager of the
division's Payment System Risk program in 1993.
Mr. Bettge was appointed assistant director in 1997
and associate director in 2000. Mr. Bettge has a BBA
in accounting and an MBA in finance from the Col-

lege of William and Mary. He is also a certified
public accountant.
Ken Buckley was promoted to associate director to
reflect the range of his responsibilities for the division' s Information Technology, Building Planning,
and Protection programs. Mr. Buckley joined the
Board in 1988 as manager of the division's Communications program. He was appointed assistant director in 1999. Mr. Buckley received a BA in mathematics from William Preston College, an MS in biometry
from the Medical College of Virginia, and an MS in
computer science from Virginia Polytechnic Institute.
Jack Walton was promoted to associate director
with new responsibility for the Fiscal Agency program, as well as continuing responsibility for the
division's Retail Payments and Wholesale Payments
programs. Mr. Walton joined the Board in 1977 as
an economist in the Division of Research and Statistics and worked in RBOPS and the Division of
Monetary Affairs before returning to RBOPS in
1992 as the manager of the ACH section. He was
appointed assistant director in 2001. Mr. Walton
received a BA in economics from Rockhurst College
and an MA in economics from the University of
Maryland.
Dorothy LaChapelle was promoted to deputy
associate director with continuing responsibility
for the division's Federal Reserve Bank Financial
Accounting and Planning and Control programs.
Ms. LaChapelle joined the Board in the Division of
Information Technology in 1977. She became manager of RBOPS's Planning and Control section in
1999. Ms. LaChapelle was appointed assistant director in 2003. She has a BS in business administration
from George Mason University.
Gregory Evans was appointed assistant director
with responsibility for the division's Federal Reserve
Bank Financial Accounting program. Mr. Evans
joined the Board in 1988. He became manager of the
division's Federal Reserve Bank Financial Accounting program in 1994. Before joining the Board,
Mr. Evans was an internal auditor with the Detroit
Branch of the Federal Reserve Bank of Chicago and a
staff accountant with the public accounting firm
Arthur Anderson. He received his BA in accounting
from Michigan State University.
Michael Lambert was appointed assistant director
with responsibility for the division's Cash program.
Mr. Lambert joined the Board in 1984 and worked in
the Division of Personnel, the Division of International Finance, and the Division of Banking Supervision and Regulation before joining RBOPS in 1999.
He was appointed manager of the division' s Cash
section in 2002. Mr. Lambert holds a BA in biology

from Western Maryland College and an MA in economics from George Mason University.
The Board of Governors approved on February 1,
2005, the following officer actions in the Legal Division in conjunction with a reorganization of the
division:
Richard M. Ashton was promoted to deputy general counsel, Litigation and System Operations.
He supervises the Litigation and Legal Services,
Enforcement, and Monetary and Consumer Affairs
sections of the Legal Division. Mr. Ashton joined the
Board in 1976 as a staff attorney. He was appointed
assistant general counsel in 1982, and associate
general counsel responsible for the Litigation and
Enforcement section in 1985. Mr. Ashton holds a JD
from the Catholic University Law School.
Kathleen O' Day was promoted to deputy general
counsel, Banking Regulation and Policy. She supervises the Banking Regulation and Policy group,
which handles all domestic and international bank
regulatory applications and policy matters as well
as international trade matters. Ms. O'Day joined the
Board in 1978 as an attorney in the Legal Division.
She was appointed assistant general counsel over
the division's International section in 1991, and was
promoted to associate general counsel in 1992.
Ms. O'Day received her JD from the Boston College
Law School.
Stephanie Martin was named associate general
counsel, Monetary and Consumer Affairs to recognize her expanded responsibilities in the area of consumer affairs. Ms. Martin joined the Legal Division
in 1987 as a staff attorney. She was appointed to the
official staff in 2001 as assistant general counsel for
the Monetary and Reserve Bank Affairs section and
was promoted to associate general counsel in 2003.
Ms. Martin received her JD from the Harvard University Law School.
Ann E. Misback was promoted to associate general
counsel, International Banking Regulation, Trade,
and Policy. Ms. Misback joined the Board in 1992
as a senior attorney in the Legal Division, and was
appointed to the official staff in 2000 as assistant
general counsel in the International Banking section.
Ms. Misback earned her JD from the Georgetown
University Law Center.
Katherine H. Wheatley was promoted to associate
general counsel, Litigation and Legal Services.
Ms. Wheatley joined the Board in 1989 as an attorney in the Legal Division's Litigation and Enforcement section. She was appointed to the official staff
as assistant general counsel in 1994. Ms. Wheatley

received her JD from the Harvard University Law
School.
Kieran Fallon was appointed assistant general
counsel, Legislation and Special Projects. Mr. Fallon
joined the Legal Division in 1995 as an attorney in
the Banking Structure section. He was promoted to
senior attorney in 1998 and to counsel later that year.
Mr. Fallon was promoted to senior counsel in 1999,
and to managing senior counsel in 2003. Before
joining the Board, Mr. Fallon worked for the law firm
of Morrison and Foerster. He received his JD from
the New York University Law School.
Stephen Meyer was appointed assistant general
counsel, Enforcement. Mr. Meyer joined the Legal
Division in 1992 as a senior attorney in the Litigation
and Enforcement section. He was promoted to senior
counsel in 1998 and to managing senior counsel in
1999. Before joining the Board, Mr. Meyer was assistant director of the Manipulation and Trade Practices
Unit at the Commodity Futures Trading Commission,
and worked as an attorney at the Federal Trade
Commission. Mr. Meyer received his JD from the
New York University Law School.
Patricia Robinson was appointed assistant general counsel, Domestic Banking Regulation and
Policy. Ms. Robinson joined the Legal Division
in 1993 as an attorney in the Banking Structure
section. She was promoted to senior attorney in 1995
and to senior counsel in 1998. Ms. Robinson was
promoted to managing senior counsel in 2003.
Before joining the Board, Ms. Robinson was an associate with the law firm of Sidley and Austin, and the
law firm of McKenna, Conner, and Cuneo, where she
handled a variety of bank regulatory matters. She
earned her JD from the Georgetown University Law
Center.
The Board of Governors approved on February 1,
2005, the appointment of Steven M. Roberts as an
adviser in the Division of Banking Supervision and
Regulation. Mr. Roberts reports to Herbert A. Biern,
senior associate director, Enforcement, and will
develop an enhanced, comprehensive, compliance
risk program for the Federal Reserve's supervision
function.
Until recently, Mr. Roberts served as the partner in
charge of the financial services regulatory practice
for KPMG, LLP, Washington, D.C. Before that, he
was assistant to the Chairman of the Board of Governors, under Former Chairman Paul Volcker, and earlier was senior economist in the Division of Research
and Statistics. Mr. Roberts was also chief economist
for the U.S. Senate Committee on Banking, Housing,
and Urban Affairs. Mr. Roberts holds a PhD and

Master of economics from Purdue University and a
BS in economics from Rutgers University.
The Board of Governors approved on February 7,
2005, the appointment of Robert M. Pribble as special assistant to the Board in the Congressional Liaison Program.
Mr. Pribble joined the Office of Board Members as
a congressional liaison assistant in 2003. Before joining the Board, he worked for the law firm of Wilmer,
Cutler, and Pickering as a senior legislative analyst
and for KPMG Peat Marwick as a manager.
Mr. Pribble holds a BA in political science from
Indiana University.
The Board of Governors approved on February 15,
2005, the promotion of Margaret M. Shanks to associate secretary of the Board and her appointment as
the Board's ombudsman under the Riegle Community Development and Regulatory Improvement Act
of1994.
Ms. Shanks is responsible for overseeing the
Records Management Program, Freedom of Information Office, and Federal Reserve Directors Program.
As ombudsman, she is responsible for acting as a
facilitator and mediator to ensure that complaints
about Board or Reserve Bank regulatory actions are
addressed in a fair and timely manner.
Ms. Shanks joined the Board in 1991 as a senior
attorney in the Legal Divison and was appointed
table 1.

assistant secretary of the Board in 2001. She received
her undergraduate degree from DePaul University
and her JD degree from Loyola University-Chicago.

REVISION TO THE MONEY STOCK

DATA

Measures of the money stock and components were
revised in February 2005 to incorporate the results of
the annual seasonal factor review. Data in tables 1.10
and 1.21 in the Statistical Supplement to the Federal
Reserve Bulletin reflect these changes beginning with
the February 2005 issue.
Seasonally adjusted measures of the monetary
stock and components incorporate revised seasonal
factors produced from not-seasonally-adjusted data
through December 2004. Monthly seasonal factors
were estimated using the X-12-ARIMA procedure.
The revisions to seasonal factors lowered M2 and M3
growth rates in the first two quarters of 2004, and
raised them in the third and fourth quarters.
Historical data, updated each week, are available
through the Federal Reserve Board's web site at
www.federalreserve.gov/releases/ with the H.6 statistical release. Current and historical data are also on
the Economic Bulletin Board of the U.S. Department
of Commerce. For paid electronic access to the Economic Bulletin Board, call STAT-USA at 1-800-7828872 or 202-482-1986.

Monthly seasonal factors used to construct M1, January 2004-March 2006
Year and month

Currency

Othercheckable
Other
deposits
checkable
[seefootnote
deposits
1] [seefootnote1]

Nonbank travelers
checks

Demand deposits
Total

At banks

2004—January
2004—February
2004—March
2004—April
2004—May
2004—June
2004—July
2004—August
2004—September
2004—October
2004—November
2004—December

.9971
.9991
.9988
.9992
.9998
.9999
1.0020
.9996
.9975
.9993
1.0008
1.0078

.9960
.9998
.9968
.9889
.9921
1.0122
1.0299
1.0207
1.0031
.9925
.9825
.9865

.9993
.9717
1.0006
1.0083
.9882
1.0014
1.0019
.9944
.9898
.9898
.9988
1.0532

1.0040
.9838
1.0125
1.0273
.9975
1.0092
.9974
.9981
.9870
.9848
.9851
1.0134

1.0347
.9954
1.0172
1.0267
.9879
1.0008
.9883
.9855
.9797
.9819
.9785
1.0222

2005—January
2005—February
2005—March
2005—April
2005—May
2005—June
2005—July
2005—August
2005—September
2005—October
2005—November
2005—December

.9967
.9987
.9983
.9995
.9990
.9995
1.0029
.9996
.9980
.9988
1.0018
1.0082

.9968
1.0004
.9973
.9889
.9910
1.0098
1.0290
1.0188
1.0027
.9924
.9831
.9877

.9990
.9710
1.0021
1.0091
.9904
1.0023
1.0032
.9938
.9899
.9875
.9980
1.0512

1.0035
.9833
1.0134
1.0257
.9987
1.0091
.9981
.9987
.9866
.9848
.9856
1.0122

1.0335
.9963
1.0197
1.0255
.9866
1.0028
.9876
.9874
.9803
.9805
.9783
1.0204

.9962
.9985
.9988

.9966
.9993
.9976

.9999
.9712
1.0022

1.0039
.9833
1.0130

1.0329
.9968
1.0213

2006—January
2006—February
2006—March

[footnote] 1. Seasonally adjusted other checkable deposits at thrift institutions are derived as the difference between total other checkable
deposits, seasonally adjusted, and seasonally adjusted other checkable deposits at commercial banks.[endoffootnote.]

Table 2.

Monthly seasonal factors used to construct M2 and M3, January 2004-March 2006
Moneymarketmutual
Moneyfunds
marketmutual funds
Savings and
SmallLargeMMDA
denomination
denomination
RPs
deposits [see footnote]1
timedeposits [seefootnote]1
timedeposits [seefootnote]1 In M 2
In M 3 only

Year and month

Eurodollars

2004—January
2004—February
2004—March
2004—April
2004—May
2004—June
2004—July
2004—August
2004—September
2004—October
2004—November
2004—December

.9900
.9910
.9968
1.0067
1.0009
1.0023
1.0033
1.0024
1.0042
1.0018
1.0033
.9979

1.0013
1.0011
1.0008
1.0004
.9993
.9982
.9984
.9987
.9994
1.0000
1.0009
1.0009

.9919
.9898
.9955
1.0019
1.0164
1.0107
1.0046
1.0010
.9995
.9942
.9938
.9999

1.0051
1.0073
1.0120
1.0047
.9901
.9917
.9939
1.0022
.9983
.9949
.9980
1.0036

1.0261
1.0215
1.0117
.9910
.9852
.9903
.9871
.9945
.9854
.9868
1.0029
1.0160

.9922
1.0139
1.0173
.9983
1.0166
1.0267
.9917
.9960
.9910
.9779
.9896
.9914

1.0028
1.0189
1.0260
1.0269
1.0227
.9844
.9785
.9837
.9856
.9946
.9939
.9852

2005—January
2005—February
2005—March
2005—April
2005—May
2005—June
2005—July
2005—August
2005—September
2005—October
2005—November
2005—December

.9894
.9892
.9952
1.0087
1.0001
1.0029
1.0055
1.0029
1.0045
1.0016
1.0038
.9982

1.0012
1.0012
1.0012
1.0008
.9996
.9984
.9984
.9985
.9990
.9997
1.0006
1.0009

.9922
.9898
.9958
1.0024
1.0161
1.0103
1.0048
1.0016
.9990
.9944
.9933
.9997

1.0040
1.0061
1.0103
1.0043
.9909
.9929
.9942
1.0031
.9995
.9948
.9974
1.0030

1.0241
1.0222
1.0113
.9916
.9871
.9905
.9887
.9952
.9860
.9878
1.0012
1.0135

.9894
1.0127
1.0162
.9976
1.0145
1.0272
.9944
.9968
.9945
.9823
.9880
.9885

1.0029
1.0169
1.0244
1.0258
1.0223
.9834
.9780
.9853
.9875
.9974
.9932
.9849

.9867
.9884
.9955

1.0013
1.0014
1.0014

.9926
.9898
.9961

1.0035
1.0054
1.0098

1.0223
1.0229
1.0113

.9877
1.0115
1.0155

1.0029
1.0157
1.0233

2006—January
2006—February
2006—March

[footnote] 1. Seasonal factors are applied to deposit data at both commercial banks and thrift institutions.[endoffootnote.]

Table 3.

Weekly seasonal factors used to construct M1, December 6, 2004-April 3, 2006
Week ending

Currency

[seefootnote]1
Othercheckable
Other
deposits
checkable
deposits [see footnote]1

Nonbank travelers
checks

Demand deposits
Total

At banks

2004—December

6
2004—December 13
2004—December 20
2004—December 27

1.0025
1.0048
1.0081
1.0155

.9788
.9829
.9871
.9912

.9677
.9444
1.0633
1.1530

.9950
.9732
1.0059
1.0438

.9779
.9660
1.0181
1.0777

2005—January

3
2005—January
2005—January
2005—January
2005—January

1.0067
1.0014
.9970
.9925
.9900

.9954
.9960
.9967
.9973
.9979

1.1345
.9802
.9861
.9690
1.0050

1.0611
.9951
.9862
.9958
1.0129

1.0745
1.0235
1.0193
1.0355
1.0420

.9981
.9999
.9995
.9971

.9989
.9999
1.0008
1.0018

.8952
.9554
.9931
1.0406

.9762
.9627
.9843
1.0099

.9943
.9742
.9978
1.0189

2005—March 14
2005—March 21
2005—March 28

1.0020
.9991
.9979
.9959

1.0002
.9985
.9968
.9952

.9345
.9664
1.0039
1.0752

1.0048
.9916
1.0068
1.0372

.9987
.9915
1.0188
1.0583

2005—April 11
2005—April 18
2005—April 25

1.0001
1.0031
.9993
.9963

.9935
.9913
.9891
.9868

1.0223
.9356
1.0033
1.0464

1.0334
1.0026
1.0245
1.0388

1.0267
.9925
1.0238
1.0584

2005—May
2005—May
2005—May
2005—May

9
16
23
30

.9963
1.0015
.9983
.9975
.9993

.9846
.9872
.9899
.9925
.9951

1.0773
.9057
.9813
1.0120
1.0433

1.0382
.9818
.9810
.9973
1.0214

1.0332
.9641
.9648
.9921
1.0121

2005—June 13
2005—June 20
2005—June 27

1.0010
1.0002
.9985
.9979

.9978
1.0044
1.0111
1.0178

.9370
.9601
1.0018
1.0798

1.0057
.9872
1.0078
1.0312

.9880
.9726
1.0036
1.0388

2005—July 11
2005—July 18
2005—July 25

1.0046
1.0059
1.0026
1.0002

1.0245
1.0266
1.0287
1.0308

1.0239
.9275
.9949
1.0402

1.0154
.9761
.9828
1.0036

1.0056
.9590
.9764
1.0028

2005—February

10
17
24
31

7
2005—February 14
2005—February 21
2005—February 28

2005—March 7

2005—April 4

2005—May 2

2005—June 6

2005—July 4

Table 3.—Continued
footnote]1
Other checkable deposits[seeOther
checkable deposits[see footnote]1

Week ending

2005--August 1
2005--August
2005--August
2005--August
2005--August
2005--September

Nonbank travelers
checks

Demand deposits

.9994
1.0048
1.0011
.9981
.9950

1.0330
1.0275
1.0220
1.0165
1.0110

1.0615
.9086
.9625
1.0072
1.0792

1.0278
.9926
.9782
.9945
1.0201

1.0117
.9655
.9603
.9895
1.0246

1.0021
.9987
.9973
.9957

1.0055
1.0041
1.0026
1.0011

.9653
.9299
.9928
1.0627

.9982
.9646
.9768
1.0011

.9901
.9560
.9742
1.0013

.9967
1.0028
.9991
.9971
.9954

.9996
.9965
.9933
.9900
.9868

1.0213
.9050
.9582
1.0133
1.0636

1.0095
.9567
.9666
.9933
1.0135

.9892
.9470
.9652
.9966
1.0138

Currency

8
15
22
29

5
2005--September 12
2005--September 19
2005--September 26

2005--October 3
2005--October
2005--October
2005--October
2005--October

10
17
24
31

Total
At banks

2005--November

7
2005--November 14
2005--November 21
2005--November 28

1.0023
1.0021
1.0006
1.0036

.9854
.9840
.9827
.9813

.9190
.9374
.9843
1.1265

.9782
.9565
.9840
1.0138

.9615
.9459
.9817
1.0143

2005--December

5
2005--December 12
2005--December 19
2005--December 26

1.0027
1.0052
1.0080
1.0152

.9799
.9838
.9877
.9916

1.0093
.9427
1.0533
1.1409

1.0001
.9733
1.0021
1.0386

.9885
.9703
1.0127
1.0652

2
2006—January
2006—January
2006—January
2006—January

1.0070
1.0019
.9966
.9928
.9902

.9955
.9960
.9964
.9969
.9974

1.1383
.9915
.9938
.9822
1.0060

1.0611
.9935
.9901
1.0003
1.0174

1.0748
1.0235
1.0189
1.0382
1.0440

6
2006—February 13
2006—February 20
2006—February 27

.9971
.9998
1.0001
.9964

.9978
.9987
.9996
1.0005

.8952
.9552
.9913
1.0374

.9830
.9605
.9801
1.0063

1.0007
.9730
.9936
1.0194

2006—March 13
2006—March 20
2006—March 27

1.0011
.9995
.9985
.9971

1.0014
.9994
.9974
.9953

.9333
.9653
1.0050
1.0750

1.0061
.9909
1.0065
1.0354

1.0045
.9958
1.0188
1.0555

.9989

.9933

1.0431

1.0368

1.0332

2006—January

2006—February

9
16
23
30

2006—March 6

2006—April 3

Table 4.

Weekly seasonal factors used to construct M2 and M3, December 6, 2004-April 3, 2006
Moneymarketmutual
Moneyfunds
marketmutual funds
Savings and
SmallLargeMMDA
denomination
denomination
RPs
[see footnote]1
[seefootnote]1
[seefootnote]1
deposits
timedeposits
timedeposits
In M 2
In M 3 only

Week ending

Eurodollars

2004—December

6
2004—December 13
2004—December 20
2004—December 27

1.0106
1.0122
.9977
.9801

1.0012
1.0009
1.0005
1.0008

.9962
1.0023
1.0024
1.0014

1.0029
1.0081
1.0068
1.0020

1.0095
1.0281
1.0176
1.0173

.9943
1.0012
.9885
1.0001

.9814
.9814
.9772
.9893

2005—January

3
2005—January
2005—January
2005—January
2005—January

.9899
1.0096
.9989
.9779
.9642

1.0021
1.0017
1.0012
1.0007
1.0006

.9955
.9955
.9941
.9893
.9886

.9941
1.0024
1.0072
1.0074
1.0031

1.0003
1.0154
1.0287
1.0359
1.0268

.9595
.9736
.9902
.9972
1.0097

1.0039
1.0056
1.0017
1.0022
1.0015

.9947
.9964
.9860
.9798

1.0011
1.0013
1.0013
1.0011

.9914
.9915
.9891
.9872

1.0046
1.0048
1.0072
1.0078

1.0195
1.0227
1.0246
1.0219

1.0143
1.0212
1.0052
1.0102

1.0023
1.0138
1.0247
1.0266

2005—March 14
2005—March 21
2005—March 28

1.0066
1.0088
.9950
.9783

1.0013
1.0013
1.0010
1.0011

.9907
.9953
.9979
.9959

1.0099
1.0106
1.0121
1.0106

1.0135
1.0185
1.0115
1.0107

1.0123
1.0183
1.0206
1.0256

1.0159
1.0206
1.0210
1.0378

2005—April 11
2005—April 18
2005—April 25

1.0108
1.0268
1.0164
.9899

1.0013
1.0014
1.0010
1.0003

1.0037
1.0023
1.0001
.9990

1.0057
1.0128
1.0088
1.0013

.9901
1.0017
.9928
.9890

.9880
.9958
.9920
1.0022

1.0296
1.0146
1.0212
1.0328

2005—February

10
17
24
31

7
2005—February 14
2005—February 21
2005—February 28

2005—March 7

2005—April 4

Table 4.—Continued
Moneymarketmutual
Moneyfunds
marketmutual funds
SmallLargeSavings and
MMDA
denomination
denomination
RPs
deposits [see footnote]1
timedeposits [seefootnote]1
timedeposits [seefootnote]1 In M 2
In M 3 only

Week ending

2005—May 2
9
16
23
30

.9841
1.0139
1.0111
.9916
.9855

1.0002
1.0001
.9997
.9992
.9992

1.0095
1.0157
1.0186
1.0173
1.0151

.9891
.9876
.9883
.9938
.9939

.9808
.9816
.9864
.9942
.9877

1.0094
1.0197
1.0163
1.0064
1.0156

1.0348
1.0290
1.0194
1.0185
1.0211

2005—June 13
2005—June 20
2005—June 27

1.0146
1.0197
1.0056
.9824

.9990
.9986
.9980
.9978

1.0147
1.0127
1.0108
1.0083

.9937
.9959
.9940
.9910

.9884
.9967
.9897
.9919

1.0242
1.0292
1.0310
1.0336

1.0058
.9896
.9724
.9725

2005—July 11
2005—July 18
2005—July 25

1.0055
1.0222
1.0067
.9895

.9984
.9988
.9985
.9981

1.0000
1.0016
1.0037
1.0068

.9857
.9938
.9946
.9972

.9783
.9884
.9906
.9951

1.0045
.9868
.9898
.9951

.9753
.9754
.9756
.9816

.9908
1.0205
1.0159
.9977
.9828

.9982
.9985
.9985
.9984
.9986

1.0107
1.0076
1.0009
.9966
.9997

.9962
1.0006
1.0018
1.0067
1.0051

.9864
.9901
.9945
1.0000
1.0003

1.0008
1.0098
1.0044
.9835
.9915

.9814
.9818
.9740
.9854
.9995

5
2005—September 12
2005—September 19
2005—September 26

1.0138
1.0234
1.0055
.9819

.9990
.9991
.9989
.9989

1.0024
1.0023
.9971
.9950

1.0004
1.0039
1.0016
.9970

.9861
.9912
.9880
.9852

.9887
.9950
.9981
1.0000

.9882
.9855
.9858
.9917

2005—October
2005—October
2005—October
2005—October

.9927
1.0168
1.0119
.9903
.9839

.9995
1.0000
.9999
.9994
.9994

.9995
1.0012
.9958
.9902
.9885

.9916
.9948
.9961
.9963
.9936

.9743
.9839
.9893
.9935
.9901

.9847
.9774
.9783
.9822
.9904

.9860
.9912
.9916
1.0053
1.0061

2005—May
2005—May
2005—May
2005—May
2005—June 6

2005—July 4

2005—August 1
2005—August
2005—August
2005—August
2005—August
2005—September

2005—October

Eurodollars

8
15
22
29

3
10
17
24
31

2005—November

7
2005—November 14
2005—November 21
2005—November 28

1.0142
1.0202
1.0053
.9850

1.0001
1.0005
1.0007
1.0008

.9926
.9945
.9921
.9935

.9933
.9943
.9995
1.0011

.9898
.9969
1.0064
1.0098

.9962
.9927
.9817
.9810

.9954
.9921
.9931
.9957

2005—December

5
2005—December 12
2005—December 19
2005—December 26

1.0071
1.0134
.9992
.9811

1.0010
1.0009
1.0006
1.0008

.9950
1.0017
1.0026
1.0013

1.0024
1.0072
1.0064
1.0019

1.0072
1.0231
1.0173
1.0147

.9886
.9989
.9875
.9978

.9817
.9817
.9774
.9861

2006—January

2
2006—January
2006—January
2006—January
2006—January

.9835
1.0065
.9977
.9781
.9638

1.0017
1.0019
1.0014
1.0009
1.0007

.9951
.9963
.9959
.9901
.9875

.9948
.9999
1.0068
1.0068
1.0029

.9995
1.0073
1.0252
1.0327
1.0306

.9624
.9677
.9864
.9944
1.0062

1.0011
1.0062
1.0021
1.0031
1.0011

.9925
.9951
.9864
.9781

1.0011
1.0015
1.0015
1.0013

.9917
.9917
.9895
.9867

1.0039
1.0041
1.0061
1.0068

1.0218
1.0224
1.0257
1.0229

1.0098
1.0180
1.0065
1.0113

1.0012
1.0117
1.0218
1.0261

1.0033
1.0066
.9945
.9795

1.0015
1.0015
1.0013
1.0013

.9898
.9946
.9976
.9964

1.0089
1.0101
1.0116
1.0106

1.0142
1.0185
1.0116
1.0115

1.0132
1.0192
1.0194
1.0240

1.0132
1.0183
1.0194
1.0359

.9996

1.0016

1.0047

1.0064

.9932

.9906

1.0318

2006—February

9
16
23
30

6
2006—February 13
2006—February 20
2006—February 27

2006—March 6
2006—March 13
2006—March 20
2006—March 27
2006—April 3

[footnote] 1. Seasonal factors are applied to deposit data at both commercial banks and thrift institutions.[endoffootnote.]

Legal Developments

ORDERS ISSUED UNDER BANK HOLDING
COMPANY ACT

Orders Issued Under Section 3 of the Bank Holding
Company Act
Banco Bilbao Vizcaya Argentaria, S.A.
Bilbao, Spain
Order Approving the Acquisition of a Bank Holding
Company
Banco Bilbao Vizcaya Argentaria, S.A. (''BBVA''), 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 Act to acquire
Laredo National Bancshares, Inc. ("Laredo"), Laredo,
Texas; Laredo National Bancshares of Delaware, Inc.,
Wilmington, Delaware; and The Laredo National Bank
("LNB") and South Texas National Bank of Laredo
("STNB"), both of Laredo.
Notice of the proposal, affording interested persons an
opportunity to comment, has been published (69 Federal
Register 65,196 (2004)). 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.
BBVA, with total consolidated assets of approximately
$363 billion, is the 34th largest banking organization in the
world. BBVA is the 110th largest depository organization
in the United States, with total assets in the United States
of $5.5 billion. It controls approximately $2.7 billion in
deposits, which represents less than 1 percent of the total
amount of deposits of insured depository institutions in the
United States. BBVA's U.S. subsidiary banks include
Banco Bilbao Vizcaya Argentaria Puerto Rico (''BBVA
Puerto Rico''), San Juan, Puerto Rico, a bank chartered in
Puerto Rico; and Valley Bank, Moreno Valley, California,
a state-chartered bank. BBVA also operates a branch in
New York, New York, and an agency in Miami, Florida.
BBVA's subsidiary bank in Mexico, BBVA Bancomer,

S.A., operates a state-licensed agency in Houston, Texas.
BBVA has no retail depository institution offices in Texas.
Laredo, with total consolidated assets of approximately
$3.4 billion, is the 17th largest depository organization in
Texas. It controls deposits of approximately $2.8 billion,
which represent less than 1 percent of the total amount of
deposits of insured depository institutions in the state.
Laredo's subsidiary banks have branches only in Texas.
On consummation of this proposal, BBVA would
become the 82nd largest depository organization in the
United States, with total consolidated U.S. assets of
$8.9 billion. BBVA would control deposits of $5.4 billion,
representing less than 1 percent of the total amount of
deposits of insured depository institutions in the United
States.
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 home
state of the bank holding company if certain conditions are
met. For purposes of the BHC Act, the home state of
BBVA is Puerto Rico and Laredo is located in Texas.
Based on a review of all the facts of record, including a
review of the relevant state statutes, the Board finds that all
the conditions for an interstate acquisition enumerated in
section 3(d) of the BHC Act are met in this case. The
Board is therefore permitted to approve the proposal under
section 3(d) of the BHC Act.
Competitive Considerations
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
[footnote] 3. Asset data for Laredo are as of September 30, 2004. Deposit and
ranking data are as of June 30, 2004, and are adjusted to reflect
mergers and acquisitions completed as of that date.[endoffootnote.]

[footnote] 4. In this context, the term ''insured depository institutions"
includes insured commercial banks, savings banks, and savings
associations.[endoffootnote.]
[footnote] 5. 12 U.S.C. §§ 1842(d)(1)(A) & (B), 1842(d)(2)(A) & (B). BBVA

[footnote]

1. 12U.S.C. §1842

[end
of
footnote.]
is currently adequately
capitalized and adequately managed, as defined

[footnote] 2. Worldwide asset data are as of December 31, 2003, and world-by applicable law, and would remain so on consummation of this
proposal. BBVA and its affiliates would control less than 10 percent of
wide ranking is as of November 12, 2004. United States asset and
the total amount of deposits of insured depository institutions in the
deposit data are as of September 30, 2004, and national ranking is as
United States. All other requirements of section 3(d) would also be
of June 30, 2004. The data and rankings are adjusted to reflect mergers
met on consummation of the proposal.[endoffootnote.]
and acquisitions completed as of June 30, 2004.[endoffootnote.]

of banking. 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.
Applicant does not currently compete with Laredo in
any relevant banking market. Accordingly, the Board concludes, based on all the facts of record, that consummation
of the proposal would not have a significant 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

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 information provided by BBVA, confidential reports of examination and other supervisory information received from the federal and state banking supervisors of the organizations involved, publicly reported and
other financial information, and public comments received
on the proposal. The Board also has consulted with the
Bank of Spain, which is responsible for the supervision and
regulation of Spanish financial institutions.
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. In this evaluation, the Board considers a variety
of areas, 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 effect of
the transaction on the financial condition of the combined
organization on consummation, including its capital position, asset quality, and earnings prospects and the impact of
the proposed funding of the transaction.
Based on its review of these factors, the Board believes
financial factors are consistent with approval of this proposal. Laredo currently is well capitalized, and the capital
levels of BBVA would continue to exceed the minimum
levels that would be required under the Basel Capital
Accord. Furthermore, BBVA's capital levels are considered
equivalent to the capital levels that would be required of a

U.S. banking organization and would remain so after consummation of this proposal. In addition, BBVA has sufficient financial resources to effect the proposal. The proposed transaction is structured as a share purchase, and the
consideration to be received by Laredo's shareholders
would be provided from BBVA's available funds.
The Board also has considered the managerial resources
of BBVA, Laredo, and their subsidiary banks, particularly
the supervisory experience of the other relevant banking
supervisory agencies with the organizations and their
records of compliance with applicable banking laws. The
Board has reviewed the assessments of the organizations'
management and risk management systems by the relevant
federal and state banking supervisory agencies. In addition,
the Board has considered the anti-money laundering programs at BBVA and the assessment of these programs by
the relevant federal supervisory agencies, state banking
agencies, and the Bank of Spain. The Board also has
considered BBVA's plans to implement the proposal,
including its proposed management after consummation
and the proposed integration of Laredo and its subsidiaries
into BBVA. Based on these and all other facts of record,
the Board concludes that the managerial resources and
future prospects of the organizations involved in the proposal are consistent with approval.
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.
[footnote] 8. The commenter made general allegations about BBVA's ability
to comply with U.S. anti-money laundering laws. In addition, the
commenter expressed concern, citing media reports in 2002, that
BBVA might be under investigation in Mexico, Columbia, and Peru in
connection with its acquisitions of financial institutions in those
countries. BBVA has provided information to the Board, the Bank of
Spain, and other appropriate governmental authorities relating to these
allegations and has publicly disclosed information on these matters in
filings with the U.S. Securities and Exchange Commission. As part of
its review of banking organizations, the Board seeks information on
enforcement actions by government authorities in other countries. The
Board notes that no enforcement action has been initiated against
BBVA by government authorities in the countries mentioned in the
media reports.[endoffootnote.]

[footnote] 9. The commenter criticized LNB's and STNB's lending relationships with unaffiliated pawn shops and Valley Bank's lending to a
rent-to-own business, stating that BBVA was enabling high-cost,
nontraditional providers of financial services. These businesses are
licensed by the states where they operate and are subject to applicable
state law. BBVA stated that neither Laredo nor any of its affiliates
engages in the activities conducted by payday lenders, check cashers,
or rent-to-own businesses. The only dealings that Laredo or any of
its affiliates have with such businesses are in the ordinary course of
extending credit and cashing checks for existing customers, to the
extent consistent with regulations of the Office of the Comptroller of
the Currency (''OCC''). BBVA further stated that neither Laredo nor
any of its affiliates plays any role, formal or otherwise, in the lending
practices or credit review processes of any unaffiliated subprime
[footnote] 6. 12U.S.C. § 1842(c)(1).[endoffootnote.]
lender or provider of nontraditional financing products.[endoffootnote.]
[footnote] 7. A commenter quoted a Spanish newspaper article that suggested
that a construction group in Spain intended to acquire less than
[footnote] 10. 12 U.S.C. § 1842(c)(3)(B). Under Regulation Y, the Board uses
5 percent of the voting stock of BBVA. The commenter provided no
the standards enumerated in Regulation K to determine whether a
foreign bank is subject to consolidated home country supervision.
information, and no other information is in the record, that indicates
See 12 CFR 225.13(a)(4). Regulation K provides that a foreign bank
that this potential future acquisition is in any way related to the
will be considered subject to comprehensive supervision or regulation
proposal currently under review.[endoffootnote.]

Aspreviouslynoted, the home country supervisor of BBVA is the moderate-income
Bank
(''LMI'') neighborhoods, in evaluating

of Spain.
In approving an application under the International
Banking Act (''IBA''), the Board previously determined
that BBVA was subject to home country supervision on a
consolidated basis by the Bank of Spain. Based on all the
facts of record, the Board has concluded that BBVA continues to be subject to comprehensive supervision on a consolidated basis by its home country supervisor.
In addition, section 3 of the BHC Act 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. The Board has
reviewed the restrictions on disclosure in the relevant jurisdictions in which BBVA operates and has communicated
with relevant government authorities concerning access to
information. In addition, BBVA has previously committed
to make available to the Board such information on the
operations of BBVA and its affiliates that the Board deems
necessary to determine and enforce compliance with the
BHC Act, the IBA, and other applicable federal law. BBVA
has also committed to cooperate with the Board to obtain
any waivers or exemptions that may be necessary to enable
BBVA and its affiliates to make such information available
to the Board. In light of the Board's review of the restrictions on disclosure and these commitments, the Board
concludes that BBVA has provided adequate assurances of
access to any appropriate information the Board may
request. Based on these and all other facts of record, the
Board has concluded that the supervisory factors it is
required to consider are consistent with approval.

bank expansionary proposals.
The Board has considered carefully the convenience and
needs factor and the CRA performance records of the
subsidiary banks of BBVA and Laredo in light of all the
facts of record, including public comment on the proposal. 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
application 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.16
All the subsidiary insured depository institutions of
BBVA and Laredo received ''satisfactory'' ratings at the
most recent evaluations of their CRA performance. BBVA
Puerto Rico received a ''satisfactory'' CRA performance
rating by the Federal Deposit Insurance Corporation
(''FDIC''), as of October 29, 2002, and Valley Bank
received a ''satisfactory'' CRA performance rating by the
FDIC, as of August 26, 2002. The OCC gave a ''satisfactory'' rating to LNB, as of February 5, 2001, and to STNB,
as of September 3, 2003.
BBVA represented that it is committed to maintaining
the existing CRA programs at LNB and STNB and enhancing their CRA performance. In addition, BBVA represented that consummation of this proposal would further
its goal of becoming a leading financial services provider
to the Hispanic community in the United States.
In BBVA Puerto Rico's most recent CRA performance
evaluation, examiners reported that the bank's lending

Convenience and Needs Considerations
In acting on this proposal, the Board is required to consider
the effects of the transaction on the convenience and needs
of the communities to be served and to take into account
the records of the relevant insured depository institutions
under the Community Reinvestment Act (''CRA''). The
CRA requires the federal financial supervisory agencies to
encourage financial institutions to help meet the credit
needs of 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
on a consolidated basis if the Board determines that the bank is
supervised or regulated in such a manner that its home country
supervisor 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).[endoffootnote.]

[footnote] 11. 12 U.S.C. § 3101 etseq.[endoffootnote.]
[footnote] 12. See BBVA Bancomer,

S.A., 89 Federal Reserve

(2003).[endoffootnote.]
[footnote] 13. See 12 U.S.C. § 1842(c)(3)(A).[endoffootnote.]
[footnote] 14. 12 U.S.C. §2901 etseq.[endoffootnote.]

Bulletin

[footnote] 15. The commenter asserted, based on data reported under the
Home Mortgage Disclosure Act (''HMDA'') (12 U.S.C. § 2801
et seq.), that Homeowners Loan Corporation (''HLC''), a subprime
lending subsidiary of LNB, originated a disproportionately large percentage of subprime loans to African Americans in possible violation
of fair lending laws. Using 2003 HMDA data reported by HLC in
several MSAs, the commenter compared the number of HLC's loan
originations to white applicants with the number of its loan originations to African-American applicants. Based on these comparisons,
the commenter asserted that HLC' s ratio of originations to AfricanAmerican applicants compared to white applicants significantly
exceeded the ratio of aggregate lenders in those markets. The commenter alleged that HLC' s disproportionately high ratio of originations to African-American applicants compared to white applicants
was a possible indication of fair lending law violations. The Board has
considered the limited HMDA data presented by the commenter;
confidential supervisory information received from the OCC, the
primary federal supervisor of HLC; and information provided by the
applicant. BBVA has stated that HLC selects prospects for direct
marketing using objective criteria, specifically, home ownership, home
equity, and credit score, and uses no racial demographic or geographic
criteria in any modeling for marketing purposes. The Board also has
consulted with the OCC about HLC' s subprime lending operations
and its programs for compliance with fair lending laws and other
consumer protection laws.[endoffootnote.]
146
[footnote] 16. See Interagency Questions and Answers Regarding
Community
Reinvestment, 66 Federal Register 36,620 and 36,639 (2001).[endoffootnote.]
[footnote] 17. The FDIC evaluated the CRA performance of Valley Bank
before BBVA acquired it in early 2004.[endoffootnote.]

levels reflected a ''good responsiveness'' to the credit
needs of its assessment areas during the evaluation
period. Examiners noted that BBVA Puerto Rico maintained a ''reasonable standard of lending'' in its assessment
areas by aggressively offering a variety of loan products at
competitive rates. They commended BBVA Puerto Rico's
distribution of small business loans and its efforts to meet
the needs of businesses within its assessment areas. In
addition, examiners commended BBVA Puerto Rico for
having a high level of community development lending
directed towards areas where traditional bank products did
not meet the needs of LMI families. They also noted that
BBVA Puerto Rico had developed the ''Global Commercial Package,'' a special product designed to satisfy the
needs of small business owners in Puerto Rico by offering
commercial accounts, credit facilities, and merchant
services.
In LNB's most recent evaluation, the bank received
''high satisfactory'' ratings under both the lending and
investment tests and an ''outstanding'' rating under the
service test. In particular, examiners described LNB's
home mortgage lending, small loans to businesses, branch
distribution, and community development services as
''excellent.''
Examiners commended LNB's record of making home
purchase loans to borrowers of different income levels,
including LMI individuals. They reported that the bank's
market share of home purchase loans to LMI borrowers
was almost twice its overall market share in the Laredo
MSA. In addition, examiners commended Laredo for its
distribution of home purchase loans to LMI borrowers in
the Houston MSA. Examiners noted that LNB offered a
special affordable housing product with flexible underwriting criteria for LMI borrowers. LNB offered this product
directly to customers and indirectly through special programs of Neighborhood Housing Services, Inc., an organization that provides home-buyer education classes and
offers grants for down payments and closing-cost
assistance.
Examiners also commended LNB's participation in the
Bank Enterprise Award program of the U.S. Department of
the Treasury for loans in low-income, high-unemployment

neighborhoods designated as ''Distressed Communities.''
They noted that LNB had 13 full-service branches in
Distressed Communities, representing 62 percent of its
total branches. In addition, examiners commended LNB
for providing affordable checking account products to LMI
customers and offering check-cashing services to noncustomers with a fee structure that was more affordable than
most check-cashing operations offered in the bank's assessment areas.
The Board has carefully considered all the facts of
record, including reports of examination of the CRA performance records of the institutions involved, information
provided by BBVA, comments on the proposal, confidential supervisory information, and BBVA's plans to enhance
the CRA performance of STNB and LNB. The Board notes
that the proposal would provide Laredo's customers with
expanded banking opportunities and resources, including
access to BBVA's expertise in and knowledge of Latin
American banking markets. 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, including 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, including commitments
and conditions imposed in this order, 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
BBVA's compliance with the conditions imposed in this
order, including receipt by BBVA of all appropriate regulatory approvals, and with the commitments made to the
Board in connection with the application. For purposes of

[footnote] 22. The commenter requested that the Board hold a public hearing
or meeting 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
timely written recommendation of denial of the application. The
[footnote] 18. The evaluation period was from January 2000 through SeptemBoard has not received such a recommendation from the appropriate
ber 2002.[endoffootnote.]
supervisory authority. Under its regulations, the Board also may, in its
[footnote] 19. For purposes of this order, a ''small business loan'' or a ''small
discretion, hold a public meeting or hearing on an application to
loan to business'' is a loan in an original amount of $1 million or less
acquire a bank if a meeting or hearing is necessary or appropriate to
that either is secured by nonfarm, nonresidential properties or is
clarify factual issues related to the application and to provide an
classified as a commercial and industrial loan.[endoffootnote.]
opportunity for testimony. 12 CFR 225.16(e). The Board has consid[footnote] 20. The evaluation period was January 1998 through February
ered carefully the commenter's request in light of all the facts of
2001. Full-scope reviews were performed on the following LNB
record. In the Board's view, the commenter had ample opportunity to
assessment areas: the Laredo Metropolitan Statistical Area (''MSA''),
submit comments on the proposal, and, in fact, the commenter has
the Harris County portion of the Houston MSA, and the Bexar County
submitted written comments that the Board has considered carefully
portion of the San Antonio MSA. More than 90 percent of L N B ' s
in acting on the proposal. The commenter's request fails to demonsmall business, home purchase, home improvement, and refinance
strate why its written comments do not adequately present its evidence
loans were originated or purchased within these assessment areas.
and fails to identify disputed issues of fact that are material to the
LNB assessment areas receiving limited-scope reviews included the
Board's decision that would be clarified by a public meeting or
B r o w n s v i l l e , M c A l l e n , a n d C o r p u s C h r i s t i M S A s a n d W i l l a c y C o u n t y .[endoffootnote.]
hearing. For these reasons, and based on all the facts of record, the
[footnote] 21. Examiners noted that the Laredo MSA was one of the least
Board has determined that a public meeting or hearing is not required
affordable areas in the country for home ownership because home
or warranted in this case. Accordingly, the request for a public
prices were relatively high while a large percentage of the population
meeting or hearing on the proposal is denied.[endoffootnote.]
lived below the poverty level.[endoffootnote.]

this transaction, 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 proposed transaction may not be consummated
before the fifteenth 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 30,
2005.
Voting for this action: Chairman Greenspan and Governors Gramlich, Bies, Olson, Bernanke, and Kohn. Absent and not voting: Vice
Chairman Ferguson.
ROBERT DEV. FRIERSON

Deputy Secretary of the Board

in fourteen states, the District of Columbia, Puerto Rico,
and two U.S. territories. Citigroup currently operates one
retail depository institution branch in Texas, primarily for
employees at a sales and service center in San Antonio, and
several nonbanking companies in Texas. Citigroup has no
other retail depository institution offices in the state.
FAB, with total consolidated assets of approximately
$3.5 billion, is the 18th largest insured depository institution in Texas, controlling deposits of approximately
$2.7 billion. Currently, FAB is an indirect subsidiary of
The Adam Corporation/Group (''TACG''), a Texas corporation that is subject to the supervision and regulation of
the Office of Thrift Supervision (''OTS''). 6
On consummation of the proposal, Citigroup would
become the 18th largest depository organization in Texas,
controlling deposits of approximately $2.7 billion, which
represent less than 1 percent of the total amount of insured
deposits in the state.
Interstate Analysis

Citigroup Inc.
New York, New York
Order Approving the Acquisition of a Bank
Citigroup Inc. (''Citigroup''), a financial 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 Act to acquire First American Bank,
SSB (''FAB''), Bryan, Texas. Citigroup would acquire
FAB immediately after its conversion to a national bank.
Notice of the proposal, affording interested persons an
opportunity to submit comments, has been published in the
Federal Register (69 Federal Register 58,173 (2004)). 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.
Citigroup, with total consolidated assets of approximately $1.48 trillion, is the largest depository organization
in the United States. Citigroup's subsidiary depository
institutions control deposits of approximately $192.5 billion, which represent approximately 3 percent of the total
deposits of insured depository institutions in the United
States. Citigroup operates insured depository institutions

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 home
state of such bank holding company if certain conditions
are met. For purposes of the BHC Act, the home state of
Citigroup is New York. Depository institutions controlled
by Citigroup operate in California, Connecticut, Delaware,
Florida, Georgia, Illinois, Maryland, Nevada, New Jersey,
New York, South Dakota, Texas, Utah, Virginia, the District of Columbia, Puerto Rico, Guam, and the U.S. Virgin
Islands. Citigroup proposes to acquire a bank located in
Texas.
Based on a review of all the facts of record, including a
review of relevant state statutes, the Board finds that all
conditions for an interstate acquisition enumerated in sec-

[footnote] 5. Citigroup's subsidiary insured depository institutions include
Citibank, N.A., New York, New York (''Citibank''); Citibank (West),
FSB, San Francisco, California; Citibank, Federal Savings Bank,
Reston, Virginia; Citibank (South Dakota), National Association,
Sioux Falls, South Dakota; California Commerce Bank, Century City,
California; Citicorp Trust Bank, FSB, Newark, Delaware; Citibank
(Nevada), National Association, Las Vegas, Nevada; Citibank USA,
National Association, Sioux Falls, South Dakota; Citibank (Delaware), New Castle, Delaware; Associates Capital Bank, Inc., Salt
Lake City, Utah; and Universal Financial Corp., Salt Lake City, Utah.[endoffootnote.]
[footnote] 1. 12 U.S.C. § 1842.[endoffootnote.]
[footnote] 6. Citigroup proposes to acquire five of FAB's twelve subsidiaries,
including FAB Holdings GP, LLC; FAB Holdings LP, LLC; FAB
[footnote] 2. FAB would relocate the bank's main office to Dallas and change
Financial, LP; SALSCO Inc.; and SB Plano Corporation. Each is
its name to Citibank Texas, National Association (''Citibank Texas'')
currently a subsidiary of FAB and will become a subsidiary of
before the proposed acquisition by Citigroup. FAB's application to
Citibank Texas. All activities conducted by these subsidiaries are
convert to a national charter was approved by the Office of the
permissible for subsidiaries of a national bank. All other FAB subsidiComptroller of the Currency (''OCC'') on February 15, 2005. The
aries will be transferred to TACG before the acquisition.[endoffootnote.]
Board consulted with the OCC and the Federal Deposit Insurance
Corporation (''FDIC''), the primary supervisor of FAB, regarding
[footnote] 7. See 12 U.S.C. § 1842(d). A bank holding company's home state
their reviews of the proposal.[endoffootnote.]
is the state in which the total deposits of all subsidiary banks of the
were the largest on the later of July 1, 1966, or the date on
[footnote] 3. Asset data and nationwide ranking data for Citigroup are as company
of
which the company became a bank holding company. 12 U.S.C.
December 31, 2004.[endoffootnote.]
§ 1841(o)(4)(C).[endoffootnote.]
[footnote] 4. Deposit data are as of June 30, 2004, and reflect the unadjusted
total of deposits reported by each organization's insured depository
[footnote] 8. For purposes of section 3(d), the Board considers a bank to be
located in the states in which the bank is chartered or headquartered or
institutions in the Summary of Deposits. In this context, insured
operates a branch. See 12 U.S.C. §§ 1841(o)(4)-(7), 1842(d)(1)(A)
depository institutions include commercial banks, savings banks, and
savings associations.[endoffootnote.]
& ( B ) .[endoffootnote.]

tion 3(d) of the BHC Act are met in this case. 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
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. 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.
Citigroup and FAB do not compete directly in any
relevant banking market. Based on all the facts of record,
the Board has concluded that consummation of the proposed transaction would have no 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.
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. In
reviewing these factors, the Board has considered, among
other things, confidential reports of examination and other
supervisory information received from the primary federal
supervisors of the organizations involved, including the
Federal Reserve System's confidential supervisory information. In addition, the Board has consulted with the
relevant supervisory agencies, including the OCC, OTS,
FDIC, Securities and Exchange Commission (''SEC''), and
Texas Savings and Loan Department. The Board also has
considered publicly available financial and other information on the organizations and their subsidiaries, all the
information submitted on the financial and managerial
aspects of the proposal by Citigroup, and public comments
received by the Board about the financial and managerial
resources of Citigroup.

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. In this evaluation, the Board considers a variety
of areas, 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 effect of
the transaction on the financial condition of the applicant
and the target, including their capital positions, asset quality, and earnings prospects and the impact of the proposed
funding of the transaction.
The Board has reviewed these factors carefully in this
case and believes financial factors are consistent with
approval of this application. The Board notes that Citigroup and its subsidiary depository institutions are well
capitalized and would remain so on consummation of the
proposal. The Board also finds that Citigroup has sufficient
financial resources to effect the proposal. The proposed
transaction is structured as a cash purchase of the outstanding shares of FAB, and Citigroup would not directly incur
any debt to finance the proposed transaction.
In addition, the Board has considered the managerial
resources of Citigroup and FAB, particularly the supervisory experience and assessments of management by the
various bank supervisory agencies and the organizations'
records of compliance with applicable banking laws. In
reviewing this proposal, the Board has assembled and
considered a broad and detailed record, including substantial confidential and public information about Citigroup.
The Board has carefully reviewed the examination records
of Citigroup, FAB, and their subsidiaries, including assessments of their risk-management systems. The Board also
considered information from ongoing examinations, the
publicly disclosed investigations that are underway, and
consultations with other federal and state banking authori-

[footnote] 11. A commenter asserted that management of Citigroup is inadequate because it indirectly supports allegedly abusive lending practices through warehouse lending and securitization activities of its
subsidiary, Citigroup Global Markets, Inc. (''CGMI''), that support
unaffiliated third parties engaged in subprime lending, check cashing,
auto-title lending, and operating pawnshops. The commenter also
contended that FAB has relationships with these nontraditional providers of financial services that allegedly harm consumers. Citigroup
indicated that CGMI engages in underwriting securities backed by
subprime mortgage loans and provides warehouse loans to some
mortgage banking customers for which it underwrites securities. CitiIn evaluating financial factors in expansion proposals by
group stated that CGMI does not control the origination of subprime
loans made by unaffiliated mortgage banking customers or participate
banking organizations, the Board reviews the financial
in the credit decisions of these customers. Citigroup also stated that
CGMI reviews each lender' s policies and procedures and sets eligibility criteria for the loans it will finance through its warehouse lending
[footnote] 9. 12 U.S.C. §§ 1842(d)(1)(A) & (B), 1842(d)(2)(A) & (B). Citiand securitization arrangements. CGMI, or an outside firm hired and
group is adequately capitalized and adequately managed, as defined
supervised by CGMI, reviews a sample of any loan pool to be
by applicable law. FAB has been in existence and operated for the
securitized for compliance with consumer protection laws and its loan
minimum period of time required by applicable law. On consummaeligibility criteria before making any warehouse loan advance. With
tion of the proposal, Citigroup would control less than 10 percent of
regard to its business relationships with unaffiliated subprime lenders
the total amount of deposits of insured depository institutions in the
and nontraditional providers of financial services, Citigroup plays no
United States and less than 30 percent of the total amount of deposits
role in the credit review or other lending or service practices of these
of insured depository institutions in Texas. All other requirements
entities. The nontraditional providers of financial services are licensed
under section 3(d) of the BHC Act also would be met on consummaby the states where they operate and are subject to applicable state
tion of the proposal.[endoffootnote.]
law.[endoffootnote.]
[footnote] 10. See 12 U.S.C. § 1842(c)(1).[endoffootnote.]

ties, foreign financial supervisory authorities, the SEC, and
other relevant regulators. The Board also reviewed confidential supervisory information on the policies, procedures, and practices of Citigroup to comply with the Bank
Secrecy Act and other anti-money-laundering laws and
consulted with the OCC, the appropriate federal financial
supervisory agency of Citibank, concerning its record of
compliance with anti-money-laundering laws.
In evaluating the managerial resources of a banking
organization in an expansion proposal, the Board considers
assessments of an organization's risk management—the
ability of the organization's board of directors and senior
management to identify, measure, monitor, and control
risk—to be especially important. In evaluating Citigroup' s and other banking organizations' risk management, the Board considers a variety of areas, including the
following matters: (1) board and senior management oversight of the organization's inherent risks, as well as the
general capabilities of management; (2) the adequacy of
the organization's policies, procedures, and limits, including the organization's accounting and risk-disclosure
policies and procedures; (3) the risk-monitoring and
management-information systems used by an organization
to measure risk, and the consistency of these tools with the
level of complexity of the organization's activities; and
(4) the adequacy of the organization's internal controls and
audit procedures, including the accuracy of financial
reporting and disclosure, the independence of control areas
from management, and the consistency of the scope of
coverage of the internal audit team with the complexity of
the organization. The Board has also taken into account
that an organization as large and varied as Citigroup has a
particular need to adopt risk-management practices that
can appropriately address the scope, complexity, and geographic diversity of its operations.
In assessing these matters, the Board has also taken into
account recent publicly disclosed deficiencies and investigations involving Citigroup's activities in Japan, in Europe,
and in its mutual fund relationships in the United States.
The Board continues to monitor the investigations of
Citigroup's securities-related activities that are being conducted by its functional regulators, including the SEC,
and is consulting with these authorities. In addition, the
Board continues to monitor the investigations regarding
Citigroup's bond trades in Europe and its private banking
and other activities in Japan. The Board is consulting with
the relevant foreign authorities on these matters. The Federal Reserve Bank of New York and the OCC also have

conducted targeted examinations of Citigroup's Japanese
operations.
Citigroup has acknowledged that it has some deficiencies in its compliance and internal controls in these areas
and has developed plans that it has already begun to
implement to address the weaknesses. The Board has given
careful attention to the measures that Citigroup and its
subsidiaries have taken to address these matters and the
steps it is continuing to take to resolve these matters and
strengthen the company' s compliance risk-management
structure and practices. Importantly, Citigroup has demonstrated a willingness and ability to take actions to address concerns raised in these investigations and in the
examination process. The Board notes that Citigroup
recently has significantly increased its funding of compliance risk-management programs and technology, and is in
the process of implementing various initiatives designed to
strengthen compliance risk management, increase ethics
awareness and encourage compliance, and enhance the
oversight of its international operations.
As part of Citigroup's plan to enhance its existing compliance risk management and to address compliance issues,
Citigroup has strengthened the independence of its compliance structure. The reporting relationship between compliance personnel and business-line management has been
changed so that all compliance personnel now have a direct
reporting line to the independent compliance function.
In addition, Citigroup is in the process of implementing enhanced compliance policies and procedures; management information and reporting systems; monitoring
and surveillance programs; and firm-wide and businessspecific compliance training for its employees and compliance personnel. Finally, Citigroup is in the process of
expanding its audit coverage of the compliance function.
Citigroup has also reviewed and standardized its performance appraisal process to incorporate increased incen-

[footnote] 15. As a matter of practice and policy, the Board generally has not
tied consideration of an application or notice to the scheduling or
completion of an examination or investigation if the applicant has an
overall satisfactory record of performance and the issues being
reviewed may be resolved in the examination and supervisory process.
See 62 Federal Register 9290 (1997) (Preamble to the Board's Regulation Y). As the Board has indicated previously, it has broad supervisory authority under the banking laws to address matters that are
found in the examination and supervisory process. Moreover, many
issues are more appropriately and adequately addressed in the supervisory process, where particular matters and violations of law may be
identified and addressed specifically, rather than in the application
process, which requires a weighing of the overall record of the
companies involved.[endoffootnote.]
[footnote] 16. The commenter also asserted that Citigroup' s management had
not implemented effective policies and programs to address alleged
abusive sales and lending practices of Citigroup' s subsidiaries, includ[footnote] 12. A commenter criticized the managerial resources of Citigroup
ing those engaged in subprime lending and related insurance activand its subsidiaries based on press reports alleging that Citibank and
ities, and that the Board's enforcement action against Citigroup
other subsidiaries of Citigroup held accounts for certain international
and its subsidiary subprime lender, CitiFinancial Credit Company
leaders the commenter believed were associated with terrorism. The
(''CitiFinancial''), Baltimore, Maryland, indicated that Citigroup's
commenter asserted, based only on information in press reports, that
managerial resources are inadequate. See Enforcement
Actions,
Citigroup lacks sufficient policies and procedures and other resources
90 Federal Reserve Bulletin 348-349 (2004) (''Consent Order''). The
to prevent money laundering.[endoffootnote.]
Board has taken into account the Consent Order and the progress that
[footnote] 13. See Revisions to Bank Holding Company Rating System,
Citigroup and CitiFinancial currently are making to comply with the
69 Federal Register 70,444 (2004).[endoffootnote.]
Consent Order.[endoffootnote.]
[footnote] 14. Id. at 70,447.[endoffootnote.]

tives for compliance. It has introduced an enhanced
corporate-wide ethics awareness program with an
expanded orientation program and annual training sessions. Top corporate officials are taking an active role in
this ethics program by spearheading regional meetings,
conference calls, and site visits.
To ensure that the shortcomings associated with its oversight and the management structure of its Japanese operations are not prevalent in its international operations,
Citigroup conducted reviews of its franchise in key global
markets and met with regulators to identify any concerns
that may exist with regard to corporate governance and
compliance. As a result of this review, Citigroup has taken
steps designed to clarify accountability and responsibility
and to enhance oversight of its international operations.
In addition, the Board has considered the nature of the
proposal in this case. This transaction is small relative to
Citigroup's U.S. retail banking operations. The Board has
also considered the strength and success of Citigroup's
managerial resources in operating its retail banking business in the U.S.
Based on these and all the facts of record, including a
careful review of public comments, Citigroup's management record, its risk-management programs, the actions
taken by Citigroup to address compliance concerns, and
the nature of the transaction at hand, the Board concludes
that considerations relating to the managerial resources of
Citigroup, FAB, and their subsidiaries are consistent with
approval of the proposal, as are the other supervisory
factors that the Board must consider under section 3 of the
BHC Act. The Board expects Citigroup management to
continue its efforts to implement fully the improvements it
has developed to enhance all aspects of its oversight of the
organization's operations. The Board will continue to
monitor closely Citigroup's implementation of its plan for
enhancing its compliance programs and its progress in
meeting the schedule it has set out for implementing that
plan.
Given the size, scope, and complexity of Citigroup's
global operations, successfully addressing the deficiencies
in compliance risk management that have given rise to
a series of adverse compliance events in recent years
will require significant attention over a period of time by
Citigroup's senior management and board of directors. The
Board expects that management at all levels will devote the
necessary attention to implementing its plan fully and
effectively and will not undertake significant expansion
during the implementation period. The Board believes it
important that management's attention not be diverted
from these efforts by the demands that mergers and acqui-

sitions place on management resources. In this application,
the Board has determined that demands on managerial
resources from this proposal would not be so significant as
to divert management from implementing its improvement
programs.
Based on all the facts of record, the Board has concluded
that the financial and managerial resources and future
prospects of the organizations and the other supervisory
factors involved are consistent with approval of the
proposal.

Convenience and Needs Considerations
In acting on a proposal under section 3 of the BHC Act, the
Board is required to 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 insured
depository institution under the Community Reinvestment
Act (''CRA''). The CRA requires the federal financial
supervisory agencies to encourage financial institutions to
help meet the credit needs of 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.
A. CRA Performance Evaluations
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 application 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.
Citigroup's subsidiary depository institutions received
either ''outstanding'' or ''satisfactory'' ratings at their most
recent CRA performance evaluations. Citibank, the lead
subsidiary depository institution of Citigroup, received an
''outstanding'' rating from the OCC, as of June 9, 2003
(''2003 Evaluation''). FAB received a ''satisfactory'' rating
at its most recent CRA performance evaluation by the
FDIC, as of June 3, 2002. Citigroup has indicated that it
would continue its CRA-related loan, investment, grant,
and service programs and fair lending policies at the comto
bined entity after consummation.

[footnote]17.
The commenter expressed concern that Citigroup has helped
finance various activities and projects worldwide that might damage
the environment or cause other social harm. These contentions contain
no allegations of illegality or action that would affect the safety and
soundness of the institutions involved in the proposal and are outside
[footnote.] 8. 12 U.S.C. § 2901 etseq.[endoffootnote.]
the limited statutory factors that the Board is authorized to consider
[footnote] 19. See Interagency Questions and Answers Regarding
Community
when reviewing an application under the BHC Act. See Western
Reinvestment, 66 Federal Register 36,620 and 36,639 (2001).[endoffootnote.]
Bancshares, Inc. v. Board of Governors, 480 F.2d 749 (10th Cir.
[footnote] 20. The CRA ratings of all Citigroup's subsidiary depository insti1973).[endoffootnote.]
tutions are provided in the Appendix.[endoffootnote.]

B. CRA Performance of Citibank
Citibank received an ''outstanding'' rating under the lending, investment, and service tests in the 2003 Evaluation.
The examination stated that Citibank had good lending
activity in its primary assessment areas, good geographic
distribution of loans, and excellent distribution of loans
by borrower income. Examiners commended Citibank's
use of innovative and flexible mortgage loan products.
Citibank, in connection with Fannie Mae, state banking
agencies, and nonprofit organizations, such as ACORN,
developed several programs for first-time homebuyers and
LMI borrowers. Many of these programs, including CRA
Portfolio Sub-Allocation and the Enhanced Fannie Neighbors with Community Homebuyers Program, allow for
more flexible underwriting standards and reduced down
payments. The examiners commended Citibank's small
business lending and noted that Citibank was the leading
small business lender in the New York City assessment
area, with 23 percent of the market share of small business
loans.
In addition, the examiners reported that Citibank' s community development lending in the New York City assessment area was excellent. They found that Citibank originated a high number and dollar amount of community
development loans and that these loans exhibited complexity and innovativeness. Examiners noted that Citibank
offered a wide range of financing alternatives to nonprofit
and for-profit entities that supported community development initiatives, including the acquisition and rehabilitation of affordable housing units.
Additionally, examiners found that Citibank had an
excellent level of community development investments
during the evaluation period. For example, in the New
York City assessment area, Citibank made or purchased
approximately $165 million in qualified investments during the evaluation period. These investments supported
affordable housing initiatives for LMI individuals and
families, projects that benefited specific LMI populations,
and projects that improved deteriorating or mismanaged
occupied buildings. Further, the examiners stated that
Citibank was a leader in providing community development services that were responsive to the needs of the
bank's assessment areas.
C. HMDA and Fair Lending Record
The Board has carefully considered the lending record of
Citigroup in light of public comment received on the
proposal. A commenter alleged that Citigroup engages in

discriminatory lending by directing minority customers to
CitiFinancial or other Citigroup subsidiaries that originate
subprime loans, rather than to Citigroup's subsidiary banks
and other prime lending channels. The commenter also
alleged, based on a review of 2003 HMDA data, that the
denial disparity ratios of some of the Citigroup Prime
Lenders in certain markets indicated that these lenders
disproportionately denied African-American or Hispanic
applicants for home mortgage loans Citigroup stated that
it does not direct customers to any specific subsidiary
based on race or ethnicity criteria and that it provides
subprime loans through certain subsidiaries as part of a
group of products designed to meet a broad range of credit
needs.
The Board reviewed HMDA data reported by the Citigroup Prime Lenders and the Citigroup Subprime Lenders
in the primary assessment areas of the Citigroup Prime
Lenders and in the other MSAs identified by the commenter An analysis of 2003 HMDA data does not support the contention that the Citigroup Prime Lenders have
disproportionately denied applications of minority or LMI
customers, or directed minority or LMI borrowers to its
subprime lenders. The HMDA data for the Citigroup Prime
Lenders indicate that their denial disparity ratios for
African-American and Hispanic applicants were generally
higher than the ratios for the aggregate of all lenders
(''aggregate lenders'') in the MSAs reviewed. However,
the origination rates for total HMDA-reportable loans
to African-American and Hispanic borrowers by the
[footnote] 23. Specifically, the commenter's allegations were based on 2003
data reported pursuant to the Home Mortgage Disclosure Act,
12 U.S.C. § 2801 et seq. (''HMDA''), by certain Citigroup subsidiaries
engaged in conventional mortgage lending in the New York, New
York; Nassau/Suffolk, New York; Chicago, Illinois; Los Angeles,
California; Washington, D.C., and Newark, New Jersey Metropolitan
Statistical Areas (''MSAs''). In addition, the commenter criticized
Citigroup's lending record in the Houston and Dallas MSAs, where
Citigroup's subsidiary depository institutions have no branches. The
commenter also asserted, without analysis, that CitiFinancial originated a higher volume and larger percentage of its HMDA-reportable
loans to African-American or Hispanic borrowers than Citigroup's
conventional mortgage lending subsidiaries originated in the MSAs
noted by the commenter. For purposes of this application, the Board
analyzed 2002 and 2003 HMDA data in Citigroup's CRA assessment
areas in these MSAs, the San Francisco-San Mateo-Redwood City,
California MSA, and the State of New York that was reported by
Citibank; CitiMortgage, Inc., St. Louis, Missouri; Citibank, Federal
Savings Bank; and Citibank (West), FSB (collectively, ''Citigroup
Prime Lenders''). Citibank (West), FSB is the successor to California Federal Bank, San Francisco, California. For purposes of this
review, information relating to Citibank (West), FSB included California Federal Bank's data. The Board also reviewed 2003 HMDA
data reported by CitiFinancial; Citicorp Trust Bank, FSB; and
CitiFinancial Mortgage Company, Inc., Irving, Texas (collectively,
''Citigroup Subprime Lenders'').[endoffootnote.]

[footnote] 21. The evaluation period was from October 18, 2000, to June [footnote]
9,
24. The denial disparity ratio equals the denial rate for a particular
racial category (e.g., African-American) divided by the denial rate for
2003.[endoffootnote.]
whites.[endoffootnote.]
[footnote] 22. The small business lending performance reviewed by examiners included data from the following affiliates of Citibank: Citibank,
[footnote] 25. In the MSAs reviewed, the Board compared the 2003 HMDA
Federal Savings Bank; Citibank (South Dakota), National Associadata reported by the Citigroup Prime Lenders with the HMDA data
tion; Associates Capital Bank, Inc.; Citibank (Nevada), National Assoreported by the Citigroup Subprime Lenders.[endoffootnote.]
ciation.; Citibank USA, National Association; and Universal Financial
[footnote] 26. The lending data of the aggregate lenders represent the cumulaCorp. For purposes of this analysis, small business loans included
tive lending for all financial institutions that have reported HMDA
business loans with an original amount of $1 million or less.[endoffootnote.] data in a particular area.[endoffootnote.]

Citigroup Prime Lenders in all but one of the MSAs
reviewed were comparable to or higher than the rates for
the aggregate lenders. The 2003 HMDA data also show
that the Citigroup Prime Lenders extended more total
HMDA-reportable loans to African-American and Hispanic borrowers than the Citigroup Subprime Lenders in
most of the MSAs reviewed.
Although the HMDA data may reflect certain disparities
in the rates of loan applications, originations, and denials
among members of different racial groups in certain
local areas, the HMDA data do not demonstrate that the
Citigroup Prime Lenders are excluding any racial group on
a prohibited basis. The Board is concerned when HMDA
data for an institution indicate disparities in lending and
believes that all banks 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. The Board
recognizes, however, that HMDA data alone provide an
incomplete measure of an institution's lending in its community because these data cover only a few categories of
housing-related lending. HMDA data, moreover, provide
only limited information about the covered loans. HMDA
data, therefore, have limitations that make them an inadequate basis, absent other information, for concluding that
an institution has not assisted adequately in meeting its
community's credit needs or has engaged in illegal lending
discrimination. Moreover, HMDA data indicating that one
affiliate is lending to minorities more than another affiliate
do not, without more information, indicate that either affiliate has engaged in illegal discriminatory lending activities.
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 an on-site evaluation of compliance by Citigroup and
its subsidiaries with fair lending laws. Importantly, examiners noted no fair lending issues or concerns in the performance evaluations of Citigroup's subsidiary depository
institutions or FAB.
The record also indicates that Citigroup has taken steps
to help ensure compliance with fair lending laws and other
consumer protection laws. Citigroup has implemented
corporate-wide fair lending policies, procedures, and training programs, and it regularly conducts internal reviews for
compliance with policies and procedures, including
reviews of individual loans and reviews of its subsidiary
lenders' overall lending data. Citigroup's subsidiary
depository institutions have established detailed fair lend-

ing procedures in addition to Citigroup's corporate policies
and procedures, including extensive fair lending training
programs for employees and fair lending self-assessments
using matched-pair testing and statistical analyses. In addition, all declined applications are independently reviewed
by two underwriters, the second of whom must be a senior
underwriter or risk-management expert. Declined applications go through a third level of review if the applicant is a
LMI borrower, is applying for a community lending product, or lives in an LMI or minority census tract.
In addition, Citigroup has taken actions to address deficiencies in CitiFinancial's management of its compliance
with consumer protection laws and currently is making
progress in complying with the Consent Order. Citigroup
is in the process of implementing the restitution plan and
changes to its compliance risk-management systems,
including audit and training functions, in accordance with
the Consent Order's terms. The Board is continuing to
monitor Citigroup's compliance with the Consent Order
and enhancements to its various real estate lending initiatives to help ensure compliance with consumer protection laws and prevent abusive lending practices by
CitiFinancial (''Initiatives''). Citigroup has enhanced
these Initiatives by, among other things, implementing new
insurance sales practices and introducing mortgage loan
products at CitiFinancial that provide qualifying applicants
with access to lower-cost mortgage loans. These new loan
products offer interest rates that are close to the rates on
the conventional mortgage loan products offered by the
Citigroup Prime Lenders.
The Board also has considered the HMDA data in light
of other information, including the programs described
above and the overall performance records of Citigroup' s
subsidiary depository institutions under the CRA. These
established efforts demonstrate that the institutions are
active in helping to meet the credit needs of their entire
communities.
Conclusion on Convenience and Needs and
CRA Performance
The Board has carefully considered all the facts of record,
including reports of examination of the CRA performance
records of the institutions involved, information provided
by Citigroup, comments on the proposal, and confidential
supervisory information. The Board notes that the proposal
would provide the combined entity's customers with access

[footnote] 29. As the Board previously has noted, subprime lending is a
permissible activity that provides needed credit to consumers who
[footnote] 2 7 . T h e o r i g i n a t i o n r a t e e q u a l s t h e t o t a l n u m b e r of l o a n s o r i g i n a thave
ed
difficulty meeting conventional underwriting criteria. The Board
t o a p p l i c a n t s of a p a r t i c u l a r r a c i a l c a t e g o r y d i v i d e d b y t h e t o t a l
continues to expect all bank holding companies and their affiliates to
n u m b e r of a p p l i c a t i o n s r e c e i v e d f r o m m e m b e r s of t h a t r a c i a l c a t e g o r y .[endoffootnote.]
conduct their subprime lending operations without any abusive lend[footnote] 28. The data, for example, do not account for the possibility thating
an practices. See, e.g., Royal Bank of Canada, 88 Federal Reserve
Bulletin 385, 388 n.18 (2002). The commenter reiterated coninstitution's outreach efforts may attract a larger proportion of marginally
cerns raised in previous Citigroup applications and asserted that
qualified applicants than other institutions attract and do not
CitiFinancial engaged in various lending practices that the commenter
provide a basis for an independent assessment of whether an applicant
argued were abusive, unfair, or deceptive. The commenter also conwho was denied credit was, in fact, creditworthy. Credit history
tended that the Board should deny this application or impose condiproblems and excessive debt levels relative to income (reasons most
tions requested by the commenter in light of the Consent Order
frequently cited for a credit denial) are not available from HMDA
entered into by Citigroup in May 2004.[endoffootnote.]
data.[endoffootnote.]

to a b r o a d e r array of products and services in an e x p a n d e d
service area, including access to an e x p a n d e d b r a n c h and
A T M network. B a s e d on a r e v i e w of the entire record, and
for the reasons discussed above, the B o a r d concludes that
considerations relating to the c o n v e n i e n c e and needs factor
and the C R A p e r f o r m a n c e records of the relevant depository institutions are consistent with approval.

the B o a r d in connection with the application. For p u r p o s e s
of this action, these c o m m i t m e n t s and conditions are
d e e m e d to b e conditions i m p o s e d in writing by the B o a r d
in connection with its findings and decision and, as such,
m a y b e e n f o r c e d in proceedings under applicable law.
T h e acquisition of F A B shall not b e c o n s u m m a t e d b e f o r e
the fifteenth calendar day after the effective date of this
order or later than three m o n t h s after the effective date of
this order, unless such p e r i o d is e x t e n d e d for g o o d cause b y
the B o a r d or b y the Federal R e s e r v e B a n k of N e w York,
acting pursuant to delegated authority.
B y order of the B o a r d of G o v e r n o r s , effective M a r c h 1 6 ,
2005.
Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Bies, Olson, Bernanke, and Kohn. Absent and not
voting: Governor Gramlich.

[footnote] 30. The commenter 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 authority for the bank to be acquired makes a
timely written recommendation of denial of the application. The
Board has not received such a recommendation from the appropriate
supervisory authorities. 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 225.16(e). 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 its views and has submitted written comments that have
been considered carefully by the Board in acting on the proposal. The
commenter's requests fail to demonstrate why written comments do
not present its evidence adequately and fail 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.[endoffootnote.]
[footnote] 31. The commenter also requested that the Board delay action or
extend the comment period on the proposal. As previously noted, the
Board has accumulated a significant record in this case, including
reports of examination, confidential supervisory information, public
reports and information, and considerable public comment. In the
Board's view, for the reasons discussed above, the commenter has had
ample opportunity to submit its views and, in fact, has provided
substantial written submissions that the Board has considered carefully in acting on the proposal. Moreover, the BHC Act and Regulation Y require the Board to act on proposals submitted under those
provisions within certain time periods. Based on a review of all the
facts of record, the Board has concluded that the record in this case is
sufficient to warrant action at this time, and that further delay in
considering the proposal, extension of the comment period, or denial
of the proposal on the grounds discussed above or on the basis of
informational insufficiency is not warranted.[endoffootnote.]

ROBERT DEV. FRIERSON

Deputy Secretary of the Board

Appendix
CRA Performance Evaluations of Citigroup
Subsidiary Depository Institution

CRA Rating

Date of Evaluation

Agency

Citibank, N.A.,
New York, New York
Citibank (West), FSB,
San Francisco, California1
Citibank, Federal Savings Bank,
Reston, Virginia
Citibank (South Dakota), National Association,
Sioux Falls, South Dakota
California Commerce Bank,
Century City, California
Citicorp Trust Bank, FSB,
Newark, Delaware
Citibank (Nevada), National Association,
Las Vegas, Nevada
Citibank USA, National Association,
Sioux Falls, South Dakota
Citibank (Delaware),
New Castle, Delaware
Associates Capital Bank, Inc.,
Salt Lake City, Utah
Universal Financial Corp.,
Salt Lake City, Utah

Outstanding

June 9, 2003

OCC

Outstanding

July 30, 2001

OTS

Outstanding

September 8, 2003

OTS

Outstanding

May 5, 2003

OCC

Outstanding

October 1, 2002

FDIC

Outstanding

February 5, 2001

OTS

Outstanding

March 31, 2003

OCC

Satisfactory

May 5, 2003

OCC

Outstanding

December 1, 2003

FDIC

Outstanding

March 1, 2000

FDIC

Outstanding

November 1, 2002

FDIC

1. As noted above, Citibank (West), FSB is the successor to
California Federal Bank. The rating shown was received by California
Federal Bank.

The Colonial BancGroup,
Montgomery, Alabama

Inc.

Order Approving the Acquisition of a Bank
The Colonial BancGroup, Inc. (''BancGroup''), a financial
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 Act to acquire Union
Bank of Florida, Lauderhill, Florida (''Union Bank'').
Notice of the proposal, affording interested persons an
opportunity to comment, has been published in the Federal
Register (69 Federal Register 69,369 (2004)). 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.
BancGroup, with total consolidated assets of approximately $18.2 billion, is the 56th largest depository organization in the United States. BancGroup operates one subsidiary insured depository institution, Colonial Bank,
National Association, also in Montgomery (''Colonial
Bank''), with branches in Alabama, Florida, Georgia,
Nevada, Tennessee, and Texas. BancGroup is the eighth
[footnote] 1. 12 U.S.C. § 1842.[endoffootnote.]
[footnote] 2. 12 CFR 262.3(b).[endoffootnote.]

largest depository organization in Florida, controlling
deposits of approximately $5.6 billion, which represent
approximately 1.9 percent of the total amount of deposits
of insured depository institutions in the state (''state
deposits'').
Union Bank, with total consolidated assets of approximately $1.0 billion, is the 43rd largest insured depository
institution in Florida, controlling deposits of approximately
$686.7 million. On consummation of the proposal, BancGroup would remain the eighth largest depository organization in Florida, controlling deposits of approximately
$6.3 billion, which represent approximately 2.1 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 home
state of the bank holding company if certain conditions are
met. For purposes of the BHC Act, the home state of
[footnote] 3. Asset data are as of September 30, 2004, and national rankings
are as of June 30, 2004. Deposit data and state rankings are as of
June 30, 2004, and are adjusted to reflect mergers and acquisitions
completed through December 1, 2004.[endoffootnote.]

BancGroup is Alabama. BancGroup proposes to acquire a
bank located in Florida.
Based on a review of all the facts of record, including a
review of relevant state statutes, the Board finds that all
conditions for an interstate acquisition enumerated in section 3(d) of the BHC Act are met in this case. 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
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. 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.
BancGroup and Union Bank compete directly in the
Miami-Fort Lauderdale and West Palm Beach Area banking markets in Florida. 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 markets, the relative
shares of total deposits of depository institutions in the
markets (''market deposits'') controlled by BancGroup and
Union Bank, the concentration level of market deposits

and the increase in this level as measured by the
Herfindahl-Hirschman Index (''HHI'') under the Department of Justice Merger Guidelines (''DOJ Guidelines''),
and other characteristics of the market.
Consummation of the proposal would be consistent with
Board precedent and the DOJ Guidelines in both of these
banking markets. After consummation, the Miami-Fort
Lauderdale and West Palm Beach Area banking markets
would remain moderately concentrated as measured by the
HHI. In both markets, the increases in concentration would
be small and numerous competitors would remain.
The Department of Justice also has reviewed the anticipated competitive effects of the proposal and advised the
Board that consummation of the proposal would not likely
have a significant adverse effect on competition in any
relevant banking market. In addition, the appropriate banking agencies were afforded an opportunity to comment and
have not objected to 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 either of the two banking markets in
which BancGroup and Union Bank directly compete or in
any other relevant banking market. Accordingly, based on
all the facts of record, the Board has determined that
competitive considerations are consistent with approval.
Financial and Managerial Resources and
Future Prospects

The Board is also required under section 3(c) of the BHC
Act to consider the financial and managerial resources and
future prospects of the companies and banks involved in
[footnote] 4. 12 U.S.C. § 1842(d). Under section 3(d) of the BHC Act, a bank
the proposal and to consider certain other supervisory
holding company's home state is the state in which the total deposits
factors. The Board has carefully considered these factors in
of all banking subsidiaries of such company were the largest on
light of all the facts of record including, among other
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).[endoffootnote.]
things, information provided by BancGroup, confidential
[footnote] 5. For purposes of section 3(d), the Board considers a bank to reports
be
of examination and other supervisory information
located in states in which the bank is chartered or headquartered or
received from the federal and state banking supervisors of
operates a branch. See 12 U.S.C. §§ 1841(o)(4)-(7) and 1842(d)(1)(A)
the organizations involved, publicly reported and other
& (d)(2)(B).[endoffootnote.]
financial information, and public comments received on
[footnote] 6. 12 U.S.C. § 1842(d)(1)(A) & (B), 1842(d)(2)(A) & (B). BancGroup is well capitalized and well managed, as defined by applicable
the proposal.
law. Union Bank has been in existence and operated for the minimum
In evaluating financial factors in expansion proposals
period of time required by Florida law. On consummation of the
by banking organizations, the Board reviews the finanproposal, BancGroup would control less than 10 percent of the total
amount of deposits of insured depository institutions in the United
States and less than 30 percent of the total amount deposits of insured
depository institutions in Florida. See Fla. Stat. Ch. 658.295(8)(b)
(2004). All other requirements under section 3(d) of the BHC Act
would be met on consummation of the proposal.[endoffootnote.]

Thus, the Board regularly has included thrift deposits in the market
share calculation on a 50 percent weighted basis. See, e.g., First
Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).[endoffootnote.]

[footnote] 7. 12 U.S.C. § 1842(c)(1).[endoffootnote.]
[footnote] 10. Under the DOJ Guidelines, a market is considered unconcen[footnote] 8. The Miami-Fort Lauderdale market is defined as Broward and
trated if the post-merger HHI is less than 1000 and moderately
Dade Counties. The West Palm Beach Area market is defined as Palm
concentrated if the post-merger HHI is between 1000 and 1800. The
Beach County east of the town of Loxahatchee and the towns of
Department of Justice has informed the Board that a bank merger or
Indiantown and Hobe Sound in Martin County.[endoffootnote.]
acquisition generally will not be challenged (in the absence of other
factors indicating anticompetitive effects) unless the post-merger HHI
[footnote] 9. Deposit and market share data are as of June 30, 2004, adjusted
is at least 1800 and the merger increases the HHI by more than
to reflect subsequent mergers and acquisitions through December 1,
200 points. The Department of Justice has stated that the higher than
2004, and are based on calculations in which the deposits of thrift
normal HHI thresholds for screening bank mergers for anticompetiinstitutions are included at 50 percent. The Board previously has
tive effects implicitly recognize the competitive effects of limitedindicated that thrift institutions have become, or have the potential
purpose lenders and other nondepository financial institutions.[endoffootnote.]
to become, significant competitors of commercial banks. See, e.g.,
Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989);
[footnote] 11. The effects of the proposal on the concentration of banking
National City Corporation, 70 Federal Reserve Bulletin 743 (1984).
resources in these banking markets are described in the Appendix.[endoffootnote.]

cial condition of the organizations involved on both a
parent-only and consolidated basis, as well as the financial
condition of the subsidiary banks and significant nonbanking operations. In this evaluation, the Board considers a
variety of areas, 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
effect of the transaction on the financial condition of the
applicant and the target, including their capital positions,
asset quality, and earnings prospects and the impact of the
proposed funding of the transaction.
Based on its review of these factors, the Board finds that
BancGroup has sufficient financial resources to effect the
proposal. BancGroup and its subsidiary bank are well
capitalized and would remain so on consummation of this
proposal. BancGroup will acquire all the shares of Union
Bank from UB Financial Corporation, Sunrise, Florida, the
parent company of Union Bank. The transaction will be
funded through a combination of BancGroup common
stock and cash raised by BancGroup through a stock
issuance.
The Board also has evaluated the managerial resources
of the organizations involved, including the proposed combined organization. The Board has reviewed the examination records of BancGroup, Colonial Bank, and Union
Bank, including assessments of their management, risk
management systems, and operations. In addition, the
Board has considered its supervisory experience and that
of the other relevant banking supervisory agencies with the
organizations and their records of compliance with applicable banking law. BancGroup, Colonial Bank, and Union
Bank are considered well managed. The Board also has
considered BancGroup's plans to integrate Union Bank
and the proposed management, including the risk management systems, of the resulting organization.
Based on all the facts of record, the Board has concluded
that the financial and managerial resources and future
prospects of the organizations and the other supervisory
factors involved are consistent with approval of the
proposal.
Convenience and Needs Considerations
In acting on this proposal, the Board is required to 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 insured depository institutions under
the Community Reinvestment Act (''CRA''). The CRA
requires the federal financial supervisory agencies to
encourage financial institutions to help meet the credit
needs of 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

[footnote] 12. 12 U.S.C. § 2901 etseq.[endoffootnote.]

moderate-income (''LMI'') neighborhoods, in evaluating
bank expansionary proposals. The Board has considered
carefully the convenience and needs factor and the CRA
performance records of Colonial Bank and Union Bank in
light of all the facts of record.
A. CRA Performance Evaluations
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 performance under the CRA by its appropriate federal
supervisor.
BancGroup's subsidiary depository institution, Colonial
Bank, received a ''satisfactory'' rating at its most recent
CRA performance evaluation, as of February 25, 2002,
by the Federal Reserve Bank of Atlanta. Union Bank
received a ''satisfactory'' rating at its most recent CRA
performance evaluation by the Federal Deposit Insurance
Corporation, as of December 2, 2002.
BancGroup has indicated that it would continue Colonial
Bank's CRA-related loan, investment, grant, and service
programs and fair lending policies at the combined entity
after consummation.
B. CRA Performance of Colonial Bank and
Union Bank
Colonial Bank. Colonial Bank received an overall rating
of ''high satisfactory'' under the lending test at its most
recent CRA performance evaluation. Examiners reported
that the bank's lending levels reflected good responsiveness to its assessment areas' credit needs, including a good
level of loans reportable under the Home Mortgage Disclosure Act (''HMDA'') and loans to businesses with gross
annual revenues of $1 million or less. They commended
Colonial Bank's level of HMDA-reportable and small business lending in LMI census tracts and the bank's use of
innovative and flexible loan programs in serving its assessment areas' credit needs, including several affordable housing loan programs. The evaluation also found that Colonial
Bank made a relatively high level of community development loans, totaling $38.2 million, in its assessment areas
during the evaluation period. Colonial Bank represented

[footnote] 13. See Interagency Questions and Answers Regarding
Community
Reinvestment, 66 Federal Register 36,620 and 36,639 (2001).[endoffootnote.]
[footnote] 14. At that time, Colonial Bank was a state-chartered member bank
of the Federal Reserve System. Colonial Bank converted to a national
bank charter in 2003.[endoffootnote.]

[footnote] 15. 12 U.S.C. §2801 etseq.[endoffootnote.]
[footnote] 16. The evaluation period was from January 1, 2000, to December 31, 2001.[endoffootnote.]

that since the examination, it has originated approximately
$263 million in qualified community development loans in
its assessment areas.
Colonial Bank also received overall ratings of ''high
satisfactory'' under the investment and service tests. Examiners reported that the bank made a significant level of
qualified community development investments and grants,
and found that Colonial Bank's systems for delivering
retail banking services were accessible essentially to all
segments of the bank's assessment areas. Examiners also
found that the bank provided a relatively high level of
community development services throughout its assessment areas and specifically noted that these services were
highly responsive to affordable housing needs.
Union Bank. As previously noted, Union Bank received
a ''satisfactory'' rating at its most recent CRA performance
evaluation. Examiners found that Union Bank's overall
lending activity demonstrated an adequate responsiveness
to the credit needs of its assessment areas, and that the
geographic distribution of the bank's loans and its community development lending activity were also adequate.
They reported that the bank's level of qualified community
development investments within its assessment areas was
very good. Examiners also favorably noted that Union
Bank's retail banking delivery systems were reasonably accessible to essentially all portions of its assessment
areas.
C. HMDA and Fair Lending Record
The Board's review of the record in this case included
a review of HMDA data reported by Colonial Bank.
Although the HMDA data may reflect certain disparities in
the rates of loan applications, originations, and denials
among members of different racial groups in certain local
areas, the HMDA data generally do not indicate that
Colonial Bank is excluding any racial group or geographic
area on a prohibited basis.
Because of the limitations of HMDA data, the Board has
considered these data carefully in light of other information, including examination reports that provide an on-site
evaluation of compliance by Colonial Bank with fair lending laws and the CRA performance records of Colonial
Bank and Union Bank that are detailed above. Importantly,
examiners noted no fair lending issues or concerns in the
performance evaluations of Colonial Bank or Union Bank.
These established efforts demonstrate that, on balance, the
records of performance of Colonial Bank and Union Bank

in meeting the convenience and needs of their communities
are consistent with approval of this proposal. The record in
this case also reflects an opportunity for Colonial Bank to
improve its mortgage lending to African-American borrowers in its communities. Colonial Bank has recognized
the need to improve its lending in this regard and is in the
process of establishing objectives and strategies for
improved performance, particularly for lending to minorities and in predominantly minority census tracts. The
Board expects that Colonial Bank will continue to take
steps to improve its mortgage lending performance to
African-American borrowers.

D. Conclusion on Convenience and Needs and
CRA Performance
The Board has carefully considered all the facts of record,
including reports of examination of the CRA performance
records of the institutions involved, information provided
by BancGroup, and confidential supervisory information.
The Board notes that the proposal would provide the
combined entity's customers with access to a broader array
of products and services in expanded service areas, including access to expanded branch and automated teller machine networks. 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 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 BHC Act. The Board' s
approval is specifically conditioned on compliance by
BancGroup with the condition imposed in this order and
the commitments made to the Board in connection with the
application. For purposes of this transaction, the condition
and these 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 fifteenth 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 Atlanta,
acting pursuant to delegated authority.
2001, to OctoBy order of the Board of Governors, effective Janudata alone proary 25, 2005.

[footnote] 17. The evaluation period was from January 1,
ber 31, 2002.[endoffootnote.]
[footnote] 18. The Board recognizes, however, that HMDA
vide an incomplete measure of an institution' s lending in its community because these data cover only a few categories of housing-related
lending and provide only limited information about the covered loans.
HMDA data, therefore, have limitations that make them an inadequate
basis, absent other information, for concluding that an institution has
not assisted adequately in meeting its community's credit needs or has
engaged in illegal lending discrimination.[endoffootnote.]

Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Gramlich, Bies, Olson, Bernanke, and Kohn.
ROBERT DEV. FRIERSON

Deputy Secretary of the Board

Appendix
Banking Market Data
Miami-Fort Lauderdale, Florida
BancGroup is the 11th largest depository institution in the
Miami-Fort Lauderdale market, controlling $1.5 billion in
deposits, which represents approximately 1.8 percent of
market deposits. Union Bank is the 21st largest depository
institution in the market, controlling $627.1 million in
deposits, which represents less than 1 percent of market
deposits. On consummation of the proposal, BancGroup
would be the ninth largest depository institution in the
Miami-Fort Lauderdale market, controlling approximately
$2.1 billion in deposits, which would represent approximately 2.5 percent of market deposits. The HHI for the
Miami-Fort Lauderdale market would increase 2 points to
1029, and 99 other bank and thrift competitors would
remain in the market.
West Palm Beach Area, Florida
BancGroup is the 11th largest depository institution in the
West Palm Beach Area market, controlling $452.0 million
in deposits, which represents approximately 1.8 percent of
market deposits. Union Bank is the 36th largest depository
institution in the market, controlling $59.6 million in
deposits, which represents less than 1 percent of market
deposits. On consummation of the proposal, BancGroup
would be the ninth largest depository institution in the
West Palm Beach Area market, controlling approximately
$511.6 million in deposits, which would represent approximately 2.1 percent of market deposits. The HHI for the
West Palm Beach Area market would increase 1 point to
1422, and 59 other bank and thrift competitors would
remain in the market.
Synovus Financial Corp.
Columbus, Georgia
Order Approving the Acquisition of a Bank
Synovus Financial Corp. (''Synovus''), 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 Act to acquire all the
voting shares of Cohutta Banking Company of Tennessee,
Chattanooga, Tennessee (''CBCT''), a de novo state chartered bank. After consummation of the proposal, Synovus
will operate CBCT as a separate subsidiary bank.

Notice of the proposal, affording interested persons an
opportunity to submit comments, has been published
(69 Federal Register 59,229 (2004)). 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.
Synovus, with total consolidated assets of $23.6 billion,
is the 47th largest depository organization in the United
States, controlling $17.5 billion of deposits, which represents less than 1 percent of the total deposits in insured
depository institutions in the United States. In Tennessee,
Synovus is the 16th largest depository organization, and
its subsidiary depository institutions have approximately
$1.1 billion in combined assets and $720.3 million in
combined deposits. Synovus operates 40 subsidiary insured
depository institutions in Alabama, Florida, Georgia, South
Carolina, and Tennessee, as well as a nondepository trust
company in Georgia.
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
Synovus is Georgia, and CBCT is located in Tennessee.
Based on a review of all the facts of record, including
relevant state statutes, the Board finds that all conditions
for an interstate acquisition enumerated in section 3(d) are
met in this case. In light of all the facts of record, the
Board is permitted to approve the proposal under section 3(d) of the BHC Act.

Deposit Insurance Corporation (''FDIC'') granted CBCT deposit
insurance on October 22. Synovus also has filed applications to
acquire CBCT that must be approved by the FDIC, TDFI, and the
Georgia Department of Banking and Finance.[endoffootnote.]
[footnote] 3. Asset, deposit, nationwide, and statewide ranking data are as of
June 30, 2004. In this context, depository institutions include commercial banks, savings banks, and savings associations.[endoffootnote.]
[footnote] 4. See 12 U.S.C. § 1842(d). 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 in July 1, 1966, or the date on which
the company became a bank holding company, whichever is later.[endoffootnote.]
[footnote] 5. For purposes of section 3(d), the Board considers a bank to be
located in states in which the bank is chartered or headquartered or
operates a branch. See 12 U.S.C. §§ 1841(o)(4)-(7) and 1842(d)(1)(A)
and (d)(2)(B).[endoffootnote.]

[footnote] 6. See 12 U.S.C. §§ 1842(d)(1)(A)-(B) and 1842(d)(2)(A)-(B).
Synovus is adequately capitalized and adequately managed, as defined
by applicable law. Although Tennessee law generally prohibits the
acquisition of a bank that has been in operation less than five years,
the state's provisions on branch banking provide an exception to this
prohibition for transactions structured like Synovus' s proposal. See
TENN. CODE ANN. §§ 45-2-1403 and 45-2-614(c) (2000). On consummation of the proposal, Synovus and its affiliates would control
[footnote] 1. 12 U.S.C. § 1842.[endoffootnote.]
less than 10 percent of the total amount of deposits in insured
[footnote] 2. Under Tennessee branching law, one of Synovus's Tennesseedepository institutions in the United States and less than 30 percent of
chartered subsidiary banks established a phantom branch in Chattathe total amount of deposits of insured depository institutions in
nooga, and the organizers and proposed management of CBCT filed
Tennessee. See TENN. CODE ANN. § 45-2-1404. All other requirean application to charter the branch as a de novo institution (CBCT).
ments under section 3(d) of the BHC Act also would be met on
The Tennessee Department of Financial Institutions ( ' ' T D F I ' ' )
consummation of the proposal.[endoffootnote.]
approved CBCT's charter on October 20, 2004, and the Federal

Competitive Considerations
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. The BHC Act also prohibits the Board
from approving a bank acquisition that would substantially
lessen competition in any relevant banking market, unless
the Board finds that the anticompetitive effects 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.
The proposal involves the formation and acquisition of a
de novo bank in the Chattanooga Area banking market,
which would expand Synovus's operations in the market
and increase its ability to offer products and services to
customers in that market. The Board previously has noted
that the establishment of a de novo bank enhances competition in the relevant banking market and is a positive
consideration in an application under section 3 of the BHC
Act. There is no evidence that the proposal would create
or further a monopoly or lessen competition in any relevant
market. Accordingly, the Board concludes, based on all the
facts of record, that consummation of the proposal would
not result in any significantly adverse effects 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

Section 3 of the BHC Act requires 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. The Board has considered carefully these factors in light of all the facts of
record, including confidential reports of examination, other
confidential supervisory information from the primary federal supervisors of the organizations involved in the proposal and certain other agencies, publicly reported information and other financial information, information provided
by Synovus, and public comment on the proposal.

In evaluating thefinancialfactors in expansion proposals
by banking organizations, the Board reviews the financial
condition of the organizations involved on both a parentonly and consolidated basis and the financial condition of
the subsidiary banks and significant nonbanking operations. In this evaluation, the Board considers a variety of
areas, 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 on consummation,
including its capital position, asset quality, earnings prospects, and the impact of the proposed funding of the
transaction.
Based on its review of these factors, the Board finds that
Synovus has sufficient financial resources to effect the
proposal. Synovus will use existing cash resources to purchase CBCT's shares and capitalize the bank. Synovus is
well capitalized and will remain so on consummation of
the proposal, and CBCT will be well capitalized.
The Board has considered the managerial resources of
Synovus in light of its supervisory experiences and those
of the other relevant federal and state banking supervisors
with the organization and its subsidiary banks and their
records of compliance with applicable banking laws.
The Board has reviewed the examination records of
the Synovus organization, including assessments of its
management, risk management systems, and operations.
Synovus and its subsidiary depository institutions are considered well managed. The Board also has reviewed the
proposed management, risk management systems, and
operations of CBCT and consulted with the FDIC and
TDFI.
Based on all the facts of record, the Board has concluded
that considerations relating to the financial and managerial
resources and future prospects of Synovus and CBCT are
consistent with approval, as are the other supervisory factors under section 3 of the BHC Act.
Convenience and Needs Considerations

In acting on this proposal, 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
[footnote] 7. 12 U.S.C. § 1842(c)(1).[endoffootnote.]
of the relevant insured depository institutions under the
[footnote] 8. The Chattanooga Area banking market is defined as Hamilton
Community Reinvestment Act (''CRA''). The CRA
and Marion Counties, excluding the portion of the town of Monteagle
requires the federal financial supervisory agencies to
that is outside Marion County, all in Tennessee; and Catoosa, Dade,
encourage financial institutions to help meet the credit
and Walker Counties in Georgia.[endoffootnote.]
needs of the local communities in which they operate,
[footnote] 9. Synovus, through The Cohutta Banking Company, Chatsworth,
Georgia, has two branches in the Chattanooga Area banking market
consistent with their safe and sound operation, and requires
with $60.4 million in total deposits. Synovus ranks 17th in the market
the appropriate federalfinancialsupervisory agency to take
with less than 1 percent of the total deposits in depository institutions
into account a depository institution's record of meeting
in the market.[endoffootnote.]
[footnote] 10. See Canadian Imperial Bank of Commerce, 85 Federal Reserve
Bulletin 733 (1999); Wilson Bank Holding Company, 82 Federal
Reserve Bulletin 568 (1996).[endoffootnote.]
[footnote]
11. A commenter expressed concern
rizeover
discounted
press reports
postal about
rates an
subject to certain mailing list requireinvestigation of Synovus's credit-card processing company subsidiary
ments. This matter is not within the Board's jurisdiction to adjudicate.
and one of its clients for possible violations of federal law in connecThe Board has consulted with the USPS and the Department of Justice
tion with mailings on behalf of that client. The investigation concerns
about the matter.[endoffootnote.]
compliance with U.S. Postal Service (''USPS'') regulations that autho[footnote] 12. 12 U.S.C. §2901 etseq.; 12 U.S.C. § 1842(c)(2).[endoffootnote.]

the credit needs of its entire community, including lowand moderate-income (''LMI'') neighborhoods, in evaluating bank expansionary proposals.
The Board has carefully considered the convenience
and needs factor and the CRA performance records of
Synovus's subsidiary banks in light of all the facts of
record, including public comment on the proposal. A
commenter opposing the proposal alleged, based on data
reported under the Home Mortgage Disclosure Act
('' HMDA''), that Synovus Mortgage Corp., Birmingham,
Alabama (''SMC''), Synovus's indirect subsidiary mortgage lending company, engaged in disparate treatment of
African Americans in home mortgage lending in certain
markets.
As previously noted, CBCT is in formation and has not
begun operations. CBCT was required to submit a comprehensive CRA plan to the FDIC in connection with its
charter application, and the FDIC considered the CRA plan
in granting preliminary approval of the bank's state charter.
CBCT's plan indicates that the bank intends to lend to
small- and medium-sized businesses, including those in
LMI census tracts; engage in mortgage and other consumer
lending activities; and provide a variety of banking, trust,
brokerage, and insurance services. Synovus represented
that CBCT will implement Synovus's centralized CRA
policies and procedures to help ensure that the existing and
anticipated credit needs of CBCT's community are met.
The FDIC will evaluate the implementation of CBCT's
CRA plan in future CRA performance evaluations of the
bank.

insured depository institutions by the appropriate federal
supervisors. Each of Synovus's subsidiary depository
institutions received ''outstanding'' or ''satisfactory'' ratings at their most recent performance examinations. CB&T,
Synovus's lead bank, received an overall ''satisfactory''
rating at its most recent CRA performance evaluation by
the FDIC, as of January 14, 2002.
CB&T received a ''high satisfactory'' rating under the
lending, investment, and service tests. Examiners noted
that although CB&T considered itself to be primarily a
commercial lender, it offered a full range of products and
services to individuals in its assessment areas. They found
that CB&T's lending activity demonstrated a good responsiveness to community credit needs. Examiners noted that
the bank offered innovative and flexible lending programs,
including various products designed to meet the needs of
small businesses owned by minorities or women; different
loan products sponsored by the Small Business Administration; and alternative home mortgage loan products through
its affiliate, SMC, for borrowers who did not qualify for its
conventional mortgage loans.
Examiners reported that CB&T was the leading lender
in 2000, by number and dollar volume of small business
loans and small farm loans in the bank's assessment area.
CB&T originated small business loans totaling approximately $153 million and small farm loans totaling approximately $6.9 million in its assessment area. Examiners
noted the bank's geographic distribution of all its loans
reflected adequate penetration and that its distribution of
loans based on borrower income was good. More than
80 percent of its small business loan originations by number and dollar volume were to businesses with gross annual
A. CRA Performance Evaluations
revenues of $1 million or less, and more than 96 percent of
its small farm loan originations were to farms with gross
As provided in the CRA, the Board has evaluated the
annual revenues of $1 million or less. In addition, the bank
convenience and needs factor in light of examinations of
originated more than 19 percent of its home mortgage
the CRA performance records of Synovus's subsidiary
loans to LMI borrowers.
Examiners noted that CB&T's level of community
[footnote] 13. 12 U.S.C. §2801 etseq.[endoffootnote.]
development lending was adequate and reflected the bank's
[footnote] 14. SMC is a subsidiary of First Commercial Bank, also in
limited opportunities to participate in community developBirmingham and an indirect subsidiary bank of Synovus.[endoffootnote.]
ment projects in its assessment area. During the evaluation
[footnote] 15. The commenter also asserted that Synovus's lead subsidiary

bank, Columbus Bank and Trust (''CB&T''), Columbus, controls the
operations of CompuCredit Corporation (''CompuCredit''), Atlanta,
both in Georgia, a third-party organization that engages in subprime
credit-card and payday lending. CB&T and CompuCredit offer a
co-branded credit card program (''credit card affinity program'') under
a contractual arrangement. Under the contract, CB&T reviews, modifies, and approves the credit terms and underwriting criteria proposed
by CompuCredit for the credit card program and issues the credit
cards, and CompuCredit buys the credit card receivables and provides
certain marketing and other services for the issued cards. Synovus
represented that CB&T reviews the terms and underwriting criteria
proposed by CompuCredit to ensure that all aspects of the credit card
affinity program comply with applicable consumer protection laws
and regulations. Synovus also stated that a Senior Regulatory Risk
Analyst manages all aspects of the CB&T/CompuCredit relationship,
which includes reviewing policies and procedures with internal and
external counsel, reviewing customer complaints, and initiating audits.
The Board consulted with the FDIC and reviewed supervisory and
other confidential information about this credit card affinity program.
Synovus is not involved in any other business conducted by CompuCredit and does not own or control CompuCredit within the meaning
of the BHC Act.[endoffootnote.]

[footnote] 16. The Interagency Questions and Answers Regarding Community Reinvestment provides that an institution's most recent CRA
performance evaluation is an important and often controlling factor in
the consideration of an institution's CRA record because it represents
a detailed, on-site evaluation of the institution's overall record of
performance under the CRA by its appropriate federal supervisory
agency. 66 Federal Register 36,620 and 36,639 (2001).[endoffootnote.]
[footnote] 17. The evaluation period of the examination was January 1,
2001, through January 14, 2002, and included a review of HMDAreportable mortgage loans by SMC in the bank's assessment area from
January 1, 2000, through September 30, 2001. CB&T's assessment
area is the Columbus, Georgia Metropolitan Statistical Area (''Columbus MSA'').[endoffootnote.]
[footnote] 18. In this context, small business loans are loans with original
amounts of $1 million or less that are either secured by nonfarm
nonresidential properties or are classified as commercial and industrial
loans. Small farm loans are loans with original amounts of $500,000
or less that are either secured by farmland, including farm residential
improvements, or are classified as loans to finance agricultural production and other loans to farmers.[endoffootnote.]

period, CB&T extended community development loans
totaling more than $14 million.
Examiners reported that the bank's level of qualified
investments and grants was good, despite the limited
investment opportunities in its assessment area. CB&T
made 45 community development investments and grants
totaling more than $2.25 million during the evaluation
period.
In addition, examiners found that CB&T provided a
relatively high level and variety of financial and retail
services to meet the needs of its assessment area. CB&T's
community development activities included a school savings program for children from LMI families, financial
training and special financing packages for businesses
owned by women or minorities, and assistance in establishing a credit union focused on serving LMI communities.
B. HMDA and Fair Lending Records
The Board also has carefully considered the lending record
of SMC in light of the comments received on the HMDA
data. Based on 2003 HMDA data, the commenter alleged
that SMC disproportionately denied African-American
applicants for home mortgage purchase or refinance loans
in three MSAs in Alabama and Georgia.
In most of the markets reviewed, SMC's denial disparity
ratios with respect to African-American applicants for all
HMDA-reportable loans on a combined basis were either
below or slightly above the denial disparity ratios for the
aggregate of all lenders in the market (''aggregate lenders''). SMC's denial rate for African-American applicants was lower than the denial rate for the aggregate
lenders in the markets reviewed.
Although the HMDA data may reflect certain disparities
in the rates of applications, originations, or denials among
members of different racial groups in certain local areas,
the HMDA data generally do not demonstrate that SMC
excluded any racial group on a prohibited basis. The Board
nevertheless is concerned when HMDA data for an institution indicate disparities in lending and believes that all
banks 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. The Board recognizes,
however, that HMDA data alone provide an incomplete
measure of an institution's lending in its community
because these data cover only a few categories of housingrelated lending. HMDA data, moreover, provide only limited information about the covered loans. HMDA data,
therefore, have limitations that make them an inadequate
basis, absent other information, for concluding that an
institution has not assisted adequately in meeting its community's credit needs or has engaged in illegal lending
discrimination.
Because of the limitations of HMDA data, the Board has
considered these data carefully in light of other information, including information on Synovus's programs for
compliance with fair lending and other consumer protection laws. The Board also consulted with the FDIC, the
primary regulator of First Commercial Bank, SMC, and
CB&T, and considered examination reports on the compliance with fair lending laws of these and other subsidiary
depository and lending institutions of Synovus. Examiners
noted no evidence of discriminatory lending practices on a
prohibited basis in the CRA performance evaluations of
Synovus's subsidiary depository institutions.
The record also indicates that Synovus has taken steps to
ensure compliance with fair lending laws. Synovus has
a Corporate Compliance Department (''CCD''), managed
and staffed by individuals with extensive compliance experience, which develops and maintains comprehensive compliance programs for all laws and regulations applicable to
Synovus's consumer lending activities. The CCD consults
with internal and external counsel to ensure the adequacy
of these programs and requires Synovus lending personnel
to receive annual fair-lending training.
In addition, Synovus stated that the CCD reviews the
consumer lending programs of each subsidiary by examining lending overrides on a monthly basis and conducting
full-file compliance reviews on an annual basis. The CCD
also monitors the subsidiaries' compliance with the HMDA
and the CRA on a quarterly basis. Compliance officers at
each Synovus subsidiary forward complaints as appropriate to the CCD for review and action. Synovus represented
that it will implement similar compliance programs at
in the
CBCT.
Synovus's CCD performs oversight of SMC's lending
activities in a manner similar to its oversight of other
Synovus subsidiary institutions. Internal reviews by both
SMC's Quality Control Group and Synovus's CCD are
conducted at various stages of the mortgage process,

[footnote] 19. The Board analyzed the 2003 HMDA data for SMC
Columbus MSA and the Birmingham and Montgomery, Alabama
MSAs, which the commenter identified, and in the Atlanta, Georgia;
Huntsville, Alabama; and Pensacola, Florida MSAs, where SMC also
conducts much of its lending. SMC serves as the primary mortgage
lender for most of Synovus's subsidiary banks. Synovus stated that if
an applicant seeks a conventional home purchase or refinance loan,
the application, with the applicant's consent, is referred to SMC for
processing. The Board also reviewed confidential supervisory information, information provided by Synovus, and consulted with the
FDIC on SMC's HMDA-reportable lending.[endoffootnote.]
[footnote] 20. The denial disparity ratio equals the denial rate for a particular
[footnote] 23. The data, for example, do not account for the possibility that an
racial category (e.g., African-American) divided by the denial rate for
institution's outreach efforts may attract a larger proportion of marginwhites.[endoffootnote.]
ally qualified applicants than other institutions attract and do not
provide a basis for an independent assessment of whether an applicant
[footnote] 21. The lending data of the aggregate lenders represent the cumulawho was denied credit was, in fact, creditworthy. Credit history
tive lending for all financial institutions that have reported HMDA
problems and excessive debt levels relative to income (reasons most
data in a particular area.[endoffootnote.]
frequently cited for a credit denial) are not available from HMDA
[footnote] 22. The denial rate represents the percentage of a lender's HMDA
data.[endoffootnote.]
loan applications that were denied.[endoffootnote.]

including the underwriting, prefunding, and postfunding
periods. Independent third-party review of SMC's lending
is conducted on a monthly basis, and Synovus conducts an
internal audit of SMC annually.
The Board also has considered the HMDA data in light
of the CRA performance records of Synovus's subsidiary
depository institutions. These records demonstrate that
Synovus is active in helping to meet the credit needs of its
entire community.
C. Conclusion on the Convenience and
Needs Factor
The Board has carefully considered all the facts of record,
including reports of examination of the CRA records of the
institutions involved, information provided by Synovus,
public comment on the proposal, and supervisory and other
confidential information. The Board notes that the proposal
would expand the availability of financial products and
services to customers by increasing the geographic scope
of Synovus's banking operations. Based on a review of the
entire record, and for reasons discussed above, the Board
concludes that considerations related to the convenience
and needs factor, including the CRA performance records
of the relevant depository institutions, are consistent with
approval.

Conclusion
Based on the foregoing and 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 Synovus with the conditions
imposed in this order, the commitments made to the Board
in connection with the application, and receipt of all other
regulatory approvals. 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 acquisition of CBCT's voting shares may not be
consummated before the fifteenth 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 Atlanta, acting pursuant to delegated
authority.
By order of the Board of Governors, effective February 23, 2005.
Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Gramlich, Bies, Olson, Bernanke, and Kohn.
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''), a financial 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 Act to acquire
51 percent of the voting shares of Banknorth Group,
Inc. (''Banknorth'') and its wholly owned subsidiary,
Banknorth, National Association (''Banknorth Bank''),
both in Portland, Maine.
Notice of the proposal, affording interested persons
an opportunity to submit comments, has been published
(69 Federal Register 68,147 (2004)). 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.
TD, with total consolidated assets of approximately
$202 billion, is the fifth largest banking organization in
Canada. TD is the 82nd largest depository organization in
the United States, controlling $8.5 billion of deposits
through its only U.S. subsidiary insured depository institution, TD Waterhouse Bank, National Association, Jersey
City, New Jersey (''TDW Bank''). TD also operates a
branch in New York City and an agency in Houston.
Banknorth, with total consolidated assets of approximately
$29 billion, is the 47th largest depository organization in
the United States, controlling deposits of $19.6 billion,
representing less than 1 percent of total deposits of insured
depository institutions in the United States On consummation of this proposal, TD would become the 29th largest
depository organization in the United States, controlling
deposits of approximately $28.1 billion, which represent
less than 1 percent of total deposits of insured depository
institutions in the United States
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 home
state of the bank holding company if certain conditions
are met.
[footnote] 1. 12 U.S.C. § 1842.[endoffootnote.]
[footnote] 2. Applicants propose to acquire the nonbanking subsidiaries of
Banknorth in accordance with section 4(k) of the BHC Act and the
post-transaction notice procedures in section 225.87 of Regulation Y.
12 U.S.C. § 1843(k); 12 CFR 225.87.[endoffootnote.]
[footnote] 3. Asset data are as of October 31, 2004, and rankings are as of
June 30, 2004. Both are based on the exchange rate then available.[endoffootnote.]
[footnote] 4. Asset data and rankings are as of June 30, 2004.[endoffootnote.]
[footnote] 5. On consummation of the proposal, Banknorth will be renamed
TD Banknorth, Inc.[endoffootnote.]
[footnote] 6. Under section 3(d) of the BHC Act, a bank holding company's
home state is the state in which the total deposits of all subsidiary
banks of the company were the largest on the later of July 1, 1966, or
the date on which the company became a bank holding company,

For purposes of the BHC Act, the home state
of TD is New York, and Banknorth Bank is located in
Connecticut, Maine, Massachusetts, New Hampshire,
New York, and Vermont.7
Based on a review of the facts of record, including a
review of relevant state statutes, the Board finds that all
conditions for an interstate acquisition enumerated in section 3(d) of the BHC Act are met in this case. 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
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 proposed bank acquisition 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 its probable effect in meeting the convenience and
needs of the community to be served.
TD and Banknorth compete directly in the Metro New
York banking market. The Board has reviewed carefully
the competitive effects of the proposal in this banking
market in light of all the facts of record. In particular, the
Board has considered the number of competitors that would
remain in the markets, the relative shares of total deposits
in depository institutions in the markets (''market deposits'') controlled by TD and Banknorth, the concentration
whichever is later. 12 U.S.C. § 1841(o)(4)(C). New York is the home
state of TD for purposes of the International Banking Act and Regulation K. 12 U.S.C. § 3103; 12 CFR 211.22.[endoffootnote.]

level of market deposits and the increase in this level as
measured by the Herfindahl-Hirschman Index (''HHI'')
under the Department of Justice Merger Guidelines (''DOJ
Guidelines''), and other characteristics of the markets.
Consummation of the proposal would be consistent with
Board precedent and the DOJ Guidelines in this banking
market. After consummation, the Metro New York banking market would remain moderately concentrated as measured by the HHI. The increase in concentration would be
small and numerous competitors would remain.
The Department of Justice also has reviewed the anticipated competitive effects of the proposal and has advised
the Board that consummation of the proposal would not
have a significantly adverse effect on competition in this
market or in any other relevant banking market. In addition, the appropriate banking agencies have been afforded
an opportunity to comment and have not objected to the
proposal.
Based on these and all other 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 banking 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 banks 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 from the various U.S. banking supervisors of the

[footnote] 7. For purposes of section 3(d), the Board considers a bank to be
located in the states in which the bank is chartered or headquartered or
operates a branch. See 12 U.S.C. §§ 1841(o)(4)-(7) and 1842(d)(1)(A)
thrift institutions are included at 50 percent. The Board previously has
and (d)(2)(B).[endoffootnote.]
indicated that thrift institutions have become, or have the potential
[footnote] 8. See 12 U.S.C. §§ 1842(d)(1)(A) & (B), 1842(d)(2)(A) & (B). toTDbecome, significant competitors of commercial banks. See, e.g.,
is well capitalized and well managed, as defined by applicable law.
Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989);
Banknorth Bank has been in existence and operated for the minimum
National City Corporation, 70 Federal Reserve Board 743 (1984).
period of time required by applicable state law. See Conn. Gen. Stats.
Thus, the Board regularly has included thrift deposits in the market
Ann. Ch. 666 § 36a-411 (five years); Mass. Gen. Laws Ann. Ch. 167A
share calculation on a 50 percent weighted basis. See, e.g., First
§ 2 (three years). On consummation of the proposal, TD would control
Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).[endoffootnote.]
less than 10 percent of the total amount of deposits of insured
[footnote] 12. Under the DOJ Guidelines, 49 Federal Register 26,823 (1984),
depository institutions in the United States and less than 30 percent,
a market is considered moderately concentrated if the post-merger
or the appropriate percentage established by applicable state law, of
HHI is between 1000 and 1800. The Department of Justice has
deposits in Connecticut, Maine, Massachusetts, and New Hampshire.
informed the Board that a bank merger or acquisition generally will
See Conn. Gen. Stats. Ann. Ch. 666 § 36a-411; Maine Rev. Stat. Ann.
not be challenged (in the absence of other factors indicating anticomTit. 9-B § 1013(3)(C); Mass. Gen. Laws Ann. Ch. 167A § 2;
petitive effects) unless the post-merger HHI is at least 1800 and the
N.H. Rev. Stat. Ann. § 384-B3. All other requirements under secmerger increases the HHI by more than 200 points. The Department
tion 3(d) of the BHC Act also would be met on consummation of the
of Justice has stated that the higher than normal HHI thresholds for
proposal.[endoffootnote.]
screening bank mergers for anticompetitive effects implicitly recognize the competitive effects of limited-purpose lenders and other
[footnote] 9. 12 U.S.C. § 1842(c)(1).[endoffootnote.]
nondepository financial institutions.[endoffootnote.]
[footnote] 10. The Metro New York banking market is defined as the counties
of Bronx, Dutchess, Kings, Nassau, New York, Orange, Putnam,
[footnote] 13. TD operates the 15th largest depository institution in the Metro
New York banking market, controlling $5.7 billion in deposits, which
Queens, Richmond, Rockland, Suffolk, Sullivan, Ulster, and
represents less than 1 percent of market deposits. Banknorth operates
Westchester in New York; the counties of Bergen, Essex, Hudson,
the 224th largest depository institution in the market, controlling
Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset,
$38.4 million in deposits. On consummation of the proposal, TD
Sussex, Union, and Warren and portions of Mercer County in New
would remain the 15th largest depository institution in the market,
Jersey; Pike County in Pennsylvania; and Fairfield County and portions of Litchfield and New Haven Counties in Connecticut.[endoffootnote.] controlling deposits of approximately of $5.7 billion. The HHI would
remain at 1017, and 257 bank and thrift competitors would remain in
[footnote] 11. Market share data are based on Summary of Deposits reports
the market.[endoffootnote.]
filed as of June 30, 2004, and on calculations in which the deposits of

institutions involved, publicly reported and other financial
information, information provided by the applicant, and
public comment on the proposal. The Board also has
consulted with the Office of the Superintendent of Financial Institutions (''OSFI''), which is responsible for the
supervision and regulation of Canadian banks.
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 subsidiary depository institutions and significant
nonbanking operations. In this evaluation, the Board considers a variety of areas, 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
on consummation, including its capital position, asset quality, and earnings prospects, and the impact of the proposed
funding of the transaction.
Based on its review of these factors, the Board finds that
TD has sufficient financial resources to effect the proposal.
The capital levels of TD would continue to exceed the
minimum levels that would be required under the Basel
Capital Accord and its capital levels are considered equivalent to the capital levels that would be required of a U.S.
banking organization. Furthermore, the subsidiary depository institutions of TD and Banknorth are well capitalized
and would remain so on consummation of the proposal.
The proposed transaction is structured in part as a share
purchase, and TD has indicated that it would fund the cash
portion of the consideration to be received by Banknorth
shareholders from general corporate sources.
The Board also has evaluated the managerial resources
of the organizations involved, including the proposed combined organization. The Board has reviewed the examination records of TD's U.S. operations, Banknorth, and
Banknorth Bank, including assessments of their management, risk management systems, and operations. In addition,
the Board has considered its supervisory experience and that
of the other relevant banking supervisory agencies with the
organizations and their records of compliance with applicable banking laws. TD, Banknorth, and their U.S. subsidiary
banks are considered well managed. The Board also has
considered TD's plans to consummate the proposal.

[footnote] 14. A commenter expressed concerns about:
(1) the amount of consideration Banknorth shareholders might
receive in the future if TD seeks to acquire the remaining
Banknorth shares;
(2) projects financed by TD in North and South America that the
commenter asserted are having negative environmental consequences; and
(3) press reports about a dispute in Canada between TD and one
of its retail customers.
These matters are not within the Board's jurisdiction to adjudicate or
within the limited statutory factors that the Board is authorized to
consider when reviewing an application under the BHC Act. See, e.g.,
Western Bancshares, Inc. v. Board of Governors, 480 F.2d 749 (10th
Cir. 1973).[endoffootnote.]

Based on these and all other facts of record, the Board
concludes that the financial and managerial resources and
future prospects of the organizations involved in the proposal are consistent with approval.
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 The home country supervisor of TD is the OSFI.
In approving applications under the BHC Act and the
International Banking Act (''IBA''), the Board previously

has determined that various Canadian banks, including TD,
were subject to home country supervision on a consolidated basis by the OSFI. In this case, the Board has
determined that the OSFI continues to supervise TD in
substantially the same manner as it supervised Canadian
banks at the time of those determinations. 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.
In addition, section 3 of the BHC Act 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. The Board has
reviewed the restrictions on disclosure in relevant jurisdictions in which TD operates and has communicated with
relevant government authorities concerning access to information. In addition, TD previously has committed to make
available to the Board such information on the operations
of it and its affiliates that the Board deems necessary to

[footnote] 15. A commenter expressed concern about a press report of anomalies with respect to trading of Banknorth shares before the proposal
was publicly announced. The Securities and Exchange Commission
(''SEC''), and self-regulatory organizations (''SROs'') acting under
authority delegated by the SEC, have the authority to investigate
trading activity and to take action if there are violations of the federal
securities laws or SRO rules. The commenter also expressed concern
about allegations that TD assisted Enron in preparing false financial
statements. The SEC has the authority to investigate and adjudicate if
any violations of federal securities laws have occurred. The Board has
consulted with the SEC and the relevant SRO about these matters.[endoffootnote.]
[footnote] 16. 12 U.S.C. § 1842(c)(3)(B). Under Regulation Y, the Board uses
the standards enumerated in Regulation K to determine whether a
foreign bank is subject to consolidated home country supervision. 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 supervisor
receives sufficient information on the worldwide operations of the
bank, including its relationship to any affiliates, to assess the bank's
overall financial condition and its compliance with laws and regulations. See 12 CFR 211.24(c)(1).[endoffootnote.]

[footnote] 17. 12 U.S.C. §3101 etseq.[endoffootnote.]
[footnote] 18. See, e.g., The Toronto-Dominion Bank, 82 Federal Reserve
Bulletin 1052 (1996); see also Royal Bank of Canada, 89 Federal
Reserve Bulletin 139 (2003); Canadian Imperial Bank of Commerce,
87 Federal Reserve Bulletin 678 (2001).[endoffootnote.]
[footnote] 19. See 12 U.S.C. § 1842(c)(3)(A).[endoffootnote.]

determine and enforce compliance with the BHC Act, the
IBA, 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 TD
and its affiliates to make such information available to the
Board. In light of these commitments, the Board concludes
that TD has provided adequate assurances of access to any
appropriate information the Board may request. Based on
these and all other facts of record, the Board has concluded
that the supervisory factors it is required to consider are
consistent with approval.
Convenience and Needs Considerations
In acting on this proposal, the Board is required to 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 insured depository institutions under
the Community Reinvestment Act (''CRA''). The CRA
requires the federal financial supervisory agencies to
encourage financial institutions to help meet the credit
needs of 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.
The Board has considered carefully the convenience and
needs factor and the CRA performance records of TD' s
subsidiary insured depository institutions and Banknorth
Bank in light of all the facts of record, including public comment on the proposal. Two commenters opposed
the proposal and alleged, based on data reported under
the Home Mortgage Disclosure Act (''HMDA''), that
Banknorth Bank provided a low level of home mortgage
lending to LMI borrowers or in LMI communities and
engaged in disparate treatment of minority individuals in
home mortgage lending in the banks' assessment areas.

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
performance under the CRA by its appropriate federal
supervisor.
TDW Bank received a ''satisfactory'' rating at its most
recent CRA performance evaluation by the Office of the
Comptroller of the Currency (''OCC''), as of March 10,
2003. Banknorth Bank was formed on January 1, 2002,
by the consolidation of nine subsidiary banks of Banknorth
(the ''Consolidation''), all of which had ''satisfactory'' or
''outstanding'' CRA performance ratings at that time.
Peoples Heritage Bank, NA, Portland, Maine (''Peoples
Heritage''), the surviving bank of the Consolidation,
received an ''outstanding'' CRA performance rating by
the OCC as of July 2001, and First Massachusetts Bank,
N.A., Worcester, Massachusetts (''First Massachusetts''),
Banknorth's largest subsidiary bank immediately before
the Consolidation, received a ''satisfactory'' CRA performance rating by the OCC as of April 2001. TD has
indicated that Banknorth's management team would
remain intact after consummation of the proposal and that
no new products or services are expected to be offered by
Banknorth Bank as a result of the proposal.

B. CRA Performance of TDW Bank
As noted, TDW Bank received a ''satisfactory'' rating in
its March 2003 evaluation.
business practices of these firms, nor does the bank or any of its
affiliates purchase any loans originated by thesefirms.[endoffootnote.]

[footnote] 23. See Interagency Questions and Answers Regarding
Community
Reinvestment, 66 Federal Register 36,620 and 36,639 (2001).[endoffootnote.]
[footnote] 24. TD dissolved its other U.S. subsidiary insured depository institution, TD Bank USA, FSB, Jersey City, New Jersey (''FSB''), as of
December 31, 2004. When dissolved, FSB was rated ''satisfactory''
for CRA performance by the Office of Thrift Supervision in its most
recent examination as of October 1999.[endoffootnote.]
[footnote] 25. The banks that were parties to the Consolidation and their CRA
A. CRA Performance Evaluations
ratings at that time are listed in Appendix A. Banknorth Investment
Management Group, N.A., Burlington, Vermont, a nondeposit trust
As provided in the CRA, the Board has evaluated the
company, was also part of the Consolidation. Since the Consolidation,
convenience and needs factor in light of the evaluations by
Banknorth has acquired eight additional banks and has merged them
into Banknorth Bank. These banks, the date on which they were
merged into Banknorth Bank, and their CRA ratings at the time of
their mergers are listed in Appendix B. In addition, Banknorth Bank's
[footnote] 20. 12 U.S.C. § 1842(c)(2); 12 U.S.C. §2901 etseq.[endoffootnote.]
acquisition of a savings association has been approved by the OCC,
[footnote] 21. 12 U.S.C. §2801 etseq.[endoffootnote.]
but the acquisition has not been consummated.[endoffootnote.]
[footnote] 22. One commenter also expressed concern about Banknorth
Bank's relationships with unaffiliated retail check cashers, pawn
[footnote] 26. On consummation of the Consolidation, Peoples Heritage
shops, and other unaffiliated nontraditional providers of financial
changed its name to Banknorth, National Association.[endoffootnote.]
services. TD has indicated that Banknorth had reviewed its relation[footnote] 27. TDW Bank has elected to be evaluated for CRA performance
ships with these types of businesses and has opted to continue relationunder the strategic plan alternative. Under this alternative, the bank
ships with those firms willing to meet certain conditions. These
submits a plan, subject to the OCC's approval, specifying measurable
conditions include provisions in each loan agreement with Banknorth
goals for meeting the lending, investment, and service needs of the
Bank of representations and warranties that the firm will comply with
bank's assessment area, and the OCC evaluates the bank on its
all applicable laws, including any applicable fair lending and confulfillment of the goals in the approved plan. See 12 CFR 25.27. The
sumer protections laws, and follow the bank's program requirements
March 2003 evaluation covered the evaluation period beginning Januto ensure compliance with anti-money-laundering laws and regulaary 1, 2000, through December 31, 2003, and reviewed the bank's
tions. TD has represented that neither Banknorth Bank nor any of its
CRA performance under strategic plans approved by the OCC in
affiliates play any role in the lending practices, credit review, or other
March 1998 (with respect to the year 2000) and November 2000 (with

Examiners reported that the
bank originated or purchased almost $16.8 million in community development loans during the evaluation period
and had met its annual goals for community development
lending each year. These loans funded affordable housing
for LMI individuals in the bank's assessment areas.
The bank's community development investments totaled
almost $77 million at the end of the evaluation period and
included investments in community development financial
institutions, low-income housing tax credit projects, and
affordable housing bonds issued by the New Jersey and
New York state housing authorities. The bank met its goals
for community development investments in 2000 and 2002
and substantially met its goal for 2001. Examiners also
reported that TDW Bank made $1.04 million in qualified
community development grants during the evaluation
period and met its annual grants goals in each of the three
years. The bank also met its goals for each year in the
evaluation period for membership in community development organizations, including organizations involved in
providing affordable LMI housing and supporting community development corporations.
C. CRA Performance of Banknorth Bank
1. Peoples Heritage. As noted, Peoples Heritage received
an overall ''outstanding'' rating in its July 2001 evaluation. The bank received a rating of ''outstanding'' under
the lending test in this evaluation. Examiners reported that
the bank's overall distribution of home mortgage loans to
LMI geographies and borrowers was excellent during the
evaluation period. Examiners also noted that Peoples Heritage participated in mortgage programs sponsored by the
State of Maine that offer flexible underwriting and documentation standards, below-market interest rates, and low
down payments.
Examiners stated that Peoples Heritage's record of making small loans to businesses in LMI census tracts was
excellent. The bank also made more than $16 million in
community development loans during the evaluation
period, including $11 million in loans to create more than
160 units of housing for LMI individuals and families.
Peoples Heritage received ratings of ''high satisfactory''
and ''outstanding'' on the investment and service tests
respectively, in the July 2001 evaluation. During the evaluation period, Peoples Heritage made 80 qualified investments totaling $3.6 million, a level examiners described as
good. Examiners noted that the percentage of the bank's
branches in LMI census tracts generally equaled or
exceeded the percentage of the population living in LMI

census tracts in the bank's assessment areas. They also
reported that Peoples Heritage provided an excellent level
of community development services.
2. First Massachusetts. As noted, First Massachusetts
received an overall ''satisfactory'' rating in its April 2001
CRA evaluation. The bank received a rating of ''high
satisfactory'' under the lending test in this evaluation.
Examiners stated that the bank's distribution of home
mortgage loans to LMI geographies and borrowers was
adequate or better in each of the bank's assessment areas.
They also noted that the bank participated in a number of
state and federal affordable housing programs with flexible
underwriting criteria and other features designed to promote homeownership among LMI individuals.
Examiners reported that First Massachusetts's record of
making small loans to businesses in LMI census tracts was
adequate or better in each of the bank's assessment areas.
The bank also made more than $23 million in community
development loans during the period covered by the April
2001 evaluation, including two loans to the Massachusetts
Housing Partnership Fund, which promotes affordable
housing and neighborhood development throughout
Massachusetts.
First Massachusetts received ratings of ''low satisfactory'' and ''high satisfactory'' on the investment and the
services tests, respectively, in the April 2001 evaluation.
During the evaluation period, the bank made almost
$11.3 million in qualified investments, a level examiners
described as adequate. Examiners characterized the bank's
distribution of branches as good or excellent in its assessment areas and stated that it provided an adequate level of
community development services.
3. Recent CRA Activities of Banknorth Bank. During 2002
and 2003, Banknorth Bank originated or purchased more
than 16,900 HMDA-reportable loans totaling approximately $2.2 billion in Maine, Massachusetts, New Hampshire, and Vermont In each of these states, Banknorth
Bank made higher percentages of its HMDA-reportable
loans to LMI borrowers and in LMI census tracts than did
lenders in the aggregate (''aggregate lenders'') in 2002 and
2003.
To assist first-time and LMI homebuyers, Banknorth
Bank also offers loans insured by the Federal Housing
Authority and loans guaranteed by the Department of
Veteran Affairs and participates in state housing finance
agency programs that offer below-market interest rates and
lower down-payment requirements. In 2002 and 2003, the

respect to the years 2 0 0 1 and 2002). In F e b r u a r y 2004, the O C C
a p p r o v e d t h e b a n k ' s s t r a t e g i c p l a n f o r t h e y e a r s 2 0 0 4 t h r o u g h 2 0 0 6 .[endoffootnote.]
[footnote] 30. The evaluation period was from July 1, 1997, through Decem-

ber 31, 2000, except for community development loans, which were
[footnote] 28. The evaluation period was from July 1, 1998, through Decemevaluated for the period beginning August 1, 1997, through April 20,
ber 31, 2000, except for community development loans, which were
2001.[endoffootnote.]
evaluated for the period beginning September 1, 1998, through July 9,
2001.[endoffootnote.]
[footnote] 31. Together, these four states accounted for more than 81 percent
of Banknorth Bank's deposit base, as of June 30, 2004.[endoffootnote.]
[footnote] 29. In this context, ''small loans to businesses" refers to loans with
[footnote] 32. The lending data of the aggregate lenders represent the cumulaoriginal amounts of $1 million or less that are either secured by
tive lending for all financial institutions that have reported HMDA
nonfarm or residential real estate or are classified as commercial and
data in a given market.[endoffootnote.]
industrial loans.[endoffootnote.]

bank originated more than 1,700 loans totaling more than
$150 million through these programs.
In 2002 and 2003, Banknorth Bank's percentages of
small business loans in LMI census tracts were higher than
or comparable to the percentages for aggregate lenders in
each of the following states: Maine, Massachusetts, New
Hampshire, and Vermont. In all its assessment areas across
six states, the bank continues to participate in Small Business Administration and state programs focused on lending
to small businesses unable to secure conventional financing. From January 2001 through October 2004, the bank
made more than 1,500 of these loans totaling more than
$152 million.
During 2001 through 2003, Banknorth Bank made
227 community development loans totaling more than
$164 million. Community development lending included
loan commitments of $13.6 million to finance the construction, rehabilitation, or preservation of more than 180 units
of affordable housing in New Hampshire and a $7 million loan to a state housing fund to create and preserve
affordable housing throughout Vermont. During this same
period, the bank made loan commitments totaling almost
$3.2 million to three community mental health facilities in
Massachusetts.
Banknorth Bank's community development investments
from January 2001 through June 2004 totaled more than
$66 million. These investments included commitments of
more than $18 million to fund low-income housing tax
credit projects in Maine, Massachusetts, New Hampshire,
and New York. Banknorth Bank has indicated that its
community development donations during the same period
have totaled more than $4 million, and recipients have
included a wide range of community organizations
throughout the bank's assessment area.
D. HMDA Data and Fair Lending Record
The Board has carefully considered Banknorth Bank's
lending record in light of comments on the bank's HMDA
data. Based on 2003 HMDA data, two commenters alleged
that Banknorth Bank disproportionately excluded or denied
African-American or Hispanic applicants for home mortgage loans in various Metropolitan Statistical Areas
('' MSAs''). The Board reviewed HMDA data for 2002

and 2003 reported by the bank in the six states in its
assessment areas, in the MSAs identified by the commenter, and in certain other MSAs.
The 2002 and 2003 HMDA data reported by BankNorth
Bank indicate that its denial disparity ratios for African-

American and Hispanic applicants for total HMDAreportable loans in Maine, Massachusetts, and New Hampshire, which together accounted for 80 percent of the
bank's HMDA-reportable loans in 2002 and 2003, were
not as favorable as those ratios for the aggregate lenders in
those states. The data also indicate, however, that the
bank's percentages of its total-HMDA-reportable loans to
African Americans or Hispanics in each of these states in
2002 and 2003 were generally comparable to or more
favorable than those ratios for the aggregate lenders.
Similarly, the bank's percentages of total HMDAreportable loans to borrowers in predominantly minority
census tracts in Massachusetts during 2002 and 2003 were
more favorable than the percentages for the aggregate
lenders in those areas.
Although the HMDA data might reflect certain disparities in the rates of loan applications, originations, and
denials among members of different racial groups, these
data generally do not indicate that Banknorth Bank is
excluding any race segment of the population or geographic area on a prohibited basis. The Board nevertheless
is concerned when HMDA data for an institution indicate
disparities in lending and believes that all banks 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 income level. The Board recognizes, however, that HMDA data alone provide an incomplete measure of an institution's lending in its community
because these data cover only a few categories of housingrelated lending and provide only limited information about
covered loans. HMDA data, therefore, have limitations
that make them an inadequate basis, absent other information, for concluding that an institution has not assisted
adequately in meeting its community's credit needs or has
engaged in illegal lending discrimination.
Because of the limitations of HMDA data, the Board has
considered these data carefully in light of other information, including examination reports that provide an on-site
evaluation of compliance with fair lending laws by the
subsidiary banks of TD and Banknorth. Examiners noted
no fair lending law issues or concerns in the March 2003
TDW Bank evaluation or in any of the most recent CRA
evaluations of the banks that have been merged into
Banknorth Bank. The Board also consulted with the OCC,
which has responsibility for enforcing compliance with fair

[footnote] 36. The percentage of the bank's loans to Hispanics in New Hampshire in 2002 and 2003 were modestly less favorable than those ratios
for lenders in the aggregate.[endoffootnote.]
[footnote] 33. Specifically, the commenter cited HMDA data on Banknorth
[footnote] 37. For purposes of this HMDA analysis, a predominantly minority
Bank's lending to African Americans or Hispanics in the Hartford and
census tract means a census tract with a minority population of
New Haven MSAs in Connecticut, in the Lowell and Springfield
80 percent or more.[endoffootnote.]
MSAs in Massachusetts, in the Boston MSA in Massachusetts and
[footnote] 38. The data, for example, do not account for the possibility that an
New Hampshire, and in the Albany MSA in New York.[endoffootnote.]
institution's outreach efforts may attract a larger proportion of margin[footnote] 34. The Board also reviewed HMDA data for the Portland, Maine,
ally qualified applicants than other institutions attract and do not
MSA, which is Banknorth Bank's home market, and the Glens Falls
provide a basis for an independent assessment of whether an applicant
MSA in New York.[endoffootnote.]
who was denied credit was, in fact, creditworthy. Credit history
problems and excessive debt levels relative to income (reasons most
[footnote] 35. The denial disparity ratio equals the denial rate of a particular
frequently cited for a credit denial) are not available from HMDA
racial category (e.g. African-American) divided by the denial rate for
data.[endoffootnote.]
whites.[endoffootnote.]

lending laws by TDW Bank and Banknorth Bank, about
this proposal and the record of performance of these banks
since their most recent CRA evaluations.
The record also indicates that Banknorth Bank has taken
steps to ensure compliance with fair lending laws and other
consumer protection laws. Among other things, the bank
has implemented an annual compliance monitoring program that includes comparative file analysis and review of
HMDA data, and it has developed a system for addressing
fair lending complaints.
The Board has also considered the HMDA data in light
of the programs described above and the overall performance records of the subsidiary banks of TDW Bank and
Banknorth Bank under the CRA. These established efforts
demonstrate that the banks are actively helping to meet the
credit needs of their entire communities.
E. Conclusion on Convenience and Needs Factor
The Board has carefully considered all the facts of record,
including reports of examination of the CRA records of the
institutions involved, information provided by the applicant, public comments on the proposal, and confidential
supervisory information. 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, including the CRA performance records
of the relevant depository institutions, are consistent with
approval.

[footnote] 39. One commenter requested that the Board condition its
of the proposal on TD's making certain community reinvestment and
other commitments. As the Board previously has explained, an applicant must demonstrate a satisfactory record of performance under the
CRA without reliance on plans or commitments for future actions.
The Board has consistently stated that neither the CRA nor the federal
banking agencies' CRA regulations require depository institutions to
make pledges or enter into commitments or agreements with any
organization. See, e.g., J.P. Morgan Chase & Co., 90 Federal Reserve
Bulletin 352 (2004); Wachovia Corporation, 91 Federal Reserve
Bulletin 77 (2005). In this case, as in past cases, the Board instead has
focused on the demonstrated CRA performance record of the applicant and the programs that the applicant has in place to serve the
credit needs of its CRA assessment areas when the Board reviews the
proposal under the convenience and needs factor. In reviewing future
applications by TD under this factor, the Board similarly will review
TD's actual CRA performance record and the programs it has in place
to meet the credit needs of its communities at that time.[endoffootnote]

Conclusion
Based on the foregoing and 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 TD with the condition imposed in this order, the commitments made to the Board in
connection with the application, and the prior commitments to the Board referenced in this order. For purposes of
this transaction, these commitments 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 fifteenth 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 January 18, 2005.
Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Gramlich, Bies, Olson, Bernanke, and Kohn.
ROBERT DEV. FRIERSON

Deputy Secretary of the Board

[footnote] 40. Two commenters also 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 timely written recommendation of denial of the application.
The Board has not received such a recommendation from the appropriapproval
ate supervisory authorities.
Under its rules, 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
225.16(e). The Board has considered carefully the commenter's
requests in light of all the facts of record. In the Board's view, the
commenters had ample opportunity to submit their views, and in fact,
the commenters have submitted written comments that the Board has
considered carefully in acting on the proposal. The commenter's
requests fail to demonstrate why the written comments do not present
their views adequately and fail 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 requests for a
public meeting or hearing on the proposal are denied.[endoffootnote.]

Appendix A
Banks Consolidated to Form Banknorth Bank on January 1, 2002
Bank

CRA Rating

Date

Supervisor

Andover Bank,
Andover, Massachusetts
Bank of New Hampshire, N.A.,
Farmington, New Hampshire
Evergreen Bank, National Association,
Glen Falls, New York
First Massachusetts Bank, N.A.,
Worcester, Massachusetts
First Vermont Bank and Trust Company,
Brattleboro, Vermont
Franklin Lamoille Bank,
St. Albans, Vermont
Gloucester Bank & Trust Company,
Gloucester, Massachusetts
The Howard Bank, N.A.,
Burlington, Vermont
Peoples Heritage Bank, N.A.,
Portland, Maine

Outstanding

October 1999

FDIC

Satisfactory

September 2000

OCC

Satisfactory

October 2000

OCC

Satisfactory

April 2001

OCC

Satisfactory

December 1997

FDIC

Outstanding

March 1999

OCC

Outstanding

July 1998

FDIC

Outstanding

December 1997

OCC

Outstanding

July 2001

OCC

Appendix B
Banks Merged Into Banknorth Bank Since January 1, 2002
Bank

Date of Acquisition

CRA Rating

Date

Supervisor

American Bank of Connecticut,
Waterbury, Connecticut
Ipswich Savings Bank,
Ipswich, Massachusetts
Southington Savings Bank,
Southington, Connecticut
Warren Five Cents Savings Bank,
Peabody, Massachusetts
American Savings Bank,
New Britain, Connecticut
First & Ocean National Bank,
Newburyport, Massachusetts
Cape Cod Bank and Trust Company,
Hyannis, Massachusetts
Foxborough Savings Bank,
Foxborough, Massachusetts
Boston Federal Savings Bank,
Burlington, Massachusetts

01/22/2002

Satisfactory

June 2001

FDIC

07/27/2002

Satisfactory

May 1999

FDIC

09/01/2002

Satisfactory

June 2000

FDIC

01/01/2003

Satisfactory

October 2001

FDIC

02/15/2003

Outstanding

January 2001

FDIC

01/01/2004

Outstanding

August 1999

OCC

05/01/2004

Satisfactory

March 2003

OCC

05/01/2004

Satisfactory

September 2002 FDIC

Acquisition pending *

Outstanding

June 2001

* The OCC approved the proposed merger on November 15, 2004.

OTS

Webster Financial Corporation
Waterbury, Connecticut
Order Approving the Acquisition of a Bank Holding
Company

would control deposits of approximately $10.7 billion,
which represent less than 1 percent of the total amount of
deposits of insured depository institutions in the United
States.
Interstate Analysis

Webster Financial Corporation (''Webster''), a financial
holding company within the meaning of the Bank Holding
Company Act (''BHC Act''), has requested the Board's
approval pursuant to section 3 of the BHC Act to acquire
Eastern Wisconsin Bancshares, Inc. (''Eastern'') and its
subsidiary bank, State Bank of Howards Grove, both in
Howards Grove, Wisconsin (''State Bank'').
Notice of the proposal, affording interested persons
an opportunity to submit comments, has been published
(69 Federal Register 63,385 (2004)). 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.
Webster, with total consolidated assets of approximately
$17.8 billion, is the 48th largest depository organization in
the United States, controlling deposits of approximately
$10.6 billion. Webster has one subsidiary depository
institution, Webster Bank, with branches in Connecticut,
Massachusetts, New York, and Rhode Island. Eastern, with
total consolidated assets of approximately $164.9 million,
is the 103rd largest depository institution in Wisconsin,
controlling deposits of $138 million, which represent less
than 1 percent of the total amount of deposits of insured
depository institutions in the state. On consummation of
the proposal, Webster would remain the 48th largest
depository organization in the United States, with total
consolidated assets of approximately $18 billion, and

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 home
state of such bank holding company if certain conditions
are met. For purposes of the BHC Act, the home state of
Webster is Connecticut, and Eastern's subsidiary bank is
located in Wisconsin
Based on a review of the facts of record, including a
review of relevant state statutes, the Board finds that all
conditions for an interstate acquisition enumerated in section 3(d) of the BHC Act are met in this case. 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

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 proposed bank acquisition that would substantially lessen competition in any
relevant banking market, unless the Board finds that 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.
Webster and Eastern do not compete directly in any
[footnote] 1. 12 U.S.C. § 1842.[endoffootnote.]
relevant
banking market. Based on all the facts of record,
[footnote] 2. Webster also has requested the Board's approval under section
3
of the BHC Act to exercise an option to purchase up to 19.9 percent of
the Board has concluded that consummation of the proEastern's common stock on the occurrence of certain circumstances.
posal would have no significant adverse effect on competiThe option would terminate on consummation of Webster's application or on the concentration of banking resources in any
tion to acquire Eastern. In addition, Webster has requested the Board's
relevant banking market and that competitive factors are
approval under section 3 of the BHC Act to purchase up to 19.9 perconsistent with approval.
cent of Eastern's common stock before consummation if the Board
approves the proposal and the purchase is necessary to maintain State
Bank as a well-capitalized institution.[endoffootnote.]
[footnote]
3. State Bank operates one full-service
branch
Howards
Grove
[footnote]
6. Ainbank
holding
company's home state is the state in which the
and a loan production office in Beaver Dam, Wisconsin. State Bank
total deposits of all subsidiary banks of the company were the largest
offers health savings accounts ( ' ' H A S ' ' ) nationwide through its divion July 1, 1966, or the date on which the company became a bank
sion, HSA Bank. HSAs, authorized by the Medicare Prescription Drug
holding company, whichever is later. 12 U.S.C. § 1841(o)(4)(C).[endoffootnote.]
Improvement and Modernization Act of 2003, are tax-exempt savings
[footnote] 7. For purposes of section 3(d), the Board considers a bank to be
accounts earmarked for medical expenses. After consummation of this
located in the states in which the bank is chartered or headquartered or
proposal, Webster proposes to merge State Bank into its subsidiary
operates a branch. 12 U.S.C. §§ 1841(o)(4)-(7) and 1842(d)(1)(A) and
bank, Webster Bank, National Association (''Webster Bank''), also in
(d)(2)(B).[endoffootnote.]
Waterbury; operate HSA Bank as a division of Webster Bank; and sell
[footnote] 8. 12 U.S.C. §§ 1842(d)(1)(A)&(B), 1842(d)(2)(A)&(B). Webster
the remaining operations of State Bank, including its two offices in
is well capitalized and well managed, as defined by applicable law.
Wisconsin. Webster has represented that it intends to operate the State
State Bank has been in existence and operated for the minimum period
B a n k o f f i c e s u n t i l W e b s t e r sells t h e m t o a n o t h e r financial i n s t i t u t i o n .[endoffootnote.]
of time required by applicable state law (five years). Wis. Stat. Ann.
§ 221.0901. On consummation of the proposal, Webster would control
[footnote] 4. Asset and national ranking data are as of September 30, 2004,
less than 10 percent of the total amount of deposits of insured
and reflect consolidations through that date.[endoffootnote.]
institutions in the United States and less than 30 percent
[footnote] 5. Deposit data are as of June 30, 2004, and reflect the total of depository
the
of the total amount of deposits of insured depository institutions in
deposits reported by each organization's insured depository instituWisconsin. Wis. Stat. Ann. § 221.0901. All other requirements under
tions in their Consolidated Reports of Condition and Income or Thrift
section 3(d) of the BHC Act also would be met on consummation of
Financial Reports for June 30, 2004. In this context, insured deposi
the proposal.[endoffootnote.]
tory institutions include commercial banks, savings banks, and savings
associations.[endoffootnote.]
[footnote] 9. 12 U.S.C. § 1842(c)(1).[endoffootnote.]

Financial, Managerial, and Supervisory Considerations
Section 3 of the BHC Act also requires the Board to
consider the financial and managerial resources and future
prospects of 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 reports
of examination, other confidential supervisory information
from the federal and state banking supervisors of the
organizations involved, publicly reported and other financial information, public comments received on the proposal, and information provided by Webster.
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 areas, 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
on consummation, including its capital position, asset quality, and earnings prospects, and the impact of the proposed
funding of the transaction.
Based on its review of these factors, the Board finds
Webster to have sufficient financial resources to effect the
proposal. Webster and Webster Bank currently are well
capitalized and would remain so on consummation of the
proposal. The proposed transaction is structured primarily
as a cash transaction funded from Webster's existing
resources.
The Board also has considered the managerial resources
of the organizations involved, including the proposed combined organization. The Board has reviewed the examination records of Webster, Eastern, 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 banking agencies with
the organizations and their records of compliance with
applicable banking law. Webster, Eastern, and their subsidiary depository institutions are considered well managed.
In addition, the Board also has considered Webster's plans
for implementing the proposal, including its proposed management after consummation.
Based on all the facts of record, including a review of
the comments received, 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, as are the other
supervisory factors under the BHC Act.

Convenience and Needs and CRA Performance
Considerations
In acting on this proposal, 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''). The
CRA requires the federal financial supervisory agencies to
encourage financial 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 depository institution's record of meeting
the credit needs of its entire community, including lowand moderate-income (''LMI'') neighborhoods, in evaluating the depository institution's expansionary proposals.
The Board has considered carefully the convenience and
needs factor and the CRA performance records of the
subsidiary depository institutions of Webster and Eastern
in light of all the facts of record, including public comments received on the proposal. The commenter alleged,
based on data reported under the Home Mortgage Disclosure Act (''HMDA''), that Webster disproportionately
denied applications for loans by minorities and that its
plans to divest State Bank's offices in Wisconsin would
services to retail customers.
intodisrupt
the

[footnote] 10. A commenter asserted generally that Webster's entry
HSA business raises regulatory compliance issues and warrants an
extensive compliance review. State Bank, a state member bank, operates under the supervision of the Federal Reserve System and the
Wisconsin Department of Financial Institutions. Neither supervisor
has found consumer compliance deficiencies related to its HSA Bank
operations. Webster Bank stated that it will retain substantially all of
HSA Bank's employees, including its manager, after consummation
of the proposed merger with State Bank, and the HSA operations will
be subject to review by the Office of the Comptroller of the Currency
(''OCC''), Webster Bank's primary federal supervisor.[endoffootnote.]
[footnote] 11. The commenter also cited a 2002 press report of a lawsuit
against Webster Bank concerning allegations by a teller that the
bank's branch employees were required to work overtime without
compensation in 2000 and 2001. The press report noted that efforts
would be made to certify the litigation as a class action suit. Webster
Bank stated that the teller's suit was settled in March 2003 and that no
class action suit was certified. Moreover, the Board does not have
jurisdiction to determine compliance with state or federal employment
laws.[endoffootnote.]

[footnote] 12. 12 U.S.C. §2901 etseq.[endoffootnote.]
[footnote] 13. 12 U.S.C. § 2903.[endoffootnote.]
[footnote] 14. The commenter asserted that Webster should be required to
have a CRA plan that takes into account its proposed acquisition of
State Bank's HSA Bank and that Webster should be evaluated under
the CRA on a nationwide basis after consummation of the proposal.
The adequacy of Webster's CRA-related efforts in the future and the
scope of its CRA evaluation after consummation of this proposal are
matters
within the jurisdiction of the OCC, Webster Bank's primary
filed
supervisor under the CRA.[endoffootnote.]
[footnote] 15. 12 U.S.C. §2801 etseq.[endoffootnote.]
[footnote] 16. The commenter criticized Webster's relationships with unaffiliated car-title-lending companies and other providers of nontraditional
financial services. Webster Bank responded that it has entered into
lending relationships with providers of nontraditional financial products, but it does not play any role in the lending or business practices
or credit review processes of those providers.[endoffootnote.]

than 1,050 loan originations totaling $105.4 million in
2003. Webster Bank also has continued to offer a variety
of affordable housing loans. Webster Bank offers Fannie
As provided in the CRA, the Board has evaluated the
Mae programs that feature no or minimal down payconvenience and needs factor in light of evaluations by the
ment requirements or that allow applicants with less
appropriate federal supervisors of the CRA performance
than perfect credit records to receive adjustable rate
records of the relevant insured depository institutions. An
loans that reward timely payments over a specified period
institution's most recent CRA performance evaluation is a
with limited interest rate reductions. Webster Bank also
particularly important consideration in the applications prooffers loans sponsored by the Federal Housing Admincess because it represents a detailed, on-site evaluation of
istration. In October 2004, Webster Bank announced a
the institution's overall record of performance under the
new affordable mortgage product, the Home OwnerCRA by its appropriate federal supervisor.
ship Possibilities for Everyone (''HOPE'') mortgage
Webster Bank received an ''outstanding'' rating at the
loan that features nontraditional underwriting standards,
most recent evaluation of its CRA performance by the
including the use of innovative credit scoring methods
Office of Thrift Supervision (''OTS''), as of January 14,
and minimal down-payment requirements. After attending
2002 (''2002 Evaluation''). State Bank received a ''satishomebuyer education classes, borrowers are eligible for
factory'' rating at the most recent evaluation of its CRA
reduced interest rates and are not required to purchase
performance by the Federal Reserve Bank of Chicago, as
private mortgage insurance under the HOPE mortgage
of May 12, 2003.
program.
Examiners reported that Webster Bank had the highest
B. CRA Performance of Webster Bank
market share of small loans to businesses in its assessment
areas of any of the aggregate lenders, as reported by the
In the 2002 Evaluation, Webster Bank received an ''outSmall Business Loan Aggregate Report of the Federal
standing'' rating under the lending, investment, and service
Financial
Institutions Examination Council. Moreover,
tests. Examiners stated that the ''outstanding'' rating
examiners noted that 77 percent of Webster Bank' s small
under the lending test was based on the bank's high volloans to businesses were in amounts of $100,000 or less,
ume and percentage of residential mortgage loans to LMI
which demonstrated an excellent responsiveness to
individuals and on its high volume of loans to small
assessment-area credit needs. Since the 2002 Evaluation,
businesses. They also determined that Webster Bank' s
Webster
Bank reported that it made $10.5 million in small
community development lending performance enhanced its
loans
to
businesses
in its assessment areas.
overall lending performance.
In
the
2002
Evaluation,
Webster Bank originated comExaminers reported that the bank made a higher percentmunity development loans totaling almost $12 million.
age of its loans reported under HMDA to LMI individuals
Examiners found that these loans assisted economic develin its assessment areas in 2000 than the percentage for the
opment throughout all of its assessment areas and provided
aggregate of lenders (''aggregate lenders''). They noted
more than 200 units of housing to LMI residents. Examinthat the bank used flexible mortgage loan products and
ers also noted that Webster Bank formed a business unit
innovative deposit products to serve the assessment area's
dedicated to community development lending during the
credit needs.
evaluation period.
Since the 2002 Evaluation, Webster Bank's HMDAWebster Bank stated that its community development
reportable lending in LMI geographies continued to
lending has increased since the 2002 Evaluation. From
strengthen in 2003. The bank increased its home mortgage
January 2002 through September 2004, Webster Bank
loans in LMI census tracts from more than 570 loan
originated seven major community development loans
originations totaling $60.9 million in 2002, to more
totaling $35.1 million.
In the 2002 Evaluation, examiners noted that Webster
Bank had an excellent level of qualified community devel[footnote.] 17. See Interagency Questions and Answers Regarding
Community
opment investments and grants, particularly those that were
Reinvestment, 66 Federal Register 36,620 and 36,639 (2001).[endoffootnote.]not routinely provided by private investors. They com[footnote.] 18. At the time, Webster Bank was a savings bank supervised by
mended the bank for acting as a leader with respect to its
the OTS. It converted to a national bank charter in April 2004.[endoffootnote.]
community development investments. During the evalua[footnote.] 19. The evaluation period was from November 1, 1999, to Decemtion period, Webster Bank made $22 million in investber 31, 2001. During this period, Webster Bank had four assessment
areas. The bank's Hartford assessment area and the assessment area
ments. In 2002 and 2003, Webster Bank made more than
for Bridgeport, New Haven, Waterbury, and Danbury, all in Connecti$13.7 million in community development investments and
cut, received full-scope reviews.[endoffootnote.]
grants.
[footnote.] 20. Small businesses are businesses with gross annual revenues of
Examiners reported that Webster Bank's delivery sys$1 million or less. Small loans to businesses include loans with
original amounts of $1 million or less that are either secured by
tems were readily accessible to all portions of the assessnonfarm, nonresidential properties or classified as commercial and
ment areas and that 20 percent of its offices were in LMI
industrial loans.[endoffootnote.]
geographies. They further commended Webster Bank's
[footnote.] 21. The lending data of the aggregate lenders represent the cumulasenior management for its leadership in providing commutive lending for all financial institutions that have reported data in a
nity development services.
particular area.[endoffootnote.]
A. CRA Performance Evaluations

C. HMDA Data and Fair Lending
The Board also has carefully considered the lending record
of Webster in light of comments received on the HMDA
data reported by Webster Bank in 2002 and 2003. The
commenter alleged that Webster's lending evidenced systematic disparities by disproportionately denying applications for HMDA-reportable loans to minorities. Webster
Bank's denial disparity ratios for African-American and
Hispanic applicants in 2002 and 2003 for the markets
reviewed were comparable to, or were less favorable than,
the ratios for the aggregate lenders during the same time
period.
Although the HMDA data may reflect certain disparities
in the rates of loan applications, originations, and denials
among members of different racial groups and persons at
different income levels in certain local areas, the HMDA
data generally do not indicate that Webster excluded any
race or income segment of the population or geographic
areas on a prohibited basis. The Board nevertheless is
concerned when the record of an institution indicates disparities in lending and believes that all banks 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
race or income level. The Board recognizes, however, that
HMDA data alone provide an incomplete measure of an
institution's lending in its community because these data
cover only a few categories of housing-related lending and
provide only limited information about covered loans.
HMDA data, therefore, have limitations that make them an
inadequate basis, absent other information, for concluding
that an institution has not assisted adequately in meeting its
community credit needs or has engaged in illegal lending
discrimination.
Because of the limitations of HMDA data, the Board has
considered these data carefully in light of other information, including examination reports that provide on-site
evaluations of compliance with fair lending laws by the
subsidiary depository and lending institutions of Webster.
Examiners identified no violations of the antidiscrimination laws and regulations in the 2002 Evaluation and no
substantive fair lending issues or concerns in Webster

Bank's consumer compliance examinations. Examiners
also noted that management implemented adequate fair
lending policies and procedures, training programs, and
internal reviews. After reviewing Webster Bank's advertisements and application files and holding discussions
with management and staff, examiners concluded that
applications were solicited from all segments of the
community.
The record also indicates that Webster has taken various
measures to help ensure compliance with fair lending
laws. Webster has instituted corporate-wide policies and
procedures to help ensure compliance with all fair lending
and other consumer protection laws and regulations. Webster has adopted a corporate Fair Lending Policy, enhanced
fair-lending compliance training at all organization levels,
and initiated the process of reviewing and updating the fair
lending procedures of its various business lines. Webster
Bank's Compliance Unit monitors the internal controls
applicable to the wholesale, retail, and consumer lending
operations and verifies that the internal controls system
identifies fair-lending compliance risks or exceptions. The
Compliance Unit also uses quality control testing to confirm that the system of internal controls in place is functioning properly at the transactional level. Webster Bank
states that the fair-lending compliance functions report to
the CRA Officer, who is responsible for coordinating and
reviewing fair lending compliance at the Bank. Webster
Bank's Internal Audit Department regularly reviews the
lending activities to assess compliance with consumer protection laws and regulations. In addition, Webster Bank
reports that it provides compliance training to bank
employees.
The Board also has considered the HMDA data in light
of other information, including the CRA performance
records of the subsidiary depository institutions of Webster. These records demonstrate that Webster is active in
helping to meet the credit needs of its entire community.

[footnote] 25. The commenter expressed general concerns about Webster
Bank's safeguards against predatory lending. Webster Bank has
arrangements to refer subprime applicants to two third-party subprime
mortgage lenders. According to Webster, the purpose of each arrangement is to provide applicants with an array of mortgage loan options
after the bank has determined that they do not qualify for a loan
Webster offers. Applicants are informed of these mortgage loan alteronly after their loan applications have been reviewed under a
[footnote] 22. The Board analyzed 2002 and 2003 HMDA data reportednatives
by
second-review process at Webster Bank. Under an arrangement with
Webster Bank in specific Metropolitan Statistical Areas and statewide
one subprime lender, Webster Bank refers potential candidates to the
in Connecticut. During that period, Webster Bank operated only in
lender. Under an agreement with the other subprime lender, Webster
Connecticut. Webster Bank acquired its Massachusetts and Rhode
Bank originates the loan only after the subprime lender makes a
Island operations in May 2004 through its acquisition of First Federal
creditworthiness determination and provides Webster Bank with a
Savings Bank of America, Swansea, Massachusetts, and the bank
written commitment to purchase the loan immediately. Webster Bank
opened its New York branches in 2004.[endoffootnote.]
has represented that it reviews and approves the lender's underwriting
[footnote] 23. The denial disparity ratio equals the denial rate for a particular
criteria and the terms and features of these loans before origination to
racial category (for example, African-American) divided by the denial
ensure that there are no predatory lending practices. The OCC, as
rate for whites.[endoffootnote.]
Bank's primary supervisor, will examine Webster Bank's
[footnote] 24. The data, for example, do not account for the possibility thatWebster
an
compliance with applicable statutes and regulations. Furthermore, the
institution's outreach efforts may attract a larger proportion of marginBoard previously has noted that subprime lending is a permissible
ally qualified applicants than other institutions attract and do not
activity that provides needed credit to consumers who have difficulty
provide a basis for an independent assessment of whether an applicant
meeting conventional underwriting criteria. See, e.g., Royal Bank of
who was denied credit was, in fact, creditworthy. Credit history
Canada, 88 Federal Reserve Bulletin 385, 388 (2002).[endoffootnote.]
problems and excessive debt levels relative to income (reasons most
frequently cited for a credit denial) are not available from HMDA
data.[endoffootnote.]

[footnote] 26. The commenter also expressed concern about Webster Bank's
alleged involvement in mortgage lending at high rates and the suffi-

D. Branch Issues
The commenter also expressed concern about the effect on
the convenience and needs of State Bank's communities
from Webster's plan to divest the acquired branch and loan
production office in Wisconsin, asserting that this plan
would be disruptive to retail customers of the bank. Webster represented it is taking the following steps to provide
continuity in banking services to the affected communities:
retaining senior management of State Bank for a period of
time after Webster's acquisition of Eastern, planning to sell
State Bank's local operations and facilities as a single unit,
and marketing this sale primarily to local banking organizations. In addition, Webster hopes to consummate the sale
of State Bank's community banking operations as soon as
possible after consummating the acquisition.
E. Conclusion on Convenience and Needs and
CRA Performance
The Board has carefully considered all the facts of record,
including reports of examination of the CRA records of the
institutions involved, information provided by Webster and
Eastern, comments on the proposal, and confidential supervisory information. 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 the CRA performance records of the relevant
depository institutions are consistent with approval.
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 this conclusion, the Board has considered all the facts of record in
light of the factors it is required to consider under the BHC
Act and other applicable statutes. The Board's approval

is specifically conditioned on compliance by Webster with
all the conditions imposed in this order and the commitments made to the Board in connection with this proposal,
and receipt of all other regulatory approvals. For purposes
of this action, the conditions and these 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 acquisition shall not be consummated before the
fifteenth 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 Boston, acting
pursuant to delegated authority.
By order of the Board of Governors, effective February 4, 2005.
Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Gramlich, Bies, Olson, Bernanke, and Kohn.
ROBERT DEV. FRIERSON

Deputy Secretary of the Board

Westamerica Bancorporation
San Rafael, California
Westamerica Bank
San Rafael, California
Order Approving the Merger of Bank Holding
Companies, Merger of Banks, and Establishment of
Branches
Westamerica Bancorporation (''Westamerica''), 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 Act to merge
with Redwood Empire Bancorp (''Redwood''), with
Westamerica as the surviving entity, and thereby indirectly
acquire Redwood's wholly owned subsidiary, National
Bank of the Redwoods (''Redwood Bank''), Santa Rosa,
California. In addition, Westamerica's subsidiary bank,
Westamerica Bank, a state member bank, has requested
the Board's approval under section 18(c) of the Federal
Deposit Insurance Act (''Bank Merger Act'') to merge
with Redwood Bank, with Westamerica Bank as the survivhearing
ing entity. Westamerica Bank has also applied under section 9 of the Federal Reserve Act (''FRA'') to retain and

ciency of the bank's safeguards against predatory lending practices.
The commenter cited a 2001 press report of a lawsuit by homeowners
in a moderate-income housing development in Connecticut. Webster
Bank became involved in the lawsuit when it acquired another bank.
In 2001, the Connecticut Attorney General's Office announced a
settlement with an acknowledgement that Webster Bank played a
major role in resolving the predecessor bank's litigation.[endoffootnote.]
[footnote] 27. The commenter requested that the Board hold a public
or meeting 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 any of the banks to be acquired
makes a timely written recommendation of denial of the application.
[footnote] present its views adequately or why a meeting or hearing otherwise
The Board has not received such a recommendation from any superviwould be necessary or appropriate. The request also fails to identify
sory authority. Under its rules, the Board also may, in its discretion,
disputed issues of fact that are material to the Board's decision that
hold a public meeting or hearing on an application to acquire a bank if
would be clarified by a public hearing or meeting. For these reasons,
a meeting or hearing is necessary or appropriate to clarify factual
and based on all the facts of record, the Board has determined that a
issues related to the application and to provide an opportunity for
public hearing or meeting is not required or warranted in this case.
testimony. 12 CFR 225.16(e). The Board has considered carefully the
Accordingly, the request for a public hearing or meeting on the
commenter's request in light of all the facts of record. As noted, the
proposal is denied.[endoffootnote.]
public has had ample opportunity to submit comments on the proposal
and, in fact, the commenter has submitted written comments that the
Board has considered carefully in acting on the proposal. The commenter's [footnote] 1. 12 U.S.C. § 1842.[endoffootnote.]
request fails to demonstrate why its written comments do not
[footnote] 2. 12 U.S.C. § 1828(c).[endoffootnote.]

operate branches at the location of Redwood Bank's main
office and branches.
Notice of the proposal, affording interested persons an
opportunity to submit comments, has been published in the
Federal Register (69 Federal Register 71,056 (2004)) and
locally in accordance with the relevant statutes and the
Board's Rules of Procedure. As required by the BHC Act
and the Bank Merger Act, reports on the competitive
effects of the mergers were requested from the United
States Attorney General and the appropriate banking agencies. The time for filing comments has expired, and the
Board has considered the applications and all comments
received in light of the factors set forth in section 3 of the
BHC Act, the Bank Merger Act, and the FRA.
Westamerica, with total consolidated assets of approximately $4.6 billion, is the 23rd largest banking organization in California, controlling deposits of approximately
$3.5 billion. Redwood, with total consolidated assets of
approximately $523 million, is the 89th largest banking
organization in California, controlling deposits of approximately $455.3 million. On consummation of the proposal
and accounting for the proposed divestiture, Westamerica
would become the 22nd largest depository organization in
California, controlling deposits of approximately $4.0 billion, which would represent less than 1 percent of the total
amount of deposits of insured depository institutions in the
state.

comment on the proposal. In particular, the Board has
considered the number of competitors that would remain in
the markets, the relative shares of total deposits of depository institutions in the markets (''market deposits'') controlled by Westamerica Bank and Redwood Bank, the
concentration level of market deposits and the increase in
this level as measured by the Herfindahl-Hirschman Index
(''HHI'') under the Department of Justice Merger Guidelines (''DOJ Guidelines''), other characteristics of the
markets, and commitments made by Westamerica to divest
a branch.
In the Lake County banking market, Westamerica Bank
is the largest depository organization, controlling approximately $159.4 million in deposits, which represents
approximately 27.3 percent of market deposits. Redwood
Bank is the sixth largest depository institution in the market, controlling approximately $50.1 million of deposits,
which represents approximately 8.6 percent of market
deposits. To mitigate the potentially adverse competitive
effects of the proposal in the Lake County banking market,
Westamerica Bank has committed to divest one branch
with at least $43.1 million in deposits in the market to a
competitor that is competitively suitable to the Board. On
consummation of the proposal and after accounting for the
proposed divestiture, Westamerica Bank would remain the
largest depository organization in the market, controlling
[footnote] 9. One commenter expressed general concern about the competitive effects of this proposal in the Lake County banking market.[endoffootnote.]

Competitive Considerations
Section 3 of the BHC Act and the Bank Merger Act
prohibit 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 and the Bank
Merger Act also prohibit 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.
Westamerica Bank and Redwood Bank compete directly
in the Lake County, Santa Rosa, and Ukiah banking markets in California. 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, including public

[footnote] 10. Deposit and market share data are as of June 30, 2004, 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 deposits in the market share calculation on a 50 percent
weighted basis. See, e.g., First Hawaiian, Inc., 77 Federal Reserve
Bulletin 52 (1991).[endoffootnote.]
[footnote] 11. Under the DOJ Guidelines, a market is considered moderately
concentrated if the post-merger HHI is between 1000 and 1800, and a
market is considered 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 by more than 200 points. The DOJ has stated that
the higher than normal HHI thresholds for screening bank mergers
and acquisitions for anticompetitive effects implicitly recognize the
competitive effects of limited-purpose and other nondepository financial entities.[endoffootnote.]

[footnote] 12. Westamerica has committed that, before consummating the
proposed merger with Redwood, it will execute an agreement for the
County
banking market, consistent
[footnote]
3. 12 U . S . C . § 3 2 1 . T h e s e bproposed
r a n c h e s adivestiture
r e l i s t e d i n in
A p the
p e n dLake
i x A .[end
offootnote.]
with this order, with a purchaser determined by the Board to be
[footnote] 4. 12 CFR 262.3(b).[endoffootnote.]
[footnote] 5. Asset data are as of September 30, 2004, and deposit data and competitively suitable. Westamerica also has committed to complete
the divestiture within 180 days after consummation of the proposed
state ranking data are as of June 30, 2004.[endoffootnote.]
merger. In addition, Westamerica has committed that, if it is unsuc[footnote] 6. In this context, the term ''insured depository institutions"
cessful in completing the proposed divestiture within such time period,
includes insured commercial banks, savings banks, and savings
it will transfer the unsold branch to an independent trustee who will be
associations.[endoffootnote.]
instructed to sell the branch to an alternate purchaser or purchasers in
[footnote] 7. See 12 U . S . C . § 1 8 4 2 ( c ) ( 1 ) ; 12 U . S . C . § 1 8 2 8 ( c ) ( 5 ) .[endoffootnote.]
accordance with the terms of this order and without regard to price.
[footnote] 8. The Lake County banking market is defined as Lake County.
Both the trustee and any alternate purchaser must be deemed acceptThe Santa Rosa banking market is defined as the Santa Rosa Ranally
able to the Board. See BankAmerica Corporation, 78 Federal Reserve
Metropolitan Area and the town of Cloverdale in Sonoma County.
Bulletin 338 (1992); United New Mexico Financial Corporation,
The Ukiah banking market is defined as the towns of Ukiah, Hopland,
77 Federal Reserve Bulletin 484 (1991).[endoffootnote.]
and Redwood Valley in Mendocino County.[endoffootnote.]

approximately $166.4 million of deposits, which represents
approximately 27.6 percent of market deposits The HHI
would increase by not more than 157 points and would not
exceed 1739.
After the proposed divestiture, consummation of the
proposal would be consistent with the DOJ Guidelines. At
least seven other competitors would remain in the market.
The second largest bank competitor in the market would
control approximately 18 percent of market deposits, and
two other bank competitors would each control more than
10 percent of market deposits.
Consummation of the proposal would be consistent with
Board precedent and within the thresholds in the DOJ
Guidelines in the Santa Rosa and Ukiah banking markets.
After consummation, the Santa Rosa market would remain
moderately concentrated, with only a modest increase in
market concentration as measured by the HHI, and numerous competitors would remain in the market. Although the
Ukiah banking market would remain highly concentrated
after consummation of the proposal, the increase in market
concentration as measured by the HHI would be small and
several other competitors would remain in the banking
market.
The DOJ has reviewed 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. The other federal banking agencies also have been afforded an opportunity to comment
and have not objected to the proposal.
Based on all 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 of the three banking markets in
which Westamerica Bank and Redwood Bank directly
compete or in any other relevant banking market. Accordingly, based on all the facts of record and subject to
completion of the proposed divestiture, the Board has
determined that competitive considerations are consistent
with approval.
Financial, Managerial, and Supervisory

Considerations

The BHC Act, the Bank Merger Act, and the FRA require
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, among other things, confidential reports of examination and other supervisory information received from the
federal and state banking supervisors of the organizations
involved, publicly reported and other financial information,
information provided by the applicants, and public comments on the proposal.

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. In this evaluation, the Board considers a variety
of areas, 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 effect of
the transaction on the financial condition of the applicant
and target, including their capital position, asset quality,
earnings prospects, and the impact of the proposed funding
of the transaction.
Based on its review of these factors, the Board finds that
Westamerica has sufficient financial resources to effect the
proposal. Westamerica and Westamerica Bank are well
capitalized and would remain so on consummation of this
proposal. The proposed transaction would be funded by a
cash payment and an exchange of shares, and Westamerica
would not incur debt as part of this proposal.
The Board also has evaluated the managerial resources
of the organizations involved, including the proposed combined organization. The Board has reviewed the examination records of Westamerica, Redwood, and their subsidiary depository institutions, including assessments of their
management, risk management systems, and operations. In
addition, the Board has considered its supervisory experience and that of the other relevant banking supervisory
agencies with the organizations and their records of compliance with applicable banking law. The Board also has
considered Westamerica's plans to integrate Redwood and
Redwood Bank and the proposed management, including
the risk management systems, of the resulting organization.
Based on all the facts of record, the Board has concluded
that the financial and managerial resources and future
prospects of the organizations and the other supervisory
factors involved are consistent with approval of the
proposal.
Convenience and Needs Considerations
In acting on this proposal, the Board also is required to
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 insured depository
institutions under the Community Reinvestment Act
('' CRA''). The CRA requires the federal financial supervisory agencies to encourage financial institutions to help
meet the credit needs of 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.
reflect
a

[footnote] 13. Westamerica Bank's deposits after the divestiture
decrease in branch deposits since June 30, 2004.[endoffootnote.]
[footnote] 14. The effects of the proposal on the concentration of banking
resources in these banking markets are described in Appendix B.[endoffootnote.][footnote] 15. 12U.S.C. § 2901 etseq.[endoffootnote.]

The Board has considered carefully the convenience
and needs factor and the CRA performance records of
Westamerica Bank and Redwood Bank in light of all the
facts of record, including public comment on the proposal.
Two commenters expressed concerns about Westamerica
Bank's record of meeting the banking needs of the LMI
communities it serves, particularly in Lake County, California. In addition, commenters expressed concern about
potential branch closings and other possible reductions in
service resulting from the proposed merger.

businesses and professionals through the creation of
ongoing rather than transactionally based banking arrangements. Therefore, the lending test evaluation focused
primarily on Westamerica Bank's record of small business
loans and loans to small businesses, as well as community development loans. Examiners concluded that
Westamerica Bank's level of lending reflected a good
responsiveness to the credit needs of its assessment areas.
In the 2004 CRA Evaluation, examiners also noted that the
overall distribution of loans among borrowers of different
income levels and businesses of different revenue sizes
was good throughout its assessment areas. Examiners charA. CRA Performance Evaluations
acterized Westamerica Bank's geographic distribution of
loans throughout its assessment areas as good and found
As provided in the BHC Act and the Bank Merger Act, the
that the bank's lending was reasonably dispersed among
Board has evaluated the convenience and needs factor in
the assessment area's census tracts of different income
light of the evaluations by the appropriate federal superlevels.
visors of the CRA performance records of the relevant
insured depository institutions. An institution's most recent
The Board has also carefully considered the lending
CRA performance evaluation is a particularly important
record of Westamerica Bank in light of the comments
consideration in the applications process because it reprereceived on the bank's record. A review of the small
sents a detailed, on-site evaluation of the institution's overbusiness lending data indicates that, although Westamerica
all record of performance under the CRA by its appropriate
Bank's percentage of small business loans to businesses in
federal supervisor.
LMI geographies in California was slightly lower than the
percentages for the aggregate lenders in 2002 and 2003, the
Westamerica Bank received an overall ''satisfactory''
bank has improved its lending to LMI geographies during
rating at its most recent CRA performance evaluation by
this period. In addition, Westamerica Bank increased the
the Federal Reserve Bank of San Francisco, as of April 12,
number of loans to small businesses in LMI census tracts
2004 (''2004 CRA Evaluation''). Redwood Bank also
by more than 20 percent in 2003. Westamerica Bank also
received an overall ''satisfactory'' rating at its most recent
increased its small-business-related lending in predomiCRA performance evaluation by the Office of the Compnantly minority census tracts in 2003. Westamerica Bank
troller of the Currency, as of November 12, 2003.
made twice as many small businesses loans in predominantly minority census tracts throughout California in 2003
B. CRA Performance of Westamerica Bank
as it made in 2002, and tripled the number of loans to small
businesses in predominantly minority census tracts during
In the 2004 CRA Evaluation, Westamerica Bank received a
the same period.
''high satisfactory'' rating under the lending test. Examiners noted that Westamerica Bank's primary business stratIn the 2004 CRA Evaluation of the Lake County assessegy was to serve the needs of small- and middle-market
ment area, examiners described Westamerica Bank's geographic distribution of small business loans as ''excellent.''
Examiners found that Westamerica Bank's percentage of
business loans to businesses in moderate-income
[footnote] 16. The commenters also criticized Westamerica Bank's lendingsmall
to
geographies in Lake County exceeded the percentage of
small businesses in LMI census tracts in Alameda County, California.
Westamerica Bank had two limited-scope assessment areas in
such loans made by the aggregate lenders.
Alameda County, Alameda East and Alameda West. Alameda East
Examiners praised Westamerica Bank for a relatively
consists of the cities of Dublin, Livermore, and Pleasanton, and has no
high level of community development loans throughLMI census tracts. Alameda West consists of the cities of Alameda,
out its assessment areas. During the evaluation period,
Albany, Berkeley, Emeryville, Oakland, and Piedmont. Based on 1990
census data, Westamerica Bank's percentage of small business loans
to businesses in LMI geographies in Alameda West exceeded the
percentage of such loans made by the aggregate of lenders (''aggre[footnote] 21. In this context, ''small business loans'' are loans that have
gate lenders'') in those geographies. The lending data of the aggregate
original amounts of $1 million or less and that either are secured by
lenders represent the cumulative lending for all financial institutions
nonfarm nonresidential properties or are classified as commercial and
that have reported small business lending as part of their CRA data in
industrial loans.[endoffootnote.]
a particular area.[endoffootnote.]
[footnote] 22. In this context, ''small businesses'' are businesses with gross
[footnote] 17. The commenters also noted concerns about Westamerica possiannual revenues of $1 million or less.[endoffootnote.]
bly lending to an unaffiliated payday lender. Westamerica represented
[footnote] 23. At the time of the evaluation, Westamerica had 25 assessment
that it does not have any equity interest in any payday lender nor, to its
areas, five of which received full-scope reviews. The full-scope assessknowledge, does it lend to any payday lender.[endoffootnote.]
ment areas were Fresno, Kern, Lake, and Marin Counties, and the
Gualala area, which is a large census tract in Mendocino County that
[footnote] 18. See Interagency Questions and Answers Regarding
Community
Reinvestment, 66 Federal Register 36,620 and 36,639 (2001).[endoffootnote.]includes the city of Point Arena.[endoffootnote.]
[footnote] 19. The evaluation period for the 2004 CRA Evaluation was from
[footnote] 24. See footnotes 21 and 22 for definitions of the terms ''small
January 1, 2002, through December 31, 2003.[endoffootnote.]
business loans'' and ''small businesses.''[endoffootnote.]
[footnote] 20. The evaluation period for Redwood Bank's CRA performance
[footnote] 25. The Lake County assessment area had no low-income
evaluation was from January 1, 2000, through December 31, 2002.[endoffootnote.]
geographies.[endoffootnote.]

Westamerica Bank's community development loans totaled
$82.6 million. In the Lake County assessment area, examiners described Westamerica Bank's community development loans as responsive in meeting the area's credit
needs. During the evaluation period, the bank's community
development loans in Lake County, which totaled $1.5 million, supported a school, a community development service
provider for LMI individuals, and a tribal health consortium that had 85 percent of its patients living below the
poverty level. Westamerica represented that from 2000
through 2004, it funded 11 community development loans
totaling $17.1 million in Lake County, which helped provide affordable housing in moderate-income areas, and
provided an additional $11.6 million in community development loans in Sonoma and Mendocino Counties.
In the 2004 CRA Evaluation, Westamerica Bank
received a ''high satisfactory'' rating under the investment
test. During the evaluation period, the bank made 326
new investments totaling $45 million, including a $4.5 million investment for the creation of 675 affordable housing
units. In particular, examiners praised Westamerica Bank's
''good responsiveness'' to community development needs
with its community development investments in Lake
County, despite infrequent opportunities for community
equity investment. The examination noted the bank's
purchase of statewide mortgage-backed securities that
included loans on properties in Lake County.
Westamerica Bank also received a ''high satisfactory''
rating under the service test. Examiners observed that
Westamerica Bank's delivery systems were readily accessible to all portions of its assessment areas. Examiners
noted that in Lake County, Westamerica Bank provided the
only retail banking institution in the community in the
Upper Lake area. Examiners noted that all the bank's
branches offered a full range of products, including lowcost deposit accounts. Westamerica Bank also stated that it
provides LMI customers with no-cost checking accounts.
In addition, examiners noted that Westamerica Bank provided various community service programs, including a
program designed to introduce LMI Spanish-speaking individuals to the bank's products and encourage them to apply
for loans. The bank also provided ''Basic Budgeting''
seminars to teach financial literacy skills to LMI individuals and a ''Senior Guard'' program that helps senior citizens avoid predatory financial practices.

C. CRA Performance of Redwood Bank
As previously noted, Redwood Bank received an overall
''satisfactory rating'' at its most recent CRA performance
evaluation. The bank received a ''high satisfactory'' rating
under the lending test. Geographic distribution of Redwood Bank's home mortgage lending was considered good
and distribution of its home mortgage loans to borrowers
of different income levels was considered adequate, in light
of the fact that Redwood Bank had sold its retail mortgage
lending unit in 1999 and, consequently, had made fewer
mortgage loans than in previous evaluations. Examiners
considered Redwood Bank's geographic distribution of
small business loans to be ''excellent'' and its distribution
of loans to small businesses to be adequate. Examiners
commended the bank's community development lending
performance, noting that it had been ''highly responsive to
the affordable housing and community service needs of the
area.'' Redwood Bank originated nine community development loans within its full-scope assessment area during
the evaluation period, totaling almost $6 million, to provide affordable housing and community services.
Redwood Bank received an ''outstanding'' rating under
the investment test, reflecting its excellent volume of
investments relative to its capacity to invest in its fullscope assessment area. The bank made 102 qualified
investments totaling $3.5 million during the evaluation
period, which examiners characterized as a significant allocation of resources in light of limited investment opportunities. A majority of the investments supported affordable
housing.
Redwood Bank received a ''high satisfactory'' performance under the service test, based on its accessible
branches and alternative delivery services and on its banking services that were tailored to the needs of its full-scope
assessment area. Examiners noted that the bank's branches
were accessible to essentially all of its assessment areas.

D. Branch Closures

Westamerica Bank has stated that it plans to consolidate four branches, none of which are in an LMI area, and
that it will close one branch in a moderate income area.
Westamerica Bank will have a branch within 2.7 miles of
all the branches that will be closed or consolidated, and
these remaining branches will provide accessible banking
services to LMI individuals in its assessment areas.
In making the determination regarding these branches,
Westamerica
Bank followed its branch closing policy that
[footnote] 26. A commenter criticized Westamerica for refusing to disclose its
requires it to consider the impact on the community, the
charitable donations. The Board notes that neither the CRA nor the
agencies' implementing rules require that depository institutions
business viability and profitability of the branch, branch
engage in charitable giving nor do they require depository institutions
usage, demographic growth or decline in the community,
to publicly disclose their charitable giving.[endoffootnote.]
the impact on credit access, and the necessity of ensuring
[footnote] 27. One commenter stated that Westamerica declined to participate
that the branch closing has no discriminatory impact. The
in the California Electronic Benefits Transfer Program (the ''EBT
policy requires that, before a final decision is made to close
Program'') and thus denied recipients of electronic benefits transfers
access to Westamerica's ATM network and opportunities to open
a branch, management must conduct an impact study to
accounts. The EBT Program is administered by California authorities.
Neither the CRA nor the federal banking agencies' CRA regulations
require depository institutions to offer any particular product or services overseen by state government agencies.[endoffootnote.]

[footnote] 28. The full-scope assessment area for Redwood Bank's CRA
evaluation was the Santa Rosa Metropolitan Statistical Area.[endoffootnote.]

assess the likely effects of the closure. In reviewing a
branch closure in an LMI area, the impact study must
include concerns and suggestions from the local community, an assessment of the closure's potential impact on
customers, and other possible ways the community's credit
needs might be met.
The Board also has considered the fact that federal
banking law provides a specific mechanism for addressing
branch closings, and Westamerica Bank has stated that it
will follow this policy when it closes or consolidates the
branches. In addition, the Board, as the appropriate federal supervisor of Westamerica Bank, will continue to
review the bank's branch closing record in the course of
conducting CRA performance evaluations.
E. Conclusion on Convenience and Needs and
CRA Performance
The Board has carefully considered all the facts of record,
including reports of examination of the CRA records of the
institutions involved, information provided by Westamerica
Bank, public comments on the proposal, and confidential
supervisory information. The proposed transaction would
provide Redwood Bank's customers with a wider range
of consumer retail products, such as NOW and IRA
accounts, and loans subject to the larger lending limits of

Westamerica Bank. The Board expects the resulting organization to continue to help serve the banking and credit
needs of all its communities, including LMI areas. 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 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 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 BHC Act, the Bank
Merger Act, and the FRA. The Board's approval is specifically conditioned on compliance by Westamerica with all
the commitments made to the Board in connection with
this proposal and the conditions imposed in this order. For
purposes of this action, the commitments 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 proposed transactions may not be consummated
before the fifteenth 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
evaluaby the Board or the Federal Reserve Bank of San Francisco, acting pursuant to delegated authority.
By order of the Board of Governors, effective January 26, 2005.

[footnote] 29. In Westamerica Bank's most recent CRA performance
tion, examiners reviewed the bank's policy on closing branches. The
examiners also noted that although Westamerica Bank closed six
branches during the evaluation period, none of those closings
adversely affected accessibility to the bank's services for LMI individuals, and that a large number of branches remained in LMI census
tracts or readily accessible to LMI areas. They further noted that the
Voting for this action: Chairman Greenspan, Vice Chairman Fergubank opened a new branch in a moderate-income area of Fresno
son, and Governors Gramlich, Bies, Olson, Bernanke, and Kohn.
County and provided some alternative delivery systems targeted to
LMI individuals, such as a mobile branch serving a low-income senior
center in Napa County.[endoffootnote.]
ROBERT DEV. FRIERSON
[footnote] 30. Section 42 of the Federal Deposit Insurance Act (12 U.S.C.
Deputy Secretary of the Board
§ 1831r-1), as implemented by the Joint Policy Statement Regarding
Branch Closings (64 Federal Register 34,844 (1999)), requires that a
bank provide the public with at least 30 days' notice and the appropriAppendix A
ate federal supervisory agency with at least 90 days' notice before the
date of the proposed branch closing. The bank also is required to
provide reasons and other supporting data for the closure, consistent
Addresses of Main Offices and Branches in California to
with the institution's written policy for branch closings.[endoffootnote.]
be Acquired by Westamerica
[footnote] 31. Two commenters expressed concern that Westamerica would
not honor existing agreements between Redwood Bank and commuLakeport
nity groups. Both commenters further requested that Westamerica
650 North Main Street
make certain community reinvestment commitments, meet with community representatives, or take certain other actions, and that the
Rohnert Park
Board impose specific conditions on Westamerica. As the Board has
6400 Redwood Drive
previously explained, an applicant must demonstrate a satisfactory
record of performance under the CRA without reliance on plans or
commitments for future actions. The Board has stated consistently that
neither the CRA nor the federal banking agencies' CRA regulations
require depository institutions to provide commitments regarding
[footnote] 32. One commenter has requested the Board to arrange an informal
future performance under the CRA, confer authority on the agencies
meeting between the commenter and Westamerica. The Board's Rules
to enforce commitments made to third parties, or require depository
of Procedure allow a Reserve Bank to hold a private meeting to
institutions to meet with, or enter into agreements with, any particular
provide a forum for narrowing issues and resolving differences
organization. The Board views the enforceability of pledges and
between an applicant and commenter, if appropriate, but does not
agreements with third parties as matters outside the scope of the CRA.
require any person to attend an informal meeting. See 12 CFR
See, e.g., J.P. Morgan Chase & Co., 90 Federal Reserve Bulletin 352
262.25(c). Westamerica declined to meet with the commenter through
(2004).[endoffootnote.]
this process.[endoffootnote.]

Santa Rosa
424 Farmers Lane
2800 Cleveland Avenue
111 Santa Rosa Avenue
Sebastopol
800 Gravenstein Highway North
Ukiah
325 East Perkins

Appendix B
Banking Market Data
Santa Rosa, California
Westamerica Bank is the eighth largest depository institution in the Santa Rosa banking market, controlling deposits
of approximately $276 million, which represent approximately 5.1 percent of market deposits. Redwood Bank is
the sixth largest depository institution in the market, controlling deposits of approximately $352 million, which
represent approximately 6.5 percent of market deposits. On
consummation of the proposal, Westamerica Bank would
become the fifth largest depository institution in the market, controlling deposits of approximately $628 million,
which represent approximately 11.5 percent of market
deposits. Sixteen other depository institutions would
remain in the banking market. The HHI would increase by
65 points to 1151.
Ukiah, California
Westamerica Bank is the seventh largest depository institution in the Ukiah banking market, controlling deposits of
approximately $20.7 million, which represent approximately 3.1 percent of market deposits. Redwood Bank is
the fourth largest depository institution in the market,
controlling deposits of approximately $53 million, which
represent approximately 8 percent of market deposits. On
consummation of the proposal, Westamerica Bank would
become the third largest depository institution in the market, controlling deposits of approximately $74 million,
which represent approximately 11.1 percent of market
deposits. Five other depository institutions would remain
in the banking market. The HHI would increase by
49 points to 3666.
ORDERS ISSUED UNDER INTERNATIONAL

BANKING ACT

Nacional Financiera, S.N.C.
Mexico City, Mexico
Order Approving Establishment of a Representative
Office
Nacional Financiera, S.N.C. (''Bank''), Mexico City,
Mexico, a foreign bank within the meaning of the Inter-

national Banking Act (''IBA''), has applied under section 10(a) of the IBA (12 U.S.C. § 3107(a)) to establish a
representative office in Los Angeles, California. 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 Los Angeles, California (Los Angeles Daily Journal, October 12, 2004). The
time for filing comments has expired, and all comments
have been considered.
Bank, with total consolidated assets of approximately
$19.9 billion, is the largest development bank in Mexico.
Bank primarily funds loans by Mexican banks and other
financial intermediaries to private-sector participants in
financing programs established by Bank to further economic policies of the Mexican government. As financing
agent for the Mexican government, Bank also disburses
loan proceeds provided by multilateral agencies and foreign governments to entities in Mexico's public and private sectors. Bank is wholly owned by the Mexican government and has branches the United Kingdom and the
Cayman Islands and a representative office in Japan. Bank
engages in securities activities in the United States through
a subsidiary.
The proposed representative office would act as a liaison
with existing and potential customers of Bank and with
multilateral organizations, U.S. government agencies, and
other entities that provide funding for development projects
in Mexico. The office would solicit new business, conduct
research, and perform preliminary and servicing steps
in connection with lending. It would provide information
to U.S. businesses seeking investment opportunities in
Mexico through programs offered by the Bank and to
Mexican businesses regarding products and services
offered under funding initiatives of the U.S. government.
Under the IBA and Regulation K, in acting on an application by a foreign bank to establish a representative office,
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 (12 U.S.C.
§ 3107(a)(2); 12 CFR 211.24(d)(2)).

[footnote] 1. U n l e s s o t h e r w i s e i n d i c a t e d , d a t a a r e as of S e p t e m b e r 3 0 , 2 0 0 4 .[endoffootnote.]

[footnote] 2. In assessing the supervision standard, the Board considers,
among other factors, 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 relationship
between the bank and its affiliates, both foreign and
domestic;

The Board also may

the Federation, which audits the disbursement of public
funds.
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.
The additional standards set forth in section 7 of the IBA
and Regulation K (see 12 U.S.C. § 3105(d)(3)-(4); 12 CFR
211.24(c)(2)) have also been taken into account. The
CNBV has authorized Bank to establish the proposed
office.
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 supervisors, 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.
Mexico is a member of the Financial Action Task Force
and subscribes to its recommendations regarding measures
to combat money laundering and international terrorism.
In accordance with these recommendations, Mexico has
enacted laws and created legislative and regulatory standards to deter money laundering, terrorist financing, or
other illicit activities. Money laundering is a criminal
offense in Mexico, and credit 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, and these
are monitored by governmental entities responsible for
anti-money-laundering compliance.
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 has 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,
(iv) Receive from the bank financial reports that are consoliand other applicable federal law. To the extent that the
dated on a worldwide basis or comparable information that
provision of such information to the Board may be prohibpermits analysis of the bank's financial condition on a
ited by law or otherwise, Bank has committed to cooperate
worldwide consolidated basis;
with the Board to obtain any necessary consents or waivers
(v) Evaluate prudential standards, such as capital adequacy and
risk asset exposure, on a worldwide basis.
that might be required from third parties for disclosure of
such information. In addition, subject to certain conditions,
These are indicia of comprehensive, consolidated supervision. No
single factor is essential, and other elements may inform the Board's
the CNBV may share information on Bank's operations
determination.[endoffootnote.]
with other supervisors, including the Board. In light of
[footnote] 3. See, e.g., Jamaica National Building Society, 88 Federal Reserve
these commitments and other facts of record, and subject to
Bulletin 59 (2002); RHEINHYP Rheinische Hypothekenbank
AG,
the condition described below, it has been determined that
87 Federal Reserve Bulletin 558 (2001); see also Promstroybank of
Bank has provided adequate assurances of access to any
Russia, 82 Federal Reserve Bulletin 599 (1996); Komercni Banka,
a.s., 82 Federal Reserve Bulletin 597 (1996); Commercial Bank "Ion
necessary information that the Board may request.
Tiriac,"S.A., 82 Federal Reserve Bulletin 592 (1996).[endoffootnote.]
On the basis of all the facts of record, and subject to the
[footnote] 4. See, e.g., BBVA Bancomer, S.A., 89 Federal Reserve Bulletin 146
(2003); Banpais S.A., 81 Federal Reserve Bulletin 204 (1995).[endoffootnote.]commitments made by Bank and the terms and conditions
consider additional standards set forth in the IBA
and Regulation K (12 U.S.C. § 3105(d)(3)-(4); 12 CFR
211.24(c)(2)). The Board will consider that the supervision
standard has been met where 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
(12 CFR 211.24(d)(2)).
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 has considered the following information. The
National Banking and Securities Commission (''CNBV''),
a branch of the Ministry of Finance and Public Credit, is
the primary regulatory and supervisory authority for Mexican banks, including commercial and development banks,
and, as such, is the home country supervisor of Bank. The
Board previously has considered the supervisory regime in
Mexico for commercial banks. The CNBV's supervision
and regulation of development banks in Mexico is substantially similar to that of commercial banks, and there is no
difference with respect to capital adequacy requirements
and limits on credit concentrations, large credit exposures,
and foreign currency exposure. Bank is subject to on-site
examinations by the CNBV at least annually, and Bank
must submit annual audited financial statements and
monthly unaudited financial statements.
Bank is authorized by the Bank of Mexico to participate
in certain financial markets, including foreign exchange
markets, and is required to file a number of financial
reports with the Bank of Mexico related to its trading
activity, capital position, and counterparty positions. Bank
also is subject to supervision by the Secretariat of Public Function, which monitors for public corruption and
governmental transparency, and the Superior Auditor of

set forth in this order, Bank's application to establish the
representative office is hereby approved. Should any
restrictions on access to information on the operations or
activities of Bank or any of 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 or
recommend termination of any of Bank's direct and indirect activities in the United States. Approval of this application also is specifically conditioned on compliance by
Bank with the commitments made in connection with this
application and with the conditions in this order. The
commitments and conditions referred to above are conditions imposed in writing by the Board in connection with
its decision and may be enforced in proceedings against
Bank and its affiliates under 12 U.S.C. § 1818.
By order, approved pursuant to authority delegated by
the Board, effective February 11, 2005.
ROBERT DEV. FRIERSON

Deputy Secretary of the Board
FINAL ENFORCEMENT DECISIONS ISSUED BY THE
BOARD OF GOVERNORS
In the Matter of a Notice to Prohibit Further Participation Against

Kenneth L. Coleman,
Former Employee,
PNC Bank,
Pittsburgh, Pennsylvania
and
Mellon Bank, N.A.,
Pittsburgh, Pennsylvania
Docket No. OCC-AA-EC-04-43
Final Decision
This is an administrative proceeding pursuant to the Federal Deposit Insurance Act (''the FDI Act'') in which the
Office of the Comptroller of the Currency of the United
States of America (''OCC'') seeks to prohibit the Respondent, Kenneth L. Coleman (''Respondent''), from further
participation in the affairs of any financial institution
because of his conduct as an employee of two national
banks, PNC Bank (''PNC'') and Mellon Bank, N.A.

(''Mellon''), both of Pittsburgh, Pennsylvania. Under the
FDI Act, the OCC may initiate a prohibition proceeding
against a former employee of a national bank, but the
Board must make the final determination whether to issue
an order of prohibition.
Upon review of the administrative record, the Board
issues this Final Decision adopting the Recommended
Decision of Administrative Law Judge Ann Z. Cook (the
''ALJ''), and orders the issuance of the attached Order of
Prohibition.

I. Statement of the Case
A. 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. 12 U.S.C. § 1818(e)(4). The ALJ issues a recommended decision that is referred to the deciding agency
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 an order of prohibition in the case of prohibition
orders sought by the OCC. 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 respondent
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 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).
An enforcement proceeding is initiated by filing and
serving on the respondent a notice of intent to prohibit.
Under the OCC's and the Board's regulations, the respondent must file an answer within 20 days of service of the
notice. 12 CFR 19.19(a) and 263.19(a). Failure to file an
answer constitutes a waiver of the respondent's right to
contest the allegations in the notice, and a final order may
be entered unless good cause is shown for failure to file a
timely answer. 12 CFR 19.19(c)(1) and 263.19(c)(1).

B. Procedural History
On November 22, 2004, the OCC served upon Respondent

[footnote] 5. Approved by the Director of the Division of Banking Supervia Notice of Intention to Prohibit Further Participation and
sion and Regulation, with the concurrence of the General Counsel,
Notice of Charges for Restitution (''Notice'') that sought,
pursuant to authority delegated by the Board.[endoffootnote.]
inter alia, an order of prohibition against Respondent based
[footnote] 6. The Board's authority to approve the establishment of the proon his actions of stealing funds while employed by PNC
posed representative office parallels the continuing authority of the
State of California to license offices of a foreign bank. The Board's
and Mellon. Specifically, the Notice alleged that while
approval of this application does not supplant the authority of the
employed by PNC, Respondent stole funds on October 14,
State of California or its agent, the California Department of Financial
1999, November 26, 1999, and December 1, 1999 by
Institutions (''Department''), to license the proposed office of Bank in
inflating the amount of customer deposits and subsequently
accordance with any terms or conditions that the Department may
depositing the surplus amount into his own account. After
impose.[endoffootnote.]

Respondent paid partial restitution to PNC in the amount
of $979.77, PNC currently maintains an outstanding loss of
$1,590.23. The Notice further alleged that while employed
by Mellon, Respondent stole $810 in cash after processing
a combined check and cash transaction. Mellon maintains a
loss of $810 as the result of Respondent's action.
The Notice directed Respondent to file an answer within
20 days and warned that failure to do so would constitute a
waiver of his right to appear and contest the allegations.
The record shows that the Respondent received service
of the Notice. Nonetheless, Respondent failed to file an
answer within the 20-day period.
On or about January 3, 2005, Enforcement Counsel filed
a Motion for Entry of an Order of Default. The motion was
served on Respondent in accordance with the OCC' s rules,
but he did not respond to it. Finally, on or about January 4,
2005, the ALJ issued an Order to Show Cause, which was
mailed to the address at which Respondent had received
the Notice. The order provided Respondent until January 21, 2005 to file an answer to the Notice and show good
cause for failing to do so previously. The ALJ subsequently
amended that order, providing Respondent until January 28, 2005 to respond. The amended order also was sent
to the address at which Respondent had received the
Notice. Respondent ignored the Order to Show Cause and
has never filed an answer to the Notice.

II. Discussion
The OCC's Rules of Practice and Procedure set forth the
requirements of an answer and the consequences of a
failure to file an answer to a Notice. Under the Rules,
failure to file a timely answer ''constitutes a waiver of [a
respondent's] right to appear and contest the allegations in
the notice.'' 12 CFR 19.19(c). If the ALJ finds that no good
cause has been shown for the failure to file, the judge
'' shall file . . . a recommended decision containing the
findings and the relief sought in the notice.'' Id. An order
based on a failure to file a timely answer is deemed to be
issued by consent. Id.
In this case, Respondent failed to file an answer despite
notice to him of the consequences of such failure, and also
failed to respond to the ALJ's Order to Show Cause.
Respondent's failure to file an answer constitutes a default.
Respondent's default requires the Board to consider the
allegations in the Notice as uncontested. The Notice
alleges, and the Board finds, that on four separate occasions between October 14, 1999 and February 29, 2000,
Respondent stole funds from PNC and Mellon, respectively, while he was processing transactions as part of his
employment at each of these banks. Respondent received a
total of $3,380 as a result of his actions. After Respondent
partially paid restitution to PNC Bank, PNC maintains a
loss of $1,590.23 and Mellon maintains a loss of $810.
This conduct by Respondent meets all the criteria for
entry of an order of prohibition under 12 U.S.C. § 1818(e).
It is a violation of law, breach of fiduciary duty, and an
unsafe or unsound practice for a bank employee to steal
funds from the bank at which he is employed. Respon-

dent's action caused gain to himself, as well as loss to each
of the banks. Finally, such actions also exhibit personal
dishonesty. 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 1st day of
March 2005.
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, (the ''FDI Act'')
(12 U.S.C. § 1818(e)), the Board of Governors of the
Federal Reserve System ("the Board") is of the opinion, for
the reasons set forth in the accompanying Final Decision, that a final Order of Prohibition should issue against
KENNETH L. COLEMAN (''Coleman''), a former
employee and institution-affiliated party, as defined in
Section 3(u) of the FDI Act (12 U.S.C § 1813(u)), of PNC
Bank, Pittsburgh, Pennsylvania and Mellon Bank, N.A.,
Pittsburgh, Pennsylvania.
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 Act (12 U.S.C. § 1818(e)(7)(B)), Coleman 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)).

This Order shall become effective at the expiration of
thirty days after service is made.
By Order of the Board of Governors, this 1st day of
March 2005.

2. Any violation of this Order shall separately subject
Coleman to appropriate civil or criminal penalties or
both under section 8 of the FDI Act (12 U.S.C. § 1818).

BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
JENNIFER J. JOHNSON

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.

Secretary of the Board

300

Membership of the Board of Governors
of the Federal Reserve System, 1913-2004
APPOINTED MEMBERS1
Name

Federal Reserve
District

Date initially took
oath of office

Charles S. Hamlin

Boston

Paul M, Warburg ..
Frederic A. Delano
W.P.G. Harding ....
Adolph C. Miller ..

.New York
.Chicago
.Atlanta
.San Francisco

..Aug.
..Aug.
..Aug.
..Aug.

Albert Strauss
Henry A. Moehlenpah ..,
Edmund Piatt
David C. Wills
John R. Mitchell
Milo D. Campbell
Daniel R. Crissinger
George R. James
Edward H. Cunningham .
Roy A. Young
Eugene Meyer
Wayland W. Magee
Eugene R. Black
M.S. Szymczak

, .New York
.Chicago
.New York
.Cleveland
.Minneapolis ..
.Chicago
.Cleveland
.St. Louis
.Chicago
.Minneapolis ..
.New York
.Kansas City ..
.Atlanta
.Chicago

..Oct. 26, 1918
.Nov. 10,1919
June 8, 1920
.Sept. 29, 1920
..May 12,1921
,.Mar. 14, 1923
.May 1, 1923
.May 14, 1923
.May 14, 1923
, .Oct. 4, 1927
.Sept. 16,1930
•May 18,1931
.May 19,1933
June 14,1933

J.J. Thomas
Marriner S. Eccles

.Kansas City ..
.San Francisco

June 14,1933
.Nov. 15, 1934

..New York
..Cleveland
..Atlanta
..Dallas
..Richmond ....
. .New York
..Richmond ....
..St. Louis
..Boston
..Philadelphia ..
..Atlanta
..Minneapolis ..
. .New York
. .San Francisco
..KansasCity ..
..Philadelphia ..
..Minneapolis ..
..Dallas
..Atlanta
..Chicago
..Richmond ....
, .San Francisco
.Philadelphia ..
.Dallas
, .New York
, .St. Louis
,.San Francisco
.Kansas City ..
.Boston

..Feb. 3,1936
..Feb. 3,1936
..Feb. 3, 1936
..Feb. 10,1936
..June 25,1936
..Mar. 30,1938
..Mar. 14, 1942
..Apr. 4,1946
..Feb. 14, 1947
..Apr. 15,1948
..Sept. 1, 1950
..Sept. 1,1950
..April 2,1951
..Feb. 18, 1952
..Feb. 18, 1952
.Aug. 12,1954
..Aug. 13,1954
..Mar. 17,1955
..Mar. 25, 1959
.Aug. 31, 1961
..Nov. 29, 1963
.Apr. 30, 1965
, .Mar. 9,1966
.May 1,1967
Jan. 31,1970
Jan. 4,1972
June 5,1972
J u n e 11,1973
.Mar. 8,1974

Joseph A. Broderick
JohnK. McKee
Ronald Ransom
Ralph W. Morrison
Chester C. Davis
Ernest G. Draper
Rudolph M. Evans
James K. Vardaman, Jr.
Lawrence Clayton
Thomas B. McCabe
Edward L. Norton
Oliver S. Powell
Wm. McC. Martin, Jr. .,
A.L. Mills, Jr.
J.L. Robertson
C. Canby Balderston ....
Paul E.Miller
Chas. N. Shepardson
G.H. King, Jr.
George W. Mitchell
J. Dewey Daane
Sherman J. Maisel
Andrew F. Brimmer
William W. Sherrill
Arthur F. Burns
John E. Sheehan
Jeffrey M. Bucher
Robert C. Holland
Henry C. Wallich

Aug. 10,1914
10, 1914
10,1914
10, 1914
10,1914

Other dates and information relating
to membership 2

Reappointed in 1916 and 1926. Served until
Feb. 3,1936. 3
Term expired Aug. 9,1918.
Resigned July 21,1918.
Term expired Aug. 9,1922.
Reappointed in 1924. Reappointed in 1934 from the
Richmond District. Served until Feb. 3, 1936.3
Resigned Mar. 15, 1920.
Term expired Aug. 9,1920.
Reappointed in 1928. Resigned Sept. 14, 1930.
Term expired Mar. 4,1921.
Resigned May 12, 1923.
Died Mar. 22,1923.
Resigned Sept. 15, 1927.
Reappointed in 1931. Served until Feb. 3, 1936.4
Died Nov. 28, 1930.
Resigned Aug. 31, 1930.
Resigned May 10,1933.
Term expired Jan. 24,1933.
Resigned Aug. 15,1934.
Reappointed in 1936 and 1948. Resigned May 31,
Served until Feb. 10,1936. 3
Reappointed in 1936,1940, and 1944. Resigned
July 14, 1951.
Resigned Sept. 30,1937.
Served until Apr. 4,1946. 3
Reappointed in 1942. Died Dec. 2, 1947.
Resigned July 9, 1936.
Reappointed in 1940. Resigned Apr. 15, 1941.
Served until Sept. 1,1950. 3
Served until Aug. 13,1954. 3
Resigned Nov. 30, 1958.
Died Dec. 4, 1949.
Resigned Mar. 31,1951.
Resigned Jan. 31, 1952.
Resigned June 30,1952.
Reappointed in 1956. Term expired Jan. 31,1970.
Reappointed in 1958. Resigned Feb. 28, 1965.
Reappointed in 1964. Resigned Apr. 30,1973.
Served through Feb. 28,1966.
Died Oct. 21,1954.
Retired Apr. 30,1967.
Reappointed in 1960. Resigned Sept. 18,1963.
Reappointed in 1962. Served until Feb. 13, 1976.3
Served until Mar. 8, 1974.3
Served through May 31,1972.
Resigned Aug. 31, 1974.
Reappointed in 1968. Resigned Nov. 15,1971.
Term began Feb. 1,1970. Resigned Mar. 31,1978.
Resigned June 1,1975.
Resigned Jan. 2,1976.
Resigned May 15,1976.
Resigned Dec. 15, 1986.

301

Name

Philip E. Coldwell
Philip C. Jackson, Jr.
J. Charles Partee
Stephen S. Gardner
David M.Lilly
G. William Miller
Nancy H. Teeters
Emmett J. Rice
Frederick H. Schultz
Paul A. Volcker
Lyle E.'Gramley
Preston Martin
Martha R. Seger
Wayne D. Angell
Manuel H. Johnson
H. Robert Heller
Edward W. Kelley, Jr.
Alan Greenspan
John P. LaWare
David W. Mullins, Jr.
Lawrence B. Lindsey
Susan M. Phillips
Alan S. Blinder
Janet L. Yellen
Laurence H. Meyer
Alice M. Rivlin
Roger W. Ferguson, Jr.
Edward M. Gramlich
Susan S. Bies
Mark W. Olson
Ben S. Bernanke
Donald L. Kohn
Chairmen4
Charles S. Hamlin
W.P.G. Harding
Daniel R. Crissinger
Roy A. Young
Eugene Meyer
Eugene R. Black
Marriner S. Eccles
Thomas B. McCabe
Wm. McC. Martin, Jr.
Arthur F. Burns
G. William Miller
Paul A. Volcker
Alan Greenspan

Federal Reserve
District

Dallas
Atlanta
Richmond
Philadelphia
Minneapolis
San Francisco
Chicago
New York
Atlanta
Philadelphia
Kansas City
San Francisco
Chicago
Kansas City
Richmond
San Francisco
Dallas
New York
Boston
St. Louis
Richmond
Chicago
Philadelphia
San Francisco
St. Louis
Philadelphia
Boston
Richmond
Chicago
Minneapolis
Atlanta
Kansas City

Date initially took
oath of office

Oct. 29,1974
July 14,1975
Jan. 5,1976
Feb. 13,1976
June 1,1976
Mar. 8,1978
Sept. 18, 1978
June 20, 1979
July 27,1979
Aug. 6,1979
May 28,1980
Mar. 31, 1982
July 2,1984
Feb. 7,1986
Feb. 7, 1986
Aug. 19,1986
May 26, 1987
Aug. 11,1987
Aug. 15,1988
May 21,1990
Nov. 26, 1991
Dec. 2,1991
June 27, 1994
Aug. 12,1994
June 24,1996
June 25, 1996
Nov. 5,1997
Nov. 5,1997
Dec. 7, 2001
Dec. 7, 2001
Aug. 5, 2002
Aug. 5,2002

Aug. 10, 1914-Aug. 9, 1916
Aug. 10, 1916-Aug. 9, 1922
May 1,1923-Sept. 15,1927
Oct. 4, 1927-Aug. 31, 1930
Sept. 16,1930-May 10,1933
May 19,1933-Aug. 15,1934
Nov. 15,1934-Jan. 31,1948 s
Apr. 15,1948-Mar. 31, 1951
Apr. 2, 1951-Jan. 31, 1970
Feb. 1, 1970-Jan. 31, 1978
Mar. 8, 1978-Aug. 6, 1979
Aug. 6,1979-Aug. 11,1987
Aug. 11,1987—6

Other dates and information relating
to membership 3

Served through Feb. 29,1980.
Resigned Nov. 17,1978.
Served until Feb. 7,1986. 3
Died Nov. 19, 1978.
Resigned Feb. 24, 1978.
Resigned Aug. 6,1979.
Served through June 27,1984.
Resigned Dec. 31,1986.
Served through Feb. 11,1982.
Resigned August 11,1987.
Resigned Sept. 1,1985.
Resigned April 30,1986,
Resigned March 11,1991.
Served through Feb. 9,1994.
Resigned August 3,1990.
Resigned July 31,1989.
Reappointed in 1990; resigned Dec. 31,2001.
Reappointed in 1992.
Resigned April 30,1995.
Resigned Feb. 14,1994.
Resigned Feb. 5, 1997.
Served through June 30,1998.
Term expired Jan. 31,1996.
Resigned Feb. 17,1997.
Term expired Jan. 31,2002.
Resigned July 16,1999.
Reappointed in 2001.

Reappointed in 2003.
Vice Chairmen 4
Frederic A. Delano
Paul M. Warburg
Albert Strauss
Edmund Piatt
J.J. Thomas
Ronald Ransom
C. Canby Balderston
J.L. Robertson
George W. Mitchell
Stephen S. Gardner
Frederick H. Schultz
Preston Martin
Manuel H. Johnson
David W. Mullins, Jr.
Alan S. Blinder
Alice M. Rivlin
Roger W. Ferguson, Jr

Aug. 10, 1914-Aug. 9, 1916
Aug. 10,1916-Aug. 9, 1918
Oct. 26,1918-Mar. 15, 1920
July 23,1920-Sept. 14,1930
Aug. 21,1934-Feb. 10,1936
Aug. 6,1936-Dec. 2,1947
Mar. 11, 1955-Feb. 28,1966
Mar. 1,1966-Apr. 30,1973
May 1, 1973-Feb. 13, 1976
Feb. 13,1976-Nov. 19,1978
July 27, 1979-Feb. 11,1982
Mar. 31, 1982-Apr. 30, 1986
Aug. 4,1986-Aug. 3,1990
July 24,1991-Feb. 14, 1994
June 27,1994-Jan. 31,1996
June 25,1996-July 16,1999
Oct. 5,1999-

Notes and list of ex officio members appear on page 302.

302

Federal Reserve Bulletin • Spring 2005

Ex OFFICIO MEMBERS
Secretaries of the Treasury
W.G. McAdoo
Carter Glass
David F. Houston
Andrew W. Mellon
Ogden L. Mills
William H. Woodin
Henry Morgenthau, Jr.

Dec. 23, 1913-Dec. 15,1918
Dec. 16, 1918-Feb. 1, 1920
Feb. 2, 1920-Mar. 3,1921
Mar. 4,1921-Feb. 12,1932
Feb. 12, 1932-Mar. 4, 1933
Mar. 4 , 1 9 3 3 - D e c . 3 1 , 1 9 3 3
Jan. 1,1934-Feb. 1,1936

1. Under the provisions of the original Federal Reserve Act, the Federal
Reserve Board was composed of seven members, including five appointed
members, the Secretary of the Treasury, who was ex-officio chairman of the
Board, and the Comptroller of the Currency. The original term of office was ten
years, and the five original appointed members had terms of two, four, six,
eight, and ten years respectively. In 1922 the number of appointed members was
increased to six, and in 1933 the terni of office was increased to twelve years. The
Banking Act of 1935, approved Aug. 23,193S, changed the name of the Federal
Reserve Board to the Board of Governors of the Federal Reserve System and
provided that the Board should be composed of seven appointed members; that the Secretary of the Treasury and the Comptroller of the Currency
should continue to serve as members until Feb. 1, 1936; that the appointed

Comptrollers of the Currency
John Skelton Williams
Feb. 2,1914-Mar. 2 , 1 9 2 1
Daniel R. Crissinger
Mar. 17, 1921-Apr. 30, 1923
Henry M. Dawes
May 1,1923-Dec. 17,1924
Joseph W. Mcintosh
Dec. 20,1924-Nov. 2 0 , 1 9 2 8
J.W. Pole
Nov. 21, 1928-Sept. 20, 1932
J.F.T. O'Connor
May 11,1933-Feb. 1,1936
members in office on the date of that act should continue to serve until Feb. 1,
1936, or until their successors were appointed and had qualified; and that
thereafter the terms of members should be fourteen years and that the designation of Chairman and Vice Chairman of the Board should be for a term of four
years.
2. Date following Resigned and Retired denotes final day of service.
3. Successor took office on this date.
4. Chairman and Vice Chairman were designated Governor and Vice Governor before Aug. 23,1935.
5. Served as Chairman Pro Tempore from February 3, 1948, to April 13,
1948.
6. Served as Chairman Pro Tempore from March 3,1996, to June 20,1996.

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304

Federal Reserve Bulletin • Spring 2005

Federal Reserve Board of Governors
and Official Staff
April 15, 2005

A L A N GREENSPAN,

Chairman
Vice Chairman

ROGER W . FERGUSON, JR.,

OFFICE

S U S A N SCHMIDT BIES

DIVISION OF BANKING SUPERVISION
AND REGULATION—CONTINUED

OF BOARD MEMBERS

MICHELLE A . SMITH, Director
WINTHROP P. HAMBLEY, Assistant

EDWARD M . GRAMLICH

to the Board and

Director for Congressional Liaison
ROSANNA PIANALTO-CAMERON, Special Assistant to the Board
DAVID W. SKIDMORE, Special Assistant to the Board
LARICKE D. BLANCHARD, Special Assistant to the Board

JON D. GREENLEE, Assistant Director
WALT H . MILES, Assistant Director
WILLIAM C. SCHNEIDER, JR., Assistant Director
WILLIAM F. TREACY, Assistant Director
STEPHEN M . ROBERTS, Adviser

for Congressional Liaison
ROBERT M . PRIBBLE, Special Assistant

to the Board

for Congressional Liaison
LEGAL DIVISION

DIVISION

OF INTERNATIONAL

FINANCE

KAREN H. JOHNSON, Director
DAVID H. HOWARD, Deputy Director

SCOTT G. ALVAREZ, General Counsel
RICHARD M. ASHTON, Deputy General Counsel
KATHLEEN M. O'DAY, Deputy General Counsel
STEPHANIE MARTIN, Associate General Counsel

THOMAS A. CONNORS, Senior Associate Director
RICHARD T. FREEMAN, Associate Director
STEVEN B. KAMIN, Associate Director
WILLIAM L. HELKIE, Senior Adviser
DALE W. HENDERSON, Senior Adviser

ANN E. MISBACK, Associate General Counsel

JON W. FAUST, Assistant Director

KATHERINE H. WHEATLEY, Associate General Counsel
KIERAN J. FALLON, Assistant General Counsel
STEPHEN HORACE MEYER, Assistant General Counsel
PATRICIA A. ROBINSON, Assistant General Counsel
CARY K. WILLIAMS, Assistant General Counsel

JOSEPH E. GAGNON, Assistant Director
MICHAEL P. LEAHY, Assistant Director
D. NATHAN SHEETS, Assistant Director
RALPH W. TRYON, Assistant Director

DIVISION OF RESEARCH AND STATISTICS
OFFICE OF THE SECRETARY
JENNIFER J. JOHNSON, Secretary
ROBERT DEV. FRIERSON, Deputy Secretary
MARGARET M. SHANKS, Associate Secretary

DIVISION OF BANKING SUPERVISION
AND REGULATION
RICHARD SPILLENKOTHEN, Director
STEPHEN M . HOFFMAN, JR., Deputy Director

HERBERT A. BIERN, Senior Associate Director
ROGER T. COLE, Senior Associate Director
MICHAEL G . MARTINSON, Senior Adviser
DEBORAH P. BAILEY, Associate Director
NORAH M . BARGER, Associate Director
BETSY CROSS, Associate Director
GERALD A. EDWARDS, JR., Associate Director
JAMES V. HOUPT, Associate Director
JACK P. JENNINGS, Associate Director
PETER J. PURCELL, Associate Director
MOLLY S. WASSOM, Associate Director
DAVID M. WRIGHT, Associate Director
BARBARA J. BOUCHARD, Deputy Associate Director
ANGELA DESMOND, Deputy Associate Director
JAMES A. EMBERSIT, Deputy Associate Director
CHARLES H. HOLM, Deputy Associate Director
WILLIAM G. SPANIEL, Deputy Associate Director
STACY COLEMAN, Assistant Director

DAVID J. STOCKTON, Director
EDWARD C. ETTIN, Deputy Director
DAVID W. WILCOX, Deputy Director
MYRON L. KWAST, Associate Director
STEPHEN D. OLINER, Associate Director
PATRICK M. PARKINSON, Associate Director
LAWRENCE SLIFMAN, Associate Director
CHARLES S. STRUCKMEYER, Associate Director

DAVID L. REIFSCHNEIDER, Deputy Associate Director
WILLIAM L. WASCHER III, Deputy Associate Director
ALICE PATRICIA WHITE, Deputy Associate Director
JOYCE K. ZICKLER, Deputy Associate Director
DOUGLAS ELMENDORF, Assistant Director
MICHAEL GIBSON, Assistant Director
DIANA HANCOCK, Assistant Director
J. NELLIE LIANG, Assistant Director
S. WAYNE PASSMORE, Assistant Director
JANICE SHACK-MARQUEZ, Assistant Director
DANIEL SICHEL, Assistant Director
MARY M . WEST, Assistant Director
GLENN B. CANNER, Senior Adviser
DAVID S. JONES, Senior Adviser
THOMAS D. SIMPSON, Senior Adviser

305

MARK W. OLSON
BEN S. BERNANKE

DONALD L. KOHN

DIVISION OF MONETARY AFFAIRS

DIVISION OF INFORMATION TECHNOLOGY
M A R I A N N E M . EMERSON, Director
M A U R E E N T . H A N N A N , Deputy Director
T I L L E N A G . C L A R K , Assistant Director
GEARY L . C U N N I N G H A M , Assistant Director
WAYNE A . EDMONDSON, Assistant Director
Po K Y U N G K I M , Assistant Director
SUSAN F. M A R Y C Z , Assistant Director
SHARON L . M O W R Y , Assistant Director
RAYMOND ROMERO, Assistant Director

Director
B R I A N F . M A D I G A N , Deputy Director
JAMES A . C L O U S E , Deputy Associate Director
W I L L I A M C . W H I T E S E L L , Deputy Associate Director
C H E R Y L L . EDWARDS, Assistant Director
W I L L I A M B . ENGLISH, Assistant Director
ATHANASIOS ORPHANIDES, Adviser
DEBORAH J . D A N K E R , Special Assistant to the Board
VINCENT R . REINHART,

DIVISION OF CONSUMER
AND COMMUNITY AFFAIRS
Director
G L E N N E . L O N E Y , Deputy Director
A D R I E N N E D . H U R T , Associate Counsel and Adviser
IRENE S H A W N M C N U L T Y , Senior Adviser
M A R Y T . JOHNSEN, Associate Director
TONDA E . PRICE, Associate Director
S U Z A N N E G . K I L L I A N , Assistant Director
JAMES A . MICHAELS, Assistant Director
SANDRA F. BRAUNSTEIN,

DIVISION OF RESERVE BANK OPERATIONS
AND PAYMENT SYSTEMS
LOUISE L . ROSEMAN, Director
JEFFREY C . MARQUARDT, Deputy Director
P A U L W . B E T T G E , S R . , Associate Director
K E N N E T H D . B U C K L E Y , Associate Director
JACK K . WALTON I I , Associate Director
DOROTHY L A C H A P E L L E , Deputy Associate Director
GREGORY L. EVANS, Assistant

Director

Assistant Director
LISA HOSKINS, Assistant Director
M I C H A E L J . LAMBERT, Assistant Director
J E F F J . S T E H M , Assistant Director

JOSEPH H . HAYES, J R . ,

OFFICE OF
STAFF DIRECTOR FOR MANAGEMENT
S T E P H E N R . M A L P H R U S , Staff Director
SHEILA C L A R K , EEO Programs Director
L Y N N S . FOX, Senior Adviser

OFFICE OF THE INSPECTOR GENERAL
Inspector General
D O N A L D L . ROBINSON, Deputy Inspector General
E L I Z A B E T H A . C O L E M A N , Assistant Inspector General
LAURANCE A . FROEHLICH, Assistant Inspector General
WILLIAM L . M I T C H E L L , Assistant Inspector General
BARRY R . SNYDER,

MANAGEMENT

DIVISION
H . FAY PETERS, Director
DARRELL R . PAULEY, Deputy Director
S T E P H E N J . C L A R K , Senior Associate Director
CHRISTINE M . FIELDS, Associate Director
M A R S H A W . R E I D H I L L , Associate Director
B I L L Y J . SAULS, Associate Director
D O N A L D A . SPICER, Associate Director
CHARLES O ' M A L L E Y , Assistant Director
JAMES R I E S Z , Assistant Director

306

Federal Reserve Bulletin • Spring 2005

Federal Open Market Committee
and Advisory Councils
April 15, 2005

FEDERAL OPEN MARKET

COMMITTEE
MEMBERS
TIMOTHY F. GEITHNER, Vice Chairman

ALAN GREENSPAN, Chairman
B E N S. BERNANKE

EDWARD M . GRAMLICH

M A R K W . OLSON

SUSAN SCHMIDT B I E S

DONALD L . KOHN

A N T H O N Y M . SANTOMERO

R O G E R W . FERGUSON, JR.

MICHAEL H . MOSKOW

GARY H . STERN

RICHARD W . FISHER

ALTERNATE MEMBERS
CHRISTINE M . C U M M I N G

JEFFREY M . LACKER

JACK G U Y N N

SANDRA PIANALTO

JANET L . YELLEN

STAFF
VINCENT R. REINHART, Secretary and Economist
DEBORAH J. DANKER, Deputy Secretary
MICHELLE A. SMITH, Assistant Secretary
SCOTT G. ALVAREZ, General Counsel
THOMAS C. BAXTER, JR., Deputy General Counsel
KAREN H . JOHNSON, Economist
DAVID J. STOCKTON, Economist
THOMAS A. CONNORS, Associate Economist
CHARLES L. EVANS, Associate Economist

DAVID H. HOWARD, Associate Economist
BRIAN F. MADIGAN, Associate Economist
LORETTA MESTER, Associate Economist
STEPHEN D. OLINER, Associate Economist
ARTHUR J, ROLNICK, Associate Economist
HARVEY ROSENBLUM, Associate Economist
JOSEPH S. TRACY, Associate Economist
DAVID W. WILCOX, Associate Economist

DINO KOS, Manager, System Open Market Account

FEDERAL ADVISORY

COUNCIL

MARTIN G . MCGUINN, President
JERRY A. GRUNDHOFER, Vice President

JAMES C. SMITH, First District
THOMAS A. RENYI, Second District
BRUCE L. HAMMONDS, Third District
MARTIN G. MCGUINN, Fourth District
G. KENNEDY THOMPSON, Fifth District
FRED L . GREEN III, Sixth District

DENNIS J. KUESTER, Seventh District
J. KENNETH GLASS, Eighth District
JERRY A. GRUNDHOFER, Ninth District
BYRON G. THOMPSON, Tenth District
GAYLE M . EARLS, Eleventh District
RICHARD M . KOVACEVICH, T w e l f t h District

JAMES E . ANNABLE, Secretary

307

CONSUMER

ADVISORY

COUNCIL

MARK PINSKY, Philadelphia, Pennsylvania, Chair
LORI R. SWANSON, St. Paul, Minnesota, Vice Chair

STELLA ADAMS, Durham, North Carolina
DENNIS L. ALGIERE, Westerly, Rhode Island

DEBORAH HICKOK, Ooltewah, Tennessee
W. JAMES KING, Cincinnati, Ohio

FAITH L. ANDERSON, Fort Worth, Texas
SUSAN BREDEHOFT, Cherry Hill, New Jersey
SHEILA CANAVAN, Berkeley, California
CAROLYN CARTER, Gettysburg, Pennsylvania
MICHAEL COOK, Bentonville, Arkansas
DONALD S. CURRIE, Brownsville, Texas
ANNE DIEDRICK, N e w York, New York

ELSIE MEEKS, Rapid City, South Dakota
BRUCE B. MORGAN, Roeland Park, Kansas
BENJAMIN ROBINSON III, Charlotte, North Carolina
MARY JANE SEEBACH, C a l a b a s a s , C a l i f o r n i a

LISA SODEIKA, Prospect Heights, Illinois

DAN DIXON, Washington, District of Columbia
HATTIE B. DORSEY, Atlanta, Georgia
KURT EGGERT, Orange, California
JAMES GARNER, Baltimore, Maryland

R. CHARLES GATSON, Kansas City, Missouri

THRIFT INSTITUTIONS ADVISORY

PAUL J. SPRINGMAN, Atlanta, Georgia
FORREST F. STANLEY, Cleveland, Ohio
DIANE THOMPSON, East St. Louis, Illinois
ANSELMO VILLARREAL, Waukesha, Wisconsin
CLINT WALKER, Wilmington, Delaware
KELLY K. WALSH, Honolulu, Hawaii
MARVA E. WILLIAMS, Chicago, Illinois

COUNCIL

CURTIS L. HAGE, Sioux Falls, South Dakota, President
ROY M. WHITEHEAD, Seattle, Washington, Vice President

ELDON R. ARNOLD, Peoria, Illinois
H . BRENT BEESLEY, St. George, Utah
CRAIG G. BLUNDEN, Riverside. California
ALEXANDER R. M . BOYLE, Bethesda, Maryland
ROBERT M. COUCH, Birmingham, Alabama

JEFFREY H. FARVER, San Antonio, Texas
DOUGLAS K . FREEMAN, Alpharetta, Georgia
DAVID H. HANCOCK, Grandview, Missouri
GEORGE JEFFREY RECORDS, JR., O k l a h o m a City, O k l a h o m a
DAVID RUSSELL TAYLOR, R a h w a y , N e w J e r s e y

308

Federal Reserve Bulletin • Spring 2005

Federal Reserve Board Publications
For ordering assistance, write PUBLICATIONS FULFILLMENT, MS-127, Board of Governors of the Federal Reserve
System, Washington, DC 20551, or telephone (202) 452-3245,
or FAX (202) 728-5886. You may also use the publications
order form available on the Board's World Wide Web site
(www.federalreserve.gov). When a charge is indicated, payment
should accompany request and be made payable to the Board of
Governors of the Federal Reserve System or may be ordered via
MasterCard, VISA, or American Express. Payment from foreign
residents should be drawn on a US. bank.

FEDERAL RESERVE REGULATORY SERVICE FOR PERSONAL

COMPUTERS, C D - R O M ; updated monthly.

Standalone PC. $300 per year.
Network, maximum 1 concurrent user. $300 per year.
Network, maximum 10 concurrent users. $750 per year.
Network, maximum 50 concurrent users. $2,000 per year.
Network, maximum 100 concurrent users. $3,000 per year.
Subscribers outside the United States should add $50 to cover
additional airmail costs.
FEDERAL RESERVE SYSTEM—PURPOSES AND FUNCTIONS. 1994.

157 pp.
BOOKS AND MISCELLANEOUS PUBLICATIONS
ANNUAL

PERCENTAGE

RATE

TABLES

(Truth

Lending—

Regulation Z) Vol. / (Regular Transactions). 1969. 100 pp.
Vol. II (Irregular Transactions). 1969. 116 pp. Each volume
$5.00.
ANNUAL REPORT, 2 0 0 4 .
ANNUAL REPORT: BUDGET REVIEW, 2 0 0 5 .

ANNUAL STATISTICAL DIGEST: period covered, release date, number of pages, and price.
October 1982
239 pp.
$ 6.50
1981
266 pp.
$ 7.50
December 1983
1982
October 1984
264 pp.
$11.50
1983
October 1985
254 pp.
$12.50
1984
231 pp.
October 1986
$15.00
1985
November 1987
288 pp.
$15.00
1986
272 pp.
October 1988
$15.00
1987
November 1989
256 pp.
1988
$25.00
712 pp.
March 1991
$25.00
1980-89
November 1991
185 pp.
$25.00
1990
215 pp.
$25.00
November 1992
1991
215 pp.
$25.00
December 1993
1992
December 1994
281 pp.
$25.00
1993
190 pp.
$25.00
1994
December 1995
404 pp.
November 1996
$25.00
1990-95
352 pp.
$25.00
1996-2000 March 2002
FEDERAL RESERVE BULLETIN. Quarterly. $10.00 per year or $2.50
each in the United States, its possessions, Canada, and
Mexico. Elsewhere, $15.00 per year or $3.50 each.
FEDERAL RESERVE REGULATORY SERVICE AND HANDBOOKS.

Loose-leaf, updated monthly. (Requests must be prepaid.)
Federal Reserve Regulatory Service. Four vols. (Contains all
material that is in the four handbooks plus substantial additional material.) $200.00 per year.
Consumer and Community Affairs Handbook. $75.00 per year.
Monetary Policy and Reserve Requirements Handbook. $75.00
per year.
Payment System Handbook. $75.00 per year.
Securities Credit Transactions Handbook. $75.00 per year.
Rates for subscribers outside the United States are as follows
and include additional air mail costs:
Federal Reserve Regulatory Service, $250.00 per year.
Each handbook, $90.00 per year.

GUIDE TO THE FLOW OF FUNDS ACCOUNTS. J a n u a r y 2 0 0 0 .

1,186 pp. $20.00 each.
REGULATIONS OF THE BOARD OF GOVERNORS OF THE FEDERAL
RESERVE SYSTEM.
STATISTICAL SUPPLEMENT TO THE FEDERAL RESERVE BULLETIN.

Monthly. $25.00 per year or $2.50 each in the United States,
its possessions, Canada, and Mexico. Elsewhere, $35.00 per
year or $3.50 each.

EDUCATION PAMPHLETS
Short pamphlets suitable for classroom use. Multiple copies are
available without charge.
Choosing a Credit Card
Consumer Guide to Check 21 and Substitute Checks
Consumer's Guide to Mortgage Lock-Ins
Consumer's Guide to Refinancings
Consumer's Guide to Settlement Costs
Consumer Handbook on Adjustable Rate Mortgages (also available in Spanish)
Consumer Handbook to Credit Protection Laws
Guide to Business Credit for Women, Minorities, and Small
Businesses
Home Mortgages: Understanding the Process and Your Right
to Fair Lending
How to File a Consumer Complaint about a Bank (also available
in Spanish)
In Plain English: Making Sense of the Federal Reserve
Keys to Vehicle Leasing (also available in Spanish)
Looking for the Best Mortgage (also available in Spanish)
Making Sense of Savings
Privacy Choices for Your Personal Financial Information
Protecting Yourself from Overdraft and Bounced-Check Fees
Putting Your Home on the Loan Line Is Risky Business (also
available in Spanish)
Series on the Structure of the Federal Reserve System
Board of Governors of the Federal Reserve System
Federal Open Market Committee
Federal Reserve Bank Board of Directors
Federal Reserve Banks
There's a Lot to Learn about Money
What You Should Know About Home Equity Lines of Credit
(also available in Spanish)
What You Should Know About Your Checks
When Is Your Check Not a Check? (also available in Spanish)

309

STAFF STUDIES: Only Summaries Printed in the
BULLETIN

1 7 0 . COST OF IMPLEMENTING CONSUMER FINANCIAL R E G U L A TIONS: A N ANALYSIS O F EXPERIENCE WITH THE T R U T H IN

Studies and papers on economic and financial subjects that are of
general interest. Staff Studies 1-158,161,163,165,
166,168, and
169 are out of print, but photocopies of them are available. Staff
Studies 165-176 are available online at www.federalreserve.gov/
pubs/staffstudies. Requests to obtain single copies of any paper or
to be added to the mailing list for the series may be sent to
Publications Fulfillment.

SAVINGS ACT, by Gregory Elliehausen and Barbara R.
Lowrey. December 1997. 17 pp.
1 7 1 . COST OF B A N K R E G U L A T I O N : A R E V I E W OF T H E E V I D E N C E ,

by Gregory Elliehausen. April 1998. 35 pp.
1 7 2 . USING SUBORDINATED D E B T AS AN INSTRUMENT O F M A R -

KET DISCIPLINE, by Study Group on Subordinated Notes
and Debentures, Federal Reserve System. December 1999.
69 pp.
1 7 3 . IMPROVING PUBLIC DISCLOSURE IN B A N K I N G , b y

1 5 9 . N E W DATA ON THE PERFORMANCE OF N O N B A N K SUBSIDI-

ARIES OF BANK HOLDING COMPANIES, by N e l l i e L i a n g and

Donald Savage. February 1990. 12 pp.

1 7 4 . B A N K MERGERS AND B A N K I N G STRUCTURE IN T H E U N I T E D

1 6 0 . B A N K I N G M A R K E T S AND T H E U S E OF F I N A N C I A L S E R VICES BY SMALL AND M E D I U M - S I Z E D BUSINESSES, b y

Gregory E. Elliehausen and John D. Wolken. September
1990. 35 pp.
1 6 2 . EVIDENCE ON THE S I Z E OF B A N K I N G MARKETS FROM M O R T GAGE L O A N

RATES IN T W E N T Y CITIES, b y

Stephen

Rhoades. February 1992. 11 pp.
164.

1989-92

CREDIT

CRUNCH

STATES, 1980-98, by Stephen Rhoades. August 2000. 33 pp.
1 7 5 . FUTURE

RETAIL

ELECTRONIC

PAYMENTS

REAL

ESTATE,

James T. Fergus and John L. Goodman, Jr. July 1993.
20 pp.
1 6 7 . SUMMARY OF MERGER PERFORMANCE STUDIES IN B A N K I N G ,
1 9 8 0 - 9 3 , AND AN ASSESSMENT O F THE " O P E R A T I N G P E R FORMANCE" AND " E V E N T S T U D Y " METHODOLOGIES, b y

Stephen A. Rhoades. July 1994. 37 pp.

SYSTEMS:

INDUSTRY INTERVIEWS AND ANALYSIS, Federal R e s e r v e

Staff, for the Payments System Development Committee,
Federal Reserve System. December 2002. 27 pp.
1 7 6 . BA N K MERGER ACTIVITY IN THE U N I T E D STATES, 1994—

2003, by Steven J. Pilloff. May 2004. 23 pp.
FOR

Study

Group on Disclosure, Federal Reserve System. March 2000.
35 pp.

310

Federal Reserve Bulletin • Spring 2005

ANTICIPATED SCHEDULE
BOARD OF GOVERNORS

OF RELEASE DATES FOR PERIODIC STATISTICAL RELEASES OF THE
OF THE FEDERAL RESERVE SYSTEM

For ordering assistance, write PUBLICATIONS FULFILLMENT, MS-127, Board of Governors of the Federal Reserve
System, Washington, DC 20551, or telephone (202) 452-3245,
or FAX (202) 728-5886. You may also use the publications
order form available on the Board's World Wide Web site

Release number and title

Annual
mail
rate

Annual
fax
.
rate

(www.federalreserve.gov). When a charge is indicated, payment
should accompany request and be made payable to the Board of
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MasterCard, VISA, or American Express. Payment from foreign
residents should be drawn on a U.S. bank.

Approximate
release
.
,
days 1

. ,
.
.. . .
,
which data refer

Corresponding
Bulletin or
Statistical
,
c
Supplement
table numbers 2

Weekly Releases
H.2.

Actions of the Board:
Applications and Reports
Received

$55.00

n.a.

Friday

Week ending
previous
Saturday

H.3.

Aggregate Reserves of
Depository Institutions and
the Monetary Base 3

$20.00

n.a.

Thursday

Week ending
previous
Wednesday

1.20

$20.00

n.a.

Thursday

Week ending
previous
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1.11, 1.18

H.4.1. Factors Affecting Reserve Balances
of Depository Institutions and
Condition Statement of
Federal Reserve Banks 3
H.6.

Money Stock Measures 3

$35.00

n.a.

Thursday

Week ending
Monday of
previous week

1.21

H.8.

Assets and Liabilities of
Commercial Banks in the
United States 3

$30.00

n.a.

Friday

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previous
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1.26A-F

H.10. Foreign Exchange Rates 3

$20.00

Monday

Week ending
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Friday

3.28

H.15. Selected Interest Rates 3

$20.00

Monday

Week ending
previous
Friday

1.35

Foreign Exchange Rates 3

$ 5.00

First of month

Previous month

3.28

G.17. Industrial Production and
Capacity Utilization 3

$15.00

n.a.

Midmonth

Previous month

2.12, 2.13

G.19. Consumer Credit 3

$ 5.00

Fifth working day
of month

Second month
previous

1.55, 1.56

G.20. Finance Companies 3

$ 5.00

n.a.

End of month

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previous

1.51, 1.52

Monthly Releases
G.5.

311

Release number and title

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mail
rate

Annual
fax
rate

Approximate
release
days'

. .
.
... .
.
which data refer

Corresponding
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Statistical
Supplement
table numbers 2

Quarterly Releases
E.2.

Survey of Terms of Business
Lending 3

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n.a.

Midmonth of
March, June,
September, and
December

February, May,
August, and
November

E. 11.

Geographical Distribution of
Assets and Liabilities of
Major Foreign Branches of
U.S. Banks

$ 5.00

n.a.

15 th of March,
June,
September, and
December

Previous quarter

E. 16.

Country Exposure Lending
Survey 3

$ 5.00

n.a.

January, April,
July, and
October

Previous quarter

Z. 1.

Flow of Funds Accounts
of the United States:
Flows and Outstandings 3

$25.00

n.a.

Second week of
March, June,
September, and
December

Previous quarter

1. Please note that for some releases, there is normally a certain variability in the release date because of reporting or processing procedures.
Moreover, for all series unusual circumstances may, from time to time,
result in a release date being later than anticipated.
2. Beginning with the Winter 2004 issue (vol. 90, no. 1) of the Bulletin,
the corresponding table for the statistical release no longer appears in the

4.23

1.57, 1.58,
1.59, 1.60

Bulletin. Statistical tables are now published in the Statistical Supplement
to the Federal Reserve Bulletin-, the table numbers, however, remain the
same.
3. These releases are also available on the Board's web site,
www.federalreserve.gov/releases.
n.a. Not available.

312

Federal R e s e r v e Bulletin I I S p r i n g 2()()fi

Maps of the Federal Reserve System

Bos I O N
MINNEAPOLIS •

H'l

r-l

•'

;
N I ; w YORK

1 9

CKICAC.OB

I SAN FRANCISCO

•

( MLVELA.NI)

1 0

.KANSAS C r y •

4
.

S r. Louis'
'J:'-7

p " . A n i , I H i l N

/..'

8
ATLANTA

DALLAS

ALASKA
HAWAII

Ll'XilLNJ)
Both pages
•

Facing page
• Federal R e s e r v e B r a n c h city

Federal R e s e r v e Hank city

E3 B o a r d of G o v e r n o r s o f t h e F e d e r a l

—

Branch boundary

R e s e r v e S y s t e m , W a s h i n g t o n , IXC.

NOTU

T h e Federal Reserve officially identifies Districts by number and Reserve Bank city (shown on both pages) and by
letter (shown an the facing page).
In the 12th District, the Seattle Branch serves Alaska,
and the San Francisco Bank serves Hawaii.
'/'he System serves c o m m o n w e a l t h s and territories as
follows: the New York Bank serves the C o m m o n w e a l t h

of Puerto Rico and (he U.S. Virgin Islands; the San Francisco Bank serves American S a m o a , G u a m , and Ihe C o m monwealth of the Northern Mariana Islands. T h e Board of
Governors revised the branch boundaries of the System
most recently in February 19%.

313

4-1)

3-C

2-15

-A

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H ALLIANCE

Pittsburgh

Ml 1

MI>

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Hullalo ^

MA-

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in *

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• Cincinnati

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•Charlotte

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BOSTON

YORK

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TN —

Ml
Birmingham -

in-.--'') IN ,

MS :

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,'J

L o u i v . ilir
-TN

Jacksonville

.•
New Orleans

•H.

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Little /
Rock '

Miami

S r. Louis

CHICAGO

A I T , A N TA

9-T
NC|,

• MN :

• Helena
WI

sr>

MINNEAPOLIS
12-L

10-

Omahu*

KS
Denver

•WA
Seattle

'NM
Oklahoma City

Portland
./OK.
KANSAS CITY
ll-K
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Stilt L a k e City

:NM

1.1 P a s o

touisfon
'Los Angeles
S a n Antorijo
A7
DALLAS

SAN FRANCISCO

314

Federal Reserve Bulletin • Spring 2005

Federal Reserve Banks, Branches, and Offices
April 15,2005

FEDERAL RESERVE BANK
or BRANCH
Zip

Chairman
Deputy Chairman

President
First Vice President

BOSTON*

02205

Samuel O. Thier
Blenda J. Wilson

Cathy E. Minehan
Paul M. Connolly

NEW YORK*

10045

John E. Sexton
Jerry I. Speyer
Marguerite D. Hambleton

Timothy F. Geithner
Christine M. Cumming

Buffalo

14202

PHILADELPHIA

19105

Ronald J. Naples
Doris M. Damm

Anthony M. Santomero
William H. Stone, Jr.

CLEVELAND*

44101

Sandra Pianalto
Robert Christy Moore

Cincinnati
Pittsburgh

45201
15230

Robert W. Mahoney
Charles E. Bunch
James M. Anderson
Roy W.Haley

RICHMOND

23261

Jeffrey M. Lacker
Walter A. Varvel

Baltimore
Charlotte

21203
28230

Thomas J. Mackell, Jr.
Theresa M. Stone
William C. Handorf
Michael A. Almond
David M. Ratcliffe
V. Larkin Martin
James H. Sanford
Fassil Gabremariam
Edwin A. Jones, Jr.
Beth Dortch Franklin
Earl L. Shipp

Jack Guynn
Patrick K. Barron

W. James Farrell
Miles D. White
Edsel B. Ford II

Michael H. Moskow
Gordon R. G. Werkema

Walter L. Metcalfe, Jr.
Gayle P. W. Jackson
Stephen M. Erixon
Norman E. Pfau, Jr.
Russell Gwatney

William Poole
W. LeGrande Rives

Linda Hall Whitman
Frank L. Sims
Lawrence R. Simkins

Gary H. Stern
James M. Lyon

Robert A. Funk
Richard H. Bard
Thomas Williams
Tyree O. Minner
James A. Timmerman

Thomas M. Hoenig
Richard K. Rasdall

Ray L. Hunt
Patricia M. Patterson
Ron C. Helm
Lupe Fraga
Elizabeth Chu Richter

Richard W. Fisher
Helen E. Holcomb

George M. Scalise
David K.Y. Tang
James L. Sanford
James H. Rudd
H.Roger Boyer
Mic R. Dinsmore

Janet L.Yellen
John F. Moore

ATLANTA
Birmingham
Jacksonville
Miami
Nashville
New Orleans

30309
35242
32231
33178
37203
70161

CHICAGO*

60690

Detroit

48231

ST. LOUIS

63166

Little Rock
Louisville
Memphis

72203
40202
38101

MINNEAPOLIS

55480

Helena
KANSAS CITY
Denver
Oklahoma City
Omaha
DALLAS
El Paso
Houston
San Antonio
SAN FRANCISCO*
Los Angeles
Portland
Salt Lake City
Seattle

59601
64198
80217
73125
68103
75265
79901
77252
78295
94120
90051
97208
84130
98124

Vice President
in charge of Branch

Barbara L. Walter1

Barbara B. Henshaw
Robert B. Schaub

David E. Beck 3
Jeffrey S. Kane1
James M. McKee1
Lee C. Jones
Christopher L. Oakley
Juan Del Busto
Melvyn K. Purcell1
Robert J. Musso1

Glenn Hansen 1

Robert A. Hopkins 4
Thomas A. Boone 4
Martha Perine Beard 4

Samuel H. Gane

Pamela L. Weinstein
Dwayne E. Boggs
Kevin A. Drusch

Robert W. Gilmer 3
Robert Smith III 1
D. Karen Diaz 3 ' 5

Mark L. Mullinix2
Richard B. Hornsby
Andrea P. Wolcott
Mark Gould 1

'Additional offices of these Banks are located at Windsor Locks, Connecticut 06096; East Rutherford, New Jersey 07073; Utica at Oriskany, New York 13424;
Columbus, Ohio 43216; Des Moines, Iowa S0321; Midway at Bedford Park, Illinois 60638; Phoenix, Arizona 8S073.
1.
2.
3.
4.
5.

Senior Vice President
Executive Vice President
Acting
Senior Branch Executive
Assistant Vice President

315

Publications of Interest
STATISTICAL SUPPLEMENT TO THE
FEDERAL RESERVE BULLETIN
The Statistical Supplement to the Federal Reserve
Bulletin is a continuation of the Financial and Business
Statistics section that appeared in each month's issue of
the Federal Reserve Bulletin.
Published monthly, the new Statistical Supplement is
designed as a compact source of economic and financial
data. All tables that appeared in the Federal Reserve
Bulletin, including the annual and quarterly special
tables, now appear in the Statistical Supplement. All
statistical series are published with the same frequency

that they had in the Bulletin, and the numbering system
for the tables remains the same.
Separate subscriptions for the quarterly Federal
Reserve Bulletin and the monthly Statistical Supplement are available. For subscription information
about these publications, contact Publications Fulfillment at (202) 452-3245, or send an e-mail to
publications-bog@frbog.frb.gov.
The statistical tables included in the Statistical
Supplement are listed below.

FINANCIAL AND BUSINESS STATISTICS
DOMESTIC FINANCIAL STATISTICS

Money Stock and Bank Credit
Reserves and money stock measures
Reserves of depository institutions and Reserve Bank credit
Reserves and borrowings—Depository institutions
Policy Instruments
Federal Reserve Bank interest rates
Reserve requirements of depository institutions
Federal Reserve open market transactions

Consumer Credit
Total outstanding
Terms
Flow of Funds
Funds raised in U.S. credit markets
Summary of financial transactions
Summary of credit market debt outstanding
Summary of financial assets and liabilities
DOMESTIC NONFINANCIAL STATISTICS

Federal Reserve Banks
Condition and Federal Reserve note statements
Maturity distribution of loans and securities

Selected Measures
Output, capacity, and capacity utilization
Industrial production—Indexes and gross value

Monetary and Credit Aggregates
Aggregate reserves of depository institutions and monetary base
Money stock measures

INTERNATIONAL STATISTICS

Commercial Banking Institutions—Assets and Liabilities
All commercial banks in the United States
Domestically chartered commercial banks
Large domestically chartered commercial banks
Small domestically chartered commercial banks
Foreign-related institutions
Financial Markets
Commercial paper outstanding
Prime rate charged by banks on short-term business loans
Interest rates—Money and capital markets
Stock market—Selected statistics

Summary Statistics
U.S. international transactions
U.S. reserve assets
Foreign official assets held at Federal Reserve Banks
Selected U.S. liabilities to foreign official institutions
Reported by Banks in the United States
Liabilities to, and claims on, foreigners
Liabilities to foreigners
Banks' own claims on foreigners
Banks' own and domestic customers' claims on foreigners
Reported by Nonbanking Business Enterprises in the United States
Liabilities to foreigners
Claims on foreigners

Federal Finance
Federal debt subject to statutory limitation
Gross public debt of U.S. Treasury—Types and ownership
U.S. government securities dealers—Transactions
U.S. government securities dealers—Positions and financing
Federal and federally sponsored credit agencies—Debt outstanding

Securities Holdings and Transactions
Foreign transactions in securities
Marketable U.S. Treasury bonds and notes—Foreign transactions

Securities Markets and Corporate Finance
New security issues—Tax-exempt state and local governments and
U.S. corporations
Open-end investment companies—Net sales and assets
Domestic finance companies—Assets and liabilities
Domestic finance companies—Owned and managed receivables

SPECIAL TABLES—Data

Real Estate
Mortgage markets—New homes
Mortgage debt outstanding

Interest and Exchange Rates
Foreign exchange rates
Published

Irregularly

Assets and liabilities of commercial banks
Terms of lending at commercial banks
Assets and liabilities of U.S. branches and agencies of foreign banks
Residential lending reported under the Home Mortgage Disclosure Act
Disposition of applications for private mortgage insurance
Small loans to businesses and farms
Community development lending reported under the Community
Reinvestment Act

316

Federal Reserve Bulletin • Spring 2005

Publications of Interest
FEDERAL RESERVE REGULATORY SERVICE
To promote public understanding of its regulatory functions, the Board publishes the Federal Reserve Regulatory Service, a four-volume loose-leaf service containing all Board regulations as well as related statutes,
interpretations, policy statements, rulings, and staff
opinions. For those with a more specialized interest in
the Board's regulations, parts of this service are published separately as handbooks pertaining to monetary
policy, securities credit, consumer affairs, and the payment system.
These publications are designed to help those who
must frequently refer to the Board's regulatory materials. They are updated monthly, and each contains citation indexes and a subject index.
The Monetary Policy and Reserve Requirements
Handbook contains Regulations A, D, and Q, plus
related materials.
The Securities Credit Transactions Handbook contains Regulations T, U, and X, which deal with extensions of credit for the purchase of securities, and related
statutes, Board interpretations, rulings, and staff opinions. Also included is the Board's list of foreign margin
stocks.
The Consumer and Community Affairs Handbook
contains Regulations B, C, E, G, M, P, Z, AA, BB, and
DD, and associated materials.

The Payment System Handbook deals with expedited
funds availability, check collection, wire transfers, and
risk-reduction policy. It includes Regulations CC, J, and
EE, related statutes and commentaries, and policy
statements on risk reduction in the payment system.
For domestic subscribers, the annual rate is $200 for
the Federal Reserve Regulatory Service and $75 for
each handbook. For subscribers outside the United
States, the price including additional airmail costs is
$250 for the service and $90 for each handbook.
The Federal Reserve Regulatory Service is also available on CD-ROM for use on personal computers. For a
standalone PC, the annual subscription fee is $300. For
network subscriptions, the annual fee is $300 for 1 concurrent user, $750 for a maximum of 10 concurrent
users, $2,000 for a maximum of 50 concurrent users,
and $3,000 for a maximum of 100 concurrent users.
Subscribers outside the United States should add $50
to cover additional airmail costs. For further information, call (202) 452-3244.
All subscription requests must be accompanied by a
check or money order payable to the Board of Governors of the Federal Reserve System. Orders should be
addressed to Publications Fulfillment, Mail Stop 127,
Board of Governors of the Federal Reserve System,
Washington, DC 20551.

GUIDE TO THE FLOW OF FUNDS ACCOUNTS
A new edition of Guide to the Flow of Funds Accounts
is now available from the Board of Governors. The new
edition incorporates changes to the accounts since the
initial edition was published in 1993. Like the earlier
publication, it explains the principles underlying the
flow of funds accounts and describes how the accounts
are constructed. It lists each flow series in the Board's
flow of funds publication, "Flow of Funds Accounts of
the United States" (the Z. 1 quarterly statistical release),

and describes how the series is derived from source
data. The Guide also explains the relationship between
the flow of funds accounts and the national income and
product accounts and discusses the analytical uses of
flow of funds data. The publication can be purchased,
for $20.00, from Publications Fulfillment, Mail Stop
127, Board of Governors of the Federal Reserve System, Washington, DC 20551.

317

Federal Reserve Statistical Releases
Available on the Commerce Department's
Economic Bulletin Board
The Board of Governors of the Federal Reserve System makes some of its statistical releases available to
the public through the U.S. Department of Commerce's economic bulletin board. Computer access
to the releases can be obtained by subscription.

For further information regarding a subscription to
the economic bulletin board, please call (202) 4821986. The releases transmitted to the economic bulletin board, on a regular basis, are the following:

Reference
Number

Statistical release

Frequency of release

H.3

Aggregate Reserves

Weekly/Thursday

H.4.1

Factors Affecting Reserve Balances

Weekly/Thursday

H.6

Money Stock

Weekly/Thursday

H.8

Assets and Liabilities of Insured Domestically Chartered
and Foreign Related Banking Institutions

Weekly/Monday

H.10

Foreign Exchange Rates

Weekly/Monday

H.15

Selected Interest Rates

Weekly/Monday

G.5

Foreign Exchange Rates

Monthly/end of month

G.17

Industrial Production and Capacity Utilization

Monthly/midmonth

G.19

Consumer Credit

Monthly/fifth business day

Z.1

Flow of Funds

Quarterly

Full text of Federal Reserve Bulletin : Spring 2005

FRASER