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Losing Jobs and Losing Confidence
Nonbanks: A “Creditable” Alternative?
Weak Farm Banks — NOT!



THE EIGHTH FEDERAL RESERVE DISTRICT

CONTENTS
S_________________________________________________________________________________
Business
How Well Does Unemployment Explain the Low Levels of Consumer Confidence?...............................

1

Banking and Finance
When a Bank’s Not A Bank—Nonbanks in the Financial Marketplace .......................................................... 5
Agriculture
District Agricultural Banks: Safe and Sound..................................................................................................... 9
Statistics ...................................................................................................

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

14

Pieces of Eight—An Economic Perspective on the 8th District is a quarterly summary of agricultural, banking and
business conditions in the Eighth Federal Reserve District. Single subscriptions are available free of charge by writing:
Research and Public Information Department, Federal Reserve Bank of St. Louis, Post Office Box 442, St. Louis,
MO 63166-0442. The views expressed are not necessarily official positions of the Federal Reserve System.




How Well Does
Unemployment
Explain the Low
Levels of Consumer
Confidence?
by Adam M. Zaretsky
Thomas A. Pollmann provided research assistance.

“There is a deep-seated concern out there, which I
must say to you I have not seen in my lifetime.”
—Alan Greenspan, December 1991

A

J ^ s s o c i a t e d with the continuing weakness
in the U.S. economy are very low levels of con­
sumer confidence. For example, the Consumer
Confidence Index, published by the Conference
Board, was 46.3 in February 1992, its lowest since
December 1974 when it was 43.2 (1985=100).' This
recent figure reflects a sharp decline from 102.4 in
June 1990.
The lack of consumer confidence is puzzling
because many of the factors likely to affect it, such
as inflation, interest and unemployment rates, are
not at levels that many feel would cause such low
levels of consumer confidence. Inflation, at least in
the near future, is not perceived as a problem. In
fact, the low level of inflation is used by many to
justify additional expansion of the money supply.
Short-term interest rates are at their lowest levels in
years. The average yield on three-month Treasury
bills in January 1992 was 3.8 percent, the lowest
average since May 1972. Current unemployment
rates near 7 percent nationally and regionally,
however, make unemployment a concern.2
Nevertheless, current unemployment rates are sub­
stantially below their double-digit rates of the early
1980s.
This article takes a closer look at the unem­
ployment rate. It begins with a review of how the
official unemployment rate is calculated. Some
have suggested that official unemployment rates are
inadequate because of the existence of “discouraged
workers.” Thus, the article examines the conse­
quences of adjusting the unemployment rate for
discouraged workers to see if the official numbers
might be a misleading indicator of the depth of the
current unemployment problems. If so, this might ,
partially explain the low levels of consumer confi­




dence. The article then returns to the consumer
confidence level to explore some of the issues sur­
rounding the recent declines.

Unemployment Rates
An individual must meet a strict set of criteria
before being considered officially unemployed. Bas­
ically, an unemployed person does not have a job
and is actively looking for one. Receiving unem­
ployment insurance compensation is not a criterion
for classifying an individual as unemployed. Own­
ing a business, performing any work for pay or at
least 15 hours without pay in a family-owned busi­
ness is sufficient to classify an individual as having
a job and, therefore, being employed.
The sum of all people who are either employed
or unemployed is the labor force. The unemploy­
ment rate is simply the percentage of the labor
force that is officially unemployed. Therefore, ev­
ery individual in the population is either “in the
labor force” (employed or unemployed) or “out of
the labor force.” 3
Official data are gathered to determine who is
“in” the labor force. Anyone not qualifying as
“ in” automatically qualifies as “out.” For example,
suppose Mary worked as a financial analyst for a
St. Louis firm before losing her job. She has tried
to find other work compatible with her skills and
experiences but has been unable to do so. If she
gives up her job search, Mary will be officially
considered “out of the labor force.” Thus, she will
not be counted in the statistic even though she
would accept a financial analyst’s position if one
were offered to her.
Mary’s action of abandoning her job search
results in the official unemployment rate falling be­
cause the total number of unemployed persons has
fallen by one and the total labor force has fallen by
one. Mary is known as a discouraged worker. The
existence of discouraged workers is one reason why
unemployment figures can be understated. For ex­
ample, imagine an economy with a labor force of
10 people, three of whom are officially unemployed
and seven of whom are officially employed. The
unemployment rate is then 30 percent
{(3/(3 +7))* 100}. If one of the unemployed persons
becomes discouraged and stops looking for a job,
the total labor force is reduced to nine people, two
of whom are unemployed and seven of whom are
employed. The official unemployment rate is now
22 percent {(2/(2+7))« 100} even though 30 percent
might better reflect the true circumstance. Conse­
quently, differences in the numbers of discouraged
workers may make comparisons of unemployment
rates over time less reliable as indicators of the
strength/weakness of the labor market.

usmess

1

.

,

BHHH

2

Table 1
National and District Official Quarterly Unem­
ployment Rates: 1980-83 and 1990-91
Quarter
1980

1981

1982

1983

1990

1991

US

Eighth
District

AR

KY

MO

I

6.3

6.2

6.4

6.4

6.0

6.2

II

7.3

7.5

7.9

8.0

7.3

7.2

III

7.7

8.0

7.7

8.8

7.9

7.6

IV

7.4

8.4

8.6

9.0

7.8

8.3
8.7

TN

I

7.4

8.3

8.8

8.3

7.6

II

7.4

8.0

8.9

7.4

7.4

8.6

III

7.4

8.2

9.1

7.8

7.4

8.8

IV

8.2

9.5

9.6

10.0

8.4

10.2

I

8.8

9.9

9.8

10.1

8.4

11.3

II

9.4

10.3

9.6

11.1

8.8

11.7
11.7

III

9.9

10.5

10.1

10.7

9.5

IV

10.7

11.0

9.5

10.6

10.4

12.7

I

10.4

11.2

10.3

11.8

10.5

11.8

II

10.1

11.2

10.2

11.9

10.5

11.9

III

9.4

11.1

10.4

12.5

9.8

11.6

IV

8.5

9.8

9.7

10.3

8.7

10.4

I

5.3

5.6

6.4

5.8

5.7

5.1

II

5.3

5.4

6.9

5.7

5.1

4.9

III

5.6

5.9

7.0

5.8

6.1

5.1

IV

6.0

6.2

7.2

6.1

6.1

5.9
6.6

I

6.5

6.5

7.1

6.5

6.3

II

6.8

6.7

7.5

6.8

6.8

6.0

III

6.8

7.1

7.6

8.2

6.8

6.5

IV

7.0

7.0

7.5

8.1

6.3

6.8

NOTE: Shaded areas represent recessionary periods.
SOURCE: Bureau of Labor Statistics

Eighth District Unemployment
Table 1 shows quarterly unemployment
rates for periods encompassing the recessions of
the early 1980s (January-July 1980 and July
1981-November 1982) and the most recent reces­
sion (July 1990- ) whose end has not been official­
ly declared. During the early 1980s, national
unemployment rates peaked at 10.7 percent in the
last quarter of 1982, while the District’s unem­
ployment rate peaked at 11.2 percent in the first
quarter of 1983. Despite being roughly comparable
in early 1980, the District unemployment rate ex­
ceeded the national unemployment rate by at least
0.3 percentage points in every quarter from the
fourth quarter of 1980 through the end of 1983.
Currently, the unemployment rate of approxi­
mately 7 percent for both the nation and the Dis­
trict is far below the double-digit levels of the
early 1980s. In addition, the relative performance
of the District and national economies in 1990 and



1991 is roughly comparable, and their unemploy­
ment rates have risen by similar amounts during
the last two years. One difference, however, is
that for much of 1991 the national rate held cons­
tant, while the District rate steadily increased.
Individually, the Eighth District states ex­
perienced the recessions to varying degrees. In the
80s’ recessions, Arkansas and Missouri moved as
the nation did; however, Kentucky and Tennessee
ultimately reached levels of unemployment greater
than 12 percent. Today, Missouri still reflects the
national averages in its movements. Tennessee has
performed relatively better than the nation, while
Kentucky seems to have weakened substantially
during the last half of 1991. Arkansas is not
repeating its 1980-82 performance and has ex­
perienced small increases in unemployment relative
to the nation and other District states. Overall,
though, Eighth District states are not experiencing
rates of unemployment comparable to those of 10
years ago.

Discouraged Workers
Even though present unemployment rates are
substantially below the levels of the early 1980s, it
is possible that larger numbers of discouraged wor­
kers exist currently than in the early 1980s. If
true, this might explain the recent low levels of
consumer confidence. The Bureau of Labor Statis­
tics identifies discouraged workers by their
responses to particular questions. These individuals
must “want a job but are not searching for em­
ployment because they feel that no jobs are availa­
ble” (italics original).4 The Bureau further
explains that discouraged workers are not counted
among the unemployed because “ classification of
an individual is primarily based on a person’s ac­
tions rather than on his or her desires.” 5
Table 2 shows the number of discouraged
workers nationally. Unfortunately, data are not
available for the District or the individual states.
What we observe, however, is that the current
weakness has produced far fewer discouraged wor­
kers than the two previous recessions. The highest
number of discouraged workers during the last
recession occurred in the fourth quarter of 1982
when close to 1.8 million people were classified
nationally as discouraged. During the current
weakness, this figure did not exceed one million
until the third quarter of 1991 when approximately
1.1 million were classified as discouraged.
To illustrate the impact of discouraged wor­
kers on official unemployment statistics, the na­
tional unemployment rates are adjusted to include
discouraged workers. The best we can do for the
District is approximate the numbers based on na­
tional data. These estimates, especially the national

3

Consumer Confidence Levels

Table 2
Discouraged Workers
National Data 1980-83 and 1990-91
(in thousands)

Year

First
Q uarter

Second
Q uarter

Third
Quarter

Fourth
Quarter

1980

954

952

1008

1055

1981

1102

1045

1109

1174

1982

1335

1507

1645

1793

1983

1764

1729

1619

1433

1990

784

879

831

941

1991

997

981

1075

NA

ones, present a more realistic picture of how many
people are jobless and willing to work if they
could find a reasonable job.
We find that, adjusting for discouraged wor­
kers, the 1990 U.S. unemployment rate (see table
1) would increase about 0.63 percentage points.
For the same period, the District’s unemployment
rate would increase about 0.65 percentage points.
Adjustments for 1991 add about 0.77 percentage
points to the national unemployment rate and 0.76
percentage points to the District’s rate.
Performing the same analysis for the early
1980s, the U.S. official unemployment rates would
have gradually increased from as little as 0.82 ad­
ditional percentage points in 1980 to as many as
1.3 additional percentage points in 1982 and 1983.
The District, though, would have shown more of
an abrupt change than the nation with increases
over the official data as small as 0.9 percentage
points in 1980 and 1981, and as large as 1.3 per­
centage points in 1982 and 1983.
The above estimates show that the current un­
employment rates adjusted for discouraged workers
are still lower than the official unemployment rates
from 10 years ago (see table 1). In other words,
the adjusted rates of unemployment (including dis­
couraged workers) we are currently experiencing
are much lower than the official rates of unem­
ployment (not including discouraged workers) we
experienced 10 years ago. In the District, approxi­
mately 204,000 additional people would have to
become unemployed or discouraged for our esti­
mates of unemployment rates with discouraged
workers to approximate the official unemployment
rates of the early 1980s.



The preceding analysis of unemployment rates
and discouraged workers does little to resolve the
issue of what explains the low levels of consumer
confidence. While it is true that we are experienc­
ing almost record low levels of consumer confi­
dence, it is not true to suggest that levels of
consumer confidence today are lower than they
were during previous recessions. In fact, the
lowest level of consumer confidence was achieved
during the recession of 1973-75.
Several points may partially explain the recent
general impression of very poor consumer confi­
dence. First, between July and August 1990, the
index fell 17 points. Then, between September and
October 1990, the index fell an additional 23
points. These represent the largest single declines
in confidence since the beginning of the recession
of 1973, when confidence fell 36.7 points between
October and December 1973. In each of the above
instances, however, there was a significant de­
velopment influencing opinions: Iraq’s invasion of
Kuwait in August 1990, troop buildups in Saudi
Arabia and the potential for extended conflict in
September 1990, and OPEC’s cutback in oil
production in the fourth quarter of 1973. These oc­
currences made the actual declines more dramatic.
For comparison, the consumer confidence level
was 90.7 entering the recession of 1980, falling
4.8 points the month the recession began.
The second possible explanation for the em­
phasis currently placed on the consumer confidence
level is that those factors listed at the beginning of
the article as affecting confidence are not in bad
shape. We have already seen that rates of interest
and inflation are at low levels and not of much
concern. Unemployment, too, while rising, is not
at an alarmingly high level. Thus, the plunge in
consumer confidence is more noticeable. Nonethe­
less, on average, 1991 had a higher level of con­
sumer confidence (68.4) than 1982 (59.6).

Conclusions
Contrary to our hypothesis, unemployment
rates are not understating conditions by enough to
account for the lack of and decline in consumer
confidence. While the number of discouraged wor­
kers is higher than in expansionary periods, it is
not large enough to justify the conspicuous decline
in consumer confidence. In addition, the current
levels of discouraged workers are lower than the
levels experienced during the recessions in the ear­
ly 1980s.
The question of what explains the low levels
of consumer confidence remains. Many hypotheses
have been proposed: the rapid growth of the public

and private debt in the 1980s, increased job uncer­
tainty and the trend of declining U.S. growth since
the late 1980s. Such hypotheses, however, have
yet to be tested.
FOOTNOTES
1The empirical evidence relating consumer confidence to
economic activity is mixed. C. Alan Garner found that
confidence indexes are not reliable for predicting dura­
ble goods purchases and add little when used with
other variables in forecasting (“ Forecasting Consumer
Spending: Should Economists Pay Attention to Con­
sumer Confidence Surveys?” Federal Reserve Bank of
Kansas City Economic Review, (May/June 1991), pp.
57-71). On the other hand, Adrian Throop found that the
indexes were useful for forecasting total consumption
expenditures and GNP (“ Consumer Sentiment and the
Economic Downturn,” Federal Reserve Bank of San
Francisco Weekly Letter, (March 1, 1991)).




2For the purposes of this article, the Eighth District will
be represented by the states of Arkansas, Kentucky,
Missouri and Tennessee because their economies ac­
count for the bulk of District activity.
3For determining employment rates, the population is
restricted to those civilian individuals who are at least
16 years of age and who are not presently institutional­
ized (nursing homes, prison, psychiatric wards, etc.)
4U.S. Department of Labor, Bureau of Labor Statistics,
Questions and Answers on Popular Labor Force Topics,
Report 522, (1978), p.7.
5lbid, p.8.

5

When A Bank’s Not A
Bank-Nonbanks in the
Financial Marketplace

A

by Michelle A. Clark
Thomas A. Pollman provided research assistance.

,^L ^ ^ ^ m e ric a n businesses and consumers face
a growing array of choices in the financial services
they purchase and the vendors who sell them.
Although depository institutions—banks, savings
and loans and credit unions—still provide the bulk
of credit to consumers and small and medium-sized
businesses, nondepository institutions, or “ non­
bank” banks, are increasing their involvement in
these areas. Unlike commercial banks and thrifts,
nonbank financial companies generally are subject
to no geographic and product restrictions. As a
result, they have become formidable competitors in
the provision of financial services. The role of
nonbank banks in the financial marketplace and an
analysis of their activities are detailed below.

What is a Nonbank Bank?
The term nonbank bank was coined to describe
a firm that provides financial intermediation serv­
ices (that is, the channeling of funds from lenderssavers to borrowers-spenders), but is not by strict
definition a bank. For example, some firms make
business and consumer loans, a standard bank ac­
tivity, but do not fund these loans with insured
deposits the way banks usually do. Rather, these
firms typically fund their activities through insur­
ance premium receipts or the issuance of commer­
cial paper (short-term, unsecured promissory
notes), stocks or bonds. In addition, nonbank firms
usually do not have access to check-clearing or
electronic money transfer systems as banks do.
Nonbank banks essentially fall into one of two
groups: contractual savings institutions and invest­
ment intermediaries.
Contractual Savings Institutions. Contractual
savings institutions comprise life insurance compa­
nies, fire and casualty insurance companies and
pension funds. Because these types of firms gener­
ally know their pay-out structure (that is, when
their liabilities or benefits will be paid), they need
not remain as liquid as banks and therefore can in­
vest their assets in higher-yielding, long-term in­
struments like corporate bonds and mortgages.




Investment Intermediaries. Investment inter­
mediaries are primarily finance companies, mutual
funds and money market mutual funds. Mutual
funds and money market mutual funds serve as in­
vestment vehicles for small investors, allowing
them to pool their resources and buy shares in a
diversified portfolio of stocks, bonds and certifi­
cates of deposit. Money market mutual funds allow
shareholders to write checks against their shares,
subject to certain restrictions.1

The Nonbank Surge
As table 1 illustrates, nonbank intermediaries
have grown rapidly over the last two decades.
From 1970 through 1990, asset growth at non­
depository institutions exceeded that at depository
institutions by a wide margin: assets at contractual
savings institutions and investment intermediaries
increased at an 11.5 percent and a 14.7 percent
annual rate, respectively, versus a 9.0 percent rate
of increase at depository institutions (banks).
Credit unions were the only type of depository in­
stitution to show growth on par with that of the
nondepository institutions, as their assets increased
at a 13.2 percent annual rate over the period.
The relatively higher rates of growth at non­
depository institutions boosted their share of the
financial assets pie. At year-end 1970, banks,
mainly commercial banks and thrifts, held about
59 percent of total financial assets; by year-end
1990, that share had dropped to about 44 percent.
Contractual savings institutions’ share rose from
33 percent to 39 percent over the period. The share
held by investment intermediaries, on the other
hand, more than doubled, rising from 8.6 percent
in 1970 to 17.8 percent in 1990.
These swings in asset shares have forced policy­
makers to change the way they analyze the credit
supply and demand needs of the economy. The
growth of assets at the investment intermediaries,
in particular, has complicated monetary policy, as
it is no longer relevant to look just at bank
reserves and deposits as the fuel for money crea­
tion.2 On the credit side, looking at bank loans as
the major source of credit can be misleading, too.
A great number of consumers and small businesses
now bypass the banking system completely in
favor of finance companies.

The Finance Company Challenge
Because of their widespread acceptance and
the diversity of their product offerings, many of
the nation’s finance companies, virtually unknown
20 years ago, are household names today. The

6

Table 1
Total Assets at U.S. Financial Intermediaries, By Type (dollar amounts in billions)
1970
Value of
Assets at
Year-End

1990

Share of
Total Assets

Value of
Assets at
Year-End

Share of
Total Assets

Average
Annual
Growth,
1970-1990

Depository institutions (banks)
Commercial banks
Savings and loan
associations
Mutual savings banks
Credit unions
Total

$490

$2,641

8.8

171
79
18

1,097
264
214

9.7
6.2
13.2

$758

(58.7)

$4,216

(43.5)

9.0

Contractual savings institutions
Life insurance companies
Fire and casualty insurance
companies
Pension funds (private)
State and local government
retirement funds
Total

$201

$1,366

10.1

50
112

517
1,125

12.4
12.2

60
$423

13.4

743
(32.7)

$3,751

(38.7)

11.5

Investment intermediaries
Finance companies
Mutual funds
Money market mutual funds
Total
Total assets at U.S. financial
intermediaries

$64
47
0
$111

(8.6)

$1,719

(17.8)

14.7

$1,292

(100.0)

$9,686

(100.0)

10.6

1Average annual growth, 1980-1990.

General Motors Acceptance Corporation (GMAC)
and American Express have as much, if not more,
name recognition as the nation’s largest bank,
Citicorp. Some of these companies rival the na­
tion’s largest banks in terms of size. GMAC is far
and away the largest U.S. finance company with
1990 assets of $105 billion (see table 2). If
GMAC were a bank, it would be the secondlargest in the nation.
As with most of the finance companies in ta­
ble 2, the bulk of GMAC’s 1990 receivables were
consumer loans: retail loans (including credit card,
automobile and other personal loans) and real es­
tate loans (single-family mortgages and home equi­
ty loans). Two of the top 10 companies, Sears
Roebuck Acceptance Corp. (issuer of the Discover
Card) and American Express Credit Corp. (issuer
of the American Express Card and the Optima
card), make only consumer loans.
General Electric Capital Corp., the finance arm
of the General Electric Corporation (GE), is the
second-largest finance company and the most diver­
sified of the group: less than half its year-end 1990



12.2
13.4
20.71

$641
580
498

SOURCE: Federal Reserve Flow of Funds.

receivables were business or consumer loans, com­
pared with more than 85 percent for the other nine
companies. About half of GE Capital’s net receiva­
bles were leasing contracts for vehicles, aircraft
and containers.
Finance companies also rival banks in terms of
capitalization. As table 2 shows, each of the top
10 finance companies had equity-capital-to-assets
ratios that exceed the 6.43 percent average for
U.S. banks. Some, like CIT Group Holdings and
Sears Roebuck, recorded ratios almost double or
triple the bank average. These high capitalization
rates help explain why many of these companies
have double-A or triple-A ratings from the nation’s
credit rating agencies.
Other features of finance companies also set
them apart from banks and thrifts. Finance compa­
nies do not have federal regulators, nor do they
have capital or reserve requirements. Instead, they
are primarily subject to market discipline: their
poor performance will presumably result in the
downgrading of their debt and higher borrowing
costs. Thus, market forces help ensure that debt-

I
Table 2
Top 10 U.S. Finance Companies, Ranked by 1990 Assets (dollar amounts in millions)
Consumer Receivables1
Percent
of Net
Receivables

Company

Assets
as of
12/31/90

As of
12/31/90

General Motors Acceptance Corp.

$105,103

$62,206

General Electric Capital Corp.

70,385

14,798

2 9.5

Ford Motor Credit Corp.

58,969

35,950

Chrysler Financial Corp.

24,702

Household Financial Corp.

Commercial Receivables
As of
12/31/90
$31,001

Percent
of Net
Receivables

Equity
Capital/
Assets

31.0%

7 .6 1 %

6,880

13.7

9.78

6 5.0

15,302

111

8.27

10,438

5 0.5

7,868

3 8.0

11.29

16,898

7,313

6 6.9

3,068

28.0

8.60

Associates Corp. of No. America

16,595

8,915

6 2 .4

4,440

31.1

11.44

Sears Roebuck Acceptance Corp.

15,373

15,230

100.0

na

na

18.76

American Express Credit Corp.

14,222

12,242

100.0

na

na

11.32

ITT Financial Corp.

11,665

5,328

59.6

3,595

40.2

11.36

CIT Group Holdings, Inc.

11,374

na

na

7,724

71.0

12.70

1R e ta il and real e s ta te re c e iv a b le s .

na = not a p p lic a b le

to-equity ratios are much lower at nonbanks than
at commercial banks.
Although finance companies and other non­
bank banks compete with banks in a variety of
financial services, the three main areas of competi­
tion are credit cards, automobile and other con­
sumer loans and small business loans.

Credit Cards: Can’t Leave Home
Without Them
The U.S. credit card market has long been
dominated by two firms: MasterCard International
and Visa International. These two firms, which are
cooperatives of banks and thrifts that issue the
cards, have about 80 percent of the U.S. general
purpose credit card market. That market share,
however, is under pressure from newcomers.
Sears’ Discover Card, issued by a Sears-owned
bank in 1985, now accounts for about 14 percent
of all credit cards, while American Express’ Opti­
ma card, launched in 1987, accounts for the rest
of the market. (The American Express Card and
the Diner’s Club card are not considered general
purpose cards, since they operate on a “ pay as
you go” basis). Banks issuing Visa cards and
MasterCards have been forced to offer price pro­
tection plans and special interest rates to counter
the incentives offered by these new cards, such as
the Discover Card’s 1 percent rebate on purchases.
The challenge to banks’ control of the credit
card market is coming from other sources as well.
Nonbank companies are making inroads into the



6 2 .1 %

S O U R C E : Am erican Banker, D e c e m b e r 11, 1991.

banks’ virtual monopoly of the Visa/MasterCard
market. In May 1990, Sears purchased a failing
Utah thrift from the Resolution Trust Corporation
and with it, the thrift’s Visa membership. Before
Sears could begin issuing its Prime Option Visa
card from its newly acquired thrift, however, Visa
International took the matter to court, saying its
bylaws prohibited the issuance of its cards by
direct competitors. Sears countered by charging
Visa with anti-trust and trade practice violations.
Although the case has not been resolved, Visa
recently revoked its year-long moratorium on non­
banks’ issuance of Visa cards.3 That moratorium
stemmed from the phenomenal success another
competitor, AT&T, enjoyed when it began issuing
Visa and MasterCards in 1990. AT&T’s Universal
Card doubles as a credit card and a long-distance
calling card. AT&T offered incentives during the
card’s first year that resulted in the company be­
coming one of the nation’s top 10 credit card issuers.
Whatever the outcome of the Sears-Visa case, in­
dustry analysts expect competition for these two
cards to intensify, as both Visa and MasterCard
now permit nonbanks to issue their cards.

The Big Three—Capturing the
Auto Loan Market
Three of the top five U.S. finance companies
began by making car loans to consumers who pur­
chased vehicles from the Big Three automakers.
Today, those three captive finance companies—
GMAC, Ford Motor Credit Corp. and Chrysler

8

Financial Corp—do much more. GMAC, in partic­
ular, continues to diversify. The company, which
was formed in 1919, began offering auto insurance
in 1925. During the 1980s, the company entered
the leasing business.
Also during the 1980s, the company began
offering financial services unrelated to the automo­
bile industry. In 1985, GMAC Mortgage Corp. was
founded and the subsidiary promptly purchased the
mortgage-servicing portfolios of two of the nation’s
largest regional banks. GMAC Mortgage Corp. is
now the nation’s fourth-largest mortgage-servicing
company and its parent the nation’s largest con­
sumer lender, followed by Citicorp, Ford Motor
Credit and American Express. Ford Motor Credit
and Chrysler Financial have undergone similar
transformations, with Chrysler specializing in the
small business loan arena.
Despite this diversification, all three captive
finance companies still have the bulk of their as­
sets in auto-related products. Approximately twothirds of their assets are auto loans and another
quarter is devoted to auto-related products, such as
lease-financing to dealers, wholesale financing of
dealer inventories and term loans to dealers for
capital improvements. Though banks still lead the
captive finance companies in market share, that
share is dwindling: from 1978 to 1990, commer­
cial banks’ share of the auto loan market declined
from 60 percent to 44 percent, with finance com­
panies picking up most of the decline. Finance
companies have boosted their share of this market
through special-rate financing and dealer rebates.

Small Business Loans—Big
Business for Nonbanks
Nonbanks are making inroads in commercial
real estate transactions and small and medium-sized
business loans, too. According to a recent study,
the third- and fifth-largest commercial lenders are
nonbank firms, and the largest commercial real es­
tate lenders are insurance companies, not banks.4
General Electric Capital Corp. (GECC), the nation’s
second-largest finance company and largest non­
bank provider of business credit, had its origins as
a captive finance company of its parent, General
Electric Corporation (GE). Today, most of the
products financed through GECC are not related to
GE: first and second mortgage loans, construction
loans, inventory financing, retail merchant loans
and vehicle, container and aircraft leasing.
More recently, AT&T announced it would
take part in a government-backed lending program
to small businesses through its AT&T Capital
Corp. subsidiary. AT&T’s Small Business Lending
Corp. plans to lend $20 million to $50 million in



its first year of operation to individuals purchasing
their first business franchise.5
The vast majority of nonbank firms that pro­
vide business credit are profitable, especially when
compared with their commercial bank counterparts.
The recent foray of some of these firms into risky
endeavors like highly leveraged transactions and
commercial real estate, however, leaves them as
vulnerable as many large banks. Such vulnerability
raises potential public policy issues. For example,
it is unclear what kind of government assistance
might be offered if one of these large, independent
finance companies were to run into severe finan­
cial difficulty. The growing importance of non­
banks in providing business and consumer credit
has led many policymakers to call for some sort of
regulatory scrutiny.

Conclusion
The increasing diversity of the nation’s non­
bank financial firms has reshaped the way many
consumers and businesses obtain credit. U.S.
banks, while still the dominant provider of many
types of credit, have seen their share of the market
erode over the last several decades. While new
nonbank players have forced many banks to be­
come more competitive in pricing and service and
have led to more choices for consumers, their ex­
istence has posed some public policy dilemmas
regarding monetary policy and the safety and
soundness of the nation’s financial system. These
issues will no doubt be addressed in the next major
round of bank (and nonbank) reform legislation.*1

FOOTNOTES
1See Timothy Q. Cook and Jeremy G. Duffield, “ Money
Market Mutual Funds and Other Short-Term Investment
Pools,” Instruments of the Money Market, Federal
Reserve Bank of Richmond (1986), pp. 158-68.
2ln particular, the growth of money market deposit ac­
counts and mutual funds has made measurement of the
broader monetary aggregates, M2 and M3, more difficult
in recent years. See Dwight M. Jaffee, Money, Banking,
and Credit (Worth Publishers, Inc., 1989), pp. 327-51, for
a discussion of the money supply and its determinants.
3Visa’s revised bylaws, however, directly exclude direct
competitors Sears and American Express from issuing
Visa cards.
4See Linda Aguilar, “ Still Toe-to-Toe: Banks and Non­
banks at the End of the ’80s,” Federal Reserve Bank of
Chicago Economic Perspectives (January/February,
1990), pp. 12-23 for more detail on the activities of the
nation’s nonbanks.
5See Ellen Braitman, “ AT&T’s New Small-Business
Lender Seen as Threat to Banks,” American Banker,
January 10, 1992.

I
District Agricultural
Banks Ride High in
the Saddle
by Kevin L. Kliesen
Kevin B. Howard and Thomas A. Pollmann provided research
assistance.

\

Table 1
Agricultural and Small, Nonagricultural Banks in
the Eighth Federal Reserve District, 1985-911
Assets2
Cash
Securities
Loans

A gricultural

Nonagricultural

0.9%
37.6
48.7

1.0%
32.1
52.9

97.4%

97.4%

9.3%

8.7%

Liab ilities2
Deposits
Equity Capital2
Miscellaneous
Asset size
(millions)
Loan-toDeposit Ratio
Number of
Banks

a result of the rebound in the farm
economy since the mid-1980s, agricultural banks
are among the most profitable and highly capital­
ized banks in the United States. Thus, these banks
have not figured prominently in the maelstrom that
has recently characterized much of the nation’s
banking sector.
This article reviews the status of agricultural
banks in the Eighth Federal Reserve District, com­
pares their financial position with nonagricultural
banks of similar size and examines factors that
have contributed to their increased profitability rela­
tive to nonagricultural banks.

1District data includes all lenders within the boundaries
of the map shown on the inside front cover of this publi­
cation. Except for number of banks, ratios are the aver­
age of the years 1985 to 1991 (June 30 data). Number
of banks measured as of June 30, 1991; nonagricultural
banks defined as those with assets less than $100
million.

Agricultural Bank Characteristics

C ategories of assets defined as a percent of total as­
sets; deposits defined as a percent of total liabilities; eq­
uity capital expressed as a percent of total assets.
Variables measured from FDIC Call Report data.

To be characterized as an agricultural bank, a
bank must have a relatively high percentage of its
loans classified as agricultural real estate and
production loans.1 Generally, agricultural banks
(hereafter farm banks) are small banks located in
rural areas; approximately 93 percent of Eighth
District farm banks have assets of less than SI00
million. Because of this, the peer group of banks
for comparison purposes are small, nonfarm banks
with total assets of less than $100 million.
Table 1 lists characteristics of Eighth District
farm banks and their peer group for the years
1985-91.2 As of June 30, 1991, 492 commercial
banks in the Eighth District were classified as farm
banks (about 12 percent of the U.S. total of 4,053).
The typical District farm bank has about $39 million
in assets, slightly less than the average District
nonfarm bank.
District farm and small, nonfarm banks, despite
similar asset sizes, differ in some important ways.
For example, Eighth District farm banks generally
have lower loan-to-deposit ratios and a larger per­
centage of their assets in government securities;
this may signify a less-aggressive lending posture.
Furthermore, District farm banks have somewhat
larger (equity) capital-to-asset ratios. Equity capital
is crucial because it cushions bank losses.



$38.66

$41.16

55.1%

59.4%

492

528

The Farm Economy and the
Health of Farm Banks
Although farm banks tend to possess certain
market niches that give them distinct advantages
over nonfarm banks, the farm bank must withstand
the instability of the agricultural sector. A case in
point is the farm debt crisis of the early- and mid1980s. This crisis had its roots in the 1970s, as
farmland values rose dramatically, largely for rea­
sons unrelated to the income they could generate.
When farmland values began to fall because of
declining inflation, rising real interest rates and the
1981-82 worldwide recession, farmers who bor­
rowed against the increasing equity of their prin­
cipal asset (land) found themselves in a precarious
position. Clearly, the farm debt crisis underscored
the linkage between the financial well-being of
farmers and the health of agricultural banks.
Figure 1 shows the rate of return on average
assets (ROA) at U.S. farm banks and other small
banks over the period 1970 to 1991.3 ROA is a ra­
tio that measures how well management employs a
bank’s assets to earn income. Except during down-

10

Figure 1

Return on Assets at U.S. Agricultural and Nonagricultural Banks''

1970

1972

1974

1976'

1978

1980

1982

1984

1986

1988

1990

'Return on assets for 1991 is preliminary.

turns in the farm economy, ROA at farm banks is
generally higher than at nonfarm banks. From
1980 to 1986, ROA at farm banks declined sharply
because of the financial distress facing the agricul­
tural sector. In fact, beginning in 1984, nonfarm
banks began to post higher ROA numbers as return
on assets declined sharply at farm banks. Subse­
quently, many farm banks began to fail.
With the passing of the farm debt crisis, farm
banks have resumed their superior ROA perfor­
mance relative to small, nonfarm banks. In 1990,
ROA at farm banks averaged 1 percent (the indus­
try benchmark), which was unchanged from 1989.
Small nonfarm banks, on the other hand, saw their
ROA decline in 1990 to 0.7 percent from 0.8 per­
cent in 1989. Both types of banks saw improve­
ment in 1991, as ROA at farm banks was an
estimated 1.1 percent while at nonfarm banks it
was an estimated 0.9 percent.

Eighth District Farm Banks vs.
Nonfarm Banks
Table 2 provides an overview by state of farm
and nonfarm banks located in the Eighth District.4



Table 2 shows that, generally speaking, farm banks
performed better than their nonfarm counterparts.
A closer examination of table 2 shows that a
consistent pattern emerges between farm and non­
farm banks. For example, farm banks in District
states generally have higher ROAs, return on aver­
age equity ratios (ROEs), and total equity capital
as a percent of total assets compared to small,
nonfarm banks.5 In fact, District farm banks’ ROA
averages 20 percent higher than that of nonfarm
banks, while farm banks’ ROE averages 16 per­
cent higher than that of nonfarm banks. Mean­
while, the average District farm banks’
capital-to-asset ratio is about 4 percent larger than
that of nonfarm banks.
Some exceptions exist. For instance, Missis­
sippi farm banks’ ROA (1.27 percent) is slightly
lower than at nonfarm banks (1.34 percent). In ad­
dition, Mississippi nonfarm banks have a higher
capital-to-asset ratio than do farm banks. Tennes­
see farm banks—as of June 30, 1991—had substan­
tially lower ROA and ROE ratios than did nonfarm
banks, a significant exception. This may be an
aberration as ROA at farm banks for the period
1985 to 1990 averaged 1.16 percent, while at non­
farm banks the average was 1.11 percent. For
ROE, the comparable numbers for farm and non-

Table 2
Agricultural and Small, Nonagricultural Bank Performance Measures1

Interest
Income

Interest
Expense

Net NonInterest
Margin

Loan
Loss
Provision

NonBanks with
Negative performing
Loans
Earnings

Weak
Banks1
2

CapitalAsset
Ratio

Number
of
Banks

State

ROA

ROE

Net
Interest
Margin

Arkansas
Agriculture
Nonagriculture

1.23
1.05

12.38
12.02

4.31
4.46

9.76
9.89

5.44
5.43

1.97
2.21

0.44
0.56

2
4

1.91
1.41

0
1

10.02
8.81

108
103

Illinois
Agriculture
Nonagriculture

1.12
0.84

11.81
9.42

4.02
4.03

9.69
9.73

5.67
5.70

1.97
2.06

0.42
0.78

5
17

1.88
1.69

0
1

9.62
8.83

129
92

Indiana
Agriculture
Nonagriculture

0.99
0.78

10.47
8.29

4.33
4.08

10.04
9.61

5.71
5.53

2.13
2.23

0.52
0.66

2
4

1.94
1.34

1
0

9.55
9.56

21
33

Kentucky
Agriculture
Nonagriculture

1.13
0.89

12.21
9.74

4.30
4.38

10.04
10.09

5.74
5.71

2.14
2.38

0.42
0.63

3
13

1.38
1.79

0
0

9.40
9.15

67
79

Mississippi
Agriculture
Nonagriculture

1.27
1.34

13.98
13.34

4.63
4.60

10.11
10.11

5.48
5.51

2.13
1.99

0.37
0.55

1
1

1.90
1.92

0
0

9.28
10.22

24
22

Missouri
Agriculture
Nonagriculture

1.15
0.68

13.06
8.45

4.26
4.31

9.93
10.04

5.66
5.73

1.95
2.37

0.61
0.79

4
21

1.73
1.61

1
2

9.03
8.14

122
142

Tennessee
Agriculture
Nonagriculture

0.43
0.60

4.88
6.71

4.38
4.61

10.19
10.31

5.81
5.70

2.77
2.72

0.86
0.86

2
15

2.36
1.87

0
2

9.02
8.98

21
57

1See shaded insert for description of performance ratios; also, see footnote 2. Ratios measured as of June 30, 1991.
2A bank whose total nonperforming loans exceed its total capital (excluding loan-loss reserve).




12

farm banks (during the same period) were 13.10
percent and 13.17 percent, respectively.
Examining table 2 further reveals that asset
performance measures at farm and nonfarm banks
in District states are contradictory. Nonfarm banks
in the District (except in Kentucky and Mississip­
pi) had a smaller percentage of their loans classi­
fied as nonperforming than farm banks. Neverthe­
less, farm banks—with the exception of Tennessee—
have lower ratios of loan loss provisions (funds set
aside to cover future expected loan and lease loss­
es) to average assets. Moreover, District farm
banks have on average a 25 percent lower loan
loss provision ratio (which directly reduces earn­
ings). This provides a reason as to why farm
banks have relatively higher ROAs.
In contrast to the relatively better profitability
of farm banks is nonfarm banks’ generally good
performance regarding net interest margin (NIM)—
the difference between interest income and interest
expense divided by average earning assets. Fluctu­
ations in interest rates that are unanticipated not
only affect a bank’s NIM (an “ income risk’’), but
they also pose an “ investment risk’’ because they
can affect the value of a bank’s assets, liabilities
and net worth. As a result, banks try to limit their
exposure to interest rate risk by employing varia­
ble interest rate loans or other repricing methods.
For the most part, District nonfarm banks
have slightly higher interest income ratios and
slightly lower interest expense ratios. Although
both measures show relatively little variation be­
tween the two types of institutions, the average net
interest margin is somewhat higher for nonfarm
banks than it is for farm banks.
A final performance measure listed in table 2
is the net noninterest margin (NNIM). NNIM is
one indicator of a bank’s operating efficiency be­
cause it reflects bank overhead costs (see shaded
insert). Since noninterest expense normally exceeds
noninterest income, NNIM is usually negative.
Therefore, since NNIM is reported here as a posi­
tive number (that is, multiplied by —1), higher
NNIMs, which indicate a larger spread between
noninterest expense and income, reduce bank earn­
ings. Consistent with their relatively better profita­
bility performance, farm banks—except for those
in Mississippi and Tennessee—have lower NNIM
measures on average than nonfarm banks.

1984 and then increased to 68 in 1985. Since
peaking at 69 in 1987, the number of U.S. farm
bank failures have dropped sharply, totaling eight
in 1991.
Table 2 reports the number of District farm
and nonfarm banks that have negative earnings and
those which are classified as “ weak.” Out of 492
District farm banks, a total of 19—or less than 4
percent—reported negative earnings in the second
quarter of 1991. Conversely, nearly four times as
many (75), or nearly 14 percent, small, nonfarm
banks in the District had negative earnings during
the same period. Most of the banks with negative
earnings were located in Missouri, Illinois, Ken­
tucky and Tennessee (66 of the 75 banks).
A second measure of financial soundness is the
number of weak banks. A weak bank is defined as
one whose total nonperforming loans exceed its to­
tal capital; this measure is sometimes used as a
warning of future failure. By this standard, District
farm banks also look relatively strong, as only two
banks—one in Indiana and one in Missouri—are
classified as weak. Meanwhile, six nonfarm banks
are classified as weak.
Although not listed, alternative measures of
financial stability are the new risk-based capital
measures (see shaded insert). As of June 30, 1991,
there were no farm banks in the Eighth District
with a deficient risk-based capital measure. In con­
trast, a total of seven small, nonfarm banks failed
to meet the 7.25 percent requirement, while five
failed to meet the 3.625 percent standard. Ken­
tucky and Tennessee were the only District states
that did not have at least one nonfarm bank with a
deficient risk-based capital measure.
Farm banks—even small, nonfarm banks—are
currently well-positioned regarding risk-adjusted
capital requirements. This is because smaller banks
tend to have larger portfolios of government secu­
rities (low-risk) and relatively fewer off-balance
sheet items (for example, standby letters of credit),
which are deemed a higher risk. Consequently,
smaller banks are in a position to undertake lend­
ing opportunities not afforded to larger banks that
suffer from higher-risk portfolios (for example,
commercial real estate loans).

Summary
Are Farm Banks Safer Than Non­
farm Banks?
Farm banks have traditionally been a stable
lot, as failures at farm banks were a relatively rare
event prior to the 1980s. In 1982, however, 11
farm banks failed. This number jumped to 32 in




Although the health of the agricultural banking
sector is linked to the general health of the farm
economy, Eighth District farm banks, similar to
U.S. farm banks, tended to outperform their peer
group of small, nonfarm banks as of June 1991.
As a result, farm banks, having recovered from
the farm debt crisis of the early- and mid-1980s,
appear capable of successfully competing with their
small, nonfarm counterparts.

13

Ratio Definitions
Return on average assets ratio (ROA)
An indicator of how well management is
employing the bank’s assets to earn income;
ROA is calculated by dividing a bank’s net in­
come by its average annual assets.
Return on average equity ratio (ROE)

Loan and lease loss provision ratio
An indicator of expected loan and lease
losses; the loan and lease loss provision ratio
(usually termed loan loss provision ratio) is cal­
culated by dividing the provision for loan and
lease losses by average assets. The provision
for loan and lease losses is an income statement
account that reduces a bank’s current earnings.
Nonperforming loan and lease loss ratio

An indicator to shareholders of the bank’s
return on their investment; ROE is calculated
by dividing a bank’s net income by its average
annual equity capital.

An indicator of current and future loan
problems; the nonperforming loan ratio is calcu­
lated by dividing loan and lease financing
receivables that are 90 days or more past due or
in nonaccrual status by total loans.

Net interest margin (NIM)

Risked-based capital ratios

An indicator of how well interest-earning
assets are being employed relative to interestbearing liabilities; the NIM is calculated by
dividing the difference between interest income
and interest expense by average earning assets.
Interest income comprises the interest and fees
realized from interest-earning assets, and in­
cludes such items as interest and points on
loans. Interest expense includes the interest paid
on all categories of interest-bearing deposits, the
expenses incurred in purchasing federal funds
and selling securities under agreements to repur­
chase and interest paid on capital notes. Aver­
age earning assets rather than average assets are
used in the NIM.

Two risk-based capital measures have been
established to control for credit risk across banks.
One ratio comprises Tier 1 capital divided by
risk-adjusted assets (a minimum of 3.625 percent)
and the other comprises total capital (Tier 1 +
Tier 2) divided by risk-adjusted assets (a mini­
mum of 7.25 percent). As of December 31,
1992, the Tier 1 capital requirement will in­
crease to 4 percent and the total capital require­
ment will increase to 8 percent. Tier 1 capital
consists of common stock and its related sur­
plus, undivided profits and capital reserves (re­
tained earnings), noncumulative perpetual
preferred stock and its related surplus, minority
interests in consolidated subsidiaries and mort­
gage servicing rights (the FDIC definition of
eligible intangible assets) less net unrealized loss
on marketable equity securities. Tier 2 capital
consists of allowable subordinated debt and
limited life preferred stock, cumulative preferred
stock, mandatory convertible debt, the allowable
portion of the loan and lease loss allowance and
agricultural loss deferral. Risk-adjusted assets
are computed by attaching weights of 0, 20, 50
and 100 percent to on- and off-balance sheet as­
sets and subtracting disallowed intangible assets,
reciprocal capital holdings, the excess portion of
the allowance for loan and lease losses and the
allocated transfer risk reserve.

Net noninterest margin (NNIM)
An indicator of a bank’s operating efficien­
cy and its ability to generate income from
noninterest-earning assets; the NNIM is calcu­
lated by subtracting noninterest expense (over­
head) from noninterest income and dividing by
average assets. Noninterest expense is the sum
of the costs incurred in the bank’s day-to-day
operations, which includes employee salaries
and benefits. Noninterest income includes in­
come from fiduciary (trust) activities or service
charges on deposit accounts.
FOOTNOTES
1An agricultural bank is defined as a bank whose ratio of
farm loans to total loans exceeds the unweighted aver­
age of this ratio at all banks. As of June 1991, the ratio
stood at roughly 16.5 percent.
2Since this is strictly an intra-District comparison of farm
and nonfarm banks, the criteria for determining a farm
bank is applied using Eighth District banking data. Ac­
cordingly, this ratio may differ from the national average
because of the greater concentration of farm banks in
the Eighth District relative to the United States.
3Figure 1 shows year-end data from the Board of Gover­
nors of the Federal Reserve System. Thus, ROA is




measured here using total assets and contrasts with the
definition of ROA used throughout the remainder of this
paper (see shaded insert).
4June 30, 1991, data is used to calculate loan and asset
ratios because most farm loans are taken out by then
and then paid off in the third and fourth quarters. Thus,
June 30 data avoids the problems of “ window dressing”
and the omission of some loans; see footnote 2.
5Since farm banks tend to have higher equity capital
than nonfarm banks, farm banks must also have propor­
tionately more net income than nonfarm banks to have
higher ROEs (see shaded insert). This is a crucial dis­
tinction.

14

Eighth D istrict Business
L e v el

U
C/3




IV/1990IV/1991

108,921.0
6,960.1
965.1
258.7
1,489.2
491.2
2,322.9
1,172.4
2,182.9
482.5

- 0 .2 %
1.0
4.1
3.7
- 0 .3
2.1
0.8
1.1
0.6
4.1

18,335.0
1,454.2
238.4
284.2
416.2
515.5

19911

19901

- 0 .8 %
0.1
3.3
1.6
0.4
1.0
-0 .7
-1 .0
-0 .5
0.7

- 0.9%
0.2
3.0
1.6
1.0
2.0
-0 .7
-0 .9
-0 .5
0.8

1 .50/o
1.9
3.6
3.2
2.9
2.7
1.1
0.9
1.3
1.0

- 1 .8 %
1.2
3.0
2.4
-2 .4
2.7

- 2 .7 %
- 1 .0
2.5
-0 .6
-3 .3
- 0 .8

- 3.6%
-2 .0
1.4
-1 .5
-4 .4
-1 .9

- 1 .70/0
-0 .1
0.7
0.9
-0 .8
-0 .3

47.5
287.9
339.8
408.7
1,640.7
1,630.8
1,155.6

- 8 .0 %
1.5
0.7
2.4
5.0
-0 .1
-1 .7

- 6 .5 %
- 2 .5
- 0 .3
- 0 .0
2.2
-0 .4
0.9

- 4.30/o
-2 .5
-0 .1
0.5
2.6
0.0
1.0

2.0%
1.6
0.6
1.8
4.5
1.0
2.6

111/1991

11/1991111/1991

1990

1989

$3,538.0
195.7
25.6
42.5
67.9
59.7

0.0%
1.7
- 1 .5
3.9
1.8
1.4

IV/1991

111/1991

6.9%
7.0
7.5
6.4
8.1
7.3
6.3
6.9
6.8
5.8

6.8%
7.1
7.6
6.5
8.2
5.9
6.8
7.0
6.5
5.8

IV/1991

Payroll Employment (thousands)
United States
District
Arkansas
Little Rock
Kentucky
Louisville
Missouri
St. Louis
Tennessee
Memphis
M anufacturing
Employment (thousands)
United States
District
Arkansas
Kentucky
Missouri
Tennessee
District Nonmanufacturing
Employment (thousands)
Mining
Construction
FIRE2
Transportation3
Services
Trades
Government
Real Personal Income4 ( b i l l i o n s )
United States
District
Arkansas
Kentucky
Missouri
Tennessee

C o m p o u n d e d A n n u a l R a te s of C h a n g e
111/1991IV/1991

111/1990111/1991

- 0 .9 %
0.1
0.8
0.2
- 0 .6
0.5

1.1%
0.7
1.2
1.9
- 0 .3
0.9

2.9%
2.3
2.4
2.7
2.2
2.1

L e v e ls

Unemployment Rate
United States
District
Arkansas
Little Rock
Kentucky
Louisville
Missouri
St. Louis
Tennessee
Memphis

1991

6.70/0
6.8
7.4
6.3
7.4
6.1
6.6
6.8
6.5
5.5

1990

1989

5.5%
5.8
6.9
5.9
5.8
5.1
5.7
5.9
5.2
4.5

5 .30/0

5.8
7.2
6.3
6.2
5.6
5.5
5.5
5.1
4.7

Note: All data are seasonally adjusted. On this page only, the sum of data from Arkansas, Kentucky, Missouri and Tennessee
is used to represent the District.
1Figures are simple rates of change comparing year-to-year data.
2Finance, Insurance and Real Estate
transp ortatio n, Communications and Public Utilities
4Annual rate. Data deflated by CPI-U, 1982-84 = 100.

15

U. S. Prices
Level
IV/1991

C o m p o u n d e d A n n u a l R a te s of C h a n q e
111/1990IV/1991

IV/1990IV/1991

1990’

1991’

Consumer Price Index
( 1 9 82 - 8 4 = 10 0 )

Nonfood
Food

137.8
136.9

3 .6 %
1.2

3 .2 %
1.7

4 .5 %
2.9

5 .3 %
5.7

140.0
155.3
124.0

-2 0 .6 %
-9 .0
-3 2 .3

-3 .6 %
-7 .4
1.9

-2 .0 %
-5 .2
2.3

1 .6 %
6.5
-4 .8

172.0
189.0

-2 .2 %

-1 .1 %
1.1

1 .5 %
2.9

2 .3 %
3.2

Prices Received bv Farmers
(1977 = 10 0 )

All Products
Livestock
Crops

Prices Paid bv Farmers
( 1 9 7 7 = 100)

Production items
Other items2

0.0

Note: Data not seasonally adjusted except for Consumer Price Index.
’ Figures are simple rates of change comparing year-to-year data.
2Other items include farmers’ costs for commodities, services, interest, wages and taxes.

Eighth D istrict Banking

Changes in Financial Position for the year ending
December 31, 1991 (by Asset Size)
Less than
S100 million

SELECTED ASSETS
Securities
U.S. Treasury &
agency securities
Other securities'

Loans & Leases
Real estate
Commercial
Consumer
Agriculture
Loan loss reserve

Total Assets
SELECTED LIABILITIES
Deposits
Nontransaction accounts
MMDAs
Large time deposits
Demand deposits
Other transaction accounts2

Total Liabilities
Total Equity Capital

6 .1 %
8.9
-3 .6
-1 .0
3.8
-7 .0
-3 .8
5.5
6.8
0.5
0 .4 %
-0 .7
15.0
-8 .7
-3 .2
9.3
0.3
1.9

$100 million $300 million

1 6 .1 %
18.8
8.1
2.7
11.6
-1 1 .5
-3 .8
2 1 .7
9.1
6.6
7 .0 %
6.0
16.4
-9 .8
1.4
18.1
6.3
10.4

$300 million .
$1 billion

More than
$1 billion

9 .2 %
14.9
-8 .4
-5 .5
2.1
-1 6 .9
-5 .3
4 .7
4 .4
-2 .5
-2 .7 %
-3 .8
6.3
-2 7 .6
-6 .1
7.5
-2 .9
2.1

Note: All figures are simple rates of change comparing year-to-year data. Data are not seasonally adjusted.
’ Includes state, foreign and other domestic, and equity securities,
in clu d e s NOW, ATS and telephone and preauthorized transfer accounts.




2 8 .7 %
3 3 .4
15.2
3.8
15.7
-0 .4
-1 .3
4 1.3
11.7
6.8
5 .0 %
2.1
2 1.2
-3 1 .9
5.0
2 3.8
6.3
13.8

16

Performance Ratios (by Asset Size)
____________Eighth District__________

EARNINGS AND RETURNS
Annualized R eturn on Average
Assets
Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $5 billion
$5 billion - $15 billion
Agricultural banks
Annualized Return on Average
Equity
Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $5 billion
$5 billion - $15 billion
Agricultural banks
Net Interest M argin1
Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $5 billion
$5 billion - $15 billion
Agricultural banks
ASSET QUALITY2
Nonperforming Loans3
Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $5 billion
$5 billion - $15 billion
Agricultural banks
Loan Loss Reserves
Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $5 billion
$5 billion - $15 billion
Agricultural banks
Net Loan Losses4
Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $5 billion
$5 billion - $15 billion
Agricultural banks

____________ United States

IV/91

IV/90

IV/89

IV/91

IV/90

IV/89

.9 1 %
1.01
.90
1.00
.81
1.11

.9 5 %
.96
.97
.83
.61
1.10

1 .0 3 %
1.04
1.05
.47
.82
1.08

.810/0
.84
.76
.55
.61
1.05

.7 3 %
.87
.74
.47
.21
1.02

.7 8 %
.94
.82
.70
.50
1.01

9 .9 4 %
12.18
1 1.10
1 4 .8 7
12.64
11.69

1 0 .370/o
11.71
1 2 .5 0
1 2 .5 2
9 .4 2
1 1 .6 3

1 1 .2 4 %
1 2 .7 8
1 3 .4 9
7 .2 4
1 2 .9 7
1 1 .4 4

8 .850/0
10.41
9.91
7 .8 2
9 .7 2
1 1 .2 6

8 .O30/0
10 .7 6
9 .8 7
6 .9 4
3 .6 4
1 0 .9 6

8.57o/o
1 1 .85
1 1 .4 3
10 .48
8 .5 6
1 0 .8 7

4 .3 3 %
4.21
4 .2 3
4.31
3.71
4 .3 2

4 .3 0 %
4 .2 5
4 .4 4
4 .1 4
3 .6 0
4 .2 2

4 .3 5 %
4.41
4 .5 7
4 .0 6
4 .0 2
4 .2 7

4 .6 1 %
4 .6 6
4 .6 3
4 .5 8
4 .4 2
4 .4 0

4 .6 0 %
4 .6 5
4 .7 3
4 .3 3
4 .1 8
4 .3 2

4 .7 6 %
4 .8 6
4 .7 6
4 .4 4
4 .3 6
4 .4 3

1 .6 2 %
1.71
1.78
1.48
1.96
1.62

1 .5 8 %
1.82
1.60
1.63
2 .7 0
1.61

1 .570/o
1 .64
1.45
1 .56
1 .75
1 .76

1 .9 1 %
2 .1 2
2 .4 6
3 .3 2
3 .6 4
1.67

1 .9 9 %
2.01
2.51
3.11
4 .2 5
1.72

2 .1 1 %
1.92
2.31
2 .1 5
2 .9 8
2 .0 0

1 .5 9 %
1.61
1.60
1.90
1 .9 7
1.63

1 .470/o
1.51
1 .45
1 .7 7
1.83
1.59

1 .4 6 %
1.47
1.44
1.80
1.40
1.65

1.720/0
1.69
1.91
2 .7 3
2 .8 7
1.81

1 .6 6 %
1.56
1.85
2 .2 0
2 .9 4
1.81

1 .680/0
1 .48
1.63
1 .74
2 .3 6
1.92

.5 8 %
.67
.68
.76
1.19
.44

.5 0 %
.64
.64
.86
1.11
.38

.4 6 %
.57
.55
.87
1 .35
.52

.6 5 %
.81
1.01
1.62
1.80
.44

.6 6 %
.71
.95
1.22
1.71
.46

.7 3 %
.65
.83
.91
1.31
.62

Note: Agricultural banks are defined as those banks with a greater than average share of agriculture loans to total loans.
11nterest income less interest expense as a percent of average earning assets
2Asset quality ratios are calculated as a percent of total loans.
3Nonperforming loans include loans past due more than 89 days and nonaccrual loans.
4Loan losses are adjusted for recoveries.





Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102