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SECOND MEETING ON THE CONDITION OF THE BANKING SYSTEM LB A·Y SEP 20 1~ld HEARING BEFORE THE RAL RES.EAVE BAN, F NEV YORK COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS UNITED STATES SENATE NINETY-FIFTH CONGRESS SECOND SESSION ON THE SECOND REGULAR OVERSIGHT MEETING ON THE CONDITION OF THE BANKING INDUSTRY ~IA Y 25, 1978 Printed for the use of the Committee on Banking, Housing, and Urban Affairs https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SECOND MEETING ON THE CONDITION OF THE BANKING SYSTEM HEARING BEFORE THE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS UNITED STATES SENATE NINETY-FIFTH CONGRESS SECOND SESSION ON THE SECOND REGULAR OVERSIGHT MEETING ON THE OONDITION OF THE BANKING INDUSTRY MAY 25, 1978 Printed for the use of the Committee on Banking, Housing, and Urban Affairs U.S. GOVERNMENT PRINTING OFFICE 30-476 0 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis WASHINGTON : 1978 COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS WILLIAM PROXMIRE, Wisconsin, Ohalrman JOHN SPARKMAN, Alabama EDWARD W. BROOKE, Massachusetts HARRISON A. WILLIAMS, JR., New Jersey JOHN TOWER, Texas THOMAS J. McINTYRE, New Hampshire JAKE GARN, Utah ALAN CRANSTON, Callfornla H. JOHN HEINZ III, Pennsylvania ADLAI E. STEVENSON, Illlnois RICHARD G. LUGAR, Indiana ROBERT MORGAN, North Carolina HARRISON SCHMITT, New Mexico DONALD W. RIEGLE, JR., Michigan PAULS. SARBANES, Maryland KENNETH A. McLEAN, 8taf/ Director JEREMIAH s. BUCKLEY, Minority 8taf/ Director CHARLES L. MARINACCIO, Special Oounael https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis (U) CONTENTS Page Opening statement of Senator Proxmire______________________________ Opening statement of Senator Schmitt_______________________________ 1 2 LIST OF WITNESSES G. William Miller, Chairman, Federal Reserve Board__________________ Philip E. Coldwell, Governor, Federal Reserve Board__________________ John Heimann, Comptroller of the Currency__________________________ George LeMaistre, Chairman, Federal Deposit Insurance Corporation____ 3 5 53 82 ADDITIONAL STATEMENTS AND DATA Comptroller of the Currency: Letter with updated Schedule A-3 dated May 5, 1978 from John G. Heimann, Comptroller ______________________________________ _ Questions submitted for response to John G. Heimann from Senator Proxmire, dated December 15, 1977 ___________________________ _ Letter to Senator Proxmire dated May 26, 1978 from John G._ Heimann __________________________________________________ Remarks of John G. Heimann before The Bankers Association of Foreign Trade, Hot Springs, Va., May 16, 1978 ________________ _ "International Intermediations," a perspective by John G. Heimann, April 3, 1978 _______________________________________________ _ Notice of proposed rulemaking on loans to foreign governments, their agencies, and instrumentalities _______________________________ _ Letter with responses to Senator Proxmire's questions of December 15, 1978 from John G. Heimann _________________________________ _ Federal Deposit Insurance Corporation: Questions submitted for response to George LeMaistre, Chairman, from Senator Proxmire, dated December 15, 1977 _______________ _ Response to questions of Senator Proxmire from George A. LeMaistre, Chairman, dated March 3, 1978: Insured State nonmember commercial banks _________________ _ State member banks ______________________________________ _ National banks ___________________________________________ _ The categories of problem banks utilized by FDIC, along with description of characteristics considered in categorizing a particular institution _______________________________________ _ Summary of FDIC problem bank list semiannually for 1976 and 1977, by size and type of charter _________________________ _ Number of insured State nonmember banks moving into and out of each problem category, along with their assets and deposits-1973-77 ________________________________________ _ Selected examination report data 1972-77, for all insured State nonmember commercial banks and, 1973-77 data for all insured State nonmember problem banks ____________________ _ Violations of law uncovered by examiners ____________________ _ Summary of formal actions taken by FDIC in 1977 to terminate insurance, to issue cease and desist orders, and to remove or suspend individuals, under section 8 of the Federal Deposit_ Insurance Act __________________________________________ Insured State nonmember banks closed in 1977 _______________ _ State nonmember banks merged in 1977 under emergency Flrcvi~i:itice regarding - International -Monetary Fund disciplinary standby agreements ______________________________ _ Summary of country exposure report ________________________ _ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis (lll) 167 500 353 355 361 365 372 266 266 275 279 283 292 297 300 315 316 332 333 334 335 IV Federal Deposit Insurance Corporation-Continued Letter with revised exhibit A-1 to Senator Proxmire from George A. LeMaistr.e, Chairman, dated April 27, 1978 ____________________ _ Exce~p~s from section H-Loans-in FDIC manual of examination_ policies ____________________________________________________ Federal Reserve System: Response of written questions to G. William Miller, Chairman, from Senator Proxmire, June 9, 1978 _______________________________ _ "International Lending and the Euromarkets," remarks by Henry C. Wallich, Member, Board of Governors, at 1978 Euromarkets Conferenc in London, England, May 9, 1978 ______________________ _ Letter to Senator Proxmire with addendum of financial data for State member banks, from G. William Miller, Chairman _________ _ Questions submitted for response to Arthur F. Burns, Chairman, from Senator Proxmire, dated December 15, 1977 ___________________ _ Response to questions of Senator Proxmire from Arthur Burns, Feburary 27, 1978 __________________________________________ _ Information concerning State member banks prepared by the Board of Governors of the Federal Reserve System for the 1978 hearings on the Conditions of the Banking System: Current bank rating system used by the Federal Reserve ______ _ Composite ratings of State member banks, 1972-77 ___________ _ Changes in composite ratings of State member banks, 1973-77 __ Unusual or emergency borrowing by member banks, 1974-77 __ _ Federal Reserve policy regarding bank lending to foreign countries subject to IMF standby agreements __________________ _ Classified assets of State member banks _____________________ _ Percentage of classified assets to total capital of State member_ banks _________________________________________________ Loan commitments at selected large commercial banks ________ _ Orders and agreements executed by Board of Governors of the Federal Reserve System, 1977 ____________________________ _ Written agreements executed by Federal Reserve Banks, 1977 __ Apparent violations of law cited by examiners ________________ _ Failed State member banks, 1972-77 ________________________ _ Mergers, acquisitions by holding company and purchase and assumption transactions effected to avert failures, 1972-77 __ _ Library of Congress, Congressional Research Service: Letter to Charles L. Marinaccio with data and charts for hearings on Condition of the Banking, System from Curtiss- Martin, analyst, Economics Division, May 24, 1978 _______________________________ _ Letter to Charles L. Marinaccio with definition of "Net Interest Margin as a Percent of Average Earning Assets," from Curtiss Martin, analyst, Economics Division, May 22, 1978 ____________________________ _ 'Pase 177 108 189 209 172 184 227 229 234 235 240 243 251 252 253 255 258 259 262 263 166 182 TABLES AND CHARTS 1. Number and total assets of State member banks with composite 3 or 4 ratings, 1972-77 ___ __ __ __ __ __ __ __ __ __ ____ __ ____ __ __ __ __ ____ __ __ 2. Amount and growth of total assets and total loans of all insured commercial banks, 1970-77 ___ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ 3. Amount of classified assets of member banks, 1973-77_______________ 4. Classified assets of member banks as a percent of total assets, 1973-77 __ 5. Provision for loan losses as a percent of total Joans for all insured commercial banks, 1970-77 _______________ ________________________ __ 6. Provision for loan losses as a percent of pretax income for all insured commercial banks, 1970-77_____________________________________ 7. Amount and growth of equity capital of all insured commercial banks, 1970-77______________________________________________________ 8. Capital ratios for all insured commercial banks, 1970-77 _____________ 9. Amount and growth of net income of all insured commercial banks, 1970-77______________________________________________________ 10. Net income as a percent of total assets for all insured commercial banks, 1970-77____________________________________________________ 11. Net income as a percent of equity capital for all insured commercial banks, 1970-77 ____ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ 12. Dividend payout ratio for all insured commercial banks, 1970-77_____ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 26 27 28 29 30 31 32 33 34 35 36 37 V !Paire Cross-border and nonlocal currency claims by residence of borrower______ Cross-border and nonlocal currency claims on foreigners by country of guarantor_______________________________________________________ Contingent cross-border and nonlocal currency claims by country of residence_______________________________________________________ Dollar-liabilities of banking offices outside the United States to nonbank U.S. residents___________________________________________________ Federal Reserve System, financial data for State member banks, 1972-77 _ FDIC revised exhibits of A-1 to previous submission on condition and income data for State nonmember commercial banks using consolidated domestic and foreign statements___________________________________ Growth rates for total assets and total capitaL____ __ __ __ __ __ __ __ __ __ __ Interest spreads and maturities of Euro-currency credits to selected countries arranged by category____________________________________ Library of Congress, Congressional Research Service, report on U.S. Commercial Banks: Selected data series illustrating the financial condition of the industry, by Roger S. White and Curtiss Martin, analysts: Problem banks: FDIC problem bank summary, total assets, total deposits and number of insured problem banks, 1975-77 _________________ National banks requiring special supervisory attention, number and total deposits, 1975-77_______________________________ State member problem banks (categories 3 and 4), number and total deposits, 1972-77 ----------------------------------Insured nonmember problem banks, number and total deposits, 1975-77________________________________________________ Bank failures: All insured banks failed or absorbed to avert failures, number and total assets, 1973-77 _____________________________________ National banks failed or absorbed to avert failure, number and total assets, 1973-77 _____________________________________ State member banks failed or absorbed to avert failure, number and total assets, 1973-77 _ -------------------------------Insured nonmember banks failed or absorbed to avert failure, number and total assets, 1973-77__ __ __ __ __ __ __ __ __ __ __ __ __ Capitalization: Total capital as a percent of total assets, national banks, selected size categories, 1972-77 _____ __ __ __ __ ____ __ __ __ __ ____ __ __ __ Total capital as a percent of total assets, State member banks, selected size categories, 1972-77 _________________________ -Total capital as a percent of total assets, insured nonmember banks, selected size categories, 1972-77 _______________ -- ---Total capital as a percent of risk assets, national banks, selected size categories, 1972-77___________________________________ Total capital as a percent of risk assets, State member banks, selected size categories, 1972-77 --------------------------Total capital as a percent of risk assets, insured nonmember banks, selected size categories, 1972-77 ___________________________ Quality of Assets: Classified assets as a percent of gross capital funds, national banks, selected size categories, 1972-77 ___________________________ Classified assets as a percent of total capital, State member banks, selected size categories, 1972-77___________________________ Classified assets as a percent of total capital, insured nonmember banks, selected size categories, 1972-77 _______________ -- -- -Net loan losses as a percent of average total loans, national banks, selected size categories, 1972-77 --------------------------Net loan losses as a percent of average total loans, State member banks, selected size categories, 1972-76_____________________ Net loan losses as a percent of average total loans, insured nonmember banks, selected size categories, 1972-77 _____________ Real estate owned other than bank premises, national banks, selected size categories, 1972-77 ___________________ -- -- -- -Real estate owned other than bank premises, State member banks, selected size categories, 1972-77 --------------------------Real estate owned other than bank premises, insured nonmember banks, selected size categories, 1972-77_____________________ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 341 345 349 220 173 178 73 219 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 VI P.IIP Library of Congress-Continued Liquidity: Total loans as a percent of total deposits, national banks selected size categories, 1972-77 __________________________________ _ 151 Total loans as a percent of total deposits, State member banks, 152 selected size categories, 1972-77 --------------------------Total loans as a percent of total deposits, insured nonmember banks, selected size categories, 1972-77 ____________________ _ 153 30-day average borrowings as a percent of 30-day average deposits, national banks, selected size categories, 1972-77 ______ _ 154 30-day average borrowings as a percent of 30-day average deposits, insured nonmember banks, selected size r.ategories, 1972-77 _______________________________________________ _ 155 Total standby letters of credit, insured banks, selected size categories, 1977 ________________________________________ _ 156 Total standby letters of credit, national banks, selected size categories, 1973-77 ____________________________________ -157 Total standby letters of credit, State member banks, selected size categories, 1973-77 _______________________ -- ____ -- __ -158 Income: Net income as a percent of average equity capital, national banks, selected size categories, 1972-77 __________________________ _ 159 Net income as a percent of average equity capital, State member banks, selected size categories, 1972-76 ____________________ _ 160 Net income as a percent of average equity capital, insured nonmember banks, selected size categories, 1972-77 ____________ _ 161 Net interest margin as a percent of average earning assets, national banks, selected size categories, 1972-77 ____________________ _ 162 Net interest margin as a percent of average earning assets, State member banks, selected size categories, 1972-76 ____________ _ 163 Net interest margin as a percent of average earning assets, nonmember insured banks, selected size categories, 1972-77 _____ _ 164 Other: Extensions of credit to directors, officers, employees, and their interests, national banks, by deposit size categories, 1977 ____ _ 165 National banks: Total deposits in foreign and domestic offices, 1972-77 ____________ _ 168 Requiring special supervisory attention by category _______________ _ 389 Previously rated group 3 and 4 under rating system discontinued in 1977 ______________________________________________________ _ 392 Requiring special supervisory attention reconciliation_____________ _ 399 With assets over $5 billion aggregate and average classified assets, 1973-77 ___________________________________________________ _ 431 With assets between $1 and $5 billion aggregate and average classified_ _____________________________________________________ assets 432 With assets under $1 billion aggregate classified assets, average classified assets and classified assets as a percentage of gross capital funds 1972-77 ___________________________________________________ _ 433 Requiring special supervision attention aggregate and average classi-_ fied assets _________________________________________________ 434 Over $1 billion extension of credit to directors, officers, employees and their interests, 1977_________________________________________ _ 452 Requiring supervisory attention, extensions of credit to directors, officers, employees, and their interests, 1977 ____________________ _ 453 Violations of law or regulations of banks with assets over $1 billion ____ _ 472 law or regulation of banks requiring special supervisory_ Violations attentionof__________________________________________________ Failed national banks 1973-77 _____________________________________ _ 473 474 Formal administrative actions taken by the Comptroller pursuant to the cease and desist provisions of the financial institutions supervisory act 454 1966----------------------------------------------------------Mergers, acquisitions by holding company and purchase and assumption transactions effected to avert failures, 1973-77______________________ _ 489 NBSS selected ratios for national bank peer groups for 1972-77 __________ _ 75 Percentage of total capital to total assets ____________________________ _ 74 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis VII Report of gross nonreservable borrowings in immediately available funds, 7 day average dollar amounts: 1. For statement week ended December 7, 1977 _ _ ___ ___ ___ ______ 2. For statement week ended December 7, 1977 _ _ _______________ 3. For statement week ended April. 24, 1977 ____________________ Samples of national bank surveillance system, printouts and glossary of terms: Bank performance report_______________________________________ Significant ratios______________________________________________ Consolidated trend of conditions_________________________________ Asset distribution______________________________________________ Liability distribution___________________________________________ Investment securities information________________________________ Loan mix_____________________________________________________ Deposit distribution___________________________________________ Income statement-tax equivalent_______________________________ Net income components________________________________________ Interest income components____________________________________ Interest expense components____________________________________ Noninterest expense components ______ -------------------------Income taxes and nonoperating income___________________________ Capital analysis_______________________________________________ Additional capital factors and dividend analysis___________________ Analysis of reserve for possible loan losses________________________ Capacity to hedge interest margins______________________________ Asset and liability changes______________________________________ Past due loan analysis and amended reports______________________ NBSS action control status report_______________________________ Selected data for all insured commercial banks________________________ Selected ratio summaries of all national banks for 1975-77______________ Selected ratios for consolidated domestic and foreign offices of insured banks, 1972-77 ____ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ Tangled web of bank regulation_____________________________________ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis !Page 224 225 226 511 512 513 515 516 517 518 519 520 521 522 523 524 525 526 527 528 529 530 531 536 86 511 105 83 SECOND MEETING ON THE CONDITION OF THE BANKING SYSTEM THURSDAY, MAY 25, 1978 U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, W askington, D.O. The committee met rut 10 a.m. in room 5302, Dirksen Senate Office Building, Senator William Proxmire ( chairman of the committee) presiding. Present : Senators Proxmire and Sclunitt. OPENING STATEMENT OF CHAIRMAN PROXMIRE The CHAIRMAN. The committee will come to order. This morning we hold our second meeting on the condition of the banking system. We welcome Chairman Miller as the opening witness. As you know, the then Chail'ililan Burns of the Federal Reserve recommended last year that this committee hold hearings once or twice each calendar year on this subject. I am hopeful that we can work these hearings into the committee's schedule in the early spring and fall. It's important that the Congress and the public be fully informed of the condition of the banking system. A safe and sound banking system is ~ntial to a well functioning domestic and international economy. Banks must take risks in making loans but they must prudently assess the risks they take. Managing a bank without a prudent regard for risks leads to bank weaknesses which inhibit bank services to the community. The best safeguard is an adequately capitalized banking system backed up by regulators who are not reluctant about using their powers to a:bate unsafe or unsound banking practices. When Chairman Burns testHied he frankly admitted that banks were not adequately capitalized and the system has further deteriorated, particularly among the largest banks, those with assests over $5 billion. It seems to me that Chairman Burns sugp:ested an 8-percent ratio between capital and total assests as a rule of thumb, and on December 31, 1976 national banks in the size category over $5 billion had a capital to total asset ratio of 4.83 percent and total capital to risk assests was 6.4 to 7 percent. As of 1977 these percentages had worsened. We are now 3 years into an economic reoovery. Bank capital ratios have improved only slightly siI11Ce 1974. Now they appear to be trending slightly down. I am concerned that the banking system https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis (1) 2 may not be rebounding as it should m this period of economic recovery. Other indicators give rise to a similar concern. According to the FDIC classifications, insured problem banks increased from 280 with $25 billion in assets at the end of 1975 to 301 banks with $74 billion in assets at the end of 1976; 286 banks with $278 billion in assets at the end of 1977, down slightly from 290 banks with assets of $190 billion in mid-year 1977. Classified assets as a percentage of capital have not improved, whereas at the end of 1976 classified assets represented over 100 percent of capital of such banks, most recent data shows for State member and na.tional banks the percentage remains high-improved slightly, from 96 to 81 percent respectively. If the banking system does not recover sufficiently in this period of recovery, what will be the consequences for the financial system and the economy in the future? Is the regulatory system capable of doing the job that needs to be done to insure a healthy banking system? Are there siguificant legislative needs that the Congress needs to address? I hope we can have a fruitful discussion on these matters this morning. OPENING STATEMENT OF SENATOR SCHMITT Senator ScHMIT.r. Mr. Chairman, it is a pleasure to have an opportunity to discuss the condition of the banking system with the distinguished witnesses here today. The health of the banking system is dependent not only upon the activities of the marketplace and the condition of the economy as a whole, but very siguificantly upon the actions of the Federal Government, and particularly the Congress. The recent committe·e action on electronic funds transfer legislation is a case in point. Although there is no record of abuse in this area, the committee was called upon to act with urgency. Apparently, after running out of other things to regulate, we must turn to problems that exist only in the minds of politicians. EFT is an extremely complex, little known area, and although the committee had many sessions devoted to considering this bill, I was left with the impression that there is still a great deal about this subject that Congress should know before enacting legislation that will result in further regulation of the national banking system. In particular, I am concerned with the absence of any cost-benefit analysis of legislation such as this and its economic and judicial impact on the country as a whole. I think we need a great deal more information to deal with complex areas like this if Congress is to avoid passing legislation as we have so often in the past, that is going to cause more problems than it seeks to cure. My major concern is that, in general, much Federal regulatory activity takes place in a near-vacuum. While members of Congress may be familiar with the basic provisions of legisl,ation, onoe it is passed, it is often forgotten, and the great task of issuing regulations and enforcing them goes on in a hidden realm that is inaccessible to much of the public, and much of Congress as well. I am refer- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 ring, o:f course, to the bureaucracy. It is time for the costs o:f this regulatory process to be brought out into the light where it can be seen by all. I have recently introduced a bill, S. 2011, the Regulatory Reduction and Congressional Control Act o:f 1978, which would require major regulatory initiatives to be submitted to Congress, along with economic, judicial and paperwork impact statements. These impact statements for major regulations could then be reviewed by the appropriate committee, and perhaps referred to the General Accounting Office :for a thorough analysis and impact modeling to determine the overall, long-term effect on the economy and the public o:f legislation passed by Congress. For many legislators, I :feel this could be a sobering experience that may temper, somewhat, the prevailing sentiment in this body to regulate every conceivable aspect o:f the economy. Beoause this procedure :for handling Federal regulations will impact upon each of your institutions, I will provide you with copies o:f this legislation, and will ask for your comments :for the committee's record. The cost o:f regulating the American economy has been estimated to be over $100 billion a year, according to a recent study :for the ,Joint Economic Committee by Dr. Murray Weidenbaum of Washington University. It is time for Congress to take notice of these costs and to take them into account in considering legislation. The CHAIRMAN. Mr. Miller, welcome, and I look :forward to your testimony. STATEMENT OF G. WILLIAM MILLER, CHAIRMAN, FEDERAL RESERVE BOARD Mr. MILLER. Thank you very much, Chairman Proxmire. Governor Coldwell and I appreciate :the opportunity to be here. We have submitted testimony which I suggest be included in full in the record. I would like to highlight-The CHAIRMAN. I would appreciate that. The statement will be printed in full in the record and you may proceed any way you wish. Mr. MILLER. Then perhaps I can hit a :few highlights and move on to a discussion which might be more interesting; I can respond to your questions and interests, rather than try to take too much of your time repeating what is already in the :formal statement. We do share with you the :feeling that these are helpful hearings, and we do believe it will. be helpful to continue this process. The banking system is too 1mportant to our Nation to overlook the opportunity :for a continuin~ dialog and discussion about its condition. We are going to divide our presentation this morning into two parts. I'd like to cover some of the broader issues and Governor Coldwell will give you a more detailed report. The first thing I would like to comment on is the changes that have been taking place in the banking system-a few o:f the factors that are influencing the banking industry and affecting its conditions. One of theRe factors is, o:f course, the rapid development o:f multinational activities. The more interdependent world economy has led https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4 to more multi-national banking. U.S. banks have substantially expanded their service offerings and have increased the number of locations where they provide services. Now, in one way, this can be a positive development because it does open up new profit opportunities for U.S. banks which can strengthen their capital ratios. It also permits a degree of diversity which can reduce their risks. On the other hand, there can be some negative aspects to this development, because in expanding into international markets, banks are taking on new kinds of risks-currency risks and country risks-and such expansion into new and more complex areas does stretch the capacity of management. Another factor influencing the banking industry is that conditions have become more competitive: there's more interregional competition; there's more competition, obviously, with foreign banks as U.S. banks increase operations abroad; and there's also more competition from foreign banks in the United States. So there is a general increase in competition. Beyond that, there's been a gradual homogenizing of the entire financial sector. Savings and loan associations, mutual savings banks and credit unions are becoming, in many ways, more like banks. So there's increased competition not just within commercial banking, but also among financial institutions. Obviously, mcreased competition can be valuable for customers. But from the point of view of banks, it does put more downward pressure on profit margins. This makes it hard to build up capital/ assets ratios along the more desirable lines you were mentioning; profit margin pressures mean that it's going to take additional effort and ingenuity and innovation to strengthen the banking system. The third change is that we have had a more hospitable economic environment in recent years. As you mentioned, we are in the third year of recovery, and banks have been able to benefit from a better environment. But during the earlier years of the 1970s, the environment was quite difficult: in the recession of 1974-75, banks did experience large loan losses and they did have to reexamine some of their practices in order to return to a more conservative philosophy in the light of the economic environment. To those brief comments, I'd like to add that the Board's overall assessment of the current condition of the banking system is that it is good-not very good and not excellent-but good. The reason for the continuing improvement is, first, that we do have a healthier economy; and second, that bankers have been more conservative, paid more attention to their capital ratios, and tried harder to work out troubled loans. Finally, bank supervisors can take some credit for more diligent efforts that have helped improve the banking system. Despite the fact that the condition of the banking system, is good, there are still some problems. There are too many problem banks today, and there are too many troubled loans in bank portfolios. Another important challenge is posed by the continuing erosion of membership in the Federal Reserve System. Over the past 5 years 254 banks have left the System, and the proportion of total bank https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5 deposits held by member banks has dropped from 77 percent to 72 percent. The increased willingness of banks to drop their membership in the Federal Reserve System has a simple cause. It's just too costly to be a member. Member banks are required to hold a significantly larger portion of their assets in nonearning cash reserves than are other banks and savings institutions. In this period of inflation and increased completition between banks and other institutions in providing payment services, the burdens of membership is particularly severe. Fair competition among member banks and other depository and credit institutions require that this membership burden be eliminated. If it is not, we can expect a continued, and probably an accelerated, erosion of membership in the Federal Reserve. This threatens to weaken our financial system as more and more of the nation's payment and credit transactions are handled outside the safe channels of the Federal Reserve, as fewer and fewer banks have immediate access to Federal Reserve credit facilities, as a national presence in bank supervisory and regulatory functions becomes increasingly diluted, and as the implementation of monetary policy becomes more difficult. With these brief comments on the general situation, I would like to ask Governor Coldwell to report in more detail. The CHAIRMAN. Governor Coldwell, we are delighted to have you. I didn't mean to omit you in our welcome. You are alwa7,s an excellent witness and you're a brilliant man. You have testified with great benefit to the committee many times. Go right ahead, sir. STATEMENT OF PHILIP E. COLDWELL, GOVERNOR, FEDERAL RESERVE BOARD Mr. ComWELL. Thank you, Mr. Chairman. I will try to condense the 14 or 15 pages of my formal statement to highlight a few points. First, I will review the principal indices of bank soundness: We are talking here about bank asset quality, liquidity, capital and earnings. With regard to bank asset quality, during 1977, the amount of classified assets of insured banks declined about 10 percent after more than tripling between 1973 and 1975. [ Complete statement and charts of Mr. Miller and Mr. Coldwell follow:] https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 6 Statement by G. William Miller Chairman, Board of Governors of the Federal Reserve System and Philip E. Coldwell Member, Board of Governors of the Federal Reserve System Governor Coldwell and I appreciate the opportunity to appear before this Committee today to testify on the condition of the U.S. banking system. Before connnencing our testimony, I want to emphasize the Board of Governors' support for these annual hearings. The Board believes that the impact that our banking system has on our economy is too important to go without periodic review and hopes that hearings of this kind will add to the public's understanding of the banking system and will enable all of us to view specific problems in a better perspective. The Board's testimony today will be in two parts. In the first part, I will discuss several fundamental changes taking place in the banking environment, and will present, in general terms, the Board's current assessment of the condition of the banking system. In the second part of our testimony, Governor Coldwell will review in greater detail recent trends in the principal indices of bank soundness. Perhaps the factor that has resulted in the most far reaching changes to the banking environment has been the rapid development of a more interdependent worla-wide economic system. This modern-day phenomenon was brought about by improvements in communications, transportation and by the uneven distribution of resources among countries. Re~ponding to the opJ;>Ortunities afforded by the global economy, American banks have substantially expanded https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 7 their service offerings and have increased greatly the number of locations at which these services are provided. Accelerating demands for new banking services can have both positive and negative implications for bank soundness. On the plus side, they can open up important new profit opportunities. For example, some American banks that blazed the trail in international banking have found this area to be particularly profitable and now derive a substantial amount of their current earnings from this source. Moreover, developing new products and serving additional geographic areas enable banks to diversify their operations, thereby reducing risk. On the other hand, serving new product and geographic markets can present problems. Such expansion requires bankers to acquire new skills and to assimilate a -great deal more information. It also requires bankers to cope with new types of risks. For example, the expansion of U.S. banks abroad has required management to deal with such forms of risks as country risk and foreign-exchange risk. A second major change in the banking environment in recent years is that banking has become considerably more competitive. trend is evident almost everywhere we look. This We see the large money- center banks opening loan production offices throughout the nation and competing against the large regional banks for business loans. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 8 We see banking organizations, through the holding company structure, expanding throughout much of the nation to serve local mortgage and consumer lending markets. We also see large U.S. banks competing more and more with large foreign banks in the major financial centers abroad. the u.s., And, finally, we have seen foreign banks enter sometimes on a more favorable basis, and win a significant portion of the business loan market. In addition to this increasing competition within conunercial banking, we are witnessing a gradual homogenizing of the entire financial sector. Little by little, savings and loan associations, mutual savings banks and credit unions are becoming more like banks as limiting legislation is removed and new ways to avoid restrictive barriers are found. To a lesser extent, banks are also experiencing increased competition from other types of financial institutions and even from some firms outside the financial sector. This constantly increasing competitive environment is certainly desirable for bank customers. But for banks, increased competition may exert downward pressure on profit margins. With profit margins falling, banks in recent years have had the option of accepting these lower margins or taking greater risks in order to maintain them. Banks have responded by doing both. Finally, during the 1970s, banks also have had to operate in a much less hospitable economic environment than during the two https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9 previous decades. This was most dramatically demonstrated by the deep recession in 1974-75 when banks experienced large loan losses and had to contend with the only significant erosion of public confidence in banks in several decades. However, the banking system did weather the problems of the mid-1970s, and since then bank managements have become more conservative in their philosophy and operations. Yet, given the key role that banks must play in financing our economy, there are obvious limitations in the adjustments that managements can make. Consequently, if the domestic and international economy in the future should continue to exhibit the degree of instability of the 1970s, we must expect that some banks will experience occasional problems. Having discussed some of the recent fundamental changes in the environment in which banks operate, I would like to turn to the Board's overall assessment of the current condition of the banking system. During last year's testimony, Chairman Burns stated that the condition of the banking system had improved during 1976. I am happy to report that--by most traditional measures--this i.inprovement continued during 1977 and into early 1978. Moreover, in the Board's judgment, the banking system today is in good condition. Probably the most important factor accounting for the improvement in banking in the last year or so has been the continued expansion of the economy. 30-476 0 - 78 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 2 Last year, real gross national product 10 rose almost 5 percent, after rising 6 percent the previous year. This steady expansion in the economy clearly played a role in the decline in bank failures in 1977 to only six. But the improvement in the condition of the banking system has been due to more than a healthier economy. In the past several years, bankers have demonstrated a more conservative approach to lending, capital and liquidity than they exhibited during the early 1970s. Moreover, bankers have been diligent in trying to work out the large amount of loans that became troublesome during the recent recession. Finally, I believe that bank supervisors can claim some credit for the improvements in banking. During the last few years, they have used a variety of measures to persuade individual banks to strengthen their financial conditions and to avoid unwarranted expansion. So far I have painted a rather positive picture of recent trends in the condition of the banking system. However, I want to emphasize that problems and challenges still remain. The number of problem banks is still large by historical standards and the volume of troubled loans in bank portfolios is still uncomfortably high. These and other problems will continue to require the close attention of both bankers and bank supervisors. Another important challenge is posed by the continuing erosion of membership in the Federal Reserve System. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis over the past 11 five years, 254 banks have left the System, and the proportion of total bank deposits held by member banks has dropped from 77 percent to 72 percent. The increased willingness of banks to drop their membership in the Federal Reserve System has a simple cause. too costly to be a member. It is just Member banks are required to hold a significantly larger proportion of their assets as non-earning cash reserves than are other banks and savings institutions. And in this period of inflation and increased competition between banks and other institutions in providing payments services, the burden of membership is particularly severe. Fair competition among member banks and other depository and credit institutions requires that this membership burden be eliminated. If it is not, we can expect a continued, probably an accelerated, erosion of membership in the Federal Reserve. This threatens to weaken our financial system, as more and more of the nation's payments and credit transactions are handled outside the safe channels of the Federal Reserve, as fewer and fewer banks have immediate access to Federal Reserve Bank credit facilities, as a national presence in bank supervisory and regulatory functions becomes increasingly diluted, and as implementation of monetary policy becomes more difficult. I have now completed my general remarks. Governor Coldwell will now present the balance of the Board's testimony. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 12 Mr. Chairman, I would first like to review recent trends in the principal indices of bank soundness. These indices include bank asset quality, liquidity, capital and earnings. In our judgment, an understanding of trends in these indices is crucial in evaluating the current condition of the banking system and formulating bank· supervisory policy. The quality of bank assets is reflected by the volume of assets classified by bank examiners and by the volume of nonearning assets being carried by banks. During 1977, the amount of classified assets of insured banks declined by about 10 percent, after more than tripling between 1973 and 1975. Moreover, the amount of assets classified by examiners as doubtful and loss-the two most serious classifications--declined by about 20 percent. Banks with assets exceeding $5 billion experienced a slightly greater relative decline in classified assets than did the rest of the banking system. However, these large banks still have a much higher level of classified assets relative to their capital than do other banks. Other measures of bank asset quality also have shown marked improvement. assets (which include Available data indicate that nonperforming non-accruing loans, renegotiated loans, and real estate acquired in foreclosure) fell roughly 15 percent last year--despite a 13 percent rise in total bank assets. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 13 The major a~set problem still facing banks is troubled real estate loans. Many of these loans were made during the real estate boom of the earlY. 1970s to finance projects that became at least temporarily difficult to market. Many banks have been forced to carry large amounts of these loans on a non-earning basis, thereby depressing their earnings. During 1977 and early 1978, the demand for these real estate projects continued to pick up, and as projects were sold off, the quality of bank real estate portfolios improved. This progress, however, has been slow, and still more time and improvement in certain segments of the real estate sector will be required before these loans are worked down to a more reasonable level. At present, the banking system appears to be in a satisfactory liquidity position, partly due to a sizable build-up in U.S. Government securities during 1975 and 1976. bank liquidity decreased. Last year, however, First, banks significantly increased their reliance on relatively volatile liabilities such as large time deposits and Federal funds. In addition, banks slightly reduced their holdings of securities with maturities of less than one year. From the end of World War II through 1974, bank capital ratios declined almost steadily. Moreover, this decline picked up momentum during the early 1970s when rapid asset growth, particularly https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 14 abroad, far outdistanced the growth of capital. It was during this period that the capital ratios of some of the Nation's major banks declined to what we regard as undesirably low levels. Since 1974, however, bank capital ratios generally have improved--rising sharply in 1975, climbing somewhat more in 1976, before declining moderately last year. A primary factor in last year's decline was the rapid 13 percent growth in bank assets. In recent years, banks have relied principally on retained earnings to build up their capital. In the aggregate, banks typically retain about 60 percent of their net income. Recently, most external financing of banks has been supplied by bank holding companies, which now own almost all of the Nation's largest banks. These holding companies in turn have resorted largely to long-term debt issues to obtain funds. One.reason for their heavy reliance on long-term debt, at least since 1974, is that the market value of bank holding company stock has been depressed. Even today, the stocks of many of the Nation's largest holding companies are selling at only six to eight times earnings, and many also sell well below book value. These unfavorable market conditions have made it very costly for these organizations to add to their equity capital through the sale of common stock. As an alternative, several large holding companies have recently resorted to issuing preferred stock. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 15 Another key factor in determining the condition of the banking system is bank earnings. Last year, earnings were impres- sive, with net income of•insured banks up 13 percent over the 1976 level. Several factors were primarily responsible for this per- formance. The first was the rapid growth in earning assets, with loans alone up over 15 percent. Second, provisions for loan losses declined about 11 percent, reflecting an even sharper drop in actual net loan charge-offs. Third, the amount of loans on which interest was not accruing was reduced significantly. It should be pointed out to the Committee that the favorable earnings presented by the banking data are based on generally accepted accounting principles which do not take adequate account of inflation. As you know, inflation erodes nominal monetary values, including bank capital, assets, and liabilities. The one major factor that hindered earnings last year was narrower spreads between yields on earning assets and the cost of funds. For example, the spread between the prime rate, which banks charge their best domestic customers, and the rate that banks pay on their large certificates of deposit averaged 1.3 percentage points during 1977, compared to 1.7 percentage points during the prior year. Banks also experienced some reduction in spreads on their foreign business during 1977. These reductions in spreads, both here and abroad, are evidence of increasing competition among financial institutions. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 16 During the first quarter of this year, banks continued their strong earnings performance in nominal terms. While complete data are not yet available, net income appears to have increased by about 20 percent over the first quarter of 1977. Declining loan loss provisions and a reduction in nonperforming assets again accounted for part of the· improvement. But foreign exchange operations also contributed strongly to increased profits for some large banks. Having briefly reviewed the principal indices of bank soundness, I would now like to turn to several potential problem areas that have recently received considerable public attention. The first area is the agricultural sector, where net income from farm operations last year was about one-third below the prosperous years of 1973-74. This decline has been due both to escalating costs of production and to declines in commodity prices. In contrast to declining income, farm debt has risen by about 60 percent since 1974. These unfavorable financial trends have made it difficult for some farmers to service their debt. As a result, some farm banks have experienced slower loan repayments and increased requests for loan extensions. So far, however, farm banks have not experienced a serious deterioration in the quality of their loan portfolios. Moreover, while the loan-to-asset ratios of many of these banks are significantly higher than normal, these banks generally have not encountered serious liquidity problems. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis In sum, most farm banks 17 are now in satisfactory condition and should continue to prosper, assuming that the recent squeeze on farm profits does not continue for an extended time. Another area of concern is the financial condition of New York City. As we all remember, the near-default of New York City in 1975, following the severe recession and the failure of several large banks, sent shock waves throughout the financial community. Since 1975, New York has made considerable progress toward putting its financial house in order. However, it has not been able to regain access to capital markets, and since 1975 it has had to rely on the Federal Government for financial support in the form of seasonal loans. Continuation of some form of Federal aid beyond this June is now being considered by the Congress. In order to determine the exposure of U.S. banks to a possible default by New York City on its obligations, the three Federal bank supervisory agencies, in early 1978, completed a survey of the ownership of New York securities by commercial banks. The obligations covered included those issued by New York City, by New York State, by New York State agencies, and by the Municipal Assistance Corporation. Briefly, the early 1978 survey indicated that 306 banks held New York securities exceeding 20 percent of equity capital. New York City obligations held by these 306 banks totalled $554 million https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 18 while Municipal Assistance Corporation obligations amounted to $1.7 billion. In sum, while the number of banks with large holdings of New York City-related securities has declined substantially since an earlier survey in late 1975, it still remains sizable. In analyzing the potential impact of a default on banks that hold New York City securities, it is important to recognize that a default on an obligation by a State, municipality, or related agency need not lead to a loss of all, or even a sizable part,of the bonds' principal value. Unlike a business firm, which may not survive a default, a governmental entity will continue to exist, it will still have tax revenue, and the default will have to be cured in some manner so that the unit can regain its financial standing. I would now like to turn away from these domestic problem areas and move to the international activities of our banks. As you will remember, a considerable amount of attention was given to this sector of operations in last year's testimony. That review focused on the elements that contributed to the substantial expansion of the role of U.S. banks in international lending both from offices here and through offices abroad. In the context of that review, some concern was expressed_about the rapidity with which international loan portfolios were being expanded and the enlarged risk exposure of our banks. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 19 International lending by U.S. banks again increased substantially in 1977. However, data indicate a slowing in the growth rate of that lending compared with the previous year's. Total foreign assets at domestic offices and foreign branches of U.S. banks increased about 14 percent in 1977, about half the average growth rate for the three preceding years. The slower rate of growth was most marked in lending in major financial centers and to non-oil developing countries. A number of countries to which U.S. banks have traditionally been large lenders reduced their demands for international credits as the result of measures taken in those countries to restore a greater measure of internal financial stability and a better balance in their external payments. U.S. banks also appear to have been more cautious in their international lending during 1977 than in prior years. is a welcome and a salutary development. This As was emphasized a year ago, U.S. banks have a major continuing role in international lending and financing. Also, so long as the present substantial imbalances in world payments persist, there will be a sizable financing role for the multinational banking system, in which U.S. banks play such an important part. In this environment, it remains essential that U.S. banks in their international credit activities exercise high standards of banking prudence. To do so entails maintaining suitable diversification of their international loan portfolios. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis It also calls 20 for the banks to obtain full information about the capabilities of individual foreign borrowers and of borrowing foreign countries to service external indebtedness. In the last year, U.S. bank supervisory authorities have made considerable progress in adding to the information available on the external lending of U.S. banks. A new comprehensive report-- jointly developed by the Federal Reserve, the Comptroller of the Currency and the Federal Deposit Insurance Corporation--now periodically obtains information from the major banks about the country distribution of their international loan portfolios with breakdowns by broad category of customer and by maturities. This information is structured to provide a better assessment of the country risks in the banks' international loan portfolios. As such, it allows the banking ~encies to be more watchful about these risks in individual banks. Aggregate data from the first country exposure survey, which was conducted in June, 1977, was released early this year. This survey included all u.s. banks with total assets exceeding $1 billion. These banks reported having, in·aggregate, $164 billion in claims on foreigners which were denominated in currency other than that of the foreign country. They also had an additional $45 billion in local currency clai!l's that were largely funded by local deposits. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Seventy percent of these $209 billion of claims were 21 on, or were guaranteed by, residents of developed countries, usually Group of Ten countries. The survey also showed that banks had $46 billion of credit outstanding to non-oil producing less developed countries (LDCs) and Eastern European countries. This amounted to about 6.5 percent of the total assets of these banks. In December of last year, the second survey of the foreign lending of U.S. banks was conducted, and the results should be available shortly. This survey will furnish valuable information to the banks in their own efforts to assess, control and monitor their international lending. In addition to the survey results, coopera- tive efforts among central banks and international institutions are continuing to add to the information available to commercial banks about external borrowings and external indebtedness of the main borrowing countries. While country risk is a proper subject for concern, perspective must be maintained on the country exposures of U.S. banks. Actual defaults by countries on their external debts, public or private, have been rare in recent experience. The risks to the banks, therefore, are less in terms of ultimate collectibility of credits than in terms of liquidity and income resulting from possible failure of countries to service properly their external borrowings. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 22 While the recent, slower pace of international lending by U.S. banks and the apparent heightened sense of caution in that lending are healthy developments, there are still several areas for concern. First, a few countries to which U.S. banks have made loans are having serious economic and financial problems and are having difficulty in servicing their external debts promptly. Second, some U.S. banks have a rather sizable exposure in individual countries relative to their capital and reserves. Finally, interest rate spreads on some recent international loans have narrowed and maturities have lengthened to an extent where the return to banks may not be collllllensurate with the risks involved. This development is somewhat worrisome because international earnings now comprise a substantial portion of the total earnings of our largest banks and because earnings remain the principal source for strengthening their capital positions. Before concluding -this testimony, I would like to infonn the Collllllittee what the Federal Reserve has done in the last year to improve our policies and procedures for supervising state member banks and bank holding companies. Some of tliese changes have resulted from problems that had surfaced in recent years. In November, 1977 the Board approved an expanded program for the inspection of large bank holding cpmpanies. The two essential elements of the program are an increased frequency of inspections and the standardization of the inspection report. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 23 All bank holding companies with consolidated assets in excess of $300 million will now be inspected annually--unless nonbanking activity and parent company debt are considered minimal, in which case inspections will continue to be conducted once every three years. The impact of the increased frequency of inspections will be approximately to double the number of large holding companies inspected on an annual basis and to increase the percentage of total holding company assets inspected annually from about 45 percent in 1976 to 85 percent when the program is fully operational. The standardization of the report form is expected to provide a variety of benefits, including the framework for a comprehensive review of nonbank assets and holding company debt levels, greater consistency, an increase in the on-site efficiency of the inspection process, the capacity for centralized training of inspection personnel, and the ability to allocate personnel more efficiently among the Reserve Districts. During the past year, the Board, in conjunction with the Reserve Banks, has implemented a bank surveillance system that aids in the identification of actual and potential financial problems of banks. In addition, several new bank holding company sur- veillance capabilities were developed to enhance existing screening techniques, data collection systems, and analytical reports. Recently, resources have been devoted to improving supervisory reports used in https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 24 the surveillance process, to streamlining the reports so as to reduce reporting burden on respondents, and to expediting the use of the data. I want to emphasize that 1977 saw further accomplishments in interagency cooperation and standardization of procedures. Central to the success of this effort was the formation of the Interagency Supervisory Committee in March of 1977. This Committee, which is an adjunct of the Interagency Coordinating Committee, consists of the senior supervisory officials of the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Federal Home Loan Bank Board, National Credit Union Administration, and Board of Governors of the Federal Reserve System. The purpose of the Committee, which meets monthly, is to review supervisory issues and practices and to develop wherever possible uniform policies and procedures. During its first year of operation, the Committee inaugurated the unifonn shared national credit program in which a team of examiners from the three agencies annually reviews loans in excess of $20 million' that are shared by two or more banks. Such review eliminates the need for a separate analysis of the loan at each participating bank and leads to consistent treatment by examiners. Second, agreement among the agencies has been reached on the definition of a concentration of credit. This agreement will insure a consistent treatment of credit concentration by the three https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 25 agencies in future years. Third, staff of the three agencies have agreed on the principles of a uniform system for rating all banks, and each agency is currently testing the system. In closing, Mr. Chairman, I would like to restate the central thesis of our testimony--that while continued vigilance is still necessary, the condition of the banking system is now good and, by most measures, is better than it was at the time of last year's hearings. 30•476 0 - 78 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 26 Cllort1 NUMBER AND TOTAL ASSETS OF STATE MEMBER BANKS WITH COMPOSITE 3 OR 4 RATINGS, 1972•77 Number ol banb Total ......, bill'- ol dollafa 100 70 Number of Banks 60 60 50 60 40 40 30 20 ,-_ _~-~~~~-~-~Io https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1973 1975 1977 27 Chart 2 AMOUNT AND GROWTH OF TOTAL ASSETS AND TOTAL LOANS OF ALL INSURED COMMERCIAL BANKS, 1970·77 BIiiions of dollars 1200 1000 800 600 Total Loans 400 1970 1971 1972 1973 1974 1975 1976 1977 Percentage lncrea.. during Ille year ;r' /_/' -- --·' ' ___ , 24 20 Total Loans 18 '' \ \ 12 , "/ \ 1971 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1973 \,/ 1975 / / 8 / 4 1977 0 28 Chart 3 AMOUNT OF CLASSIFIED ASSETS OF MEMBER BANKS, 1973-77 BIiiions of dollars 40 30 20 10 0 1973 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1975 1977 29 Chert, CLASSIFIED ASSETS OF MEMBER BANKS AS A PER CENT OF TOTAL ASSETS, 1973·77 Per cent 4 3 2 1973 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1975 1977 30 Chart I PROVISION FOR LOAN LOSSES AS A PER CENT OF TOTAL LOANS FOR ALL INSURED COMMERCIAL BANKS, 1970·77 Per cent 0.70 0.60 0.51, 0.40 0.30 1971 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1973 1975 1977 31 Chart t PROVISION FOR LOAN LOSSES AS A PER CENT OF PRE-TAX INCOME FOR ALL INSURED COMMERCIAL BANKS, 1970-77 Per cent .50 .40 .30 .20 .10 0 1971 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1973 1975 1977 32 Chart 7 AMOUNT AND GROWTH OF EQUITY CAPITAL OF ALL INSURED COMMERCIAL BANKS, 1970-77 BIiiions of dOllars 80 70 60 50 40 /'. 0 "-taae • - - -prlaryear 12 8 4 L.__ _---1._ _ _....1....._ _ _J __ ___.__ _ __,__ ______._ _ _....L.._ _ 1971 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1973 1975 __..o 1977 33 Chart I CAPITAL RATIOS FOR ALL INSURED COMMERCIAL BANKS, 1970-77 Per cent 10 9 Equity Capttal/Risk Assets 8 7 Total Capital/Total Assets 6 Equity Capital/Total Assets ;:;::: j _ _ __J 1971 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1973 1975 1977 0 34 Chari I AMOUNT AND GROWTH OF NET INCOME OF ALL INSURED COMMERICAL BANKS, 1970-77 Bllllons of dollars Percentage lncruH - prior yur 16 12 s 4 1971 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1973 1975 1977 0 35 Chari 10 NET INCOME AS A PER CENT OF TOTAL ASSETS FOR ALL INSURED COMMERCIAL BANKS, 1970-77 Per cent 0.85 0.80 0.75 0.70 0 1971 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1973 1975 1977 36 Chart 11 NET INCOME AS A PER CENT OF EQUITY CAPITAL FOR ALL INSURED COMMERCIAL BANKS, 1970-77 Per cent 13.0 12.5 12.0 11.5 0 1971 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1973 1975 1977 37 Chart 12 DIVIDEND PAYOUT RATIO FOR ALL INSURED COMMERCIAL BANKS, 1970•77 Percent 45 44 43 42 41 Dividend Peyout Ratio 40 39 38 37 38 0 1971 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1973 1975 1977 38 The CHAIRMAN. Thank you very much, Governor Coldwell. Chairman Miller, on page 1 of your statement you say that the Board believes that the impact our banking system has on our economy is too important to go without this kind of periodic review, and I think that's a very wise and proper statement. I certainly support it. I would like to hear you expand on that subject. There's been virtually no analysis done on the relationship between the performance of the economy as a whole and the health of the banking and financial system. Is there, in your view, a relationship and, if so, what is that relationship~ Mr. MILLER. It seems to me that if we're going to have a strong economy, it's essential that we have a banking and credit system and a :payments mechanism that is efficient, sound, and devoid of surprises or upsets. We know from past experience that no matter how sound the economy may be in terms of production of goods and services, if there is ever an inadequacy in the banking system-failures or lack of public confidence-it can have dramatic consequences. Just the apprehension that goes with uncertainty about that fundamental activity can cause disruptions. So I think it's essential that we have a sound banking system and that we probably have better knowledge now than we have ever had of how to relate the health of the banking system to the general economic welfare. The CHAIRMAN. That's very helpful. I think that there's an understandable and proper emphasis on soundness, but I think there's also a failure on the part of many of us to put adequate emphasis on the other side-the aggressiveness, the availability of caJ?ital to business, particularly small business and to farming which Governor Coldwell briefly touched on. When there is a lack of adequate capital it may be that banks are reluctant to make some loans which they would make if they were more effectively capitalized and the failure to make those loans, the failure to make that capital available, may be a problem in many areas in some industries and certainly for small business. As I recall, a principal complaint that small business gives is they just can't get the capital they need. Much of that is long-term capital and, of course, that's not the province of the commercial banks, but to some extent its short-term capital too. Do you see a situation now where our banking system does provide adequate capital, adequate short-term capital to industry~ Mr. MILLER. I am not personally satisfied with the amount of capital provided by the banking industry. I think there are many reasons for this situation. One is, of course, that banks have not been that successful in achieving the kinds of returns on their own investments that attraot fresh capital. An industry that has a poor earnings record is not apt to be an attractive one for the infusion of new investment. When you see a major bank stock selling at six or seven times earnings and below its net asset value it's an indication that investors consider the rewards related to investing in banks not to be very attractive. That has left banks with the problem of build- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 39 ing up their capital base through retained earnings; and retained earnings have been under pressures for a number of reasons. I mentioned that competition, which is healthy to the banking system and to financial institutions generally, has put pressures on profit margins; and that, of course, has contributed to this general capital problem. We also must remember that for those major banks and small banks--for all sized banks that are members of the Federal Reserve System-we do set reserve requirements that constitute a noninterest, nonearning set-aside of resources; these set-asides do impair the earnings of banks compared to competitors who do not have similar requirements. One of the reasons we have this membership problem in the Federal Reserve is that large amounts of money are held sterile and this does impair the ability of banks to compete. On the other hand, from the point of view of soundness, such reserves do assure liquidity and banks' capacity to meet emergency situations. The CHAIBMAN. When you look at the returns for return on investment, net income as a percentage of average equity for banks, it seems that the return is pretty substantial. The big banks over $5 billion have been trending down, you're right, since 1975. Return is down. But it's still around 12 percent. And the smaller banks of $500 million to $1 billion and under $100 million have both been moving up fairly well, so they are above 12 percent now. I realize that with the inflation that we are suffering that a 12percent return is not worth what a 12-percent return was a few years ago. Nevertheless, that does seem to be a reasonable rate of return given the relatively modest risk that banks endure compared to the rest of industry. Mr. MILLER. Mr. Chairman, I might point out that a nominal after tax return of 12 percent in a manufacturing business, for example, will be affooted by inflation; however, one could also expect a manufacturing business to be benefited by inflation's effects on real assets, properties, and plant capacities. Banks, on the other hand, have mostly monetary assets and very little in the way of real assets; in their case, there is a heightened relationship between inflation and the erosion of real earnings. If we have 7-percent inflation this year and banks earn 12 percent, then there's a 5-percent real return for holding an equity position. This, of course, is quite modest compared to a situation where even a 2 or 3-percent return could be arranged on a fixed-income investment but where the principal is assured. So inflation is one of our concerns and one of the reasons why the market value is low. I do think it's a little bit different for banking than the manufacturing business. I think Governor Coldwell may have a comment. Mr. Cm..owELL. Senator, I just wanted to point out that our banks did have an increase of almost $5 billion in equity capital this past year, and that one of the reasons is that the holding companies have been downstreaming the capital from debt acquisitions that they have made. So we have had two sources of cap1tal which have been active this past year: one, the improvement in earnings and retention; the second, the downstream of capital. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 40 The CHAIRMAN. And· yet we have, as this chart up here on the board indicates, the total cap1tal as a percentage of assets-it appears that there's been relatively little improvement. The big banks, which is the black line at the bottom, has been going down and it's much below the smaller banks, but in no cases do you see the kind of improvement that you would normally expect in a period of recovery. Certainly the last 3 years have been periods of recovery generally and it looks as i£ the banking system is even more seriously undercapitalized. Will you agree with my assertion which I made a couple times up here now-first Chairman Miller and then Governor Coldwellwould you agree that the banking system is undercapitalized 1 Mr. MILLER. I would like to see the capital position stronger, yes. Mr. COLDWELL. I would like to see it stronger, particularly at the upper end of the banking structure. I think most of the small banks are well capitalized. The CHAIRMAN. And what is there, Chairman Miller, that you can do, or the regulators can do in general, to improve that capitalization picture 1 Mr. MILLER. I think the supervisory process has to instill a greater sense of prudence in the banking system. There have been tendencies in past periods to be overaggressive in lending, and some of the resulting loan losses have eroded the capital base. The real estate situation a few years ago, I think, was a case of overaggressiveness by banks and it was very costly in terms of loan losses. The same can be said about other types of loans. In fact-with inflation running the way it is and following a period when there's been intense competition for loans and a low rate of loan growth in the major money market center of New York-I think it's time for banks to be a little more cautious in making loans. Right now, I think there is a danger of becoming overextended; I'd like to see a little more conservatism right now. The CHAIRMAN. Governor Coldwell, you indicated some elements that have been helpful to banks in securing a greater degree of capitalization. Is there anything you feel the Federal Reserve could do or the other regulatory bodies could do to encourage banks to go to the equity market 1 I realize, as you pointed out in your statement, you gentlemen, that this is a bad time, that the bank stocks are selling at six or seven times earnings which on the basis of our past experience is grossly unfair to the present stockholders in the stock. At the same time this is one way, one sure way of increasing equity. Is there any way that you could encourage banks to do this or is this something in your view that we simply have to accept, that banks aren't going to do under these circumstances in any substantial number 1 Mr. COLDWELL. I think we have done some things and we continue to do them. Certainly, in the administration of the Bank Holding Company Act, when we get an application for acquisition of a ba.nk we quite often condition our -approval on increased capital injection into the bank. In fact, if I reca11 correctly, over the past few years our record on that already mounts up to more than $2 billion of add1tional capital. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 41 The CHAIRMAN. That's right for individual banks that are underca pitalized. Mr. CowwELL. First, you have to work on this peg by peg, Senator. We oan't just issue a mandate to the market to buy bank stocks. We can encourage banks to improve and retain earnings; of course, that's one way of building capital. We can a,lso encourage the holding companies to downstre·am capital. But I don't think there's any positive way we can either provide the capital ourselves or mandate it. The CHAIRMAN. Chairman Miller, on page 4 of your statement yo:u say that the banking system today is in good condition. Comptroller Heimann on page 2 of his statement says the national banking system is in reasonable satis£actory and sound condition. Chairman LeMaistre says: "Notwithstanding the problem we have witnessed in the banking industry in recent years it's my opinion that the industry has remained sound." Mr. MILLER. It sounds like we are all together. The CHAIRMAN. Yes and no. It appears to be slightly different shades of assessment, maybe just different words to say the same thing among the regulafors. The Fed's estimate is the most optimistic it seems to me. Is your optimism justified in light of the facts? For example, classified assets for all member banks was 6.8 percent of total capital. According to the Fed's asset rating system this warrants an unsatisfactory rating. How do you explain that contradiction? Mr. MILLER. From my viewpoint, in assessing the banking condition as good, the Board is making a judgment on a relative scale. One might look at that scale ·as being very poor, poor, good, very good and excellent. There's nobody I know on the Board of Governors who wouldn't like to see the condition of the banking system better-who wouldn't like to see it very good or excellent. But at the moment, it would be unfair to say the condition is poor or less than reasonably satisfactory. The CHAIRMAN. So you say it's about a C. What troubles me is the fact that we are in a period of recovery. We did have the best growth in number of jobs in our economy in the last year that we have ever had in history. We have had more people at work. We have had a drop in unemployment and yet at this sta,..,o-e in the business cycle where we have been going longer than we have in most periods of recovery the banking system seems to get about a C rating rather than an A or B rating. On page 3 of your statement you say that foreign banks enter the United States sometimes in a more favorable operating basis than our own domestic banks and win a significant portion of the business loan market. I assume you're referring to the foreign bank's ability to branch across State lines an ability domestic banks don't have. Is that right? Mr. MILLER. There are two reasons. One is that branches of foreign banks do not have comparable reserve requirements. When you're talking about multinational institutions you're usually talking about su:bstanti·al institutions of like resources and like capacity ; that's the nature of the international banking system. So you have foreign branch banks as large or larger than principal U.S. banks coming 30-476 0 - 78 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4 42 into this country and competing for loans based on spreads in market interest rates without having to put up any reserves. It just costs less money for these banks than it would if they had to raise $1.16 in order to lend a dollar, like U.S. banks. The second reason is that foreign banks are on a more favorable basis if they are able to branch across State lines. We have a couple of banks from abroad now-I think you're ·aware of this-thrut have made tentative arrangements to acquire controlling interests in major New York banks. It would seem incongruous for a major, foreign owned bank in New York State to be able to have branches in the major money market centers of the country, when domestic banks don't have this ability. Certainly, that would give the foreign banks considerable advantage. The CHAIBMAN. About a month ago I asked you for amendments to the House-passed foreign banking bill. Will those be forthcoming shortly1 Mr. MILLER. They certainly will, Senator. The CHAIRMAN. Then do you feel this describes-what you have just said-the competitive advantages that foreign banks have over .domestic banks for business loans 1 Mr. MILLER. I think there are three areas of concern to the Federal Reserve. The first is that as more and more large foreign banks participate in the U.S. market-which we would favor; generally, we favor open competition-we have a supervisory question. If those banks elect ,to oomeinto our market by incorporating as an American bank, then ,they fit in, and are comparable to any other U.S. bank, and I have no problem. If they decide to become Sta.te-charterod banks, then they will be treated like any other State-chartered bank. But, if they come in as a branch, :to be supervised by Stafo regulatory agencies and to operate in several States, there is a problem. I am concerned-the Federal Reserve would be concerned-about a State's capacity to adequately examine and supervise a bank which has operations in various places. So that's one concern. The second concern is tha.t soundness and fairness of competition would require reserve requirements comparable to what U.S. banks must maintain. And the third area of concern is about ,the fairness of the branching system. If there is to be a change in branching authority in the United States, if we are going to amend the McFadden Act, we would be happy to discuss that. There may be some merits to it and some problems with it. I am concerned that we are allowing an amendment ,to that act th.rough the back door, by letting foreign banks come in and establish a branching system, something U.S. banks cannot do. We would end up with a trilevel banking system : A system of State banks; a system of national and State member banks; and a third system of foreign banks with completely different powers and rights than the other two. The CHAIBMAN. My time is up-it was up about 3 or 4 minutes ago, but before I yield to Senator Schmitt, if he would permit, I'd just like to follow up a little on that. What concerns many of us is that the ability of foreign banks to branch across State lines could be used as the basis for permitting our https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 43 domestic banks to do the same. As I understand it, foreign banks at the present time are a relatively small part of ,the banking industry and is this something that you think we should be concerned about i Mr. MILLER. Yes, sir. In the past, foreign banks in operation in this country were relatively small, but -they are growing very rapidly. We would not have been concerned 5 to 10 years ago, but with the tremendous current potential, for all kinds of reasons, for foreign assets and activities to be transferred hereThe CHAIRMAN. They are 10 percent of deposits now. Mr. MILLER. I think slightly lower rthan that now, for both deposit and nondeposit liabilities. So I think it's time to look at this phenomenon. My only point is that if we are to have interstate branching-and maybe we should-we ought to discuss it as a proposition to be decided on its own merits-not let it happen to us by accident, by letting foreigners do it first and ,then finding out we need to do some~ thing about domestic banks. The CHAIRMAN. Senator Schmitt, I apologizeSenator SCHMITT. No problem, Mr. Chairman. It's good to see you again this morning. We're spending fa.r too much time together I'm afraid. Chairman Miller and Governor Coldwell, it's good to see you this morning. I have a short opening statement, Mr. Chairman, which I would like to have inserled in the ea.rly parrt of the hearings. The CHAIRMAN. Yes, without objection (seep. 2). Senator SCHMITT. In that statement I'm talking primarily about a concern of this committee, which is the cost of regulation on the banking community, and what effect it is having on the basic health of that system and, of course, on the cost to the consumer of utilizing banking services. I will be sending you, Chairman Miller, a copy of my bill I introduced last year, S. 2011, and asking for some comments on that. That particular bill is a general regulatory bill but it would attempt to put the Congress back in the business of approving or disapproving major regulations, major in the sense they would have significant economic, judicial, or paperwork impact on the public. The basic problem of course, is, how do you measure the impact of a regulation before it has become effective i I don't have a full answer to that but we are exploring it. I would like the board's comments or system's comments on that legislation. But more generally speaking this morning, what do you see in your present look at the banking community with respect to the effect of regulations on consumer costs as well as on their general ability now to do business~ Mr. MILLER. Senator Schmitt, let me comment on that first. I'm sure Governor Coldwell would also like to comment. I think all of us realize that regulation; even well-meaning regulation-even regulation based upon perceived need--does have a cost, and that we need to be more objective about weighing costs against public benefit. I think many times we have re,rulated additional cost when we did not receive a commensurate public benefit. If the public benefit is substantial and important, we obviously need to do the regulating to make sure that the result is proper and equitable. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 44 In the banking field, there's certainly no exception to the fact that each regulation in its own time and place may have been well-meaning. But the cumulative effect has been, I think, to add more complications, duplications and costs than are necessary. The only way I see for us to approach this problem now is to go in for some "zero-based" regulating ourselves, awaiting what may happen in Congress. We are now structuring and allocating our resources to such a project; we hope over the next couple of years to reexamine every regulation issued by the Federal Reserve, and either to reissue the regulation-simplify it or standardize it with other areas-or to eliminate it. We hope, after 2 years, to have completely rewritten 100 percent of our regulations to try to relieve their burden-within our present statutory requirements to regulate as mandated by Congress. So I am hopeful that that at least will be a step in the right direction. We recognize that we are required by the law to regulate many of these areas, and we will continue to meet our responsibilities in that regard. Perhaps Governor Coldwell would like to add to this. Senator ScHMI'IT. Could I follow up first, Governor, and then I will give you a chance. Will the basic recodification, in a sense of the regulatory framework of the Board, include an examination of the present and future impact of those regulations on the economy, including general costs, the subset of costs, and paperwork that's sometimes required i Mr. MILLER. Yes. We even have to think more and more about postage, because just the cost of circulating an item is terribly expensive. ThA answer is ves. I must caution you that we are just forming our task force. We have selected a Governor who will be in charge of it. Senator SCHMITT. Who is that i Mr. MILLER. Governor Jackson. We hope not only to revise and improve our regulations and paperwork, but we also think it would be appropriate-we hope it would be appropriate and we would like to do this-to bring to the Congress, to this Committee and the counterpart House committee, suggestions for legislative changes that could eliminate some of these costs and requirements, yet still meet the public need. And, where we find that we have a statutory mandate for a regulation, but we don't believe there's an adequate justification for its cost, we hope that you will be receptive to our suggestions of actions you might take to help us streamline. Senator SCHMITT. Mr. Chairman, I certainly would be receptive. I think I can speak for the committee. Mr. MILLER. If we would just reorganize all the regulatory agencies under the Federal Reserve, as I tried to explain to Chairman Proxmire, we'd have no problem. The CHAIRMAN. ,vell, we certainly want to reorganize them into a single bank regulator and we can show theMr. MILLER. That orange box on the left looks awfully good to me. Senator ScHMI'IT. Mr. Chairman, I didn't mean to give you that much of an opening. The CHAIRMAN. You did, however, and I thank you for it. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 46 Senator ScHMITT. I certainly will be very interested in that e:ffort and I hope this committee, at the appropriate time, is able to review those recommendations, that you would have, try to move to eliminate the unnecessary ones and improve those that are necessary. Mr. COLDWELL. I would like to comment just briefly, Senator. The whole business of writing regulations seems to have a life of its own, part of it stemming out of legislation, part of it stemming out of problems we see in the banking industry, part of it coming out of sheer change in the banking industry and in the whole financial industry. This committee and the Senate were very wise in passing what we know as Senate bill, S. 71, which gives us an opportunity to do some things for individual transgressors without writing new regulations. That's been a bugaboo of mine for years, that we write regulations to catch 5 or 10 offenders. Well, if we can get that kind of enforcement power and reduce the amount of specific regulations, maybe we can reduce the general burden. Also, we can do more in fields such as consumer credit regulation in terms of producing model forms that a small bank can use wi,th assurance that it would be meeting the test of the law. I really don't understand how a banker in a small town keeps track of all these regulations. I can't keep track of them on the writing side. I don't see how he keeps track on the reading side and the enforcement side. So he needs some help, and he doesn't have a lawyer sitting on his shoulder all the time. Plus, the costs of this are very large. So I'm on your side of this ball park. I'd like to see us cut out the idea of additional regulation. I hope the Congress will be judicious in its passage of laws that mandate new regulations. Senator SCHMITT. What you have just said is music to the ears of the small town banker, I'll guarantee you that, and I will do everything I can to support you in those kinds of efforts. It's extremely important that we begin to actually make financial transactions easier rather than more difficult. One method is to look at a specific abuse and deal with that abuse in the instant case rather than trying to blanket an entire industry such as the banking industry with a new set of regulations. I will continue to fight in this committee for that kind of activity; EFT regulation being the most recent effort where we don't even know what the abuses are going to be but are still going to do something about them, and I think we have just gone a little bit too far. There is disagreement in the committee, I might mention, on that fact. My second area of questioning, gentlemen, is to ask you to talk in genera.I and specific terms, about the effect of the present general tax law on the availability of capital, on these curves that we are seeing here, and on the banking system. Our income taxes is at a point now where there is a serious factor in reducing the amount of savings that people are bringing into the banking system. Mr. COLDWELL. Well, I think that's always going to be a problem to us in an inflationary time with a progressive income tax. People's incomes get higher. Their real incomes don't move up that much, but their dollar incomes are subject to higher rates of taxation. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 46 I have already mentioned to the chairman that one of our ways of achieving capital is by retained earnings. If we can't retain earnings in the banking system for building capital we must go outside, but the market is just not conducive to that and the banking industry's earnings are not high enough to attract it. So I think the tax laws are having a detrimental effect on capital availability. But the Government must receive its money somehow, too, or curtail its operations. Mr. MILLER. Senator, I was going to point out one thing that happens to be a high priority now in my mind, and that's the question of fairness in competition among all financial institutions in providing credit and transaction services. This point goes back to the question of membership in the Federal Reserve. There's one form of tax on banking that other :financial institutions don't have and that is the requirement for members to maintain non-interest-bearing reserves. As long as other financial institutions don't have that requirement, it is a tax and that tax reduces equity and draws a very substantial amount of money out of the banking industry. It's that tax that is causing us to lose members to the non-taxed state system. So I hope you will bear in mind it's not just direct taxes, but this kind of indirect tax that concerns us too. Senator ScHMITr. Well, I agree with you on the specific point that you make about reserves. I think you're entirely correct, that we should make it more attractive to be a member of the Federal Reserve System. It has many side effects, as you well know, not the least of which is understanding what is happening out there in the :financial community. Do you, however, feel that a small but permanent tax cut at this time, again keeping equity in mind if we can, but generally a small but permanent and business income tax cut would over the next 2 or 3 years actually help the formation of capital in the banking systemi Mr. COLDWELL. Yes, I would say it would be a help to improving the amounts of savings. Hopefully, the banking industry would be attractive enough to ~et its share of those savings and, therefore, to improve its availability of funds. Savings ought to translate into larger capital spending. That's one of the areas of weakness that we have seen in our economy over the recovery period; capital spending just has not grown enough. Increased savings would be a help along that line. I would be very cautious about when I implemented that tax cut, however. Senator SCHMITr. Well, I would be very cautious also, but we are talking now about a one-shot tax cut. That's the general trend of conversation around here. What would be the effect of a one-shot cut i Would it have any noticeable effect on the problem we're discussingi Mr. COLDWELL. Well, a one-shot tax cut-you mean cut it for 1979 and then reimpose it for 1980 i Senator ScHMITr. Yes. Mr. COLDWELL. I assume you get some improvement in the availability of funds because you wouldn't pay as much tax. Such a oneshot arrangement, however, wouldn't allow people to plan over long https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 47 periods of time, which is what you have to do in a capital spending program. Senator SCHMITT. But do you think-let's say just for the sake of numbers, if we had a one-shot, $30 billion tax cut versus a permanent cut which, over 3 years, would amount to $30 billion, which, would have the better effect on the banking community and the availability of capital~ Is it possible to make a general determination on that, Chairman Miller i Mr. MILLER. Let me comment on that. I would think that's very dangerous; a very large, one-time cut would create interruptions in the economy. It would have effects on financial markets and, given the very large Federal deficit that would go with it, it would have many repercussions. What we need in this country is economic policies which move in an ordered pace toward where we want to be; I think moving up and down is a poor policy. We ought to head for an economy that does require less spending of resources by the Federal Government. We ought to move gradually; that means we not only have to plan tax cuts in due course, when we can afford them as weighed against our Federal deficit, but that we also need to make conscious decisions to reduce the percent of GNP made up by Federal spending. So I would much rather see a multiyear program headed toward lower Government spending and a shift of resources to the private sector, through parallel action to transfer incomes and spendrng decisions to businesses and individuals. That's how you will strengthen the banking system and that's how you will strengthen the economy. Senator SCHMITT. I couldn't agree with you more, Chairman Miller. I think you're right. It takes discipline on several fronts, including a long-term view of reducing taxes, reducing the Federal deficit itself, and reducing the rate of growth of Federal expenditures hopefully until it drops below the rate of growth of the GNP on a continuous basis for the foreseeable future. And at the same time, as we have talked about before, looking at a steady decrease in the rate of growth of the money supply which those other actions would now make possible and would have considerable effect on inflation. Mr. Chairman, I'm sorry to go over. The CHAIRMAN. That's fine. I went over, too. Senator SCHMITT. We're even. The CHAIRMAN. We sure are. I might say, Chairman Miller, two fans of yours in this morning's newspaper, Evans and Novak, re~ marked on your position on the Steiger bill to reduce capital g-ains tax, indicatrng in their judgment-which isn't always the best Judgment but sometimes it's good and sometimes it's not-in their judgment, your present position on the Steiger bill is you oppose it, oppose reducing the capital gains tax, would have an adverse effect on all industry, including banks and being able to raise money. I just can't resist making a comment in the area that Senator Schmitt opened up so well. A single bank commission would reduce personnel, provide for uniformity in regulation, consolidate the regional offices, provide less burdensome regulations-all kinds of very good advantages. Let me ask you this question. The Federal Reserve appears to have recently upped the Federal funds rate to 7½ percent. When will this https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 48 process end i Are we heading for another credit crunch as we had in 19'74 when short-term rates soared over 10 percenti Mr. MILLER. Senator Proxmire, I certainly hope not. The Federal Reserve in recent times has been deeply concerned about the inflationary pressures which have accelerated and which threaten our long-term economic well-being. As you know, the problem is an especially difficult one for the Federal Reserve because should the Federal Reserve be the only part of the economic policymaking apparatus that is trying to counter inflation-and if the Federal Reserve is left to do so by its only means, which is tightening the money supply-then we do run the risk of slowing down the business expansion and even bringing on a recession. On the other hand, if we validwte inflation, certainly we're going to head for even more serious problems; the economic dislocations would come later, but be more severe. So our hope is that a combination of some restraint on our part, and the discipline that can and will be introduced on the fiscal side, will allow us to get through this very difficult period of time-with a somewhat slower rate of real growth in GNP than had been predicted last fall, but still one above the long-term trend line. This would give us a chance for economic growth, improvement in employment, and reduction of unemployment, while still holding in bound inflationary forces. This is a very difficult task. We will have to be extremely wise to move through this particularly difficult period without overreacting one way or the other. We will do our best to act prudently and wisely, and not try to create abrupt changes that could dislocate the economy. The CHAIBMAN. I notice that the administration has responded to your appeal to postpone the tax cut and that seems to have confirmed part of what you were asking, an important part of it. The White House has announced what they call an all-out assault on the Federal budget for fiscal year 1980 with a view toward reducing the deficit below $40 billion. Now if the administration is successful, what would be the impact on the Federal Reserve Board's monetary policy, if they are able to reduce the deficit below $40 billion i Mr. MILLER. If we can go on a downward pattern-reducing the deficit to $50 billion, instead of the $60 billion originally estimated for fiscal year 19'79 ; to $40 billion or below for fiscal year 1980; and to $20 billion or below in fiscal year 1981; and, finally, achieving a balanced budget in fiscal year 1982-I think that trend, along with other actions to decelerate inflation, would greatly ease the burden on the Federal Reserve. The more discipline there is in fiscal management, the less pressure there is on the Federal Reserve to maintain monetary restraint. So I look with great favor on a course of action in which the budget is brought toward balance and in which we have less need for Federal financing of the deficit and therefore less pressure on the Federal Reserve. The CuAmMAN. Is it possible that the growth of the economy might not be retarded very much inasmuch as the lesser fiscal stimulus might be compensated by an easier monetary policy so that with the diminution in the size of the deficit and therefore a lesser stimulus from the fiscal sector you can make up for it i Would you feel that's reasonable or is that asking too much i https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 49 Mr. MILLER. I think it's reasonable. None of us can predict external factors, such as what will happen because of balance of payments problems. The CHAIRMAN. What I'm talking about is interest rates coming down. Mr. MILLER. We do have to worry abourt international issues; the answer is more complicated than you imply and we don't want to simplify it. But I think what you say is true to the degree that if we have a fiscal program that's in equilibrium and that does not entail large deficits and that fosters full employment in good times, that that does open up the prospect for less monetary restraint. And if we were fortunate and everything worked well-and if inflation does decrease-we could see lower interest rates. However, interest rates, in my opinion, are more influenced by inflation that they are by these short-term actions. If inflation continues at 7 percent, Senator, I'm just afraid there's not much that any of us will be able to do to bring down rates on long-term capital. The CHAIRMAN. Well, presumably, the kind of fiscal policy we're discussing would have some effect on inflation. Mr. MILLER. We would hope so. And, of course, as you know, it's been my view tha,t if we work toward a goal gradually we will be better off than if we move abruptly-that's true in steering the economy as it is for most other endeavors. If we could work toward moving the inflation rate down at one-half or three-quarters of 1 percent a year-and keep the rate going down steadily-then what you're suggesting would come about. We would see opportunity for lower interest rates because inflation would abate. And, if we balanced the budget, the pressures of the large Federal deficit would abate, and interest mtes would inevitably come down. Mr. CoLDWELL. I hope, Senator, that I'm not revealing a difference, because I haven't rtalked this over with the chairman, but obviously you have a longrun/shortrun problem involved here. Improvement in fiscal policy action will, over a longer period of time, reduce the pressure on the markets. But the Federal Reserve also has a shortrun problem, as well as a longrun problem. I hope the chairman is saying that over the long haul we can reduce pressures as the· fiscal stimulus is reduced also. The CHAIRMAN. But in view of the enormous importance of the psychological element, won't the diminution in the deficit be the determinwtion we make and reducing the deficit also will have an effect in slowing inflation i Mr. MILLER. It will have a very powerful effect for several reasons. One, it will encourage business investment, which is important. The CHAIRMAN. And it would moderate wage demands, too. Mr. MILLER. It would moderate wage demands and improve opportunities for investment, both of which would be positive factors. I think there's a big psychological benefit to be had from the American public's understanding that there is a commitment to a course of action that reduces the Federal deficit and brings it toward balance. A course of ·action that does that on a timetable that's realistic and achievable will put great confidence in the system and will contribute greatly to improved economic conditions. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 50 The CHAIRMAN. Governor Coldwell, one of the areas of concern you expressed for the banking system is the financial condition of New York City and, of course, as you know, this committee will be dealing with that problem in the next month or so and the Senate and the Congress will have to deal with it. You point out that the amount of New York City paper held by banks has declined and the default need not result in a complete loss. I'm not quite sure how precise you want to be on this. I got the impression that you were saying that a New York City default would not have a significantly adverse effect on the banking system as a whole. Is that right i Mr. CowwELL. That's true-or even on the banks themselves. A default presumably would be cured because the Government agency or entity continues in existence and it will have to cure its default in order to have access to the credit markets. So I don't think you're looking at a permanent loss of capital. You will have some loss of revenue and interest, of course, if you have a default, but over the long haul a government-<lity, State or whatever it is-will continue to exist and must get itself back in shape in the market to attract funds. The CHAIRMAN. Chairman Miller, do you agree with that i Mr. MILLER. I think there could be loss in interest, in the earnings of the securities for a while, and that there could be deferral in paying at maturity. There could be some effect on liquidity of banks; in thwt regard, the Federal Reserve is prepared through its discount system to take care of the liquidity problem with banks. So I see that we could have harm to the banking system from default, because we'd have lost earnings and deferral of payments. But we certainly would not have any sense of crisis. We would be able, I think, to manage the liquidity problem quite satisfactorily. The CHAIRMAN. Senator Schmitt. Senator ScHMI'IT. Thank you, Mr. Chairman. I would like to move back to the issue of taxes a little bit, gentlemen, and specifically, Chairman Miller, will you just summarize why you seem to now oppose a change in the capital gains tax structure i It was my understanding originally that you were somewhat favorably inclined towards that. Mr. MILLER. All I know about my position is what I read in the papers. Senator ScHMITT. Why don't you forget about the papers because I haven't read them this morning. Tell us how you feel about the reduction. Mr. MILLER. There are several things that have been reported. Let me give you my views accurately. My view is that this calendar year we are making the plans for next fiscal year, and, in the face of inflation, it is very important to get in some fiscal discipline. That takes place only one of two ways: spend less or ,tax more. On the taxing side, reduction is proposed; the simplest and surest way to counter or to reduce the large, impending Federal deficit is to defer and cut the tax reduction. That has been agreed to by the President and the leadership in various congressional committees, and hopefully will become the program. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 51 Now we must look downstream, and it seems to me tha.t downstream we need to be looking toward an economy that in w number of years moves the percentage of GNP represented by the Federal Government down from 22 to 20 or lower. This means that, say, 5 years from now Federal spending may be $50 to $100 billion less than it might have been-maybe we'll see an even greater reduction. We also need to change the component of our GNP that is in fixed business investment from about 9 percent to 12 or 14 percent. We also need to make substantial efforts to increase our exports as a percent of GNP in real terms from 7 percent to perhaps 10 percent. If we start on such a program, along the way we will want those tax programs that would create incentives for the business investment that creates jobs, that modernizes, and that replenishes the capital base we have been depleting. Japan has been spending about 15 percent of GNP on fixed business investment; Germany, 21 percent. We have been spending about 9 percent. We are falling too far behind. We should, therefore, be looking beyond this year to next year to plans for investment incentives that work in the most efficient way. As we reduce Government spending as a percent of GNP, we should also be looking at plans for shifting resources to individuals-by cutting their taxes, when we can do that without damage to our objective of balancing the budget. We should also look at impediments to capital formation-at the combination of capi,tal gains taxes and the double taxation of dividends. And, as we make progress on a comprehensive plan that we understand and a strategy on which we agree, then I think it would be appropriate to undertake reforms that encourage and give incentive and motivation for the entrepreneurship that we need to get this country revitalized. But I think we cannot talk out of both sides of our mouth. We cannot say, "We must discipline ourselves this year," and then start another system that contradicts that. We must have two disciplines: the discipline to balance our budget and to manage our monetary affairs prudently, and the discipline to take our tax cuts when we can afford them-when they promote our strategy and not just because it's convenient or a,ttraotive or opportunistic. Senator ScHMITT. Mr. Chairman, I agree with, as we used to say in the geological profession, the topology of the picture you painted, and the question is what are all the lines concerning that particular map we put on the future and how do we then stretch it and move it around, keeping the general relationship of things the same~ You and I, I think, agree on the general relationship, but I'm really concerned that you do not advocate, say, establishing one of these trend lines which represents a gradual reduction in taxes such as a gradual reduction in the capital gains tax, and maybe even as important now, n gradual reduction in personal income taxes. I'm not talking about a big cut this year, but let's establish a trend line of the same kind within the context of the shape of things that you painted. Don't you think ,that we can do that~ You agree on a tax cut this year, even if it's a smaller one. Why don't we make it even smaller but create a clear picture that that cut is going to continue into the future i https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 52 Mr. MILLER. Senator Schmitt, I can't disagree with you in principle. My concern has been with the aggregate level of the tax cut; I have not tried to involve myself in a debate of how the $19.4 billion tax cut, now contemplated to take effect January 1, might be structured. If there's any room to start the trend in the direction you suggest, I would favor that approach. I don't want to misstate my position. I favor a relief of the tax burden for individuals. After all, tax reform for individuals in this country means two things: it means, first, simplification of the complexities of our tax structure, which are mind-boggling; and second, lower rates, and a shift of spending from Government to the private sector. We can't do both; we can't keep up Government spending and also keep putting more money into the privat.e sector. We cut Government spending relative to GNP and give money back to people. At the same time, I agree with you: We've got to find a way to make it worthwhile once more for those American geniuses and entreprenuers to found great enterprises and build jobs and new technologies. Right now there's more net after tax income for any person working for a large oorpora,tion or working for a salary than there is for any person takin~ the risk of building a business. When you build a business, the tax 1s grea.ter than when you receive a salary. So we've got to reinstitute some reward and incentive to build the enterprises that will create jobs, crea.te competitiveness, advance our technology, and give our economy that thrust. I agree with what you're saying. I would be happy if somebody asked me and others at the Federal Reserve to look at how we mi~ht draw your line to get from here to ,there. I was only trying to outlme to you what I think the end game ought to be, more or less. Now we ought to seek general agreement as to the desired end result and then see if we can agree on how to get there. Senator ScHMrrr. Well, I think we also, you and I at least, would agree to the path. The question is, what is the slope of the curves. Mr. MILLER. Yes. Senator ScHMI'IT. This is relative to the tax and deficit reduction and so forth. We have built in a more difficult situation for the next few years because of what we did last year on social security tax increases. That not only swamps to some degree what we are talking. about in terms of a tax cut this yea.r, but it's going to be a continuing problem. Maybe it will be another argument about why we need to establish a gradual reduction in other taxes so that we can progressively offset that social security tax increase if we're not going to find a better way to provide for retirement security in the future. So I'm encouraged by what you say, that a trend line that indicates a permanent and gradual reduction in taxes would fit within the topology or the shape of the picture that you're trying to paint for us. I agree with that completely ·and I hope that this year we can agree to do that. Rather than throwing a one-shot tax cut which may be a little bit too large into the economy, let's take a series of smaller steps over a long period of time. It not only makes more rational economic sense but it's the kind of thing that encourages investors because they know they are going to have, every year, a set amount that can go back into investment of a certain kind. The $50 rebate https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 53 that we talked about last year basically had one disadvantage-that it was one shot. It did not provide the incentives for long-term planning with respect to what are you going to do with more of your income as every year comes by. So I'm encouraged by the statements that you have made so far. Thank you, Mr. Chairman. The CHAIRMAN. Thank you, gentlemen, very, very much. We very much appreciate your testimony and you have been most responsive. Mr. MILLER. Thank you, Mr. Chairman and Senator Schmitt. The CHAIRMAN. Our next witnesses ·are Hon. John Heimann, Comptroller of the Currency; and Hon. George LeMaistre, Chairman of the Federal Deposit Insurance Corporation. Mr. Heimann, your statement will be printed in full in the record and it's an excellent statement. We'd appreciate it if you could abbreviate it for us and, Mr. LeMaistre, similarly, we'd appreciate it if you could abbreviate your sta.tement. Mr. Heimann, go right ahead. STATEMENT OF JOHN G. HEIMANN, COMPTROLLER OF THE CURRENCY Mr. HEIMANN. Thank you, Mr. Chairman. I appreciafo the opportunity to appear before this committee. As we've noted in our statement, we feel strongly that these hearings are of great value to all of us in assessing the condition of the banking industry. I will ·abbreviate the staitement, if I may, and just hit some highlights and not repeat some of the ,things that have already been mentioned by Chairman Miller ·and Governor Coldwell. [Complete statement follows:] https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 54 () Comptroller of the Currency Administrator of National Banks Washington, D. C. 20219 202-447-1798 RELEASE Da<e May 25, 1978 STATEMENT OF JOHN G. HEIMANN COMPTROLLER OF THE CURRENCY BEFORE THE COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS U.S. SENATE May 25, 1978 I appreciate this opportunity to discuss the condition of the national banking system. This is the second annual meeting on this subject and I commend the Committee for initiating these sessions. We in the Comptroller's Office consider this an appro- priate opportunity to analyze on a macro ba~is the banking system's condition and to share these findings with this Committee for the purposes of oversight and legislation. In connection with these hearings, we have already supplied the Committee with statistical and other data. Because of the volume of data and the breadth of the subject, I will concentrate today on an overview of the condition of the national banking system, the status of national banks requiring special supervisory attention and, finally, our methods of, and plans for improving, bank supervision. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 55 As was the case last year, the national banking system is in a reasonably satisfactory and sound condition. The condition and health of the nation's banks reflect in large part the state of the economy. Economic growth usually brings with it profitabili~y, as well as the expansion of the resource base, of the nation's banks. As the economy improved in 1977, so the nation's banks continued their rebound from the severe recession of 1974 and 1975 by all the traditional standards of measurement. Bank failures during 1977 were at their lowest level in recent years. Only one national bank failed in 1977 and one has failed thus far in 1978. Failures at these manageable levels are a natural cost of maintaining a highly innovative and competitive banking system with over 14,000 participants. Each of the 1977 and 1978 bank failures was managed by the federal banking agencies without loss to the banks' depositors and with only minimal disruption to the communities they served. The asset quality of national bank portfolios also improved during 1977. Net loan losses declined in 1977 to .421 of average loans, compared to a level of .601 in 1975 and 1976. While still high by historical standards, loan losses are on the decline. We fully expect future earnings and loss reserves, which increased 91 in 1977, to be adequate generally to cover the loss potential contained in the poor quality assets rema.i,p.ing in the portfolios. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 56 Classified assets remain heavy in the largest national banks (assets over $5 billion) at 81% of gross capital funds, although they have declined from 107% last year. Seventy-seven percent of these assets, however, are in the substandard category and contain only minimal loss exposure. Most of these classified assets rep- resent the overhang of loans, chiefly in the real estate sector, made prior to the recession. That few are of recent origin suggests that bankers in the last three years have taken a more cautious lending approach. 1977 was also a year of growth for national banks. Assets increased 13.1% to $796.6 billion, which is equal to 59.5% of the total assets of the U.S. banking system. Illustrative of the tre- mendous growth of the banking system in the last forty years is the fact that two national banks individually now hold assets which exceed the $68 billion held by all commercial banks in 1937. In recent years much of this growth has been centered in the expansion of multinational activities by the nation's largest banks. From a nominal base in 1967, national banks have expanded their holdings of international assets to $160 billion as of December 31, 1977. Loans increased in 1977 at a 15.1% rate due to the surge in credit demand which was created by favorable economic conditions. This compares to a 5.3% growth rate in 1976. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 57 While earnings and capital in 1977 increased in national banks at rates of 11.91 and 91, respectively, both factors significantly lagged the expansion of assets. Thia resulted in the return of a long-term trend of declining capital ratios which has concerned the Congress and regulators for several years. The subject of capital adequacy has traditionally been the source of differences of opinion among bankers, bank supervisors, and the investment conanunity. nitional problems. There have been substantial defi- In addition, banks have different financial, economic, managemen.t and shareholder characteristics. All of these factors influence the desirable level of capital for the particular institution. They are nearly impossible for the bank supervisor 'to quantify and standardize. There is no magic formula for determining bank capital adequacy. Despite the analytical and conceptual complexities, one thing is abundantly clear: the ability of individual banks to continue serving efficiently existing product markets and individuals and to achieve other new long-range objectives depends, in large measure, on the strength of their capital base. The capital growth of the nation's banking system h~s simply not kept pace with the expansion of the resource base, particularly risk assets. This development has probably occurred more as a function of the dramatic growth in bank resources, influenced 30-476 0 • 78 • 5 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 58 by the inflationary environment of the 1970's, rather than as a result of any conscious effort on the part of bankers to accept a lower level of capital. As banking institutions have experienced this impressive asset growth, diversification has broadened the base of operations. This, in turn, has to some degree lessened the need for the maintenance of historical capital standards in certain banks. Decreasing capital ratios have been most apparent for the national banks with assets exceeding $5 billion. The statistics provided to the Committee show that equity capital has fallen aa a percentage of total assets to 4.36%, compared to 4.59% -last year and 4.79% in 1972. Present trends are in the direction of still lower capital ratios although they have not yet reached the historical low of 3.86% set in 1974. The statistics are somewhat distorted, however, inasmuch as they include significant equity contributions from parent holding companies, many of which raised the funds through debt issues, rather than through equity offerings. While regulators have some concern about current capital levels at the large institutions, our principal concern is with the trend of bank capital ratios. We believe there may be a substantial shortfall in bank capital by the early 1980's if asset growth patterns are maintained at historic levels and if internally generated capital through retained earnings is not both increased and supplemented by external sources. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 59 Earnings, the major source of bank capital, have been a particular problem for the large U.S. banks. The causes of this problem are varied and involve structural and economic factors largely beyond the bank's control. One of the most important factors is the rate of inflation in the 1970's, which has been a major contributor to the phenomenal growth of bank assets and bank expenses. During this inflationary period, revenues have not risen proportionately. As a result, although nominal earnings on equity have remained relatively steady over the last ten years, the real return on equity, adjusted for inflation, has declined. In this environment banks have been unable to attract large amounts of external capital simply because bank shareholders, present and prospective, are not getting, and do not perceive they have the potential for getting, an adequate rate of return on investment. Bank stocks are not only selling at low earnings multiples, but many are selling below book value as well. In these circlDD- stances, shareholders face substantial dilution of their interest if equity is to be sold. As a result, the major banking companies have been relying more and more on subordinated debt issues, a less desirable form of capital financing than equity. Debt issues not only avoid dilution for shareholders but have the additional advantage that interest can be deducted for tax purposes. The increases in debt capital issued by bank holding companies in the last few https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 60 years suggest that many of these companies may be approaching their limits in their access to the debt markets. If some fundamental adjustments are not made and asset growth continues to exceed capital growth, the ultimate trade-off may well involve severe restraints on the ability of banks to serve the nation's credit needs. Steps should be taken to remove artificial barriers to more efficient allocation of•financial resources. Laws enacted over many years have restrained the ability of financial institutions to price their services properly and to pay market rates for the financial resources they seek. Still other laws have established market allocations which interfere with efficient application of scarce capital. Congress and the regulatory agencies are addressing some of the problems such as the prohibition of interest payments on demand deposits, the interest rate differential between commercial banks and thrifts, and the Federal Reserve membership costs. The Comptroller's Office has also asked the Congress to consider changing the maximum permissible cumulative rate, now 6%, which national banks can pay on preferred stock. Our examining personnel insist that national banks place additional emphasis on capital planning. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The existenqe, maturity 61 and sophistication of the internal planning process is carefully evaluated. As a corollary to this approach, we are developing NBSS generated growth projections for individual banks based on historic financial trends and other relevant factors, all of which are derived from the examination process and the present industry reporting system. As a tool for examining personnel and bank management, these profiles are expected to provide a basis for meaningful discussion about an individual bank's capital adequacy, present and prospective. If a current or future shortfall in capital is suggested as a result of analysis, examiners will be prepared to discuss specific measures to alleviate the deficiency. Finally, we are reassessing the role subordinated debt should play in bank capital analysis and planning. The data in our National Bank Surveillance System (N~SS) provide us with further information on the condition of the national banking system. While most of the twenty NBSS peer groups reflect the recent trends of the total system, two types of national banks, the largest multinational banks and the small rural banks, separately reflect the recent economic conditions applicable to them. The 15 national banks in NBSS peer group one are multinational, money center banks. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis They hold 44t of the assets of the national 62 banking system and 26% of the assets of all coDDDercial banks. These institutions, for many practical reasons, serve as reserve banks for the thousands of smaller state and national banks in this country. They also serve the multinational interests of Americans in all countries. These banks operate in the interdepen- dent world financial system and their performance is affected by global money market conditions. The high levels of liquidity and the corresponding narrowing of spreads in those market$ during ' reflected in the slight declines experienced by these 1977 are banks in their return on average assets and their net interest earnings as a percentage of average assets. However, the 15 banks in the first NBSS peer group remain strong and viable. During 1977, their assets increased 15.6% and deposits increased 14.5%. During 1977, net loan losses decreased 21.6% while reserves for future loan losses increased by 9.4% from $1,536 million to $1,680 million. $1 billion in earnings in 1977. Overall, these banks retained Total capital increased 9.3% from $14,914 million to $16,302 million. on these figures are clear. The multinational influences Loans and deposits in foreign offices increased 18.7% and 15.6%, respectively, during 1977. loan losses continue to be minimal. Overseas 1977 earnings from international operations increased 6.6% and represented 38.1% of the total earnings for these banks. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 63 NBSS data on the small Tural banks reflect the economic impact of agricultural problems in 1977. By the end of 1977 the percentage of past due loans to total loans had declined in all peer groups of national banks except those of rural banks with resources of $25 million or leas. In addition to being the only type of national bank to report increased loan delinquencies, the small rural banks were also the only type to report increases in the ratio of provisions for possible loan losses to average assets. Even with the increased provision for loan losses for the rural bank peer groups, their return on assets and capital ratios are better than those of any other peer group. These b~ks appear moat capable of handling adverse economic problems if the severity of those problems can be kept within reasonable limits in the future. We have initiated a special study of the small rural banks' problems to monitor closely this situation. Individual national banks requiring special supervisory attention are those in Group Ratings 3 (Close Supervision), 4 (Serious) and 5 (Critical). (A detailed history of the methods of identifying and rating banks requiring special supervisory attention has been provided to the Committee.) An apparent contradiction to the improving condition of the national banking system is the number of banks receiving special supervisory attention. There were 259 such national banks as of year end, versus 147 for the same date in 1976. This substantial increase is not a reflection of the health of the system. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Rather 64 it reflects a deliberate effort by our Office to provide close supervision at the earliest time to developing problems. Such an approach is facilitated by better monitoring methods (the NBSS system in particular), examination procedures that are producing better quality results, and written policies that mandate administrative action when a rating of "3" or worse is assigned. Group "3" banks now include those having insider abuses, reflecting poor earnings, having excessively strained capital positions or experiencing a declining local economic situation. Therefore, because of expanding criteria determining a bank which requires special supervisory attention, as well as revised and standardized monitoring and examining techniques, the number of banks subject to special attention has substantially increased. Another perspective is provided by comparison of our special supervisory list with the FDIC's list of problem banks, which is designed to identify banks evidencing some risk of involvency. list contained 60 national banks as of December 31, 1977, while there are 52 national banks in our "4" and "5" categories. The FDIC list included only one national ba::ik in the "Serious Problem-Potential Payout" category, 15 in the "Serious Problem" category, and 44 in ·the "Other Problems" category. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis That 65 Our improved methods of identifying problems have also resulted in more administrative actions under the Financial Institutions Supervisory Act of 1966. While some of the pro- visions of formal administrative actions prohibit certain practices, most establish goals and directions for the bank to effect improvement in the bank's conditions. Our formal admini- strative actions increased by 70% from 33 cases in 1976 to 56 cases in 1977. There were 97 formal administrative actions issued and still outstanding on December 31, 1977. In the first four months of 1978, 24 actions were completed and an additional 38 are now being processed. (Details on this activity for 1977 have been provided to the Committee.) We also believe that further expansion will occur on our own list of banks requiring special supervisory attention. This reflects somewhat lagging results of our improved methods, as well as our commitment to take early and appropriate bank supervisory action on those banks with developing problems. I am also pleased to report the satisfactory progress of our commercial examination process. 1977 was the first complete year under the new examination procedures adopted in 1976. As our examiners have become more familiar with these procedures, we have been able to make several adjustments which have substantially https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 66 improved their effectiveness. For example, the examination procedures for small banks were modified to improve time efficiencies. This will allow for an increased frequency of examination without affecting quality. A vital part of the new examination procedure is the analysis of the Bank Performance Report produced by the NBSS. After a year and a half of experience with this system, combined with training sessions for examiners geared toward its use, the field examiners are becoming more sophisticated in their analysis. These reports are also being provided directly to the banks in the hope that they will help the banks to analyze their own condition and make improvements based on this study. The Bank Performance Report has changed considerably since it was first produced in 1976, and it receives constant review for possible further improvements. An example of the latest report has been previously supplied to the Committee. The recent adoption of a new enforcement and compliance policy generally requires our Office to take formal administrative action under the Financial Institutions Supervisory Act of 1966 on all banks rated 4 or 5. Also, formal administrative actions or the use of a less formal "Memorandum of Understanding" is required for all 3 rated banks. Exceptions to this policy may be granted by the Washington Office. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 67 Another recent development in the Enforcement and Compliance area is the creation of a fraud detection unit. Experienced examiners from each of the regions attend a training session where they receive instructions on how to improve detection and reporting of fraud, safeguard the chain of evidence, and conduct a.proper investigation. These examiners will be used when a potential case of fraud is spotted. extremely beneficial. This new unit has already proved to be Additional training sessions are planned to expand the number of qualified specialists in this area. Improvements have also been made in the examination procedures for special bank functions, consumer, trust, international, and EDP examinations. New procedures were adopted for each of these areas in 1976 and were improved in 1977 through changes resulting from the experience gained in the year of implementation. Changes included major revision of work programs, establishment of follow-up procedures to monitor more closely problem areas, improvements in the review process at the Washington level and the use of formal administrative actions to effect remedial action in several cases. While each of these specialized areas presently receives individualized attention through the use of a separate report, we are now coordinating the examinations where possible so that a consolidated view of a bank's operations is presented by our examiners to the bank directors at the conclusion of the co111Dercial examination. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 68 This coordinated effort is most important in the examination of the multinational banks due to their size and importance to the national economy. The largest 98 national banks hold 65% of the total resources of all national banks. We have strengthened our examination and review processes for the multinational banks and are developing a sophisticated training program for the examiners who will be responsible for examining these banks in the future. We continue to supervise these banks on a global basis through regular on-site examinations abroad and on a remote basis using reports the banks submit regularly to the Comptroller's Office. The overseas examinations provide the Comptroller's Office with the opportunity to evaluate, at close range, bank systems, management, assets, and foreign exchange activities. We also test the accuracy and timeliness of management reports these foreign locations submit to their head offices. There is another advantage to these overseas assignments communication with foreign bank supervisors. Given the scope of multinatiqnal activities in the largest national banks and the interdependence of the world's financial markets, the effectiveness of all bank supervision throughout the world determines the safety, soundness and confidence of the world's banking system. The Comptroller's Office recently was invited to join the Group of Ten Committe on Banking Regulations and Supervisory Practices. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 69 The Committee, commonly known as the "Cooke Committee" after its Chairman, Mr. Peter Cooke, head of bank supervision at the Bank of England, operates under the auspices of the Bank for International Settlements in Basle, Switzerland and provides a forum for discussion of bank supervisory concerns conman to all committee members. Finally, our Office regularly receives bank supervisors who review our procedures, forms and NBSS for adaptation in their home countries. Conversely, our Office has detached personnel to the International Monetary Fund for the purposes of assisting Fund members in strengthening these bank supervisory programs. The growth of multinational banking also calls for more appropriate remote supervisory methods. We have been collecting data for some time about national banks' foreign balance sheet and foreign exchange positions. Last June the three federal agencies began collecting and publishing comprehensive data about overseas loan portfolios. In 1979 our NBSS system will receive detailed information about overseas balance sheet and income in order to analyze thoroughly the multinational affairs of national banks. Finally, multinational banking introduces to the Comptroller's Office and other supervisors complexities not found in domestic banking. The most difficult supervisory questions are the extent of country exposure national banks should carry in their portfolios and the manner in which examiners evaluate that exposure. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis In 70 response to these questions, we will soon be finalizing a proposed ruling to establish supervisory guidelines over foreign public sector lending. The three agencies have almost completed the development of a uniform approach to portfolio evaluation which concentrates on levels of exposure, potential risk in that exposure, and the manner in which a bank manages its country risk. This development is an example of the increased coordination and cooperation among the Comptroller's Office, the FDIC and the Federal Reserve System in 1977. have spurred this improvement. This Committee and the GAO study The strides made by the Inter- agency Coordinating Committee since 1976 are significant. Although there has been an interchange of ideas in the past, there was more of a feeling of cooperation and a willingness to change in 1977. This new openmindedness resulted in several changes in each agency garnered from the successes of the other agencies. Some of the more significant accomplishments of this new spirit are changes in examination techniques in all three agencies, changes in examination emphasis, an increased number of joint examinations of affiliated banks and holding companies, closer communications concerning problem banks, joint training programs and the recent adoption of a uniform rating system. This new rating system includes five group ratings similar to those presently used by the Comptroller's Office. After implementation, the statistics pro- vided to this Committee by all three agencies should be more comparable. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Interagency Coordinating Committee will continue 71 to work toward the end of improving the supervision of all banks which ultimately affects the overall condition of the banking system. We are also working with the Federal Reserve Board, the New York Banking Department and the Commonwealth of Virginia Banking Department to produce NBSS generated bank performance reports for their use. Compatibility of data and integrated computer systems are goals all three banking agencies hope to achieve in the future. In summary, I would emphasize that 1977 and early 1978 have been times of improvement in the condition of the banking system and in the supervisory process. learned in 1974 and 1975. Bankers have applied lessons This is reflected in generally improving earnings, declining loan losses and decreasing classified assets. Current examinations indicate that banks have moved to impose more effective controls and policies. At the same time, signi- ficant changes in the examination and supervisory process including improved surveillance procedures and increased reliance on formal enforcement - have substantially increased our abilities to cope with problems when they do occur. While some uncertain- ties remain, bankers and bank supervisors have taken additional steps to assure that the American banking system remains sound. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 72 APPENDIX Graph on Growth Rates for Tptal Assets and Total Capital of National Banks 1973 - 1977 1 Graph on Percentage of Total Capital to Total Assets of National Banks 1972 - 1977 2 Table on Selected Ratio Summaries of All National Banks for 1975 - 1977 3 Tables on NBSS Selected Ratios for National Bank Peer Groups for 1972 - 1977 4 - 9 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Growth Rates for Total Assets and Total Capita! 0 .,' "' https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 20 19 18 Total Assets 17 16 15 14 13 12 Percentage Growth ~ate 11 10 9 8 7 6 5 4 3 2 Year 73 74 75 76 77 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis PERCENTAGE OF TOTAL CAPITAL TO TOTAL ASSETS 7% ... I I 6% 5%c___ _ _...J__ _ _- L - - - ' - - - - L - - - - . . . J _ - - - - . l . - - - - . l . . - - - - 72 73 74 75 78 77 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Cl»IP rR~LLER O~ 1HE CURREIICY NBSS PEER GROUP DATA PEER GROUP TYPE OF BANK NO. OF BANKS 1975 1976 INTEREST EXPEIISE/ AVEr.AGE ASSETS IIET INTEREST EARlllNGS llETURN ON AVERAGE ASSETS 1975 1•77 1976 1977 1975 ALL BANKS 1-20 1976 1977 !let Loan Losses/ Av Total Loans 1975 1976 1977 4,599 • 86 • 91 .92 3. 97 4.17 4.23 2.79 2.92 2. 95 .51 .37 .32 2. 93 2.98 .60 .59 .40 I.ARCE BANKS $300 2-3 HILLlR,1IY0~5 228 • 71 • 73 .78 3. 70 3. 85 3.91. 2. 78 4-20 BANKS UNDER $300 KILLION 4,356 • 87 • 92 .93 3. 99 4.20 4. 76 2,79 2. 93 2 .95 .50 .36 .32 RURAL BANKS 2,353 1.00 1.06 1.06 3.98 4.15 4. 19 2. 49 2 .59 2 .60 .26 .28 .25 h~1s~·i' 17 & · T~t,;r x:c~t:.L Av •-r~f:,•~rnr.~~f '-'Ef / ,\v. AtUH'!t (;1". R:ate Av. r:.in-1 t~1 r, b,>n I 1-20 ALL BANKS 4,599 8.00 8. 26 8,14 6. 70 6. 49 6.68 13. 24 11. 77 15.38 9. 98 13.78 11. 79 228 6.80 7 .01 6.81 7. 77 7. 33 7. 75 6.00 7 .58 b.2.40 8. 79 10.40 9. 56 8 .07 8. 34 8. 22 6. 62 6. 44 6.80 13. 67 12 .01 5. 54 10.04 13. 94 11.91 7,95 8. 27 8. 23 6. 43 6. 74 13.25 9.20 2. 27 11.05 14.37 12.01 LARGE BANltS 2-3 no~,~m!ON TO 4-20 BANKS UNDER $300 MILLION 4,356 h~d~· 17 & i! RURAL BANKS 2,353 11\.v. Pf~~n£ufokg:ns/ 1-20 2-3 4-20 ALL BANKS 4,599 LARGE BANKS $300 MILLION TO 228 • 5 BILLION BANKS UNDER 4,356 $ 300 MILLION 8~9112, i7',5!9 RURAL BAN~S 2,353 6. 55 I Pri\v/,,.~ on \oA~qn-~~"se [P/Avvei./aDoen LL0o0an';:T.osae xesierve LOun 1,,ossea, Av~ra c Loans 3. 47 3. 22 3.09 .23 • 23 .23 • 44 .45 .43 1.07 1.04 1.01 5. 03 4.17 3. 56 .35 .31 ,26 • 67 .61 '.tlO 1.18 1.23 1.20 3. 38 3. 16 3. 07 .22 .22 .22 .43 .44 .42 1.06 1.03 1.00 3. 15 2. 99 3. 04 •I7 , lR .18 .33 • 34 .34 1.07 1.01 .96 u> I COMPTROLLER OF THE CURRENCY NBS$ PEER GROUP DATA snECTEO KEY RATIOS Tota 1 Assets Peer Group Over $5 bill Ion 1 $900191 to $5 billion 2 RETURN ON AVERAGE ASSETS No. of Banks Type of Bank All Banks " " " 1972 1973 1974 1975 1976 NET INTr:RllST EARNINGS/ AVERAGE ASSETS 1977 1972 1973 1974 1975 1976 1977 15 .65 .63 .56 .61 . 61 .60 2. 85 2 .81 2.86 2. 94 2 .87 2. 82 83 • 79 .76 .72 .71 • 71 .75 3.36 3. 41 3.49 3. 54 3.65 3. r,8 to $90<Jtl 3 145 .82 .77 .75 • 71 .75 .79 3. 54 3.54 3.64 3. 79 3. 97 4.05 SlOOMM to S30<Jtl 4 Branch 229 .86 .86 .83 .80 .84 .87 3.80 3.85 3.96 3.96 4.17 4.23 5 Unit' 157 .89 .90 .88 .83 .88 • 95 3.41 3.58 3.59 3. 58 3. 81 3. 93 Urban Branch 191 • 87 .85 . 77 .75 .84 .83 3.9? 4.05 4. 21 4.12 4 .41 4.0 $30(MI 6 $4CIII to $1CDM • $25191 to $40111 $21191 to $25ltl $10 Ill to S2<111 less than $11111 less tlYn $211'11 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis " 7 Urban Unit 267 .93 .92 .90 .83 .86 .93 3.76 3. 92 3.99 3.87 4.09 4.19 8 Rural Branch 218 . 94 1.00 .95 .94 .99 1.01 3.Bn 3.99 4.03 4.03 4.32 4.37 9 Rural Unit 231 1.02 1.07 1.07 1.04 1.11, 1.08 3.69 3.82 3.92 3. 87 4.06 4.11 10 Urban Branch 170 .81 .90 .80 . 78 .77 .83 3. 74 4.02 4.11 3.99 4.26 4. 31 11 Urban Unit 164 .81 .97 .9(1 .78 • 81 .90 3. 74 4.09 4. 21 4.00 4.15 4.26 12 Rural Branch 232 • 95 1.05 1.01 • 95 1.02 1.02 3. 75 4.00 4.12 3.94 4 .18 4.21 13 Rural Unit 236 • 97 1.09 1.11 3.89 4.06 4.13 14 Urban 148 • 78 .89 .82 4.12 4.3~ 4.47 15 Rural 268 .96 1.10 3.93 4.13 4.17 16 Urban 355 .65 . 74 .68 • 59 • 71 .77 3.69 4.05 4.36 4.07 4.30 4.36 17 Rural 719 .93 1.10 1.11 1.04 1.10 1.10 3.73 4 .04 4.26 4.02 •.18 4. ::!0 18 Urban 198 .62 .61 .48 .40 .65 .79 3. 59 3.96 4.35 4.26 4.44 4.52 19 Rural Charte::-ed Since 12/31/74 452· 134 11 1 .ftA .91 -1.39 .97 .96 -.12 3.68 N/A 4.12 N/A 4.41 4.03 1.95 4.10 4.13 4.56 20 .. N/A 1 N/A 1.08 .69 1.11 N/A -· 1.02 --·-···-·• 1.12 .82 1.09 -.84 ·-···· ··-- 1.15 .89 1.10 3.61 3. 70 3.70 3.88 4.11 3.98 4.01 4.27 4.15 N/A 3.57 i COMPTROLLER OF THE CURRENCY NBSS PEER GROUP DATA SELECTED KEY RATIOS 1972 1973 1974 1975 1976 1977 ALL Banks 5 . . . Unit 157 2.29 2. 30 Z.36 2 .45 6 Urban Branch 191 2. 84 2.85 3. 02 3.11 2. 48 2. 51 2.61 2. 68 2.63 Peer Type of Bank Over $5 bll lion 1 $900lfl to $5 bi11 ton 2 S300lfl to $900lfl 3 SlOCNI to S30CNI 4 $<IOIII to SlOINI" $25111 to S41M1 S20MII to $25111 $1C "1 to $20MII less than $11111 less than S20MII https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ~ET LOAN LOSSES/AVERAGE TOTAL LOANS No. of Banks ~roup Tota1 Assets NON-INTEREST EXPENSE/AVERAGE ASSETS . 1972 1973 1974 1975 1976 1977 . . 15 l.64 l. 54 1.51 1. 59 1.93 I. 97 .20 .25 , 29 • 59 • 71 83 2.37 z. 35 2. 43 2.59 z. 1(, 2.83 .ZR .23 .4Z .63 .63 .4 5 145 z.~s Z. 58 z. 7Z 2.90 3.03 3. 07 .26 • ZR .41 • 59 .57 .38 Branch 229 2. 64 2.66 2.79 2.86 3. 01 -~- 03 .23 • 22 .30 .43 .38 • 30 2. 58 2. 64 .zo • 2l ,35 .49 .SI .28 3. 28 3. 27 .29 • 21 .46 • 44 .41 .33 2. 81 2. 85 • 26 • 3. .43 • 54 .52 .39 Z. 79 2.80 • Zl . 21 .27 • 34 • 34 .26 .47 7 Urban Unit 267 8 Rural Branch 218 2. 46 2 .48 2.55 9 Rural Unit 231 2.10 2. 08 2.13 2 .19 2.29 2. 32 .19 •2 .28 .30 .29 .Z2 Z. 73 2. 89 Z.95 3.13 3.14 .25 •2 .37 .40 .46 .3n Z. 79 Z.93 2.99 3.09 3. 07 .33 • 4, • 50 .60 .6Z .44 2. 48 2.58 2. 61 .23 . z. .31 .33 .38 .27 • Zl 10 Urban Branch 170 2.67 II Urban Unit 164 2. 79 12 Rural Branch 232 2. 35 2.36 2. 4 5 13 Rural Unit 236 2. 14 2 .10 2 .12 2.14 Z. 23 2.24 • 24 •2 .30 .30 .33 148 2. 94 3. 07 3. 29 3.30 3.41 3. 38 .28 .3 .47 • 60 .60 .37 2.36 2. 47 2. 4 7 • 26 •2 .32 • 29 .30 .23 • 46 • 56 .57 .47 '1 .32 .23 14 Urban 15 Rural 16 Urban 17 Rural 18 llrban 19 Rural 20 . . . . . . tm·n~ll-74 268 2.27 2.25 2.32 355 3.08 3.20 3.47 3. 52 3, 58 3.49 • 36 .38 719 2.39 2. 37 2. 45 2.49 Z. 60 2.60 .27 • 26 . 198 3.06 3. 37 3.90 4.08 3.99 3.91 .27 .25 .36 .39 .53 • 34 452 2.60 Z .61 2.80 2. 81 Z. 89_ 1 .24 • Z8 .31 .30 .42 .33 134 N/A N/A 4.08 s.ns 5.15 .41 .75 .83 N/A 01 N/A N/A N/A I 1.11 I ~ ~ CCJ!PTaOLLER OF THE CURRENCY NBSS PEER GROUP DATA SELECTED KEY RATIOS Peer Total Assets Over S5 bill Ion ASSET GROWTH RATE Group Type of Bank 1 No. of 1973 5.90 6.42 7.65 12. 86 12. 61 8.26 9. 14 8. 70 11. 22 145 14. 85 10.52 1 s. (,3 12.27 Unit 1975 1976 1973 1974 1975 1976 1977 7. 91 9.34 17.87 10. 01 7. 35 9. ZS 9.62 8. 87 9.42 9. 71 7 .RI 10. IS 9.96 14. 69 11. ZS 10.17 8. 79 13. 78 10.52 12.28 5 " 157 15. 21 10. 91 7.93 8.12 8. 34 11. 48 12.50 14.59 10.14 9. SR 12. 40 6 Urban Branch 191 15. 61 11.02 6. 73 9. 65 9. 57 14.31 14.55 13. 97 9.33 8. 04 13.ZZ 1 Z. 00 7 Urban Unit 267 16. 54 10. SI 7. 17 R. 84 8 .4 8 13.99 15.03 14.38 13.02 JO. 83 12. 69 12.10 8 Rural Branch 218 15.49 12.93 8 .10 9.52 7.37 12.19 13.46 13.80 10.76 9. 62 13. 83 10.52 9 Rura I Unit 231 15.00 14. 13 9. ZS 11. 51 9.72 11. 43 14.05 16.14 11. 61 11.86 15. 85 11.30 10 Urban Branch 170 16.18 12.86 7. 99 10. 62 9. 85 13.74 13.19 14.74 11.I' 9.57 12.53 11. 44 11 Urban Unit 164 18. 78 13. 38 7.99 11.24 10.66 13. 62 13.14 18.20 11. 31 Jo. 02 14.46 12.07 11. 93 12 Rural Branc11 232 15. 86 12.76 10.26 11.17 8.69 12.14 11.26 I 6. 58 12. I. 11. 19 13.43 13 Rura I Unit 236 15. 34 15.09 10.63 12.02 9. 99 12.38 12. 61 15.52 15.25 14.18 17.66 13.17 14 Urban 17. 67 15. 91 1 I. 84 ·11.82 11. 70 15.2(, 14.96 13.2(, 12. 52 8. 54 13.47 12.29 15 Rural ." 148 268 15. 32 13.82 9. 52 11.29 10. 01 12.26 11. SI 1 S. 43 14. 4! 11. 32 15.15 13.45 355 17. 87 13.98 12.97 16. 27 12.59 16.65 9. 87 13. 24 10.H 7.37 11.01 9. 78 719 15.46 15.48 10. 24 11.80 9. ZS 12.39 10.56 14. so 12. 7! 11. 38 13.13 12. 60 198 17. 84 13.87 15.51 20.85 18.28 18.55 5.86 11. 33 8. 71 s. 09 6. 9z 10.88 452 14.19 16.82 8. 01 11. 62 8. 95 12.32 7.92 13. 09 11.Z 8. 31 10.72 10. 53 134 N/A N/A N/A N/A N/A - 16 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 7.96 S. 92 229 less than S20ltl 8. 46 13. I 9 1 s. zo Branch less than $1CHI 11. 84 7. 45 11. 58 ZJ. 91 lJ.86 16. 22 " $10 MM to $201t1 7.JO 15. 7.9 J. 85 18.47 83 4 $201t1 to S25lfll 1. so 15 " $1 OOMII to $300MM $25ltl to $40ltl 1972 All Banks 3 $40ltl to Sloatl • 1977 1972 $300MH to $900ltl . 2 1974 Banks . . . $900NH to S5 bf 11 Ion CAPITAL GROWTH RATE Urban . 17 Rural " 18 Urban " 19 Rural " 20 r.rartered S nee 12/31/74 I ! I N/A 62.76 47.42 N/A N/A .16 2.J9 COMPTROLLER OF THE CURRENCY NBSS PEER GROUP DATA SELECTED IC£Y RATIOS Peer TOTAL CAPITAL/TOTAL ASSF.TS No. of Group Type of Bank Over S5 bfl11on 1 All Banks S900III to SS b1111on 2 SlOCMI to S!IOOMM 3 . $10CIII to $30CJII 4 Tota 1 Assets 5 $40III to $1111111 • $25111 to $40MN $20ltl to $25111 $10 Ill to $20111 less than $HIii less than $21111 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis . . . . LOANS AND ACCEPTANCES/TOTAL CAPITAL Banks 1976 1977 1972 1973 4, 91 5.36 5, 11 10, 21 11. 67 6.75 6.89 6. 72 8,12 8, 85 8.81 8.01 6.87 7.07 6.86 7. 95 8. 31 8.05 7.15 7,12 7. 52 7. 47 7. 80 8.13 7 .16 7.27 7. 53 7. 46 7.38 7. 43 1974 1972 1973 15 5. 49 4,80 4,56 83 6,77 6. 37 6,47 145 6.67 6.62 6. 77 Branch 229 7.07 7.05 Unit 157 6.85 7.00 . 1975 1974 1975 1976 1977 13. 44 12.11 10. 77 11. 29 7.55 7. 94 7.56 7.28 7. 72 8.01 7.73 7.20 7.53 7.21 6.86 6.44 6.77 6 Urban Branch 191 7.22 7. 44 7.61 7 .49 7. 77 7.60 7. 61 7.67 7. 53 7. 45 7.13 7.56 7 Urban Unit 267 6.86 7 ,07 7.55 7. 61 7. 81 7. 72 7. 55 7.64 7.22 6. 82 6. 54 6. 91 8 Rural •Branch 218 7, 31 7,36 7.51 7. 51 7.94 7. 83 7.48 7. 72 7. 61 7. 39 7 .00 7. 41 9 Rural Unit 231 7. 08 7.19 7.37 7.40 7. 84 7.83 7 .18 7.37 7.32 7.10 6. 75 7.09 10 Urban Branch 170 7.24 7.38 7. 70 t. 59 7.68 7.51 7.56 7.51 7.31 7.30 7 .14 7.~1 11 Urban Unit 164 7. 28 7. 46 7.72 7.56 7. 80 7. 70 7.03 7. 06 6. 83 6.81 6. 42 6. 72 12 Rural Branch 232 7.23 7. 4 7 7.57 7.57 7 .87 7 .84 7.25 7.29 7.22 7. 06 6. 82 7 .16 13 Rural Unit 236 7.13 7.13 7. 40 7. 50 7.97 8. 03 6. 97 7.16 6.99 6. 88 6. 59 6. 79 14 Urban 15 Rural 16 Urban . . . . . . 17 Rural 18 Urban 19 Rural bartered S1nce 12-31-74 20 148 9;2a 8. 21 8.54 8.10 8. 00 7.76 6.69 6.70 6.53 6.74 6.53 7.10 268 7.10 7.26 7.52 7. 62 7. 97 8. 04 6.94 7.03 6. 82 6. 76 6.56 6.82 355 8. 51 9. 24 9.68 8. 81 8. 47 7.96 6.49 6.21 5. 95 6. 24 6.35 7. 04 719 7. 84 7. 98 8.08 8. 03 8.30 8.30 6. 24 6. 37 6.34 6. 40 6. 40 6. 69 198 10.58 IZ.15 13·.&5 12. 31 10.73 9.82 5.13 4.68 4. l! 4.67 5 .19 5. 78 9.14 8.94 452 a, so 8.68 9. 62 134 N/A N/A N/A 9. 06 26.80 19.58 12.93 5. 42 5. 45 5. 34 5.53 5.69 6.02 N/A N/A N/A 1.82 2.89 4.83 .... I COMPTROLLER OF THE CURRENCY NBSS PEER GROUP DATA snECTED K£Y RATIOS Tota I Assets Peer Type of Group Bank OWr $5 bfll ton 1 S!IOOIII to $5 bfll ton 2 S30IHI to S90CMI 3 $10CNlto S30CHI 4 $4CIII to $10CNI • $2S!llto WIii $211111 to $25111 $10 Ill to $211111 l•s thin $11111 , _ tlllll $211111 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis No. of Banks PROVISION FOR POSSIBLE LOAN LOSSF.S/ AVERAGE ASSETS PAST DUE AS I OF TOTAL LOANS 1972 1973 1972 1974 1975 1976 1977 1973 1974 1975 1976 1977 All Banks 15 .11 .13 .22 .39 .39 ,30 5.18 4.39 4. 09 . . 83 .15 .15 .25 .38 • 35 .29 6.02 4.79 3. 90 145 .14 .15 .22 .33 .29 .25 4.51 3. 94 3. 37 3. 39 3.39 3.05 . . . 229 .13 .13 .18 • 24 .23 .21 5 . Branch Unit 157 .11 .12 .19 .26 .23 .18 3.64 3.19 2.76 6 Urban Branch 191 .15 .16 .26 .27 .25 .25 3. 57 3.22 3. 07 .14 .16 .21 .26 .29 .24 3. 77 3. 35 3. 04 3.59 3.16 3. 06 1 Urban Unit 267 8 Rural Branch 218 .12 .12 .14 , 19 .20 ,19 g Rur■ l Untt 231 • 10 .11 .14 ,15 ,15 .17 2.96 3.00 z. 91 10 Urban Branch 170 .13 .14 .20 .20 ,27 .21 3. 79 3. 36 3.08 11 Urban Untt 164 .18 .18 .27 • 32 • 34 .26 3.96 3.66 3. 25 12 Rural Branch 232 .11 .12 .16 .18 .19 .20 3.63 3. 29 3. 20 13 Rural Untt . . . 236 .12 .14 ,·14 .15 .15 ,15 3.03 2. 81 2. 78 148 .16 .18 .26 ,33 .31 .28 3.62 3. 70 3. 27 268 .13 .12 .16 .14 .16 .17 3.09 3,08 3.16 3. 82 3.65 3. 37 3.00 2. 91 3. 02 2.88 14 Urban 15 Rural 16 Urban 17 Rural 719 18 Urban 198 .16 .15 .22 .29 .27 .28 3.39 3 .10 19 Rural 452 .14 .16 .19 .18 .zo .23 3. 20 2.97 3, 14 134 N/A N/A N/A .15 • 27 ,40 1.05 l.80 Z.90 20 . . . i~:~:·a~Jl-7• 355 .18 .14 .20 .13 .27 .16 .31 .17 , 31 ,17 .34 .18 CCIIPT:ull.LER OF THE CURRENCY NBSS PEER GROUP DATA SELECTED KEY RATIOS Peer PROVISION POSSIRLE LOAN LOSSES AVERAGE LOANS · Group Type of Bank No. of Banks 1972 1973 1974 Over $5 bfl llon 1 All Banks .20 .ZS 2 . . . . 15 S!IOCHI to $5 bfl lf on 83 .29 • 28 145 .27 Branch 229 .24 Tota 1 Assets to $900fll 3 SlOOII to $3CXHI 4 $30(Jfl $40lfl to $10CNI • $25111 to $40lfl S20ll1 to $25111 $10 Ml to $20111 less than SlMI 1111 than $2lllll https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis . RESERVE FOR POSSIBJ.E 1.0AN LOSSES ENDING BALANCE/AVG TOTAL LOANS 1975 1976 1977 • 57 .97 1.09 1.07 .56 1.12 1.22 I. 21 .48 I. 22 I. 23 I. 20 .43 .38 1.11 1.13 1.09 1.26 1975 1976 .40 • 68 .73 • 45 .72 .68 .28 • 41 .63 .57 .24 .33 .44 1977 1972 1973 1974 5 . Unit 157 .24 .24 • 38 • 36 I. 28 I. 31 Urban Branch 191 • 29 .30 .47 .ss .so .49 6 .46 • 45 1.03 I.OS 1.04 7 Urban Unit 267 .30 • 32 • 39 • 54 . 54 .48 I. 14 I. 17 1.13 8 Rural Branch 218 .ZS .34 . 36 . 33 1.09 1.07 I. 02 Rural Unit 231 .zz .zo .21 9 .21 .27 .30 . 29 • 31 1.16 1.09 1.03 10 Urban Branch 170 .27 .28 • 37 .39 .47 .39 . 94 .97 .94 11 Urban Unit 164 • 37 .37 • 54 .65 .70 .53 1.06 1.09 I. 07 .29 • 34 .37 .36 1.12 1.06 1.02 12 Rural Branch 232 .22 .23 13 Rural Unft 236 .25 .28 • 28 • 31 .29 • 28 1. I 8 1.07 .98 14 Urban 148 .33 . 36 .47 .67 .62 • 54 1.02 1.04 1.04 15 Rural 268 .26 .25 • 31 .29 .30 .31 I.OS • 99 • 93 16 Urban 355 .39 •.42 .55 • 62 .62 .61 .91 .94 .92 17 Rural 719 .29 .27 .33 • 33 .32 • 32 1.08 1.03 .98 18 Urb•n 198 • 32 • 34 .52 .58 .57 .53 .79 .76 .83 19 Rural Chartered Since 12•31•7 20 . . . . . . 452 134 .31 .35 .41 .38 .41 .44 .90 .88 .85 N/A N/A N/A .39 • 70 .81 .48 .75 .83 _:, 00 I I-' 82 The CHAIRMAN. Thank you very much. Mr. Le:Maistre. STATEMENT OF GEORGE LeMAISTRE, CHAIRMAN, FEDERAL DEPOSIT INSURANCE CORPORATION Mr. LEMAisTRE. Mr. Chairman, I, too, would like to file the statement and to summarize it because we all looked a,t the same figures and we came up with pretty much the same conclusions. The CHAIRMAN. Your entire statement will be printed in full in the record. Mr. LEMA1sTRE. I would like, however, to take a few minutes to talk ·about the problem bank chart. I would like to talk about the problem banks for a little bit if I may because, as you know, we have for a number of years maintained a problem bank list. It covers all the insured banks in the country, not only the ones we supervise but the ones that &re supervised by the Fed and the Comptroller. We plan to keep this list operating in tandem with the recently announced interagency uniform bank mting system which we are just beginning to use. It's being developed by the Interagency Supervisory Committee and we will hopefully come forward with some kind of a uniforni rating system that will be a little more meaningful than our present methods. [The chart referred to above and the complete statement of Mr. LeMaistre follow :] https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 83 THE TANGLED WEB OF BANK REGULATION National banks C-ldby ,,'l---..;_-------1 Federal government , /,, Adm111ed 10 Federal Reserve memt>ershlf? by _________ AdrmDed to FDIC msurance by _ _ _.....;__ _--l ,,,,,l-E-,am-,-nld_by ,.__ 11' 1 / 1 , ', , , ' ~ Subm11S reports to 1~1:,',1,,.a.••-..,.,.._;,IQ_U_"_ld_by_ _ _ _ _-1 ~----~~,,~,',, l l l ~ - - - - " - - - - - - - - 1 ;,,,, .,/flJl,--Su.;...,..._'°_'..;89_•'•-•oons_•_•-----1 Comptroller {:·:--:·m'l11-11e.;.';a;_..;.;.,_"'.;..anc_•_••-""-'...;""'-".:..00_.,;...._--1 of the Bank ""'"'ng °"'"""""' """""'led "' State member banks Currency c....... ., Admitted to Federal Reserve membership by Admtllecl 10 FDIC insurance by Examined by : SubmllS reports 10 Federal Reserve Federal Deposit Insurance Corp. Bank h(Jldlng compantn conlrOllad by Source: Hearings on Financial Structure and Regulation btfor, the Subcomm. on Financial Institutions of the Senatt Comm. on Banking, Housing and Urban Affairs, 93d Cong., 1st Sess. 619 (1973). https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 84 Statement by George A. LeMaistre, Chairman Federal Deposit Insurance Corporation I am pleased to report to the Committee in this second regular oversight hearing on the condition of the banking industry. As my predecessor, Robert Barnett, stated last year, we believe that routine disclosure and discussion of information concerning the banking industry is in the public interest. These hearings will contribute to an understanding of the banking system's strengths and weaknesses. I. GENERAL CONDITION OF THE BANKING SYSTEM It is important that an assessment of the performance of the banking industry be viewed within the context of recent economic conditions and cyclical developments. Certain banks will inevitably develop problems in response to troubled economic times, and many of the bank problems over the last four years have, in fact, been attributable to the environment in which the banks operated. The events surrounding the economic downturn of the 1974-75 period indicated clearly that the banking industry, like other sectors of the economy, is vulnerable to the vagaries of general economic and business conditions. Because banks have become more aggressive and more competitive, the industry has suffered more than it would have 10 or 20 years ago from major economic disruptions such as high and fluctuating interest and inflation rates and various traumatic shocks, most notably the increased orice of energy. High loan losses, weakened earnings and capital positions, and other problems stemming from the most severe economic contraction since the Great Depression, all placed great strains on our banking system. The system held up remarkably well given the magnitude and the variety of shocks with which it had to cope. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 85 Notwithstanding the problems we have witnessed in the bank- ing industry in recent years, it is my opinion that the industry has remained sound, Furthermore, the industry has been strengthened by the experiences of the 1970s and has exhibited the ability to adapt and learn from past mistakes. Last year the FDIC reported that, on the whole, the banking industry showed signs of recovering from the 1974-1975 downturn in the economy. Statistical trends indicated greater overall stability, increased capital ratios, improved liquidity, moderating loan losses, and higher earnings. Statistics for 1977 reflect a continuation of many of these trends, This, of course, is consistent with continued general economic recovery from the recession of 1974-75. Since the spring of 1975, the economy has advanced at an average annual rate of about 5.1 percent in rP.al GNP. This qrowth has been accompanied by improvements in employment and business profits and in most other sectors of the economy which, in turn, have provided a favorable environment for banks. However, inflation remained an important problem during 1977. The price level advanced by close to 6 percent, pushing the increase in nominal GNP to more than 11 percent. Reflecting both real and inflationary growth in GNP, domestic deoosits at insured commercial banks increased by 11.4 percent in 1977 and total deposits, including those in foreign offices of u. s. banks, increased by 12.5 percent (see TABLE 1). https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 86 TABLE 1 SELECTED DATA FOR ALL INSURED COMMERCIAL BANKS Year-end 1977 $ bill ions Change '76-'77 % Net Loans U.S. Treasury Securities Total Assets 715. 7 95.9 1,339.0 15.3 -1.0 13.2 Domestic Deposits Deposits in Foreign Offices Total Deposits Equity Capital Total Capital 925.5 190.8 1,116.3 79.3 85.1 11.4 18.5 12.5 9.7 9.9 % Change Operating Income Operating Expenses Net Income Net Loan Losses 1977 '76-'77 90.3 78.7 8.9 2.8 12.0 11. 3 13.4 -20.l Year-end '77 % Net Loans/Total Deposits Equity/Total Assets Equity/Net Loans Total Capital/Total Assets Total Capital/Net Loans 64.1 5.9 11.1 6.4 11. 9 1977 Operating Income/Average Assets Net Income/Average Ass~ts Net Loan Losses/Average Net Loans https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 7.2 0.71 0.42 87 Growth in loans was even greater due to the strength of the economic recovery during 1977. Loans, net of reserves, increased by more than 15 percent -- the increase was greater for nonmember banks, for smaller banks, and for banks outside the nation's money centers. Because loans increased at a fas.ter percentage rate than deposits, the aggregated loan-deposit ratio rose above 64 percent for all insured commercial banks by the end of 1977. Thia was still considerably below the levels that existed during 1974. Although loan expansion was accompanied by a reduction in liquidity, this reduction was not substantial. Banks increased their net income by 13.4 percent in 1977. Thia reflected the expanded earning asset base, relatively stable margins between interest earned on assets and interest paid on deposits and other funds, and a decline in loan loss orovisiona. Actually, aggregate loan loss provisions signific~ntly exceeded net loan charge-offs (realized losses) for banks in 1977, in part because of the sizable loan growth. Net charge-offs declined by about 20 percent from 1976 levels despite the loan expansion. Thia was the first year since 1972 that the dollar volume of bank loan losses actually declined. Prom a supervisory standpoint this was a very welcome, though not surprising, development. Although the 1977 ratio of net loan losses to average outstanding loans was about double the level that existed in 1972, it was substantially below the comparable figures for 1975 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis and 1976. 88 Despite favorable earnings and sizable additions to eauity through retained earnings, the ratio of •quity to bank assets declined in 1977. Because banks have relied principallv on retained earnings as a source of eauity, it is extremelv difficult for banks to maintain their capital ratios in periods of double digit asset expansion. In 1977, net income to equitv capital (rate of return on equity) was about 12 Percent. However, even if all earnings had been retained and added to equity, the capital ratio would have fallen because total assets increased by more than 13 i,ercent. It should be noted that historically the rate of return on equity does not seem to be related to the inflation rate, whereas the rate of expansion in bank assets does. During the first quarter ~f 1978, most banks appeared to be continuing to perform well. An analysis of first quarter earnings reports for large banks indicates that the vast majority reported improved first quarter earnin~ ·compared' ·to the first quarter of 1977. In many instances, the improvem,ents were sizable. The particularly favorable performance of many regional and nonmoneycenter banks strongly indicates that this favorable performance characterized the behavior of small as well as large banks. Loan charge-offs continued to decline and this apparently contributed importantly to first quarter earnings gains. At this point, many financial analysts appear to expect bank earnings to show percentage gains in 1978 comparable to those experienced in 1977. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 89 Bank performance during the balance of the year and beyond will depend importantly on economic develooments. Weather condi- tions, the coal strike and other factors contributed to a virtually flat first quarter. Most forecasters agree that the second ouarter of 1978 will be very strong and that real growth for the year will ·be in the 4 to 5 percent range. will exceed 6 percent. Most also agree that inflation However, as we move into the latter cart of the year, forecasts of economic and financial market conditions diverge. Consensus forecasts appear to imply banks will exoerience slower deposit growth -- that has already occurred so far this year. Combined with continued strong loan demand, slower deposit growth is apt to put moderate pressure on the liquidity oosition of some banks. At the same time, we expect further improvement with respect to loan losses. Of course, we recognize that an acceleration in the inflation rate could make financial markets uncomfortably tight and eventually this could have an unfavorable impact on bank customers and banks. would also have a detrimental effect. A weakening in the economy Although banks are not entirely insulated from economic fluctuations, I believe that most banks and the·system as a whole can effectively withstand such fluctuations. II. RATING THE CONDITION AND SOUNDNESS OF RANKS The Federal Deposit Insurance Corooration, together with the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System, recently adopted, in principle, a new system for rating the condition and soundness of the nation's banks for supervisory purposes, 30-476 0 • 78 - 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Uniform 90 Interagencv Bank Rating System will be based on an evaluation of five dimensions of a bank's operations. Capital adequacy Asset auality Management/administration Earnings Liquidity Together these five dimensions reflect in a comprehensive fashion an institution's financial condition, compliance with banking regulations and statutes, and overall soundness. The rating system will have two main elements: (1) An assessment and rating on a scale of one through five o f ~ of the five criteria; (2) A combination of the five basic rankings into a composite rating of the bank's condition and soundness. Based on the composite ratinq each bank will be assigned to one of five groups, ranging from banks that are sound in almost every respect to those with excessive weaknesses requiring close supervision. Although the new system will be used to evaluate individual banks, it may be instructive to take a look at aggregate bank data in the context of the system. (See TABLE 2.) CAPITAL ADEQUACY Total capital-to-assets ratios and growth rates of capital, which are often used as proxies of the health of the banking https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 91 industry and of individual bank soundness, are monitored from quarterly call reports. As previouslv indicated, total assets of insured commercial banks grew more rapidly than caoital last year. As a consequence, total capital-to-asset ratios declined from 6.5 percent to 6.3 percent from vear-end 1976 to year-end 1977. The capital-asset ratio for all banks in 1977 remained below the pre-recession level of 1972. The only notable exception to the industry averages were banks under $100 million in assets which showed capital-asset .ratios substantially higher than the 1972 levels. Bank capital as a Percentage of risk assets also declined in 1972. In an environment where price increases are substantial, bank deposits are apt to grow at a faster pace than capital, causing declines in the capital-asset ratio. F.or example, if banks earn an average of 12 percent on capital and pay out a third of those earnings in dividends, equity capital would increase by 8 percent a year. If deposits grow at a much faster rate than that, it becomes difficult for banks to maintain their capital ratios. Even sales of debt will not necessarily increase capital ratios unless the effect of the debt sale is to increase the debt-equity ratio of the banks in question. Although the significance of the decline in caoital ratios over the last ~everal years is not easy to assess in view of the simultaneous changes that have occurred in bank https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 92 portfolios, access to borrowed funds, external economic conditions, and other elements of banks' total exposure to risk, there is some reason to believe that the decline may reflect a deterioration in the soundness of the banking system, particularly among the very large banks. Some banks recognized this in the recent recession and took serious steps to rebuild capital positions, others did not. All banks have been constrain- ed by unattractive market prices for bank stocks which continue to discourage the sale of new equity capital. ASSET QUALITY Insured commercial banks, on balance, experienced considerable improv~ment in asset quality in 1977 as net loan losses declined. For all commercial banks, net loan losses as a percentage of average total loans dropped from 0.6 percent in 1976 to 0.4 Percent in 1977. However, the 1977 ratio remains higher than the pre- recession levels for banks in all size categories. Banks over $1 billion in assets had the highest net loss ratios in 1977. Banks under $100 million have had the lowest loan loss ratios during the past three years. Comparison of write-offs against total assets and caoital tells much the same story. Net assets written off in 1977 equaled 0.24 percent of total assets, down from 0.34 percent in both 1975 and 1976, but still higher than the 0.21 percent average of 1972-74. Net loan write-offs equaled 3.2 percent of total capital in 1977, down from 4.5 percent in 1976 and 4.7 percent in 1975. equaled 3.1 percent of capital in 1974. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Write-offs 93 MANAGEMENT Bank management is something that must, of course, be evaluated on an individual bank basis. It is true that manage- ment performance is generally reflected in the other four dimensions of a bank's operations. Sometimes where management has changed or where special circumstances prevail, management performance or potential is not fully reflected in those dimensions that lend themselves to greater quantification. EARNINGS The improved condition of the banking system is further illustrated by the recovery of bank earnings in 1977. For the year ending December 1977, total operating income for all insured commercial banks rose 12.0 percent while total operating expenses increased· 11.3 percent. This increase marked the first time in the last four years that operating income increased at a greater rate than expenses. Net income after taxes jumped 13.4 percent during 1977. Similarly, the ratio of net income to average equity capital increased from 11.2 percent at year-end 1976 to 11.7 percent at year-end 1977. However, the improvement in earnings was not distributed uniformly across All sizes of banks. Net earnings to equity capital improved most dramaticallv for banks in the $100 million to $1 billion in assets range. Banks in the $1 to $5 billion range showed only marginal improvement, and banks over $5 billion in assets showed a continued decline in net income to capital, dropping from 11.9 percent at the end of 1976 to 11.4 percent at the end of 1977. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 94 LIQUIDITY In 1977, total assets of consolidated foreign and domestic offices of insured banks increased by 13.2 percent. While net loans increased by 15.3 percent, total deposits grew at the slower rate of 12.5 oercent, and conseauently the percentage of total loans to total deposits increased over the year from 63.3 to 64.B percent. The greater increase in loans relative to deposits suggests a slight tightening of liquidity for all size categories of banks. However, the loan-deposit ratio at year-end 1977 was below the year-end 1974 ratio of 67 percent. The tendency toward tightened liouidity is also evidenced by changes in bank holdings of assets readily converted to cash and by increased reliance on interest sensitive funds. Although total assets increased by 13.2 percent during 1977, the combined bank holdings of U. s. Treasury securities and Federal agency obligations remained unchanged. Increases in total bank assets were financed in part by an 18 percent increase in Federal funds purchased and securities sold and a 40 oercent increase in other borrowed money. However, these increases in ourchased funds are not excessive since they approximate the average annual changes over the previous five years. III. PROBLEM BANKS Although aggregate data are imoortant for assessing the condition of banks in total, the suoervisory process is concerned with the condition of individual institutions. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The FDIC maintains 95 a problem bank list covering all insured banks for deposit insurance exposure purposes. (Thie list will be maintained in tandem with the new Interaqency Uniform Bank Rating Syste■.) Thie list includes troubled member as well as nonmember insured commercial and mutual savings banks. the composition of banks on it remain interest. The problem bank list and of considerable current However, the information provided by proble■ bank statistics requires considerable .interpretation if it ts to be used as an indicator of the change in the condition of the banking system. Bank management and policy deficiencies are reflected in the FDIC problem bank list with a laq. This la9- is attributable in part to the time it takes to examine a Dana and comolete the review and analysis process, a■ well as the time period between examinations. In addition to time delays, many banks are still vorkint out the adverse effects of the 1974-75 recession which left the■ with large volumes of problem loans, particularly in real estateThe nature of these problem loans does not lend itself to rapid improvement and therefore we exoect future declines in the number of problem banks to be gradual. At the same time, it is important to recognize that the FDIC problem bank list is very fluid1 are constantly added and subtracted from it. For example, in 1977, 165 banks were added to the liRt and 176 removed. banks were added and 158 were removed. In 1976, 188 At vear-end 1977, 62 percent of the listed banks had been in problem status less than two years and 86 percent less than three years. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis bank ■ 96 With these considerations in mind, I would like to reoort the latest figures from our problem bank list. The number of banks on the list reached a high of 385' in late 1976 (379 at year-end 1976) after a steady increase from 156 at the end of 1973. Since that peak, the total has fluctuated but has generally declined, albeit at a very slow oace. The list was at 368 on both June 30 and December 31, 1977, and by April 30, 1978, it had declined to 364. It is important to note that the decline in the number of problem banks has been most pronounced in the Serious Problem Potential Payout category, the most critical category on our list. There were 28 such banks at year-end 1975, 23 at the end of 1976, 12 at year-end 1977, but only 7 on Aoril 30 of this year. None of these 7 was over $20 million in size. To place these problem bank statistics in prooer perspective, we must note that only 2.5 percent of insured banks has been classified as problem banks at any given time. Naturally, the economic downswing in 1974-1975 uncovered weaknesSe$ in certain institutions and adversely affected earninqs, capital, and loan losses in general. Although repercussions from the recent recession keeps the problem bank list at higher levels than in the early 1970s, evidence of substantial reductions in loan losses in 19J7 suggests that the number of banks on our problem bank list does not fully reflect the improvement that is taking place in the banking system. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 97 IV. AREAS OF SPECIAL CONCERN There are several areas of special concern to both the banking industry and bank regulators which warrant separate mention. These include the performance of loans to real estate investment trusts (REITs), evaluation of the agricultural credit situation, international lending activities in developing countries, and the threat of potential disintermediation. REITs AND LOAN LOSSES A large portion of today's banking problems remain related to REIT loans. Charge-offs of loans to REITs have been by far •the largest individual loss to the banking industry, and REIT losses have comprised the overwhelming majority of losses for banks over $1 billion in assets. However, improvement in the real estate market has increasingly aided the REIT industry, creating markets for REIT property obtained through foreclosure and, thus, reducing holdings of these properties slowly throughout 1977. In addition, there is a growing trend among REITs to engage in successful direct management of the more attractive foreclosed properties as income producing ventures. Overall, REITs are recovering from the low point of mid-1976, as evidenced by consecutive increases in dividend payout through the first quarter of 1978 and an 8.3 percent increase in the REIT share orice index for 1977. It remains true that REIT loans will require some time to be worked out of bank portfolios. The inflexibility of REITs is illustrated by the fact that 35 percent of industry assets https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 98 consist of foreclosed property. Moreover, with $6.6 billion in bank debt against $14.6 billion in assets, recent increases in interest rates will significantly increase operating exoenses of the industry. However, improved REIT earnings and stock prices portend an improvement in this major source of problem loans. LENDING TO DEVELOPING COUNTRIES Our analysis indicates that u. s. banks have not dashed with abandon into loan involv~ments in developing countries, and that commercial lending in these countries has proceeded in an orderly fashion. In particular, there is evidence that banks are aware of the importance of country exposure limits, and that banks base their lending decisions on a number of criteria which govern the exoected performance of a loan with respect to geographic location as well as more traditional creditworthiness evaluations. Also, recent lending surveys indicate that banks have diversified their exposure across countries to insulate themselves from isolated adverse developments in any given country. However, the past record of international lending does not guarantee the future record. With this in mind, the Federal bank regulatory agencies are presently enhancing procedures to monitor foreign lending to ensure the maintenance of prudent market practices and exposures to risk. Additional information on foreign operations of banks will be reouired in the December 1978 Reports of Condition and Income. The FDIC has also undertaken, in concert with the other two Federal bank regulatory agencies, a program directed toward the development of a comprehensive https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 99 survey of foreign loans on a country-by-country basis. This is now an established semiannual report which covers claims on foreign residents held at all domestic and foreign offices of u. s. banks which have, on a fully consolidated basis, total outstanding claims on residents of foreign countries exceeding $20 million and which have: (1) a branch in a foreign country; (2) a subsidiary in a foreign country; (3) an Edge Act or Agreement subsidiary; or (4) a branch in Puerto Rico or in any u. S. territory or possession. AGRICULTURAL LENDING The latest national statistics show that the agricultural lending problem has subsided. Rural banks are not experiencing the liquidity pressures of last year primarily because deposit inflows have increased and loan repayment experiences have improved. These improvements have been achieved with the help of various Federal government programs, such as price supports and disaster loans, use of correspondent relations, and the channeling of farm credit demand toward nonbank sources. The situation for agricultural banks should continue to improve for the next two years, barring unforeseen weather-created disas~ers. The latest u. s. D. A. forecasts for 1978 and 1979 show agricultural prices improving and farm income increasing. It is expected that both deposit inflows and loan repayments will continue to improve. Credit demands on rural banks may subside as farm income improves and new Federal set-aside programs and the expanded credit opportunities with the Farm Credit Bureau become operative. However, the number of banks susceptible to agricultural conditions remains at an unusually high level. The Federal Deposit Insurance Corporation is closely monitoring the situation together with the Comptroller of the Currency and https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 100 the Federal Reserve through the Interagency Supervisory :Committee Task Poree on Agricultural Loans. •POTENTIAL DISINTERMF.DIATION Recent increases in interest rates and the susceptibility of banks and particularly thrift institutions to disintermediation ,have caused concern in the regulatory aqencies. Short-term market interest rates recently reached levels at which we would expect ,time and savings deposits to be moderately vulnerable to transfers to mar.ket instruments. This vulnerability would. increase considerably ,should market rates advance further. The Federal Reserve Board, the Federal Home Loan Bank Board and the FDIC recently agreed on certain changes in deposit interest rate ceilings designed to insulate financial intermediaries from potential disintermediation. An increase of one-quarter percent will be permitted on certificates maturing in eight years or more, and banks and thrift institutions will be permitted to offer a 6-month "money ·market" certificate whose rate is tied to the most recent 6-month Treasury Bill auction rate (discount basis). Banks will be permitted to match that rate1 however, thrifts will be able to pay one-quarter percent higher. These actions are designed to forestall the diversion of financial resources from intermediaries into direct market financing should interest rates rise higher. Such diversion or disintermediation would tend to limit the availability of funds for housing and other sectors heavily dependent on intermediaries. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis These actions 101 also protect banks and thrift institutions from substantial deposit and share outflows that would adversely affect their liquidity and overall condition. However, there may be some reason to be concerned about the earnings of thrift institutions if there is a sharo increase in 'interest r~tes. With the new "money market• certificate, deposit rates on a substantial volume of deposits could rise considerably. It is well known that rates earned on thrift institution asset portfolios adjust only gradually over time because of the long asset maturities. Thus, a period of hiqh interest rates could well place thrift institutions in a severe earnings squeeze. V. STEPS TAKEN BY THE FDIC During the past few years the FDIC has taken several steps to improve its monitoring of banks on a timely basis and in identifying and attempting to rectify problem situations. To better monitor the condition of the banking system, the FDIC has taken several steps to improve the auality and timeliness of balance sheet and income statements regularly reported by banks. The people in our data-gathering and analysis departments, together with their counterparts in the other two Federal bank regulatory agencies, have effected a substantial reduction in the time it takes banks to report and in the time it takes the agencies to process the reports. Concurrently, efforts are being made to increase the accuracy of the information gathered in the Reports of Condition and Income. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Durin! 1977, the FDIC participated 102 in a number of "Call Report Clinics,• sponsored by the Rank Administration Institute, designed to assist banks in the preparation of the call reports. There were approximately 5,000 participants in attendance in the 40 sessions held in various parts of the United States. Quality improvements also are being made in the call reports themselves. During 1977 the FDIC, along with the Board of Governors of the Federal Reserve System and the Comptroller of the Currency, completed and issued for public co-ent a number of proposed revisions of the Reoorts of Income and Condition for banks. These revisions relate mainly to additional information on operations of "large" banks, and on the foreign operations of banks, continuing a plan of revisions partially implemented in 1976. The proposed revisions, as modified by consideration of the comments received from banks and others, will be implemented in thP necember 1978 Reports of Condition and Income. The PDIC's Integrated Monitoring System (IMS), a computerized analysis system for monitoring bank performance between examinations, was implemented nationwide on November 1, 1977. The system is based on data submitted bv commercial banks in their Reports of Condition and Income. Work is now underway to extend the system to mutual savings banks as well. IMS enables the Corporation to identify with more accuracy banks, or particular aspects of a bank's onerations, that especially merit closer supervisory attention. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis As such, it promotes more 103 efficient use of limited human-power resources, both in the examination report itself and in _the review process. A Primary goal of IMS is to alert the FDIC to a deteriorating situation before. it assumes serious proportions and thereby facilitate a swifter response by the FDIC. At present IMS utilizes several screening· tests which measure a bank's capital adequacy, liquidity, profitability, and asset and liability mix and growth. On-line capabilities are provided for more in-depth and detailed analysis of apparent problems. The cornerstone of the bank supervisory process, however, 1, atill the on-site examination. In 1978, the FDIC i~ continuing its policy of examining insured nonmember banks in accordance with recently imolemented oolicies on examination priorities, frequency, and scope. Top priority in examination is given to banks with known supervisory or financial problems. Such banks are' examined at least once every 12 months. Large banks that do not present supervisory or financial problems, together with smaller banks that do not oresent supervisory or financial problems but which fail to meet established criteria indicating satisfactory management, adequate capital, acceptable fidelity coverage, acceptable earnings, and adequate internal routine and controls are second in priority. Such banks receive a full-scale examination during each 18-month period, with no more than 24 months between examinations. The remaining smaller banks which !!g_ meet the established criteria are given the lowest priority. In such banks a modified examination is alternated with a full-scale examination. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 104 F_inally, the FDIC continues to promote more effective manage- ment of the banking industrv. Our increased emphasis on the duties and responsibilities of a bank director has been reflected -in_.ou.r regulations requiring closer director supervision of insider transactions and by our instructions to field examiners to meet with bank boards of directors as part of our regular -examinations of banks. Dedicated, responsible directors can 'do mucll to supervise the affairs of the banks they serve. and .in so doing eliminate much of the need for close supervision ·of their institutions by bank regulators. ,.ttachmeilt https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis TABLB 2 ~ 0 __,' SELECTED RATIOS FOR CONSOLIDATED D<ltESTIC dD FOR1IGR OFFICES OF DSUUD BABS 0 1972•1917 SIZE ASSET 0-100 100-500 -500 MillionDate Total Million Million 1 Billion 1-S Billion ~ m 0 __,' 00 Over 5 Billion Percentage of Total Capital to Total Assets 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 6.6 6~3 6.2 6.4 6.5 6.3 7.6 7.8 8.1 8.1 8.1 8.1 7.2 7.2 7.4 7.4 7.4 7.3 7.2 7.1 7,0 7,2 7,1 7.1 6,2 S.7 6,0 6.3 6,6 6.3 5,3 4.5 4,1 4.4 4.8 4.6 Percentage of Total Capital to Risk Assets 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 9,3 8.6 8.3 8.9 9.1 8.8 10.8 10.7 10.9 11.2 11.1 10.8 9.8 9.5 9,7 10,0 10.0 9.9 9.6 9,1 8,9 9.5 9.5 9.5 8.8 8,1 8,0 8.8 9.3 9.0 7.5 6.3 5.7 6.3 7.0 6.6 Percentage of Net Loan tosses to Average Total Loans 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 .2 .2 .4 .6 .6 .4 .2 .2 .4 .4 .4 .3 .2 ,2 .4 .6 .5 .4 .3 .2 .2 .4 .6 ,5 .4 .3 .4 .6 ,7 ,5 .2 .2 .3 .6 .7 .5 Percentage of Net Income to Average Equity Capital 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 12.0 12.6 12.2 11.5 11.2 11.7 11.6 12.6 11.9 10.8 11.2 11.9 12.4 12.6 11.7 10.5 10.9 11.9 11.8 11.8 10.9 10.6 9.7 11.2 10.9 12,9 10.9 12.3 11,5 11.6 13.2 12.8 14.6 13.1 11.9 11,4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ~ 0 C,t 106 The CHAIRMAN. Thank you very much, Mr. LeMaistre. Mr. LeMaistre, I'd like to start off with a specific individual. The Alabama State Treasurer, Melba Till Allen, was convicted yesterday by a local court on t!he first of five indictments charging her with manipula,ting State deposits to obtain loans or credit for herself, her family or her business interests. Mrs. Allen, who is responsible for placing $400 million in State funds in Alabama banks, took office in 1975. Since then, she or her venltures received $3.5 million in loans from 58 federally insured banks, including 20 national banks which received State funds. Many of ,those loans are now classified and interest has not been paid on some of them. The Montgomery, Ala. district attorney, James Evans, who is handling the Allen investigation, said the FDIC should have known about the questionable Allen loans as early as the spring of 1976 when the FDIC bank examinations began noticing large unsecured loans to her. Alabama newspapers first exposed last fall the pattern of bank loans to her and the correlation between these loans and State deposits in banks and the Al,abama Ethics Commission issued a sharp report last December, 5 months ago, on Mrs. Allen's manipulation of Sta.te funds for personal gains. Despite all those signals of the possible misuse of State funds to gain questionable loans and the possible deposit in federally insured State banks, the FDIC made no move to investigate the matter until last Friday, on the eve of Mrs. Allen's trial. How long has the FDlC known about the preferential bank loans to Mrs. Allen and the possible misuse of State deposits 1 Mr. LEMAisTRE. Mr. Chairman, I can't tell you how long they have known about it. I can tell you that in November 1976 the regional director of our Atlanta office sent out to all field examiners a memorandum -telling them that he had seen examination reports of a number of loans to the State Treasurer of the State of Alabama and asking them to look at those loans closely for evidence of preferential treatment. I don't know that there's anything in this prosecution that has to do with preferential treatment. The lady was convicted, as I understand it, of misusing her office for private gain. That doesn't mean she got a loan rut any better rate than you or I would ha,ve gotten it. It simply means she got something she might not have gotten if she were not the State treasure. I don't know the terms of the loans that were the basis of this prosecution, buit I do know that we did send out such a memorandum in November 1976 and I also know one of the reactions was a call from an office on the Hill wanting to know why we were harassing the State treasurer of Alabama. The CHAIRMAN. You had a pretty good answer I would think. Many of those loans are now classified. Interest hasn't been paid on them. Mr. LEMAisTRE. Interest has been paid on a number of them. Some of them are perfectly good performing loons I'm told. I don't know what the details are because I'm not familiar with the individual loans. · The CHAIRMAN. Can you tell us which office on the Hill made the call~ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 107 Mr. LEMA:rsTRE. Sir? The CHAIRMAN. What office on the Hill? What Senator? Mr. LEMA!sTRE. The office was on rthe House side. It was not an Alabama office. The CHAIRMAN. It was not Alabama. Who was it? Mr. LEMAISTRE. Beg pardon? The CHAIRMAN. Who was it? Mr. LEMAISTRE. Well, it was a person in an office of a Pennsylvania Congressman. The CHAIRMAN. Whart Pennsylvania Congressman1 Mr. LEMAISTRE. William Moorhead, but he did not make the call. It just came from his office. The CHAIRMAN. It came from his office. Why didn't the FDIC move more vigorously as soon as it picked up indications of improprieties 1 Why didn't you open up an investigation after the newspaper reports-I mean a substantial investigaition? Mr. LEMAISTRE. Why didn't we open an investigation 1 The CHAIRMAN. Yes, sir. Mr. LEMAISTRE. I'm not aware that there was a basis on which to open an investigation. I would say that the examiners in examining those banks were interested in the safety and soundness of the institution and as a concomitant part of thart examination they looked for preferential treatment of any individual who might influence the State deposits. In this particular case they were alerted to look for this. What they found were some loans which subsequently have been classified. Some loans at that time were collateralized. The CHAIRMAN. What kind of investigation did you open last Friday? Mr. LEMAisTRE. I don't know. I don't know whart investigation you have in mind. The CHAIRMAN. When you find out will you let us know1 Mr. LEMAISTRE. I'll be glad to. The CHAIRMAN. We were told by the Alabama people that you finally opened an investigation last Friday and they thought it should have been opened long before that. Mr. LEMAisTRE. I have no information that we opened any kind of investigation after the prosecution was announced. The CHAIRMAN. The reason I raise that point is I question whether the Allen case is an isolated instance. Since State and local governments have over $70 billion of their funds placed in commercial banks, other Srtate and local government officials could well be in a position to misuse ,their control over the placement of those government funds to get preferent~al bank credit for themselves. It's been an area of abuse for a long, long time. What steps have the Federal bank regulatory agencies taken to check whether Sta,te and local government officials have obtained preferential access to bank credit? Mr. LEMAisTRE. What steps can they take to find out if that exists~ The CHAIRMAN. Yes, sir. Mr. LEMAisTRE. By having the field examiner who examines the bank look at the loans in the bank which are made to individuals who hold those positions. In this parrticular case, a number of ithe loons https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 108 that were involved were below the level of the samples that were being taken so they went back and picked those loans out. But the existence of these loans does not in any way endanger the banking system of Alabama. ~he CHAIRMAN. Is that in the examiner's manual, to oheck all public deposits to see if there's preferential loans to the people who make deposits? Is this a specification in the examiner's manual that the examiner is required to ~heck public deposits to see if there's a loan made to the person who's authorized suoh as Mrs. Allen or her family? Mr. LEMArsTRE. Mr. Chairman, we do not, as I recall it, have a specific reference in the manual to ohecking all public deposits to see if there al'e preferential bank loans to the persons who control such deposits. However, several portions in the manual should alert the examiners in general terms to such risks along with other possible abusive insider transac.tions. I shall be glad to supply a copy of these portions to the committee. In addition, sinoe the special survey that you requested was made last fall, we have sent out a special instruction that ,the examiner shall be aware of the possibility of such abuse. Again, let me point ouit thatExcERPTS FROM: SECTION H-LOANS-IN FDIC MANUAL OF EXAMINATION POLICIES n. BASIC SOURCES IN CAUSES OF LOAN PROBLEMS A. Poor seZect·ion of risks 5. Loans made because of other benefits, such as the control of large deposit balances and not based upon sound worth or collat.eral. 10. An abnormal amount of loans involving out-of-territory borrowers (excluding large banks properly staffed to handle such loans) . VI. LOAN APPRAISAL PROCESS 9. Verification of Loan Proceeds.-Verification of loan proceeds is one of the most valuable and effective loan examining techniques available to the Examiner and is often one of the most ignored. This verification process is basically simple and can disclose fraudulent or fictitious not.es, misapplication of funds, loans made for the benefit of or accommodation of pal'ties other than the borrower of record or utilization of loans for purposes other than those reflected in the bank's files. The Examiner should verify the disbursement of a selected group of large or unusual loans, particularly those subject to classification or criticism and those granted under cil'cumstances which appear illogical or incongruous ... The scope and depth involved in the use of this loon examination technique will vary and will be dictated by the apparent need therefor, as determined by the Examiner-in-charge. Verification of loan prooeeds should be quite extensive in borderline or problem bank situations, in those cases where there is reason to question the validity or integrity of the information obtained from the bank's files or from discussions with loan officers, or if there is any evidence of selfdealing. Large "out-of-territory" loans are particularly appropriate subjects for close scrutiny along these lines. The CHAIRMAN, Why not put it in the examiner's manual so it's done as a regular practice? Mr. LEMArsTRE. Well, I have no objection to putting it in the examiner's manual, but I believe it is covered already in general terms. If the examiner does it, I don't care where he gets the information. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 109 The CHAIRMAN. Do Federal bank examiners check as a matter of regular practice to determine when public deposits are made loans are made to the persons responsible or to their interests i Mr. LEMArsTRE. Yes, sir. It's not at all uncommon to make such a report. As a matter of fact, in Oklahoma a number of years ago we reported some that looked like abuses to the Justice Depart~ ment. The prosecution was carried out and the man was acqmtted; So it's not alwaysThe CHAIRMAN. Well, I commend you on making the report and whether they were acquitted or not; I think you acted properly under these circumstances. Mr. LEMArsTRE. I think it's our duty to report what appears to be a violation of the law to the Justice Department and we try to do that. We have written hundreds of letters. The CHAIRMAN. What would you think of a policy to simply flatly prohibit loans to people who are in this position or their immediate interests i I realize that loans from the particular institution where the deposits are made-it doesn't mean they can't get loans any other place, but if, for example, they place loans with a particular bank, then that bank wouldn't be able to make a loan to them. Why wouldn't that be a good policy i Mr. LEMArsTRE. I hold no brief with the practices that seem to have been carried out in Alabama, but I'm just wondering if these particular persons were involved in some business enterprise and wanted to borrow money where could they go i Every bank in Alabama has State deposits and if they are not to be allowed to borrow money from a bank that has a State deposit, then they are shut out of the banking system. The CHAIRMAN. I'm not going to cry too much about that. After all, these people are supposed to be full-time public employees. There's no reason why they should be on the cuff with the people. Mr. LEMArsTRE. I'm not going to cry about it either because I don't think it's a great problem frankly. I think this is an aberration that's appeared in my memory twice, once in Oklahoma and once here. The CHAIRMAN. Well, it's been exposed twice. You're very optimistic. Mr. Heimann, do you have any observations on this or do you have a similar response i Mr. HEIMANN. Well, I would say, to start with, Mr. Chairman, that the special survey has certainly brought people's attention and raised their level of consciousness, to the possible problem of loans to office holders at a preferential rate. I think that was one of the services done by the survey. If this were an area that was not. too carefully looked at in the past-and I have no reason to believe that's correct-I think it's quite fair to say it is receiving that attention today in the various regulatory agencies. It's certainly not a proper practice. We consider it an abusive practice, and the examiners are well aware of that fact. The CHAIRMAN. Let me ask you about your general position which as I understand it is the banking system is in pretty good shape. It has recovered as the economy has recovered. This chart doesn't sug- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis uo gest that quite that clearly. It suggests that problem bank assets are about the same as they were before the recovery and haven't improved very much. The number of problem banks improved slightly m 1976 but it's been about the same through 1977. So that your assessment seems to be, if anything, a little optimistic based on these facts, more optimistic than the facts seem to warrant. Mr. HEIMANN. Well, those are the FDIC numbers. The CHAIRMAN. We're talking about the whole banking system. This is for all the banks in the country. Are their numbers inaccurate i Mr. HEIMANN. No. I think ours are even worse. The CHAIRMAN. Well, then, how do you justify your conclusioni Mr. HEIMANN. Well, I'd like to address that if I may. There are three different levels I think to the discussion of these statistics in terms of assets and numbers of institutions. No. 1, once a bank is on the most serious or critical list, it takes time for it to improve itself due to the nature, the depth, of the problem that may have occurred to put it on that problem list. It does take a long time to work out a bad loan. Second, I think it's fair to say that once a bank is on the most serious or critical list, the supervisors, and I think rightfully so, want ,to make perfectly sure that, if a bank gets off thwt list, its improvement justify its upgrading from the worst category to the second or third category. So there is a tendency on the part of our agency, and I think properly so, to delay the removal from the list until we are perfectly convinced that removal is justified. Even though the numbers may not look good, we don't want to be precipitous in terms of just removing it so that the numbers look better. Third, the Comptroller's Office views special supervision in much the same way that the health industry is beginning to view health maintenance operations. Regulators have been criticized by this Congress for not spotting problems early enough and then taking remedial action to attempt to solve those problems if indeed they are resolvable. Since the development of the national bank surveillance system, if we spot an area that causes us concern-not that it is a terminal or even a critical or even a serious problem-we want that bank under special surveillance. Therefore, the number of institutions under special surveillance in the Comptroller's Office has increased during this period. The CHAIRMAN. You changed the category then~ Mr. HEIMANN. Rather than changing the category we have brought a depth of evaluation as to those banks which we should be watching closely. The CHAIRMAN. These figures are not comparable. I should say, your figures are not comparable. Mr. HEIMANN. Our figures, as you note, are broader because we have the NBSS system. Our categorizations are somewhat different, although this is being resolved. The CHAIRMAN. So the fact that there are more problem banks in 1977 than in 1976, sharply more for national banks I'm not talking about this chart; I'm talking about another chart I ha~e here--;-indicates that you have included as problem banks, banks which previously might not have been included. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 111 Mr. HEIMANN. That is correct. To put it another way, I would not categorize them all as problem banks. I would say they are banks under special surveillance £or one of n number of reasons. The CHAIRMAN. Special supervisory attention~ Mr. HEIMANN. Yes. It's the name that we use. The CHAIRMAN. You say on page 5, "We believe there may be a substantial shortfall in bank capital in the early 1980's if asset growth patterns are maintained at historic levels." In view of the fact that many of us think there is a substantial shortfall in capital, this would seem to be quite a warning because if the shortfall is much greater than it is now it seems to me we're in some serious difficulties. Would you spell out what the effect of such a shortfall, if it develops-and you indicate that it may or may not-if it does develop-would be for the economy~ Mr. HEIMANN. Certainly. I would like to just comment on the concept of shortfalls. Because of our concern, we have cranked into our national bank surveillance system a 2-year capital projection for each individual institution. We make the projections based on a 5-year and 1-year trend of growth rates, present it to the bank, and say, "If you're growing at this rate, how do you expect to finance that growth~" In other words, our concern is more than an academic one. We are doing it on a bank-by-bank basis, asking the individual institution to tell us their plans for raising capital. Their plans and ability for raising capital, however. may not necessarily jibe because they depend on external factorA. It seems to me that the end result of a shortfall in capital-assuming nothing changes, the market appetite for equity shares in banks and bank holding companies does not improve, and the rate of increase in retained earnings continues at the present rate-the end result is one of two scenarios. One is that the capital structure of the banking industry becomes more leveraged and therefore the cushion, or the protection of capital and surplus, becomes less and therefore less able to withstand an unforeseen shock. This is clearly undesirable but, nevertheless, one scenario. The second scenario-and again I'm assuming no ability to raise capital-is that the commercial banking industry will, out of prudence and the need for a safe and sound system, have to cut back on its activities in supplying the capital needs of the nation which stretch from the consumer through corporate business, large and small. The CHAIRMAN. Then what follows from that is there will be less capital; the supply would be less, given the present demand or the projected increase in demand; interest rates would just be higher; the cost would be greater and the effect would be what it usually is when interest rates are high or rising-perverse on the economy. It would slow down growth. Mr. HEIMANN. Yes. The CHAIRMAN. Many businesses, particularly small businesses, marginal businesses, wouldn't be able to get the capital they need. Mr. HEIMANN. Small businesses, housing, the residual sectors which are normally affected in periods like this. Our concentration https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 112 has been on techniques and methodology by which bank capital can be increased. For example, for many years now, the Comptroller's Office has permitted subordinated debentures to be counted as part of capital ratio. We are restudying that entire area of activity in terms of the quality of those debentures-such issues as maturity, what portions should be counted in equity capital, and the like. Second there are now some special problems national banks face in connection with increasing their capital. One area which involves a perfectly legitimate financial transaction is the issuance of preferred shares. As you know, under the National Bank Act, ·a mitional bank is forbidden to issue preferred stock with cumulative dividends in excess of 6 percent per annum. Now clearly, this should be changed to permit banks another capital-raising technique which has in this case been closed off to them by an antiquated statute. The CHAIRMAN. I think that makes sense. And you do mention a number of steps to cure the capital shortfall, but you include appearing to favor elimination of the differential between commercial banks and thrifts. I find it difficult to see how that will cure the capital problem without sending home mortgage rates through the roof. It would seem to me you would really get a disintermediation out of the thrifts if you do that, out of housing availability. Isn't the best solution to require banks to go to the capital market directly~ Mr. HEIMANN. The banks can only raise capital effectively by going to the capital market directly. I agree with that. But, Senator, if I may, I'd like to comment on the in-between part of your comment. Our financial institutions were developed over a very long period of time with a high degree of specialization to meet certain needs. This was a plan-perhaps it happened, rather than being plannedbut nevertheless, we created specialized institutions that serviced specialized needs. It was a system that worked extraordinarily well for a long period of time. The thrift industry serviced one function and the commercial banks had a different function. More recently, the credit unions themselves have entered into this area of activity, providing yet another set of services. But since the credit crunch of 1965-66, or you may take it back to 1959-but mainly 1965 to 1966-dramatic changes have taken place in the deposit-taking institutions of the Nation. I use the word deposit-taking because a commercial bank is a deposit-taker and a thrift institution is a deposit-taker and so is a credit union. To put it another way, we have had increasing rates of inflation and perhaps almost more important, or as a result of increasing rates of inflation, we have had rapidly changing rates of interest available through money market instruments as well as through the depository institutions themselves. This development occurred at more or less the same time when the Nation, the Congress-and properly so-spent vast amounts educating our citizens. One of the things that our citizens learned in this process of increased education was a high degree of understanding as to what their own rights were and what was available to them. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 113 They understood that you could go shopping for a rate of interest, if you will, without losing protection and do better for yourself and for your family by understanding the various instruments that were available to you for investment of your deposits. What's happened is that historical competition-thrifts competing with thrifts and commercial banks competing with commercial banks-even our regulatory structure was designed to meet that then and very real competition-no longer exists for the most part in the marketplace. The competition today is bank to bank to thrift institution to credit union. . The CnAmMAN. You're suggesting a real consolidation of the bank regulatory agencies in which you have a financial regulation overall so you have the same regulator regulating the commercial banks, the savings and loans, the credit unions, the mutuals and so forth, so you have the whole show under one tent, and then you would have uniformity and you would have equ1ty and you would have a more rational system, would you not i Is that what you're suggesting~ Mr. HEIMANN. Mr. Chairman, I'm suggesting that the real-The CHAIBMAN. Supposing we put that under the Comptroller. Mr. HEIMANN. I don't think that would be a good idea, Mr. Chairman. Unlike the Chairman of the Federal Reserve who said he thought it was all fine if it was in the orange box-and I think that was the box at the Federal Reserve-I don't think that this whole question that we are raising-and it concerns me greatly-has faced the realistic problem of the marketplace, of what's really happened, The solutions shouldn't be designed to fit an existing structure necessarily. What I'm really suggesting, sir, is that all of these factors have to be taken into considerllltion when we face the problems of the commercial banks. The commercial banks' inability to compete effootively in certain markets has tihe end result of reducing their profit margin, their retained earnings, and their ability to raise capital in •the marketplace. It doesn't work in our financial society to separate them out and attempt Ito address ,the problems as if those other institutions were not there competing effectively. I do think it's all part of an overall view of the problem which can only be solved on an overall basis. The CHAIRMAN. Well, I think you have mooe my point very well. Chairman LeMaistre, what followup have regulators done i Have any viola,tions or potential violations been uncovered by the special survey you made for us on bank stock loans, insider loans, overdrafts i You made that at our request and it was quite an elaborate and expensive survey. Have you had a chance to follow up on that, you and the other regulllltors i Mr. LEMAisTRE. We have sent to the regional offices the information which was developed in that survey as to where there were evidences of possible abuse; and we have asked the examiners on their next examination to check those matters out and report on them. I haven't a.ctually seen any report from any examination, yet. In our letter to the Regional Di11ectors, we identified nine possible abusive lending practices. To provide a timely followup of the "worst cases," we asked that by June 1, 1978, examiners conduct inquiries of those banks identified as having five of the nine. We expect to have a summary https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 114 of these inquiries by July 1. I shall be glad ,to supply the committee a copy of the summary together with our letter and enclosures at that time. The CHAIRMAN. When will you have a report available? Mr. LEMAlsTRE. It will be when the next examination of the particular bank occurs, for most banks. Reports on the "worst cases" should start coming in within the next couple of weeks. The CHAIRMAN. When would you expect to have a substantial number of them available? Mr. LEMAisTRE. We wouldn't send out a special examiner for that, but it would be during this year. The CHAmMAN. Will you keep us posted, say, 3 or 4 months from now? Mr. LEMAISTRE. Particularly if we find any abuses. The CHAIRMAN. I'm sure there will be some abuses and you might keep us posted on what's being done. Would you do that? Mr. LEMAisTRE. Yes, sir. The CHAIRMAN. Also, Chairman LeMaistre, on page 8 of your statement you said the capital ratio for all banks remain below t!he prerecession level of 1972 with a notable exception being those banks under $100 million in assets which showed capital ratios higher than 72. Now I agree with your statement on page 9 that the capital decline may reflect the deteriora.tion in the soundness of the banking system, particularly among the largest banks. There's some explanations for this difference. One is the biggest banks have expanded fastest, especially overseas and, two, net interest rate margins for the bigger banks are much smaller than the $100 million banks, indicating they may be more competitive. What's your comment on that, the fact of this difference? Mr. LEMAISTRE. I think there's probably only one explanation for it, that the bigger banks are involved in a field of activity in which the return is narrower. It is less. They don't have relatively as much net profit to turn into capital as smaller banks have. Neither one of them is yet able to add enough capital from that source, but I think the banks-particularly those which are not reflected over there, the ones between $100 and $500 million, have a better chance of doing that than the great big bank. The small one probably will take care of itself better. Mr. HEIMANN. May I answer that, because I think i,t's a terribly important point? The CHAmMAN. Yes. Mr. HEIMANN. A smaller institution, we generally call them community banks, tend to be in many instances in less competitive markets .than the large multinationals. In a unit banking State where there are no holding companies, as the State of Oklahoma, profit margins of the commercial banks are just twice the profit margins of the banks in the State of California. The only identifiable factor that seems clear, since there are good bankers in both States who know their business, is the function of competition in those various areas. The CHAIRMAN. Mr. Heimann, on page 13 you indicate that your office policy generally requires that formal administrative aotion be https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 115 taken against the lowest rated problem banks under the Financial Institutions Supervisory Act. Now ,that appears to be an excellent policy. Have the other agencies adopted a uniform enforcement policy to go along with their uniform rating system? Do you know? Mr. HEIMANN. I'm not sure. I don't know the answer to that question, Mr. Chairman. Mr. LEMAISTRE. I don',t think we have. We have just started the implementation of this uniform method of rating the banks and as it works out, going down the scale, I assume something like that will come up. The CHAIRMAN. Does the FDIC also take formal administrrutive action against the lowest rated banks as a matter of requirement? Mr. LEMAisTRE. I don't think we do as a matter of course. The CHAIRMAN. Why wouldn't that be a good policy~ Mr. LEMAisTRE. J.t depends on what was the cause for it being ranked low. If it's something that couldn't be correoted by an administrative action, there would be no need to bring iit; but we would certainly use our supervisory powers in that respect and are increasing the use of it. The CHAIRMAN. Well, you say there might be a situation in which you could correct the difficu1ty without a formal administrative action? Mr. LEMAISTRE. I think there could be. The CHAIRMAN. Such as? We're talking about the lowest rated problem banks. Mr. LEMAisTRE. Well, if a bank were totally deficient in capital for the reason of a sudden unexplained, or one you could explain for that mrutter-but unexpected loss, perhaps it could be corrected simply by taking advantage of their next application for a branch-so, OK, you get the branch if you put in $5 million in capital---and that works sometimes. The CHAIRMAN. What do you think of thait, Mr. Heimann? Mr. HEIMANN. Well, we do that. The CHAIRMAN. That's what you do with a formal administrative action¥ Mr. HEIMANN. No. Our process is somewhat different. We have established as a matter of course that, in our lowest rated banks, there should be an action which is formalized. That could be the cease and desist, though not necessarily. It could be a formal agreement with the board or it could be a memo of understanding between the Office and the board of directors as to certain actions that we would take. We have felt as a matter of basic policy tha.t there should be some formalized ruction for any of these institutions that come into these categories, but there are differenit formalized ac.tions depending on the circumstances. Second, the chairman has just used an example of another course of action. Last year, 1977, the Comptroller's Office turned down or held up 68 branch applications from various banks because of capital requirements. In other words, ,t;he branches were not granted or would only be granted pursuant to the condition that institution rai~ ~ore capital. It's another tool the regulator can use .to help get the institution to do what the regulator thinks it ought to do. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 116 The CHAmMAN. Would a policy of making a cease and desist order public enhance its enforceabihty and usefulness? Mr. HEIMANN. Well, I :think there's some disagreement amongst the regulators on that. I'll tell you what my own personal feeling is. I happen to be a full disclosure addict, as long as we're willing to accept the end result of full disclosure. My problem, Mr. Chairman, is that making a cease and desist order public, depending on the cease and desist order, clearly indicates there are problems in the institution of some magnitude or formal or meaningful enforcement action would not have been taken. It might lead people who deal with tha.t institution to say, "Well, here's a cease and desist order. There's plenty of competition around. It's not very smart, not very prudent, of me to keep my money in that bank, whatever the reasons for the order are." Obviously, nobody would ever receive any credit for having kept money in a bank under a cease and desist order. He could be severely criticized for having done that if the bank then folds and that individual would suffer some loss. If he's in a fiduciary capacity, Lord only knows how he would justify having kept the funds in tha;t institution in ,terms of the beneficiaries' loss. I think that if we get through the thicket in this country of understanding that we don't have bank failureThe CHAIRMAN. Let me just interrupt to say that I'm not sure the record shows that. The Bankers Trust, for example, disclosed a ceaseand-desist order from the SEC and it didn't have any effec.t on their deposits--didn't seem to have any effect. Mr. HEIMANN. Well, with all due respect to the SEC, that's looked at as a securities violation. A cease-and-desist order from the FDIC or the Comptroller's Office usually speaks to safety and soundness. The CHAIRMAN. It was a Federal Reserve cease and desist order I understand. The SEC required it to be disclosed. Mr. HEIMANN. That must have been after the :fact. That had to do with securities. I don't know the exact case-I'm sorry I don't, Mr. Chairman. However, if it had to do with a bank in upper New York State, I do think I recall ,the circumstanoes if that's the one. The CHAIRMAN. Let me just interrupt. Is Mr. Ryan of the Federal Reserve here? Mr. RYAN. Yes. The CHAIRMAN. Is this what happened in this case with Bankers Trust on the basis of your know ledge? Mr. RYAN. I don't believe it was Bankers Trust, Mr. Chairman. I think it was Marine Midland and it involved a violation of the law and the disclosure was made by Marine Midland under their interpretation of the securities laws. It was not made by the Federal Reserve. The CHAIRMAN. I see. But it was a violation of the securities law1 Mr. RYAN. It was a violation of banking law. The CHAIRMAN. Of the banking law? Mr. RYAN. Yes, sir. Mr. HEIMANN. May I ask what year it was i Mr. RYAN. Two years ago. I believe it W'as 1976. Mr. HEIMANN. In a way, that may prove a. point. The CHAmMAN. Did it have an adverse effoot in any way on Marine Midlandj https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 117 Mr. HEIMANN. I was superintendent of banks in the State of New York in 1975 and 1976. As you know, at that time i,t was much rumored in the press that Marine Midland was a terribly troubled institution. During ,that period the CD rates of Marine Midland were in excess of other CD ra.tes in the city of the major banks of comparable institutions. The problem was solved at Marine when they merged all of the banks, the upper and down State banks, which clearly and dra~ matically improved the capital position of the entire holdin~ company. The impression that Marine was a terribly troubled institution no longer applies. It was resolved by the merger of all the institutions, if in £act it did apply. The CHAIRMAN. Of course, as Adali Stevenson, Sr., used to say, there's no gain without pain, and one of the pains of the disclosure of the cease and desist is it could have an adverse effect on the bank, but that's precisely the kind of thing that would make the bank behave in a way in which they wouldn't have to suffer a cease and desist. Mr. HEIMANN. Mr. Chairman, I would agree i£ we became more tolerant then of banks which were dissolved without pain or penalty to the innocent, the customer of the bank, the business person who deals with the bank. Clearly that kind of action would lead logically to more banking houses disappearing (we call them failures, but perhaps just dissolving them might be correct) or merging them out. We can't have a procompetitive financial society, includmg the banking industry, and full public disclosure of transgression without having more institutions being dissolved because of the problems that they have made for themselves or their inability, their failure to meet the competitive standards of their contemporaries in the society. The CHAIRMAN. Mr. Heimann, there's still a strong, upward trend in the future i Will the banks stop moving ahead, expanding their that affects the difficulty with REITs. What do you expect to happen in the future i Will the banks top moving ahead, expanding their REIT operations i Will they be readily able to dispose of the real estate they have withinthe 5 years applicable to the national banks~ banks1 Mr. HEIMANN. It's quite a vexing problem. It depends on the quality of the real estate. Of course, we are starting from the basis that if the REIT got in trouble, the quality of the assets in that REIT could not have been first rate. Therefore, disposin~ of those assets within a relatively short period of time, 5 years, might prove to be very difficult for some of those institutions without taking a substantial loss. Now the reality is that this occurs in certain sections of the country and applies to certain kinds of real estate. It does not apply across the board, but it does particularly in the area where the original judgments were third rate in terms of the quality of the investment. The CHAIRMAN. Is the 5-year period being strictly enforced by your office i Mr. HEIMANN. It has been generally strictly enforced by the Office, but it is causing some enormous problems to individual institutions which we qon't think are fair. You might say, well, they made the https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 118 investment in the first place and they shouldn't have made it. But given some modestly more time for the market in those areas to improve, losses that they would have to take on the particular piece of property may be reduced. We feel, however-and you know in our housekeeping bill-The CHAIRMAN. You made the recommendation to extend it to 10 years. That's very controversial. That's why I asked the question. I wanted to make a record on it. Mr. HEIMANN. We made the recommendation that it be extended up to 10 years at the discretion of the Comptroller's Office since we would then have to be convinced by the bank that they really had tried to sell it and that the market was not receptive to that salea good faith effort in disposing of it at a realistic value. There are others who are seeking to amend that to make it an arbitrary 10 years. Our proposal is a bit more conservative. The CHAIRMAN. Mr. Heimann, Governor Coldwell has noted with concern that some U.S. banks have a rather sizable exposure in individual countries relative to their capital in reserve. Chairman LeMaistre cited the importance of country exposure limits for banks and diversifying exposure across countries. I assume you agree that it is important for banks to avoid excessive loan concentrations in single countries. Why does your proposed ruling on foreign public sector borrowing not limit such concentrations~ Your ruling would set no limit on overall country exposure. A national bank could have 200 percent of its capital exposed in a foreign country as long as there were 20 different borrowers. How would you justify that@ Mr. HEIMANN. Mr. Chairman, I think I have to answer that question in two pieces. It starts out with tiny steps for tiny tots. We have a law, 12 U.S.C. 84, which was written during the time of the then Secretary Chase in 1863. I suspect it was a far cry from his imagination that a single person under the law could ever be a sovereign nation. We had been net importers of capital and continued to b~ so for many years thereafter. The Comptroller's Office, in an attempt to adjust to realities of the marketplace, has for a period of years been working with a concept of means and purpose in terms of what the 10 percent should apply to, assuming there is no basic statutory change in the National Bank Act. I felt when I came to office that this had to be sorted out, first, simply because it was not being applied equally or fairly throughout the regions of the country. Therefore, it impacted different banks differently, and borrowers did not understand the ground rules that applied under the national banking system. However, once having said that, I agree that the concept of concentration, leaving aside the peculiar quirks in the law with which we are dealing in this respect, is terribly important. About 2 weeks ago I gave an address to the Bankers Association of Foreign Trade, and the thrust of those remarks-and I'd be delighted to submit them to you, Mr. Chairman-was that the overriding-The CHAIRMAN. I hope you will. Mr. HEIMANN. I shall, sir ( see p. 355). The overriding concern for prudent bank lending is diversification of concentration. Assuming https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 119 that each single borrower in any given area is creditworthy, what are the reasonable limits of concentration in order to protect an institution against the unknown facts that develop in the future, recog~ nizing that regulators', bankers', and everybody else's crystal balls are rather cloudy i The CHAmMAN. How many banks have more than 100 percent of their capital exposed in individual foreign countries i Do you have any notion i · Mr. HEIMANN. No; I don't Mr. Chairman. I just don't know that. The CHAmMAN. Would you give us an estimate for the record¥ If 10 percent is a reasonable limit on exposure to a single borrower, wouldn't a limit to an individual country of, say, 50 percent of capital in reserve be reasonable¥ [The information follows:] As of June 30, 1977, there were eight U.S. commercial banks with total ex~ posure in individual countries of more than 100 percent of their capital. Mr. HEIMANN. We are examining this problem. Frankly, what I intend to do is, from studies that we have underway right now, to come out with parameters of what we consider to be reasonable or tolerable levels of concentration versus intolerable levels of concentration. We're doing that right now, but I have not come to any con.:. clusion on that subject, Mr. Chairman. The CHAIBMAN. One more question. You cited the importance of regular onsite examinations abroad of the foreign offices of U.S. banks. I agree that such examinations are very important. Some of the big banks are getting more and more of their operations in foreign countries. Unfortunately, not all countries permit U.S. authorities to examine U.S. bank offices abroad. Will you provide for the record a complete list of countries where U.S. banks have offices but in which you are unable to conduct onsite examinations~ Mr. HEIMANN. Yes, we certainly shall, Mr. Chairman. [The information follows:] The following countries do not permit onsite examinations of offices of U.S. banks: Bahamas. Cayman Islands. Lebanon. Luxembourg. Singapore. Switzerland. The CHAmMAN. What is being done to obtain the U.S. examination of bank offices in these countries¥ Mr. HEIMANN. Two things. First of all, we do not permit a national bank to open a branch in a country that does not permit our examiners to examine without an understanding from the bank itself that we will review the records of that branch in the home office. In other words, they have the records from their own branch, and we review them at the home office, not onsite, because we are not permitted by the sovereign law of that nation. Second, Mr. Chairman, I think it's been apparent from my concern with the international area and exposure that this is of considerable importance to our office. As you are proba;bly aware, the banking supervisors of the G-10 nations, plus Switzerland, have for years met https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 120 and discussed these kinds of problems. The Comptroller's Office was never a member of that commit,t.ee, the United States being represented by the Federal Reserve. After discussing this with members of the Board of the Federal Reserve and the chairman of the committee itself, we have now become official members of what is called the Cooke commi,ttee. The reason thait I'm concerned about participating is to learn more and deal closely with foreign oonk supervisors to understand our mutual problems. This will help us to get through some of the thickets that you have been hinting ait by your question, and which are very real. Our presence and partici pa,tion in the Cooke committee will add another important dimension to our international activities in terms of reviewing and examining the quality of foreign activities of U.S. banks. The CHAIRMAN. I do have one more question. I'm not sure that congratulations are in order on the adoption of a, uniform interagency system for raiting of the condition of banks because I think the lowest common denominator has prevailed again. The uniform rating system contains no benchmark for measuring capital adequacy. At the very least, a benchmark is a clear number to shoot for, whether it's 6 or 8 or 10 or whatever it is. In its place, the uniform system compares a bank's ratio to its peer group banks. The peer group reference seems to me to be too subjective. Certainly, if all banks are undercapitalized and ,they seem to be far less than the 8-percent benchmark, if they are all undercapitalized, a particular bank ,could be considered adequately capitalized because it was no more underoapitalized than the other banks. Thait seems to me to be a good case of double think. Mr. HEIMANN. The problem might be even worse than tha;t, Mr. Ohairman. Those numbers don't show the effect of the holding companies. I mention that simply because this problem of capital adequacy is one ,that I honestly can say tha,t we are struggling with but haven't resolved. I can't speak for the other regulators, but it's a constant dialog of what is it, what should it be, how do you measure it, and I think-. The CHAIRMAN. You just threw out a little note there that piques my curiosity. You say this doesn't allow for the effect of the holding companies. Now, would that result in an even lower capital ratio and, if so, howi Mr. HEIMANN. Well, the holding company, as you know, will borrow money in the marketplace. Let's assume it has debt capital, which has been the normal form in recent years-again, equity being difficult to raise for a bank or a bank holding company-then downstreams some portion of that borrowed debt to the bank as equity. As a hypothetical, "XYZ" holding company borrows $100 million in debt from the marketplace, 25-year debentures, let's say-I'm just making up the numbers-and it takes $50 million of that and places it as equity capital in the "XYZ" bank. Now, for the bank it is equity capital, but the bank is also 100 percent owned by the "XYZ" holding company. So if you calcu]ate or attempt to calculate the holding company's downstreaming of debt to equity in banks and take that out-in other words, sa.y tha.t's not really equity, (then you have to go through t'h.e terms of the de:benture and you make an evaluative https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 121 judgment) obviously, that would reduce some of the equity position of some of the national banks. Obviously, we are sufficiently concerned ,to be going through all these kinds of calculations in an attempt to understand equity positions and what they mean. J.t also is a problem, as you know, of a somewhat bifurcated regulatory position with respect to holding companies and banks, be they State or national chartered. The holding companies are under the aegis and supervision of the Fed.era.I Reserve, not the FDIC, if the majority of assets belong to state nonmember banks, or the Comptroller if the majority of assets belong to na;tional banks, and we, of course--both the chairman and I h~ve testified with respect to that on numerous occasions. The CHAIRMAN. You see, the problem, though, is that using the peer group system for uniform rating method, as I indicated-your response then is ·that you're not satisfied with that either and you would acknowledge that does give you a system which doesn't really give you a capital adequacy understanding for the particular hankj Mr. HEIMANN. It is perhaps the best way to begin to get at it, better than what we seem to have had up until now. The CHAmMAN. Why wouldn't it be better to have a, figure¥ Mr. HEIMANN. Because I have never yet been a,ble to find anybody who could design or divine that. The CHAmMAN. The Fed had one for years. What was wrong with that@ So did the Comptroller, as I understand it. Mr. HEIMANN. Well, during that period of time I'm not sure that all of the standards were met. Some of the things that happened. to the banking industry in those 5 or 10 years happened regardless of whether there was a figure or not. The proof of the pudd.init is in what happened rather than whether or not somebody had a furore. The CHAmMAN. Is this another example of competition in laxity¥ If one of the regulators was tough about the figure, the constituency banks would opt out and go to one that was easier i Mr. HEIMANN. Just the opposite, Mr. Chairman. It would seem to me the kind of thinking you heard today from Chairman LeMaistre and Chairman Miller, and hopefully from myself, was an indication that the regulators are really attempting, each in his own way-The CHAmMAN. Somehow, I don't get that same flavor. Mr. HEIMANN [continuing]. To do a very good job of challenging the conventional wisdom. My problem is and always has been that what everybody knows, today's answer is always to yesterday's problein. A key to being a good supervisor, it would seem to me-and I have heard the chairman speak to this-is to be challenging tomorrow's problem or at least attempting to come to grips with it. That takes a somewhat different point of view. The CHAmMAN. Well, I ·think that's a good note to end on. You have identified tomorrow's problem as a serious capital shortfall that may be facing us. We don't seem to have the solutions in meeting it. We have a, long way to go to improve our banking system, but I think this report on the state of the ba,nking system has been very useful. Thank you very much. The committee will stand adjourned. rWhereupon, at 12 :¾O p.m., the hearing was adjourned.] [Additional material received for the record follows in the appendix.] 30-476 0 - 78 - 9 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 123 APPENDIX THE LIBRARY OF CONGRESS Congressional Resea,-ch SeTvice W.ABHJNOTON, D.C. ll0'40 U.S. COMMERCIAL BANKS: SELECTED DATA SERIES ILLUSTRATING THE FINANCIAL CONDITION OF THE INDUSTRY Prepared for the Connnittee on Banking, Housing and Urban Affairs, United States Senate https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis by Roger S. White Analyst in Money and Banking Economics Division Curtiss Martin Analyst in Money and Banking Economics Division (in consultation with staff of the Committee) May 23, 1978 124 U.S. COMMERCIAL BANKS: SELECTED DATA SERIES ILLUSTRATING THE FINANCIAL CONDITION OF THE INDUSTRY The series of graphs contained in this collected set depict recent trends in selected financial aspects of the commercial banking industry in the United States. Data used for constructing the graphs was obtained from special reports requested by the Senate Committee on Banking, Housing and Urban Affairs from the Board of Governors of the Federal Reserve System, the Comptroller of the Currency and the Federal Deposit Insurance Corporation. Each agency reported data for banks for which it has primary supervisory authority. Where possible, the graphs contain information for a series of years. In a number of cases, data is presented for selected bank size groups. An effort has been made to use the same format in portraying data from each agency. To the extent that information supplied in the various agency reports has permitted, the same time period and frequency of observations has been used in portraying data series for national banks, State member banks and insured nonmember banks. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 125 U.S. COMMERCIAL BANKS: SELECTED DATA SERIES ILLUSTRATING THE FINANCIAL CONDITION OF THE BANKING SYSTEM Figure N111Dber Problem Banks FDIC Problem Bank Summary, Total Assets, Total Deposits and N111Dber of Insured Problem Banks, 1975-1977 1 National Banks Requiring Special Supervisory Attention, Number and Total Deposits, 1975-1977 2 State Member Problem Banks (Categories 3 and 4), Number and Total Deposits, 1972-1977 3 Insured Nonmember Problem Banks, N111Dber and Total Deposits, 1975-1977 4 Bank Failures All Insured Banks Failed or Absorbed to Avert Failure, N111Dber and Total Assets, 1973-1977 5 National Banks Failed or Absorbed to Avert Failure, N111Dber and Total Assets, 1973-1977 6 State Member Banks Failed or Absorbed to Avert Failure, N111Dber and Total Assets, 1973-1977 7 Insured Nonmember Banks Failed or Absorbed to Avert Failure, Number and Total Assets, 1973-1977 8 Capitalization Total Capital as a Percent of Total Assets, National Banks, Selected Size Categories, 1972-1977 Total Capital as a Percent of Total Assets, State Member Banks, Selected Size Categories, 1972-1977 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9 10 126 Total Capital as a Percent of Total Assets, Insured Nonmember Banks, Selected Size Categories, 1972-1977 11 Total Capital as a Percent of Risk Assets, National Banks, Selected Size Categories, 1972-1977 12 Total Capital as a Percent of Risk Assets, State Member Banks, Selected Size Categories, 1972-1977 13 Total Capital as a Percent of Risk Assets, Insured Nonmember Banks, Selected Size Categories, 1972-1977 14 Quality of Assets Classified Assets as a Percent of Gross Capital Funds, National Banks, Selected Size Categories, 1972-1977 15 Classified Assets as a Percent of Total Capital, State Member Banks, State Member Banks, Selected Size Categories, 1972-1977 16 Classified Assets as a Percent of Total Capital, Insured Nonmember Banks, Selected Size Categories, 1972-1977 17 Net Loan Losses as a Percent of Average Total Loans, National Banks, Selected Size Categories, 1972-1977 18 Net Loan Losses as a Percent of Average Total Loans, State Member Banks, Selected Size Categories, 1972-1976 19 Net Loan Losses as a Percent of Average Total Loans, Insured Nonmember Banks, Selected Size Categories, 1972-1977 20 Real Estate Owned Other than Bank Premises, National Banks, Selected Size Categories, 1972-1977 21 Real Estate Owned Other than Bank Premises, State Member Banks, Selected Size Categories, 1972-1977 22 Real Estate Owned Other than Bank Premises, Insured Nonmember Banks, Selected Size Categories, 1972-1977 23 Liquidity Total Loans as a Percent of Total Deposits, National Banks Selected Size Categories, 1972-1977 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 24 127 Total Loans as a Percent of Total Deposits, State Member Banks, Selected Size Categories,-1972-1977 25 Total Loans as a Percent of Total Deposits, Insured Nonmember Banks, Selected Size Categories, 1972-1977 26 30 Day Average Borrowings as a Percent of 30 Day Average Deposits, National Banks, Selected Size Categories, 1972-1977 27 30 Day Average Borrowings as a Percent of 30 Day Average Deposits, Insured Nonmember Banks, Selected Size Categories, 1972-1977 28 Total Standby Letters of Credit, Insured Banks, Selected Size Categories, 1977 29 Total Standby Letters of Credit, National Banks, Selected Size Categories, 1973-1977 30 Total Standby Letters of Credit, State Member Banks, Selected Size Categories, 1973-1977 31 Income Net Income as a Percent of Average Equity Capital, National Banks, Selected Size Categories, 1972-1977 32 Net Income as a Percent of Average Equity Capital, State Member Banks, Selected Size Categories, 1972-1976 33 Net Income as a Percent of Average Equity Capital, Insured Nonmember Banks, Selected Size Categories, 1972-1977 34 Net Interest Margin as a Percent of Average Earning Assets, National Banks, Selected Size Categories, 1972-1977 35 Net Interest Margin as a Percent of Average Earning Assets, State Member Banks, Selected Size Categories, 1972-1976 36 Net Interest Margin as a Percent of Average Earning Assets, Nonmember Insured Banks, Selected Size Categories, 1972-1977 37 Other Extensions of Credit to Directors, Officers, Employees and their Interests, National Banks, by Deposit Size Categories, 1977 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 38 128 CRS-1 FDIC PROBLEM BANK SUMMARY, TOTAL ASSETS, TOTAL DEPOSITS AND NUMBER OF INSURED PROBLEM BANKS, 1975-1977 $ Billion $ Billion 80 80 70 70 60 ,,_, 50 40 30 , I 20 I I I I I I I I I I I ,. -------------- 60 50 40 Key: -Assets •---• Deposits 30 20 o~----~---_.____...____.__~o Number of Problem Banks Number of Problem Banks 380 380 370 370 360 360 350 350 o.__ _.____.___-'-___..____.__ ___.o 12131;15 6/30/76 12/31/76 Year Data Source: Federal Deposit Insurance Corporation. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis &/30/n 121311n 129 CRS-2 NATIONAL BANKS REQUIRING SPECIAL SUPERVISORY ATTENTION, NUMBER AND TOTAL DEPOSITS, 1975-1977 Deposits ($ Billion) Deposits ($ Billion) 80 80 60 60 40 40 20 20 Note: Deposits for Problem Banks are as of latest 1975 reports of examination, as of December 31, 1976and as of June 30, 1977. o.__ _._____,______._____....____. . . . ._ ____.o Number of Problem Banks Number of Problem Banks 200 200 100 100 o.___ _._____._____.____~---~-~o 12/73 12/74 12/75 Year Data Source: Comptroller of the Currency. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 12/76 12/77 130 CRS-3 STATE MEMBER PROBLEM BANKS (CATEGORIES 3 AND 4), NUMBER AND TOTAL DEPOSITS, 1972-1977 Deposits ($ Billion) Deposits ($ Billion) 60 60 40 40 20 20 Note: Deposits for 1977 Problem Banks are as of June 30, 1977 o.___..____._____.____.____._____.___.o Number of Problem Banks Number of Problem Banks 50 50 25 25 Year Note: Problem bank data for 1977 are based on examination reports received as of February 1, 1978. Data Source: Board of Governors of the Federal Reserve System. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 131 CRS-4 INSURED NONMEMBER PROBLEM BANKS, NUMBER AND TOTAL DEPOSITS, 1975-1977 Deposits ($ Billion) Deposits ($ Billion) 14 14 12 12 10 10 8 8 6 6 0'----'----'----------__.__-----'--~0 Number of Problem Banks Number of Problem Banks 300 300 250 250 Year Data Source: Federal Deposit Insurance Corporation. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 132 CRS-5 ALL INSURED BANKS FAILED OR ABSORBED TO AVERT FAILURE, NUMBER AND TOTAL ASSETS, 1973-1977 Total Assets($ Billion) Total Assets I$ Billion) 4 4 3 3 2 2 1 1 o.__ _._____..._____._____.. .______.__ __.o Number of Banks Number of Banks 30 30 20 20 10 10 o..__ _.____..,____...____..____.__~o 1913 1974 1975 Year Data Source: Board of Governors of the Federal Reserve System Comptroller of the Currency Federal Deposit Insurance Corporation https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1976 19n 133 CRS-6 NATIONAL BANKS FAILED OR ABSORBED TO AVERT FAILURE, NUMBER AND TOTAL ASSETS, 1973-1977 Total Assets ($ Billion) 4 4 3 3 2 2 1 1 o.__ _._____.__________..____.__ ___.o Number of Banks Number of Banks 6 6 3 3 o.__ _._____.____.____..____.__ ___.o 1973 1974 1975 Year Data Source: Comptroller of the Currency. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1976 1977 134 CRS-7 STATE MEMBER BANKS FAILED OR ABSORBED TO AVERT FAILURE, NUMBER AND TOTAL ASSETS, 1973-1977 Total Assets($ Million) 1000 1000 800 800 600 600 400 400 200 200 oL-~.-!!!!!!!!!~~-_.l__ __ J ~_ __1.__Jo Number of Banks Number of Banks 2 2 1 1 0'---r----"-----'-----'----i--_.o 1973 1974 1975 Year Data Source: Board of Governors of The Federal Reserve System. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1976 1977 135 CRS-8 INSURED NONMEMBER BANKS FAILED OR ABSORBED TO AVERT FAILURE, NUMBER AND TOTAL ASSETS, 1973-1977 Total Assets ($ Million} Total Assets ($ Million} 400 400 300 300 200 200 100 100 0'---'-------'------'------'----'-- -'0 Number of Banks Number of Banks 20 20 10 10 0.__....__ _---'----'-----'------'---'0 19n 1976 1975 1974 1913 Year Data Source: Federal Deposit Insurance Corporation. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 136 CRS-9 TOTAL CAPITAL AS A PERCENT OF TOTAL ASSETS, NATIONAL BANKS, SELECTED SIZE CATEGORIES, 1972-1977 Percent 8 7 Percent ,_,_,_,_,_. ---·-·-·-·-·- .•. -·-· -·-·-··-......------- ------ ------------ 8 7 6 6 5 5 4 4 3 3 2 Bank Deposit Size Categories: 2 - - Over $5 Billion • - - - • $500 Million to $1 Billion " - , - "Under $100 Million 1 1 O 12/31/72 12/31/73 12/31/74 12/31/75 12/31/76 12/31/77 O Year Data Source: Comptroller of the Currency. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 137 CRS-10 TOTAL CAPITAL AS A PERCENT OF TOTAL ASSETS, STATE MEMBER BANKS, SELECTED SIZE CATEGORIES, 1972-1977 Percent 8 Percent ....... . -•-·-·-·-.,,.,. ," .... , .-.--.r--·•-..................,,, ,, -· ,,-,:. ,_,,........ 8 7 7 6 6 5 5 4 Bank Deposit Size Categories: 4 - - Over $1 Billion • - - - • $500 Million to $1 Billion , , - • - •, Under $100 Million o._~____..____.____.____.______~o 12/31/72 12/31/73 12/31/74 12/31/75 12/31/76 12/31/77 Year Data Source: Board of Governors of the Federal Reserve System. 30-476 0 • 78 • 10 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 138 CRS-11 TOTAL CAPITAL AS A PERCENT OF TOTAL ASSETS, INSURED NONMEMBER BANKS, SELECTED SIZE CATEGORIES, 1972-1977 Percent Percent 8 . ... , ,. ,. ,. ,. ,.,,,--·-·-·-·-·-·-·-·- ·-·-·8 7 7 6 6 Bank Deposit Size Categories: - - Over $1 Billion • - - - • $500 Million to $1 Billion , , - • - •, Under $100 Million O 12/31/72 12/31/73 12/31/74 12/31/75 12/31/76 12/31/77 O Year Data Source: Federal Deposit Insurance Corporation. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 139 CRS-12 TOTAL CAPITAL AS A PERCENT OF RISK ASSETS, NATIONAL BANKS, SELECTED SIZE CATEGORIES, 1972-1977 Percent Percent 11 10 9 -·-· ·-·-·-·-·-·-·-·-· '--.._.,,,,_______ _ -·-· -·-.-·-·-·-·-·- --------------· 11 10 9 8 8 7 7 6 6 5 5 4 4 3 3 Bank Deposit Size Categories: - - - Over $5 Billion 2 ■--- ■ $500 Million to $1 Billion 2 " - • - " Under $100 Million 1 1 0 12131n2 12131n3 12131n4 12131ns 12131n& 12131m 0 Year Data Source: Comptroller of the Currency. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 140 CRS-13 TOTAL CAPITAL AS A PERCENT OF RISK ASSETS, STATE MEMBER BANKS, SELECTED SIZE CATEGORIES, 1972-1977 Percent Percent _,_, 11 -·-·-·-·-·-·-· 10 -·-· _.,,,., ·-----..................,,,,, -·-,,,-•-·,,,- ,, ,, ,,_, 11 10 9 9 8 8 7 7 6 6 Bank Deposit Size Categories: - - Over $5 Billion 5 • - - - • $500 Million to $1 Billion 11 , , 1 Under $100 Million 5 o,__.____.____,____.____.____.__~o 12131m 12131m 12131n4 12131ns 12131ns 12131m Year Data Source: Board of Governors of the Federal Reserve System. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 141 CRS-14 TOTAL CAPITAL AS A PERCENT Of RISK ASSETS, INSURED NONMEMBER BANKS, SELECTED SIZE CATEGORIES, 1972-19TI Percent Percent .... ,.., ........ ,_,_, _, 11 -·-.-·-·-·-·-·-·-,,,..,, ... ,, , ~, . 11 10 10 9 . 9 Bank Deposit Size Categories: 8 8 - - - Over $1 Billion ■---• $500 Million to $1 Billion , , - • - •, Under $100 Million o._..-____.____.___.___ __.'--_ _.___,o 12/31/72 12/31/73 12/31/74 12/31/75 12/31/76 12/31/77 Year Data Source: Federal Deposit Insurance Corporation. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 142 CRS-15 CLASSIFIED ASSETS AS A PERCENT OF GROSS CAPITAL FUNDS, NATIONAL BANKS, SELECTED SIZE CATEGORIES, 1972-1977 Percent Percent -------------------~ 100 100 90 90 80 80 70 70 60 60 Bank Deposit Size Categories: 50 50 - - Over $5 Billion • - - - • $500 Million to $1 Billion 40 11 - 10 • 1 40 Under $100 Million ,,,#111----------· ,, ,,,, 30 20 • - ,, ·-·-·-·-·-·-·-·· ---------·-·-· -·-·-·-·-·-·-·-· 30 20 10 o.____,_____.______.____.____.____.__~o 1972 1973 1974 1975 Year Data Source: Comptroller of the Currency. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1976 1977 143 CRS-16 CLASSIFIED ASSETS AS A PERCENT OF TOTAL CAPITAL, STATE MEMBER BANKS, SELECTED SIZE CATEGORIES 1972-1977 Perce.:.:n.;;.. t_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _..;..P_;e;;;rcent Bank Deposit Size Categories: - - - Over $5 Billion 120 • - - - • $500 Million to $1 Billion 1, , ■ 1 Under $100 Million 120 100 100 80 80 60 60 . ----------- _,,,,,' ,,,, 40 20 ,, -------·-·-·-·-·-·-·-·-·-·-·-·-· ··-·-·-·-·-· 40 20 o.__.____.____.____.____._____.___.o 1972 1973 1974 1975 1976 Year Note: 1977 Data reflect examination reports received to February 1, 1978 only. Data Source: Board of Governors of the Federal Reserve System. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1977 144 CRS-17 CLASSIFIED ASSETS AS A PERCENT OF TOTAL CAPITAL INSURED NONMEMBER BANKS, SELECTED SIZE CATEGORIES, 1972-1977 Percent Percent Bank Deposit Size Categories: 70 - - - Over $1 Billion • - - - • $500 Million to $1 Billion " - • - 11 Under $100 Million 40 I I I I I I I I I I I I ,------ 20 ........... 50 40 , ...... ,,, -·-· ··-·-·-·-·-· ............ ,·,· 60 I ,,,,,' 30 70 ,, 60 50 ,,,~ ,,.... ;' ,· - 30 20 10 10 o~_,____...._____.____.____.____.__~o 1972 1973 1974 1975 1976 Vear Note: 1977 Data reflect examination reports processed through March 3, 1978. Data Source: Federal Deposit Insurance Corporation. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1977 145 CRS-18 NET LOAN LOSSES AS A PERCENT OF AVERAGE TOTAL LOANS, NATIONAL BANKS, SELECTED SIZE CATEGORIES, 1972-1977 Percent Percent I, 0.6 0.5 0.4 I 0.2 ', ',' 7 I I I I I I I I I 0.6 0.5 ,.I\. ,. '·' ·, i ,· ·,·, ·, 0.4 ·,. i '·,·, • I •' II I •' -~ ,,. ~ 0.3 I I I I I I I I I 0.3 ',.., I• ·-·- 0.2 Bank Deposit Size Categories: Over $5 Billion 0.1 • - - - • $500 Million to $1 Billion 0.1 " - , - " Under $100 Million 0'-----'-----'----'-------'---........-----'--~0 1972 1973 1974 1975 1976 1977 Vear Data Source: Comptroller of the Currency. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 146 CRS-19 NET LOAN LOSSES AS A PERCENT OF AVERAGE TOTAL LOANS, STATE MEMBER BANKS, SELECTED SIZE CATEGORIES, 1972-1976 Percent Percent I I I 0.7 0.7 0.6 0.5 0.4 f I I I I I I I I I I I I I I I I I I 0.3 0.6 0.5 0.4 0.3 0.2 0.2 Bank Deposit Size Categories: - - • Over $5 Billion ■---■ $500 Million to $1 Billion , , • , •,, Under $100 Million 0.1 0.1 o~~---~--~----.,......----~--o 1972 1973 1974 1975 1976 1977 Year Data Source: Board of Governors of the Federal Reserve System. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 147 CRS-20 NET LOAN LOSSES AS A PERCENT OF AVERAGE TOTAL LOANS INSURED NONMEMBER BANKS, SELECTED SIZE CATEGORIES, 1972-1977 Percent 0.9 Percent Bank Deposit Size Categories: Over $1 Billion 0.8 • - - - • $500 Million to $1 Billion 11 1 11 Under $100 Million 0.7 I I I I I I I I I I I I I I I I I I ,,-----· ,, , ,, , ; ·" \ . ,, ,·,· \ 0.6 0.5 0.9 0.8 0.7 0.6 0.5 ~ /.·-·-·-·'' 0.4 ,!" II 0.3 \ 0.4 \ \ ·, 0.3 0.2 0.2 0.1 0.1 0.0 ' - - - - - l . . . - - - - - - ' - - - L - - - - - ' - - - - - ' - - - - - - - ' - _ _ _ _ J 0.0 1972 1973 1974 1975 1976 1977 Year Data Source: Federal Deposit Insurance Corporation. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 148 CRS-21 REAL ESTATE OWNED OTHER THAN BANK PREMISES, NATIONAL BANKS, SELECTED SIZE CATEGORIES, 1972-1977 ,--------------------~ $ Million $ Million 700 700 Bank Deposit Size Categories: - - Over $5 Billion 600 •---■ $500 Million to $1 Billion , , •, - , , Under $100 Million 600 500 500 400 400 300 300 200 200 100 100 Year Data Source: Comptroller of the Currency. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 149 CRS-22 REAL ESTATE OWNED OTHER THAN BANK PREMISES, STATE MEMBER BANKS, SELECTED SIZE CATEGORIES, 1972-1977 .------------------------,Million $ Million $ Bank Deposit Size Categories: 400 400 - - - Over $5 Billion • - - - • $500 Million to $1 Billion 11 , , 1 Under $100 Million 350 350 300 300 250 250 200 200 150 150 100 100 ,,,4 .,., .,., ----------·-·-·-·-·-·-·-·-·· 50 ---..1.:-•. -•-·11w-• o.____._ ___.____.___,__ ___.____.____.o 12/31fl2 12/31fl3 12/31fl4 12/31fl5 12/31fl6 12/31fl7 Year Data Source: Board.of Governors of the Federal Reserve System. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 50 150 CRS-23 REAL ESTATE OWNED OTHER THAN BANK PREMISES, INSURED NONMEMBER BANKS, SELECTED SIZE CATEGORIES, 1972-1977 $ Million $ Million ,----------------------, , .... , ... ........ ,.. ,· ,· ,· l. 250 250 .I I . I .I ,. . I I 200 200 I ; ,. ,· 150 100 ; .,· ._,. -·- ; I ,· 150 Bank Deposit Size Categories: 100 - - Over $1 Billion ■---• $500 Million to $1 Billion , • - • - • • Under $100 Million 50 -------------------- 50 ... -- 0 12131112 12131173 12131174 12131175 1213111& 121311n Vear Data Source: Federal Deposit Insurance Corporation. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ° 151 CRS-24 TOTAL LOANS AS A PERCENT OF TOTAL DEPOSITS, NATIONAL BANKS SELECTED SIZE CATEGORIES, 1972-1977 Percent Percent 70 70 65 65 60 60 ,-•-·""•-.., .... ,.~ ,.~· ~· .... . .... .... ....... ..... ~· ,·,· .... .... ; ~ ..; ' Bank Deposit Size Categories: 55 55 - - Over $5 Billion • - - - • $500 Million to $1 Billion , , - • - , , Under $100 Million O 12/31/72 12/31/73 12/31/74 12/31/75 12/31/76 12/31/77 O Year Data Source: Comptroller of the Currency. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 152 CRS-25 TOTAL LOANS AS A PERCENT OF TOTAL DEPOSITS, STATE MEMBER BANKS, SELECTED SIZE CATEGORIES, 1972-1977 Percent Percent 70 70 65 65 ,,,~ 60 ~•' •-• .i ' 60 Bank Deposit Size Categories: 55 -·-·, •, ...... ,·,· •.,. ·-·-·-•-.iI ...I ►• 55 - - - Over $5 Billion • - - - • $500 Million to $1 Billion " • • • " Under $100 Million 0 12131m 12131173 12131n4 12131n5 12131n6 12131m 0 Year Data Source: Board of Governors of the Federal Reserve System. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 153 CRS-26 TOTAL LOANS AS A PERCENT OF TOTAL DEPOSITS, INSURED NONMEMBER BANKS, SELECTED SIZE CATEGORIES, 1972-1977 Percent Percent 75 75 70 70 65 65 60 55 ,,. ,. ,.,. -·-·-·-·-·-· -·-·-·-· ---·~ ., .,., ·' Bank Deposit Size Categories: - - Over $1 Billion 60 55 • - - - • $500 Million to $1 Billion , , - • - •, Under $100 Million O 12/31/72 12/31/73 12/31/74 12/31/75 12/31/76 12/31/77 O Year Data Source: Federal Deposit Insurance Corporation. 30-476 0 • 78 • https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 11 154 CRS-27 30 DAY AVERAGE BORROWINGS AS A PERCENT OF 30 DAY AVERAGE DEPOSITS, NATIONAL BANKS, SELECTED SIZE CATEGORIES, 1m-1m Percent Percent ,,, , 12 ,,,, ,,, ,..,, 12 10 · 10 8 8 6 8 Bank Depo11t SIN CategorlN: 4 - - Ov• ti BIiion 4 • - - - • tllGO M-.On to t1 BIiion 11 • 1 • 11 Unds tD Mlaon 2 2 -·-· -·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·0 121:11112 12131173 12131114 12131m 12131m 12131m 0 y.., Dahl Sourc,: Comptroller of the Currency. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 155 CRS-21 30 DAY AVERAGE BORROWINGS AS A PERCENT OF 30 DAY AVERAGE DEPOSITS. INSURED NONMEMBER BANKS. SELECTED SIZE CATEGORIES. 1972-1ffl Percent Percent ,,, ,,,, 8 7 8 I I I I & I I I I I I I I I I I I ,,,• 8 7 6 5 4 4 3 3 2 Bank Deposit Size Categories: 2 - - Over $1 BIiiion • - - - • $600 MIiiion to $1 Billion , , - , - , • Under $100 MIiiion 1 t-'----------~ ·-·-···-·-·-·-·-·-·-·-·-·-·-·-·· -·-·-· .. 1 O 12/31/72 12/31/73 12/31/74 12/31/75 12/31/76 12/31/77 O Year 0dtd Source: Federal Deoosn lnsurdnce Corporation. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 156 CRS-29 TOTAL STANDBY LITTERS OF CREDIT, INSURED BANKS, SELECTED SIZE CATEGORIES, 1977 ($ Billion) ($ Billion) 10 10 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 ••~,:L...J:::;~Un~d,~,a:.S~5~00:s::ll[~Ow~,:J.._JO ••~,1 --":u~ndcer=~s5~00!:ll:!Wo~ OL..l::::U~n~d,~r~S~50~0£:;~o~ $5 $100 Million to $5 $100 Million to $5 $100 Million to 1 Million S1 Billion Billion 1 NATIONAL BANKS (AS OF 12/31/77) 1 Million S1 Billion Billion 1 STATE MEMBER BANKS ( AS OF 6/30/77) Data Source: Comptroller of the Currency Board of Governors of the Federal Reserve System Federal Deposit Insurance Corporation https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1 Million $1 Billion Billion 1 NON MEMBER BANKS (AS OF 12/31/771 157 CRS-30 TOTAL STANDBY LETTERS OF CREDIT, NATIONAL BANKS, SELECTED SIZE CATEGORIES, 1973-1977 $ Billion $ Billion 10 10 9 9 8 8 7 7 6 6 5 5 4 4 3 3 Bank Deposit Size Categories: - - Over $5 Billion 2 2 ■---• $500 Million to $1 Billion , , - , - , , Under $100 Million 1 1 ·- ---~-:-----·---------------·-·-·- -·-·-· O 12/31/72 12/31/73 12/31/74 12/31/75 12/31/76 12/31/77 O Year Data Source: Comptroller of the Currency. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 158 CRS.31 TOTAL STANDBY LITTERS OF CREDIT, STATE MEMBER BANKS, SELECTED SIZE CATEGORIES, 1973-1977 $ Billion $ Billion 4 4 3 3 2 2 Bank Deposit Size Categories: 1 1 - - Over $5 Billion ■---■ 11 - 1 - 11 $500 Million to $1 Billion Under $100 Million ----- ----~----- -= 0 12/31fl2 12/31/73·-·-· ·-·-·-·-·-·-·-· 12/31/77 0 12/31/74 12/31/75 12/31/76 · Year Data Source: Board of Governors of the Federal Reserve System. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 159 CRS-32 NET INCOME AS A PERCENT OF AVERAGE EQUITY CAPITAL, NATIONAL BANKS, SELECTED SIZE CATEGORIES, 1972-1977 Percent Percent 12 12 10 10 8 8 6 6 4 4 Bank Deposit Size Categories: - - Over $5 Billion 2 • - - - • $500 Million to $1 Billion ·••-•-••Under $100 Million 2 o~~---~---'---~---~--~--o 1972 1973 1974 1975 1976 1977 Year Data Source: Comptroller of the Currency. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 160 CRS-33 NET INCOME AS A PERCENT OF AVERAGE EQUITY CAPITAL, STATE MEMBER BANKS, SELECTED SIZE CATEGORIES, 1972-1976 Percent Percent 12 12 10 10 8 8 6 6 4 4 Bank Deposit Size Categories: - - Over $5 Billion 2 • - - - • $500 Million to $1 Billion 11 • , 1 Under $100 Million 2 o~~---..____.______.____.____.__~o 1972 1973 1974 1975 Year Data Source: Board of Governors of the Federal Reserve System. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1976 1977 161 CRS-34 NET INCOME AS A PERCENT OF AVERAGE EQUITY CAPITAL INSURED NONMEMBER BANKS. SELECTED SIZE CATEGORIES, 1972-1977 Percent 14 Percent ·,,, ',', ... 14 .,,-'! 12 ~ .,•'· 12 \ 10 \ 10 '\ \ 8 \ \ \ \ 8 \ \ \ 1 6 6 4 4 Bank Deposit Size Categories: - - Over $1 Billion •---■ $500 Million to $1 Billion 2 2 " - • - " Under $100 Million o.___....____.____._____.____ ___.___.o ~ 1972 1973 1974 1975 Year Data Source: Federal Deposit Insurance Corporation. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1976 1977 162 NET INTEREST MARGIN AS A PERCENT OF AVERAGE EARNING ASSETS, NATIONAL BANKS, SELECTED SIZE r.ATEGORIES, 1172-1ffl Percent 4 ,,,,. -· .-·-· -·- ·-·---·~- -·-·---------- ---- ~ .-·-·-·-·· ------- 3 4 3 Bank Depoalt Size Categorle1: - - • Over t6 BIiiion • - - - • tliOO Mllllon to t1 BIiiion " • • • " Under t100 MIiiion llvtli1 l>AU I.ti A OOU:STlC ONLY DAS IS Pill UH ·ru 1976 o~--------_.____..____...._____-o 1972 1973 1974 1975 Vear Data Sourc■: COffllllf0ller of the Currency. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1978 1977 163 CRS-36 NET INTEREST MARGIN AS A PERCENT OF AVERAGE EARNING ASSETS, STATE MEMBER BANKS, SELECTED SIZE CATEGORIES, 1972-1976 Percent Percent ·-•-.:.-·-·· ,.,,..----- ----.,·,. -·-,,.-·-·-·-·-· 4 4 ,,., , , , ,,_____ 3 3 2 2 Bank Deposit Size Categories: Note: Major changes in the Measurement of Net Interest Margin substantially increased the ratios for large banks in 1976. - - - Over $5 Billion ■---• $500 Million to $1 Billion , , • • • • • Under $100 Million o~_._____.____.____....____._____.__,o 1972 1973 1974 1975 Year Data Source: Board of Governors of the Federal Reserve System. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1976 1977 164 CRS-37 NET INTEREST MARGIN AS A PERCENT OF AVERAGE EARNING ASSETS. INSURED NONMEMBER BANKS. SELECTED SIZE CATEGORIES. 1973-1977 Percent Percent 6 6 5 5 4 4 3 3 2 2 Bank Deposit Size Categories: - - Over $1 Billion ■---• $500 Million to $1 Billion 11 - •- • 1 Under $100 Million o,__.____..____,_____.____..._____.___.o 1972 1973 1974 1975 Year Data Source: Federal Deposit Insurance Corporation. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1976 1977 165 CRS-38 EXTENSIONS OF CREDIT TO DIRECTORS, OFFICERS, EMPLOYEES AND THEIR INTERESTS, NATIONAL BANKS, BY DEPOSIT SIZE CATEGORIES, 1977 Extensions ($ Billion) ALL NATIONAL BANKS Data Source: Comptroller of the Currency. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Extensions ($ Billion) NATIONAL BANKS REQUIRING SPECIAL SUPERVISORY ATTENTION 166 - ~·••,.." ... . ::. ~¥ J. THE LIBRARY OF CONGRESS 0 *. \ " ..." Congressional Research Service \"' WASHINGTON, D.C. 20540 May 24, 1978 TO Senate Committee on Banking, Housing and Urban Affairs Attention: Lindy 1-krinaccio FROM Economics Division SUBJECT: Data supporting CRS charts for hearings on the condition of the banking system. Attached please find the data (based on reports of income and condition) which the three bank regulatory agencies supplied for the Committee's hearings on the condition of the banking system. This is the supporting data for CRS charts 9 through 14 and 18 through 37, Curtiss Martin Analyst in Money and Banking rlh https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 167 () Comptroller of the Currency Administrator of National Banks Washington, D. C. 20219 May 5, 1978 The Honorable William Proxmire Chairman Connnittee on Banking, Housing and Urban Affairs United Scates Senate Washington, D.C. 20510 Dear Mr. Chairman: On April 6, 1978, we furnished you with a recomputation of the June 30, 1977, Schedule A-3, previously provided co you by the Federal Deposit Insurance Corporation. This recompucation was on a fully consolidated foreign and domestic basis. Attached you will find an update of this schedule with December 30, 1977, data substituted for June 30, 1977. Sin\r,.ely, Joh~nrt Comptroller of the Currency https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis NAT I f)NAL FIA~ll;S l<J7?.--1977 TOTIIL OEPOSITS IN FOREIGN .bND OO~ESTIC OFF'ICES 0ATF. 1(10-500 TOTAL M}I.LlON NlJfl'8ER o• t!A"IICS lit--Jl-7? 12•31-73 l~-:H ... 74 11. ... 31 .. 75 12-31-76 lZ•Jl-77 SA TnTAL E0\11 T'f • 12 .. 31 ... 72 12-J1 ... 77 Jot l?. JJ011. 3!>H77. J 1JOb9e 44047. 48014. 12•Jl-74 S. 7d 5.44 5. ~3 12-31-75 S.61 l~-31-76 S.R7 12-Jl-U S.l'-.S 12-:11-73 PEPCEJt.•f Ar.F. or 3n1,. Jlo.1. 421J. 40f,. '•4?. 475. 4}6'4-. 4031. 1f.q. ... 56. SR. 5•. 03, 74, ...... •7. SI. SR, 65, 10. 11. 11, II, 11. 11, 712d, 7911. OMY. 913!:,. 9741:1. 10)03, 5147. 5P06. fli:\93. 6A7Q• 110n. 8f1M,. 318R. SABA. 61R9e 6~35. 11.22. 9(11,q. 8762. 973n. 3374. 3599. 3R69. JA7n. 4565. 10367. 6.51 5.41 6. l~ s.ns 4. 79 4.?S fi.?.7 5.1?. 3.R6 6.c;o 6.~? 6.41 s.st s. 78 4.?S 4.159 4.36 10Jqo. I l 565, 13$61. 14913. 12 .. :n .. ·,s l.t!-.Jl-76 tii!-31-7 7 6.~7 fi.5'i 6 0 4b ,,. 7~ 7. JO h.A8 ·,.(,3 1..43 6.36 1..1.0 ,._,.,: &.,;z I'-.. 7H S.M 7.t19 A.lo IJ°.45 a.'-8 R.bl e.sn 7.47 7.53 7.AS 1.At:, fl.OJ 7.Bn 7.60 7.A2 7.9A 7.9t, 7.RA 7.R6 S. 76 1..64 ~- 72 7.f'O 6. 7c; 6.56 ~.67 7. l n 7.47 7.?5 S.77 19 4.67 s. s. 17 S.f-.6 S.43 PEi?CO:TAr..F OF UEl:tT C/IPlTAL TO TOTAL CAPJTAL l.t!-31-72 12-31-73 t(" ...q .. 74 12 .. 31 .. 75 Jl--.J\-7h l?-31•77 (,.91 "-6!:i 6.~d S.?l 1..19 6.32 0) 1.02 7.15 7.41 7.42 7. (J EQUITY Cj\PITAL TO TOT AL 0EP0S Ir-; 1i.. 31 .. 12 l?.--:H-73 lt-Jl-74 SU 4!173. 4140. 4.21A. OVEg 5 flILLlO~ PERCE11.:TAr;f or E.au111 CAPITAL TO TOTAL Ac;SETS 12-:u-n SC 4491. 45q7. 470(-.. 4745. 473~. 41,Sh. 1... 5 BJLLIO"f DE!il C,11.PITAL UN MlLLI0"-c;l )l-'.U-73 12-31-74 12-31-75 l l .. Jl-1b so 500 .,.ILLI0~-1 fllLl. lOfll 2.&8 ~-lJ '.l.13 3.lQ J.'-O 3.:,0 5.64 70 ,i,.nJ i:;. 7.4) P..~9 6.~lo. 7.n,, 9.53 12.59 12. 73 t?..St'> 11.31' 11.CI? in.so 7 .nJ S.i.'6 4. 7A 4.?S 4.99 4.So 00 NAT M"l•L RA~ll(S 1972-1977 ; "' TOTr.L ['lEPOSfTS IM FO~EIGN AND OOMF.STIC OFFICES 0 -----------------------------·----·-----------------------1-s ------------ --------------- ---------·----- --------------- ------·-------· ............................... -·------------OATF 0•1011 TOTAL I OCl-50(1 MHLJ0"-1 ~ILL lotJ ~ "' ;:; https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SE SF PFRCE~JTAr.F.: PF~Cf."IT.lfiE qr or Pf~CE/\:TAGE or 12-31-72 li-31-73 6.i'l 5.Ri! JC-Jl-7'• lj.t-" )~•:SJ-7', ll-:U-76 lt'•Jl•/7' ';.9b 6.?5 6.oJ IWEJ> 5 flILLlO~ 7.2? ·1.JR l.h4 7.b7 A.ill'I 1.'lt ii.82' "•Al 1.00 1.n~ 7.34 1.21 1.nJ h. 70 ,.,.f'4 6.9f' 1.n1 1.n9 6.19 s. 7A ~.P.6 6.21 ii.Sn s.1s 6,25 •.56 7.fi) 6.66 f'o.19 6.?I\ ~.69 6.95 6.67 5.48 4-.73 lt.?6 4.6l' 4-.48 tt.ns 4.44 4.83 ~.Ml 6.?4 <•.O'i fi.4U 7.'i4 A.04 8.35 R.J~ ,,_,,1 6.ttt 8. ro e.~c> 7.19 7.38 7.60 7.6(> 7.92 7. 77 7,?5 7.41 7.57 7.54 7.63 s.n1 4. 78 TOT/ll C/lPJTAL TO RISK ASSETS ~.(,2 '1.()2 7.57 P..?2 R.h7 R.31.1 P-iJ-77 TOTAL LOANS 11'.XCLUl.ilN<; FEDERAL FUNDS) li?-'Jl-72 ll·Jl-73 12-Jl-74 12-J)-7!:, ll-Jl-7'1?-:ll-77 98 Bl LU ON TOTAi. rAPlTAL TO TOTAL LlABILI'tJEc; 12-31-72 12-31-73 J2-Jl•74 ll--:H-75 li-"Jl-7b •• I RILL JON TOTAL rA~IUL TO TOTAL ASSETS \2-11-7l 12•:U-73 ll-Jl-74 1~-31-75 ll-:1)-7" 12-31-77 SG S00 1t.1fll. JON• in.17 10.09 10.i;., 9.32 9.03 q.~z 9.46 A. 70 H.81 9 • .?S A.41 1.12 '7.f,C: 7 .28 6.?.6 5.47 )0.bO 9.it.3 A,52 6,20 11 .04 10. ·12 In.04 9.RO 9,35 9. 13 9.49 e.~? 6. 74 6.31 4901~. 54910. ).l\5s;fl. 45410. 4'i">1n. 4q;,q3. s2nn. 57713. 2301 I. 27577. 2A381',. 2917A. 27922. 33354. 50694. 57F,49. "3'i6n. /CiAP.49. ~3571 • 9368?.. 121020. 151981. 152314. lf-189.1. }A6837. 57.60 Sl',.'31 SQ.41 h1. l l h'.\.14 5q_,-,tt 57 .s2 59.ln SQ.q9 f-3.?0 t-.7 .37 t,.1.2? 64.57 hl • 75 63.S? (lfll MILLl':'N!-) 255R,-n• 30/JM. J!:,(1968. 35371'1?.. 3"fl.477. 42"231,. ss5J1. l',Q02D. 617QI. 6776i!. f,2.A,-.Q. PEl-lCfllTMff OF TOTAL LOIi.NS TO TOHL l)(POt;J TS li-:H-72 tC-31•73 lC•Jl-74 12-Jl-7~ lC-31•76 1c-:11-1r &2. 70 61;;. 74 6r • .-.o b?.n "='-97 6~.fi~ I-' 0:, <:D ss.12 SH.06 SH,.tt7 M,.45 66.)9 6Q.9C) 7n,.92 68.56 71. 74 6~.l l 63. 77 65,32 71.0S 70.59 71.17 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis NA I lO'JQL r-111.I\IK:, l'lln--1q77 TOTAl. DEP05ITC'i IN FQDEtGN ANO DO~ESTIC OFFICES ----------------------------------------------------------------DATf. 9C TOTAL n.·?2 o.1., 0a3b 0.4'10 0.f,,0 0.42 2'6?.7. 4?7?.Ra 4?.3ll. 4375Ra 59(147. 1\ 7flO. 6,9~ 9.,.1 8.37 A.3M? 1D.4U 11. )7 TOTAL OTHFR RE.AL E.~TATf. II"I MILLIONS) Jl•3l•72 ll--Jl--7.J J2•Jl•74 ll•Jl-75 J2-Jt--7o 1?•31-77 13• 1-5 C\VER 5 RILL IO'I BILL MM (1.24 0.2s o.?.2 O,o!J a.JS o.::)o o.J9 o.Jl n.23 0.24 o.:IB o.r,1 n.32 0.23 n.47 0.65 n.S3 o.JJ o.36 "/48. DD4. Jt,67. 1~41. l~Hb. Jt:,~ll. JJnH. 4'i,79. 4QSh. 4R03. 6oi:;;,, bi?lS. 2RS?.. 415A. 47lf,. 445n, 5374. 6364. 4.97 f,.59 6,f.8 ,..n9 1',.AJ 7.83 10,59 11.1n 10.20 6.flH 12. 76 1~.2n 17,34 14'1.2S 15,13 lR.54 t9.n4 23. 2?, 54, 136. 192. 16R. 122, JSn. 595, 635, O,AJ l'J.RJ 0,69 n.13 n.t,J o.61 n.4A n.57 0.66 0.49 0.19 0.27 0.28 0.65 0.67 0.47 F.19?.CI, JJc;6A. 13914, 13730, 19211, 23160, 11999, 1912n, 170~7. }CJ232. 266?4. 34372, PEACEr-:TARE or 30 Ul>Y AVEl-lAGE IJORPOWJNGS TO 30 DAY AYt.RAGE nEPOSITS 12-:u-n li!'-:U-73 it!-31-74 1~-Jl-7~ 12-JI-71, 12•31-77 12 SOD t,.tILlION1 RJU JON TOTiL JU DAY AVE:.~At.1:. tiO•IROwtr-.iGS llN "IILLIONSl It- U-7?. JC-31-"73 12-:JI-74 lt-Jl-75 ll-JJ .. ?h 1~-11:-?1 !OB 1 oo-son MltLJO._l 1-'EACENTAC.f OF ,~ET LOA/lo LOSSES TO AYEHAGF TOTAL l OAtJS ll--11-7? l~-31-71 12-.'ll-74 12-Jl-7S li'-Jl-711 12-31-77 IOA 0-100 MILLION 1(,9. ?26. \ 393. lot,o. 1770. 1913. O.tH, 1 ... 1 1 • II 1.~2 1,47 }.46 ... 50, ·Al. 12:J. 1s~. 153. .,. 3?. 79, 1cn. ?.24'1. 2('13. 12,31 ... JR, 10,96 8,21 9,l2 12,00 13.52 ?B, 53. 56, 2fon. 6n2. 755, PEUCENTAl",E' OF NET INCor•E TO AVERAGE TOTAL Assn~ 12-31-72 ll-:H .. 7) ll-Jl•74 Jt'•.H-7'i lc'•,H•l6 12-31-77 o. 74 o. 73 n,t,7 o.t-7 ..... ~ -e. 75 o.'J0 n.aJ o.Yfl ('I, 79 0.'"1 o. 12 (l.f,8 1", 7CJ o.t-7 l".69 O.f.9 O,b4 ('l,'il?. n. 7., o. 7l (I. 7d o. 70 o.'14'1 n.AS n.1s n.73 0,59 0,58 o.54 0.56 0,56 o.sJ 0 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis N~ Tl O'llAL AANKS 1''72-1977 TOTAL DEPOSITS IN FOREIGN A~O oo,i,F.~TIC OFFICES -----------·-------·----·--·--- --·--·--------- ------·-------- ------·------.. - ---·----·----...- --.....................- ---·----·-----OAlF.. 13P TnTAL 12.34 l?. 77 12.49 12-31-7?. 12'-31•73 l?.07 11. 70 11 .91:1 l? .. Jl-76 1?-31-77 son '11LI. TONl RILL IO~ 1-c; BILLION nvEA S fULLIO'II 12.~1 13.12 12.Jl 11.21. 11.14 l?..l.3 12.so 12.44 l?..11 l?.90 J t .f.7 11.('IJ 11.20 11.1-4 I0. 74 11.flS li!.21 11.91 12.eJ 13.12 12.43 12.49 11.40 11.e? t 1. 73 12.63 13.46 13.66 12.37 II, 75 Pf~CU. T Ar.F OF rwFT l~Tf!JF.ST MARGil'J TO AVEkAGE EADNING .O.S!<IETS lt"-JJ-7? lt:-31-71 lc!-31-74 l?•Jl-75 l~-:H-/6 l?•JI .. 77 15 100-500 ldlLLION F'ERCEm AGE OF NET INco,·E TO AVERAGE EQUITY CADITAL )L"-JJ ... 74 lt'-31-75 l3C n-100 MILLION TOTAL c;r,u,10li'f LF.:Tlt ~5 {'lf 3.4~ J.51 J.f.O 3.&6 J.M, J. 7tJ J.t,Y. J.Y4 3oR8 3.59 J.c;s 4o!2 4olO 4.03 4.09 .. CREDIT IIN MlLLIOI\JSl l.:'-31-7?. 11.-31-B J~-Jl-74 Il-:U-7S lt::•Jl•7t, 12-31-77 SOURCE: 3 0 /R J.':#) 4oll5 0, 0, J.53 40117 J.47 3.60 J.68 ).SR 4.07 3,56 3.BJ J.97 1134. :n1. 5774. 6149. 4lfl. 479. Jft?.. 506. 1719. 10635. 2so. 11~. 209. Reports of Condition, Reports of Income, and Special Reports. ~' Number of banks: Statistics for 1972 and 1973 include only those banks that were still in the national banking system at year end 1974. Averages were calculated using the figures from each Report of Condition filed during the year Three period averages are used for those banks submitting a consolidated foreign and domestic report in 1975 and prior since those reports were filed on A semi-annual basis only. 13c. This ratio is on a domestic: only basis for 1975 and prior. Data for 1975 and prior is unedited. .. 0, 1137. l 16R. 1239. AZP.tc,• 10527. 1)541. ll• 3.30 3,10 1125, 2•. 45. AVERAGES: 3.09 2.99 o. ,.u, p1iisilie preceding year end. J.04 3.03 310. ?.37. J4Fl 0 7l'U.• 25"Fl• 3.63 3.71 8313, -- -l 172 BOARD OF GOVERNORS OF THE F'E □ ERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 G. WILLIAM MILLER CHAIR MAN April 25, 1978 The Honorable William Proxmire Chairman Committee on Banking, Housing and Urban Affairs United States Senate 20510 Washington, D,C, Dear Chairman Proxmire: The enclosed financial data for state member banks for 1972-77 is an addendum to the data that the Federal Reserve submitted to you on February 27, 1978, in connection with upcoming testimony on the condition of the banking system, Similar data was originally furnished to you on a domestic-only basis by the Federal Deposit Insurance Corporation on March 3, 1978, We have compiled these data on a fully consolidated foreign and domestic basis at the request of Mr, Marinaccio, Special Counsel to the Conunittee, Sincerely, Enclosure https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis FINANCIAL DATA FOR STATE MEMBER BANl<S!/ 19"/2-77 Total Def2sits in Domestic Offices Question ~ N•anber of State Member Banks sa · To ,tal Equity & Debt capital Un $ aillions) !2.!:!!. 0-100 100-500 .!:!!.lli2!!. .!:!!.lli2!!. 500 Millionl Billion l-5 !!,_l~ over 5 Billion 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 1,092 l,076 l,074 l,046 1,023 1,019 963 948 950 915 884 887 90 89 85 90 100 94 19 16 15 16 17 17 16 17 18 15 14 6 7 7 7 7 7 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-7.7 10,937 11,690 12,472 13,121 14,653 14,946 1,575 1,704 l,870 1,880 1,898 2,010 1,641 l, 721 1,786 l,787 1,895 1,849 1,238 1,107 l,028 1,062 l,258 1,333 2,430 2,657 2,8!.2 3,042 3,052 3,012 4,051 4,498 4,974 5,348 6,54!, 6,741 6.64\ 6. 75\ 6.69\ 7.16\ 7.57' 7.54\ 5.34' 5.45\ 5.82\ 6.06\ 6.07' 5.99\ 4.50\ 3.en 3. 711 3.881 4.23\ 4.22\ 7.?5\ 8.221. 6.48\ 6.fl9\ 7.30\ 7.57\ 7.57\ 7.61\ 5.461 4. 79\ 4.52\ 4.721 5.23\ 5.28\ 14 ..... '-1 Sb Porcentage of Equit}'. capital to Total Assets 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 5,52\ 5,15\ 5,09\ 5,251 5,441 5.431 7.23\ 7.40\ 7.671 7.711 7.99'1> 8.12, 6,78i 6.90\ 7.251 7.26\ 7.29\ 7,26\ Sc p.,rcentage of Equity Capital to Total Deposi ta 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 6.60\ 6.301 6.20, 6,35\ 6.62\ 6.67\ s.12, 8.39\ 8,"/4\ 8.791 8.921 9,091 7.95\ 8.271 8.66\ B.57\ 8.391 8,43\ y a.so, 8.67\ 9,301 9.29\ The sou,=ces of the data contained ·in this submissi(?n are the Report of condition and the Report of Income. These consolidated reports inclu, both the dnmestic and foreign operations of state member banks. It is important to note that both reports u..'lderwent significant change between 1975 and l!l76, including changes in the definition of certain items included in this s,_issio.n. ·For these items, therefore, pre-1976 data may not confoa• to data for 1976 and thereafter, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ~ FINANCll\L DATA FOR STM'E MEMBER BANKS - 1972-77 (Continued) 0-100 Question 5d Se ~ Pe ,centage of Debt Capital to Total Capital Percentage of Total Ca,Pital to Total Assets Sf 5g Pe,1"centagc of Total Capital to Total Li;ibilitios Pe, centage of Total Capital t o Risk Assets 9a https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Total Loans (excluding Federal Eunds) (in , millions) Total ~ 100-500 Million 500 Millionl Billion l-5 over ~ 5 Billion 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 12.04' 10.12, 9.351 9.27\ 9.89\ 10.041 3.31\ 3.57\ 3.261 2.57' 2.24\ 2.471 5.36\ 5.34' 5.39\ 5.09\ 5.44' 6.011 11.10, 11.45\ 8.18\ B.77\ 9.10, 8. 771 12.87\ 10.90\ 12.87\ 12.31\ 12.321 12.001 17.91\ 13.651 11.311 11.40\ 12.41\ 12. 761 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 6.28\ 5. 731 5.62\ 5. 79\ 6.04\ 6.031 7.481 7.671 7.93\ 7.92\ 8.lB\ 8.331 7.17' 7.29\ 7.66\ 7.65\ 7.71\ 7.721 7.48\ 7.621 7.29\ 7.851 8.33\ 8.261 6.131 6.121 6.681 5.481 4.49\ 4.18\ 4.381 4.83\ 4.84\ 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 6. 77% 6.141 6.011 6.21, 6.43\ 6.42\ 8.16\ 8.391 8. 701 8.68\ 8.90\ 9.081 7.81\ 7.95\ ·8.391 8.37' 8.35\ 8.371 8.161 8.331 7.941 8.61\ 9.08\ 9.01' 6.60\ 6.591 7 .231 7.521 7.44' 7.31\ 5.851 4. 74\ 1.401 4.63\ 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 9.061 8.10, 7.641 8.30\ 8.87\ 10.57\ 10.55\ 10.621 11.01, 11.311 11.301 9.83\ 9.67' 9.901 10.251 10. 75\ 10.65\ 9. 73\ 9.56\ 9.161 10.141 10.831 11.04, 8.93\ 8.31' 8.61\ 9.39\ 9.77\ 10.151 1.23, .;. 731 S.941 6.63\ 7.42\ 7.36\ 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 91,837 112,244 125,039 120,0JO 125,774 128,778 10,511 11,556 12,407 12,177 12,017 13,119 11,744 12,722 12,925 12,379 12,544 12,617 8,960 8,294 7,839 7,499 8,097 8,853 20,829 24,275 24,547 23,588 22,486 21,395 3'1,792 55,l97 67,319 6,1,384 70,629 · 72,793 a.as, 6.92\ 6.93\ 6.81\ s.oa, 5.09\ ..... ~ ~ FINANCIAL DATA FOR ETA'l'E MEMBER BANKS • 1972-77 {Continued) 9b Percentage of Total Loans to Total Deposits 9c Percentage of Net Loan Losses · to Average Total Loans '1"01:al 30 Day Average Borrowings (in $ millions) lOa Pei:cantage of 30 Day n.ve~age 10b !orrowings to 30 Day Average Cepoaits Tot u Other Real Estate ( ln $ lll;illions) 12 ~!!-. ~ Question 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 1972 1973 1974 1975 1976 1977 0-100 100-500 !!lli.!2.!!. !!lli.!2.!!. 56.06\ 59.031 60.001 58,431 57.801 60,88\ 60.10 64.611 66.271 62.551 58. 791 61.181 64. 771 69.571 70.551 67.13\ 65.851 67.681 .161 .191 .361 .35\ .351 .10, .22, .231 .331 ,351 .26\ .33\ .561 • 751 .221 63-081 67 .381 68,581 64.081. 63.101 63,961 (a) .19i .211 .331 .581 ,68\ ,201 .611 .is, l-5 ~ over .a~ 63. 781 70. 11, 73.151 66.991 63.65\ 61.511 65.421 68,331 69.061 64.19\ 64,45\ 65.401 .211 .is, .2s, .331 .49\ • 761 .211 .181 .331 ,661 ,711 .231 12-31-72 (b) 12-31-73 {bl l2-31-74(b) 12-31-75 (bl 12-31-76 6-30-77 24,295 24,691 277 330 1,063 1,182 1,278 l,_,64 4,895 5,153 16,781 16,561 12-31·72(b) l2-31-73(b) 12-31-74(b) l2·31-75(b) 12-31-76 6-30-77 12.941 12. 791 1.341 1.53' 5.071 5,781 10,751 11,571 14.371 15,07' lG.741 15.9_01 82 83 210 467 691 714 15 16 21 31 29 32 23 15 29 64 76 61 12 18 35 37 61 80 4 12 36 117 141 128 12-31-72 12-31•73 12-31-74 12-31-75 12-31-76 6•30-77 """ '-l C}1 (a) 1977 net loan loss and net income data are for only the first half of the year. data for 1972-76. (b) Data weru not collected for this period. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis .so 500 Millionl Billion 25 20 88 217 381 411 Therefore, these :ratios are not camparable to the annual FIIIANCIAL DATA FOR "TATE ME!mER BANKS - 1972-1977 (Continued Question Ua llb 13c 15 (&) ~ ~ Percentage of Net Income to Average Total Assets Percentage .of Net Income to Average Bqui ty c,.pi tal P. ,rcentage of Net Interest llariJin · to Average Baming Assets Tt,tal Standby Letters of Credit (in $ millions) 1972 1973 1974 1975 1976 1977 1972 1973 1974 1975 1976 1977 1972 1973 1974 1975 1976 1977 (al (a) (c) (a) (c) 12-31-72 (b) 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 0-100 ~ 100-soo ~ 500 Million1 Billion l-5 ~ over S Billion .66\ .68\ .611 .se, .581 .29, ,871 .93\ .86\ .861 .93\ .531 .861 .aa1 .1n .ea, .771 • 771 .421 .821 • 791 ,811 .371 ,62\ • 70\ .621 .591 .59\ .281 11.s:a 12.68\ 12.1s, 11.151 10.53\ 5.291 11,82\ 12.611 11,281 11.081 11.521 6.45\ 12.461 12.80\ 11.981 10.64\ 10.311 5.80\ 10.521 13.091 12.os, ll.471 10.491 4.89\ 11.40\ 12.40\ 11.111 9,811 9,551 4.561 11.34' 12. 741 13.201 12.071 10. 751 5.161 • 2.99\ 3.081 3.071 3.061 3.711 1.81\ 3.501 3,79\ 3.92\ J.851 J.98\ 2.02, 3,581 3.691 3.99\ 4.031 4.121 2.11, 3.481 3.501 3,851 3.801 3.921 1.951 . 2.831 3.10, 3.08\ 3.26\ 3.711 1.801 2.s11 2.s2, 2.481 2.431 J,S'-1 1.67\ 1,731 2,501 3,299 3,986 4,805 14 24 23 19 27 68 85 91 93 104 298 254 415 420 466 1,230 2,032 2,683 3;363 4,131 1977 nt:t income and net interest margin data are for only the first half of the year. .es, 119 103 86 69 76" .54' .52, .49\ .461 .461 .221 Therefore, these ratios are not comparable to the annu~l data for 1972-76. (b) Data wtre not collected for this "period. (cl Major thanges in the measurement of net interest margin substantially increased the ratios for large banks and the l;otal for 1976-77 compar•d to 1972-75. · · https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis I-' ---t o:i 177 FEDERAL DEPOSIT INSURANCE CORPORATION. Washington. a. c. 20429 OFFICE OF THE CHAIRMAN April 27, 1978 Honorable William Proxmire, Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D. C. 20510 Dear Mr. Chairman: On March 3, 1978, we sent you various information in response to your request regarding the condition of the banking system. Enclosed is a revised Exhibit A-1 to that previous submission, The revised exhibit presents report of condition and report of income data for State nonmember commercial banks using consolidated domestic and foreign statements. The previous report used domestic data only. In addition, we are now able, in the revised attachment, to give you year-end 1977 figures as opposed to the mid-year 1977 figures submitted previously. It is our understanding that the Comptroller of the Currency and the Federal Reserve Board will also be submitting revised exhibits to you for the banks under their supervision. Sincerely, 4ru:o11~ George A. LeMaistre Chairman Enclosure https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis STATE NONI-IF.'iBER CO!-ll!RRC!AL HANKS 1972 - 1977 Total Deposits ~ I < t:., .,~ ~ Ouestirin Total 0-100 l!Hlion 100-500 Million 500 Million1 Billion 1-5 Billion Over Billion Number of Banks 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 8,036 8,248 8,473 8,624 8,6RO 8,773 7,887 8,070 8,271 8.392 8,411 8,449 130 159 1R2 210 243 296 18 17 17 19 15 13 1 2 3 3 11 15 0 0 0 0 0 0 Sa Total Equity & Debt Capital (in millions) 12-31-72 12-31-73 12-31-74 12-31-7 5 12-31-76 12-31-77 11,395 13,387 15,358 16,975 18,769 21,391 8,444 9,709 11,034 11,982 12,976 14,379 1,859 2,386 2,904 3,316 3,805 4,785 1,014 1,129 1,129 1,318 882 721 78 163 291 359 1,106 1,506 0 0 0 0 0 0 Sb Percentage of Equity Capital to Total Assets 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 7 .3% 7. 3% 7 .6% 7 .6% 7 .5% 7 .31. 7 .6% 7. 7% 8.0% 8.0% 7 .9% 6,8% 6. 7% 6.81. 6.9% 6.9% 6. 7% 6.0% 6.2% 6.1% 6.4% 5. 7% 5.9% 5.1% 5. 3% 5.6% 5.5% 5.9% 5.4% 0 0 0 0 0 0 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 8.1% 8.2% 8.6% 8.6% 8.4% 8.2% 8.4% 8.6% 9.0% 9.0% 8.9% 8.8% 7. 7% 7. s,: 7 .9% 7. 9% 7. 9% 7 .6% 6.9% 7 .2% 7. 3% 7 .5% 6. 7% 7.0% 6.0% 6.1% 7 .6% 7 .3% 6 .6% 6. 2% 0 0 0 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 5.1% 5.9% 5.4% 5.3% 5,5% 6.0% 2.9% 3.3% 3.1% 3.1% 3.0% 3.3% 9.0% 10.0% 9.5% 8.2% 8.0% 8.6% 15.5% 17 .1% 15.2% 14.6% 17. 7% 14,1% 16 .0% 19. 9% 17 .3% 17 .6% 17 .3% 19.4% Sc 5d https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Percentage of Equity Capital to Total Deposits Percentage of Debt Capital to Total Capital a.or. 0 0 0 0 0 0 0 0 0 - ~ 00 STATE NONMEMBER CO'IMERCIAL RANKS 1972- 1977 (Continued) ~ I < !::: s."' w Question 5c Percentage of Tntal Capital to Total Asset fl: Sf Percentage of Total Capital to Total Liabilities 5g Percentage of Total capital to Risk Assets 0-100 100-500 ~ Totnl ~!} lion Million 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 7.77. 7 .8% 8.0% 8.07. 7 .9% 7 .87. 7 .87. 8.07. 7 .5% 7 .4% 7 .5% 7 .5% 7 .5% 7 .4% 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 8.3% R.3% 8.3% 8.37. 8.27, 500 MillionI Rill ion 6.9% 6.8% 0 0 0 0 0 0 7. 7% 8.1% 7 .8% 8.3% 7 .4% 7 .3% 6.5% 7 .1% 7 .2% 8.5% 7.6% 7.1% 0 0 0 0 0 8.8% 9.1% 9.0% 9.1% 9.3% 9.0% 0 0 0 0 0 0 8.1% 8.0% 8.1% 8.17. 8.5% 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 10. 7% 10.4% 10.67. 10.9% 10.8% 10.5% 11.1% 10.9% 11.1% 11.3% 11.3% 10.9% 10.0% 9.5% 9. 7% 10.1% 10.1% 9.8% 9.3% 9.5% 8,8% 9.5% 9.4% 9.0% 8.7% 8.8% 8.6?. 8.1% 7 .9% Over 5 Billion 6.1% 6.61, 6. 7% 6.7% 7 .11. 6.6Y. 7 .1% 7. 57, 7 .2% 7. 5% 8. 5% 8. 7% 9.0% 9.0% 9.07. 8.9% 8.5% 1-5 _!Ulion 0 9a Total Loans (excluding Federal funds) (in millions) 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 76,418 91,242 103,218 111,344 125,492 150,443 53,804 62,664 69,107 74,431 82,712 96,273 13,753 18,377 21,968 23,565 26,724 35,322 8,171 8,763 9,745 10,301 6,883 5,904 690 1,438 2,398 3,047 9,173 12,944 0 0 0 0 0 0 9b Percentage of Total Loans to Total Deposits 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 57 .5% 59, 7% 61.31. 59.5% 59,5% 61,5% 55.3% 57, 3% 58.2% 57 .4% 58.3% 60, 7% b2.2% 64.6% 65.8% 61.5% 60.2% 61.3% 65.8% 67 .6% 73,8% 68 ,2% 63,6% 66, 7% 62.6% 67 ,2% 75. 71. 75.1% 66,4% 65.8% 0 0 0 0 0 0 9c Percentage of Net Loan Losses to Average Total Loans 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 ,2% ,2% .4% .5% . 5% .4% .2% .2% ,2% .3% .51. .6% .4% ,3% ,2% .4% .6% .6% 1.07. .1% ,3% .3% .2'.': • 5~ 0 0 0 0 0 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis .z:r. .4% .4% . 5% .3% .sr. 0 f--' " ~ STAT!': NONMEtlllER COMMF.RCIAL BANKS 1972 - 1977 (Continued) Tota]: Million 100~500 '1illion 0-100 ~ I < i:: e'; Date _Q_~:_!~C?~ 500 Million1 Billion ]-, Bill~on Over Billion 10a Total 30 Day Average Borrowings (in millions) 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 1,281 2,050 3,236 3,194 3,672 4,799 428 809 1,082 976 941 1,165 331 599 1,254 1,471 1,599 1,984 437 547 667 662 829 789 85 95 233 85 303 861 0 0 0 0 0 0 !Ob Percentage of 30 Day Average Borrowings to JO Day Average Deposits 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 1.0% 1.3% 1..9% 1.7% 1.8% 1.9% .4% 3. 5% 4.2% 5 .1% 7.7% 4.4% .9% .87. • 7% • 7'!. 1.5% 2 .1% 3.8% 3.8% 3 ,6% 3.1% 8.6% 2.1% 2.0% 4.4% 0 0 0 0 0 0 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 127 152 226 410 508 541 102 118 168 259 289 280 17 23 40 115 169 180 8 8 12 30 34 40 0 3 6 6 16 41 0 0 0 0 0 0 0 0 0 0 0 0 :r: ..," 12 Total Other Real Estate (in millions) • 7% 4.4% 7 .8% 7 .4% 13a Percentage of Net Income to Average Total Assets 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 .9% 1.0% .9% .8% .9% ,9% .9% 1.0% 1.0% .9% .9% 1.0% .9% .9% .8% • 7% ,8% .8% .9% .8% .8% .9% .6% • 4% .4~ .6% .87. .4% • 7% .8% 13b Percentage of Net Income to Average 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 12,0% 13.0% 12 .2% 10.9% 11.1% 12.0% 11.5% 12.9% 12.2% 10.9% 11.3% 12.1% 13.4% 13.6% 12.0% 10. 5% 10.8% 12 ,2% 14 ,8% 13.1% 12.1,% 13. 7% 9. 5% 6.5% 7 :87. 12. 7% 13.9% 6. 2% 12.1% 13, 7% Equity Capital https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 0 0 0 0 0 0 ..... 00 0 STATE· NONMEMBER COMMERCIAL BANK~ 1972 - 1977 (Continued) Date 15 Total 0-100 Million 100-500 Million .or, 500 Million1 Billion 1-5 Billion "ercentage of Net Interest Mar1tin to Average Earning Assets 12-31-72 (a) 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 .0% 4.07. 4.1% 4.07. 4.2% 4.2% 4.0% 4.2% 4.0% 4.1% 4.2% .07. 4.1% 4.0% 4.n 4.3% 4.3% .0% 3.4% 3. 7% 4.6% 3.5% 3.3% .0% 6.4% 4.9% 2.2% 4.8% 5.1% Total Standby Letters of Credit (in millions) 12-31-72(8) 12-31-73(a) 12-31-74(a) 12-31-75(8) 12-31-76 12-31-77 0 0 0 0 1,635 938 0 0 0 0 256 282 0 0 0 0 1,163 281 0 0 0 0 63 74 0 0 0 0 153 301 Over 5 Billion 0 0 0 0 0 0 0 0 0 0 0 b ...... ...... 00 (a) Data not collected for this period, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 182 THE LIBRARY OF CONGRESS Congressional Research Service WAIIIINGTON, D.C. 205«> May 22, 1978 TO The Senate Committee on Banking, Housing and Urban Affairs Attention: Lindy Marinaccio FROM Economics Division SUBJECT Definition of ''Net Interest Margin as a Percent of Average Earning Assets." The ratio ''Net Interest Margin as a percent of Average Earning Assets" is derived from banks' reports of income and condition. It can be generally described as the difference between interest income and interest expense divided by average total assets. In greater detail, however, "Net Interest Margin as a percent of average Earning Assets" is one hundred times the fraction the denominator of which is the sum of the following items, 1/ interest and fees on loans, interest on balances with banks, income on Federal funds sold and securities purchased under agreements to resell in domestic offices, interest on U.S. Treasury securities, interest on obligations of other U.S. Government Agencies and corporations, interest on other bonds, notes and debentures, Y Definition supplied by Dr. Konstas, Federal Deposit Insurance Corporation. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 183 dividends on stock, income from direct lease financing; less the sum of the following items, interest on time certificates of deposit of $100,000, or more issued by domestic offices, interest on deposits in foreign offices, interest on other deposits, expense of Federal funds purchased and securities sold under agreement to repurchase in offices, interest on other borrowed money, interest on subordinated notes and debentures; and the denominator of which is the average of total assets as of five points in time, the ends of the previous year, the first, second and third quarters and the end of the year for which the fraction is being computed. As you will have noted, this fraction does not reflect the operating expense incurred as a result of lending activities nor does it reflect the tax status of interest received. As such it is of limited usefulness in comparing different banks which may have a different mix of assets in their investment portfolios. Curtiss Martin Analyst in Money and Banking cbf https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 184 WILLIAM P1IOXM111&', WIS., CHAIRMAN JOHN -AIIICMAN, AL.A. HAIIIHSDNA. WILI.IAMS1 JR,, N.J. 'THOMAS J, MC IM'l'YRE,. N.H, AL.AH CRANSTON. CALI .., ADLAI IE. ST£YENS0N, ILL. IIOIIEIIT MOftGAH. N.c. DONALD W, 1111:GLE. ,HI .. MICH. IEDWAl'HI W. UOQICllf, MASa. JOHN TOWIEA, TDC. JAICII GARN,, UTAH H, .JOHN H£1NX HI, PA. RICHARDO. LUGAlt, INO, llARIIISON SCHMITT, N. MEX. PML•.~MD,, COMMITTEEONBANKING,HOUSING,ANDURl!IANAFPAIRS KDltlffH A, MC LEAN, STAl"P' DUl£CTQII JQIEMIAH ■, aucKLEY, MtNORITY STAI¥ DIIIECTOlt NARY P'RANCl!.S DE LA PAYA, CHIU CLEIIIIC. WASHINGTON, D,C, 20510 December 15, 1977 The Honorable Arthur F. Burns Chairman Federal Reserve System The Honorable George LeMaistre Chairman · Federal Deposit Insurance Corporation The Honorable John Heimann Comptroller of the Currency Gentlemen: Pursuant to Chairman Burns' suggestion, last March this Committee held its first periodic hearing on the condition of the banking system, This Committee found the record developed during those hearings to be most useful in its legislative and oversight functions. I believe that it would be in the public interest to continue such hearings on the condition of the banking system at least once in each year. Accordingly, sometime in March 1978 this Committee intends to conduct the Second Hearing on the Condition of the Banking System. In preparation for the hearings, I suggest that the following statistical data be supplied to the Committee separately stated for national banks, state member banks, bank holding companies and insured non-member banks for banks with deposits of over $5 billion, $1 billion to $5 billion, $500 million to $1 billion, $100 million to $500 million, and $50 million to $100 million. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 185 1) A list of each category of banks and problem banks utilized by each of your agencies in the exercise of regulatory or supervisory jurisdiction, along with a detailed description of the characteristics which are considered in categorizing any particular institution into each such category. Pertinent copies of rules or manuals should be supplied. All additions and deletions to such categories utilized during the past five years should be specifically set forth. 2) The number of banks which each of your agencies placed in each such category as of January 1, 1976, July 1, 1976, January 1, 1977, July 1, 1977, and January 1, 1978 along with the combined assets and combined deposits of all such banks in each such category (including of course, composite categories 3 and 4 which are the problem bank categories). 3) The number of banks moving into and out of each category on each date along with their total assets and deposits. 4) The number of days institutions in each category borrowed from the Federal Reserve and the amount of their average daily borrowings. State the purpose of such borrowings, including whether such borrowings were primarily undertaken for supervisory purposes. 5) The total equity and debt capital of all such banks. Further, equity capital expressed as a percentage of total assets and total deposits; debt capital expressed as a percentage of total capital; total capital expressed as a percentage of total assets and total liabilities (exclusive of capital}; and total capital expressed as a percentage of risk assets. 6) A statement of the policy and procedures of each of your agencies which insure compliance by banking institutions with the terms of disciplinary standby agreements entered into by foreign countries with the International Monetary Fund. Copies of manuals or rules should be supplied along with a sampling of such IMF agreements and a list of all countries in which such agreements are in effect. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 30-476 0 • 78 - 13 186 7) Aggregate assets classified by examiners as substandard doubtful, loss and specially mentioned along with the average assets classified by examiners for banks in each category including a separate breakdown for domestic and foreign- operations. 8) Classified assets expressed as a percentage of total capital in the aggregate and averaged for banks in each category including a separate breakdown for domestic and foreign operations. 9) Aggregate loans made by banks in each cateogry along with the loan to deposit ratio's of banks in each such category; and the ratio of net loan losses to total loans including a separate breakdown for domestic and foreign operations, separately stating data for countries under disciplinary standby agreements with the IMF. 10) The average overnight borrowings of banks in each category (including Federal funds) along with the percentage of gross borrowings to deposits. 11) Aggregate securities held by such banks (stated for local,· state and Federal) along with the acquisition value and market values of all such securities. 12) The dollar volume of property held by such banks as a result of unpaid loans along with the amount of loans originally extended on such property and the current market values of such property and the valuation of such properties on the books of such banks. State whether such property has been held for 1, 2, 3, 4, or 5 years. 13) Aggregate income for banks in each such category expressed as a percentage of assets including a breakdown for domestic and foreign operations. to: 14) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis State the volume of loans made by such banks 187 a) officers, b) directors, c) stockholders holding 10 percent or more of the stock of such banks, and d) companies which are owned or controlled by any such individual under (a), (b), (c) and loans to their families.· 15) The dollar volume of commitments undertaken by such banks including, and separately stating, a figure for standby letter of commitments. 16) The number of cease and desist cases reconnnended by examiners and the number of cease and desist actions undertaken under the Financial Institutions Supervisory Act of 1966 against (a) banks and (b) individuals with a short description of eac_h. 17)- The number of violations of law uncovered by examiners, the laws violated and the actions undertaken to cure the violations. 13) The number of banks which failed along with their total assets and deposits and a description of the specific causes of failure in each case. The name of each failed bank should be supplied. 19) The number of banks which were the subject of mergers or holding company acquisitions to avert a failure or for some other supervisory reaso.n. Supply the total assets and deposits of such banks along with their names and the specific deficiency in each case. · I suggest that the oversight hearing on the health of the banking system be held in the first quarter of 1978, as soon as practical after the data requested herein becomes available. During the interim our respective staffs should review the matter together with the idea of developing additional data which further analysis may show to be valuable to make the hearings complete. I would appreciate https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 188 your staffs contacting Mr. Lindy Marinaccio, Special Counsel to this Connnittee, at an early date in this regard. Coordination among all three agencies will ensure a standard reply format. I understand that the FDIC has on its computer much of the data requested herein for all banks. A single reply prepared by the FDIC from its data may facilitate the standard format. Much of this information was supplied last year and needs only to be updated. In supplying the information, I suggest that separate replies be made to each question setting out data going back five years so that trends and comparisons may be made. I thank you in advance for your cooperat_ion with the work of this Connnittee on these hearings: ··) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Sincer7ly, ________./,- ~ ~ / -· ;,tYJ;l}/~tt1 0 (,;t;=f.' Wl. ham roll ~r~( / , · / /V'/ Chairman r / r 189 SOARD OF GOVERNORS D,-THE FEDERAL RESERVE SYSTEM WASHINIITDN. a. c. aoss, D. WIU,IAM MIL.LIER" CNAIIINAN June 9, 1978 'l'be Honorable William Proxmire Chairman C011111ittee on Banking, Housing and Urban Affairs United States Senate Washington, D. C. 20510 Dear Chairman Proxmire: In response to your letter of May 25, enclosed are my responses to the written questions you submitted for inclusion in the record of the hearing on the condition of the banking system held on May 25, In my view these are very important and useful oversight hearings which complement the legislative responsibilities of your C011111ittee. Best regards, Sincerely, Enclosure https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis r 190 The following are the statements and questions posed in Chairman Proxmire's letter of May 25 in connection with the hearings held on that day on the condition of the banking system and Chairman Miller's responses: Chairman Proxmire: You point out correctly that bank capital ratios have declined steadily since World War II. Bank capital among the larger banks has dropped most precipitously. You also point out that banks have relied principally on retained eamings to build up their capital. Obviously this source of funds has not been adequate. Question: Shouldn't banks be encouraged by the regulators to go to the equity capital markets even if it results in dilution of ownership? What is the primary duty of the regulatory agencies: to protect the public or to protect existing stockholder patterns? Answer: The Board believes that banks should maintain adequate capital in order to assure the maintenance of a sound banking system. Accordingly, the Board in recent years has encouraged numerous banking organizations to raise equity capital. During 1976 and 1977 banking organizations raised substantially more equity capital than during any two-year period for which we have records. While the Board w~ll continue to encourage banks to build up equity capital in order to support asset growth, there are practical limits to how much equity banks can be expected to raise so long as market conditions remain unfavorable. If banking organizations are forced to raise very large amounts of equity at unfavorable prices, investors will become increasingly disillusioned in bank stocks. !his development would raise the cost of equity capital even higher than at present, making it all the more difficult for banks to build. up capital. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 191 Chairman Proxmire: In discussing the Fed membership problem on Page 6 of your statement, you note that bank deposits held by member banks has dropped from 77 percent to 72 percent. You make the argument that implementation of monetary policy becomes more difficult as the Fed loses members. Question: ·What is the rock bottom percent of bank deposits that must remain Fed members in order for implementation of the Fed's monetary policy to remain viable and effective? ~: It is difficult to give an exact percentage of bank deposits held by nonmembers that will render monetary policy ineffective. It is clear, however, that the effectiveness of policy declines as the percentage rises. For example, as the per cent of deposits held by nonmembers rises the relationship between bank reserves and bank deposits weaken. Unexpected deposit flows between member and non- member banks create heightened variability in the money·stock. For example, deposit flows from member banks to nonmember banks tend co increase nonmember reserves in the form of correspondent balances. On the basis of such increases in balances of nonmember banks, these institutions can expand their deposits. As a result, the linkage between member bank reserves--which the Federal Reserve can control-and the money stock is weakened. Staff research suggests that the influence of nonmember banks will result in an error of monthly growth in M-1, given bank reserves, within a range of about 4 percentage points (annual rate) two-thirds of the time--and within a range of about 8 percentage points 95 per cent of the time--ac the present-day .72 ratio of member to total deposits. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis A continuing reduction in this ratio 192 produces a continuing increase in the M-1 error. For example, when the ratio is .S, the range of M-1 error is approximately 7 percentage points two-thirds of the time; when the ratio is .3, the M-1 range of error equals 9-1/2 percentage points. If all member banks with deposits less than $2 billion were to le.ave the System, the ratios of member to total deposits would be about ,S, Declining membership also means tha.t more banks lose their ready, direct access to the discount window, Such access tends to cushion the impact on the banking system of a tightening monetary policy by providing individual banks with time to undertake orderly adjustments of their loan and investment policies, Thus, the more banks that are outside the System, the gr~ater the chance of an undesirably sharp and disruptive response to monetary tightening and, therefore, the more difficult and complex is the process of restraining monetary growth. FOLLOW-UP ON MEMBERSHIP Chai:rman Proxmire: You state that erosion of Fed membership threatens to weaken the financial system. You make several points to1which I would like to question closely for the record. Question (1): You point out that more and more of the 1!1ation's payments and transactions are handled .outside the "safe" channels of the Federal Reserve, Are you charging that private inter-bank clearing systems are not "safe" and that the government needs to retain a monopoly on the payments system? Wouldn't separate pricing for Fed services encourage private systems and result in greater efficiency? ~: The present payments system, including private inter-bank clearings, is quite safe. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Federal Reserve System 193 does not now poaaeaa a monopoly in the payments system, and there is no apparent need for the Government to create such a monopoly to main• tain a safe system. But the safety to the system is enhanced because the Federal Reserve has a considerable operational presence in the payments system. This avoids "pyramiding" of correspondent balances as well as other sources of possible instability. Reserve balances held at Federal Reserve Banks are used by member banks to settle for their daily transactions and for the transactions of their respondent bank customers. If reserves were not able to serve this function, balances would have to be held with correspondent banks for this purpose. This settlement function is more efficient the more respondents are served by a single, ~arge correspondent. there is a tendency for "pyramids" of banks to form. Thus, Insolvency of an important bank at or near the apex of such a pyramid would immobilize the settlement balances of numerous banks lower in the pyramid, which could lead to dangerous illiquidity for these respondent banks. There, of course, is no such risk of insolvency when settlement balances are held at Federal Reserve Banks. Federal Reserve clearing channels are in this sense inherently "safer". Settlement balances at a correspondent bank simultaneously serve the additional purpose of compensating the correspondent for operational services provided to the respondent bank. 'lhe operational role of the Federal Reserve in the payments system parallels this https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 194 practice, providing some inducement for conmerciar banks to hold risk-free settlement balances at Reserve Banks. Another portion of reserves held serve to compensate for operational services provided by the Federal·Reserve Banks in the same way that correspondent balances do. However, reserves required of member banks are almost twice as large as would be required by a correspondent bank for settlement and compensation purposes. Pricing of Federal Reserve services can be expected to promote greater efficiency in use of payments services generally, since users will have an explicit cost basis for judging the value of Federal Reserve services relative to alternative sources or relative to the return to the user on these services. But while pricing of services will work toward a more efficient payments mechanism, the Federal Reserve must also give due regard to the need to maintain a satisfactory basic level of services for the nation as a whole. Question (2): You point out that a national presence in bank supervisory and regulatory functions becomes diluted as the Fed loses members. But isn't it true that the FDIC still insures these banks and thus a national presence is retained? ~: Federal Reserve supervisory interest in, and regulation of, member banks extends beyond an interest in ensuring that depositors below a certain size do not suffer losses. The Federal Reserve is responsible for ensuring that the nation's payments media are "elastic", functioning efficiently and effectively https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 195 to support the nation's commerce. The Federal Reserve takes action both through regulation and through its operational presence in the payments mechanism to further this goal. And the Comptroller of the Currency, of course, charters and supervises national baolts, which also must be members. Elimination of both the Federal Reserve and the Comptroller clearly dilutes a national presence. Moreover, the Federal Reserve's "national presence" in bank supervisory and regulatory functions cannot be readily separated from its job of conducting national monetary policy. Regulatory changes can have important implications for monetary policy-for example, rules that require banks to raise their capital ratios increase the demands on capital markets by banks and may also slow the rate of growth of bank credit, or reduce the availability of bank funds to particular borrowers. In general, a Federal regulatory policy involving both the Federal Reserve and the Comptroller promotes a more equitable and balanced baolting structure and also fosters more effective coordination of monetary and regulatory policies. Question (3): You point out that fewer the Fed's discount window. But FDIC insurance is depositor. Loss of access to the discount window because banks could exert greater self-discipline such [protection) access. ~: banks have access to there to protect the may be a net benefit on themselves without FDIC deposit insurance serves somewhat different purposes from those of the Federal Reserve discount window; both are necessary for maintaining a safe and efficiently functioning banking https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 196 system. Deposit insurance protects the deposit customer, especially ■maller, unsophisticated depositors. In addition, and in a manner similar to that of t~e discount window, deposit insurance acts to promote general confidence in the banking system, thus reducing the possibility that difficulties at one bank will lead to a general "run" on all banks. In contrast to deposit insurance, however, the discount window is concerned to a large extent with ensuring the continued smooth operation of the banking system by providing adjustment credit and easing the effects on individual banks of macro-economic stabilization actions. First, the discount window provides member banks with a source of funds to meet unexpected withdrawals or demands for credit. 1'his "adjustment credit" ensures that ordinary, though unpredictable, flows of funds throughout the economy do not threaten the stability of the banking system. In addition, of course, the window provides adjustment credit when extraordinary events occur in the economy, as in the case of the Penn Central bankruptcy. Deposit insurance does not provide such a source of funds, and, therefore, it cannot be expected to substitute for the discount window in these situations. The second major role of the window is to provide individual banks with liquidity at those times when general stringency exists https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 197 in the credit markets, By borrowing at the window a bank can temporarily relieve sane of the liquidity pressure and will gain time to make orderly adjustments in its lending policies; thus access to the window provides a "safety valve" for individual institutions. Deposit insurance cannot serve this purpose. It is important to note that the private market cannot easily perform the discount window's functions. For example, for a bank suffering a liquidity crisis, alternative forms of short-term credit, such as Fed funds, may become unavailable at precisely the time they are needed most. The private market is not able at the present time to provide substantial amounts of liquidity to troubled institutions. And in times of general stringency, the private banking system may be incapable of mobilizing the needed amount of funds, Finally, in administering the window, it is not the Federal Reserve's objective to protect a bank's creditors or shareholders from I the consequences of unwise management decisions and thereby reduce the bank's incentive to exert self-discipline. Of course, in the absence of a facility providing adjustment credit and affording a way for an individual bank to obtain relief from the most serious consequences I of tightening credit, banks would have to be somewhat more cautious, conservative, and more liquid than they now are. Such conservative behavior, however, would not be clearly a net social benefit. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Banks 198 would probably hold more idle reserves, and would.be eompelled to pass up some lending opportunities that seemed unduly risky under the circumstances; loans to small businesses might well be a disproportionately large share of these opportunities. Moreover, banks would invest a greater portion of their assets in Treasury and other readily marketable securities, thereby reducing the proportion of assets lent in their c011111unities for housing, business development, and other purposes that customarily involve longer-term loans or loan commitment. There- fore, we believe that, on net, the window protects the public interest by minimizing possible harm to the local and/or national economy, and to the payments mechanism, that can stem from the illiquidity of individual banks. Question (4): You point out that implementation of monetary policy becomes more difficult. But uniform reserves for all banks for monetary policy reasons need not carry with it Fed membership and Fed supervision and regulation. Answer: Universal reserve requirements would be a significant step toward improving the Federal Reserve's control over the monetary aggregates, particularly if all required reserves were held in the form of deposits with the Federal Reserve or currency and coin, as is currently the case for member banks. Nevertheless, Federal Reserve membership would still be important since direct access to the discount window tempers the impact of monetary disturbances on the monetary aggregates and the availability of bank credit and may at some point https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 199 aid in averting a monetary crisis. Moreover, a Federal Reserve presence in the payments process is vital for assuring a stable payments mechanism and in reducing the likelihood of disruptions occurring which could adversely affect the monetary aggregates and bank credit. Questions: You've stilted that "a few countries are having difficulty servicing their debts to u. s. banks," but actual defaults have been rare. Has Zaire defaulted on its debt to u. S. banks, that ia, are there delinquencies on payments? Peru? Turkey? Zambia? Jamaica? Gambia? What troubles me is that in many cases countries use the risk of default, and even actual non-payment, to extort new credits or restructure existing credits. Some of these countries are running a giant Ponzi scheme, getting ever larger loans to repay loans, but there is almost no incentive for the banks to avoid what are essentially bad loans. Bow do the banks carry·credits to Zaire, Peru, Turkey and these other countries on their books?' Are they required to write off or write down these loans when payments are delinquent? Are the.banks required to tell their stockholders about loans which are not paid on time? Do the Federal bank regulatory agencies classify assets which are not paid on time? How do you treat restructured credits? How about the arrearages in Zaire? ~: It is a well-publicized fact that ·zaire has been unable to meet the payments on most of its external debt to banks. The other countries mentioned (except Gambia) are also having economic difficulties affecting their ability to service external debt, but the seriousness of those difficulties varies widely. In appraising country risk situations it is important to remember that, regardless of the overall condition of the country, the ■ tatua of individual credit within that country may differ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 200 aignific-tly. Countries always have some foreign exchange coming in which can be allocated to repaying their debts. Thus, depending on a country's prior~ties, some foreign debts may be serviced promptly while others are allowed to become past due. Also, some borrowers may have external income with which to service their foreign currency debts. While countries, like individual borrowers, may use the threat of default to-obtain relief from their creditors, there is no indication that banks are gr-ting ever increasing amo~nts of credit to countries which are experiencing difficulties. December 1977 data show that outstandings to the countries mentioned were either about the same or below the amounts outstanding in June 1977. Moat countries experiencing difficulties are in the process of negotiating with commercial bank creditors, the IMF, and official creditors in order to resolve current difficulties and service their outst-ding debts. In these negotiations, banks have been insisting upon the eatablis~nt of an IMF stabilization agreement and maintenance of eligibility to draw on an IMF se-d-by facility as a precondition for a general restructuring of outstanding credits or gr-ting 1-. new For example, in the lilase of Zaire, major banks have offered the country a credit to finance essential imports conditioned upon: (1) eligibility to draw upon higher credit tranches from the IMF; -d (2) elimination of arrearages of interest and principal on outstanding credits made by lending banks. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 201 'l'be -y banks carry credits on their books ·is related to the performance of the individual credit and since, as noted abovt;, individual credits to countries vary in this regard, it is not possible to give specific details on the status of current credits. In general,· however, banks do not charge off their outstanding loans until a portion of them are deemed uncollectible. Nevertheless, when some loans are in a troubled status, a bank may as a precaution raise the amount of loan loss reserves it sets aside to cover future loan charge-offs. Most banks also have a procedure whereby, if pay-· ments on a loan are more than a certain number of days past due, interest on the loan is no longer accrued. When credits are placed in such a non-accrual status, previously accrued interest is reversed and interest is only taken into income when payment is actually received. SEC guide 61 requires that loans more than 60 days past due be reported to shareholders as "non-perfoming credits". An example of the information disclosed to investors is shown in the enclosed excerpt (Attachment 1) from a prospectus filed by BanCal Tri-State Corporation. When a country is not meeting the terms of its bank loans or when a disruption in payment seems imminent, Federal Reserve examiners have been instructed to carefully review lending to that country to detemine whether credits should be criticized or classified. 30•476 0 - 78 - 14 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis However, examiners do not automatically classify 202 credits, public or private, domestic or foreign, simply because payment is delinquent. At the same time, the fact that a loan is current does not exempt it from c~assification. Rather, payment status is one of several factors an examiner takes into consideration in looking at the circumstances of each loan and each borrower to determine whether a loan exposes the bank to undue risk. tiated credits. This also applies to renego- Here though, if a loan has been renegotiated because a borrower was unable to service the loan, an examiner would be biased in favor of classification unless there was evidence of changes that indicated that the borrower would be able to service the new loan. It is not Federal Reserve practice to disclose individual loan classifications. However, examiners have in the past and con- tinue to classify some credits to public or private residents of certain countries because of transfer risk arising from the country's apparent inability to generate the foreign exchange necessary to service its foreign debts. Question: You've noted the reduced spreads between the cost of funds and international loans -- so-called "Eurocredits" -why are banks continuing to make loans when the spreads are so low (5/8 percent)? Do we have a case where the banks are full of money deposited by OPEC countries and faced on the other side with demands from LDCs which the banks for political reasons cannot resist? ~: Declining spreads - Absence of strong demands for bank credit from borrowers in major industrial countries combined with aggressive competition for international loan business from https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 203 foreign banks have been important factors in the rece.nt decline in spreads on syndicated Eurocurrency credits. Many U.S. banks have resisted these declines and have been reluctant to participate in loans to foreign governments that carry spreads below certain minimum levels. Govemor Wallich has recently made·a speech in which he com• mented on developments in loan spreads on E~rocurrency credits. (Attachment 2) There is no direct link between OPEC deposits and the decision·by"banks to participate in credits to borrowers in LDCs. Banks have numerous sources of liquidity including deposits and funds obtained from interbank markets. MoreoveT, banks have a wide range of eaming assets in addition to loans to developing countries, and it is not possible to "pair up" particular assets in any tiank's portfolio with any specific source of funds. Chairman Proxmire: There has been increasing tendency for large multinational corporations to place deposits with off-shore banking centers. Such deposits evade Federal Reserve reserve requirements, and the deposits are not included in your measured money stock. Question: Can you accurately measure and monitor the shift of funds between domestic banks and off-shore branches or subsidiaries? I Are those funds completely or only partially outside of the Federal Reserve's controls? Answer: The Federal Reserve collects reports from foreign branches of member banks that include adequate information on their loans to and deposits from U. s. customers, and the Federal Reserve https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 204 places reserve requirements on deposits of foreign branches of member banks to the extent that these deposits are used to fund U. s. customers, including the domest~c offices of the same bank. In comparing domestic monetary aggregates with dollar deposits held abroad by U.S. investors, one should include all Euro-dollar deposits, and not merely those held with foreign affiliates of U. banks. s. The attached table (Attachment 3) shows dollar-denominated deposits to U. s. financial centers. nonbank customers of banks in the principal foreign These deposits have large denominations, and frequently have fixed maturities. Thus, they closely resemble large domestic certificates of deposit (CDs), and growth in Euro-dollar deposits should generally be assessed in comparison to growth in the broad domestic monetary aggregates (M-4 and M-5) which include domestic CDs. Data in the table show that Euro-dollar deposits held by u. S. residents amount to about 1 per cent of M-4. Moreover, growth in Euro-dollar deposits has been small relative to the growth in M-4. Thus, Euro-dollar deposit holdings of U. s. customers do not now appear to be important in comparison to domestic monetary aggregates. Chairman Pro,anire: Banks sometimes use so-called "managed liabilities" to supplement funds obtained through regular deposits. At the end of 1976 banks had some $70 billion in Federal funds purchased and securities sold under repurchase agreement. As I understand repurchase agreements, the bank would sell a security to a customer in the evening and buy it back the next morning. The customer earns interest; the bank obtains funds. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 205 Question: Do you know the total of sucn "repurchase agreements", and do you take them into account when you measure total deposits included in the money stock? What effect do such arrangements have on the liquidity of the banking system? ~: According to a recent System survey--the results of which are attached (Attachment 4)--the volume of repurchase agreements (RPs) against U. s. Government and agency securities for 46 very large banks was $22 billion in early December 1977. About 1S per cent of this amount represented borrowing from other commer- cial banks (see Table 1 of the enclosure), while the bulk of the remainder was transacted with businesses and state and local govemments. The survey indicated that roughly half of all RPs were of a one-day maturity or were under continuing contracts (i.e., they had no specified maturity and did not require advance notice by either party to terminate). The Board staff estimates that these large banks account for roughly 60 to 65 per cent of all coounercial bank I RPs and thus the total volume of commercial bank RPs was about $3S billion in December 1977. Commercial bank RPs are a nondeposit liability and consequently are not included in standard measures of the money supply. Many have suggested that the growth of RPs in recent years may have affected the public's demand for money and some have argued for including RPs in a measure of the money stock. The Board's staff has been studying this issue very carefully during the past year. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 206 .By using Treasury securities as collateral for RPs, such securities cannot be liquidated by banks for meeting unexpected cash needs. However, growth of liquid asset holdings of large banks have outstripped that of RPs in recent years. For example, from April of 1974 to December of 1977 the growth in RPs at the 46 very large banks about matched the increase in their holdings of Treasury and agency securities, while their holdings of other liquid assets expanded apace. Thus, the unencumbered liquid assets position of these large banks improved over this period. Chairman Proxmire: Some banks establish their prime lending rate by formulas that use the commercial paper rate plus a 1% or 1·1/2% mark-up. Prior to 1974 the ·spread between the two rates was almost al• ways less than 1%. Since then the spread has been 1% or more. It seems to me that a basic change took place in the market for loans to "prime" borrowers. Question: Why has the prime rate been maintained at an artificially high rate, and has this had adverse consequences for loans to purchase plant and equipment during the current recovery? ~: The relationship between commercial banks and their business customers is a multifaceted and very complicated one, involving such features as deposit balances, credit services, and cash management services. As a consequence, the change in the spread between the prime rate and the commercial paper rate is difficult to interpret, since it is not clear that elements of the package other than the lo&I) rate have remained the same over the recent period. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 207 For instance, it is possible, as some allege, that firms have demanded more noncredit services, particularly cash management services, as compensation for their demand deposits, implying that they may be less interested in receiving compensation in the form of an attractive prime rate on credit services. Furthermore·, it has been suggested that some large money center banks have int.ensified their efforts to attract the loan business of those firms other than the highest rated ones, by adding to the number of firms that qualify for the prime rate and by narrowing the spread over prime for some others. In this connection, there is evidence indicating that below prime lending by large banks to large corporations with the best alternative sources of funds has been growing,,suggesting a partial deterioration of the prime rate convention for these customers. According to the Board's new Survey of Terms of Bank Lending, 13 per cent of the dollar volume of short-term business lending of 48 large banks was below prime in February of this.year, in contrast to 7 per cent last year. In sum, because of the many dimensions to the customer relationship, it is not clear that the loan rates have been artificially high in recent years. Moreover, given that business loan growth at all commercial banks has recently been comparable to some of the strongest growth rates of previous expansions--and in view of apparent limited borrowing from banks by very large firms who bave alternative sources of credit that are less expensive tban bank sources--it would not seem that bank lending terms are restraining loans to purchase plant and equipment. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 208 Attachment 1 In the preceding table, $16.0 million of the $283 million of loans to or guaranteed by banks at Decein~ 31, 1977 were loans to commercial banks in Turkey. At beccmber 31, 1977, $1.7 million of such loans had been placed on non-accrual Subsequent to December 31, 1977, an additional $6.S million were placed on non-accrual. One risk factor of international leni!ing is that the borrower may be credit-worthy in terms of local currency but that the foreign exchange reserves of tlie borrower's central monetary system may not be sufllcient to enable the boi:,ower to,. obtain the foreign currency necessary to repay the loan. The $8.5 million of loans to commercial banks in Turkey placed on non-accrual have been repaid in a timely fashion by the borrowing banks to the Central Bank of Turkey in Turkish lira. The non• accrual status results from the present inability of the Central Bank of Turkey to obtain the necessary foreign currency. In management's opinion, no loss of principal will occur on these loans; however, some restructuring of these loans may occur relating primarily to the extension of maturities. Payments on the remaining $7.5 million in loans to commercial banks in Turkey, which have direct access to foreign currency, are being made to the Company on a timely basis. All of the $16.0 million of loans to commercial banks in Turkey mature on or before February, 1979. The distribution of tl!e Company's loans attributable to foreign operations by annual per capita iDcame level of the country of domicile of the guarantor or borrower, with classifications of countries derived from International Bank for Reconstruction and Development data, at December 31, 1978, and 1977, is as follows: Deeember 31, 1978 1977 - (J'DMlllians) - Developed countries ....................••...... $187 :rt $198 35 130 168 f!.~';f'~couC:U~~~;- .................... :. Higher Income ( $500 and over per capita) .... . ·Miiidle Income ($200-$499 per capita) ....... . Lower Income ( Less than $200 per capita) .... . Total ............................. . 61 28 Dfltribuffon of Selected Liabilities Attributable ta Foreign Operations The following table presents deposits and borrowings attributable to foreign operations based npon the depositors' business classification at December 31, 1976, and 1977. December 31, !!!! 1977 (J'DMlllas)- ~ '..................................... . Governments or olBcial institutions ........... . Other ..................................... . Total ............................. . Borrowed funds ..................•............ a-nu. and Income from Fomgn OperatiOM Due to the integrated nature of the Company's foreign and domestic operations, it is impossible to segregate with precision the respective contributions to income from foreign and domestic operations. Accordingly, certain estimates and assumptions have been used in the compilation of data presented. These estimates and assumptions include ::n allocation of the cost of deposits and borrowed funds at actual market rates, an allocation of expenses incurred in domestic operations on behalf of international operations and an apportionment of the provision for loan losses. No allocation of capital has been made. The distinction between domestic anJ foreign operations is in part arbitrary in that foreign operations include activities recorded in both the foreign and domestic ofllces of the Bank's International Group. Subject to the above limitations, presented below is an estimate https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 311 209 A'ITACHMENT 2 B..-rka by Bem:y C. Wallich Member, Bnard of Governors of the Federal Reserve Systst the 1978 Eurmarkets Conference sponsored by the Financial Times London, England Tuesday, May 9, 1978- The Euromarkets are one of the su_ccess stories of our day, which needs a few successes, In difficult. ttmes., they have helped to keep trade flowing, they have financed investment and development, they have enabled countries to deal with their balance-of-payments problems, The Euromarkets serve as a remind.er ot: what a market· system can achieve when it is allowe4 to .opµa_te freely. But the Euromarkets also have been a cause for concern from time to time, Supervisors, comnercial bankers, central bankers, and perhaps even the public have worried ~riodically about the soundness of the Eurobanks, the soundness: of· .. the Euroborrowers, and the possible inflationary implications of the market. this worrying has helped to forestall the problems., Perhaps In a well- functioning market, crises worried about :!,n.. advance uau11lly do not https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 210 occur. By not dealing.with these matters here I do not mean to imply that grounds for worry have been altogether eliminated. First and foremost, however, the subject ·to worry about today in the syndicated loan market is spreads. sre of the same opinion. Many of you probably What my remarks may lack in novelty I hope they can make up by being emphatic. Euromarket Spreads The dramatic decline in spreads between lending rates and the cost of money is not··altogether unprecedented. spreads also were severely squeezed. In 1972-73, For a spectrum of 15 major borrowing countries, they reached an approxima~ low, on a weighted average basis, of 1.11 per cent in the fourth quarter of 1973. That was a time of dangerous euphoria when international indebtedness was much lower than it is today, the expansive forces of the international economy much stronger, and when one could not anticipate the financing problems that were to follow the rise in the price of oil. In 1974, spreads expanded once again as the realization of risk in Euromarkets, following the Herstatt and Franklin failures, pushed risk premia to more realistic levels. By the fourth quarter of 1975, they reached a level of 1.63 per cent and remained approximately on that plateau through the middle of 1977. More recently, however, spreads once more have been cut to the bone by lessened balance of payments financing needs and the pressure of strong competition among banks resulting from slack loan demand in home markets, and by a large inflow of funds. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 211 For particular groups of countries, the time pattern varied somewhat, with those for non-OPEC IDCs rising through 1976 and those for small OECD countries declining appreciably after 1975. Naturally, there are always special circumstances that could explain low spreads on particular loans. At the short end, a one-shot deal at a very low spread, in the hope of being able to employ the funds more productively later, may be preferable to locking them in for a longer period at a not much better return. At the longer end, there may be considerations of collateral business, ongoing relationships with the borrowing country, hopes of regulatory preferment in winning approval for branches and the like that may explain, although not justify, extraordinarily low margins. There are fees, especially for lead banks, there may sometimes be balances, and sometimes banks can fund a quarter or even a helf of a per cent below Libor (London Interbank Offering Rate), especially if they are prepared to do a little mismatching of maturities. On the other hand, I would not accept a bank's explanation of an unjustifiably low spread on the grounds that the bank had to maintain its share of the market. The implication that because some banks overlend, all others ought to do the same obviously points toward trouble. The Composition of the Spread I would, if I may, devote a few minutes to a conceptual exercise in studying the anatomy of a spread. at least three elements: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The spread must cover (1) The risk premium to cover losses, 212 (2) the contribution to the bank's cost of capital related to the loan, and (3) the out-of-pocket and overhead operating costs. The risk premium must be evaluated for each individual loan in the light of the circumstances of the borrower. An overall indication of loss prospects in international lending, which, of course, does not apply to any individual loan, can be derived from the loan losses that banks have already experienced. For a small group of American banks, the average loss during the years 1976-77 on foreign loans has been about one-third of one per cent, as against a domestic loan loss ratio of over three-quarters of one per cent. The range of individual bank experience, of course, is a good deal wider, especially on foreign loans. The past, moveover, is not necessarily a guide to the future. Differences in individual bank experience as well as differences in the credit standing of particular borrowers, indicate that it would not be appropriate to impute to the spread some fixed risk component. But the order of magnitude, to date, of loss experience on international loans, when compared with syndicated loan spreads, nevertheless provides a useful benchmark. The spread further must contain a contribution toward the cost of the bank's capital. It is a function of the bank's capital to support the holding of risk assets. Of course, if the bank believes itself to be acquiring a risk-free asset -- a short-term inter-bank placement might come close to this -- the acquisition would not raise the bank's ratio of risk assets to capital. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The 213 return on such an aBSet might not be required to make DUCh of a contribution toward covering the cost of capital. But assuming a not unusual capital/total assets ratio of 5 per cent, the spread on a loan of average risk must cover the required income before tax on capital equal to 5 per cent of the loan. Given further a not untypical return on capital after tax of 10 per cent, and a marginal tax rate of about 50 per cent, the loan must earn 20 per cent of 5 per cent of capital, or 1.0 per cent. capital surely are quite modest. These assumptions concerning Strictly speaking, it might be more appropriate to base this calculation on the ratio of risk assets to capital, which would call for a higher return. For some banks, however, particularly non-u.s. banks, capital ratios may be even lower than the 5 per cent illustratively assumed. To the extent that banks and their supervisors regard such ratios as adequate, the cost-of-capital component of the spread is reduced. Concerning the operating costs of putting on a loan, I have no information, although I have heard complaints about the high level of rents, the high price of lunches, and the costs inflicted by recent U.S. tax changes affecting American citizens abroad. Putting the foregoing data together, it would appear that a.spread of 1.0 per cent, that for a while was considered a minimum, hardly gives a well capitalized bank an adequate return on capital and a reasonable risk premium, with nothing left over for operating costs. A spread of .75 per cent does not cover the cost of capital of even a very modestly capitalized bank plus a reasonable risk premium. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 214 Banks that are putting on. loans at such a spread, or even less, must have substantial funding advantages, or income and other benefits from the loan, aside from the spread, or they are diluting their earnings. I do not find at all convincing an effort to justify low premia by a misguided appeal to the principle of marginal cost pricing -- that is, that any income above out-of-pocket costs is so much money to the good. There are risks to be taken into account, and there is the bank's balance sheet, with its capital ratios and corresponding cost of capital, to be considered. A measure of cost that ignores these legitimate components of marginal cost undermines the application of a sound economic concept. While spreads have been declining, maturities have been advancing. In terms of risk, this implies an added cost which is not covered by the movement of spreads. Longer maturities convey an indirect benefit in reducing the prospective bunching of rollovers and in reducing somewhat the disparity between the length of loans and the pay-out period of the investments that, however indirectly and remotely, are financed by them. But the lender must bear in mind that loans of long maturity are almost certain to be tested by a variety of adverse circumstances. A Comparison of Euromarket and U.S. Bond Market Spreads It is interesting to compare changes in the dispersion of spreads among high- and low-risk borrowers in the Euromarket with similar changes among borrowers in the American bond market. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis In 215 the Eurocurrency market, the rise in spreads was accompanied by a narrowing of the dispersion. Spreads rose most for what had originally been the low spread borrowers. In the U,S. bond uiarket, spreads widened as interest rates rose during 1973 and 19?4. The. lower quality risks had to pay substantially more relative to the higher grades. In terms of credit risk, it would seem that the American market evaluated changing risks rationally, allowing for a greater increase in the danger of failure among the borrowers where risk was perceived as high to begin with. The Euromarket, to the contrary, appeared to wipe out differences among borrowers and to assign to all of them a similar higher risk rating. Conceivably, this may reflect the difference between cr~dit risk and sovereign or country risk, The circumstances of 1974 may have been of a sort to exacerbate primarily the element of country risk, A second and more casual observation may follow from an inspection of quality spreads in the Eurocurrency market and the U.S. bond market. In the Eurocurrency market, the spread even for relatively weak risks rarely has gone much above 2 per cent, representing a differential over prime risks of perhaps l.S per cent at most. In the U.S. bond market, the differential between A-rated utilities, by no means a weak risk, and U.S. Government bonds in 1975 went above 2 per cent. Given the absence of country risk in the U.S. bond market, it is hard to avoid the impression https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 216 that the latter evaluates risks more sensitively and conservatively than the market for syndicated Eurocurrency loans. Whether front end fees and the like provide reason to modify this assessment significantly, cannot be said with any assurance. The Recent Decline in Spreads Why are spreads declining so sharply in the Euromarkets? Are risks clearly diminishing? Or have banks come under such pressure to lend that the market has become clearly a borrower's market? To both questions, the answer is "yes." The condition of many borrowers has improved. But unfortunately it is also true that the pressure on banks to lend has increased. To that extent, the decline in spreads must be viewed as a very_uncomfortable development. Among the pressures converging on the bank are the following: (1) Liquidity is high. Rising assets and liabilities in the Euromarket do not absorb limited supplies of reserves, as they would in national money markets. Monetary authorities, in pursuing their monetary targets, in some cases have overshot, in part due to exchange market intervention. Monetary authorities must bear in mind that money creation in the Euromarket, although historically quite limited, nevertheless occurs, and must factor it into their overall assessment of liquidity needs. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 217 (2) Domestic loan demands in many countries other than the United States has been weak. In the United States, the large money market banks have experienced weaker demand than the rest of. the banking system. They, of course, are the principel -u.-s. lenders in the Eurocurrency markets. (3) There is pressure to maintain earnings growth-, on penalty of being downgraded by security analysts. If their stock fails to advance, their prospects of raising new capital diminish. Yet they need to raise new capital if they want to continue to lend. (4) Banks have built up large establishments and have built· in high costs which require continued activity. It would be costly to disassemble and perhaps later reassemble these. (5) Borrowing countries today are exerting powerful pressures, reminding banks of the need to maintain a continuing relationship, and meanwhile taking advantage of their ability to repay and refund earlier loans at lower spreads. (6) Finally, all banks look at their peer group. So long as all do the same, no single bank needs to feel that it is making an obvious mistake. That, in some circles, is known as the lenming theory of banking. Obviously, however compelling these considerations may appear to the individual bank, they do not justify a lowering of 30-476 0 - 78 - 15 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 218 credit standards. Banks in the Euromarltets enjoy a degree of freedom from control that is unusual in domestic banking systema, although they, and particularly U.S. banks, are by no means unsupervised and _un,replated. u.s. banks, in particular, are subject to the regular examinations and other supervisory activities of the U.S. banking agencies, no matter where their branches and subsidiaries are located. But it is true that the volume of lending in Euromarkets is.less directly controlled by central bank action than is the volume of domestic lending. Hence, banks should be disciplined all the more by high credit standards as they expand in these-markets. The Euromarkets, as I said at the beginning, have given evidence of what a market system can achieve when it is allowed to operate freely subject only to prudential supervision. The continuance of this freedom will depend on the responsibility with which it is. used. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table 1 InterHt Spreed, and Maturities of Eura-currency Credit• to Selected Countries Arranged by Category q3 1977 Q4 1976 Q4 197:S Q4 1!17.5 Average Average Average Average Spread Averaae Spread Average Spread Average Spreed Average (basis Maturity (basis Maturity (basis Maturity (basis Maturity points) (years) l!2!.!ll!l (years) po~nts) (years) points) (years) U!C.V Q4 1977 Average Spread Average (bash Maturity points) (years) Ql 197& Averaa• Spread (bub Av,era1te Maturit· points) ~ 121 10.9 165 5.4 187 5.1 179 4.6 17i 7,3 1.58 8.3 129 7.l 167 s. 1 133 7.0 132 5.6 159 5.5 104 8.5 Eastern Europe'-/ 61 8.8 149 5 . .5 129 5.5 u:3£I 7. as.I 116.S/ 6.oSI 123 7.2 Small OECD Countrie.V 94 9,1 158 6.5 ll7 5,J 120 6,5 109 6,8 83 7.!.! llon•oll opd/ R1nge of spreads country groups -na ( 68) Average of individual countries: 1/eighted (Unweighted) 111 ( 99) HinilllUIII spread for individual loan.!!./ 56 ( 18) 9.5 ( 9,6) 163 (166) 125 5.7 (5.6) 161 (159) 113 5.6 (5,7) 153 (155) 88 zs < 2 ( 68} ( 66} 58! 5, 3 (5.9) 155 (149) 7,0 132 (6,4) (123) 88 !,/ Average spreads for individual countrle1 1hown in Table 3 velahted by total vol._ of borrowing by uch country, '!!./ Rate shown la loveat rate for ■yndlcated Eurocurrency credit to all borrower ■, To avoid extr- obaervationa, rate reported ia lowest rate for mini111U111 of three credits. s,/ Observation from a aingla loan. . Source: IBRD, Borrowing in International Capital Marketa, varloua la1u1a, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 57 8,2 Gl.1) ~ tO 220 Attachment 3 Dollar-Liabilities of Banking Office■ Outside the United States to Nonbank U.S. Residents (millions ~£...dollars) Dollar-Liabilities to Nonbank U.S. Residents Bank in Eight European Countries , Banks i ' Bahamasl Japan, Canada December 197S Total Liabilities as Percent of: !!!l!! M4 MS 6,509 533 7,042 0.9 0.6 June 1976 7,071 1,014 8,0SS 1.1 0.7 December 1976 6,933 1,066 7,999 1.0 0.6 June 1977 7,685 2,051 9,736 1.2 0.7 September 1977 7,930 1,765 9,695 1.1 o. 7 December 1977 8,009 1, 75S 9,765 1.1 0.7 17 Short-term dollar deposits to large non-bank U.S. concerns as reported on Treasury balance of payments reports. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Attachment 4 IIEPUllCHASE AGREEMENTS AND OTHER NONRESERVABLE BOIUlOWINGS IN IMMEDIATELY AVAILABLE FUNDS During the seven daya ended December 7, 1977, the Federal Reserve System conducted a special survey of gross borrowings in illlllll!diately avail- able funds by 46 large lllember banks. The survey obtained detailed information on the source and maturity distribution of these borrowings and also distinguished between borrowings in the form of repurchase agreements involving U,S. Govemmsnt and Federal agency securities and other forms of borrowings 1n i-diately available funds. Aggregate data from the survey are presented in the accompanying tables. A similar survey, conducted in April 1974, provided a basis for comparing changes in these sources of funds ~ver time. survey are also shown in the tables. Aggregate data from that Only 45 of the 46 large member banks, however, participated in the 1974 survey. The tables contain seven-day averages of the dollar amount of outstanding borrowings reported during the survey week. were reported on a gross the same institutions. In addition, all data basis, that is, not netted against loans made to Neither deposits nor other obligations subject to reserve requirements or interest rate limitations under Federal Reserve Regulations D, Q, or K were included. The first table provides detailed maturity information on both repurchase agreements and other forms of nonreservable borrowings in immediately available funds. The second table combines the two forms of borrowings in a format similar to that· of the 1974 survey, which is shown in the third table. Due to modifications in the 1977 reporting format, certain differences exist between the two surveys in the degree of detail obtained. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis While 222 separate lender categories for savtngs and loan associ~t:tons !Uld sotnga banks were reported in the 1974 survey, these institutiona were combined into "other depository institutions" in the 1977 suivey. Rome Similarly, Federal Loan Banks and other agencies of the U.S. appeared separately in 1974, but were combined into a single item on the 1977 survey. ln addition, credit unions and financial businesses were reported separately in the 1977 s11,rvey. Thase institutions had previously been combined in borrowings from "all others" and "business corporations," respectively, in the 1974 s11,rvey. The maturity distribution was also modified in 1977 to include the combination of borrQWing in maturities of 30 to 90 days and over 90 days to 7 years, previously reported saparately in the 1974 survey. Tile following definitions 111ay be useful in interpreting the tables: Immediately available funds• Often called "Federal funds," these are funds that a bank can either use or dispose of on the same business day as the transaction is e~ecuted, giving rise to the receipt of funds. Repurchase agreeinents - These transactions involVil the sale of securities to a customer undeT an agreement to repurchase the S8111e or similar securities at a later date. For pur- poses of these surveys, only repurchase agre1!1118nts involv- ing U,S. Goveminent or Federal agency securities were re- ported in the repurchase agreement section, Other forms of borrowings - These include all other borrowings in !mediately available funds, whether secured, unsecured, or https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 223 1n the form of repurchase agre-ts on other aecuritiea or assets of the bank. Maturity - "One-day" borrowing_s consist of all borrowings for one business day that mature on the next business day, including borrowings on Friday to mature on Monday. Continuing contracts - These transactions reflect borrowings that remained in. effect for more than one day but that bad no specified.maturity and did not require advance notice by lender or borrower to terminate. Other maturities - These categories were defined in terms of calendar days, not business days. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Financial Reports Section Division of Research and Statistics Boarci of Governors of the Federal Reserve System February 2, 1978 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ..... , ....., IIPGnW . . . . . . . . . . . . . . . .....,,_ II DIDUTll.t • ~ , _ 1 Mt · - DCIU-'a Alllllall (MU.I.Ua) , 1. . . . . . . . . . Olftlllallllll' . . MaCI' ._-....,.r-nt.&l._.. 1 - ~ ~ ~ N W .... C, ln.diM _. .....,_ of fwdlll . . . . .,.ratSat: taa.1. .............. . . _........u.. I. ou.r ,-.O■ f.to~ &Md.Cllt1- ,. "-tM•r u,a u.1. e. .....,u1.. ...i■n I.Chllit-1-. I.U-lallNllia.J.W ■cller I.. ........._ ac.ta ... \oc.al ..... - U l., Fonlp Maka - , fonlp offldal t...cit•t1- K. W ocMn ........ n. ,u. arm ..annMU ....... &. ..... r~...-. . . . . . . . . .., . . . . . l c ~ l & l . . . . c.._.............,,......... .,.,-ctq s. u.1. D. .... M t _ . , l p - ' _ , _ . _ _ .. ~-,····· I. Odler depNitOl"J t . u u ~ o. .......... ...i.n ■• W OCMn ....... --• ~ ~".'.!.. ~? 1,Ml,1 110.1 '151,7 417,1 U7,2 ll,I 21,1 .-.ma ..... J,IO>,S ..., .... ..., ...,.. .... ..,.... .... ,., ,.. w., ..... ........, ...... ..... ..... ··'"·' ..., .... ..., ll,I .........,., ....... ..., .... .. w., '·"'·' ..... ...., ..... ..... ...,.. ,...,.. ,, ...., ,u.z ..... ...."·' ...., ,., ..... ..... .....,.... ...,.., .......,,.. ...... .. .. ...., .... ... ..., ., ..... 11.1 1,111.1 1,701.1 "·' . J,111,1 . 1,ou.o 10,472.4 u ..- l 1 ltl,J 1.111.1 w.o a,am.i J1.4 11,ltl,O ,.w.o 1J 1 to1.I JA,N2,I l,Slt,J 4,72t,I 1,1to.J 1,w.1 J,M6.t 4,041,4 a,w.• 1,NJ,4 1,.... 1 1,111.1 » ..... , Sl,144,1 1,n1., •s SJ.I ,....., ..., ... 1».1 __ ,. ...... .... ~~ ,.... . .. . . ., ...,:, ........, ..., ..... ..... ....,.. l,SM,J ..... ..., ... 17,1 U,I , , .... ,.,.,.. 111,1 n..ewa...,nolNtS. II.rill• 11NNn11 _, IUtieCNI ....., °"""'°f·,r ., 1M ,...,,a1 ...... .,._ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table 2 tot STAftMIJff WEEK ZHDED DECEMB!t 7, .1977 I.EPORT or GROS! NOKI.ES!R.VULI BOUOWINGS IN IMHEDIAT!LY AVAILAILI POllDII 7 DAT AVER.Ar.£ DOLLJJl ANJIUNT!I (MILLIONS) (46 Bank ■) TYH IOllRCIW!D PI.OH1 IPSON U.S. r.OVT. A1fD AGENCY SECURITIES CONTINUING ALL O'nl!Jl TOTAL 1-DAY CONTliCT ,_, DAYS .... .. 30 ovu. 30 DA.YI 111T LISS TIIAI 1 Y!AU 2,803.5 17 ,908,0 20,711.5 18,523.3 682.3 437.8 571.5 496.6 255.8 5,529.2 5,785,0 4,873.4 582.0 (6,1 188.9 94.6 Branch•• and agencies of foratan banks oparattn11 1n U.S. 38.6 2,190.] 2,228.9 2,180.3 i.a 14.9 4.l 40.6 210.0 250.6 210.9 .o 11.1 , 21.1 D, Edae J.ct and Aaraement corporatiou I, Other depository tnat1tut1ou 77,8 5,946.9 6',024, 7 4.106.5 364.6 96,1 ,12.2 1,085.3 40.9 ....."·' A., lfilaber c~rc:ial banh a. Bonmieaber do••tic coaercial bub c. P, Agenc.i .. of the U.S. 403.5 2,245.6 2 1 649.l 2,368.5 ., 1,976.1 1,689.2 3,665.3 2,086.7 248.4 61.9 .. 22.7 112., 11.0 .o 10., I, Financial buain••••• 1,701.7 .o .o .. 215.4 1,701.7 1,042.0 155.2 303.4 160.0 41.l J. All othar budn••••• 10,472.4 .o 10,472.4 3,256.8 1,198.5 2,302.1 2,,u.o 901.0 3,787.7 .o 3,787.7 2,188.8 144.5 432.2 681.2 ,u.o G. lac.uriti•• dealers B. Cndit union ■ I., State and local ~naiaata tnatitution• others TOTAL 32.4 323,0 .o 323,0 225.7 .o sa.1 ,,_. 248,4 149.3 397.7 229.8 23.2 101.1 n.6 10.0 22,191,0 3>,868.S 58.059.5 41,325,1 3,401.8 3,978.2 S,633.l ,.121., L, Foreign hank• and foreign official lt. W 61.9 >06.4 1.1 Piunctil leport• lecti• D:I.Yi•ioa of .....rch ... ltatUtlce Board of CowanoH of tha ,.._ral .....,,. ,,.ua https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table ] POI STATEMDT V!U PlfDED AnIL 24, lt14 IIPOn 0r GIOU IKIIUHIVABL! BOUOWDIGS D D9t!DUTELY AVAILOU PmmS 7 DI.I AVEli.GE OOLU.I. AllJOlffS (KILLIOtlS) (45 Bank•) IP'S ca U,S, GOVT, ARD AGENCY S!aJRITUS ALL OTIIJ!l TOTAL 1-DAY CONTIIIUING 2-7 8-29 ]~90 COlfflACT DAYS DAYS DAYS OVD90 OATS IU! LESS t1WI 7 \'UIS IOU:OWID PIOM1 A. Mnber c~rcial bank• I, lloaanbtir doaa•tic c~rcW bub C, lracbe• and agencie ■ of foHip bank.a opeut1n1 in U.S. 1,001.7 13,083.7 14,085.4 11,404.1 1,411.7 234.8 182.0 456,8 385.1 4SS.4 3,889.4 4,344,8 2,827,0 1,347.7 69.5 30.4 56.1 14.0 .1 3,183.1 3,183.2 2,347.0 72.8 44.0 209,2 350,1 160.0 D, Up: Act and Agn ...nt corporatioaa 28.7 116.2 10,0 95.5 6.5 .o 4.2 38.5 .o I, Savina• and loan uaoeiationa ud cooperatiYe bank.a 64.0 2,889.4 2,953.4 1,766.5 511.1 97.4 131.5 370.5 76.l 7.2 1,64].5 1,650.8 1,198.5 02.5 4.1 .2 14.0 1.2 r. savtaa• bank• C, P•deral Bo• Loan lank• and Board a. All other ageoct. . of ·the u.s. 6.1 1,173.0 1,179.8 680~0 5.a 6.4 147.5 240 •• 99.5 235.I 483,1 719.0 367,8 6.0 100.1 59.2 50.7 135.0 941.1 66.4 1,007.5 136,7 9].5 13],0 245.5 368.4 50.2 J, .._ioeH corporar:loo• 2,110.4 2,U0.4 1,013.8 190.5 452.7 549.7 88.8 14.7 I.. State end local SoftmMllU J,033.2 .o .o ,,on.2 1,240.0 181.1 429.7 482.5 490,7 209,0 I, Securlr:le■ dealera L. Poreip beake and fontp official iutltuttoaa 613.4 342.5 165.5 31.2 67.0 7.0 .o 235,0 .o .o 613.4 N, All otbere 235.0 76.1 43.8 50.0 39.2 24.7 1.0 1,735.2 26,521.1 JS,261.4 23,496.0 4,479.1 1,653.4 1,948.8 2,557.1 1,126.1 TOTAL rt"UDcial laporta Beedoo D1Yidoo of ....arch ud Sutiattca loari of C:0..noH of the federal bMrwi IJ•t• 1.-..:) 1.-..:) 0:, 227 Msua7 n. 1971 'Iba !loac,hbla VillS. Prcal1n eum.. ea.tu.a OQ l'IIQkfll(I. Bouaillll ad lkbtln Affatn Uaitecl S&atu Seaate . . .!Jistoa. o.c. 20,10 I .- plU:Ncl to :rupond to }'Ula" nqaMt of DN_..r U, 1ffl. I« informattoa cooeern1na Stat• mellber ~ to k used ta ooaMOtlaa with beartnga °"' thtt condlti.oa of the NBktag syat.t. 1 hl:I...,. that the enclOHd - ~ i . ara reeponai,. to the requaat u it . . . aodified 1D conaultcti.OD witb Hr. c. L. Man1111cdo• lpam.al CotmMl to your ec-ittee. If •d>eu of your etaff haw ny (IUHUOQa about ~ an.rial.a, I auggest that they Gatact: Mr. S. B. Talley. Aaaiat:ant Dlnetc of our DffUlGG of BaoJrina 'lopenotsioll . . . a.autat:ioa. 11.MM let • t:tds - " - · https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis bow if 1 ca be of furtMr uatauac. iD liMenly ,cuff• (· ") Arthur F. Bums ArdllaV. luna 228 INFORMATION CONCERNING STATE MEMBER BANKS PREPARED BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM FOR THE 1978 HEARINGS ON THE CONDITION OF THE BANKING SYSTEM TABLE OF CONTENTS A. Current Bank Ratint; System Used by the Federal Reserve B. Composite Ratings of State Member Banks, 1972-1977 C. Changes in Composite Ratings of State Member Banks, 1973-1977 D. Unusua 1 or Emergency Borrowi'ng by Member Banks, 1974-1977 12-14 E. Federal Reserve Policy Regarding Bank Lending to Foreign Countries Subject to IMF Standby Agreements 15-22 F. Classified Assets of State Member Banks 23 G. Percentage of Classified Assets to Total Capital of State Member Banks 24 H. Loan Commitments at Selected Large Connnercial Banks 25-26 I. Orders and Agreements Executed by Board of Governors of the Federal Reserve System, 1977 27-29 J. Written Agreements Executed by Federal Reserve Banks, 1977 K. Apparent Violations of Law Cited by Examiners L. Failed State Member Banks, 1972-1977 34 M. Mergers, Acquisitions by Holding Company and Purchase and Assumption Transactions Effected to Avert Failures, 1972-1977 35 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1-5 6 7-11 30 31-33 229 CURRENT BANK RATING SYSTEM USED BY THE FEDERAL RESERVE Cl 2400.70 Uniform system for rating commercial aclh-ilics of member banks. [Feh. 17, 1960, S-1730 as amended by S-2094 of July 22, 1969.J While any Federal Reserve Bank may continue to use for its own purposes any method of rating hanks it may consider desirable, it is requested that, for the purposes of the Board of Governors, nil State member banks be rated in accordance with the helow described formula which is essentially the same as that used by the Comptroller qf the Currency for rating national hanks. The rating as determined by the formula should be entered and ini• tialed hy the Vice P~esident in Charge of Examinations at the bottom of page E of the confidential section of the report of examination as follows: 1-A·S• 1 (initials) In order that the transmittal to the Board of copies of reports of examination of State member banks may not b~ delayed hy the absence of the Vice President, the Board will accept the initials of the Chief Examiner, the Manager of the Bank Examinations Department, or another officer of the Reserve Bank provided the Vice President in Charge of Examinations will promptly review all such reports and advise the Board of any adjustments in the rating as originally reported which he may consider desirable as a result of his review. Composite or Group Rati11g Rating No. J Banks rated No. I should be sound institutions in every respect. Rating No. 2 Banks rated No. 2 arc those with (a) asset weaknesses ranging from relatively moderate to_ moderately severe, or (b) negligible asset problems but definitely undercapitalizcd, or (c) unsatisfactory-managements, or (d) a - modified combination of thc~~e and other weaknesses. Rati11g No. J Banks should be rated No. 3 which have, in relation to capital protcct_ion, an immoderate volume of asset weaknesses which, in view of the (a) character of the asset problems, or (h) management deficiencies, or (c) economic conditions, or a comhim1tion of these and other points, could reasonably develop into a situ:1tion urgently requiring aid either from the shareholders or otherwise. Banks in this category require special allention. • R1lln1 symbols ror capital posilions, cjualilY or •••els and, maaacemcnl are shawa'··above Ille unc ,n ln.at order; 111c 1:om11t•~11c ur ,:u,up rnllnp. ,._ymonl i1 ,11own 11,~1.,,w the line. (7-69) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 230 MF.MBER HANKS Rnting Nt>. 4 Banks rated No. 4 arc tlm~c confronted with asset wcakne~~es of a character and \'1)l11mc. in relation to capit:11 pn,lc<.'lion and quality of management, urgently requiring aiJ from the ~h:ndwldcrs or otherwi\e and whose failure, if such aid is not fNthcomin!!, would appear to be probable. These are the serious or ha1.ardous ca~es requiring <.'onstant supcrvi~ory attention. Cnpital Po.rition Rating No. I or Roma,i N11111c•ral I Capitalization adequate in relation to (a) volume of risk assets, a,id (b) volume of marginal and inferior quality assets, and (c) volume of deposits. (d) Points a, b, and c to be considered in relation to strength of management. Capitalization will not be considered adequate unless in the judgment of the Vice President in Charge of Examinations it is adequate in relation to the above enumerated points. Considfration will, of course, be given to earnings retention capacity. Ratios arc not the primary determinant of this rating. Judgment must be exercised in deciding whether capital-wise a bank comes within this category. Although some banks will be regarded as under• capitalized with better ratios, in general a bank will be considered undercapitalized if (a) its ratio of total capital structure to total assets is worse than 8%, (b) its risk as~ct ratio is worse than 12.5%, or (c) its ratio of actual capital to the requirement under the Form for Analyzing Dank Capital is lcss than 1!0%. But in any case where a bank has either a ratio of total capital structure to total assets worse than 8%, a risk asset ratio worse than 12.5%, or a ratio of actual capital to the requirement under the Form of less than 80%, and the institution is believed to be adequately capitali.zed and deserving of a number I capital rating, this judgment will be so indicated by using Roman Numeral I. Rating No. 2. Capitalization inadequate in relation to (a) volume of risk assets, or (b) volume of marginal and inferior quality assets, or (c) volume of deposits. (d) Points a, h, and c to be consider-cd in relation to strength of management While adequate capitalization is based on adequacy in relation to points a, b, and c, as a group, ;ind the weighing of those three points in relation to management competency, capital inadequacy may exist because of the adverse relationship of the capital structure to any one of the first three points (a, b, or c), giving due weight to management as a possible mitigating factor, but not beyond a reasonable point. The least important factor is the relationship of capilal to deposits unless extreme. The federal Reserve Bank officials mu5t exercise their own best judgment with reasonable emphasis on https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis (7-69) 231 MEMBERSlflP OF STATE DANKS conservatism in determining capi'tal adequacy or inac.lcquacy for rating puqw~c~. The cxcrci~c ('If judgment is required by the use t•f Roman Numeral I for those banks con~i<lcrcd adequately capitalized de~pitc ratios that normally W('luld he rep..mlcd .is sunicicntly adverse to warrant a 2 or inadequate capitali1.ation rating. Rati11g No. 3 Inadequate capitali1.ation is worse than defined under No. 2 above and is regarded a~ haz:mlous. This normally will include all hanks whose aggregate of clas~ificd assets is su!licicnt to impair the capital account. Rating No. 4 Capital impaired by losses. Quality of Assets Rating A Good. Ordinarily hanks so classified will not have an aggregate total of (I) classified assets, plus (2) 50% of Other Loans Specially Mentioned, plus (3) unclassified speculative bonds, stocks, and other real e~tate, that is in excess of 20% of the gross capital structure•, and the character of the problems in such assets is not severe in the judgment of the Federal Reserve Bank ofliccr making the rating. An aggregate total of su.:h assets somewhat in excess of 20% of the gross capital structure will not preclude an A rating, provided the actual or potential seriousness of the problems in the assets concerned is regarded as relatively moderate. However, if the primary asset problems arc regarded as severe, or if additional problems exist in Large Lines, bond concentrations, or a heavy investment in fixed assets, a less favorable rating should he used even though the aggregate total of primary asset problems is less than 20% of the gross capital structure•. Rating B Fair. Instructions, and elasticity to exercise judgment through use of a more favorable <lr less favorahlc rating, arc the same as noted under rating "A" except hanks so cla~sificd ordinarily will not have an aggregate total of (I) classified a~sets, plus (2) 50% of Other Loans Specially Mentioned, plus (3) unclassified speculative honds, stocks, and other real estate, that is in excess or 40% of the gross capital structure•. Rati11g C U11snti.rfactory. Jn,tructions. and elasticity lo exercise judgment through use or a more favorable ('IT less favorable rating. arc the same as noted under rating "A", except banks so cli"silicd will ,wt have an aggregate total of (I) cla~sifird ;i~scts, plu~ (2 I 50% of Other Loans Specially Mentioned, plus (3) uncla,sificd speculative bonds, stocks. and other real estate, that is in excc~s of 80% of the gross capital structure•. (7-69) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 232 MEMBER BANKS Rati11g L> llazartlous. Any hank will he ~o classified when the total of (I) classified assets, plus ( 2) 50% of Other Loans Specially Mentioned, plus (3) unclassified spcculalive hoods, stocks, and other real estate, is in excess of 80% of the gross capital slruclurc•. A-fa11agcm,•11t S-Satisfactory A "satisfactory" management (directorate and active officers) is adequate to all its responsibilities and has the ability to cope successfully with existing or forcsccahle problems. It is a safe and competent management which has established a satisfactory record of performance i11 the situation i11 which it is fou11d. Note: The "S" rating docs not necessarily connote a management which is superior or excellent, or representing experience or competence greater than required in the particular bank under review. New and untried management may be accorded ;10 "S" rating pending demonstration of satisfactory performance, providing other related circumstances and disclosures do not indi_cate the use of a lower rating. F-Fair A "fair" management lacks in some measure the competence desirable to meet the problems of the situation in which it is found. Either it is characterized by mediocrity when above-average capabilities arc called for, or it is distinctly below-average for the same type and size of bank. An "F" rated management may be safe at the moment but criticizable features of the bank's operations outweigh more favornble factors, and abilities to correct existing unsatisfactory conditions or trends arc not impressive. Nole: The "F" rating does not connote satisfactory management (which is rated "S"). In all cases where it is assigned, management is lacking in some rather important respects, but dcficienccs arc not sufficient to warrant the "P" rating. (Lack of adequate succession arrangements may, in some cases, be cause for assigning the "F" rating to an otherwise satisfactory management.) Banks with an "F" management rating would be accorded a composite rating no beucr than "2"; they often may warrant a "problem" rating because of a current unsatisfactory asset condition or capital position, or they may present rather strong evidence of deteriorating into that categ<,ry unless improvement in management performance can be brought about promptly in response to supervisory action. P-Poor The description as~igned the "P" rating is self-explanatory. The rating should be reserved for those cases where incompetency has been demonstrated or wh••re management deficiencies arc of such seriousness that the over-all characterization of "poor" is amply justified. In the cases so rated, • Fnr rurrC\st11t; or dr-tcrmlninl,! a~!iC"l ratin~!i. *4(Z:ross carit:.I s1ructurt" cond11r,ts of the 0 1nul ca1,ital ncc<lnnl .. :md h"t•tl "valuation reserves" on loans and securities as shown o,n pape (21 of 1hr report of t-x.amin:uion. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis (7-69) 233 MEMBERSHIP OF STATE BANKS probletm resulling from management weakness or incompetence create so unsatisfactory a condition that management may need to be strengthened or replaced hcforc sound bank condition may be brought about. 30-476 0 - 78 - 16 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 234 COMPOSITE RATINGS OF STATE MEMBER BANKS Year-end Number of banks Total assets ($ millions) Total deposits ($ millions) !/ 1:/ Com2osite Rating 3 or 4 2 1 1972 1973 1974 1975 1976 1977];/ 749 751 730 672 624 626 302 278 267 304 329 319 33 29 50 64 61 57 1,084 1,058 1,047 1,040 1,014 1,002 1972 1973 1974 1975 1976 1977'!:/ 65,945 75,434 77,509 50,980 45,787 51,612 106,402 121,663 75,914 101,356 112,686 121,195 1,552 6,658 68,111 74,047 83,628 73,887 173,899 203,755 221,534 226,382 242,101 246,694 1972 1973 1974 1975 1976 1977!J 55,140 61,302 62,492 42,857 38,681 43,013 88,699 99,788 62,493 83,198 92,395 98,033 1,367 5,113 56,672 60,821 67,738 59,139 145,205 166,203 181,657 186,876 198,814 200,184 Examination reports received to February 1, 1978. Financial data as of June 30, 1977. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Total -6- CHANGES IN COMPOSITE RATINGS OF STATE MEMBER BANKS DURING 1973 COMPOSITE RATING 1 2 3 or 4 Banks Moving Into Each Composite ts:) Rating between 12-31-72 and 12-31-73 1) NUll'.ber of Banks 2) Total Assets ($ millions) 3) Total Deposits ($ millions) c..:i l:1t 3,517 2,928 67 3,543 3,056 5,522 4,141 53 2,948 2,544 81 9,035 7,065 15 599 517 71 11 .... I I https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Banks Moving Out of Each Composite Rating between 12-31-72 and 12-31-73 1) Number of Banks 2) Total Assets ($ millions) 3) Total Deposits ($ millions) CHANGES IN COMPOSITE RATINGS OF STATE MEMBER BANKS DURING 1974 COMPOSITE RATINGS 1 ! ~ Banks Moving Into Each Composite ~ ~ Rating Between 12-31-73 and 12-31-74 0:, 1) Nuntl>er of Banks 2) Total Assets ($ miilions) 3) Total Deposits ($ millions) I 0, I 66 4,378 3,670 88 10,598 8,504 31 60,257 50,476 »anks Moving Out of Each Composite https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Rating Between 12-31-73 and 12-31~74 1) Numbe'r of Banks 2) Total Assets ($ millions) 3) Total Deposits ($ millions) 85 92 8 10,248 64,568 54,090 417 8,208 351 CHANGES IN COMPOSITE RATINGS OF STATE MEMBER BANKS DURING 1975 COMPOSITE RATING 1 2 3 or 4 Banks Moving Into Each Composite ~ Rating Between 12-31-74 and 12~31-75 I ,,0 I https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1) Number of Banks 2) Total Assets($ millions) 3) Total Deposits ($ millions) c.:, .._. 49 10,169 8,234 106 66,030 53,623 31 41,840 34,230 102 37,931 29,684 69 41,196 33,343 15 38,913 33,060 Banks Moving Out of Each Composite Rating Between 12-31-74 and 12-31-75 1) Number of Banks 2) Total Assets ($ millionS") 3) Total Deposits ($ millions) CHANGES IN COMPOSITE RATINGS OF STATE MEMBER BANKS DURING 1976 COMPOSITE RATINGS 1 ! ~ Banks Moving Into Each Composite Rating Between 12-31-75 and 12-31-76 ...? I l\j C,ij 00 1) Number.of Banks 2) Total Assets ($ millions) 3) Total Deposits ($ millions) 49 3,390 2,743 108 12,153 10,285 24 13,359 11,598 91 11,208 9,465 68 15,384 13,276 22 2,310 1,885 Banks Moving Out of Each Composite https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Rating Between 12-31-75 and 12-31-76 1) Number of Banks 2) Total Assets ($ millions) 3) Total Deposits ($ millions) CHANGES IN COMPOSITE RATINGS OF STATE MEMBER BANKS DURING 1977 COMPOSITE RATING 1 l 3 or 4 Banks Moving Into Each Composite t,,:) c..:> Rating Between 12-31-76 and 12-31-77 1) Number of Banks 2) Total Assets($ millions) 3) Total beposits ($ millions) ...... I ~ 62 10,276 8,516 75 17,490 14,668 20 690 609 57 5,125 4,434 77 10,858 9,029 23 12,474 10,330 I Banks Moving Out of Each Composite https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Rating Between 12-31-76 and 12-31-77 1) Number of Banks 2) Total Assets($ millions) 3) Total Deposits ($ millions) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Ul\'USUAL OR EMERGENCY BORROOING BY MEMBER BAh'KS 1/ 1974 - 1977 !{ Reserve Periods Banks by Size Group '1.1 $5 BILUON AND OVER 1975 1974 : Reserve Range of Range of Borrowing \ Periods Borrowing 4/ (l'J.llions) (Millions) Low fil.&!l Low .!!!.&h I None $1 BILLION TO $5 BILLION ..' ~ I I I 23 15. 7 1731.41 6 35.7 160. 7 i 4 35.7 121.4 15 7 .0 20.0 I 8.31 National Bank (Problem 3 .8 ~ational Bank (Problem) 22 19.4 39.6 4 .3 3 .1 32 30.0 57 .3 ! 16 2.9 34.7 I 7 8.0 11.0 i, 32 .3 18.3 I 8 4.6 State ~!e...bcr llank (Prob 1cm) National Bank (Problco) National Bank (Problem) !e2!! i $100 NILLIO~ TO S500 ~!ILLION I II I! ! I I I. !I i j I SJ l 1.4 2 11.4 ! I! ; i 6 4.9 9.6 13.0 ! i Range of Borrowing (Millions) High fil.&!l I None N'acior-...:1.l Bank (Problem) !e2!! i $500 MILLION TO $1 BILLION National Bank (Problem) Reserve Periods I I ~a.tional Bank (Problem) 1977 Range of Borrowing (Millions) II National B..:.nk (Problem) National liank 1976 Reservt Periods i .; https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis L'NUSUAL OR E}!ERGENCY BORRalING BY )!E}IBER BANKS 1/ 1974 - 1977 3.7 i; Banks by Size Group II 1974 ~=i~:~= ii S50 HILLIO:'.-: TO ilOO 1-flLLlON ! Range of ' ' Borrowing 4/ ~ '~ Xational Bank 23 2. 9 6.2 National Bank 13 .1 3.6 State ~kcilier Bank (Problem) ....' Periods 14 .2 7 .1 .1 5.2 9 1. 7 7. 7 12 1.2 2.0 1 1. 1 11 .1 Range of Borrowing Reserve Periods (Millions) ~ 22 1977 1976 Reserve (Millions) (Millions\ ~ State Mc:rr....bcr Bank (Problem) ':' 1975 · Reserve Range of Periods Borrowing 12 ~ ~ 6.3 8.2 Range of Borrowing (Millions) Lou ~ t,D"R SSO :•'.ILLIO'.\I Natior:.a l Bank (Problem) 15 1.3 Na ti.on.a 1 Bank 2 .1 Nat::.onal Bank 2 .4 ~tional Bank (Problem) 3.3 .3 .6 Nat:ion.11 Bank (Problem) 7 I ' ' I .l .5 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis UN!ISUAL OR EMERGENCY BORRQIING BY MEMBER BANKS 1974 - 1977 1/ "iJ FOOTNOTES 1/ I ~ t Borrowings under Section 201.2(e) of the Board's Regulation A, 12 C.F .R. Part 201 et. se.q. On Scpccmber 25, 1974, the Board amended its Section 20l.2(e-) of Regulation A, as follows::: 11 (1) In the event of unusual or emergency circumsta11Ces resulting from. national, regional, or local difficulties, Federal Reserve credit beyond tha•r contemplated under Section 20'1.2(c) is available. (2) Federal Reserve credit is also available for p,rotracted assistance where there arc cx.ceptiona.l circumstances or practices involving only a particular member hank. A special rate apz.rt fror.i. rates charged for lending to member banks under other provisions of ti:lis Part r.1.1y be established by Federal Re.serve Banks subject to review and determination by th.:? :Board of Governors and applied to such credit.. The special rate may apply ta JDember banks borrowing for prolonged periods (such as for more than eight weeks) and in sign·ificant a □ounts (such as when the loan has exceeded on average the amount of the borrowing bank"& rcquir.?"d reserves) because of financial strains arising from particular circumstances or pr;:!.ctic~s a.ffE.cting the individual bank--including sustained deposit drains., impaired access c.o !:',cr:.cy !'.llrkc.t funds, or sudden deteriorat.ion in loan repayment performance. tn no case should. the. special loan rate to member banks exceed the rate established for loans to nonmer,1bers under 12 u.s.c. 347(c) ." JI Data is from September 25, 1974 through December 31, 1977. JI K:.ii:lher of Reserve Periods during which the bank was borrowing under Section 201.2(e) of Regulation A. !±_/ Dollar amounts represent the average borrowing for the Re.serve Period.. 243 FEDER\L RESERVE POLICY REGARDING BANK LENDING TO FOREIGN cou:aRIES SUllJCCT TO rm STANDBY AGREEMENTS The Fcdcr,11 Reserve docs not direct member banks to conform their foreign lending to any standby agreements entered into by foreign countries with the International Mone,tary Fund. The Federal Reserv;e believes that indi vidua 1 credit decisions should be made by member banks on the basis of a careful evaluation of factors and it does not enter into the credit decision process by specifying some factors at the expense of others. The terms of IMF standby arrangements are not disclosed by the Fund. However, in some instances, the borrowing country has chosen to make its contractual Letter of Intent available to banks and the genera 1 pub lie. A recent example is the December 1976 letter agreed to by the United Kingdom authorities. A copy of that Letter of Intent is attached. INF stabilization arrangements that include performance criteria as conditions for periodic disbursements from the IMF are now in effect for the following countries: Burma, Egypt, Italy, Jamaica, Mexico, Pakistan, Peru, the Philippines, Romania, Sri Lanka, the United Kingdom, and Zaire. Finally, it may be noted that the banks themselves have increasingly been placing emphasis in their lending on foreign countries being in good standing with the International Monetary Fund. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -15- 244 l'r,•aiiury Ch,n•b"u l'•rlhment Street London, SWIP JAq 15 December 1976 Dear Mr. Witteveen: I. The Government of the United KingJ01a hereby requl!sts of the International Monetary Fund a stand-by arrangement under which for a period c,f two y<>ars the Government of the United Kinr,dom will have the rii:ht to rurchuc from the Fund currcnc ies of other mmnhcrs in cxchan~n for i;tttrl inr. up t,, .tn amount equivalent to SDR 3,360 million, Defore making purchases under the stand-by arrangement, the Government will consult with the Managing Director on the particular currencies to be purchased from the Fund, 2, The purpose of this request is to support the policies that have been adopted by the Government of the United Kingdom to strengthen the balance of payments and create the conditions in which it will be po•sible to get both unemployment and domestic inflation down from their present unacceptable levels and keep them down. The stand-by arrangement will also help to repay el\ternal debt now falling due and assist in maintaining orderly conditions in th~ exch.,nge market for sterling, 1'hc Government's objectives and policiu, which I ·shall summarize below, have been iet out in detail in recent policy prono~ncements, including particularly the Prim~ Ministcr 1 R Rpcc(h to the House o( Com:nons on 11 October 1976, my speeches to the llou•• on ll October nnd 30 November, and my statement in the House this afternoon. 3. Since the summer of 1975, the Government, with the support of both sides of industry, has pursued a medium-term strategy whose objectives are to reduce· the rate of inflation and to achieve a sustainable growth in output, employment, and livinc standards based on a strong expansion in net exports and productive investment. In order to secure thit strategy, tl\e White hper on public expenditure published in February 1976 (Cmnd, 6393) indicated the Government I s in~e1lt ion in th~ years ahe,1d to reduce tho share of re,aources taken by public expenditure, It is also part of this strategy to ~cdute the public sector bortowing requirement so as to establish monetary condition• which will help the growth of output and tile control of inflation. The Covern'ment sees this strategy as the basis for a three-yeB.r progranlllle which will firmly establish the recovery of the nation's •conomy· and will also allow the Unite<! Kin~dom to make its proper contribution tu the stability and p'ro1perity of th@ world, 4. The two pillnrs on whiCh this strateAy is b,1scd are the ,social con• tract with the trades union movement 1 which has al ready al lowed us to achieve a· suhstantial reduction in the rate of prico an4 wago inflation and has brou~ht 1bout a dram~tic improvement in industri3l relations; and the irtdustrial strnt~gy, through' which the Government, the tratfo unions, and the, employers arc sackinr. to improve the perform:rnce of our m.1nuf,1cturing in<lu11try and, in p,,rticular, its https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -16- 245 productivity o11nd its ability to comp,~tt- r.1JCC~Rsfully in world markets. lt is rmr firm intention to continue the policy of securing a progressive deceleration c,f inflation throu~h voluntary .igre.ttment between th,~ Governmc?nt and the Trades Union Congress. Under the first sta~e of this policy, the increase in a.vernge ~•rnings was rcducr.d to 13.9 per cent in the year ~nding July 1976 from 27.6 ·per cent in the corresponding period 3 year earlier. Under the second stage, the 'CUC and the Government are applyinr! th~ present p,1y a~rcement strictlYi average earnings resulting fro1n thi!J second stage policy in the period July 1976 to July 1977 will at least rise uy something like· half of the amount of increas~ in the precf~dinJJ; 12 m1>nths. Largely because of this restraint in earnings the rate of price incrc.1se has fallen sharply from a rate of 25.9 per cent in the 12 months to October 1975 to one of 11,. 7 per cent in the 12 months to October 1976. In recent months this pror.ress has lh.. ~n intl.~rrupted b.:!c:tuz..t.. of the sharp rise in commodity prices, the effect~ of the drought, :md the depreciation of the exchange rate of sterling. Nevertheless, the Government is determined to ensure that the rate of inflation continues to fall. Accordingly, it will begin early next year to consider, i'n consultation with the TUC and the CBI, how this objective can best be pursued in th<? period beyond July 1977. I would aim at reaching agreement through these consultations in the early spring of next year, i,n time for the Budget. This will ensure that the gains achieved by the sacrifices already made are further improved and that there is continued progress in bringing the rate of inflation in the United Kingdom down to that obtaining in the other main industrial countries. 5. Work to develop an industrial strategy can produce major results only in the medium term, but signi fica1lt pro~rr.ss has been mntte in thP. l;ist 12 months. The current phase of the work is directed to increasing market shares at home and abroad, through improvements in industrial productivity and non-price competitiveness. It is the Government's policy to create the conditions in.which a strong British manufacturing industry can contribute to the improvement of our balance of trade and payments, 6. I have repeatedly stressed that the Government aims to stren5;then the b~lance of payments progressively over th~ coming years as one essential condition for sustained growth and a high level of employment. On the basis of our presCnt projections for the growth of world trade and prices, the Government expects that the deficit on current account will fall from over f 2 billion in 1976/77 to about £ 1 billion in 1977/78, and then move into a surplus of some l 2 billion to l 3 billion in 1976/79. In the coming years the current account will increasingly benefit from productiqn of North Sea oil and gas. This prospect together with continued progress in improving the non-oil component of our external accounts will allow us to reduce the larne outstanding amount of foreign debt that has been accumulated ,ind at the same time to reconstitute our for~ign exchange reserves. However, I must eruph,1s.ize that an improvement of this magnitude must depend on a satisfactory rate of cxpaRsion in world trade. lt is not possible for deficit countries to improve their position unless countries with a strong ..balance of p3ymcnts ensure a satisfactory rate of ttrOwth in their economies :.Ind are prepared to accept a deterioration in their own external position. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -17- 246 7. n,e Covernmcnt iR detl~rminccl to cnrry throu~h a stabi 1 ization pror.r:1m111e which will bring the ~cunnmy into h:il.1ncc and which, if it is nnt to produce un- acceptable social tensions :ind levcli:. of unemployment, will nr.ed to r..tt~nd over two to three years. n,e changes required by this programme must proceed at a pace which will not overstrain the consensus on which our policies for regcherating industry and reducin~ inflation must dep~nd. The Government is deeply conscious tha~ the present state of the economy has brought a waste of human and material resources. The Government's objective is to break decisively aw3y from the constricting pattern of present cir~umstances and post-war disappointments. It will, therefore, keep a close watch on the development of the economy, so that if any further act ion is needed, it can bl~ tRken in good time to ensure that conditions are favorahle for the necessary shift of resources 'into exports and productive invc~tmcnt. t,·or this purpo:;;~, an css~ntial l"lL~ml!nt of the Government's strategy will be a continuing and sub.st:rntial rcduct(on over the next few years in the share of resources required for the public· sector. It is also essential to reduce the public sector borrowing requirement: (PSBR) in order to create monetary con<litions which will encourage investment and support sustained growth and the contr.ol of inflation. In the following paragraphs of this letter I will describe the policies which the Government will th,erefore follow over the next two ye;irs: the policies for the second year--the fiMncial year 1978-79--will be reviewed before the end of 1977, in the light of economi~ developments and prospects. 8. Our most recent forecast shows the PSBR in 1976/77 to be £ 11.2 billion. This is less than the fi~ure of £12 billion forecast when I requ<'i'ited a stand-by arrangP.ment in the first credit tranche in Dt~~~mlh~r l975, Thi$ improvement in the expected outcome reflects hi~her revenues hecause of the higher rate of inflation referred to in p.1ragraph 4 above and the improved financial position of the public corporations; and it has also been assisted by the progress that has recently been made in establishing firm control over large areas of public expenditures by the use of cash limits and our refuR.11 to sanction expenditure beyond the total set in last February's White Paper for programmes and the contingency reserve. 9. In the White Paper of February this year (Cmnd. 6393) the Government introduced policies to move resources into the balance of payments and investment by reducing public expenditure in both 1977/78 and 1978/79. In July 1976, it made further reductions in public expenditure programmes for the year 1977/78, of the order of f. 1 billion at 1976 Survey prices. It also nnnounced a surcharge on employers' national insurance! contribulions, to become effective on April 6, 1977, which will yield some £ I billion in additional revenue in 1977/78. 10. Since these measures were announced, there have been periods of instability in the exchilnge: market and pressurl!s on monetary aggrt~g.ites, which l1ave led to a steep increase in interest rates; these, if sust;iincd 1 would dam3ge our economic performance in scver,11 areas, I am therefore convinced that a further reduction in public expenditure and in the public sector borrowi.n~ requiremen~ is un;ivoidablc. 11. To remove this instability, thl'refllrl', the Government has d~cided to reduce public expenditure proJ:r,1mm1."S in 1977/78 by a further [ 1 billion and in 1978/79 by [ I 1/2 billion, at 1976 Survey prices, in both cases. Details are set https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -18- 247 out in m:1, 1tatcment to th~ Jlous~ Of Cn:1\mon~ t11day. At thP. sa"lQ ti.me I wi•h to give the ".1axi,n,11n ,,ossible help to industry ~nd to ~void unnece,sary u11e111plPYIRl'llt l ther..?fore intend to increas~ m<pr.nditqre on incr.ntivcs for \ndust.rial invest.mt?nt and e:<panRion nnd on measures ~o reduce unemp,oyrnent in ench of the two ycnrs 1977/78 nnd 1~78/79 by t200_111illion, This expenditure will be fi04nced by an increase of 10 per cent in Lhe' duties on alcghol and tobac~o, As a result of these ineasures and of a sale duri11g ·1977/78 of British 12. Petroleum shares calculated to yield [500 million, the aim ls to hold the PSBR to [ 8,/ billi,,n in that year. As a proportion of GDP at market price•, the PSSR ,•ill therefore, fall from about 9 per cent in 1976/77 to about 6 J>Cr cent in 1977/78. If, at the time I plan my Budget for 1977/78, l jud110 thnt without increasing the PSBR above [ 8.7 billion there is scope for ta~ rclio(e and if, as 1 hope, a sati•factory agreement has been reached with the TUC and the CBI on pay arrangements for the perioJ after July 1977, then I would plJII to use the available margin to reduce the present burden of direct tuation, My own belief is that present levelR of direct taxation have proved discouroghg to effort and efficiency, and if they "ere to continue: unchanged they could threaten the improvement in our eco'nomic performance which i• an euaentlal objective of the Covc'rnment 's strategy. The prnfile of public expenditure after these red11ctions and those 13, mentioned ear I ier in th is letter can there fore be stated ae follow,, The tntal of pub! ic expenditure pro~rammes for the financial year ·1976/77 (excluding debc interest and capital finance for nationalized industrieR) is now e>(rectc-d t,,, be about I per cent more in volume than in 1975/76, when it was approximate!")' t 50 1/2 billion at 1976 Survey prices, This latest 1976/77 esti~ate is withill the corrcspondin~ p'rovision for these prograrrme11 and the contingenc7 reaerve in the last public expenditure White Paper (Cr.,nd, 6393), The level in 1977/78, after the measures announced in July and the further reductions nnw decided is planned to fall to about I per cent below that of 1975/76 at 1976'Surv11 prices without taking account of the procceJ1 of the planned sale of Jritipb Petroleum shares. The planned level for 1978/79 will also be about l per co11, bel.ow that for 1975/76, That part of tntal expenditure which is due to pro• vision for social secur_ity benefits for the unemployed ls, however, subject to a m,,rgin of fluctuation accordin11 to the actual level of unemployment. the r~v i sed ex pend i turc programmes incoq,orat in1; the clrnn,;es which l descr lbed wl l l be published in the next public expen~iture White Paper, The implicatinn of the figure• which I have given i• that the published total for programmes plu, the cont in~ency reserve, but exc ludinr., on th~ cn1e hand rcce iptrt fr()m the aa \tt o'f the British Petroleum shares and on the other hand debt interest nnd capital finance for the nationalized ind.ustrics, will b-c around £ 50 billion or some• what less in 1977-78 and orn1•nd [ ~O billion •~•in in 1978-79, at 1976 Survey prices in both cases. Capit:il fin,1nce for ,the nation,1lized industriee 1aobiliced by the Government is estimated to bP. hroaJly stable over this period. I also intend to take furtlu,r fisc,11 action totaling t 0.5 billi<>n at 14. 1976 prices affecling 1978/7q in order to brin~' Lhe PSBR for that yen down to t 8.b Dilli:,n in nominal tE'rm!lf thiR wo11td repreiu~nt II fall in the level of the PSBR to S:'l!~h? 5 1/4 per cent of GD!' at market prices •in that year. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -19- 248 15. The CovcrnniP.nt h.:.s dPtcrinin1.•tl th1?s,._ objectivl!s !or tho PSRR on the b3sis of a forecast that the gro911 do1u1:?stic product wi.ll ahow an incrt?.1J11e nf about 2 per cent in 1977/7R cnrnpar,•,I with 1976/77, followed by a somewhat larger increase of 2 ll2-J per cent betwc~n 1977/78 and 1978/79, 16, In ca rrying out the annual survey of public expenditure progrmnmes in 1977 and in preparin~ my 1978 Bud~et, l shall continue to be guided by the need, which is an c,;scntial elcnil?nt in our strategy 1 to shift resources into the export and investment sectors and I shall, therefore, take Cull account of the prospective growth of output and ensure that n.>thing stands in the way of thio shift of resources, ln particular, ..U,thc for,,cnst rat,, o'f growth from thP. _, bP.ginning of 1978 to the end of 1979- ij in l!xcc•s of 1.5 per cc11t 11rr 11111111,n, I shall--fo order to allow for it--makc_an·•dditional fiscal adjustment in 1978/79 of between t 500 million and t 1,000 million at 1976 prices, The exact fi~ure would depe'nd on the buoyancy of aggregate demand, · 0 17, A reduc ti.on in the PSBB. wil 1 go· a long way to improve our ahil it y to control the rate of growth of the monetary a!lgregates, and will help to reduce the level of .interest rates which might other-wise be an impediment to incr,,ased industrial investment, I have repeatedly stressed that our policies should not be undermined by an excessive expansion of credit. In the first half of 1976/77, the growth of bank lending rooe much more rapidly than expected, and this contributed to pressures on the pound. To counter these dcvelopml.!nl~. n r;criea of measures have been taken. In St?ptl~mher .1nd O~te"bcr 1976, th,, l\:mk of England increased their minilftum lending rate subst:mtially nnd cnlt,,J [<Jr special deposits from' the banking system amounting in all t•> 3 per- cent of eligible liabilities. In November 1976, the Bank of Englan,d reintroduced the system of supplementary specid deposits which should ensure that the i:rowth of credit and the money aggregates is brought undet control quickly, The Government is deterinined that bank credit eKpansion will not undermine the stability of the eKchan~e market, 18. I accordingly intend that domestic credit upansion should be kept to t 9 bi 11 ion in the 12 months ending 20 April 1977 and to t 7, 7 bi 11 ion in the 12 months ending 19 April 1978, 1 intend, however, to review the latter figure early in the financial year and to take account of the prospective financial requirements of industry for investment and expansion, lt ir;; the Government's intention that the course durinR each year of Domestic Credit Expansion (DCE), and of the public sector borrowing requir~1nent within it, •hould be conoistent with the intended results for the year as a whole and to take action as appropriate to this end, 19, In the year ending 18 April 1979, I expect the e~pansion of domestic credit to be further reduced to t.6 billion .• This, however, will have to be reviewed late in 1977 in the light of the pro•pects for 1978/79, ln that review .111 appropriate downward adjustP1ent wil 1 be mndc- in the intended rate of detm~stic credit r.xpanl!lion for any reduction in the puhl ic ,;ector borrowing requirement for 1978/79 that may result from the review described in paragrapn 16, 20, intend to fund the major part of the PSBR outside tile bankin~ system, so that there can be roetm within _theSe levf'ls of dC1m~1tic credit exp,1n,;iC1n for bank credit to fiicilitatt! the shift of res11urce, intL, exports a11J pr1.,,iu.:tiv~ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -20- 249 investment. I 1 cnviR•1gt! th.it the Ioe.1:rnres which I h:ave now taken• es pee ially those t,> rt>duc" -the l'S8~, will m"kr it possible to rcducP. interest rates pro• gre,sively from their present excr.ptional levels, while maintaining effective control of the monr.tary agr,reant<>•. 21. For at least t~c immrdinte. future, Lhe supplementary special dr.posits sclie!me, involving guiddines for the grow.th of b,1nks' · interest-bearing liabil iCiea, vii I be· a key instrumunt for controllin11 the growth of bank credit t!> the private sector, 1nay also cauu snme shift of holdiniu of short-term public sector debt away from th<' b11nkin11 system, distorti_nr, thP. DCE and money supply lit;atistics, without af(ecting the umlerlying 5t.1tt:? of liquidity i11 the 1!CC:momy: if this happens, 1 intend to keep DCE correspondin~ly lower than the targets set out above. 1, 22, While the exact implications of the targets £or DCE for the growth of tha money supply and, in particular, tor sterling Hl will depend on the speer! of progress in achievin11 ouc balance of payments objectives, I am satisfied that the resultant course of sterling Hl will be consistent with a reduction in inflation. 23, . Durinc the past year the proble,ns of financing our external and internal deficits h·ave _seriously hampered progress in •~hieving our goals. 'fho exchan(?e market, iri p:ttticular, hAs been a conspicullUS cause of uncertainty, th_ereby ·undoul•tedly delaying the recovery of the economy. 111n m~asurrs now t1ken by the Co,•ernnaent give assurance that priv,1te busi'neilil deci•inns can be tak<1n against the background of a clearly defined policy. Intervention will be deaigned to 1nini,d=e disruptive short-term fluctuations in the rate and to ■ailltain stability in the exchange markets consistently with the continued iroi11tet1ance of the competitive posi_tion nf U,K. manufncturu both at """~ and ovetlellS, lt is •Y belief that chis, in conjunction with the continued reltr1int of domestic demand, a steady impru~ement in non-price competitiveness tnd progreaa in alignin11 our coat and price inflation to those of our major partneu, will alter the lon11·1tanding trend for the U.K. share of world urlet• to diniinlah, and limit more effectively the continuing pP.Retration of the domestic market by imported manufactures, thereby promoting industrial growth ln the Unitt?d Kingdo,., It •hould also help to secure 111 • much needed improvement in our resr.rves pnflition. 11,e U.K. ~uthorities !ltr1?-11s their K.upport of tho Executive Board Decision of January 23, 1 1'74, on C1.'ln!lulto1tions on Members• Policies in·P1·esent Circuinstnnces, ,ind t1!iterc1tc their int,~ntiona to collaborate with the Fund in accordance with the provisions of Article IV, Section 4(a). 24. The Cc,,vernmcnt r~mains fir•ly oppo•ed to ~anr.ralized restrict ion• on trade and does not intenrl to introduce re•triction• for balance of payments ,Urposes. lt continues to b~lieve, however, that in current econnmic circumst3nces th~rP. may be cases where particular industries which are viable in the lon11-ter11 ate 1ufferin11 serinus injury u a result o( increased imports. The Govarn11.P.nt has i11troduced ~urt.ain te_mpor.:iry r-e l~ctive mca ■ \lres in a nnmbr.r r,f such cases and has tltats:d th.1t it i!I 1,repared to cons idr.r the further u!lt" of •u~h measures where the,y may be justified in similar r.a,;es which ia:riy .1ri,;c. It vi l l be the Governm~nt '1 pol ic~ tC'J rc,lucf! such rr,,tl?C ti ve m,,a,:ur,'!1- .,~ !l.t'+11n :11 30-476 0 • 78 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ~21- 17 250 circumst,1nces permit. Durin~ th,. ('lt?riod of the stand-by arrangctaent. tieGovernment Joes not intend' to introduce any multiple ·curTI!ncy practica ftl" impose new or intensify l!Xisting restrictions on paylllf!Rts- and transfer ■ fW current international transactions. 25, 11,e Government believes that .the policies set OU1: in thiw 1.etlllel' are adequate to achieve the objectives of its prol',rammes, but viii, ta'lle ~ . ~ ther measures that may become appropriate for th.is purpose, The IJWi,t,e,l ·ci~"' Government will cnnsult the Fund in accordance with the policic-R of the .Fllftd · on such consultations on the ,ildoption of any mensurc that may be .,ppropriate. !nan;· ,:.:.:.c, the Unite•:! Y.ir.;;::li:i:. ::·.!~h~?'i~i~:.- ,,.a1 rr.n-=-t. •m"•T"•t'"'!11t:Hr.:l'·~ the Fund before 16 January 1978, on their policy intentions for the -t.,...n.i.ng period of the st:1nd-by arrangement. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Yours sineerelyt /s/ Denis Healey Chancellor of the Exchequer -22- CIASSIFIED ASSETS OF STATE MEMBER BANKS Yearend Assets classified substandard ($ millions) Assets classified doubtful "($ millions) .... I I https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Assets classified loss ($ millions) Number cf banks 5 billion and over Total Deeosits in Foreign and Domestic Offices 500 million100-500 Under 100 1-5 billion l billion million million Total Rated Composite 3 or 4 1972 1973 1974 1975 19761/ 1977- 575 698 1,948 4,772 5,520 4,926 459 529 849 1,192 1,162 1,104 174 164 222 384 496 519 213 224 336 496 531 468 146 161 216 287 294 282 1,566 1,775 3,572 7,132 8,003 7,299 60 157 1,933 4,082 4,460 3,711 1972 1973 1974 1975 1976 1977!1 248 373 906 1,493 1,339 1,242 104 101 212 268 268 202 22 24 21 78 75 83 39 46 67 107 85 73 14 19 31 37 28 26 427 5611,237 1,983 1,795 1,627 18 25 834 948 996 857 1972 1973 1974 1975 1976 1977};_/ 40 65 112 175 160 144 24 42 51 64 59 46 9 12 18 17 23 23 19 21 26 35 35 28 14 15 23 22 22 20 106 155 229 312 299 261 5 25 114 201 175 148 1972 1973 1974 1975 1976 19771/ 6 7 7 7 7 7 14 16 17 18 15 14 19 16 15 16 17 17 88 87 83 88 98 91 957 932 925 911 877 873 1,084 1,058 1,047 1,040 1,014 1,002 33 29 50 64 61 57 _ll Examination reports received to February 1, 1978. ~ Cl1 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis PERCENTAGE OF CIASSIFIED ASSETS TO TOTAL CAPITAL OF STATE MEMBER BANKS Year• ~ Weighted percentage of classified assets to total capital 1972 1973 1974 1975 1976 1977};/ 5 billion and over Total Deeosits in Foreign and Domestic Offices 1-5 Under 100 500 million100-500 1 billion million million ~ 20.9 26.5 61. l 122.9 112.6 96. l 25.3 26.l 41.3 51.3 50.6 45.5 17.l 18.8 25.6 45.9 49.3 47.2 17.3 17.7 24.9 37.l 36.4 31.6 11.4 11.9 14.9 18.9 19.l 16. 7 Total 19.5 22.2 41. 7 73.6 72.3 62.8 Rated Composite 3 or 4 83.9 63.2 92.8 153.3 134.4 128.9 NJ C)l I I,> .i:I Unweighte.d percentage ·of classified assets to total capital NJ 1972 1973 1974 1975 1976 19771/ 24.4 28.0 74.6 143.0 117. 7 98.4 1/ Examination reports received to February 1, 1978. 25.4 25.7 41.3 56.4 56.8 50.6 18.0 19.6 27.3 46.l 47.1 45.4 17.3 17.0 23.l 34.3 33.3 28.5 12.4 11.8 13.3 17.9 19.4 17.9 13.l 12.6 15.2 21.2 22.4 20.3 90. l 87.0 94.2 107.7 105.3 94.9 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis LOAN CO}~!ITMENTS AT SELECTED IARGE CONMERCIAL BANKS Unused Commitments (In Billions of Dollars) No:1th-end Total unused To cotrl!lercial and industrial firms Formalized a2:reements Total Revolvin2 3/ Other 4/ To nonbank financial lines 5/ institutions For real estate loans Confirmed Term 2/ cor.im.itmcnts 1/ 1975 Janu.:ir>• Feb.cuary ).::Icch A"?ril Nay ' N u, ' June July l..u;cst Scpt(•::lher October Nove:::.bc.r Decc~ber 140. 7 11.2 .4 142. 7 145 .8 14S.5 147. 7 149.8 152 .8 152.0 153 .4 153.1 155. 7 105 .1 105 .6 106 .5 109.4 111.9 112.3 11~.4 116.8 116.5 117.0 117 .2 119.4 6.2 6 .1 6.0 6.3 6.2 6.1 6.0 6.2 6.3 6.5 6.4 6.2 27 .9 28.8 29.4 30.5 31.0 31.2 32 .3 32.9 33.4 33.8 34.5 35.3 4.4 4.4 4.2 4.3 4.5 4.4 4.3 4. 7 4.8 5.0 4.8 4.9 66 .6 66 .4 66.9 68.3 70.3 70.6 71.8 73.0 72.0 71.7 71.5 73.0 29.6 31.0 30. 7 31.l 31.4 30.3 30.5 31.0 30.6 31.8 31.331. 7 6.0 5. 7 5.5 5.2 5 .l 5.1 4.9 5.0 4.9 4.6 4.5 4.6 156. 7 156 .o 157 .9 157 .4 157. 9 158, l 156 .6 159 .6 159.9 161.5 162 .6 161. l 120.5 120.0 121.0 120.6 120.5 121.4 119. 7 122.1 122.2 123.6 124.3 123.4 6 .2 6.0 6 .2 6.0 6.0 6 .2 6.0 6.3 6.3 6.3 6.5 6.5 34. 7 34.5 35 .1 35 .1 34.6 35. l 35.0 35 .4 35.3 35 .o 35 .6 36.1 5 .1 5.0 5 .1 4.9 5.1 4.6 4.5 4.8 4. 7 4.8 4.9 5 .1 74.5 74.5 74.6 74.5 74.8 75 .4 74.2 75 .6 75 .9 77 .5 77 .3 75. 7 31. 7 31.5 32.0 32.2 32.5 31.8 31.9 32.6 32. 7 32.6 32.5 32.3 4.5 4.5 4.9 4. 7 4.9 4.9 5.0 5.0 5.0 5.3 5.8 5.4 1976 Janu~ry February !-!:irch April )!.::ty J'..ln1;. J:.ily At:gusc Sc:,te:r:.bcr Cc co::icr l\.:,vc:;.ber December https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Tot.::i.l unused commitr.icnts 1/ ~lonth-end 1977 January February March April ?-!ay June July August Septe:nber October Noveti.bcr Dcccmbc..r ~ f !/ l 165.8 164.3 166. 7 166.5 166.9 167 .4 167 .0 168 .6 169. 2 171.l 179.6 179 .6 T() cor.rncrcia 1 and industrial firms Forr.ializcd agreements Total Term 2/ 128 .2 126 .6 128.5 128.2 128. 7 128. 7 128. l 128. 7 128.6 129.6 137 .1 136.8 6.4 6 .5 6. 7 6. 7 6 .8 7 .0 7 .5 7 .5 7 .6 8.6 8.5 8.8 Revolvino 3/ 35 .2 34.5 35. l 34.8 34.2 34. 7 34. 7 34.8 35 .1 37. l 39.9 38.4 Other 4/ 5 .2 5.2 5. l 5.0 5.0 4. 7 5 .2 5. 7 5.8 5.8 6.8 6.3 Confirmed lines 5/ To nonbank financial ins ti tut ions For real estate loans 32.6 32. 7 32. 9 32.8 32 .5 32.9 32. 7 33.3 33.5 34.2 34.3 34.8 5.0 5.0 5.3 5 .6 5 .8 5.8 6. 2 6 .6 7 .o 7 .4 8.1 8.0 81.3 80.4 81.6 81. 7 82. 7 82.3 80. 7 80.8 80. l 78. l 81.9 83,3 Um..!Sf:d conci.ttr,cnts are the amounts still available for lending under official promises to lend that are expressly conveyed to the bank's customers orally or in writing, usually in the form of a formally executed arreem.::nt signed by one of the bank's officers. }/ Co::1!:..:itrr:ents for tern loans arc those for loans with an original maturity of more than one year. 1/ Revolving credits are comoitme.nt agreements whereby the borrower may draw and repay loans at will with no repayment penalty and und~r which the commitment rebounds by an equal amount after a takedown has been rcp.:i.id. !±./ Other cm:::nitr.i.cnts are c-:xpressions of willingness to lend, other than for term loans and revolving credits, chat are ma.de knol~1.1 to the customer and are characterized by detailed formal agreements specifying the terms and conditions under which a loan is to be made. '2._/ Co:-ifirr.1ed lines of credit represent general expressions of willingness to lend, other than for term loans or r<.!volving credits, that are !!'l.'.'.ldc known to the customar but are not characterized by detailed formal agr~e::1.:!nts spccifyir.g the terms and conditions under which a loan is to be made. NO'!'E: Included in this series are 135 weekly reporting banks; these banks account for approximately 85 percent of co~crcial and industrial loans, 95 percent of nonbank financial loans, and 75 percent of real estate loans of all weekly :reporting banks. Individual items may not add to totals due to rebounding. 255 ORDERS AND AGREEMENTS EXECUTED BY BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 1977 1/ 1. Bank - total deposits: Subject: and 12 Violations of ReBulation O, 18 u.s.c. Order: $30 million- u.s.c. 656, 1005, 1014, 83. Prohibited future violations of above statutes and regula- tions; improve loan documentation procedures and controls on the issuance of cashier's checks. 2. Bank - total deposits: Subject: $70.5 million High volume of classified loans; liquidity problems; payment of excessive bonuses; accrual of interest on delinquent loans; violations of section 24A of the Federal Reserve Act. Agreement: Required Bank to submit and abide by written plans to reduce classifications; prohibited future violations of section 24A; required $2.5 million increase in Bank's equity by year-end 1978; written plan to increase percentage of Bank's net liquid assets to net liabilities, and to reduce net average borrowing; restriction on any increase in bonuses paid by Bank. 3. Holding company - total assets: Subject: $272 million Holding company was increasing its ownership ,in Bank without prior Board approval. ~: 4. Prohibited future ownership increases without Board approval. Holding company - total assets: Subject: $21 million Holding company paying excessive fees, bonuses, dividends to controlling shareholders. l/ All deposit and asset figures are approximate. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -27- 256 Ord1·E: Required that holding comp,my amortize bank stock debt over 12 yc:irs and limit dividends paid by subsidiary bank; commitment fro:n shareholder to supply all funds necessary to accomplish the for<'ioing to extent holding company cash flow was not sufficient. 5. Holding company - total assets: Subject: $1.B billion lloldini, company acquired shares in two banks without prior Board approval. Agreement: Prohibited future violati.ons of Section 3 of the Bank Holding Company Act. 6. Holding company - total assets: Subject: $21 million Bootstrapping transaction; issuance of commercial paper without ability to repay; excessive leverage. Order: Required capital injection by majority shareholder; required holding company to amortize bank stock debt over 12 years; commitment from majority shareholder to supply all funds necessary for amortization to extent that holding company cash flow was insufficient; limited dividends from subsidiary bank; limited issuance of commercial paper. 7. Holding company - total assets: $22 million s. Holding company - total assets: $12 million 9. Holding company - total assets: $4 million 10. Holding company - total assets: $11 million 11. Holding company - total assets: $12 million 12. Holding company - total assets: $34 million Sub·jcct: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The six preceding holding companies were all bootstrapped -28- 257 and highly leveraged. Since they are all controlled by the subject of the action described in #6 above, their recapitalization was part of the settlement of that action. Agreement: Required principal shareholder to inject additional capital; required bank stock debt to be amortized over 12 years, with principal making funds avaiiable for this purpose if holding company cash flow was insufficient; limited dividends from subsidiary bank. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -29- 258 WRITTEN AGREEMENTS EXECUTED BY FEDERAL RESERV1' llANKS 1977 1. Holding company - total assets: $50 million Agreement: Holding company's computer subsidiary required to adjust the schedule of foes charged subsidiary banks to market and to limit surcharges assessed against subsidiary banks; required the disposal of two remote computer facilities, 2. Holding company - total assets: $190 million Agreement: Prohibited future violations of Regulation Y and required holding company to place senior officer in charge of monitoring Regulation Y compliance and educating other employees to prohibitions. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -30- 259 APPAI:fiNT VIOI.A'f[ONS OF I.AW CITED BY EX,IHLNRRS The following chart li.sts apparent viol:1tJons of law cited by ex:unincrs "i.n the latest nvailahlc e:u1.min,1tion report for the (i!~ hanks on the Coard' s lJcccmber 31, 1977, list of banks requiring special sup~rvisory attention. It should be noted that the d~ta is b,1sed on recent examination reports and the corrc-ctivc prOCC't:lS has not been completed in all cases. Number Number of Violations Disposition 46 24 12 Corrected Corr cc tion promised Correction requested of Banks Lnw or RPgu la tion 15 Regulation B, Equal Credit Opportunity Act 4 Regulation C, Home Mortgage Disclosure Act Corrected Correction requested Regulation D, Reserves of Member Banks Corrected Regulation H, Requirements of Membership 10 Regulation H, Loans in Identified Flood Hazard Areas Correction requested 7 1 2 Regulation I, Issue and Cancellation of Capital Stock of Federal Reserve Banks 2 Corrected Correction promised Correction requested Corrected Regulation O, Loons to Executive Officers 19 1 Corrected Correction promised Carree tion requcs ted 4 Regulation P, Bank Protection Act 4 Corrected 14 Regulation Q, Interest on Deposits 36 7 7 Regulation s, Bank Service Corporation Act Regulation U, Credit by Banks for the Purpose of Carrying Margin Stocks https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 14 10 Corrected Correction promised Corrected Corrected Correction promised 260 NumbC'r of Viol.1ttnns Numhcr L:-iw or RP~ul,,tion .2.f_H,mks HUD Regulation X, Real C~;tote Scttlnmeut Procedures Act 20 Regulation z, Truth in Lending Disposition 7 1 15 Corrected Correction promi!.cd Correction rcqucsLctl 161, 70 75 Corrected Correction promlst·tl Correction rcqucGtC!d Section ll(m}, FC'dcral Reserve Act Loans on Stock or Bond Collnteral 4 Corrected Section 23A, Federal Reserve Act, Loans to Affiliates 6 1 1 Corrected Corrcc tion promis~••d Correction rcqucstc<l Section 24A, Federal Reserve Act, Investments in Bank Premises 10 Bank advised of vio ... lation and future compliance requested 3 Section 5199, Revised Statutes, Dividends, Accumul.:ition of Surplus 1 2 Corrected Bank advised of vio ... lation and future com ... pliance requested 4 PL 91:508, Bank Secrecy Act 4 Corrected Correction promised 2 l Employee Retirement Income Security Act (ERISA) 37 Correction requested l 3 Corrected Correction requested Tax Reform Act of 1969, adminis ... tration of charitable trusts 3 Correction requested Fair Housing Act 3 Correction promised Financial Ins ti tu tions Supervisory Act of 1966 5 Corrected Fcdcr::11 Deposit Insurance Act, FDIC signs 2 Corrected Regulation 9, Comptroller of the Currency, collective investment funds Internal Revenue Service Code, amortization o[ bond prcmiwns in a municipal bond common trust fund 2 Section 5136, Rc-visPd Statutes, Inv"'stment Securities https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Correction promised 2 2 -32- Corrected Correction promised 261 Number of Number £f Violations Law or l~C'f;ulntion Banks 13 Loans cxcC!cdinS3 1.e:nding limitations 32 16 Other 74 4 Criminc1l Code, 3 Sections https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Di.:;po.si.ti.nn Reported to approprL.itc authorities in all instances; in one case the individual was convicted and jailed. -33- 262 FAILED STATE MEMBER BANKS 1972 -. 1977. Date Name & Location of Bank ~ Total Assets Total Deposits Tri-City Bank Warren, Michigan 9-27-74 $16.2 million $14.9 million The principal causes of failure of this institution were speculative and unsound lending practices. There was also evidence of some self-dealing. Despite the fact that the Board issued a cease and desist order against the bank on June 30, 1971, management continued to be extremely uncooperative and the bank's condition worsened. In 1974, losses present in foreclosed real estate and marginal loans were of such magni1tude as to preclude future viable operations. State Bank of Clearing Chicago, Illinois 7-12-75 $74,4 million $60.6 million The principal cause of failure was an excessive and inadequately documented concentration of credit extended to finance construction of commercial real estate projects. The problems were exacerbated by the difficulties experienced in the real estate sector of the economy and the death of the bank's chief executive officer. ' American Bank & Trust Company New York, New York 9-15-76 $224.5 million $165.1 million See the press release issued by the New York State Banking Department that was submitted and published in last year's Hearings on the Condition of the Banking System, pages 1023-25. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -34- 263 MERGERS, ACQUISITIOXS BY HOLDING COMPANY AND PURCHASE AND ASSUMPTION TRANSACTIONS EFFECTED TO AVERT FAILURES 1972 - 1977 Type of Name & Location of Bank Acguisition ~ Fidelity Bank Beverly Hills, California Purchase & Assumption 4-19-72 Merger 7-15-72 Tota 1 Assets $95 million Total Dc2osits $78 million TI1c problem in this institution was an excessive concentration in speculative land development and other real estate loans, many of which proved uncollectible. The bank's earnings declined as the loans moved into a non-income producing status and capital was eroded as the problem loans were written off. On April 19, 1972, a newly organized State-member bank capitalized by the owners of a National bank purch.is<:><l the assets and assumed the liabilities of Fidelity Bank. On July 15, 1972, the newly organized State-member bank was merged into the National bank. Bank of the Corrnnonwcalth Detroit, Michigan Acquisition by Holding Company 12-17-76 $930 million $836 million See the noard 1 s Order approving acquisition of Bank of the Commonwealth by the First Arabian Corporation that was submitted and published in last year's Hearings on the Condition of the Banking System, pages 1027-31. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -35- 264 @) FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, o.c. 20429 OFFICE OF THE CHAIRMAN March 3, 1978 Honorable William Proxmire, Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D. C. 20510 Dear Mr. Chairman: The enclosed information prepared by the FDIC staff is submitted in response to your request of December 15, 1977, seeking specific information with respect to the condition of the banking system. In accordance with agreements reached ins January 10, 1978 meeting between Special Counsel to the Committee Marinaccio and representatives of the three Federal bank regulatory agencies, certain additions and deletions have been made in the originally requested material. Schedules dealing with problem banks include data for both commercial and mutual savings banks. Other schedules cover commercial banks only. We wish to point out that the data derived from Reports of Condition and Reports of Income are based on statements of domestic activity in which foreign branches are shown as a net figure. In the attached tables, therefore, ratios such as capital to assets or income to assets tend to be overstated to the extent banks have foreign activity. As agreed, in lieu of a division of information by foreign and domestic operations, we are including a copy of the results of the recent interagency survey of country exposure. For your convenience, an index has been included. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Sincerely, ~0..-4-~ George A. LeMaistre Chairman 265 Question in 12-15-77 Request Selected data, 1972 - 1977, from Reports of Condition and Reports of Income for: A-1 A-2 A-3 a) Insured State Nonmember Commercial Banks b) State Member Banks c) National Banks B The categories of problem banks utilized by FDIC, along with description of characteristics considered in categorizing a particular institution. C SUD111&ry of FDIC problem bank list semi-annually for 1976 and 1977, by size and type of charter. D Number of insured State nonmember banks moving into and out of each problem category, along with their assets and deposits -- 1973 - 1977. E-1 Selected examination report data 1972 - 1977, for all insured State nonmember commercial banks and• E-2 5, 9, 10, 12, 13, 15 1 7, 8 1973 - 1977 data for all insured State nonmember problem banks. F Violations of law uncovered by examiners. 17 G Summary of Formal Actions taken by FDIC in 1977 to terminate insurance, to issue cease and desist orders, and to remove or suspend individuals, under Section 8 of the Federal Deposit Insurance Act. 16 Insured State nonmember banks closed in 1977. 18 State nonmember banks merged in 1977 under Emergency Provisions. 19 J FDIC practice regarding International Monetary Fund disciplinary standby agreements. 6 K Summary of Country Exposure Report. H (NOTE: 30-476 0 • 78 - 18 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Questions 4, 11, and 14 were agreed to be deleted as to the FDIC.) STATE NONMEMBER COMMERCIAL BANKS 1972 - 1977 ....I Total DeEosits in Domestic Offices < ~ "' ~ "' Question 5a 5b Date Total 0-100 Million 100-500 Million 500 Million1 Billion 1-5 Billion Over 5 Billion Number of Banks 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 8,036 8,248 8,473 8,624 8,680 8,747 7,887 8,070 8,271 8,392 8,411 8,458 130 159 182 210 243 264 18 17 17 19 15 14 1 2 3 3 11 11 0 0 0 0 0 0 Total Equity & Debt Capital (in millions) 12-31-72 12-31-73 12-31-74 12-31-7 5 12-31-76 6-30-77 11,395 13,387 15,373 16,993 18,769 20,224 8,444 9,709 11,034 11,983 12,976 13,854 1,859 2,386 2,905 3,317 3,805 4,330 1,014 1,129 1,139 1,328 882 887 78 163 295 365 1,106 1,153 0 0 0 0 0 0 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 7 .3% 7.3% 7 .6% 7. 6% 7. 6% 7. 7% 7 .6% 7. 7% 8.0% 8.0% 8.0% 8.2% 6.8% 6. 7% 6.8% 6.9% 6.9% 7. 0% 6.0% 6.2% 6.3% 6.5% 5.9% 5. 8% 5.1% 5.3% 6. 3% 6.5% 6. 2% 6. 2% 0 0 0 0 0 Percentage of Equity Capital to Total Assets 0 Sc Percentage of Equity Capital to Total Deposits 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 8.1% 8. 2% 8.6% 8.6% 8.5% 8.6% 8.4% 8.6% 9.0% 9.0% 8.9% 9.1% 7. 7% 7 .5% 7 .9% 8.0% 7.9% 7.9% 6.9% 7 .2% 7 .4% 7.5% 7 .0% 7.0% 6.0% 6.1% 7. 7% 7 .4% 7 .1% 7 .1% 0 0 0 0 0 0 Sd Percentage of Debt Capital to Total Capital 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 5.1% 5.9% 5.4% 5.3% 5.5% 5. 6% 2.9% 3.3% 3.1% 3.1% 3.0% 3.1% 9.0% 10.0% 9.5% 8. 2% 8.0% 7.8% 15.5% 17 .1% 15.0% 14.5% 17. 7% 19. 2% 16.0% 19.9% 17 .1% 17. 3% 17 .3% 17. 5% 0 0 0 0 0 0 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1:-.:l 0:, 0:, STATE NONMEMBER COMMERCIAL BANKS 1972 - 1977 (Continued) 0-100 Million 100-500 Million 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 7. 7% 7.8% 8.1% 8.0% 8.0% 8.1% 7 .8% 8.0% 8.3% 8.3% 8.3% 8.4% 7 .5% 7 .4% 7.6% 7 .5% 7 .5% 7.6% 7.1% 7 .5% 7 .4% 7 .6% 7 .2% 7. 2% 6.1% 6.6% 7. 6% 7. 8% 7. 5% 7. 6% 0 0 0 0 0 0 Percentage of Total Capital to Total Liabilities 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 8.3% 8.5% 8.8% 8.8% 8. 7% 8.8% 8.5% 8. 7% 9.0% 9.0% 9.0% 9. 2% 8.1% 8.0% 8.2% 8.1% 8.2% 8.2% 7. 7% 8.1% 8.0% 8.3% 7. 7% 7. 7% 6.5% 7 .1% 8.3% 8. 5% 8.1% 8.2% 0 0 0 0 0 0 Percentage of Total Capital to Risk Assets 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 10. 7% 10.4% 10.6% 10.9% 10.8% 10.8% 11.1% 10.9% 11.1% 11.3% 11.3% 11.3% 10.0% 9.5% 9.8% 10.1% 10.1% 10.0% 9.3% 9. 5% 9.1% 9. 7% 9.5% 9. 5% 8.8% 9.1% 10.2% 10.6% 9.9% 9. 9% 0 0 0 0 0 0 Question ~ Se Percentage of Total Capital to Total Assets Sf Sg ' "' ~ Over 5 Billion Total '<"' Date "' 500 Millionl Billion 1-5 Billion 9a Total LoanS (excluding Federal fuQds) (in millions) 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 76,418 91,242 102,442 ll0,437 124,465 137,595 53,804 62,664 69,036 74,398 82,711 90,694 13,753 18,377 21,947 23,532 26,686 31,448 8,171 8,763 9,417 10,033 6,689 6,626 690 1,438 2,042 2,474 8,379 8,827 0 0 0 0 0 0 9b Percentage of Total Loans to Total Deposits 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 57 .5% 59. 7% 60.8% 59.0% 59.5% 62.1% 55.3% 57 .3% 58.1% 57.4% 58.3% 61.4% 62.2% 64.6% 65.8% 61.4% 60.3% 62. 3% 65.8% 67 .6% 71.6% 66.5% 64.8% 65.1% 62.6% 67. 2% 64. 4% 61.0% 64.8% 66. 2% 0 0 0 0 0 0 9c Percentage of Net Loan Losses to Average Total Loans 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 .2% .2% • 4% .5% .5% • 2% • 2% .2% .4% • 4% .5% .1% • 2% .2% .4% .5% .5% • 2% .3% .2% .3% • 7% • 7% • 7% .1% • 3% .3% . 3% .5% . 2% 0 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 0 0 0 0 0 t,:) 0:, -1 STATE NONMEMBER COMMERCIAL BANKS 1972 - 1977 (Continued) ..; I < Question ~ ~ 0-100 Million 100-500 Million 500 Mill ion1 Billion 1-5 Billion Over 5 Billion 10a Total 30 Day Average Borrowings (in millions) 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 1,281 2,050 3,236 3,194 3,672 4,064 428 809 1,082 976 941 1,137 331 599 1,254 1,471 1,599 1,586 437 547 667 662 829 1,044 85 95 233 85 303 297 0 0 0 0 0 0 10b Percentage of 30 Day Average Borrowings to 30 Day Average Deposits 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 1.0% 1.3% 1. 9% 1.7% 1.8% 1.8% .4% • 7% .9% .8% • 7% .8% 1.5% 2.1% 3.8% 3.8% 3.6% 3.1% 3. 5% 4.2% 5.1% 4.4% 8.0% 10.3% 7. 7% 4.4% 7. 4% 2.1% 2. 3% 2. 2% 0 0 0 0 0 0 12 Total Other Real Estate (in millions) 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 8 8 12 30 34 40 0 3 6 6 16 19 0 0 0 0 0 0 0 0 0 0 0 0 .,i::: ~ "' 13a 13b Percentage of Net Income to Average Total Assets Percentage of Net Income to Average Equity Capital 127 152 226 410 508 552 102 118 168 259 289 308 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77(a) .8% 1.0% .9% .8% .9% .5% .9% 1.0% 1.0% .9% .9% .5% .8% .9% .8% • 7% .8% .4% .8% .8% • 7% .9% .2% .4% .6% .8% .4% • 7% • 3% 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77(a) 11.6% 12.8% 12.0% 10. 7% 11.1% 6.2% 11.4% 12. 7% 12.0% 10.8% 11.2% 6. 5% 11.9% 13.4% 12.2% 10. 3% 10. 7% 6.1% 13.5% 12. 9% 11.0% 13.4% 10.9% 3.0% 7. 6% 12. 7% 13.4% 6.0% 10. 8% 5. 2% (a) 1977 earnings data is from 6 month results as shown in 6-30-77 Reports of Income and is therefore not comparable with annual data for 1972 - 1976. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1723 40 115 169 185 .7% 0 0 0 0 0 0 tv 0:, 00 STATE NONMF.MBER COMMERCIAL BANKS 1972 - 1977 (Continued) ....I < ~ Date Question Total 0-100 Million 100-500 Million 500 Millionl Billion 1-5 Over llillrul 2...fillli2n 13c Percentage of Net Interest Margin to Average Earning Assets 12-31-72 (b) 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77(a) .0% 4.0% 4.1% 4.0% 4.2% 2.1% .0% 4.0% 4.1% 4.0% 4.1% 2.1% .0% 4.1% 4.0% 4.0% 4.3% 2.1% .0% 3.4% 3.5% 4. 7% 3.9% 1.9% .0% 6.4% 4.9% 2.5% 4. 7% 2.2% 0 0 0 0 0 0 15 Total Stand\:,y Letters of Credit (in millions) 12-31-72 (b) 12-31-73 (b) 12-31-74 (b) 12-31-75 (b) 12-31-76 6-30-77 0 0 0 0 1,635 809 0 0 0 0 256 227 0 0 0 0 1,163 259 0 0 0 0 63 104 0 0 0 0 153 219 0 0 0 0 0 0 "' .,~ 1:-.:l 0:, ~ (a) 1977 earnings data is from 6 month results as shown in 6-30-77 Reports of Income and is therefore not comparable with annual data for 1972 - 1976. (b) Data not collected for this period. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 270 e FEDERAL DEPOSIT INSURANCE CORPORATION, Washington. o.c. 20429 OFFICE OF THE CHAIRMAN April 27, 1978 Honorable William Proxmire, Chairman CODDDittee on Banking, Housing and Urban Affairs United States Senate Washington, D. C, 20510 Dear Mr. Chairman: March 3, 1978, we sent you various information in response to your request regarding the condition of the banking system. Enclosed is a revised Exhibit A-1 to that previous submission. On The revised exhibit presents report of condition and report of income data for State nonmember commercial banks using consolidated domestic and foreign statements. The previous report used domestic data only. In addition, we are now able, in the revised attachment, to give you year-end 1977 figures as opposed to the mid-year 1977 figures submitted previously. It is our understanding that the Comptroller of the Currency and the Federal Reserve Board will also be submitting revised exhibits to you for the banks under their supervision. Sincerely, ~ CZ: ol. ~ George A. LeMaistre Chairman Enclosure https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis STATE NONME>IBER COMMERCIAL BANKS 1972 - 1977 .-< I Total •Deposits < ~ "' H Question .,~ ~ Number of Banks Sa Total Equity & Debt Capital (in millions) Total 0-100 llillion 100-500 Million 500 Million1 Billion 1-5 Billion Over 5 Billion 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 8,036 8,248 8,473 8,624 8,680 8,773 7,887 8,070 8,271 8,392 8,411 8,449 130 159 182 210 243 296 18 17 17 19 15 13 3 3 11 15 0 0 0 0 0 0 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 11,395 13,387 15,358 16,975 18,769 21,391 8,444 9,709 11,034 11,982 1~, 976 14,379 1,859 2,386 2,904 3,316 3,805 4,785 1,014 1,129 1,129 1,318 882 721 78 163 291 359 1,106 1,506 0 0 0 0 0 0 1 2 Sb Percentage of Equity Capital to Total Assets 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 7 .3% 7 .3% 7 .6% 7 .6% 7 .5% 7 .3% 7 .6% 7. 7% 8.0% 8.0% 8.0% 7 .9% 6.8% 6. 7% 6.8% 6.9% 6.9% 6. 7% 6.0% 6.2% 6.1% 6.4% 5. 7% 5.9% 5.1% 5.3% 5.6% 5.5% 5.9% 5.4% 0 0 0 0 0 0 Sc Percentage of Equity Capital to Total Deposits 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 8.1% 8.2% 8.6% 8.6% 8.4% 8.2% 8.4% 8.6% 9.0% 9.0% 8.9% 8.8% 7. 7% 7 .5% 7 .9% 7 .9% 7 .9% 7 .6% 6.9% 7 .2% 7 .3% 7 .5% 6.7% 7 .0% 6.0% 6.1% 7 .6% 7. 3% 6.6% 6,2% 0 0 0 0 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 5.1% 5.9% 5.4% 5. 3% 5.5% 6.0% 2. 9% 3.3% 3.1% 3.1% 3.0% 3. 3% 9.0% 10.0% 9.5% 8. 2% 8.0% 8.6% 15.5% 17 .1% 15.2% 14.6% 17. 7% 14.1% 16.0% 19.9% 17 .3% 17 .6% 17 .3% 19.4% 0 0 0 0 0 0 5d https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Percentage of Debt Capital to Total Capital 0 0 t..:l .... ~ STATE NONMEMBER COMMERCIAL BANKS 1972- 1977 (Continued) ....I < ~ a"' Question Total 0-100 ~llion 100-500 llilliot)_ 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 7. 7% 7 .8% 8.0% 8.0% 7. 9% 7.8% 7 .8% 8.0% 8.3% 8.3% 8.3% 8.2% 7 .5% 7 .4% 7. 5% 7 .5% 7 .5% 7 .4% 7 ,1% 7 .5% 7 .2% 7 .5% 6.9% 6.8% 6.1% 6.6% 6. 7% 6. 7% 7 .1% 6.6% 0 0 0 0 0 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 8.3% 8.5% 8. 7% 8.1% 8.0% 8.1% 8.1% 8.1% 7 .9% 7. 7% 8.1% 7 .8% 8.3% 7 .4% 7 .3% 6.5% 7 .1% 7 .2% 8.5% 7. 6% 7 ,1% 0 0 0 0 8.6% 8.5% 8.5% 8. 7% 9.0% 9.0% 9.0% 8.9% 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 10. 7% 10.4% 10.6% 10.9% 10.8% 10.5% 11.1% 10.9% 11.1% ll.3% 11.3% 10.9% 10.0% 9.5% 9. 7% 10.1% 10.1% 9.8% 9 .3% 9.5% 8.8% 9.5% 9.4% 9.0% 8.8% 0 0 0 0 0 0 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 76,418 91,242 103,218 lll,344 125,492 150,443 53,804 62,664 69,107 74,431 82,712 96,273 13,753 18,377 21,968 23,565 26,724 35,322 8,171 8,763 9,745 10,301 6,883 5,904 690 1,438 2,398 3,047 9,173 12,944 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 57 .5% 59, 7% 61.3% 59.5% 59. 5% 61.5% 55,3% 57 .3% 58.2% 57 .4% 58.3% 60. 7% 62.2% 64.6% 65.8% 61.5% 60.2% 61. 3% 65.8% 67 ,6% 73,8% 68.2% 63, 6% 66. 7% 62.6% •67 ,2% 75. 7% 75 ,1% 66.4% 65.8% 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 .2% .2% .2% ,4% .4% • 5% .3% .2% ,2% .3% ,5% .6% .4% • 3% ,2% ,4% .6% .6% 1.0% .1% ,3% .3% .2% .5% .5% Date 500 llilUonl BilUon 1-5 Billion 1 Over Billion H Se Sf 5g 9a 9b 9c Percentage of Total Capital to Total Assets Percentage of Total Capital to Total Liabilities Percentage of Total Capital to Risk Assets Total Loans (excluding Federal funds) (in millions) Percentage of Total Loans to Total Deposits Percentage of .Net Loan Losses to Average Total Loans https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 8.8% .2% ,4% • 5% . 5% .4% 9.1% 9.0% 9.1% 9.3% 9.0% d d 0 0 0 d 0 () 0 0 0 0 0 d d 0 0 0 0 0 a ~ ~ ~ STATE NONMEIIBER COMMERCIAL BANKS 1972 - 1977 (Continued) ..... ~tion ~ lOa Total 30 Day Average Borrowings ( in millions) lOb Percentage of 30 Day Average Borrowings to 30 Day Average Deposits I E-< H ~ 1oo~soo 500 -Millionl Billion Total 0-100 Million Million 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 1,281 2,050 3,236 3,194 3,672 4,799 428 809 1,082 976 941 1,165 331 599 1,254 1,471 1,599 l, 984 437 547 667 662 829 789 85 95 233 85 303 861 0 0 0 0 0 0 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 1.0% 1.3% 1.9% 1. 7% 1.8% 1.9% .4% . 7% .9% .8% . 7% 3. 5% 4. 2% 5.1% 4.4% 7. 8% 8.6% 7. 7% 4.4% 7 .4% 2 .1% 2.0% 4.4% 0 0 0 • 77, 1.5% 2 .1% 3.8% 3.8% 3. 67. 3 .1% Date 1-5 Billion Over 5 Biilion 0 0 0 t:v 12 Total Other Real Estate (in millions) 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 127 152 226 410 508 541 102 118 168 259 289 280 17 23 40 115 169 180 8 8 12 30 34 40 0 3 6 6 16 41 0 0 0 0 0 13a Percentage of Net Income to Average Total Assets 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 • 9% 1.0% • 9% .8% . 9% . 9% • 9% 1.0% 1.0% ,9% .9% 1.0% . 9:, .9% . 8% • 7% .8% ,8% .9% .8% .8% .9% .6% .4% .4% .6% .8% .4% • 7% .8% 0 0 0 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 12.0% 13.0% 12. 2% 10. 9% 11.1% 12. 0% 11.5% 12, 9% 12. 2% 10.9% 13.4% 13.6% 12.0% 10. 5% 10.8% 12 .2% 14 .8% 13.1% 12 .4% 13. 7% 9.5% 6. 5% 7 .8% 12. 7% 13.9% 6. 2% 12.1% 13. 7% 0 0 13b Percentage of Net Income to Average Equity Capital https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 11.3% 12.1% 0 0 d 0 0 d 0 d -.:i ~ STATE NONMEMBER COMMERCIAL BANKS 1972 - 1977 (Continued) l ~ Question ~ 13c Percentage of Net Interest Margin to Average Earning Assets 15 Total Standby Letters of Credit (in millions) 0-100 100-500 Total Million Million 12-31-72(a) 12-31-73 12-31-74 12-31-75 12-31-76 12-31-77 .0% 4.0% 4.1% 4.0% 4.2% 4.2% .0% 4.0% 4. 2% 4.0% 4.1% 4.2% .0% 4,1% 4.0% 4.1% 4.3% 4.3% .0% 3.4% 3. 7% 4.6% 3.5% 3.3% .0% 6.4% 4.9% 2.2% 4.8% 5.1% 0 0 0 0 0 0 12-31-72 (a) 12-31-73(a) 12-31-74 (a) 12-31-75(a) 12-31-76 12-31-77 0 0 0 0 1,635 938 0 0 0 0 256 282 0 0 0 0 1,163 281 0 0 0 0 0 i53 301 0 0 0 0 0 0 Date 500 Million1 Billion 0 0 0 63 74 1-5 Billion Over 5 Billiort ~ -..J ~ (a) Data not collected for this period. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis STATE MEMBER BANKS 1972 - 1977 Total Deposits In Domestic Offices N I ..: .,!:: .,~ Qyeation Number of Banks 5a Sb 5c Sd Total Equity & Debt Capital (in millions) Percentage of Equity Capital to Total Assets Percentage of Equity Capital to Total Deposits Percentage of Debt Capital To Total Capital https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 0-100 Million Date Total 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 1,094 1,078 1,072 1,046 1,023 1,019 965 950 950 915 885 888 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 ll,166 ll,917 12,683 13,466 14,555 14,850 1,618 1,746 1,935 1,925 1,927 2,039 100-500 Million 90 Over 5 Billion ~ 84 90 99 93 16 17 18 16 15 14 6 6 6 1,686 1,766 1,806 1,832 1,867 1,821 1,260 1,205 982 1,405 1,366 1,442 3,212 3,163 3,099 3,013 3,342 3,310 3,390 4,037 4,861 5,291 6,053 6,238 5 6 7.1% 7.2% 7.6% 7.6% 7.2% 7.2% 7.0% 7.1% 7.1% 7. 7% 7. 7% 7.8% 6.4% 6.4% 6.5% 6.9% 6.8% 6. 7% 6.2% 5.9% 5.6% 6.2% 6.5% 6.3% 8.2% 8.2% 8. 7% 9.5% 9.7% 9.8% 7.9% 8.1% 8.1% 8.6% 8. 7% 8. 7% 7.8% 7.8% 7.1% 8.1% 8.8% 8.6% 11.0% 10.5% R.6% 8.1% 8.6% 8.1% 11.0% 9.2% 11.7% 11. 7% ll.2% 11.0% 18.8% 14.0% 11.5% ll.3% 11.9% 12. 3% 6. 7% 6.6% 6.5% 6.9% 7.0% 6.9% 8.0% 8.1% 8.2% 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 8.0% 8.2% 8.0% 8.6% 8.8% 8.8% 8.4% 8.6% 9.1% 9.0% 9.0% 9.2% 8.3% 8.4% 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 11.4% 9.5% 9.2% 8.9% 9.3% 9.5% 3.2% 3.5% 3.1% 2.5% 2.4% 2.6% 5.2% 5.2% 5.3% 5.0% 5.3% 5.9% 7.5% 7 .7% 1-5 Billion 19 17 14 19 18 18 89 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 8.1% 500 Million1 Billion 8.5% 8,9% 8.8% 8.9% ~ ~ 01 STATE MEMBER BANKS 1972 - 1977 (Continued) Question Date Total 0-100 Million 100-500 Million 500 Million1 Billion 1-5 Billion Over 5 Billion N I < 5e Percentage of Total Capital to Total Assets 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 7 ,5% 7. 2% 7.1% 7 .6% 7. 7% 7 .6% 7 .8% 8.0% 8.3% 8.2% 8.3% 8.4% 7.5% 7. 6% 8.0% 8.0% 7. 7% 7. 7% 7. 8% 8.0% 7. 7% 8.4% 8,5% 8. 5% 7. 2% 7. 0% 7. 3% 7. 8% 7. 7% 7. 5% 7 .6% 6.8% 6.3% 7.0% 7.4% 7. 2% 5f Percentage of Total Capital to Total Liabilities 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 8.1% 7. 8% 7. 7% 8.2% 8.3% 8.2% 8.4% 8. 7% 9.1% 9.0% 9.0% 9. 2% 8,1% 8.2% 8. 7% 8. 7% 8. 3% 8. 3% 8.5% 8,6% 8.4% 9.2% 9.2% 9.3% 7. 7% 7. 5% 7. 9% 8.4% 8. 3% 8.1% 8.2% 7. 3% 6. 7% 7. 5% 7 .9% 7. 8% 5g Percentage of Total Capital to Risk Assets 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 10.6% 9.8% 9.4% 10.4% 10. 7% 10.8% 11.1% 11.0% 11.3% H.5% 11.4% 11.4% 10,3% 10.1% 10.4% 10. 7% 10.6% 10.5% 10.2% 10.0% 9. 7% 11.1% 11.0% 11. 4% 10.0% 9. 3% 9.5% 10.3% 10. 7% 10.9% 11.2% 9. 5% 8.4% 9. 7% 10.6% 10. 5% ~ "'H .,~ 9a Total Loans (excluding Federal funds) ( in millions) 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 78,607 92,671 100,477 93,861 95,542 95,042, 10,350 11,367 12,175 ll,973 12,067 13,169 11,543 12,497 12,533 12,160 12,486 12,541 0,724 8,579 7,005 8,938 8,301 8,993 24,546 25,963 24,092 20,618 21,145 20,622 23,444 34,265 44,672 40,172 40,543 39,717 9b Percentage of Total Loans to Total Deposits 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 63.8% 70.5% 69.8% 65.4% 63.2% 62. 3% 55. 2% 58.1% 59.0% 57. 5% 57 .8% 61.1% 59.1% 63.5% 65. 2% 61.5% 58.9% 61.4% 63.8% 68.9% 69.:!% 66.0% 64. 7% 66.6% 67. 9% 73.4% 71.6% 66, 5% 61.9% 61.1% 66, 8% 77.3% 74.2% 69.0% 67 .0% 62.8% 9c Percentage of Net Loan Losses to Average Total Loans 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77(a) • 2% • 2% .4% • 7% .9% .3% ,2% .2% .4% • 3% .3% .1% • 2% • 2% .3% • 5% • 6% .1% • 3% .2% .3% .6% ,8% .2% . 2% • 3% .4% • 7% .9% • 2% . 2% • 2% .5% 1.0% 1.1% .4% {a) 1977 earnings data is from 6 month results as shown in 6-30-77 Reports of Income and is therefore not comparable with annual data for 1972 - 1976. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis l:v -l 0:, STATE MF.l!IIER BANKS 1972 - 1977 (Continued) Question N I < 10a ::: 12 13a 13b 3,511 5,117 3,810 3,465 5,934 6,027 4,242 8,175 6,794 6,930 14,181 14,297 5.8% 4.8% 5.0% 5.6% 6.5% 8.6% 12.0% 8.7% 12.5% 12.6% 9. 7% 14.5% 11.3% ll.2% 17.4% 17.9% 12.1% 18.5% ll.3% 11.9% 23.4% 22.6% 15 17 22 31 29 32 24 15 29 64 77 61 13 19 35 87 111 104 .8% .9% .8% .8% .9% .8% • 7% .8% • 7% .8% .9% .5% .8% .4% • 7% .8% .6% • 7% .7% .4% • 7% .3% • 7% • 7% • 7% • 7% • 7% .3% 11.9% 12.4% 11.0% 10.3% 11.1% 8.0% 10.3% 12.3% 11.0% 9.3% 10.0% 4.5% 11.5% 11. 7% 12.6% 12.1% 10.4% 5.1% 9,651 15,914 13,182 12,771 23,064 23,532 101 217 239 258 279 359 Percentage of 30 Day Average Borrowings to 30 Day Average Deposits 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 7.8% 12.1% 9.2% 8.9% 15.4% 15.4% .5% 1.1% 1.2% 1.2% 1.3% 1.7% 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 81 82 208 463 637 656 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77(a) • 7% .7% • 7% • 7% .4% 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77(a) 11.0% 11.9% 11.1% 10.6% 10.2% 5.1% 11.3% 11.4% 10.5% 10.1% 10.4% 6.2% Percentage of Net Income to Average Total Assets Percentage of Net Income to Average Equity Capital .8% (a) 1977 earnings data is from 6 month results as shown in 6-30-77 Reports of Income and is therefore not comparable with annual data for 1972 - 1976a https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 911 1,336 1,124 946 1,061 1,153 1,069 1,215 1,172 1,609 1,696 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 Total Other Real Estate (in millions) 500 Million1 Billion over 5 Billion Total 30 Day Average Borrowings (in millions) "' 100-500 Million 1-5 Billion Total .,~ lOb 0-100 Million Date 4. 7% 6.8% .8% 886 9.8% 9.9% 10.5% 5.6% 9.4% 4. 7% 11 20 20 36 66 97 113 215 323 346 9 .6% 86 ts:) ~ ~ STATE MEMBER BANKS 1972 - 1977 (Continued) Question . N I Date Total 0-100 Million 100-500 Million 500 Million1 Billion 1-5 Billion Over 5 Billion 13c Percentage of Net Interest Margin to Average Earning Assets 12-31-72(b) 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77(a) .0% 3. 3% 3.4% 3.6% 4.3% 2.1% .0% 3.6% 3.8% 3.6% 3.6% 1.9% .0% 3. 7% 3.8% 3.9% 4.1% 2.0% .0% 3.1% 2. 7% 7 .0% 3.6% 1. 9% .0% 3.4% 3. 3% 3. 6% 4.2% 1.9% .0% 3.0% 3. 3% 3. 5% 4. 7% 2.4% 15 Total Standby Letters of Credit (in millions) 12-7i-12(b) 12- l-73(b) 12-31-74 (b) 12-31-75(b) 12-31-76 6-30-77 0 0 0 0 3,923 4,634 0 0 0 0 19 27 0 0 0 0 93 105 0 0 0 0 80 82 0 0 0 0 619 691 0 0 0 0 ~ "' .,~ i:m t,:) " 00 (a) 1977 earnings data is from 6 month results as shown in 6-30-77 Reports of Income and is therefore not comparable with annual data for 1972 - 1976. (b) Data not collected for this period. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis NATIONAL BANKS 1972 - 1977 Total De2osits in Domestic Offices "'.., I . I:: Question Date Total 0-100 Million 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 4,659 4,711 4,762 4,797 4,791 4,757 4,231 4,244 4,269 4,261 4,212 4,166 318 353 373 411 447 452 59 60 63 65 65 71 43 46 47 51 58 59 8 10 9 9 9 100-500 Million 500 Million1 Billion 1-5 Billion Over 5 Billion H .,~ Number of Banks 8 Sa Total Equity & Debt Capital (in millions) 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 31,086 33,943 36,780 39,895 44,046 45,962 7,472 8,192 8,861 9,309 9,750 10,096 5,463 6,157 6,556 7,092 7,739 7,970 3,558 3,608 3,900 3,973 4,014 4,398 6,585 7,347 7,220 8,570 9,889 10,268 8,008 8,639 10,243 10,951 12,654 13,230 Sb PercentagE!: of Equity Capital to Total Assets 12-31-72 12-31-73 12-31-74 13-31-75 12-31-76 6-30-77 6. 7% 6.5% 6.5% 6.8% 7.0% 7.1% 7.2% 7.4% 7.6% 7.6% 7.7% 7.8% 6.6% 6.6% 6.8% 6.8% 6.8% 7.1% 6. 7% 6.5% 6.6% 6.6% 6.5% 6.6% 6.3% 6.1% 5.9% 6.5% 6.6% 6.6% 6. 7% 6.3% 6.0% 6.6% 7.3% 7 .4% Sc Percentage of Equity Capital to Total Deposits 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 8.0% 8.0% 8.0% 8.4% 8.8% 9.0% 8.0% 8.2% 8.6% 8.6% 8.6% 8. 7% 7.6% 7. 7% 8.0% 8.0% 7.9% 8.2% 8.0% 7.9% 8.1% 8.1% 7.9% 8.1% 7.9% 8.0% 7.8% 8.4% 8.8% 9.0% 8.4% 8.0% 7. 5% 8.5% 9.8% 10.2% 5d Percentage of Debt Capital to Total Capital 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 6.8% 6.5% 6.1% 5. 7% 6.2% 6.1% 2.6% 3.0% 3.1% 3.2% 3.4% 3.5% 5.9% 7.1% 7.2% 6.8% 6.5% 6.8% 7 .2% 12.8% 10.4% 11.9% 10.0% 10.0% 9. 7% 6.4% 5.9% 4.8% 4.5% 5.4% 5.1% https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 6.8% 5.6% 5.5% 5.8% 6.0% t.;) ...:r tO NATIONAL BANKS 1972 - 1977 (Continued) Question "'<I ... Date Total 0-100 Million 100-500 Million 500 Million1 Billion 1-5 Billion Over 5 Billion Se Percentage of Total Capital to Total Assets 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 7. 2% 7.0% 6.9% 7.3% 7.5% 7 .6% 7.4% 7 .6% 7.9% 7.9% 7.9% 8.1% 7.0% 7.0% 7.2% 7.2% 7.2% 7 .5% 7 .3% 7.0% 7.0% 7.0% 7.0% 7 .2% 7.2% 6.8% 6. 7% 7 .2% 7.3% 7 .3% 7. 2% 6. 7% 6.3% 7.0% 7. 7% 7 .8% Sf Percentage of Total Capital to Total Liabilities 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 7.8% 7.5% 7.5% 7.8% 8.1% 8.2% 8.0% 8.2% 8.5% 8.6% 8.6% 8.8% 7.6% 7.6% 7.8% 7.8% 7.8% 8.1% 7.8% 7.5% 7.6% 7.6% 7.5% 7. 7% 7.8% 7.3% 7.2% 7. 7% 7.9% 7 .8% 7. 7% 7.1% 6. 7% 7 .5% 8.4% 8.4% 5g Percentage of Total Capital to Risk Assets 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 9.8% 9.2% 9.0% 9.7% 10.0% 10.0% 10.5% 10.4% 10.5% 10.9% 10.9% 10.9% 9.6% 9.3% 9.5% 9.8% 9.9% 10.1% 9.8% 9.1% 9.1% 9.3% 9.2% 9.5% 9.5% 8. 7% 8.5% 9.4% 9. 7% 9.5% 9.6% 8.5% 8.0% 9.2% 9.9% 9.8% H "' H ~ "' 9a Total loans (excluding Federal funds) (in millions) 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 228,393 269,148 296,017 290,494 305,935 318,925 49,799 55,109 57,964 59,371 63,015 66,909 39,922 47,034 48,564 49,634 53,938 55,998 25,707 28,458 30,098 29,314 29,428 33,108 48,944 59,930 59,555 61,368 67,022 72,630 64,021 78,617 99,836 90,807 92,532 90,280 9b Percentage of Total Loans To Total Deposits 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 63.3% 67. 7% 68.2% 64.5% 64.8% 66.5% 54.8% 57.0% 57.8% 56.6% 57.2% 59.9% 59.3% 63.2% 62. 7% 59.0% 58.8% 61.5% 62.5% 67.0% 67.0% 63. 7% 62.4% 65.8% 67.4% 73.2% 73.0% 66.8% 66.1% 70.4% 72.2% 77 .1% 77.0% 73.6% 76.1% 73.3% 9c Percentage of Net Loan Losses to Average 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77(a) .2% .3% .4% • 7% • 7% .2% .2% .2% .3% .4% .4% .1% .2% .2% .4% .5% .5% .3% .2% .5% .6% .6% .2% .2% ,3% ,5% .6% • 7% .2% .2% .4% .4% 1.1% 1.2% .4% Total Loans (a) 1977 earnings data is from 6 month results as shown in 6-30-77 Reports of Income and ,- •.• ____ ,. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - - - - - - .. , , ... ••-1+-l. ......... , .... , ,, ...... r. ... - ,n.,.., .1% t-:> 00 0 NATIONAL BANKS 1972 - 1977 (Continued) "' 'i' ~ 0 .., O> :; Question "'<I 10a Total 30 Day Average Borrowings (in millions) i::: "' ~ "" Date Total 0-100 Million 100-500 Million 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 26,719 39,697 39,662 40,875 56,033 58,954 759 1,329 1,641 1,509 1,587 1,828 3,196 4,665 4,976 4,843 6,172 6,102 500 Million1 Billion 1-5 Billion Over 5 Billion 3,376 4,557 4,987 4,517 5,460 5,434 9,929 15,480 14,047 14,810 20,796 22,978 9,459 13,666 14,011 15,196 22,018 22,612 10.7% 13.4% 10.8% 12.3% 18.1% 18.4% 10b Percentage of 30 Day Average Borrowings to 30 Day Average Deposits 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 7 .4% 10.0% 9.1% 9.1% ll.9% 12.3% .8% 1.4% 1.6% 1.4% 1.4% 1.6% 4. 7% 6.3% 6.4% 5.8% 6. 7% 6. 7% 8.2% 10.7% 11.1% 9.8% 11.6% 10.8% 13. 7% 18.9% 17 .2% 16.1% 20.5% 22.3% 12 Total Other Real Estate (in millions) 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 161 199 377 1,036 1,748 1,850 47 53 82 128 158 165 33 39 79 188 229 236 24 24 63 157 236 210 41 59 114 346 588 662 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77 (a) .8% .8% .8% .8% .8% .4% .8% .9% .9% .8% .9% .5% .8% .8% .8% .7% • 7% 12-31-72 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77(a) 11.4% 12.2% ll.9% 11.6% 11.5% 5.8% 11.6% 12.3% 11.6% 10.6% 11.1% 6.2% 11. 7% 12.1% 11.1% 10.4% ll.0% 5.8% 13a 13b Percentage of Net Income to Average Total Assets Percentage of Net Income to Average Equity Capital (a) 1977 earnings data is from 6 month results as shown in 6-30-77 Reports of Income and is therefore not comparable with annual data for 1972 - 1976. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • 7% .7% .8% .4% .n: .6% .7% .4% 11.6% 11.3% 10. 7% 9.2% 9.6% 5.4% 16 24 39 217 537 577 .8% • 7% .8% .6% .8% .8% .4% .9% .9% .4% 11.4% 12. 7% 10.2% 12.0% 11.1% 5. 7% 11.0% 12.3% 14.6% 14.3% 13.1% 5. 7% .9% tv 00 ..... NATIONAL BANKS 1972 - 1977 (Continued) .., I Question Date Total 0-100 Million < I::: 13c "',... Percentage of Net Interest Margin to Average Earning Assets 12-31-72 (b) 12-31-73 12-31-74 12-31-75 12-31-76 6-30-77(a) .0% 3.4% 3,4% 3.6% 4.3% 2.2% ,0% 3.8% 3.9% 3.8% 3.9% 2.0% .0% 3.6% 3.6% 3.8% 4.0% 2,0% Total Standby Letters of Credit ( in millions) 12-31-72 (b) 12-31-73 (b) 12-31-74 (b) 12-31-75 {b) 12-31-76 6-30-77 0 0 0 0 7,500 8,356 0 0 0 0 176 257 0 0 0 0 510 483 6 15 100-500 Million 500 Million1 Billion ,0% 3,3% 3.6% 3.4% 3.5% 1.9% 0 0 0 0 384 445 1-5 Billion Over 5 Billion .0% 3.3% 3.0% 3. 6% 4.1% 2.0% .0% 2.9% 3.2% 3.4% 5.5% 2. 7% 0 0 0 0 1,433 1,641 0 0 0 0 4,997 5,530 t..:> 00 tv (a) 1977 earnings data is from 6 month results as shown in 6-30-77 Reports of Income and is therefore not comparable with annual data for 1972 - 1976. (b) Data not collected for this period, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 283 EXHIBIT B PROBLEM BANK CATEGORIES AND CHARACTERISTICS The FDIC, through its Division of Bank Supervision, presently uses the same categories and criteria furnished in our re~ponse to you of February 8, 1977. These categories are: SERIOUS PROBLEM--POTENTIAL PAYOFF: An advanced Serious Problem situation which presents an estimated 50 percent chance of requiring FDIC financial assistance in the near future. SERIOUS PROBLEM: A situation that threatens ultimately to involve the FDIC in a financial outlay unless drastic changes occur. OTHER PROBLEM: A situation that contains significant weakness but a lesser degree of vulnerability. Such banks require more than ordinary concern and aggressive supervision. The following general guidelines are used to measure Serious Problem and Other Problem banks (the Division has no specific guidelines for Serious Problem-Potential Payoff banks since that designation is reserved for Serious Problem banks whose condition in the judgment of the Division indicates an advanced state of deterioration which could result in failure within the near future): SERIOUS PROBLEM: This category usually includes banks in which the nature and volume of weaknesses and the trends are such that correction is urgently needed. The net capital and reserves position of such banks (i.e., their book capital and reserves less supervisory adjustments for all adverse asset classifications, nonbook liabilities and shortages) is likely tobe substantially negative. In addition, management is usually rated Unsatisfactory or Poor. Representing the greatest area of financial exposure to the Corporation, "Serious Problem." nonmember banks necessarily receive the most concentrated FDIC attention and supervision. OTHER PROBLEM: Generally, a bank may be designated an "Other Problem" bank if net capital and reserves are nominal or a negative figure. However, the adequacy of net capital is not the only criterion for the Other Problem designation. There will be some banks whOse net capital and -reserves are positive figures but which, nevertheless, belong in this problem bank category because of excessive loan delinquencies, a rapid rate of asset deterioration, significant violations of law or regulations, an unusually low "adjusted" capital position (i.e., book capital and reserves less all assets classified Loss and 50 percent of all assets classified Doubtful), an undesirable liquidity posture, pronounced management deficiencies or other adverse factors. Generally speaking, management has been rated Unsatisfactory, with a rating of Fair or Satisfactory the exception. General Memorandum No. 6 issued by the FDIC's Division of Bank Supervision in August 1975 is attached and contains the Division's instructions to our field examiners, Regional Directors and review examiners concerning the procedures to be followed in classifying "problem banks". The qualitative judgments which enter into such classifications, however, are sUIIDDarized above. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 284 EXHIBIT B FEDERAL DEPOSIT INSURANCE CORPORATION DIVISION OF BANK SUPERVISION WASHINGTON General Memorandum No. 6 August 1975 SUBJECT: PROBLEM BANKS It iirnecessary that problem banks be identified and classified according to the severity of· their problems in order that the Board of Directors can assess the degree and dollar volum.. of potential threat to the insurance fund and corrective efforts can be appropriately marshalled. Accordingly, the Division of Bank Supervision utilizes three categories of problem banks, In declining order of severity, these problem designations are: SERIOUS PROBLEM - POTENTIAL PAYOFF: An advanced Serious Problem state presenting a 50% chance of requiring Corporation financial assistance in the near future. SERIOUS PROBLEM: A bank that threatens to ultimately involve the Corpor11tion in a financial outlay unless drastic changes occur, OTHER PROBLEM: A situation that contains significant weakness but a lesser degree of vulnerability and requires more than ordinary concern and aggressive supervision, When an examination of a state nonmember bank, either by the state authority or the Corporation, reveals problems which are deemed by the Regional Director to warrant assignment of a formal problem designation, the following procedures are to be employed within the Regional Office: A memorandum to the files will be prepared utlizing FDIC form 6620/10 as the first page (a sample problem memorandum is attached). Data relative to the most recent examination will be displayed in the right column with data for the past two examinations in the columns to the left. If the examination is the bank's first, the far right column should be utilized. Senior capital (preferred stock, notes, or debentures) should be shown at the first line of the Miscellaneous Information Section above Common stock, and following the Estimated insured deposits/ percentage line, any significant statistical data which may depict adverse (or favorable) trends should be included. In summary, the completed first page of the memorandum to the files should give the reader a capsulized picture of what the bank's problems are as well as their magnitude and trends, The second (narrative) page of the memorandum should be divided into these three distinct sections: IDENTIFICATION AND NATURE OF THE PROBLEM--The initial paragraph under this section should contain a concise description (one or two sentences) of the specific problems or difficulties causing the recommended des ignadon of the bank as a problem as well as the names of those persons who are responsible for the difficulties. Next, discuss the events p_recipitating the problem and give an analysis of the current situation &l it relates to the condition of the bank. If appropriate, be certain to include information with respect to self-serving or other unfavorable tendencies on the part of management, Do not repeat statistical data shown at page 1. CORRECTIVE ACTION--Identify any corrective action being taken at the direction of the state authority or otherwise, and list specific improvements noted as a direct result of such corrective action. Include information regarding your plans for the next examination or for conferences with the management, and indicate in all cases whether action under Section 8 is desirable. However, if Section 8 action is recommended, do ~ include specific charges and desired https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 285 corrective orders; these should be incorporated into a separate memorandum to the Director, Division of Bank Supervision, GENERAL--Provide brief information about the years of organization and insurance, recent~er transactions, the location of the bank and economic characteristics cf the trade area serv~d, cc::ipetition, number of branches operated, and whether trust powers are exercised. If not discussed under "Identification and Nature of the Problem," specific information on where stock control is vested, who makes management decisions, and an estimate of their capability is desired. The last sentence of this section should include the Regional Director's recommendation for a specific problem designation. If at all possible, the narrative comments should be confined to one typewritten page. When the memorandum to the files containing the Regional Director's recommendation for a prDblem designation is received in the Washington Office, it will be reviewed within the Problem Bank Section, If the Review Examiner concurs with the Regional Director's reconnnended problem designation and the corrective measures which are to be employed, he will indicate agreement by placing his signature under the date of his review. The Review Section Chief, or his designee, will also sign the memorandum prior to its distribution, and all Serious Problem-Potential Pay-off and Serious Problem memoranda will also be reviewed by the Assistant Director, Supervision and Review. If there is a difference of opinion between the Regional Office and the Problem Bank Section regarding the recommended problem designation or the anticipated corrective measures, the Regional Office will be contacted by telephone in an effort to resolve the matter. If agreement still cannot be reached, and the situation is of such significance as to warrant, the matter will be brought to the attention of, in order and as required, the appropriate Assistant Director, the appropriate Deputy Director, or the Director for resolution. The ultimate decision regarding the assignment of problem designations and the initiation of Section 8 action rests at the Washington level of the Division; however, if the Washington Office concludes differently than the Regional Director, in all problem memoranda, the recommendation and viewpoint of the Regional Director should be clearly stated in an addendum and, if warranted, a letter over the Director's ·sfgnature will be forwarded to the Regional Director out;lining the reasons for the assigned designation and/or the expected corrective measures. Whenever any Regional Director becomes aware of problems which may affect the solvency of any of the banks within his region, including preliminary reports from examinations in process, the Problem Bank Section should be telephonically advised of the facts as well as the Regional Director's recommended problem designation. If the situation warrants, the Problem Bank Section will then prepare a memorandum to the files, assigning the appropriate problem designation. FDIC form 6620/11, or plain typing paper, may be used for this purpose. Recommendations by the Regional Directors for removal of a problem designation should be prepared on FDIC form 6620/11, The narrative comments should be very concise, citing the former problems, their cause, and the favorable developments which warrant restoring the bank to nonproblem status. Review of recomme·ndations for removal of problem designations within the Washington Office will follow the procedures outlined earlier· for recommended problem Jesignations. r The Problem Bank Section will be responsible for the preparation of FDIC form 6620/8 to. accompany each Serious Problem-FPO and Serious Problem me>morandum. This form is intended for the use of the General Accounting Of'ice, and the remarks should be very brief, describing the bank's problet'-' and the corrective efforts being utilized and/or considered. No proper names or other comments which may identify the bank should be included in the data which will be furnished to the GAO (the bank's name and location will be blocked out on the copy provided to the GAO). https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 286 Examination reports and other relevant data regarding banks which the Com:,troller of the Currency and the Federal Reserve consider to be problem banks will be reviewed in the Problem Bank Section and, where appropriate, a· memorandum to the files assigning a problem designation will be prepared. However, as in the case of state nonmember banks, whenever the Regional Directors become aware of problems of significance involving national or member banks, the Problem Bank Section should be advised of the situation. It will be the responsibility of the Problem Bank Section to distribute problem memoranda in accordance with instructions of the Director of the Divis ... on and to maintain records of problem banks which will be considered as confidential material. A list of all problem banks will be prepared periodically by the Problem Bank Section and distributed in accordance with the instructions of the Director. An updated analysis of each Serious Problem-FPO and Serious Problem nonmember bank should be provided by the Regional Directors to the Director of the Division at the end of each calendar quarter, and a current analysis of e·ach Other Problem nonmember bank should be provided semiannually (June 30 and December 31). FDIC form 7100/1 should be used for these purposes. A response should be made to each item in the printed portion of the form. The "Remarks" should include a concise explanation of the problem, limited to a single page, and a list of the positive corrective actions being taken to effect improvement, with special emphasis devoted to those taken since the preceding Problem Bank Summary. In each instance, the need for action under Section 8 of our Act should be considered. Additionally, the date each analysis is prepared should be indicated at the conclusion of the "Remarks." In summary, the Division's problem designations are based on the degree of financial risk posed to the insurance fund·; while input from the Regional Offices is a basic factor, the final determination of problem designations rests at the Washington level of the Division where additional benefits may accrue from a detached viewpoint and standardized criteria, The problem bank lists, memoranda, and related data are solely internal working documents and are to receive confidential treatment. It is recognized that the Regional Directors may be presented with supervisory problems by banks which may not pose sufficient financial risk to warrant one of the formal problem designations. The Regional Directors may, if they wish, maintain for their use an internal list of supervisory problems in order to more effectively allocate supervisory efforts; however, to eliminate confusion, any such Regional supervisory problem designations should not be used in inter-office correspondence. In all correspondence relating to problem banks, the assigned problem designation should be included at the subject line. If the Regional Director has recommended a problem designation but it has not yet been formally assigned by the Division, the subject line should include the word "Recommended" preceding the suggested designation. ,~?!~ fr l«•--1/(ff,/) /;l :.J John J. McCarthy Deputy Director Attachments https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis '~ ' , 287 Date IIEIIORANDUM TO THE FILES, ANYCITY STATE BANK ANYCI'IY, ANYS'l'ATE Serious Problem (Formerly Other Problem) Examined ••• ":': ••••••••••••••.••••••••••••••••••••• Examiner-in-charge ••••••••••••••••••••••••• ·••••••••• Ratings ••••••••••••••••••••••••••••••••••••••••• Adjusted ross assets ••••••••.••••••••••••••••••••••• BALANCE SHEET ·ANALYSIS OF CAPITAL i.;ash and due from banks •••••••••••••••••••••••••••••• U.S. Treasury and U.S. Government Agency and Corporation securities. Other securities •••••••••••••••••••.•••••••••.•••••• Loans •••••••••••••••••••••••••••••••••••••••••• Other assets •••••••••••••••••••••.•••.•••••••••••• Total assets Total deposits Other liabilities 12-2-73 Corso 7-3-1. 7-F 7 945 9-22-74 3-29-75 Becker Gates 3-4R-0. OR-U 11 870 5-lR-0.8-U 9 885 1,000 600 680 5,600 800 450 920 950 300 1,000 7,700 9,600 on ,n 0 q 7 soc ,n 130 1so MC 10. 790 '" ,nn Total cap1ta1· qn i Reserves•••••••••••••••••••••••••••••••••••• i Nonbook sound banking values .................... . Less: i Loss •••••••••••••••••••••••••••••••••••••• l 511'1,of Doubtful ••••••••••••••••••••••••••••••• i Nonbook liabilities and differences •••••••••••••••••• Add: AdJusted capital and reserves Percent of adjusted gross assets 0 300 0 0 Net change in capital accounts for penod Percent of .total operating income to average gross assets Peicent of net operating income after taxes to average gross asse~ Net loans cha,ged·off {recovered} MISCELLANEOUS INFORMATION !Date 01 examrnat,on) 305 3.8% 85 220 1972 480 125 10 ~-Indicates deficit figure FDIC 6620/10 11-7011Forme,1v FORM OE-291 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 7 36 l ~, :::=::;:::: :---'.-'.-'.• SOR ::::::::::: 1S so ·.:o omitted in dollar amounts) ;:;:;::::: 5 6% 25 30 so 650 850 0 0 20 0 150R 545R :=:::::::: l.5%R ;:::::::::: :-:•:-·-;; 4.5%R 100 90 645R 240R 1973 1974 775 570 66 lOR 30 40 75 ,. o, Common stock • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 200 Surplus ••••••,.................................... 125 Estimated msur(J deposits/percentage ••••••••••••••••..••• G,600/90% Total overdue loans to gross loans.. • • • • • . • Total loans to gross assets. • . • • .. .. • • . • • • • Classified assets to capital & reserves.... Concentrations of credit/number. • • • • . . • • . • . Violations of law and regulation/number.... Securities appreciation/depreciation. • • • • • • Borrowings... . • • • • • . • . • • • • • . • • • • • .. • • . • . . • .. • n 100 30 75 405 3 .A\ 30 sss R> 7 15 Net capital and reserves t-'ercent of adjusted gross assets :::::::::: ~ank premises and equipment-not adversely class1 1ed Residual capital and reserves INCOME ANO CHANGES IN CAPITAL ACCOUNTS Total operatmg income ••••••• , ••••••••••••••••••••••• Net operatina income after taxes •••••••••••••••••.••••••• Cash dividends declared •••••••••••••••••••••••••••• , • 0 75 n 90 25 55 75 n 40 15 n 3. 0% 701 551 O/o 0/4 75R 0 55 so 200 250 8,400/91' 6.0% 77% 113% 800/1 100/3 • 206R 200 160 so 200 250 9,900/89% 8.51 80% 177% l,000/1 600/10 lSOR 500 PPO· lnd1cates Potenhat Pay-Off ••. Indicates State Federal Reserve Member Bank 288 Identification and Nature of Problem The unrealistic policies of a self-serving ownership/management have resulted in an excessive voltDDe of classified assets, heavy loan charge-offs, inadequate capital, and the lack of adequate provisions for liquidity. Subject became a matter of supervisory concern following the purchase of 51% of outstanding stock by Chairman John L. Smith and President Henry J. Jones in OCtober 1973. Due to their liberal lending and lax collection policies, classified loans increased to the point where Other Problem status was applied following the September 1974 examination. _ Since then, the trend of deterioration has continued and loan losses of significant proportions have resulted.• Loans have been granted without regard for the creditworthiness of borrowers or adequate security and without repayment programs. Documentation is wholly inadequate and violations of law are a continuing criticism. Loans to control owners, their interests and associates, a portion of which is held in violation of statutes and represents 50% of total classifications, are scheduled as a concentra~·ion of credit. Book capital now includes a substantial volume of unearned income ($55,000 and $75,000 at the last two examinations}, an accounting inaccuracy attributed to present ownership. Reasonably acceptable gross earnings have been dissipated through loan losses, payment of excessive salary, bonus, and expense allowances to Messr·e. Smith and Jones, and unwarranted, unearned cash dividends. In connection with the excessive remuneration to control owners, the examiner pointed out the possibility of disallowance by the Internal Revenue Service and/or a suit by minority stockholders. Liquidity presents a potentially serious problem. Frequent use of borrowed funds has been necessary to support the unusually high loan volume. In addition, the effectiveness of the securities portfolio as a secondary reserve has been negated by investment in a large volume of long-term municipal issues, most of which are fourth-rated and nonrated, with 8: relatively large estimated market depreciation. Chairman Smith (46) and President Jones (40) completely dominate policy formulation in their role as part-time officers and are applying the speculative methods here that have proven rather successful in their livestock and real estate ventures. Executive Vice President James R. Gray (55}, managing officer in name only, possesses limited ability and is completely subservient to the wishes of ownership. Junior officers are no better than mediocre. The other directors have been indifferent to the situation and are content to permit the chairman and president to operate the bank as they see fit. Corrective Action The examiners met with .the directors at the close of the last two examinations but were unable to obtain promises for correctii::>n, and periodic examiner visitations and required progress reports from the bank have not brought the desired results. The undersigned and State Superintendent of Banking Billingsley recently met with the directors, but due to the dominance and cavalier attitude of Smith and Jones, little waa accomplished. Accordingly, a recommendation for Section S(b) action is being forwarded this date to the Director. ~ Subject opened as an insured bank in 1951, has not been involved in any merger-type transactions, is not empowered to act in any fiduciary capacity, and has no branches. Competition is provided by a local bank of similar size and there are four other banks within a 10-m.ile radius. The economy of the trade area of some 10,000 persons depends largely upon livestock production, but resort activity in the area is becoming more important. The continued· deterioration in the bank's condition as well as the unwillingness and i.nability of management to effect improvements justify assignment of the Serious Problem de•ignatioo. i. i John J. Doe Regional Director WASHINGTON OFFICE ADDENDUM: Regional Director Doe's recommendation for Cease and Desist action is being reviewed and processed. Concur: John K. Strongheart Review Examiner https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Albert E. Blaisdell Review Section Chief 289 EXHIBIT B F01C 6520/8 ll 1• 1•8911Form111v FORM 1071 _An_yw_he_r_e_ _ _ _ Region SERIOUS PROBLEM BANK Name anjj Location pf Bank Total Deposits Anycity State Bank 10,790 Anycity I Anystate Eummed 3-29-75 R· Indicates <Sehc1t figure (000 omitted in dollar amounts) I I I I Total Capital -, AdJUSted Capital : and Reserves 610 and Reserves l Examiner· 1n•Char2e Gates 405 : " ,C:Bas1c Capital 01 O:Depos1t lmpanment : 3.4% I I3-4R-O. OR-U Rat1nas None fflSkAssetsLeSS TotalCal)ltal and Reserves 10 140 PPO • Indicates Potential Pay-Off ••-1nd1cates State Federal Reserve Member Bank COMMENTS Dominance, laxness in lending and collecting, and self-serving on the part of two directors who acquired control in late 1973 brought an excessive volume of adversely classified assets, significant loan losses, inadequate capital, a concentration of low-quality insi4er loans, and lack of adequate liquidity in the asset structure. Informal supervisory methods--examiner visitations, required periodic progress reports from the bank, and meetings with the directors--have not been effective, and action under Section 8(b) of the FDI Act is anticipated. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 290 EXHIBIT B MEMORANOUM FOR THE FILES: First State Bank of Anycity AnycitY 1 Anystate Nonproblem (Former! Other Problem Examined.............................. i~::i~~;~r-•i_n_-;~~r~~: :: :::::::::::::::::::: Total deposiis (000 omitted) .............. . R . Indicates deficit figure 12~13-73 10-15-74 3-19-75 Duggan Feltz 5-0R-0.4-U Cosmo 4-JR-0. 6R-U 8,325 7-3-1. 3-F 9,565 10 938 **- Indicates State Federal Reserve Member Bank Dominance and self-serving on the part of former directors and control owners John L. Money and Henry J. Longtem brought a burdensome volume of adversely classified assets, substantial charge-offs, inadequate capital, and a tenuous liquidity posture, requiring the issuance of a Cease and Desist Order in early 1974. . Subsequently, Money and Longterm sold controlling interest to a group of local individuals, who brought in a competent executive officer, injected capital, and cleaned up the bank's asset condition. Subject has been returned to a reasonably acceptable condition; it is recommended that the Other Pt'oblem designation be removed. John J. Doe Regional Director REVIEWED 5-14-75: John K. Strongheart Review Examiner FDIC 6610.'1] 411-731 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis CONCUR: Albert E. Blaisdell Review Section Chief 291 NONMEMBER PROBLEM BANK SUMMARY NamP1nti l::.:atio11 Ex ■ ms Moretown State Banlt Moretown, Anystate Last FDIC Last State :' May 13, 1974 : May 13, 1974 Tentative; FDIC l First Quarter 1975 Tantativ■: Stttt ; First Qua:rter 1975 Region Problem statu1 Point rating Section 8 action? FDIC An~here □ ' OP Joate\ 0 SP 12-31-74 D SP-PPO 7-1-1.0-P None \ , 11 conferences : August 15, 1974 with. : . : managemant!Tantat1v•j None scheduled. REMARKS The bank was designated "Other Problem" following the May 13, 1974 examination and was subsequently designated 11 Serious Problem - PPO" on August 16, 1974 following disclosure of the fact that the president had engaged the bank in a speculative purchase of securities futures · which threatened the solvency of the bank. Subsequently, the directors were able to resolve the futures liability with minimal loss and the 11 PP011 designation was removed August 19, 1974. In October 1974 the president sold control and severed all connection with the bank. The new executive officer is Bruce s. Reliable, a former state examiner. Associated with Reliable in the acquisition of control is John B. Acceptable of the First State Bank, Anothercity, Anystate (8-7-1.2-S/ 10-6-74), We regard the new management arrangement as satisfactory and feel that remaining problems will be resolved as quickly as possible. An early examination will be conducted; Section 8 action is not necessary. Prepared 1-14-75 FOIC 71001113'711 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis FDIC PROBLEM BANK SUMMARY December 31, 1975 i R_eposits 0 - 100 Million Serious Problem--PPO Serious Problem Other Problem Subtotal ...L State Nonntember Assets Deposits ...L 5 National A s s e ~ Deposits 75,849 169,028 1,133,198 1,378,075 588,346 23* 70 1,431,214 174 __l,372,310 ·261 5,391,870 492,102 1,218,521 2,857,263 4,567,886 39 0 1,270,074 2,004,184 3,274,258 0 1,085,888 1 1 735,189 2,821,077 0 0 2,791,147 6 7** 4,272,761 IT 7,063,908 0 0 0 0 0 0 0 0 588,346 2,701,288 5,376,494 8,666,128 492,102 2,304,409 4,592,452 7,388,963 s 29 State Member Assets Deposits ...L Assets Deposits 0 57,093 408,584 465,677 0 45,028 357,177 402,205 28 78 214 320 664,195 1,657,335 4,914,092 7,235,622 560,063 1,417,001 4,192,391 6,169,455 0 0 0 2,245,192 0 0 2,994,120 3** 7,429,784 5,239,312 ~ 7,429,784 0 0 6,212,681 6,212,681 0 10 19 0 4,061,221 13,706,729 17,767,950 0 3,331,080 10,941,990 14,273,070 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3 14 0 57,093 7,838,368 7 ,89S,461 45,028 6,569,858 6,614,886 28 88 233 349 664,195 5,718,556 18,620,821 25,003,572 560,063 4,748,081 15,134,381 20,442,525 67,961 153,452 977,951 1,199,364 ..!!..... 0 3 11 14 Total 100 Million - 1 Billion Serious Problem--PPO Serious Problem Other Problem Subtotal over 0 4 9 13 29 l Billion Serious Problem--PPO Serious Problem Other Problem Subtotal 0 0 0 0 0 0 0 ·o 0 0 0 0 0 0 0 5 75,849 2,960,175 5,405,959 8,441,983 67,961 2,398,644 3,972,071 6,438,676 0 0 0 Recap Serious Problem--PPO Serious Problem Other Problem Total 23 74 183 280 11 36 52 * Includes one bank with deposits of $100 million to $1 billion. ** Includes one bank with deposits exceeding $1 billion. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IT 0 ~ l'V FDIC PROBLEM BANK SUMMARY June 30, 1976 i Deposits J_ State Nonmember Deposits Assets National ..L State Member Asse~ Deposits Total Assets Deposits ....L 0 323,941 388,060 712,001 0 266,886 339,719 606,605 22 87 222 331 344,321 2,363,501 5,235,848 7,943,670 310,533 2,059,442 4,532,155 6,902,130 0 0 l,ll4,936 l,ll4,936 0 0 963,170 963,170 0 0 5,183,847 5,714,431 10,898,278 0 4,363,766 4,935,851 9,299,617 0 0 2 0 0 24,645,737 24,645,737 0 0 19,223,551 19,223,551 5 0 0 5 0 0 44,663,645 44,663,645 0 0 34,955,844 34,955,844 0 0 323,941 26,148,733 26,472,674 0 266,886 20,526,440 20,793,326 22 100 245 367 344,321 7,547,348 55 ,613..,_fil 63,505,593 310,533 6,423,208 44,423,850 51,157,591 ....L Assets Deposits 0 - 100 Million Serious Problem--PPO Serious Problem Other Problem Subtotal 22 76 178 276 344,321 1,840,438 3,617,818 5,802,577 310,533 1,613,439 3,129,532 s,os:;,504 0 6+ 32 38 0 199,122 1,229,970 1,429,092 0 179,ll7 1,062,904 1,242,021 0 0 8** 3,070,220 10 2,205,943 18 5,276,163 0 2,656,839 2,002,579 4,659,418 0 0 5 2,ll3,627 6 _2iill..,_S_g IT 4,507,179 0 1,706,927 1,970,102 3,677,029 0 s• 12 IT 100 Million - l Billion Serious ProHem--PPO Serious Problem Other Problem Subtotal 0 0 2 2 13 18 n Over l Billion Serious Problem--PPO Serious Problem Other Problem Subtotal 0 0 0 0 0 0 0 0 0 0 0 344,321 4,910,658 5 I 823 J 761 11,078,740 310,533 4,270,278 5 1 132 1 111 9,712,922 0 0 0 3 0 0 20,017,908 20,017,908 0 0 15,732,293 15,732,293 0 0 2,312,749 23,641,430 25,954,179 1,886,044 18,765,299 20,651,343 3 2 Recap Serious Problem--PPO Serious Problem Other Problem. Total 22 84 188 294 11 41 52 • Includes one bank with deposits of $100 million to $1 billion. Includes one bank with deposits exceeding $1 billion. ** o· 5 16 TI + Includes one Serious Problem--Potential Payoff bank with deposits under $100 million. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis t:...:l <:O C;:> FDIC PROBLEM BANK SUl1HARY December 31, 1976 i Deposits ..L State Nonmember Deposits ~ 19* 64 193 276 519,980 1,370,490 3,844,913 5,735,383 454,680 1,216,669 3,442,527 5,113,876 0 0 8** 3,508,102 ...!I** 5,342;625 25 8,850,727 0 3,172,690 4,905,459 8,078,149 National Total State Member ..L Assets Deposits ..L 4 67,328 528,271 958,935 1,554,534 59,337 471,282 847,037 1,377,656 0 4+ 10 0 2,035,218 l,"697 1 856 3,733,074 Deposits ..L IT 0 90,494 406,630 497,124 0 78,428 357,342 435,770 23 79 233 335 587,308 1,989,255 5 1 210 1 478 7,787,041 514,017 1,766,379 4,646,906 6,927,302 0 0 1,677,393 0 1,454,583 3 3,131,976 -~ 0 0 2,383,538 2,383,538 0 0 1,867,360 1,867,360 0 13 25 0 5,543,320 9,424,019 14,967,339 0 4,850,083 8 1 221 1 402 13,077,485 0 0 2 0 0 24,645,737 24,645,737 0 0 19,223,551 19,223,551 6 0 0 6 0 0 51,430,477 51,430,477 0 0 39,148,308 39,148,308 0 4 15 0 90,494 27,435,905 27,526,399 0 78,428 21,448,253 21,526,681 23 92 264 379 587,308 7,532,575 66,064,974 74,184,857 514,017 6,616,462 52,022,616 59,153,095 ~ Assets Deposits 0 - 100 Million Serious Problem-PPG Serious Problem Other Problem Subtotal 11 30 45 100 Million - l Billion Serioua PToblem--PPO Serious Problem Other Problem Subto~ 0 5 5 Io 38 Over l Billion Serious Problem--PPO Serious Problem Other Pl'oblem Subtotal 0 0 0 0 0 0 0 0 0 0 0 0 519,980 4,878,592 9,187,538 14,586,110 454,680 4,389,359 8,347,986 13,192,025 0 0 4 0 0 26,784,740 26,784,740 0 0 19,924,757 19,924,757 4 16 39 67,328 2,563,489 29,441,531 32,072,348 59,337 2,148,675 22,226,377 24,434,389 4 2 Recap Serious Problem--PPO Serious Problem Other Problem Total * ** 19 72 210 301 59 IT Includes one bank with deposits of $100 million to $1 billion. Includes one bank with deposits exceeding $1 billion. one Serious Problem-Potential Payoff bank with deposits of under $100 million. + Includes https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ~ ~ ~ FDIC PROBLEM BANK SUMMARY June 30, 1977 i Deposits _#_ State Nonmember Assets Deposits _u_ National Assets Deposits State Member _#_ Assets Deposits _u_ Total Assets-- Deposits 0 - 100 Million Serious Problem--PPO Serious Problem Other Problem Subtotal 13* 75 178 """4f 59,838 411,829 1,280,318 1,751,985 52,254 360,211 1,126,721 1,539,186 0 3,524,783 5 I 289,069 8,813,852 2 5 0 --7 704,458 2,209,943 0 2,914,401 551,343 1,836,905 0 2,388,248 0 0 0 0 0 0 0 0 0 0 4 --4 409,239 5,632,572 9,335,277 15,377,088 357,487 5,084,601 8,529,835 13,971,923 5 15 38 409,239 1,668,996 3,684,298 5,762,533 357,487 1,559,818 3,240,766 5,158,071 0 3,875,081 5,739,474 9,614,555 0 0 0 --0 13 83 194 266 3 10 34* 0 3• 12 15 0 184,358 406,242 590,600 0 151,971 347,649 499,620 0 0 3 --3 0 0 2,628,683 2,628,683 0 0 27,808~ 27,808,564 764,296 2,621,772 29,088,882 32,474,950 16 88 224 469,077 2,265,183 5 1 370,858 8,105,118 409, 741 2,072,000 4,715,136 7,196,877 0 0 2,083,868 2,083,868 704,458 6,085,024 8,368,157 ~ 15,157,639 551,343 5,361,688 7,372,937 13,285,968 0 0 0 0 0 0 19,784,405 2 29,759,103 19,784,405 --2 29,759,103 0 0 23,406,757 23,406,757 0 0 0 0 __ 6 57,567,667 6 57,567,667 0 0 43,191,162 43,191,162 603,597 2,197,116 20,911,126 23,711,839 0 151,971 25,838,274 25,990,245 328 100 Million - I Billion Serious Problem--PPO Serious Problem Other Problem Subtotal 0 8** 16** ~ 2 13 19 Over 1 Billion Serious Problem--PPO Serious Problem Other Problem Subtotal Recap Serious Problem--PPO Serious Problem Other Problem Total 290 58 *Includes one bank with deposits of $100 million to $1 billion, **Includes one bank with deposits exceeding $1 billion, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 0 3 17 -w 0 184,358 32,794,028 32,978,386 18 101 1,173,535 8,438,702 2i2_ 71,218,187 368 80,830,424 961,084 7,433,688 55,279,235 63,674,007 t..:i c:o CTI FDIC PROBLEM BANK SUMMARY December 31, 1977 i _L Deposits State Nonmember Assets Deposits ..L National Assets ----Deposits ..L State Member Deposits Assets Total ..L Assets Deposits 0 - 100 Million Serious Problem--PPO Serious Problem Other Problem Subtotal 10• 72 180 262 892,577 1,480,920 3,283,458 5,656,955 805,959 1,314,465 2,970,493 5,090,91~ 0 4,191,561 3,329,303 7,520,864 0 3,833,845 3,045,755 6,879,600 0 10 37 0 244,919 1,357,637 1,602,556 0 204,373 1,209,466 1,413,839 l 5 3 263,638 2,277,581 730,699 3,271,918 222,601 1,802,261 624,807 2,649,669 47 1 3* 12 6,911 179, R93 295 1 752 482,556 0 0 4 0 0 2,760,166 2,760,166 16 6,396 159,042 246 1 190 4ll,628 11 85 229 325 899,488 1,905,732 4,936,847 7,742,067 812,355 1,677,880 4,426,149 6,916,384 0 0 2,206,941 2,206,941 l 15 21 263,638 6,469,142 6,820,168 13,552,948 222,601 5,636,106 5,877,503 11,736,210 100 Million - l Billion Serious Problem--PPO Serious Problem Other Pr0blem 0 10•• 14 24 Subtotal 9 4 37 1:-.:> co Over l Billion Serious Problem--PPO Serious Problem Other Problem Subtotal ~ 0 0 0 0 0 0 0 0 0 0 0 0 892,577 5,672,481 6,612,761 13,177,819 805,959 5,148,310 6,016,248 ll,970,517 4 0 0 4 0 0 27,863,923 27,863,923 0 0 19,844,323 19,844,323 263,638 2,522,500 29,952,259 32,738,397 222,601 2,006,634 21,678,596 23,907,831 0 0 2 0 0 29,759,103 29,759,103 0 0 0 0 23,406,757 6 23,406,757 6 0 0 57,623,026 57,623,026 0 0 43,251 ,oso 43,251,080 l 3 18 6,9ll 179,893 32,815,021 33,001,825 6,396 159,042 25,859,888 26,025,326 1,163,126 8,374,874 69,380,041 78,918,041 1,034,956 7,313,986 53,554,732 61,903,674 2 Recap Sei:ious Problem.--PPO Serious Problem Other Problem Total * Includes ** Includes 10 82 194 286 one bank with deposits of $100 million to $1 billion. one bank with deposits of over $1 billion. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis l 15 44 60 22 12 100 256 368 297 EXHIBIT D State Nonmember BAIIKS MOVING IN AND OUT OF PROBLEM CATEGORIES BY SIZE (In Thousands of Dollars) 1973 No. De2osit Size Assets Deposits Under $100 Million PPO: In Out 6 4 82,408 49,445 69,158 41,106 SP: In Out 19* 13 895,680 133,409 802,940 114,396 OP: In Out .J!l 1,138,417 1,115,822 993,580 996,498 In Out 91 110 2,116,505 1,298,676 1,865,678 1,152,000 Subtotal 66 $100 Million to $1 Billion PPO: In Out 0 0 0 0 0 0 SP: In Out 0 0 0 0 0 0 OP: In Out 0 --1. 0 994,435 0 904,961 In Out 0 3 0 994 435 0 904 961 PPO: In Out 6 4 82,408 49,445 69,158 41,106 SP: In Out 19 13 895,680 133,409 802,940 114,396 OP: In Out 66 ~ 1,138,417 2,110,257 993,580 1,901,459 Total In Out 91 113 2,116,505 2,293,111 1,865,678 2,056,961 Subtotal ~ Net Increase (Decrease) ( 22) * Includes one bank in $100 million to $1 billion. 30-476 0 • 78 • 20 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ( 176,606) ( 191,283) 298 EXHIBIT D State Nonmember BANKS MOVING IN AND OUT OF PROBLEM CATEGORIES BY SIZE (In Thousands of Dollau) 1975 1974 No. DeJ:!:OSit Size Assets Deposits ~ Assets Deposits Under $100 Million PPO: In Out 13 9 263,734 85,347 224,647 72,856 28 14 563,326 202,978 485,849 190,574 SP: In Out 38 27 853,569 610,428 727,011 532,657 75 36 1,444,190 648,055 1,218,802 544,713 OP: In Out 75 *74 1,338,045 1,324,812 1,151,867 1,147,904 175 101 3,481,395 1,820,334 2,944,528 1,573,953 Subtotal In Out 126 110 2,455,348 2,020,587 2,103,525 1,753,417 278 151 5,488,911 2,671,367 4,649,179 2,309,240 In Out 0 0 0 0 0 0 0 0 0 0 0 0 SP: In Out 2 0 350,042 0 304,328 0 2 0 309,333 0 275,473 0 OP: In Out 2 0 396,006 0 318,710 0 7 0 In Out 4 0 746,048 0 623,038 .o PPO: In Out 13 9 263,734 85,347 SP: In Out 40 27 OP: In Out Total: In Out $100 Million to $1 Billion PPO: Subtotal 1,609,443 0 1,381,680 ---- - - - -0 9 0 1,918,776 0 1,657,153 0 l24 ,647 72,856 28 14 563,326 202,978 485.,849 190,574 1,203,611 610,428 1,031,339 532,657 77 36 1,753,523 648,055 1,494,275 544,713 77 74 1,734,051 1,324,812 1,470,577 1,147,904 182 101 5,090,838 1,820,334 4,326,208 1,573,953 130 110 3,201,396 2,020,587 2,726,563 1,753,417 287 151 7,407,687 2,671,367 6,306,332 2,309,240 20 1,180,809 973,146 136 4,736,320 3,997,092 RECAP Net Increase *Includes one bank in $100 million to $1 billion. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 299 EXHIBIT D STATE NONMEMBER BANKS MOVING IN AND OUT OF PROBLEM CATEGORIES BY SIZE (In Thousands of Dollars) 1976 No. De2osit Size 1977 Assets Deposits ~ Assets Deposits Under $100 Million PPO: In Out 28 32 428,638 579,369 379,553 508,985 SP: In Out 64 70 1,135,641 1,209,549 1,003,539 1,040,945 OP: In Out 142 121 2,841,297 2,221,076 Subtotal In Out 234 223 12• 21* 927,273 538,230 835,603 474,094 55 46 1,003,195 738,521 890,652 670,125 2,515,848 1,863,342 123 136 l, 781,389 2,385,075 1,605,295 2,143,153 4,405,576 4,009,994 3,898,940 3,413,272 190 203 3,7ll,857 3,661,826 3,331,550 3,287,372 813,064 702,987 738,979 633,669 0 0 0 0 0 0 5 4 1,513,616 l, 215,156 1,364,183 1,086,445 8 $100 Million to $1 Billion PPO: In Out 3 3 SP: In Out 7# 3 3,195,163 939,650 2,832,643 808,307 OP: In Out 10# __'! 3,940,239 867,140 3,656,571 735,099 _.!.!_II 1,862,213 4,013,265 1,708,755 3,499,404 In Out 20 10 7,948,466 2,509,777 7,228,193 2,177,075 13 15 3,375,829 5,228,421 3,072,938 4,585,849 PPO: In Out 31 35 1,241,702 1,282,356 l,ll8,532 1,142,654 12 21 927,273 538,230 835,603 474,094 SP: In Out 71 73 4,330,804 2,149,199 3,836,182 1,849,252 60 50 2,516,8ll 1,953,677 2,254,835 l, 756,570 OP: In Out 152 125 6,781,536 3,088,216 6,172,419 2,598,441 131 147 3,643,602 6,398,340 3,314,050 5,642,557 Total: In Out 254 233 12,354,042 6,519,771 ll,127,133 5,590,347 203 218 7,087,686 8,890,247 6,404,488 7,873,221 21 5,834,271 5,536,786 ( 15) (1,802,561) (1,468,733) Subtotal RECAP Net Increase (Decrease) * Includes one bank in $100 million to $1 billion. fl Includes one bank over $1 billion. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ALL STATE NONMEMBER COMMERCIAL BANKS Examined In 1972 - 1977 ....I ., .,~ .,~ Total Deposits in Domestic Offices Question 7 & 8 Year Total 0-100 Million Number of Banks Examined 1972 1973 1974 1975 1976 1977* 7,660 7,543 7,474 7,522 7,839 4,506 7,551 7,402 7,323 7,332 7,619 4,373 94 125 133 173 199 121 14 16 16 15 15 9 l 0 2 2 6 3 0 0 0 0 0 0 Total Substandard Assets {in millions) 1972 1973 1974 1975 1976 1977• 1,802 1,925 2,647 4,202 4,997 2,894 1,360 1,378 1,788 2,535 3,002 1,764 235 329 524 1,069 1,228 693 193 218 313 570 535 317 14 0 22 28 232 120 0 0 0 0 0 1972 1973 1974 1975 1976 1977• 162 170 246 422 457 267 104 103 150 262 262 152 23 30 49 105 108 64 35 37 47 52 62 45 0 0 0 3 25 6 0 0 0 0 0 0 Total Loss Assets (in millions) 1972 1973 1974 1975 1976 1977* 166 190 319 459 479 289 119 122 178 252 269 161 25 40 65 132 125 61 21 28 75 74 65 62 1 0 1 1 20 5 0 0 0 0 0 0 Total Classified Assets (in millions) 1972 1973 1974 1975 1976 1977* 2,130 2,285 3,212 5,083 5,933 3,450 1,583 1,603 2,ll6 3,049 3,533 2,077 283 399 638 1,306 1,461 818 249 283 435 696 662 424 15 0 23 32 277 131 0 Total Doubtful Assets (in millions) * Data reflects 1977 examination reports processed to date. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 100-500 Million 500 Millionl Billion 1-5 Billion Over 5 Billion 0 0 0 0 0 0 8 .-< I "' i::: "' R "' 0-100 Million 100-500 Million 500 Million -1 Billion 1-5 Billion Over 5 Billion Question 7 & 8 Year Total Special Mention Assets (in millions) 1972 1973 1974 1975 1976 1977* 505 475 568 953 778 926 272 283 319 539 415 397 189 127 76 289 134 82 38 65 150 102 47 54 6 0 23 23 182 393 0 0 0 0 0 0 Total Classified and Special Mention Assets ( in millions) 1972 1973 1974 1975 1976 1977* 2,635 2,760 3,780 6,036 6,711 4,376 1,855 1,886 2,434 3,588 3,948 2,474 472 526 714 1,595 1,595 900 287 348 586 798 709 478 21 0 46 55 459 524 0 0 0 0 0 0 Percentage of Classified Assets to Total Assets 1972 1973 1974 1975 1976 1977* 1.6% 1.6% 2.0% 2.9% 3.0% 2.8% 1.6% 1.5% 1.8% 2.5% 2.6% 2.5% 1.5% 1.6% 2.2% 3.4% 3.5% 3.1% 2.3% 2.0% 3.0% 5.0% 4.8% 5.4% 1.1% 0 .8% 1.1% 3.1% 2.8% 0 0 0 0 0 0 Percentage of Classified and Special Mention Assets to Total Assets 1972 1973 1974 1975 1976 1977* 2.0% 1.9% 2.3% 3.4% 3.4% 3. 6% 1.9% 1.8% 2.1% 2.9% 2. 9% 3.0% 2.5% 2.1% 2.4% 4.2% 3.9% 3.4% 2. 7% 2.4% 4.0% 5. 7% 5.1% 6.1% 1.6% 0 1.6% 1.9% 5. 2% 11.2% 0 0 0 0 0 0 Percentage of Classified Assets to Total Capital 1972 1973 1974 1975 1976 1977* 19.6% 18. 8% 23. 6% 33.0% 34. 5% 33.3% 18.8% 17 .8% 21.4% 27. 9% 29.4% 28.9% 18. 7% 19. 7% 27.2% 42. 2% 42.8% 37 .9% 29. 2% 25.6% 37. 9% 60. 3% 62.0% 67 .3% 17.4% 0 10. 7% 13.9% 39.1% 33.5% 0 0 0 0 0 0 Percentage of Classified Assets and Special Mention Assets to Total Capital 1972 1973 1974 1975 1976 1977* 24.2% 22.8% 27 .8% 39.2% 39.0% 42.2% 22.0% 20.9% 24.6% 32.9% 32.9% 34.4% 31.3% 26.1% 30.5% 51.5% 46.8% 41. 7% 33.6% 31.4% 50.9% 69.2% 66.4% 75. 9% 25.1% 0 21.2% 23.9% 64.8% 134.3% 0 0 0 0 0 0 H * Data reflects 1977 examination reports processed to date. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Total Cl,j .... 0 100-500 Million 500 Millionl Billion 1-5 Billion 210 217 289 416 464 475 3,0ll 3,188 4,802 7,546 7,341 6,756 17,797 17,695 27,215 46,375 44,090 47,139 14,643 0 ll,472 15,957 46,136 43,627 0 0 0 0 0 0 66 63 76 127 99 206 36 38 44 73 54 91 2,007 1,020 574 1,670 675 681 2,713 4,039 9,386 6,793 3,ll8 5,975 6,474 0 ll,233 11,526 30,276 130,948 0 0 0 0 0 0 344 366 506 802 856 971 246 255 332 489 518 566 5,018 4,207 5,376 9,216 8,016 7,437 20,510 21,734 36,601 53,167 47,208 53,114 21,108 0 22,705 27,482 76,412 174,575 0 0 0 0 0 0 ....I ., Question 7 & 8 Year ~ Average Classified Assets Per Bank (in thousands) 1972 1973 1974 1975 1976 1977• 278 303 430 676 757 766 Average Special Mention Assets Per Bank (in thousands) 1972 1973 1974 1975 1976 1977* Total Average Classified and Special Mention Assets (in thousands) 1972 1973 1974 1975 1976 1977* "' ! Total 0-100 Million Over 5 Billion c:,; 0 ~ * Data reflects 1977 examination reports processed to date. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ALL INSURED NONMEMBER PROBLEM BANKS, 1973-1977 Total De:eosits in Domestic Offices Question 7&8 0·-100 Million 100 Million - 1 Billion Jear Total Number of Banks 1973 1974 1975 1976 1977 124 144 280 301 286 Total Substandard Assets (in millions) 1973 1974 1975 1976 1977 208 328 870 1,366 1,205 208 228 526 616 472 0 100 344 750 733 Total Doubtful Assets (in millions) 1973 1974 1975 1976 1977 29 56 121 234 152 29 30 79 91 63 0 26 42 143 89 Total Loss Assets (in millions) 1973 1974 1975 1976 1977 29 55 126 227 207 29 36 87 88 74 0 19 39 139 133 Total Classified Assets (in millions) 1973 1974 1975 1976 1977 266 439 l,ll7 1,827 1,564 266 294 692 795 609 0 145 425 1,032 955 (a)Includes one bank between $100 milion and $1 billion. (b) Includes two banks with deposits over $1 billion. (c) Includes one bank with deposits over $1 billion. 124(a) 140 266 276 262 0 4 14 25(b) 24(c) c,,:i 0 c,,:i https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ALL INSURED NONMEMBER PROBLEM BANKS, 1973-1977 (Continued) N Year Total 0-100 ~ Total Special Mention Assets (in millions) 1973 1974 1975 1976 1977 28 56 95 210 153 28 33 69 52 37 0 23 26 158 116 Total Classified and Special Mention Assets (in millions) 1973 1974 1975 1976 1977 294 495 1,212 2,037 l, 717 294 327 761 848 646 0 168 451 1,189 1,011 Percentage of Classified Assets to Total Assets 1973 1974 1975 1976 1977 9,4% 11.2% 12,6% 12.5% 12.1% 9.4% 11,3% 12,9% 13.8% 12.6% 0 11,1% 12,3% 11,6% 11.8% Percentage of Classified and Special Mention Assets to Total Assets 1973 1974 1975 1976 1977 10.4% 12.6% 13. 7% 13.9% 13.3% 10.4% 12.5% 14.2% 14. 7% 13.4% 0 12.9% 13.0% 13.4% 13.2% Percentage of Classified Assets to Total Capital 1973 1974 1975 1976 1977 123.6% 133.4% 154, 7% 16 7. 2% 162.2% 123.6% 135.9% 153. 9% 166.6% 152. 2% 0 128.3% 156.3% 167. 7% 169.3% -1973 1974 1975 1976 1977 136.5% 150.5% 167 .9% 186.4% 178.1% 136.5% 151.0% 169.1% 177 .6% 161.3% 0 148. 7% 165.8% 193.4% 189.9% I "' I:: "' ~ "' Percentage of Classified Assets and Special Mention As~ets to Total Capital 100 Million - l Billion c.:i 0 ~ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ALL INSURED NONMEMBER PROBLEM BANKS, 1973-1977 (Continued) 100 Million - 1 Billion Year Total 0-100 ~ Average Classified Assets Per Bank (in thousands) 1973 1974 1975 1976 1977 2,143 3,054 3,991 6,070 5,489 2,143 2,102 2,606 2,882 2,333 0 36,366 30,298 41,261 39,807 Average S;,ecial Mention Assets Per Bank (in thousands) 1973 1974 1975 1976 1977 223 391 338 697 537 223 234 258 188 140 0 5,860 1,863 6,311 4,854 Total Average Classified and Special Mention Assets (in thousands) 1973 1974 1975 1976 1977 2,366 3,445 4,329 6,767 6,026 2,366 2,336 2,864 3,071 2,474 0 42,226 32,160 47,573 44,662 c.:> 0 i:;-. Insured Nonmember Serious Problem - Potential Payoff Banks Year End 1973 - 1977 Total Deposits in Domestic Offices Question 7 & 8 Number of Banks Year ~ Total 1973 1974 1975 1976 1977 5 9 23 19 10 Total Substandard Assets (in millions) 1973 1974 1975 1976 1977 9 14 67 66 114 Total Doubtful Assets (in millions) 1973 1974 1975 1976 1977 2 4 16 10 15 Total Loss Assets (in millions) 1973 1974 1975 1976 1977 1 8 21 13 36 Total Classified Assets (in millions) 1973 1974 1975 1976 1977 12 26 104 89 165 Total Special Mention Assets (in millions) 1973 1974 1975 1976 1977 1 1 9 5 1 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 0-100 Million 5 9 22 18 9 100 Million - 1 Billion 0 0 1 1 1 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Insured Nonmember Serious Problem - Potential Payoff Banks Year End 1973 - 1977 (Continued) Question 7 & 8 Total Classified and Special Mention Assets Year ~ Total 1973 1974 1975 1976 1977 27 113 94 166 1973 1974 1975 1976 1977 22. 7% 12.0% 17.7% 16.2% 18.4% Percentage of Classified and Special Mention Assets to Total Assets 1973 1974 1975 1976 1977 24.2% 12.3% 19.3% 17.1% 18.5% Percentage of Classified Assets to Total Capital 1973 1974 1975 1976 1977 260.9% 179.4% 248.6% 247. 7% 240.0% Percentage of Classified Assets and Special Mention Asse~s to Total Capital 1973 1974 1975 1976 1977 278.3% 183.5% 271.1% 261.3% 241.6% Percentage of Classified Assets to Total Assets 13 c.:, 0 ~ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Insured Nonmember Serious Problem - Potential Payoff Banks Year End 1973 - 1977 (Continued) Year ~ Total 1973 1974 1975 1976 1977 2,444 2,911 4,529 4,676 16,497 Average Special Mention Assets Per Bank {in thousands) 1973 1974 1975 1976 1977 163 65 409 257 106 Total Average Classified and Special Mention Assets (in thousands) 1973 1974 1975 1976 1977 2,607 2,976 4,938 4,933 16,603 Question 7 & 8 Average Claasified Assets Per Bank (in millions) c.:i 0 00 Insured Nonmember Serious Problem Banks Year End 1973 - 1977 Total De~osits in Domestic Offices Year ~ Total 0-100 Million 20(a) 31 70 64 73 100 Million - 1 Billion 1973 1974 1975 1976 1977 20 33 74 Total Substandard Assets (in millions) 1973 1974 1975 1976 1977 85 162 357 541 542 85 81 187 184 183 0 81 170 357 359 Total Doubtful Assets (in millions) 1973 1974 1975 1976 1977 15 31 50 119 81 15 11 22 38 32 0 20 28 81 49 Total Loss Assets (in millions) 1973 1974 1975 1976 1977 11 27 44 100 112 11 14 29 31 43 0 13 15 69 69 Total Classified Assets (in millions) 1973 1974 1975 1976 1977 111 220 451 760 735 111 106 238 252 258 0 114 213 508 477 Number of Banks (a) Includes one bank with deposits between $100 million and 1 billion. (b) Includes one bank with deposits over $J billion. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 72 82 0 2 4 8(b) 9(b) c.:> 0 co Insured Nonmember Serious Problem Banks Year End 1973 - 1977 (Continued) N Total DeEosits in Domestic Offices I "' ~ ;"' "' 0-100 Million 100 Million - 1 Billion Year ~ Total Total Special Mention Assets (in millions) 1973 1974 1975 1976 1977 10 33 27 126 90 10 10 15 12 14 0 23 12 114 76 Total Classified and Special Mention Assets (in millions) 1943 1974 1975 1976 1977 121 253 478 886 825 121 116 253 294 272 0 137 225 622 553 Percentage of Classified Assets to Total Assets 1973 1974 1975 1976 1977 10.6% 14.0% 16.3% 15.6% 13.5% 10.6% 16.4% 16.1% 18.5% 17.4% 0 12.4% 16. 4% 14.4% 12.0% Percentage of Classified and Special Mention Assets to Total Assets 1973 1974 1975 1976 1977 11.5% 16.2% 17 .2% 18.1% 15.1% 11.5% 18.1% 17.1% 19.4% 18.3% 0 14.9% 17 .4% 17. 7% 13.9% Percentage of Classified Assets to Total Capital 1973 1974 1975 1976 1977 144.8% 159.5% 202. 7% 205. 7% 188. 5% 144.8% 202.2% 200.3% 241.6% 206.4% 0 131.1% 205.3% 191.6% 180.1% https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Cl,;) ~ 0 Insured Nonmember Serious Problem Banks Year End 1973 - 1977 (Continued) Total DeEosits in Domestic Offices Year ~ Total Million Percentage of Classified Assets and Special Mention Assets to Total Capital 1973 1974 1975 1976 1977 158.0% 184.2% 214.8% 239. 7% 211.6% 158.0% 228. 8% 212. 8% 253. 3% 217 .5% 0 158.1% 217. 2% 234.3% 208.9% Average Classified Assets Per Bank (in thousands) 1973 1974 1975 1976 1977 5,532 6,652 6,101 10,557 9,073 5,532 3,409 3,401 3,933 3,579 0 56,919 53,345 63,545 53,025 Average Special Mention Assets Per Bank (in thousands) 1973 1974 1975 1976 1977 504 1,027 366 1,746 1,111 504 337 211 191 191 0 11,720 3,070 14,182 8,464 Total Average Classified and Special Mention Assets (in thousands) 1973 1974 1975 1976 1977 6,036 7,679 6,467 12,302 10,183 6,036 3,746 3,612 4,124 3,770 0 68,639 56,414 77,728 61,488 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 0-100 100 Million - 1 Billion C.:l Insured Nonmember Other Problem Banks Year End 1973 - 1977 Total DeEosits in Domestic Offices 0-100 Million Year ~ Total Number of Banks 1973 1974 1975 1976 1977 99 102 183 210 194 99 100 174 193 180 Total Substandard Assets (in millions) 1973 1974 1975 1976 1977 114 153 446 760 550 114 134 283 367 279 0 19 163 393 271 Total Doubtful Assets (in millions) 1973 1974 1975 1976 1977 12 20 56 104 55 12 14 42 43 28 0 6 14 61 27 Total Loss Assets (in millions) 1973 1974 1975 1976 1977 17 21 60 114 59 17 14 38 45 28 22 69 31 1973 1974 1975 1976 1977 143 194 562 978 664 143 162 363 455 335 0 32 199 523 329 Total Classified Assets (in millions) (a) Includes one bank with deposits over $1 billion. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 100 Million - 1 Billion 0 2 9 17 (a) 14 0 7 ~ ..... tv ., ' ~ 0 0 Insured Nonmember Other Problem Banks Year End 1973 - 1977 (Continued) .., "' ::!' Total De:e:osits in Domestic Offices 0-100 Million Year ~ Total 1973 1974 1975 1976 1977 17 22 58 79 62 17 22 45 35 23 0 0 13 44 39 1973 1974 1975 1976 19.77 160 216 620 1,057 726 160 184 408 490 358 0 32 212 567 368 Percentage of Classified Assets to Total Assets 1973 1974 1975 1976 1977 8.3% 9.0%. 10.2% 10.6% 10.1% 8.3% 9.3% 10.5% 11.8% 10.3% 0 8.1% 9.8% 9. 7% 9.8% Percentage of Classified and Special Mention Assets to Total Assets 1973 1974 1975 1976 1977 9.3% 10.1% ll.31: 11.4% 11.0% 9.3% 10.5% 11.8% 12.7% 11.0% 0 8.1% 10.4% 10.5% 11.0% Percentage of Classified Assets to Total Capital 1973 1974 1975 1976 1977 106. 7% 109.4% 122.8% 142. 3% 131.3% 106. 7% 107 .4% 122.3% 134.8% 124.1% 0 121.0% 123. 7% 149.6% 139.6% Total Special Mention Assets (in millions) Total Classified and Special Mention Assets (in millions) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 100 Million - 1 Billion i:,.;, ...... i:,.;, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis .lnsut:"ed Nonmember Other Problem Banks Year End 1973 - 1977 (Continued) Total DeEosits in ·nomestic Offices Year ~ Total 0-100 Million Percentage of Classified Assets and Special Mention Assets to Total Capital 1973 1974 1975 1976 1977 119.3% 121. 7% 135. 5% 153. 9% 143.6% 119.3% 121.8% 137.6% 145.2% 132.5% 119. 3% 121.0% 131. 8% 162. 2% 156. 3% Average Classified ·Assets Per Bank (in thousands) 1973 1974 197 5 1976 1977 1,443 1,902 3,070 4,658 3,425 1,443 1,624 2,085 2,357 1,864 0 15,813 22,123 30,776 23,503 Average Special Mention Assets Per Bank (in thousands) 1973 1974 1975 1976 1977 170 218 318 378 320 170 218 260 182 126 0 0 1,443 2,608 2,819 Total Average Classified and Special Mention Assets (in thousands) 1973 1974 1975 1976 1977 1,612 2,115 3,388 5,036 3,745 1,612 1,842 2,344 2,539 1,989 0 15,813 23,567 33,383 26,322 100 Million - 1 Billion i:,.:i 1-- ~ 315 QUESTION 17 VIOLATIONS OF LAW AND REGULATION. Insured state nonmember banks are subject to a plethora of statutes, rules and regulations• some of which do not involve safety and soundness, promulgated at both federal and state levels. There is no uniformity among the state laws, some of which are only technical in nature, but they generally restrict, in varying degrees, the framework in which banks can operate. Such laws usually impose limitations on the total credit that can be extended to borrowers, and may impose restrictions on loans to directors and officers and with respect to certain types of loans or collateral, securities suitable for investment, the amount that can be invested in fixed assets and real estate, other real estate owned, fiduciary activities, branch offices, required cash reserves, payment of interest, and consumer credit. Federal laws and regulations cover such areas as loans secured by stock, security devices and procedures, advertising, payment of interest, securities issued by banks, standby letters of credit, insider transactions, loans in flood hazard areas, registration of transfer agents, loans to affiliates, consumer credit and equal opportunity protection, and financial recordkeeping and reporting. Due to the number and variance in the laws, rules and regulations, the foregoing are not intended to be inclusive but representative examples. Counting the number of violations is a difficult, if not impossible, task. A faulty printed form or taped advertisement, for example, might be counted as one violation or it might be counted as a violation each time used. During the course of examinations, bank examiners determine compliance with applicable statutes, rules and regulations, and set forth infractions in their report. If the apparent violation disclosed involves a criminal statute, a report is made to the appropriate United States Attorney instead of being shown in the examination report. Many violations noted are inadvertent or technical in nature. Under present practices, examiners point out infractions and, in many instances, corrections are made at that time. In other cases, correction may take longer but is generally accomplished as soon as possible. In any event, when requesting correction of such items or determining the appropriate action needed, Regional Offices give consideration to whether each violation may be intentional or willful, the consequences flowing therefrom, the lik.elihood of continued violations, and the bank's history of compliance and attitude toward effecting corrections. Evaluation of these factors determines whether formal action under Section 8 of the FD! Act is pursued to obtain compliance. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 316 QUESTION 16 FORMAL ACTIONS A listing and description of the three termination of insurance actions initiated under Section 8(a) of the FDI Act and the 44 cease and desist orders issued under Section S(b) and eight under Section S(c) of the Act during 1977 may be found in the following schedules. Actions taken in 1971 through 1976 are listed and de-· scribed in the FDIC's 1976 Annual Report. Removal proceedings, against an officer or director of an insured state nonmember bank who violates a law, rule, regulation, or final cease and desist order, or who engages in an unsafe and unsound practice that constitutes a breach of his fiduciary duty, may be initiated by the Corporation under Section S(e) of the Federal Deposit Insurance Act. The Corporation is authorized to take such action if it determines that the conduct will cause substantial financial losses or other damages to the bank or will seriously prejudice the interests of the bank I s depositors, and that the conduct involves personal dishonesty. No orders under Section 8(e) were issued by FDIC in 1977. Section S(g) of the FDI Act provides that when an officer, director, or other person who participates in the management of an insured nonmember bank is charged, in an information, indictment, or complaint authorized by a U. S. Attorney, with the commission of, or participation in, a felony involving dishonesty or a breach of trust, the Corporation may suspend or prohibit the person from participating in the affairs of the bank. In light of a court decision in which Section S(g) was held to be unconstitutional, the Corporation in 1977 issued regulations to cover the deficiencies in the statute found by the court. In addition, legislation was proposed to Congress in 1977 to cure the constitutional defects found by the court. No orders under Section S(g) were issued by FDIC in 1977. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 317 FEDERAL DEPOSIT INSURANCE CORPORATION Federal Deposit Insurance Act - Section 8(a) (Action to Terminate Insured Status) 1977 28 Deposits - $12,586,000 Assets - $13,432,000 Notice of Intention to Terminated Insured Status issued 4-19-77. Bank wae found to be in an unsafe and unsound condition and ordered to provide acceptable management, eliminate or reduce adversely classified assets, reduce overdue loans to a specific level, eliminate concentrations of credit, correct violations of laws and regulations I increase capital, provide a plan for controlling expenses, eliminate loan documentation deficiencies, limit its loan volume to a specific relationship to deposits, adopt and follow an acceptable written loan policy, discontinue cash dividends, adopt acceptable internal control and audit procedures, adopt a policy prohibiting preferential treatment to insiders, and obtain a certain level of capital if continued insured status was desired. 29 Deposi ta - $27,558,000 Assets - $33,583,000 Notice of Intention to Terminate Insured Status issued 9-19-77. Bank was found to be in an unsafe and unsound condition and ordered to provide acceptable management, not to extend credit directly or indirectly to or for the benefit of the controlling shareholder, his relatives or related interests, eliminate or reduce adversely cla:Jsified assets, eliminate concentrations of credit, correct violations of laws and regulations, adopt and follow acceptable loan and investment policies, discontinue cash dividends, adopt an investment policy to provide adequate liquidity, eliminate loan documentation deficiencies, provide additional capital, and obtain a certain level of capital if continued insured status was desired. Order terminated 9-2~-77 following sale of controlling interest and agreement to remove a significant volume of losses. 30 Deposits - $8,777,000 Asset·s ~ $8,886,000 ·Notice of Intention to Terminate Insured Status issued 12•16-77. Bank was found in an unsafe and unsound condition and ordered to provide acceptable management, eliminate or reduce adversely classified assets, obtain current credit and other supporting documentation for all existing loans and other extensions of credit, eliminate oonoentrations of credit, eliminate without loss or liability to the Dank all overdrafts to and prohibit future overdrafts to directors, officers, employees, or their interests, establish specific parameters for extensions of credit to insiders, restrict loan volume, adopt and ahere to an internal audit program and loan and investment policies, develop adequate liquidity, correct internal control deficiencies and violations of laws, rules and regulations, discontinue cash dividends, and obtain a certain level of' capital if continued insured status was desired. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 318 FEDERAL DEPOSIT INSURANCE CORPORATION Federal Deposit Insurance Act - Section S(b) (Cease and Desist Actions) 1977 62 Deposits - $8,503,000 Assets - $9,303,000 Consent Cease and Desist Order entered 1-5-77. Bank o+dered to cease and desist from unsafe and unsound banking practices and take affirmative action with respect to :reduction of adversely classified assets and delinquent loans• adoption of an appropriate written loan policy, prohibition of overdrafts to the bank's official family and, compliance with laws, rules and regulations. 63 Deposits - $6,839,000 Assets - $7,148,000 Consent Cease and Desist Order entered 2-1-77, following the issuance of a Temporary CeasE': and Desist Order. Bank ordered to cease and desist from extending credit of any kind, direct or indirect, in any amount in excess of $5,000, to any insider of the bank or person related to an insider; and from entering into any business transaction in any amount in excess of $5,000 with any insider or person related to an insider of the bank. 64 Deposits - $18,746,000 Assets - $20,709,000 Conseni: Cease and Desist Order entered 2-1-77. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to reduction of adversely· classified assets i preparation of a list of and elimination of overdi-afts to insiders: injection of new capital; provisions for adequate internal controls, outside audit and loan policy; and compliance with laws, rules, and regulations, including consumer protection laws. 65 Deposits - $6,150,000 Assets - $6,783,000 Consent Cease and De$ifit Order entered on 2-1-77. Bank ordered to cease and desist from unsqfe Qnd unsound banking pr~ctices an~ take affirmative action with regard to a comprehensive audit, the development and implementation of adequate internal controls, the full and complete CQmpliance with consumer protection statutes, and the correction of all oth,er violattons of laws, rules, and regulations. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 319 66 Deposits - $7,662,000 Assets - $8,1146,000 Consent Cease and Desist Order entered 2-1-77.. Batik ordered tO cease and desist from unsound and unsafe banking practices 8.nci take affirmati'Ve action with respect to acceptable management, reduction of classified assets, adbption of an appropriate written loan pdliCy, comp118nCe with laws, rules and regulations, elimination of adve~sely classified ioans to iftsiders and loans to persons residing outside the bank•s normal trade area, reduction of the volume of loans to the bank's official family and delinquent lolins, maintenance of adequate cash reserves,. reduction of salaries, bonuses, expense allowances and management fees to the president and one dit-ector, and discontinuance of cash dividends. 67 Deposits - $16,587,000 Assets - $17,983,000 Consent Cease arid Desist Order entered 2-1-77. Bank ordered to cease and desist from unsafe and unsound practices and to take affirmlitive action With respect to acceptable management, reduction of adv~rsely classified assets. injection of capital, coin.pliance with laws, adopt and follow acceptable loan and investment policies, reduction of credit extended to insiders, redtiction of total overdue loans 1 8.nd discontinuance of caSh dividends. 68 Deposits - $18,912,000 Assets - $20,687,000 Consent Cease and Desist Order entered 3-15-77. Bank ordered to cease and desist frdm unsafe and. unsound practices and take affirmative action with respect to acceptable management, independent ahd realistic apptaisals of real estate maintained as collateral, eliminatibn of ass~ts classified toss and Dbubtful, discontinuance of loans to certain insiders, lim!tatidn of lines of cr~dit to and reduction of con.cen~rations of credit to a specific relationship to capital aild resl!ries, all injection of capital, elimination of loan documentation deficiencies, prohibitibri from repurchase of asset participations sold without recourse, testrict ·paitiCipatioris sold to a nonrecourse basis 1 compliance with laws, and discontinuance of caSh dividends. 69 Deposits - $9,286,00b Assets - $10,48.4,00b Consent Cease and Desist Order entered 6-27-77 • Bank ordered to cease and desist frotn urisafe and unsound practices and take affirmative actidn with respect to elimination of losses and So percent of Doubtful classifitations, Prohibition from extensions of c:redit to certilin insiders, limitation of lines of credit to a specific reiationship to cS.pitai and reserves• reduction of concentrations of credit, an injectiori ot capital, eiim:i.nation of loan documentation exceptions, prOhibition from repurchase of asset particip.1.tions sold wit:1out :i."t=.course, restriction oi pc1rticipacions sold to a nonrecourse basis, compliance with laws, discontinuance Of cash dividehds. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 320 70 Deposits - $9,538,000 Assets - $9,751,000 Consl!nt Cease and Desist Order entered 2-15-77. Bank ordered to cease and desi11t frau unsafe and unsouhd practices and take affinnative action with redpect to acceptable tna.hagement, reduction of adversely classified assets, establisQ repayment schedules for loans, elimination of loan documentation exceptions, reduction of concentrations of credit, discontinuance of overdrafts t:o insiders, reduction of total outstanding loan volume, adoption of litt'itten loan and inveattnent policies, adoption of a progrmp to provide adequate liquidity, an injection of capital, adoption of a written internal audit program, compliance with laws and regulations, and discontinuance of eaah dividends• 71 Deposits - $llt982,0OO Assets - $13,513,000 con.sent Cease and Desist Order entered 3-15-77. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to acdeptable management, reduction of classified assets and overdue loans, adoption of written lending, collection and investment policies, discontinuance of participation transactions with and reduction in deposit balances With related banks, elimihatioh of adversely classified loans to in1iders, reduction of 1oati volume, restrict salaries, fees, bonuses and expense allowances to amounts commensurate with services performed by directors, of fitters and employees, correction of violations of law, discontinuation. of cash dividends, ar\d an injection of capital. 72 Deposits ... $14,570,000 Assets - $16,926,000 Conaent Cease and Desist order entered 3-15-77. Bank was ordered to cease and desist fran unsafe and unsound practices and take affirmative action with respect to acceptable management, :teduction of adversely classified assets, adoption of lendihg, collection and investment policies, reduction of remuneration paid to the bank's president, discontinuance of participation transactions, ahd reduction of deposit balances with related banks, elimination of loans originating outside the bank's normal trading area, elimination of adversely classified loans to insiders, reduction of loan volume, an injection of capital, eorrection of violations of law, and discontinuance of cash dividends. 73 beposits - $15,159,000 Assets - $16,710,000 Consent Cease and Desist Order entered 4-5-77. Bank was ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to acceptable management, reduction of adversel•,r classified assets, adoption of acceptable lehding, collection and invest;lent policies, reduction in concentrations of credit, correction of violations of law, correctioh of loan docutnentation deficiencies, implementation of proper accrual accounting methods, disclosure to shareholders of all details concerning an insider operated credit life insurance agency on the bank's premises and adequate reimbursement to the bank for use of premises, personnel and equipnent, and prohibition of extending credit to a certain insider. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 321 74 Deposits - $10,520,000 Assets - $11,518,000 Consent Cease and Desist 'arder entered 6-13-77 after a preliminary hearing. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to reduction of adversely classified assets, extensions of credit in the fom of overdrafts to employees, trade area limitations, provisions for adequate collateral and credit file documentation, internal controls and outside audit, injection of new capital, acceptable management, and compliance with laws, rules and regulations. 75 Deposits - $9,119,000 Assets - $10;596,000 Consent Cease and Desist Order entered 4-19-77. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to compliance with insider regulations, reduction of adversely classified assets, injection of new capital, provision for adequate liquidity, compliance with laws, rules and regulations, loan policy, and discontinuance of cash dividends. 76 Deposits - $24,733,000 Assets - $26,489,000 C.Onsent Cease and Desist order entered 4-19-77. Bank ordered to cease and desist from violations of consumer protection laws and to take affirmative action to correct these violations and develop procedures to assure future compliance. 77 Deposits - $3,012,000 Assets - $3,204,000 Consent Cease and Desist Order entered S-3-77 to assure additional correction following simultaneous discontinuance of a Section B(a) citation. Bank ordered to cease and desist f::c::i. unsafe nr:.d unsound practices and take affirmative action with respect to acceptable management, reduction of adversely classified assets, restrictions on loan volume and type of securities investments, limitations on and elimination of adversely classified insider loans, provision for adequate liquidity, injection of new capital, compliance with laws, rules and regulations, loan policy, and discontinUance of cash dividends. 78 Deposits - $6,765,000 Assets - $7,753,000 Consent Cease and Desist order entered 5-23-77. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to acceptable management, reduction of adversely classified assets, adoption of written lending, collection and investment policies, injection of new capital, correction of violations, reduction of loan volume and discontinuance cash dividends. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 322 79 Deposits - $7,337,000 Assets - $8,114,000 Consent Cease and Desist Order entered 5-23-77. Bank ordered to cease and desist from and take affirmative action with respect to violations of the Truth-in-Lending Act and future compliance. 80 Deposits - $21,774,000 Assets - $23,956,000 Consent Cease and Desist Order el\tered 6-13-77. Bank ordered to cease and desist from unsafe and unsound practices and take ·affiimative action with respect to acceptable management; loan policy; reduction of adversely classified assets and concentrations of credit; restrictions on insider loans; use of methods to avoid recognition of past due loans; compliance with laws, rules, and regulations; administration of the trust department; and discontinuance of cash dividends. 81 Deposits - $19,971,000 Assets - $21,587 ,000 Consent Cease and Desist Order entered 6-13-77. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to acceptable management, reduction of adversely classified assets, loan policy, reduction of loan volume, and discontinuance of cash dividends. 82 Deposits - $29,792,000 Assets - $32,832,000 Consent Cease and Desist Order entered 6-13-77. Bank ordered to cease and desist from unsafe and unsound practiCes and take affirmative action with respect to reduction of adversely classified assets, reduction of overdue loans, elimination of loan documentation deficiencies, and loan policy. 83 Deposits - $12,627,000 Assets - $13,757,000 Consent Cease and Desist Order entered' 6-13-77 to replace a temporary cease and desist order.. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to reduction of loans to the chairman and hiS interests, prohibi'.tion 0£ additional credit to the chairman until h:1s loans were reduced below that level, restrict opening an approved but unopened branch office unt~l changes in the plans for the branch were approved, acceptable management, reduction in classified assets I increase capital to a certain level, adoption of loan and investment policies, compliance with laws and regulations, and discontinuance of cash dividends. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 323 EXHIBIT G 84 Deposits - $10,452,000 Assets - $11,165,000 Consent Cease and Desist Order entered on 6-13-77. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to acceptable management. providing additional directors reduction of adversely classified assets and overdue loans, loan policy, and discontinuance of cash dividends. 85 Deposits - $9,360,000 Assets - $10,204,000 Consent Cease and Desist Order ent~red 6-27-77 to replace a temporary order to cease and desist. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to reduction of adverse classifications; adoption of written lending policies; collection of outstanding and limitations on future out-of-area loans; limitations on credits to or for the benefit of one borrower, elimination of loan documentation deficiencies, prohibition of repurchase of participations sold without recourse, recording on the books any liability for repurchase agreements outstanding; correction of all violations of laws and regulations, including consumer law violations; injection of new capital; review of all compensation to bank officers; limitations on bonuses and expense allowances to or for officers: review of income and expense statements monthly; disclosure to the shareholders of all details on an insider credit life insurance agency operated on the premises, approval of two-thirds of any decision not to retain such income for the bank but in any event reasonable reimbursement to the bank for use of premises, personnel and equipment; discontinuance of cash dividends; compliance with a separate letter agreement between the bank and the chartering authority; reimbursement for nonbank related expenses paid to the fonner controlling shareholder and requires the fonner control owners to repay such expenses; efforts to collect loans made to or related to the former control owners and prohibition of any new credit to these individuals; and. review and a possible revision of the interest rate being paid on a certificate of deposit held by the present control owners. 86 Deposits - $13,280,000 Assets - $14,337,000 Consent Cease and Desist Order entered 7-14-77. Bank ordered to cease and desist from unsafe and unsound practices and ·take affirmative actions with respect t.o acceptable management, injection of new capital, adoption and adherence to acceptable written lending and investment policies, reduction of adverse classifications, elimination of overdrafts to insiders, elimination of certain insider loans, and compliance with laws. rules, and regulations. 87 Deposits - $7,244,000 Assets - $8,192,000 Consent Cease and Desist Order entered 7-28-77, replacing a temporary cease and desist order. Bank ordered to cease and desist from unsafe and unsound practices and take affinnative action with respect to correction of violations of law, a review of the compensation paid to the chairman of the board and his interests, reductions in classified assets, continued efforts to obtain fidelity coverage, and discontinuance of dividends. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 324 EXHIBIT G 88 Deposits - $51,009,000 Assets - $57,061,000 Consent Cease and Desist Order entered 9-9-77. Bank ordered to cease and desist from and take affirmative action with respect to violations of consumer protection laws and future compliance. 89 Deposits - $5,648,000 Assets - $6,508,000 Consent Cease and Desist Order entered 10-25-77 to replace a temporary order to cease and desist. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to reduction of loan volume, adoption of written lending policies, collection of outstanding and limitations on :future out-of-area loans, limitations on credit to or for the benefit of two or more obligors where payment is based upon the assets of or revenue derived from the same source, elimination of loan documentation deficiencies, prohibition of repurchase of participations sold without recourse, recording on the books any liability for repurchase agreements outstanding, correction of all violations of laws and regulations, review of and restrictions on all compensation to and expense allowances of directors and officers, restrictions on payment of cash dividends, compliance with a separate letter agreement between the bank and the chartering authority, efforts to collect loans made to or related· to the former control owners and prohibition of any new credit to these individuals, correction of internal control deficiencies, and retention of and reimbursement of comissions from a credit life insurance business operated on the premises by present and former insiders. 90 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Deposits - $8,729,000 Assets 7 $9,609,000 Consent Cease and Desist Order entered 10-25-77. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to acceptable management; reduction of adversely classified assets and loan volume; restrictions on loans, salaries and bonuses to insiders; restriction on participation loans; correction of internal control and loan documentation deficiencies; adoption of acceptable loan policy; and compliance with laws, rules, and regulations. 325 EXHIBIT G 91 Deposits - $7,333,000 Assets - $8,638,000 Consent Cease and Desist Order entered 10-25-77 to replace a temporary order to cease and desist. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to reduction of adverse classifications and loan volume; adoption of written lending policies; collection of outstanding and limitations on future out-of-area loans; limitations on credits to insiders and credit to or for the benefit of two or more obligors where payment is based upon the assets of or revenue derived from the same source; prohibition of repurchase of participations sold without recourse; recording on the books any liability for repurchase agreements outstanding; correction of all violations of laws and regulations; review of and restrictions on all compensation to and expense allowances of directors and officers; disclosure to the shareholders of all details of a credit life insurance agency operated on the premises by present and former insiders, approval of two-thirds of any decision not to retain such income for the bank but in any event reasonable reimbursement to the bank for use of premises, personnel and equipment; restrictions on payment of cash dividends; and efforts to collect loans made to or related to the former control owners and prohibition of any new credit to these individuals. 92 Deposits - $6,580,000 Assets - $7,683,000 Consent Cease and Desist Order entered 11-11.J-77. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to acceptable management, reduction of adversely classified assets and loan volume, injei:ltion of new capital, loan and investment policies, compliance with laws, rules and regulations, provisions for adequate internal controls and loan valuation reserve, and discontinuance of cash dividends. 93 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Deposits - $8,841,000 Assets - $9,605,000 Consent Cease and Desist Order entered 11-14-77. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to prohibiting a former executive officer from participating in the affairs of the bank as denied by the Corporation under Section 19 of the FDI Act. 326 94 Deposits - $4,551, 000 Assets - $4,986,000 Consent Cease and Desist Order entered 11-14-77. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to reduction of adversely classified assets; restrictions on loans involving affiliates; compliance with laws, rules, and regulations; loan policy; injection of new capital; and discontinuance of cash dividends. 95 Deposits - $133,180,000 Assets $138,540,000 Consent Cease and Desist Order entered 11-30-77. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to executive committee supervision, acceptable management, reduction of adversely classified assets, restrictions on credit extended insiders and any obliger or related interest, loan policy, injection of new capital, and compliance with laws, rules and regulations. 96 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Deposits - $11,224,000 Assets - $12,122,000 Consent Cease and Desist Order entered 12-16-77 to replace a temporary order to cease and desist. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to acceptable management j reduction of adverse classifications, loan volume, and concentrations of credit; adoption of written lending policies; collection of outstanding and limitations on future out-of-area loans; limitations on credits to insiders or for the benefit of two or more obligors where payment is based on the assets of or revenue derived from the same source; elimination of loan documentation deficiencies; prohibition of repurchase of participations sold without recourse; recording on the books any liability for repurchase agreements outstanding; correction of all violations of laws and regulations; injection of new capital; review of and restrictiions on all· compensation to and expense allowances of directors and officers; review of income and expense statements monthly; disclosure to the shareholders of all details of a credit 11:re insurance agency operated on the premises by present and former insiders, approval o:r two-thirds of any decision not to retain such income f'or the bank but in any event reasonable reimbursement to the bank f'or use of premises, personnel and equipment; restrictions on payment of cash dividends; compliance with a separate letter agreement between the bank and the chartering authority; ef'forts to collect loans made to or related to the former control owners and prohibition of any new credit to these individuals; prohibition of use of brokered deposits; correction of internal control deficiences; and accurate accrual accounting procedures. 327 97 Deposits - $4,360, 000 Assets - $6,157,000 Consent Cease and Desist Order entered 12-16-77. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to acceptable management; reduction of adversely classified assets, loan volume, and overdue loans; adoption and adherence to written loan policies; compliance with laws and regulations; elimination of out-of-territory loans; maintenance of adequate cash reserves; injection of new capital; and discontinuance of cash dividends. 98 Deposits - $32,168,000 Assets - $36,934,000 Consent Cease and Desist Order entered 12-16-77. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to acceptable management; reduction of adversely classified assets, loan volume and concentrations of credit; restrictions on loans to any obliger or related interests; loan policy; other real estate; conservation of earnings by reduction of expenses; correction of internal control deficiencies; compliance with laws, rules, and regulations; injection of neW capital; and discontinuance of dividends. 99 Deposits - $6,155,000 Assets - $7,086,000 Consent Cease and Desist Order entered 12-16-77. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to acceptable management, restrictions on extensions of credit to one obliger and related interests, restrictions on present and future obligations of a certain insider and the bank's audit firm, adoption of a written loan policy, correction of violations of laws and regulations, elimination of internal control anti loan documentation deficiencies, restrictions on loan volume, retention of credit life and accident commissions, limitations on cash d•ividends, and compliance with the provisions of an outstanding state order. 100 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Deposits - $6,335,000 Assets - $7,171,000 Consent Cease and Desist Order entered 12-16-77. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative actions with respect to reduction of adversely classified and criticized assets and loan volume, restrictions on loans to one obliger and related interests, adoption and compliance with loan and investment policies, correction of violations of laws, rules and regulations, injection of new capital, and discontinuance of dividends. 328 101 Deposits - $29,229,000 Assets - $31,183,000 Consent Cease and Desist Order entered 12-16-77. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to acceptable management, reduction of adversely classified assets and loan volume, adoption of and compliance with loan and investment policies, restrictions on compensation and expense allowances paid directors, collection of classified loans to insiders and restrictions on other loans to insiders, disclosure of and restrictions on credit life inSurance business operated on the premises by an insider, injection of new capital, compliance with laws, rules, and regulations, and discontinuance of cash dividends. 102 Deposits - $23 , 481, 000 Assets - $26,690,000 Cease and Desist Order entered 12-16-77. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to acceptable management; injection of new capital; reduction of adversely classified loans, loan volume and concentrations of credit; restrictions on credit extended to one obliger and his interests; collection of and prohibition of overdrafts to insiders; loan policy; disclosure of fees paid to law fim of a director; compliance with laws, rules and regulations; and loan policy. 103 Deposits - $9,622,000 Assets - $11,281,000 ·Cease and Desist Order entered 12-16-77. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to acceptable management; reduction of adversely classified assets and overdue loans; loan policy j limitation on overdraft volume; collection of and prohibition of overdrafts to insiders; adoption of an overdraft policy; collection of and prohibition of new loans to a certain borrower; restrictions on extensions of credit to insiders and out-of-area borrowers; limitations on fees and compensation to directors; elimination of loan documentation deficiencies; fidelity coverage; outside audit; compliance with laws, rules and regulations; liquidity provisions; and discontinuance of cash dividends. 104 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Deposits - $4,117,000 Assets - $4 , 51 7 , 000 Consent Cease and Desist Order entered 12-16-77. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to acceptable management; reduction of adversely classified assets and overdue loans; elimination of out-of-area loans; adoption of acceptable loan policies; _compliance with laws, rules and regulations; audit procedures; disclosures and restrictions relating to a credit life insurance business operated on bank premises by an insider; discontinuance of dividends; and injection of new capital. 329 105 Deposits - $4,462,000 Assets - 4,893,000 Consent Cease and Desist Order entered 12-16-77. Bank ordered to cease and desist from unsafe and unsound practices and take affirmative action with respect to acceptable management; reduction of adversely classified assets and overdue loans; compliance with laws, rules and regulations; loan policy; injection of new capital; and discontinuance of dividends. 30-476 0 - 78 - 22 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 330 FEDERAL DEPOSIT INSURANCE CORPORATION Federal Deposit Insurance Act - Section S(c) (Temporary Cease and Desist Actions) ' 1977 ~l>epoaits - $12,627,000 Assets - $13,757,000 temporary Cease and Desist Order issued 3-17-77. Bank was ordered to cease and desist from extending any credit to or for the benefit of the bank's chairman of the board or to any individual or entity whereby the proceeds of such credit would accrue, directly or indirectly, to the benefit of the chairman of the board. The bank was also ordered to cease and desist from opening a previously approved but unopened branch office pending completion of these administrative proceedings. A peni.anent cease and desist order was issued on 6-13-77. Depoaita - $6,981,000 Assets - $7,575,000 Temporary Cease and Desist Order issued 4-1-77. The bank and its officials were ordered to cease and desist from offering, selling and offering for sale and transferring on the bank's books any stock of subject bank owned directly, indirectly or beneficially by any of the directors; making any further payments of any kind under a lease between the bank and a partnership composed of the directors; and, entering into any business transactions or extension of credit with any bank insider or person related to a bank insider. The temporary order was terminated on 6-13-77. 8 Deposits - $11,224,000 Assets - $12,122,000 Temporary Cease and Desist Order issued 5-11-77. The bank was ordered to cease and desist from entering into any business transaction with and/or from extending direct or indirect credit to or for the benefit of the bank's former chairman of the board, his wife, or any persona related to them. · A permanent eeaae an~ desist order was .issued on 12-16--77. Deposits - $5,648,000 Assets - $6,508,000 Temporary Cearae and Desist Order issued 5-11-77. The bank was ordered to cease and desist from entering into any business transaction with and/or from extending direct or indireC"t credit to or for the benefit of the bank's former chairman of the board, his wife, or any person related to them. A permanent cease qnd desist order was issued on 10·25-77. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 331 10 Deposits - $3,370,000 Assets - $3,672,000 Temporary Cease and Desist Order issued 5-11-77. The bank yas ordered to cease and desi11t from ent;ering into any business transaction with and/or from extending direct or indirect credit to or for the benefit of the bank' a executive vice president, his wife 1 or any person related to them. The tempot"ary order remains outstanding. 11 Deposits - $9,360,000 Assets - $10,204,000 Temporary Cease and Desist Order issued 5-11-77. Bank was ordered to cease and desist from entering into any business transaction with and/or from extending any direct or indirect credit to or for the benefit of the former chairman of the board, his wife, or any person related to them. A permanent cease and desist order was issued on 6-27-77. 12 Deposits - $7,333,000 Assets - $8,638,000 Temporary Cease and Desist Order issued 5-11-77. Bank was ordered to cease and desist from entering into any business transaction with and/or extending any direct or indirect credit to or for the benefit of the former chairman of the board• his wife, or any person related to them. A permanent cease and desist order was issued on 10.. 25 .. 77. 13 Deposits - $102,558,000 Assets - $115,319,000 Temporary Cease and Desist Order issued 9-19-77. The bank was ordered to cease and desist from entering into any business transactions which exceed $10,000 in the aggregate with the chairman of the board, his interests. or any person related to him. The order remains outstanding. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 332 Insured State Nonmember Banks Closed in 1977 A description of the causes of failure for the four insured state nonmember banks that failed during 1977 follow: Date Closed Name and Location 3-10-77 First State Bank Foss I Oklahoma Total Assets $2,040,000 Total Deposits $1,780,000 The principal causes of failure involved the payment of checks drawn by the bank's chairman and control owner against uncollected funds ,resulting in a very large overdraft, and massive loan losses, most involving a used car dealer. The Monroe Bank and Trust Company Monroe, Connecticut 3-28-77 $4,300,000 $2,800,000 The bank failed as a result of operating and loan losses resulting from inept management and inadequate board supervision. First Augusta Bank & Trust Company Augusta, Georgia · $24,200,000 $21,000,000 The bank failed primarily because of losses involving speculative loans to directors, a large stockholder, their business associates and two former directors. The bank also suffered from liquidity problems, and resorted to the use of brokered deposits. Donahue Savings Bank Donahue, Iowa 8-26-77 $5,500,000 $5,200,000 The bank failed as a result of an embezzlement involving the bank's chief executive officer and largest stockholder. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis TOTAL $36,040,000 $30,780,000 333 EXHIBIT I State Nonmember Banks Merged During 1977 Under the Emergency Provisions of Section 18 (c) of FDI Act Date Merged Name and Location First Piedmont Bank and Trust Company Greenville, South Carolina 3-16-77 Total ~ $ 45,382,000 Tota Deposits $ 41,598,000 Bank merged under emergency provisions of the FDI Act. The bank had an excessive volume of poor loans, many of which were real estate related, but its most serious problem was the precarious financial condition of its parent one bank holding company. The parent had suffered heavy losses in its nonbanking subsidiaries and was unable to continue rolling over its substantial volume of commercial paper outstanding. A Cease and Desist Order was outstanding against the bank at the time of its merger. 9-2-67 Banco Economias . San German, Puerto Rico $ 213,505,000 $ 169,999,000 Bank merged under emergency provisions of the FDI Act into a newly organized bank, at which time the Corporation purchased $15 million in book value of distressed assets of Banco Economias. The bank's major problem was a heavy volume of marginal real estate related loans which were funded during a period of heavy emphasis on deposit growth. The depressed economy of the trade area contributed to the problem, which resulted in a virtual elimination of the capital accounts due to heavy loan losses and declining revenues due to the heavy volume of nonaccrual loans and other real estate held. 12-31-77 Bank of Stratford Stratford, Connecticut $ 12,971,000 $ 11,918,000 Bank merged under emergency provisions of the FDI Act. The problems of this relatively new bank resulted from a self-serving and inept directorate combined with ·poor active management which followed unacceptable lending practices and credit administration. The result was a heavy volume of poor loans, massive loan losses, a steady erosion of capital due to continued operating losses, and a strained liquidity posture. A Cease and Desist Order was outstanding against the bank at the time of the merger. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Total $ 271,858,000 $ 223,515,000 334 FDIC PRACTICE REGARDING INTERNATIONAL MONETARY FUND DISCIPLINARY STANDBY AGREEMENTS QUESTION 6 The FDIC has not formulated a statement of policy or a manual of procedures directed toward assuring compliance by foreign governments with the terms of disciplinary standby agreements with the International Monetary Fund (IMF). It is the position of the FDIC, and we believe the other two bank regulatory agencies, that adherence to such agreements is essentially a matter between the foreign government and the IMF and that involvement by Federal bank regulators in assuring conformance to IMF disciplinary mandates appears beyond the agencies' statutory powers. However, as part of a bank examination, the customary review of credit extensions to foreign governments subject to IMF standby agreements would include, as a practical matter, consideration of compliance with IMF dictums as they pertain to the creditworthiness of the borrowing nation. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 335 EXHIBIT K FEDERAL DEPOSIT INSURANCE CORPORATION. Wuhrngton. o.c 20429 OFFICE OF OIRECTOR •OIVISION OF BANK SUPERVISION BL-4-78 January 20, 1978 TO THE CHIEF EXECUTIVE OFFICER OF THE INSURED STATE NONMEMBER COMMERCIAL BANK ADDRESSED: Subject: Country Exposure Report You will recall that last July your bank was requested to participate in an experimental program directed toward the development of a comprehensive survey of foreign lending activity by U.S. commercial banks. Attached hereto is a press release issued by the three federal bank regulatory agencies which summarizes the data reported as of June 30, 1977 for 119 banks with assets of $1 billion or more. Due to the success of this initial experiment, the regulatory agencies have agreed to institute the report as a standard reporting vehicle to be filed semiannually by banks with material foreign banking activities beginning with the period ending December 31, 1977. The results of future surveys will also be made public. We thank you for your cooperation in the June 30, 1977 survey and your continued interest in contributing to strengthening the flow of mutually beneficial information between the banking industry and the banking agencies. rrJ:'1 John J. Early Director IE;nclosures not available for internal distribution) Oi1tribution: Selected Banks https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 336 FEDERAL I~ ·.-,.., "· :.i .. ·•.~....... • .. • RESERVE January 16, 1978 For immediate re.ease Country Exposure Lending Survey The results of a survey of foreign lending by large United States banks as of Juue 30, 1977 were made public today by the Office of the Comptroller of the Currency, the Federal Deposit Iaaurance Corporation, and the Federal Reserve .Board. The survey was made to increase the infomation available on foreign leading, on a country-by-country basis. The data reported cover claims on foreign residents held at all domestic and foreign offices of 119 U.S. banks with assets of $1 billion or more. Based on the experience of this survey, the bank regulatory agencies have instituted a semi-annual "Country Exposure Report" to begin with data for December 1977. Results of future reports will be published approximately four months after the reporting date. Types of Loans The information gathered in the survey concentrated on data concerning lending from a bank's offices in one country to residents of another country, or lending in a currency other than that of the borrower. These are known as cross-border or cross-currency loans. Cross-bord~r.and cross-currency loans are those most closely associated with country risk. As shown in Table I, these claims totaled $164 billion on the reportin~ date. About 42 per cent of such foreign lending was accounted for by claims on residents of Switzerland and the Group of https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 337 Ten (G-10) developed countries. Another 20 per cent represented loans to residents of "other developed countries" and "offshore banking centers. n!/ Cross-border and cross-currency claims on residents of non-oil producing less developed countries amounted to approximstely $40 billion, or some 24 per cent of the total. In addition, the banks reported $44 billion in local currency claims that were held by their offices in foreign countries on residents of the country in which the office was located. An example would be Deutsche Mark claims on German residents held by the German branch of the reporting U.S. bank. To a large extent, these local currency claims were matched by $37 billion in local currency liabilities due to local residents. Approximately 75 per cent of these claims were on residents of Switzerland and the G-10 countries. Maturities The survey provided for the first time comprehensive data on the type of customer and the maturity distribution of banks' claims on foreigners (Table 1). About 63 per cent of the reported cross-border and cross-currency claims had a maturity of under one year. Such short- term claims were especially prominent in the G-10 countries and the offshore banking centers where, combined, $64 billion out of $85 billion in claims matured in less than one year. This heavy concentration of short-term claims reflects the large volume of interbank lending in 1/ Countries where multinational banks conduct a large international money market business. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 338 these countries. Most such placements of deposits are for very short periods. For most other groups of countries, short-term claims accounted for about one-half of total cla:ims although the proportion varied significantly among individual countries. Type of Borrower With regard to type of customer, private nonbank sector lending was the largest, accounting for $63 billion. Other types of lending were placements with banks amounting to $59 billion, and loans to the public sector totaling $42 billion, This last category includes foreign central governments, their political subdivisions and agencies and coaanercial non-bank enterprises owned by govermnent. ficantly from country to country. This distribution varied signi- Here also, most of the claims on banks were on those located in the G-10 countries and the offshore banking centers. Guarantees In Table II, information is provided on the cross-border and cross-currency claims that are guaranteed by residents of another country. Cla:ims are reallocated from the country of residence of the borrower to another country on two grounds: First, claims on a bank branch located in one country where the head office is located in another country are allocated to the country of the head office. a part of the parent, claims on by the head office. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis a Since a branch is legaily branch are treated as being guaranteed Second, claims on a borrol,er !.n one country which 339 are formally guaranteed by a resident of another couhtry are allocated to the latter country. These reallocations are thought to provide a better app~oximation of country exposure in the banks' portfolios than the unadjusted figures, The results of the reallocations appear in the last column of Table II, Most of the shifts are accounted for by the transfer of claims on branches (and, whe-re guaranteed, subsidiaries) of banks to their head offices ($25 billion out of $33 billion), In general, the reallocations primarily affected the offshore banking centers.and some of the developed countries. For example, claims on the offshore banking centers decreased from $16.8 billion to $4.4 billion and claims on the United Kingdom decreased from $25 billion t;o $15,8 billion, For most less developed countries, a relatively small portion of claims is externally guaranteed. The total shown for claims en foreigner~ by country of guarantor is about $150 billion or $14 billion less than the total for clai~ by country of borrower. This results from U.S. residents guaranteeing about $16.5 billion in claims on foreigners and foreign residents guaranteeing about $2.5 billion of claims on U.S. residents. Conmitments to Provide Funds for Foreigners The survey also provided infqrmation on co~erci~l l~tters 'of credit and other continge~t claims on foreigners. The b~nks were asked to report such contingeqt claims only where the bank had a legal obligation to provide funds. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis As shown in Table III,the amounts reporteq total $42 billion, 340 with 75 per cent of that total being on the private sector, including banks. Use of the Data The results of the survey need to be interpreted with some caution. The survey was experimental in nature, and it was recognized that all banks might not be able to funiish the requested infoi,nation in the short period of time they were given. As a result, certain deviations from the instructions were permitted and in a limited nmnber of cases, data were estimated for banks that were unable to report all items requested. In particular, some banks were permitted to report cl11ims by "country of the guarantor" rather than by country of the borrower's residence. Gross claims on some countries (particularly the banking centers) may, as 11 result, be somewhat understated. In addition, the reported contingent claims may Pe somewhat overstated, particularly as regards the private sector, because some banks included advised lines (where actual extensions of credit under such lines of credit might not be obligatory). In spite of these difficulties, it is believed that the reported data provide a representative profile of the foreign claims of U.S. banks. Attachment https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table I Cross-border and Non-local Currency Claims by Residence of Borrower: June 1977 (in millions of dollars) Claims on: Country G-10 and Switzerland Belgium/Luxembourg France Gennany Italy Netherlands Sweden Switzerland United Kingdom Canada Japan Non G-10 Develoeed Countries Austria Australia Finland Greece Iceland New Zealand Norway Portugal Spain South Africa Turkey Denmark Ireland Eastern Euro2e Bulgaria Czechoslovakia East Gennany Hungary Poland Romania U.S.S.R. Yugoslavia Total Claims Banks (Placements) 4,212 6,840 4,048 5,055 2,764 1,749 1,880 25,138 5,117 11,754 68,557 3,601 4,757 1,661 2,177 1,934 670 1,021 17,363 3,179 ..J:..,I!2 38,140 Public borrowers Maturity Distribution of Claims Other One year private and under Over one year 90 692 232 1,717 117 314 103 2,475 680 289 6,709 521 1,392 2,155 1,161 714 76-5 756 5,301 1,258 9,688 23,711 3,848 5,430 2,983 2,812 2,424 908 1,752 19,090 4,152 7,462 50,861 365 1,410 1,065 2,243 341 840 128 6,049 965 4,292 17,698 191 26 262 603 38 199 254 352 1,264 1,186 448 467 84 1,185 635 898 47 193 1,469 157 1,219 968 615 715 100 8,285 775 840 591 592 11 143 605 377 1,382 937 1,023 651 167 8,094 165 514 619 1,177 74 275 1,238 148 1,950 1,263 450 783 284 8,940 194 49 427 371 898 59 940 939 1,355 1,210 1,770 86 417 1,844 525 3,332 2,201 1,473 1,434 451 17,037 665 144 313 268 1 26 121 16 849 47 410 252 103 3,215 416 154 708 663 1,248 217 1,592 984 5,982 81 106 63 252 161 94 464 324 45 592 411 1,016 87 1,112 12 3 54 1 36 16 223 105 282 292 350 157 653 ----12. ~ ---22!2. _lil. _au 2,233 3,751 1,236 ~ 5,538 3,996 72 754 i:,:i ~ ..... https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table I Cross-border and Non-local Currency Claims by Residence of Borrower: June 1977 (in millions of dollars) Country Oil•Exeorting Countries Algeria Ecuador Indonesia Iran Iraq Kuwait Libya Nigeria Qatar Saudi Arabia United Arab Emirates Venezuela Total Claims 1,470 831 1,980 1,831 88 399 128 70 81 336 401 ~ 12,163 Non-Oil Exeorting DeveloEi!!& Countries Latin America and Caribbean 1,793 Argentina 371 Bolivl~ 10,588 Brazil 620 Chile 356 Costa Rica 239 Dominican Republic 194 El Salvador 161 Guatemala 181 Honduras 251 Jamaica 11,322 Mexico 433 Nicaragua 24 Paraguay 1,904 Peru 53 Trinidad & Tobago Uruguay ----1.§Z 28,652 Banlcs (Placements) 18 7 132 208 -0219 42 -o- 6 40 181 !.Ql 954 134 -,80 331 38 10 -o- 25 -020 20 423 14 -o- 33 38 87 1,253 Claims on: Public borrowers Other private 1,129 392 1,350 653 76 37 78 14 68 32 96 322 432 498 970 12 143 9 56 7 264 124 L.!tll. L.lli.. 946 104 3,748 300 151 56 62 1 29 154 5,910 187 1 1,328 10 22 13,009 713 187 6,510 281 196 184 107 160 132 6,377 4,832 77 4,989 232 23 543 5 52 14,391 Maturiti Distribution of Claims Over one One year and under year 1,130 369 1,144 800 340 462 836 1,031 20 360 124 66 56 291 249 LlQZ. 6,742 39 4 4 25 45 152 1.640 5,420 991 184 3,321 401 178 111 121 73 119 74 5,459 268 13 922 48 76 12,359 802 187 7,267 218 179 128 74 87 61 177 5,864 165 11 982 5 85 16,292 68 C/,j ~ 1:-.:> https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table I Cross-border and Non-local Currency Claims by Residence of Borrower: June 1977 (in millions of dollars) Total Country Claims Banks (Placements) Claims on· Public borrowers Other private Maturitz Distribution of Claims One year over one and under year Non-Oil Exporting Developing Countries {continued) Asia China (Taiwan) India Israel Jordan Korea (South) Malaysia Pakistan Philippines Thailand ~ Egypt Ghana Ivory Coast Uorocco Sudan Tuni~:;ia Zaire Zambia 2,319 208 662 24 3,216 596 60 1,861 669 9,615 524 21 271 374 174 112 11 112 293 82 33 279 80 1,002 1,198 82 249 14 929 319 16 522 97 3,426 1,009 115 301 10 1,993 194 11 1,060 492 5,185 78 300 146 21 133 77 -o- -o-o- 11 1 55 5 283 179 1.881 40,148 1 -o- ~ 2,351 -o- 138 286 168 35 275 164 1.366 17,801 5 15 7 15 1,541 504 12 2,274 224 57 1,055 531 6,253 778 153 158 12 942 372 3 805 138 3,361 463 8 51 128 89 42 74 100 62 13 220 246 85 13 208 78 55 419 955 925 19,995 19,567 20,578 Cl,:> ~ Cl,:> https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table I Cross-border and Non-local Currency Claims by Residence of Borrower: June 1977 (in millions of dollars) Country Total Claims Banks (Placements) 5,905 565 2,802 1,286 1,896 2,366 1,889 125 16,834 5,762 537 2,707 443 738 2,166 . 10 6 12,369 222 1 470 191 370 1,029 1,160 44 3,487 102 82 2 44 107 164,208 Claims on: Public borrowers Other private Maturitz Distribution of Claims One year over one and under year Offshore Banking Centers Bahamas Bahrain Caymans Hong Kong Panama Singapore Liberia Lebanon Miscellaneous Other Western Europe Other Other Other Other Other Other Other Eastern Europe Asia/Pacific Middle East Africa Caribbean Latin America North America Grand Total 68 -o- 12 10 1 53 321 34 15 -o- 446 69' -o- 130 18 93 789 837 166 1,864 119 4,016 5,822 554 2,696 958 1,151 2,271 430 63 13,945 83 11 105 328 746 95 1,459 62 2,889 85 1 148 43 68 901 684 21 111 1 277 152 164 461 750 111 193 39 206 569 409 --1.§. ~ 405 219 67 300 84 367 23 1,129 1,951 58,670 41,996 63,544 -o- 1,932 103,374 -o- 1,555 60,831 c.,:, :t Table II Cross-border and Non-local Currency Claims on Foreigners by Country of Guarantor: June 1977 (in millions of dollars) "' 'i' Claims guar,ntccd ~ by residents of 0 _, "" ~ "' https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Country G-10 and Switzerland Belgium/Luxembourg France Germany Italy Netherlands Sweden Switzerland United Kingdom Canada Japan Total claims (by residence) other countries ~ on others Total claims less guaranteed claims 4,212 6,840 4,048 5,055 2,764 1,749 1,880 25,138 5,117 11,754 68,557 1,243 1,091 139 127 93 -079 9,811 42 , 213 12,838 131 270 234 58 109 9 158 1,200 186 252 2,607 2,838 5,479 3,675 4,870 2,562 1,740 1,643 14,127 4,889 11,289 53,112 939 1,355 1,210 1,770 86 417 1,844 525 3,332 2,201 1,473 1,434 451 17,037 35 30 26 81 17 80 878 1,244 1,193 1,644 86 408 1,708 518 3,211 2,137 1,426 1,342 434 16,229 Claims on residents of other countries guaranteed by residents of this country on banks on others 191 314 1,312 2,ll9 399 221 48 598 1,047 1,593 2,467 9,995 587 264 187 141 272 661 212 1,083 4,298 577 Total claims by country of guarantor 3,343 7,368 6,381 5,533 2,970 1,929 2,513 15,835 6,694 14,839 67,405 Non-G-10 Develo2ed Countries Austria Australia Finland Greece Iceland New Zealand Norway Portugal Spain South Africa Turkey Denmark Ireland Eastern Europe Bulgaria Czechoslovakia East Germany Hungary Poland Romania U.S.S.R. Yugoslavia 416 154 708 663 1,248 217 1,592 984 5,982 -o- 46 -01 2 -o- 30 26 -o- 2 5 177 -o- 2 -o- 7 10 7 7 -033 -o- 8 134 7 91 38 47 90 12 631 2 -0- -o- 10 51 3 33 89 188 414 152 708 646 1,187 207 1,552 895 5,761 46 259 72 5 -051 63 16 240 63 1 22 72 910 -016 2 17 10 1 89 -0- ill 53 44 88 117 -o- 12 83 3 31 34 21 84 1 571 -0- -o- 1 -020 -05 18 44 977 1,547 1,353 1,766 86 471 1,854 537 3,482 2,234 1,448 1,448 507 17,710 414 168 711 663 1,217 208 1,646 877 5,940 c:,.:i ~ 01 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Cross-border and Non-local Currency Claims on Foreigners by Country of Guarantor: June 1977 (in millions of dollars) Claims on residents Claims guaranteed of other countries by residents of Total claims guaranteed by residt•nts Total claims other countries less guaranteed Total claims of this country by country of Country (by residence) ~ on others claims on others guarantor ~ Oil·Ex2orting Countries Algeria 1,470 162 1,308 65 1,373 -o-oEcuador 18 765 831 48 765 -o-oIndonesia 1,980 49 143 1,788 59 8 1,855 60 1,831 1 1,770 141 Iran 1,935 24 -0Iraq 88 88 -<188 -o-o24 Kuwait 399 3 372 10 15 397 -0128 Libya 128 -o130 2 -oNigeria 70 3 67 -o7 -o74 -081 Qatar 81 -o2 83 -o50 270 16 29 Saudi Arabia 336 60 359 2 United Arab Emirates 401 68 331 18 358 9 Venezuela 7 109 4,432 4,548 79 12 14,5n 11,400 i62 601 334 206 12,163 ' Non-Oil Ex2orting Develo2ing Table II Countries Latin America and Caribbean Argentina Bolivia Brazil Chile Costa Rica Dominican Republic El Salvador Guatemala Honduras Jamaica Mexico Nicaragua Paraguay Yeru Trinidad & Tobago Uruguay 1,793 371 10,588 620 356 239 194 161 181 251 11,322 433 24 1,904 53 162 28,652 8 24 97 -o-o-o- -020 -0- -o89 -o-o17 -o-0- m 182 32 579 16 24 5 10 20 9 8 474 7 -o- 30 -010 1,406 1,603 315 9,912 604 332 234 184 121 172 243 10,759 426 24 1,857 53 152 26,991 15 -o- 526 l -o-0- 8 16 63 -o- 3 -0- -o-o-o- -o- -o- -o- 9 150 2 7 -013 723 10 3 16 32 l 78 -o- 15 245 1,626 331 1n,501 605 335 234 184 131 175 268 10,941 429 24 1,942 53 180 27,959 ~ ~ 0:, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table II Cross-border and Non-local Currency Claims on Foreigners by Country of Guarantor: June 1977 (in millions of dollars) Claims on residents Claims guaranteed by residents of Country Non-Oil Exporting Developing Countries !continued Asia China (Taiwan) India Israel Jordan Korea (South) Malaysia Pakistan Philippines Thailand Africa Egypt Ghana Ivory Coast !foroc-co Sud;:m Tunisia Zaire Zambia Total claims (by residence) 2,319 208 662 24 3,216 596 60 1,861 669 9,615 other countries on banks on others 27 -o- 2 -08 50 -o- 5 11 103 524 21 271 374 174 55 283 179 1,881 -:a: 40,148 358 -0-0-0-0-0- -o-0-0- Total claims less guaranteed claims of other countries guaranteed by residents of this country on others ~ Total claims by country of guarantor 106 17 22 2 102 32 9 53 23 366 2,186 191 638 22 3,106 514 51 1,803 635 9,146 14 19 108 32 62 15 5 25 86 366 5 3 6 7 58 37 14 16 17 163 2,205 213 752 61 3,226 566 70 1,844 738 9,675 27 3 22 20 75 497 18 249 354 99 42 171 176 1,606 2 8 1 -0- 11 -05 -o19 -o-o-o- 500 26 249 384 99 47 171 3 ~ 37 17 ~ 37,743 1,118 445 39,308 13 112 3 275 2,047 -o-o- 1,672 ~ ~ ""1 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table II Cross-border and -Non-local Currency Claims on Foreigners by Country of Cuarantor: June 1977 (in millions of dollars) Country iotal claims y re•sidence) Claims guaranteed by residents of other countries ~ on others Total claima less guaranteed claims Claims on residents of other countri~s guaranteed by·r~sidents of this country on othnrs ~ Offshore Banki!!S Centers Bahamas Bahrain Caymans Hong Kong Panama Singapore Liberia Lebanon 5,905 .565 2,802 1,286 1,896 2,366 1,889 125 16,834 5,279 439 2,558 361 533 1,799 -017 10,986 41 222 1 470 191 370 1,029 1,160 44 3,487 68 -024 10 -rs} ~ 164,208 24,707 8,478 -o- 21 293 404 57 1,167 41 2,024 585 126 223 632 959 510 722 67 3,824 34 4 2 91 ,; 45 4 256 5 54 33 -02 7 63 13 ill 448 71 105 3 33 Total claims by country of guarantor 625 175 229 979 1,018 550 785 .82 4,443 Miscellaneous Other Other Other Other Other Other Other Other Western Europe Eastern Europe Asia/Pacific Middle East Africa Caribbean Latin America North America Grand Total -o- 14 37 -o- 41 -027 -015 274 23 -o- 289 4 457 189 364 797 1,149 47 113 1 419 181 355 741 1,100 44 2,954 120 --m: 1;296 131,023 12,783 6,234 l~o40 -05 8 7 -029 -0- o- 2 56 20 3 c..:i ~ (X) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table Ill Contingent C;oss-border and Non-local Currency Claims by Country of Residence: June 1977 (in millions of dollars) Connnitments under letters of credit to: Banks and Public other private Country G-10 and Switzerland Belgium/Luxembourg France Germany Italy Netherlands Sweden Switzerland United Kingdom Canada Japan Banks and Public other private borrowers borrowers borrowers borrowers borrowers -o- 113 222 183 489 146 48 332 783 177 306 2,799 22 676 54 174 1 151 95 275 49 38 1,535 594 1,808 1,754 119 776 815 803 2,968 282 2.385 12,304 22 717 63 186 1 151 97 297 49 39 1,622 707 2,030 1,937 608 922 863 1,135 3,751 459 2,691 15,103 16 103 131 305 174 36 77 50 2 84 168 103 131 340 286 50 41 9 12 -o-o- 2 22 -o- 1 a7 Australia ~o- Finland 35 112 14 10 1 16 37 1 79 -0- Iceland New Zealand Norway Portugal Spain South Africa Turkey Denmark Irelan'! Total Conti!!!;ent Claims on: borrowers Non-·G-10 Develo2ed Countries -0Austria ·Greece Other Commitments to: Banks and Public other private so 355 t.41 42 252 4 7 45 9 140 74 81 15 17 1,143 1,166 5 381 154 518 3 31 486 ,35 895 154 52 442 102 3,421 51 18 121 9 89 118 118 1,521 40 5 56 6 10 8 136 60 29 20 2 76 100 302 161 94 203 147 283 59 1,011 8 10 118 68 87 184 822 196 770 7 38 531 44 1,035 228 '133 457 119 4,564 Eastern Eura2e Bulgaria Czechoslovakia East Germany 16 2 25 Hungary -o- Poland 58 8 Romania u.s.s.R. 1 Yugoslavia 6 ill -o-o- 3 29 -o-o25 62 94 145 139 282 53 ill 10 10 60 32 49 2 76 125 364 ~ co https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table III Contingent Cross-border and Non-local Curr-ency Claims by Country of Residence: June 1977 (in millioms of dollars) Country Oil-EXEOr.ti!!I! Countries Algeria Ecuador J:ndonesia ITan ir.aq Kuwait Libya Ni,ger!La ·Qatar Saudi Arabia United Arab Emirates ·:i,,ene~uel• 'Commitments under letters of credit to: Banks and Public other private borrowers borrowers 91 72 14 99 58 10 115 82 8 39 38 193 819 Nofh!lil Ex20rting Deve12J!ing Countries Latin "'\merica and Caribbean Ar'!er..tina lloiivia Rraz; 1 ·Chile Costa RicR Dominican Republic £1 Salvador Guatemala Honduras Jamaica Mexic•o ,Nicaragua Paraguay ,Peru TTinidad & T<>bago Uruguay . 81 22 33 69 14 43 5 6 3 4 101 2 -039 19 19 460 44 102 62 64 28 57 17 42 34 299 85 245 1,079 99 ?R 108 69 15 56 14 4 20 -0100 10 7 37 2 11 ~ Other Commitments to: Banks and other private borrowers Public borrowers 95 89 149 93 119 3 7 64 27 13 76 251 '986 139 47 215 70 10 30 5 39 28 2 228 4 10 25 43 43 938 Total Contingent Claims on: Banks and Public other private borrowers borrowers 25 71 229 322 105 44 36 34 6 179 87 787 1,925 186 161 163 192 177 122 146 35 52 114 444 1,805 330 97 421 47 13 133 16 141 115 10 698 16 10 30 3 12 2,092 220 69 248 139 24 73 10 45 31 6 329 6 10 64 62 62 1,398 13 69 173 291 386 133 101 53 76 40 478 172 1.032 3,004 429 125 529 116 28 189 30 145 135 10 798 26 17 67 5 23 2,672 ~ C1I 0 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table III Contingent Cross-border and Non-local Currency Claims by Country of Residence: June 1977 (in millions of dollars) Country Commitments under letters of credit to: Banlcs and other private Public borrowers borrowers Non-Oil Exporting Developing Countries- (continued) Asia 238 ~ a (Taiwan) 70 India 4 Israel 42 Jordan 56 Korea (South) 40 Malaysia 41 Pakistan 76 Philippine& 11 Thailand- 578 AfricaEgypt Ghana Ivory Coast Morocco Sudan Tunisia Zaire z-ambia 131 18 12 58 1.8 14 10 ~ _.zJ!!! 1,327 158 44 20 8 244 19 43 135 __ill_ 787 160 15 20 28 1 8 2 _g ..-2il 1,613 Other Commitments to: Banks and Public other private borrowers borrowers 31,4 -o- 50 19 122 53 3 545 __ 8 1,144 47 25 47 61 5 18 8 __ l _ill 2,294 478 24 107 23 471 122 115 288 206 1,834 100 20 25 -o-o- 17 4 -12.· ~ 4,111 Total Contingent Claims on: Banks and Public other private borrowers borrowers 582 70 54 61 178 93 44 621 636 68 127 31 715 141 158 423 -12. ___ill. 1,722 2,621 178 43 59 119 23 32 18 ~ 260 '.15 45 28 1 25 _ill 3,621 6 -1! -1lll 5,724 c.:i Ct ...... https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table III Contingent Cross-border and Non-local Currency Claims by Country of Residence: June 1977 (in millions of dollars) Country Commitments under letters of credit to: Banks and other private Public borrrrwers borrowers Offshore Banki!!!I Cante-rs Bahamas Bahrain Caymans Hong Kong Panama Singapore Liberia T.,ebanon Miscellaneous Other Western Europe Other Eastern Europe Other Asia/Pacific Other Middle East Other Africa Other Caribbean Other Latin America Other North America Grand Total 1 -o- -o1 4 2 8 -o- --"I6 8 -o- 22 3 -o- 157 155 88 42 49 516 15 -o- Other Commitments to: Banks and Public other private borrowers borrowers 6 27 -0114 50 84 1 62 344 1,594 -o-o- -o- 202 413 115 54 86 9 62 ~ 8 11 222 579 3,034 7,459 7,442 24,236 -o- -o- 268 314 -o- 69 56 19 18 60 7 27 144 114 2 315 136 41 44 20 70 48 9 247 72 97 110 11 16 Total Contingent Claims on: Banks and other private Public borrowers borrowers 105 47 66 173 116 61 -o- 166 117 2 472 291 356 244 462 2,110 26 -o- 141 153 129 29 76 146 91 536 826 10,476 31,695 -o- = 86 243 164 70 ~ 01 tv 353 () Comptroller of the Currency Administrator of National Banks Washington, D. C. 20219 May 26, 1978 Dear Mr. Chairman: At the Banking Committee hearing yesterday morning, you raised the issue of diversification. of risk in connection with the international lending activities of American banks. As I indicated, I have addressed this issue on two recent occasions. ~ am enclosing the full texts of my remarks. The speech to the Association of Reserve City Bankers on "International Intermediation" calls for more.careful self-regulation of bank management in the face of rapid changes in international banking and increased cOlllpetition for loans. Management must be especially prudent when they interpret a century-old statute, such as the lending limit statute, to apply to the unforeseen banking realities of today. For this reason the COlllptroller's Office published for connnent an interpretation of 12 u.s.c. 84 requiring aggregation of foreign government agencies and instrumentalities for purposes of calculating the national bank lending limit. After reviewing a number of connnents we received and evaluating the effectiveness of the Witteveen Facility, I observed in closing that the COlllptroller's Office will be assuming an increasing role in the supervision of international lending practices. address before the Bankers Association for Foreign Trade on May 16, 1978, began with an historical perspective of U.S. banking entry into the international sphere. I then focused on the "10% rule" of 12 u.s.c. 84, examining major objections which have been raised. While diversification of risk is a doctrine conceptually correct and widely accepted, there is also a need for flexibility in applying the proposed standards. For example, specialization in a particular segment or geographical area of international lending may be in the best interests of some banks. The prudence of risk diversification should be tempered with the practical considerations of limited resources. I concluded with My https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 354 a call for anticipation of difficulities and preparedness to meet the new challenges of banking abroad. I trust this material will be helpful to you and to the Committee. Sincerely, . ,.~ .:.: Comptroller of the currency The Honorable William Proxmire Chairman, Committee on Banking, Housing and Urban Affairs Washington, D. c. 20510 Enclosures https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 355 REMARKS OF JOHN G. HEIMANN COMPTROLLER OF THE CURRENCY BEFORE THE BANKERS ASSOCIATION OF FOREIGN TRADE 56TH ANNUAL CONFERENCE THE HOMESTEAD HOT SPRINGS, VIRGINIA MAY 16, 1978 Both your organization and the one I represent have changed dramatically since their formation. Most obvious are the anachronistic inaccuracies of name. The Comptroller of the Currency no longer has a "currency" function. And the members of the Bank Association for Foreign Trade no longer have the financing of U.S. imports and exports as their principal international activity. Far more important, however, are the substantive changes that account for these misnomers. Perhaps most striking is the experience we have shared in expanding our involvement in the international sphere. I have been associated with the banking business, in one way or another, long enough to remember quite vividly the typical U.S. bank international department, as it remained into the 1960's. In those days, it was traditional·to regard international banking activities as a special game preserve of sorts, and often the departmental personnel served behind glass walls, or other institutional arrangements.emphasizing their peculiarity within the bank. The titles of their principal officials generally signified remoteness from the levers of command, and there were few chief executive officers, even at the largest U.S. banks, who saw in international banking a potentially major profit center, to say nothing of a decisive one. No, international banking was conceived as a service function for domestic clients, i.e., self-liquidating trade transactions. The principal financing vehicles were letters of credit and acceptances. Foreign exchange activity was limited largely to spot transactions to effect payment under collection items; forward contracts were minimal. That a U.S. bank would ever have a significant "exposure" in a foreign currency vis-a-vis the dollar would have struck top managefflent as a dangerous heresy. It was certainly, in a regUlatory sense, a halcyon era. All this began to change, we recall, in the early 1960's, especially with the first faint stirrings of the eurodollar market. And one of my predecessors in office saw this as a fundamental supervisory challenge. How could an incumbent Comptroller effectively supervise more than 4,700 national banks without jurisdiction over their international, as well as domesitc, activities? It was a good question. In 1962 Comptroller James J. Saxon undertook to assume supervisory authority over the activities of foreign branches of national banks historically tQe statutory domain of the Federal Reserve Board. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 356 It came to a confrontation of the kind that is always regrettable among supervisory agencies. Chairman William Mcchesney Martin of the Federal Reserve Board informed then Secretary of the Treasury Douglas Dillon that the infant eurodollar market posed problems of monetary policy, not bank safety, and, accordingly, jurisdiction should remain solely with the Fed. over the objection of Mr. Saxon that "grant and regulation of foreign branches of national banks is clearly a function of bank supervision -- not a monetary function", the Board of Governors prevailed on this point -- and for more than a decade exercised predominant jurisdiction. Of course, the regulatory question was posed differently in those days. Money rates favored London as a source of funds. Therefore, at the outset, fore, U.S. banks sought to acquire eurodollars chiefly for domestic relending, creating a net increase in the domestic money supply.· This inflow of funds could-properly be categorized as a problem of monetary regulation. Moreover, the total eurodollar takings were still small enough, relative to the size of the banks participating in this new market, to present no significant concern over bank supervision. In fact, a number of leading bankers remained skeptical about the potential of the eurodollar market itself -- to say nothing of a possible eurocurrency market -- until the late ]960's. It was in this environment that Chairman Martin and the Fed undertook to expand U.S. banking activity overseas. Some have said that top managements of many major u.s. banks -- especially the regional banks -- were at that time a bit reluctant to undertake significant international initiatives. To do this required devoting a good deal of time and resources in an effort to rethink priorities and acquire familiarity with foreign legal systems and regulatory practices -- all in an era when the overwhelming preponderance of bank profits were derived from domestic activities. There were also some problems of cultural lag -- you know the old saying about the reason for the dominance of English in international business, "The British won't learn foreign languages -- and the Americans can't." At any rate, to strategists at the Fed, it appeared clear that American banks needed some external motivation to take advantage of the growing opportunities in offshore banking. The firm ceiling imposed under the Voluntary Foreign Credit Restraint Program ("VCR") on foreign loans made through domestic offices provided the appropriate encouragement, and was largely responsible for the early expansion of overseas banking facilities. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 357 Admittedly, a decade ago nobody would have had the temerity to predict that international lending activities of ten or more of the largest banks in the country would eventually account not only for more than half of their loan portfolios, but also the lion's share of their profits. Among the more significant tabular compilations setting forth these extraordinary trends, I prefer the Salomon Brothers table showing comparative growth rates for earnings, 1972-1977, for international and domestic activities of our 10 biggest commercial banks. I will not bombard you with figures, but among the most impressive trends is the increase in foreign earnings of institutions that were previously regarded as inherently regional institutions outside the money market centers and without extensive foreign branch or affiliate networks. The fact is, our commercial banking system is now firmly locked into a global banking system -- a system dominated by very large foreign institutions, many of them government-backed or owned, which compete for business by means and standards not always in accordance with traditional American banking practices. It is a trend that has brought the Comptroller's Office new and heavy responsibilities in the field of international bank supervision. Thus, time has vindicated Mr. Saxon's original judgment, and doubts about the appropriateness of such jurisdiction have long since vanished. Inevitably, these developments also have necessitated substantial administrative changes within the Comptroller's Office. For instance, within the past 12 months, we have dispatched more than 200 examiners to review bank operations outside the u.s., compared to less than 55 examiners in 1968. Our statistical publications now focus sharply on foreign lending. In addition, the Office is now collaborating directly with foreign bank supervisors. The Comptroller has become a member of the·Group of Ten Committee on Bank Regulation and Supervisory Practices, or as it is more conveniently termed The "Cooke Committee." But I suppose this audience is less concerned with the historical prospective, and would prefer to hear something about the "101 rule.• I am speaking, of course, about the proposed interpretation of 12 u.s.c. Section 84, which has provoked so much discussion within the international banking community. I wish to make clear at the outset.that I am basically no friend of lengthy interpretative rules as such. I don't like to fill the Federal Register with columns of exhaustive and exhausting regulatory language in fine print. And I was aware when we issued the proposed interpretation for public comment, that the definitional questions surrounding what has come to be known as the "disaggregation issue• would not be easy to resolve. That is one reason why the interpretative ruling has remained in a proposed form. Another reason, of course, i ■ the need to do justice to the thoughtful correspondence received from banks, including some, I am sure, from persons in this audience. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 358 As you know, the Comptroller's Office has, in_general, applied both a •means• alld a •purpose• test to foreign_govern111ent-related borrowers of national banks, for them to qualify as "single" entities entitled to borrow up to 101 of the bank's capital and surplus. The proposed ruling formalizes this approach and addresses a number of conceptual questions associated with it. Many objections to the proposed ruling center upon the contention that national banks may be placed at a competitive disadvantage with foreign banks, as well as domestic banks, not upon its limitations. I understand the force of this contention but do not accept its underlying premise as gospel truth. One of the most notable characteristics of lending today is the global availability of credit, and the fierce competition for the business of borrowers of less than prime standing. Competition of this type is by no means self-justifying. Obviously, some flexibility is desirable in the application of these standards, and in our proposal we have undertaken to write rules that will be apecitic enough to achieve the fundamental supervisory objective, without being too rigid to bend as and when needed. But a broader purpose underlies the proposal. We are attempting to clarify, conceptually, the nature of the risks involved. This necessarily includes the establishment of the best possible internal financial control and reporting mechanisms relating to lending activities. I want to emphasize that the resolution of definitional questions is of benefit to both the supervisor and the bank. That clarity is often best achieved trough open debate is well known. The French have a saying: "The truth gushes forth when opinions collide." In relative terms, only in recent.years have we embarked on an earnest quest for greater supervisory effectiveness in the international banking arena. The question of disaggregation is merely one small element of a far wider and deeper supervisory challenge. The problems, conceptual and definitional, posed by cross-border risk assessment are formidable, as are those associated with the imposition of standards of risk diversification. In addition to "country risk", there are connnodity risks, industry risks, geographic risks -- even geological risks. Diversification of risk, I believe, is a doctrine to which we can all subscribe. In large part is provides the conceptual foundation of the "101 rule" itself. The concept of diversification is correct. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 359 Having agreed in principle that diversification is a sound banking practice, we 111\lSt come to grips with its practical application. The Congress has imposed a 101 limit, which by necessity must be somewhat arbitrary. The corrections of the 101 may be argued. For instance, New York State has had a 251 limit. Overall, I do not know whether ]01 is too little or 251 is too large of a unit. Some might argue 251 may be too little. I do not believe the percentage amount is as critical as the principle behind the attempt to establish a definitive percentage. I think our Office can most productively approach the principle of diversification within the constraints of the 101 legal limit through flexibility in interpretation of the ruling. Diversification of risk is clearly desirable for· international as well as domestic banking activities. But, unfortunately, there is a difficult trade-off implicit in its blanket impo~ition. After all, it is evident that many banks seek, justifiably, to specialize in certain segments or geographical areas of international lending. Such specialization builds valuable expertise in the form of close familiarity with local conditions, and other advantages contributing to sensible lending decisions. Under these circumstances, it may not be advisable to compel diversification of risk arbitrarily by means of rigid ·rules. Regional banks, in particular, do not have the global access to international lending enjoyed by the major banks and, thus, do not have as extensive a capacity to diversify risks. In applying the concept of statutory or regulatory lending limit• 12 u.s.c. 84 to overseas lending, particularly foreign public sector lending, the prudence of risk diversification should be tempered with the practical considerations of limited resources. In this regard, co-financings with official institutions may be one means through which banks, borrowers, and supervisors could be accommodated. As you know, the Federal Reserve recognized a lesser risk in co-financings by exempting these loans from the lending limits of Regulation K. The Federal Reserve promulgated this exemption because of the chaperone effect associated with participations by official institutions. It may well be appropriate to consider extending this chaperone concept to national banks. I am also aware that our Office cannot easily and unthinkingly apply conceptual devices,- tested by long domestic regulatory tradition, to international lending activities. We have to develop new ones. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 360 This is a task that cannot be achieved by closeting ourselves in a conference room around a green table and drafting a set of regulations. No, it has to be done together with. the lenders -- and again, for mutual benefit. The need for sophisticated risk assessment in international lending is col1lll\0nly understood, but mere recognition of the problem is of little comfort. As usual, the devil hides in the details. For bank supervisors too, the task is not only to design, but to also divine. It has been said, I know, that prophecy is the most gratuitous form of error. But like it or not, bank supervisors, especially when confronted by the current challenges posed by international banking, are in the business of anticipating future developments. As we saw, in the 1960's the Fed successfully fostered the evolution of u.s. overseas banking. However, we are now faced by what may be a more difficult task. The uncertainties are of a different order, involving as they do a broader spectrum of political event~, not subject to U.S. governmental control or modification. Matters are further complicated by the unfortunate circumstance that our confidence of a decade ago in our ability to guide the course of world economic_events has been severly shaken. Perhaps, I should hazard a military analogy, fitting enough for this lovely location. Do you remember the story of "Fighting Joe" Hooker the general appointed to command the Army of the Potomac in the Spring of 1863? He was the one, you may recall, who once cabled the War Department "My headquarters are in the saddle" -- which prompted Lincoln to comment: "His headquarters are where his hindquarters ought to be." Anyway, Hooker lost track of Lee's Army, and, at Chancellorsville, became the victim of Stonewall Jackson's famous 15-mile flanking march. Hooker had received belated intelligence of'the ensuing attack when a Confederate cannon ball shot away the pillar against which he was leaning in the house he had chosen as headquarters. It was not a particularly good supervisory performance. Today's bank supervisors cannot afford to be caught off their guard like "Fighting Joe." They must continue to expand their international expertise, improving their ability to foresee new trends and strengthening their capacity to meet the new challenges of banking abroad. This they must do with the cooperation and participation of the industry. For in the final analysis, the scope of governmental involvement will always depend upon the prudence and self-discipline exercised by the banks themselves. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis INTERNATIONAL INTERMEDIATION A PERSPECTIVE (By John G. Heimann, Comptroller of the Currency, April 3, 1978) Last August Sir Jeremy Morse, the Distinguished Chairman of Lloyd's Bank said: "Self regulation, in banking, is one of the cornerstones of free enterprise; it should be regarded as a basis, to be supplemented by official supervision, rather than an outworn tradition-to be supplanted by it." Those words of Chairman Morse are most appropriate in light of current developments in international banking which I believe warrant the attention of both bankers and •bank supervisors. Some international lending practices as well as certain components of the international intermediary structure need careful scrutiny. Where necessary, these practices should be strengthened in order to limit private bank risks and to assure a safe and flexible international banking system. The participation of American banks in this global system of intermediation has increased dramatically as banks have recycled surplus petro dollars. This increased American involvement has yielded substantial benefits and produced the potential of possible pitfalls. One of the major benefits has been dramatically increased earnings. Between 1971 and 1976, profits from international activities of the 10 largest U.S. banks increased 358%, while earnings from domestic operations increased only 5%. It is important to note, however, that international earnings growth for this group slowed dramatically between 1975 and 1976 to only 1.7%. Other benefits include expanded and diversified ,international services for bank customers and the efficient recycling of enormous funds from a small number of surplus countries to a wide group of deficit countries. Notwithstanding these benefits, sources of potential risk must be recognized: • Narrowing spreads: The difference betJween the costs banks pay for funds and the interest return for those funds is narrowing. Currently a rate of %%¾% over Li1bor (London Intel"bank official rate) is prevalent and front end fees have diminished. Do these rates reflect an adequate return on investment for the assumed risk? • Lengthening Maturities of up to ten years: Can lenders realistically expect to evaluate the incl"ee.sed risks possibly resulting from the economic, political, and social uncertainties in such extended maturi·ties. • Mismatching of Maturities: To what degree are lenders accepting additional risk and additional exposure by borrowing short term and lending long term? If there is additional risk, and there must be, how do banks find adequate compensation in a period of narrowing spreads? • Compressing of the differential between prime and non prime borrowers : Does the narrowing spreads on loans of varying risk, accurately reflect this variance? On a broader but less specific basis, other potential problems might include the increased market access by non-traditional borrowers. Of course, new borrowers, who have yet to establish a repayment record, will continually be emerging. But this poses an additional problem. Are the rates given to new borrowers properly reflective of the ri•sk? Another possible problem is the continuing reliance by sovereign nations on commercial banks for development and balance of payments financing. This phenomenon is reflected, in part, by the doubling of the outside debt of the third world countries since 1973. Do the rates charged by lenders accurately reflect the risk involved in this area of lending, previously the domain of multilateral institutions? These sources of potential problems, in part, are a reflection of increased competition. Many multinational banks are very liquid and highly aggressive. The OPEC countries are slowly increasing their use of multilateral facilities and (361) 30-476 0 - 78 - 24 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 362 direct lending. :Multinational banks are committed, to continue their foreign operations. Other banks are just now entering the international arena. As international activity expands and the participants in international capital markets grow more sophisticated, the inescapable conclusion is that competition will onlY increase. Given the rapid metamorphosis of international banking, it is incumbent upon hanks and bank supervisors to develop technology and train staff to cope with thi-s evolution. Any lag between the development of international markets and the development of complimentary internal expertise by bank and supervisors increases risk. During this period banks can and should exercise the .self discipline which will lead to a safer and more functional international banking atmosphere. For if the banks do not introduce discipline, -the supervisor must. It is much better for the primary participants, the bankers, to take the initiative. I reoognize that current earnings pressures may lead a bank to meet the heavy foreign demand for long-term loans, though I compliment certain U.S. banks which have resisted these pressures. Nevertheless, there is a limit to private banks providing long-term financial assistance to their foreign clients, especially to foreign public sectors. Prime borrowers are lim1ted. Despite the vagaries of global commodity markets many lo-.m repayments have been, and are, prediooted upon a borrower's exports of a commodity at a certain price level. Commodity price exposure also should -be limited. Further• more, the risk of commodity price fluctuations is only exacerbated by lengthening maturities. In addition, lenders should be cautious not to place themselves in the untenable position of loan repayment being predicated upon future national trade policies. Another protection against -some of the uncertainty in internat.ional lending is multilateral institutions. These must be understood and used property if we are to foster stability in international finance. Banks should •be cautious of the unilateral loan which falls outside the parameters established by multilateral agreements. Without the protection of these agreements, banks are exposed to additional risk. The rising threat of protectionism may be diminished by increased participation in multHateral facilities. In other areas of international lending there are established laws to which banks must adhere and which supervisors must enforce. However, even in these areas, initiative by the banks can allow some self-determination of the legal framework and discipline for the future. For example, the Office of the Comptroller recently pubJi.shed for comment an interpretation of 12 U.S.C. 84. This law, written over a century ago, dictates that no bank may lend more than 10% of its capital and surplus to a "single borrower." Understandably, the founder-s of this law could not have foreseen the difficulties to be created a century later ·when the definition of "single borrowers" would not only include individuals, but would be expanded to include countries. The resulting problem is whether or not the various government agencies and instrumentalities should be aggregated before applying the 10% limitation. It remains for all of us to interpret this law in the light of today's realities. The Office of the Comptroller published this proposed ruling to act as a catalyst for essential thought and discussion. Our ruling proposed applicaible principles and demands supportive documentation for loans to foreign entities. Thus far we have received 80 substantive comments on our ruling. The banks which :responded accepted the challenge of self-initiative and played a role in determining the future discipline under which they must conduct business. Here are some of their comments: • The ruling would be counterproductive if loans guaranteed by a central government were aggregated with loans to that central government and resulted in discouraging the use of such guarantees. • The Comptroller's Office should provide a list of those government agencies, or instrumentalities which would be exempt from aggregation. In essence, the request is for an advance screening mechanism to eliminate uncertainty about which borrowers would be aggregated. • The Comptroller's Office -should consider that a conservative application of the 10 percent limitation might place U.S. banks at a competitive disadvantage vis-a-vis non U.S. banks. Furthermore, a conservative approach may limit large creditworthy foreign public sector borrowers from overall access to credit from the capital markets. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 363 • National banks should not be at a competitive disadvantage unless state banks were subject to similar standards. As you know, each state sets its own lending limitations. For instance, New York State has a 25 percent limitation to "any nati<'11." Other r-~pon<lents wt-re concerned with raising the 10 percent lending limit; whether the ruling would apply retroactively; and the consequences of a change in the purpose of the loan after it had been granted. This list is, of course, not exhaustive and includes both ideas under discussion within our Office and some new thoughts. It does demonstrate the need for communication between the regulator and the industry if we are to succeed in solving future problems of foreign sector lending. On the immediate horizon our office has several concerns which are worth mentioning today. First, the syndication process places an extraordinary responsibility on the lead bank. Nevertheless, the Comptroller's Office views as the fiduciary responsibility of each participant within a syndication the satisfactory judgment as to the worthiness of the credit. Sole reliance upon the lead bank's analysis of creditworthiness or risk is not acceptable. Second, many banks have developed large foreign exchange and trading activities. The volume in this area of activity has increased dramatically over the past 12 months. We are taking an increasingly hard look at these activities relative to the size and sophistication of the institution. Third, there are concern-s about the many loans which U.S. banks have made with agreements adjudicable under foreign laws. Legal disputes between private commercial banks and sovereign natfons inherently are complicated. These complications are exacerbated by the lack of precedent in the laws of certain countries. Over the long term, we see global interdependence increasing, politically, economically, and financially. This world-wide interrelated financial system will be less able to isolate local occurrences. Containment will become increasingly difficult and, perforce, social, economic and financial problems will have a ripple effect far greater than those experienced thus far. This reality necessitates a far more sophisticated and comprehensive awareness of the borrowers' social, political, and legal composition and trends. Also, it would seem ill advi-sed if commercial banks, due to competition, were in a position to thwart the role of official multilateral institutions in assisting a developing country's economy. Banks and the multilateral institutions, with their diverse purposes, powers, and goals, should not be placed in direct competition in providing a country's financial needs. Cooperation will be more productive and protective. On a lesser scale, though also important, we view with some concern countries which appear to be financing balance of payments needs through increased use of money market instruments. Loans which do not assist a country in reaching a desired level of export earnings or import substitution also warrant attention. Many of these concerns stem from a structural problem in our present system for intermediating the global money supply. During most of the post war period the multilateral institutions filled the need for long term money and balance of payments financing. These institutions were provided powers which, in part, compensated for the increased risk inherent in such lending. Today, commercial banks in some instances have assumed the traditional role of these multilateral institutions. This is the result of increased demand for such financing, beyond the financing capability of the multilateral institutions. Consequently, we see the Witteveen Facility as a necessary expansion of IMF capacity ; but it is not a panacea for all future deficits. Even if world recovery continues and international trade expands at respectable rates, many countries will have current balance of payments deficits or will need financing for long term projects in the years to come. Certainly enlarged funding and commitment limits for official institutions would provide more traditional assistance to deficit nations. But is the expansion of existing mechanisms enough. If the answer is no then we must consider new mechanisms to provide orderly intermediations of 'the market demands of the future. One example is the development of variable rate Eurobonds. The Office of the Comptroller has been taking an increased role in the international area. For instance, in the past seven months we have had over 200 examiners reviewing banks' operations outside our borders. Three months ago we published jointly with the Federal Reserve Board the most detailed information ever released concerning foreign loans of U.S. banks. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 364 We received for comment the proposed interpretation of 12 U.S.C. 84 which I discussed previously. Last month, we became members of the Group of Ten Committee on Bank Regulation and Supervisory Practices, known as the Cooke Committee. Also, I recently visited with Swiss and English bankers and supervi-sors to share information and discuss solutions concerning common problems. As we increase our supervisory role in the international area, we ask the banks to do the same. This does not mean a curtailment of the innovativeness displayed by the U.S. commercial banks in the foreign sector over the last few years. However, it does mean a stronger monitoring to preserve the viability of the system to meet the challen~es ahead. As a promoter of a strong international financial system, the Comptroller's Office will continue to increase its role in this area. The extent of that role, and the degree to which all regulatory authorities interface with the private financial markets depends on the scope of private bank self-discipline and self-determination towards safe and sound lending operations and market st:ructure. To reach the mutually desirable goal, that is a financial system which is not only viable, but has sta;bility; the risks inherent in international banking activities must be tempered by the -supervisor's Congressional mandate to maintain a safe and sound banking s:vstem. I am suggesting to you that my Office can best do this with your cooperation and participation. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 365 DEPARTMENT OF THE TREASURY COMPTROLLER OF THE CURRENCY (12 CFR Part 7) LOANS TO FOREIGN GOVERNMENTS, THEIR AGENCIES, AND INSTRUMENTALITIES Notice of Proposed Rulemaking Comptroller of the Currency. AGENCY: ACTION: Proposed rule. SUMMARY: The proposed interpretive ruling summarizes principles which the Comptroller of the Currency believes applicable to the combining of loans made by national banks to foreign governments, their agencies and instrumentalities under _the lending limit provision·of 12 u.s.c. §84. A new interpretive ruling is necessary because existing interpretive rulings applying the combining prin- u.s.c. ciples of 12 DATES: §84 do not directly address such loans. Written comments must be received -On or before (60 days from publication in the Federal Register). ADDRESSES: Comments should be addressed to Mr. John E. Shockey, Chief Counsel, Comptroller of the Currency, Washington, D. c., 20219. FOR FURTHER INFORMATION CONTACT: Mr. Larry Mallinger, Staff Attorney Office of the Comptroller of the Currency Washington, D. C. 20219 (202) 447-1880. SUPPLEMENTARY INFORMATION: In recent years there has been ·rapid growth in lending by commercial banks to foreign governments, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 366 their agencies, and instrumentalities. This growth has required national bank examiners to give increasing attention to the applicability of the statutory lending limits of 12 u.s.c. S84 to In this process, specific questions have been such credits. raised as to how such loans should be combined for purposes of applying the lending limits. The present series of formal interpretive rulings applicalll• to the combining of loans under 12 u.~.c. S84 (12 CPR 7.1310 -- 7.1320) do not specifically address the ·types of inquiries vhlch should be made in the case of credits related in one way or another to a foreign government. However, for a-. t1- the Comptroller•• staff has advised banks making specific inquiries of two genel'lll principles. First, that foreign governments and governan~ related entities are regarded as •persona• under the l&nCJU&9• of 12 u.s.c. sac. Second, that loans to foreign govern-nt-rela~d entities that have a significant degree of independence froa t!he central government in their sources and uses of funds will not' b9 combined with loans to the central government so long as aucll entities satisfactorily evidence means of repayiant t:llat ar• not substantially dependent upon general revenues of the central government. Implicit in these individual rulings has be9n t:ha understanding that the borrowing by an individual entity is for the purpose of satisfying funding needs related to its own activities. This second principle has been expressed in staff issued over the past several years in terms of the "purpose• tests. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis •mean■• opinion■ an4 367 Because of the increased number of circumstances in which examiners and bank officers must take the lending limits into·account in reviewing loans to foreign governments and their instrumentalities, the Comptroller proposes to state the applicable principles and minimum documentation requirements in an interpretive ruling. The proposed ruling addresses the following items. First, loans to foreign gove~nments, their agencies and instrumentalitie's will be combined under 12 u.s.c. 584 if they fail to meet either the "means• or "purpose• test. Second, these tests will apply to all existing and new loans at the time e·ach new· loan is made. Third, the .borrower is required to provide a statement describing with particularity the purpose of the loan. Normally this will be sufficient to satisfy the requirements of the "purpose" test. However, the ru·ling makes it clear that when a bank has available to it other information suggesting a use of proceeds inconsistent with the borrower's representation, it may not, without further inquiry, accept the, representation. Fourth, certain additional documentation is required td enable the bank to carry out its responsibility of reasonable investigation and to satisfy https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 368 examiner inquiry under the "means" and "purpose" tests. In part, because of the threshold need to identify properly the real borrower, the additional documentation includes a statement describing the borrowing entity's legal status and relationship to the central government. Also required are financial statements for the borrowing entity for each of the three years prior to the making of the loan (or for each year less than three that the borrower has been in existence) and for each year the loan is outstanding, and analytical opinions by management supporting their assessment of the borrowing entity's ability to service the loans. In a number of other areas, the proposed interpretive ruling does not attempt to establish firm boundaries because the differences in fun~tion and operation of various foreign governments and their related entities cannot be so inflexibly addressed. For example, the documen~ation required under the proposed ruling suggests that the presence or absence of central government support for the borrowing entity is a relevant inquiry. Some central government support whetaer direct or in the form of a guarantee would not, without more, require combining. However, where such support approaches a relatively large percentage or a principal portion of the borrowing entity's annual revenues, such as 50 percent, or where but for the presence of a governmen.tal guarantee the bank would not consider the borrower to have sufficient credit standing, a presumption of lack of independent means may arise. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 369 The proposed interpretive ~uling does not supplant current interpretive rulings 112 CFR 7.1310 -- 7.1320) applicable to the combining of loans to partnerships, corporations and their subsidiaries, and certain othe·r common enterprises. Thus, 12 CFR 7.1310 remains applicable to loans to foreign entities organized as corporations whether or not they are related in some way to the central government. While the proposed interpretive ruling states the inquiries which the Comptroller's Office for sometime has believed appropriate in applying 12 u.s.c. 584 to loans to foreign governments and their related entities, the specific terminology used in the ruling may be unfamiliar to some banks. In this connection, it should be clearly understood that the principles expressed in the ruling will not be applied by the Comptroller's Office to reverse prior examiner determinations on particular bank loan portfolios. However, because the principles expressed in the ruling are directly related to existing statutory requirements, these principles should be carefully considered in connection with any new loans made by national banks to foreign governments and their related entities during the comment period. The Administrative Procedure Act does not require notice and solicitation of comments in connection.with interpretive rules (5 U.S.C. 553(b)). However, the Comptroller has elected to afford opportunity to comment on the proposed amendment. PROPOSED RULING For the reasons stated above, the Comptroller proposes to amend 12 CFR Part 7 by adding a new section 7.1330 to read as follows: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 370 S7,1330 (a) Loans to foreign governments, their agencies, and i~strumen~alities Loans to foreign govermnents, their agencies, and instrumentalities will be cOlllbined under 12 u.s.c. S84 if they fail to meet either of the following tests: (1) The borrowittg entity must have resources or inc<>DE of its own sufficient over time to service its debt Obligations ("means" t@St)1 (2) The loan proceeds must be used by the borrowing entity in the conduct of its business and for ~e purpose represented in the loan agreement or otherwise acknowledged in writing by the borrowing entity ("purpose• test). This does not preclude converting the loan ~roceeds into local currency prior to use by the borrowing entity. These tests will be applied at the time each loan is made. (b) In order to show that the •means" and "purpose• tests have been satisfied, a bank shall, at a minimum, aqselllble and retain in its files the following items: (1) A statl!illent and supporting docuilientation de- scribing the legal status of the J:idrroifihg entity and showing its ownership and any fortn of cont:tt>lthilt 111ay be exercised.directly ot indirectly by the central government. (2) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Financial statements for the borrowing entity for a minimum of three :years ptior to making 371 the loan or for each year less than three that the borrowing entity has been in existence. (31 Financial statements for each year the loan is outstanding. (41 The bank's assessment of the borrower's means of servicing the loan including specific justifying that assessment. Such reason■ assessment■ shall include an analysis of the financtal history of the borrower, the present and projected economic and financial performance of·tbe borrower, and the significance qr lack of si9nificance of 1131y guarantees or other financial support by third parties, including the central gover11111ent. (SI A written statement from the borrower descrl► ing with particularity the.purpose.of the loan. Normally, such a stat-nt will be regarded as sufficient evidence to aieet the •purpose~ test requirements. However, when the l:!ank knows or ·has reason to Juiow of other information auggesting a use of proceeds inconsistent with the representation in the sta~nt, it may not, without further inquiry, accept that representation. John G. Reimann Comptroller of the Currency Dated: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 372 () Comptroller of the Currengy Administrator of National Banks Washington, D. C. 20219 March 1, 1978 The Honorable William Proxmire Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Mr. Chairman: The attached information is furnished in response to your letter of December 15, 1977 in which you requested certain statistical data in preparation for the hearings before the Committee on Banking, Housing and Urban Affairs scheduled for April 3 and 4, 1978. Agreement on modification of certain of your original requests was reached in consultation with Mr. Lindy Marinaccio, Special Counsel to the Committee. We have included a glossary of terms with definitions for use with several of the statistical tables and narrative responses. Where relevant and helpful, documents are appended to tables or narratives which more fully explain procedures, practices, or substantive matters related to your questions. Responses to your requests are attached in the order of the requests. Refer to the Table of Contents for respective page numbers. Sina-John G. Heimann Comptroller of the Currency .Attachments https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 373 GLOSSARY l. GENERAL INFORMATION Data provided on the universe of banks (all national banks) is displayed in the following peer groups: $0 to $100 million $100 million to $500 million $500 million to $1 billion $1 billion to $5 billion Over $5 billion Data provided on National Banks Requiring Special Supervisory Attention is displayed in the following peer groups: $0 to $100 million $100 million to $1 billion Over $1 billion Data derived from Reports of Examination is from the latest report available at the year end for each year indicated. National Banks Requiring ·special Supervisory Attention are defined as banks with a composite group rating of 5. 4. or 3. A detailed description of each category is provided in Response #1. II. SELECTED REPORT OF CONDITION DATA Total Assets: Line 16 of Consolidated Report of Condition. Total Deposits: Line 24 of Consolidated Report of Condition. III. CATEGORIES OF CLASSIFIED ASSETS AND OTHER LOANS ESPECIALLY MENTIONED Applicable to Tables 4A, 48, 4C and 4D and Response #1. Substandard: Assets so classified must have a positive and well-defined weakness or weaknesses which jeopardize the liquidation of the debt. Defined in a general way, a substandard asset is a bank asset inadequately protected by the current sound worth and paying capacity of the obligor, or pledged collateral, if any. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 374 Doubtful: Assets subject to this classfficatfon have all of the weaknesses inherent in assets classified substandard wfth the added provfso that the weaknesses are pronounced to a point where collection or liquidation in full, on the basis of currently exfstfng facts, conditions and values, is highly questionable and improbable. The probability of total or substantial loss 1s h1gh but extraneous factors might make possible the strengthening or liquidation of the asset. Loss: Assets classified as loss are considered uncollectable and of such little value that their continuance as active assets of the bank is not warranted. Assignment of this classification does not mean that an asset has absolutely no recovery or salvage value, but simply that ft fs not practical or desirable to defer writing off a basically worthless asset even though partial recovery may be effected in the future. Total Classified Assets: The sum of substandard, doubtful and loss classifications. Other Assets Especially Mentioned (DAEM): Currently protected but potentially weak credits or other assets. IV. GROSS CAPITAL FUNDS Applicable to Tables 4A, 4B, 4C and 4D, and Response fl. The sum of capital stock, surplus, undfvfded profits, reserves for loan and security losses and long term subordinated notes and debentures. V. ADJUSTED CAPITAL FUNDS Applicable to Response #1. Gross Capital Funds as described above less SOS of the amount classified doubtful and lOOS of the amount classified Toss. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 375 Respo9se to Request #1 EVOLUTION OF THE COMPTRlft.LER Of THE CUB,RENC'C'S RATING IYSTEM Various methods of identifying and cl~ssifying banks that require special supervisory attention have be@ employed by tlie Office of .the Comptroller of the Currer,..:y. I11!Pr1>ved procEldures in the identification process in the last fli!W yeµs have msndated changes in the classification pr1>cess. The following summary of the evolution pf the Office af the Comptroller of the Currency's rating system is in response to your inqqi.ry, although it may repeat information previously fut:llished. Unitl 1977, the Office of the Comptroller of the Currency used a bank rating system devised prior to 1950. Th@se ratings were assigned to the banks by the regional ach!linistrator. A copy of the general guidelines used in this system is enclosed as Attachment A. Its major screening device was the quality of assets as determined by the ratio of Total Classified A.ssets to Gross Capital Funds. If this ratio were less than 20%, an asset rating of "A" was assigned; if between 20% and 40%, this rating was "B"; if between 40% !Uld 80%, this rating was "C"; at1ci if ove~ 80%, this rating was "D". This rating was automatically a&(l:{.gne4 regardless of the severity of the classifications. in additil>ll to the asset quality rating, subjective ratings of the bank's capital position and management were made. A composite rating was then assigned based pril!larily on the bank's asset quality rating, although the bank's capital position and quality of management were also considered. These ceaqiosite ratings are the Group Ratings 1, 2, 3, and 4 that have bean discussed before the Committee. These composite ratings are defined in Attachment A. In January, 1974, weekly meetings were established in tlut Washington office to discuss bank-by-bank the problems the, staff had identified. These meetings revealed some of the weaknesses in our m.ethod of identifying and tracking banks requiring special supervisory attention. On November 15, 1974, the Office of the Comptroller of the> Currency established the Victor Prograin as a better means of coo:rdinating the various skills and resources that we have in the problea identification and correction area and applying them lllOre •~&41tiously and precisely than previous procedures have all01f'8(1. The goal of this program was to correct the causes of asset, liability, earnings and management situations detrimental to the national banking system. The Victor Program improved communications•~ the examiner, the regional office and the Washington office end emphasized the need for a timely response to proble11111 identified during exainination. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 376 Initially, the Victor Program included all banks with a composite rating of 3 and 4 and any other banks which the examiner, regional administrator, or Washington personnel believed to merit the specialized attention which the program was designed to provide. It was soon apparent that not all banks with a composite rating of 3 or 4 required the intensive supervision of the Victor Program. Therefore, on December 3l, l974, the criteria for inclusion in the Victor Program were modified. New instructions required examiners to alert the regional and Washington offices when a bank's remaining criticized assets (50% of Other Assets Especially Mentioned, 100% of Substandard, and 50% of Doubtful) were 65% or more of Adjusted Capital Funds or when any condition existed which could lead to the bank's insolvency. It was emphasized that while some statistics and ratios were necessary, the office was dependent upon the examiners' professional ability and judgment, not ratios, to disclose those serious banking matters requiring attention. With the implementation of the modified Victor Program, the old rating system diminished in importance and was no longer used by the Washington Office. In September, 1975, the Office of the Comptroller of the Curren~y underwent a major reorganization. The use of the name "Victor" was discontinued, but the operation of.this surveillance group continued. It has evolved into what is presently known as the Special Projects Division. Although banks continued to be rated under the old rating system by the regional administrators, the Special Projects Division developed its own classification system for categorizing banks included in the program. This system relied primarily on professional ability and judgment, not ratios, to classify those banks requiring special supervisory attention. Since this rating was assigned in Washington, it eliminated any disparity in rating that might have existed between regions. The five categories of that rating system were Pass, Pass-Monitor, Close Supervision, Serious, and Critical. A detailed definition of these categories.is supplied as Attachment B. On August l2, 1977, the Office of the Comptroller of the Currency modified the rating system to include all national banks rather than only those banks requiring special supervisory attention. Under the new system the examiner rates asset quality, earnings, capital adequacy, liquidity, ownership, internal controls, audit and credit review programs, and external conditions. Taking the·. examiner's·. ratings into account together with any other significant factors affecting a bank, the regional administrator assigns a composite rating. These composite ratings are consistent with the ratings previously used by the Special Projects Division. Examining Circular l59, Attachment C, describes the new rating system. Examining Circular 160 (see Attachment D) detailed procedures to be followed on all banks requiring special supervisory attention. To insure consistency among regions, any 3, 4, or 5 rating assigned by the Region must be concurred with by the Special Projects Division. Examining Circular l60 established procedures for this and https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 377 for changing a bank's rating between examinations. Examining Circular 161 (see Attachment E) modified the procedures to be followed on all banks included in the Special Projects Program. The Special Projects Program now includes: a. All banks with a composite rating of 3, 4, or 5; b. All banks operating under a formal administrative action taken pursuant to the Financial Institutions Supervisory Act of 1966; c. All banks with assets exceeding $2 billion regardless of condition (due to their importance to the national banking system and the nation's economy); and d. Other ba~ks with inherent or suspected problems or potential problems. Representatives of the Federal Deposit Insurance Corporation, the Federal Reserve System, .and the Office of the Comptroller of the Currency have been' meeting to· discuss a uniform interagency rating system. A system compatible with the Office of the Comptroller of the Currency's was tentatively agreed upon and is being tested by the Federal Deposit Insurance Corporation and the Federal Reserve System. This system or a slight variation should be fully adopted and implemented by all three agencies by the end of 1978. See Attachment F. Although the present system is an improvement over past methods, identification and supervisory systems used by the Office of the Comptroller of the Currency will continue to evolve as new ways to attack banking problems are developed and refined. 30-476 0 - 78 - 25 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 378 Attachment A OFF!Cr: PROCoiJt;?.S 1-,\-S -J.- Capital Position - qualitv of Assets - Management. Composite or Group Rating It is desii:ed that the following instructions pertaiaiog to the cocrposite. or grou;. rating of banks and the ratings accorded Capit.l.l, Quality of Assets and Managecent ba considei:ed carefully and placed in use at. once. Range from 1 - 4 Group Ratings: No. l Sound institu.tions in every respect No. 2 Thoae inatit11tions with: A. ll. C. D. Asset veakaassas ranging from relatively madarate ta mad•rat.ely aevera, or ~egli.gible asset problems but definitely underc,apitalized, or UnsatLsfactol:'y management, or A modified combination of these and other weaknaasea. No. 3 Those institutions, which have, in relation to capital protection. an immoderate volume of asset weaknesses which, in view of the (A) character of the asset problems, or (B) !ilanagat:1ent deficiencies, or (C) economic. conditions, or a combination of those and other points, could Teaaonably develop into a situation urgently requiring aid frora tha shareholders or othervise. Banks in this categorv require special attention. .No. 4 Banks rSted No. 4 are those confronted with asset weaknesses of a character and voluma, in relation to capital protection and quality of managament urgently requiring aid from the shareholders or othe:wise and whose failu-re, if such aid is not fo:-thcoming would appear to be probable. These are the serious or hazardous cases requii:iag constant supervisory attention. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 379 C-1:ii:al Position: Range 1 - 4 'rha following factors will be considered by the Co;a?troller in assessing the adec;uac.y of capital: No. l Capitalization adequate in relation to f~ctors: A. B. C. D. E. F. G. H. The The Ths The The quality of managem.ant liquidity of assets history of earnings and of the retention thereof quality and character of o~..mership burden of r.i.eeting occupancy ex?enses The potent:ial volatility of deposit structure. The quality of operating procedures; and The bank I s capacity to meet present and future financial ne&da of its trade area, considering the. competition it faces No. 2 Capitalization inadaquata in relation to factors A thi:ough R~ abova .. No. 3 Deterioration of bank's condition to a point where it is considered hazal:'dous. This normally will include all banks whoSe aggregate. of classified assets is sufficient to ic?ail:' the ca?ital account. No. 4 Capital impaired by losses. QUALITY OF ASSi::TS Qu-Jlity of Assets: Range £1:'om A - D Rating A Good. Ordinarily banks so ·classified ?.1i11 not have an aggregate total of (1) classified ass~ts, plus (2) unclassifi2d speculative bonds, stod,s, and O.R.E., that is in excess of 20% of th2 gross capital structure and the char"cter of the problems in such assets is not severe in t.he,..judgc:ent of the Regional Administrator. An aggregate total some•~hat in exC:ess of 207~ of the gross capital structu-re will not pre.elude an A rating, provided i:h',! .;c,;w..:il or i:,..;;::e:1tial S:?riousness of the proble.~~ in the assets ccnc'=!r~ed i:. re?,.tt:'J:.!d a.:.; relative:ly r.v:iderate. H::r,r':!v~r, if the prima;:y asset problems aro? rl.!g-:irded as severe, or if additio~al problems exist in large linea,. bc:irJ co,1c~:itratio::1s, or a hea·q inv2stc:.-=!:nt in fixed assets,. a less favorable ra !: ing should be used even though th~ ag;re.gate total of primary .:is set ?TObl,'!..tS is les3 than 207. of the zro3s ca?ital structure. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 380 Fair. (1) (2) Instructions, and elasticity to exercise judgment through use of a rnore favorable or less favorable rating, are the same as noted under rating A, except banks so classified ordinarily will ~ have aa aggregate total of: classified assets, plus unclassified speculative bonds, stocks and O.!l.E. "!:hat is in ·excess of 407. of the grosa capital structure. llatiag C ~ - Instructions, and elasticity to exercise judgment through use of a· more favorabla or less favorable rating, are the sama as noted under Rating A, except bank■ so claasified vill not have· an aggregate total of: -· (1) (2) classified assets, plus unclassified speculative bonds, stocks anci O.B..E. ,t:hal: is in excess of the gross capital structure. .!!i..!Q! Rating D Ha2:ardous.. (1) (2) Any bank will be so classified when the total of: classified assets, plus, unclasoifiad speculative bonds, stocks and O.LE. is in excess .!!i..!Q! of the groaa capital structure. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 381 S. Strong or Competent F. Fair P. Poor, Incocapetent, Integrity Questioned. It is desired chat on all copies of the report th• Ca:,ital, Asset and Managemant ratings and group rating be ente-red at the bo::.tcCl of page 3 of the Confidential l!emorandum to the Comptroller of the Currency by Regional Ad~~nistrators (initial opposite rating) as followo: 1.:£::!_ (initials) 3 Assist3nt Chief Examiners will, in addition, sho-., the CapitalJI Asset and Management ratings and grou:, rating on pa6 a l as follows: 2-C-P -3- All re;,orts other than l-A-S or 1-A-F are to be sent to reSpactive Di!.put.y Cmaptroller. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 382 Attachment B SPECIAL PROJECTS RATING SYSTEM CRITICAL Banks so characterized exhibit a combination of weaknesses and adverse financial trends which are pronounced to a point where the ultimate liquidity and solvency of the institution and its continuance as an independent entity are in question. The probability of failure is high for such banks. Usually these banks are suffering from a variety of ills which may include combinations of: A. Mismanagement, arising from ineptness or fraudulent and selfservfng practices. B. Inadequate earnings or loss operations emanating from high loan losses, excessive overhead and operating expenses, deficient asset/liability/liquidity management which has failed to properly match interest-sensitive assets and liabflitie~ in such a way as to provide the bank·with a profitable interest spread and a means to meet current demands placed upon ft, heavy concentrations in non-accrual loans, renegotiated reduced interest rate loans and non-earn f ng forec 1osed rea 1 es-trte, --i111J)rudent or speculative dealing and trading in securities, and the like. C. Inadequate capftalfzatfon measured fn terms of the bank's earnings capacity and retention rate, its growth pattern, the quality of its assets, management capacity, the liquidity of assets, the efficiency of operations, liquidity/liability management, and the bank's capacity to meet present and future financial needs of fts trade area, considering the competition ft faces. D. Poor quality assets, especially when excessive rigidity 1$ prevalent and concentrations exist in assets of doubtful collectibflity. E. Lack of liquidity emanating from an excessive reliance on Interest sensitive purchased funds which have become conffdencesensftive due to adverse financial trends and which have not bee~ properly matched against interest-sensitive assets. Secondary_ 1 iquidity sources through the sale of loans or securities are generally not available to such banks, except at a substantial discount due to heavy concentrations fn low yielding fixed rate securities and loans, their poor quality, or their lack of marketability. F. Other unsafe and unsound policies and practices. The precarious condition of these banks and the attendant uncertafntfes as to possibl~ contingent losses arising from threatened or protracted litigation or from the prospects for further financial deterioration, combine to virtually preclude outside support from existfng or prospective shareholders. Moreover', the traditional remedy of merger with or sale to a stronger institution is obviated by the same considerations and uncertainties. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 383 Such institutions obviously require the most intense supervision and monitoring by the Comptroller's Office. SERIOUS Banks in this category reflect combinations of all or some of the adverse factors noted for Critical banks, except that the weaknesses and financial trends are not so severe as to threaten the immediate liquidity and solvency of the institution. The potential for failure is present but not pronounced. In addition to financial and management considerations, ·banks may also be placed in this category when significant violations of law or regulation are evident, when unsafe and unsound banking practices of policies first become apparent, or when self-dealing practices of officers and directors.come to light. This is true even though such violations or practices may not yet be actually threatening the viability of the bank. Such banks may also ~equire continuous monitoring, supervision and attention from the OCC. CLOSE SUPERVISION This category includes banks that may be experiencing a combination of adverse factors noted for Critical and Serious rated banks to the same or lesser degree than those banks in the Serious category, but they possess certain characteristics more favorable than banks in the Problem Bank categories. These favorable characteristics might include all or a combination of the following: a strong market position with solid fund sources and a diversified asset structure, a strong ownership affiliation, management quality, earnings capacity, and capital protection. These banks are less vulnerable than serious category banks and their strength and financial capacity as a whole is such as to make failure a remote possibility. Nevertheless, certain problems remain and require more than ordinary supervisory concern and monitoring. Such banks have typically identified their problems and have implemented remedial action, but because of the nature of some of these problems, such as depressed real estate conditions, a return to a satisfactory condition is primarily dependent upon the rate of economic recovery or other factors beyond the bank's control. PASS BUT MON !TOR This category will include those banks which the regions are following because the banks may be experiencing minor problems or adverse trends or for any other reasons. Normally banks placed in this category will not have pronounced weaknesses and will not be of undue concern to the OCC. All banks not included in the above categories. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 384 Attachment C () Comptroller of the Currency Administrator of National Banks Washington, □. C. 20219 Examining Circular No. 159 August 12, 1977 TO ALL REGIONAL ADMINISTRATORS AND EXAMINING PERSONNEL SUBJECT: Bank Rating System A newly adopted system for rating banks is being incorporated into the Statistical Data Sheet, Form #CC 9030-21 (revised B/77). Basitally, this ne~ system includes nine categories rated by the Examiner-in•charge and a composite rating assigned by the Regional Administrator, or his designee. Each of the nine categories, except Asset Quality, will be graded as follows: Strong (1), Acceptable (2), Marginal (3), Unsatisfactory (4), or Hazardous (5), through analysis of the various factors listed under each category. The rating for Asset Quality is determined by referencing the percentage of classified assets to gross capital funds to the chart in the attached procedures under II. ASSET QUALITY. A list of each category to be rated is attached with evaluating factors, which must be analyzed in making a subjective determination regarding the rating in that category. These procedures are effective immediately. Since the composite ratings will be used internally and for reporting to Congress, procedures have been adopted to change a bank's composite rating between examinations in an effort to maintain a current data base, Changes in composite ratings should be submitted on Form #CC 9060-05 and forwarded to the attention of the Special Projects Division. These procedures are more fully detailed in Examining Circular No. 160. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 385 OFFICE PROCEDURES RATING OF BAN KS COMPOSITE RATINGS (To be rated by Regional Administrators) The composite ratings from l to 5 as described below will be derived from a subjective determination of the accompanying categories through analysis of the factors detailed. Group - No action: Sound institution in every respect. No action required. Group 2 - Peripheral interest: Those institutions with moderate weaknesses in one or more categories requiring minor adjustments. Group 3 - Close supervision: Those institutions of major interest to the OCC which are experiencing a combination of adverse factors requiring prompt corrective action. Overall strength and financial capacity are such as to make failure a remote possibility. Nevertheless, certain welldefined problems remain and require more than ordinary supervisory concern and monitoring. Group 4 - Serious: Those institutions of vital interest to the OCC wiiTcli7iave unacceptable conditions which could impair future viability. The weaknesses and financial trends are not so severe as to threaten the immediate liquidity and solvency of the institution. A high potential for failure is present but is not pronounced. Group 5 - Critical: Banks so characterized would normally exhibit a combination of weaknesses and financial trends which are pronounced to a point where the ultimate liquidity and solvency of the institution and its continuance as an independent entity are in serious question. The probability of failure is high for such banks, and they require immediate affirmative action to prevent imminent failure. • CATEGORIES (To be rated by Examiner-in-Charge) Each of the categories, except asset quality, will be graded as follows: Strong (1), Acceptable (2), Marginal (3), Unsatisfactory (4), or Hazardous (5) through analysis of the various factors. I. MANAGEMENT/ADMINISTRATION (1 to 5) A. B. C. D. E. F. G. Technical competence Board supervision Depth and succession Leadership, administrative ability, planning and responsiveness Compliance with statutes Adequacy of/and compliance with policies Self-dealing tendencies https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 386 I I. ASSET QUALITY/PERCENT OF GCF's (l to as needed)* Classified % Rating 0 21 31 41 51 61 71 81 91 100 III. B. C. D. E. F. G. B. C. D. E. F. G. H. 7 8 9 10 Classified% Rating -- 11 12 13 14 15 16 17 18 19 20 110 120 130 140 150 160 170 180 190 200 - - 120 130 140 150 160 170 180 190 200 210 Classified% 210 220 - Rating 220 230 etc. 21 22 Consistency of trends and projections Quality and composition Financial planning Adequacy of transfers to the valuation reserve Ratio comparisons to peer groups Coverage of fixed expenses Coverage of loan losses Ratio analysis and peer group comparisons Planning Dividend policy and retention of earnings Ab11 i ty ·to support future growth Willingness to enter equity/debt markets including capacity of present ownership to subscribe to additional stock Ability to enter equity/debt markets Need for dividends by principal owner(s) Need for additional capital funds - today and in the future LIQUIDITY (1 to 5) A. B. C. D. E. F. G. H. VI. l 2 3 4 5 6 CAPITAL ADEQUACY (1 to 5) A. V. 20 30 40 50 60 70 - 80 90 - 100 - 110 EARNINGS (1 to 5) A. IV. - Adequacy and compliance with established policy Analysis of average liquidity Secondary liquidity Volatility of deposits Adequacy of asset-liability management Volume, usage maturity, and nature of commitments Access to money markets, correspondents, or holding companies Reliance and frequency of borrowings to support liquidity OWNERSHIP (1 to 5) A. B. c. D. Composition and character Recent changes Financial capacity Holding Company/large shareholder impact (self-d~aling tendencies) *OAEM is not used in these computations. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 387 VII. INTERNAL CONTROLS (1 to 5) A. B. C. VIII. AUDITING AND CREDIT REVIEW PROGRAMS (1 to 5) A. B. C. D. E. F. IX. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Quality of operations Adequacy of controls Director/Management responsiveness Independence Quality . Adequacy and competency of staff Scope and frequency of examinations Director/Management responsiveness Quality of external audit/credit review EXTERNAL CONDITIONS/FUTURE PROSPECTS (1 to 5) A. B. c. D. E. Local economic conditions and trends Competition Concentrations In economy Consumerism Local reputation 388 XYZ National Bank NAME OF BANK: (Sltaw prior nne and current ■xamlttllian dall.) a a CMAAliR NUMBER: 65. 68 67. 68. CampoSIII Ra!ng .. Management/Administration AssetOuat1tv Earnings ... 69 capit~ Adequacy A a 3 3 6 2 4 4 8 3 3 2 1 70. Liquidity .. . 71. Ownership .............. . 2 2 2 n. 2 3 3 2 Internal COntrols ......•.........•. 73 Audit and credit review p,ograms ..••..••.••..•.• 3 74. External !6 75. Peaptellays .........•..•..•..•.......•... #. 76. Numba, of Cri- Laan Write-Ups ......• : ... • n. e1an1ce1 Band-Base Amount ••••••••••.•••••. s 78. B~ntcet Band-Excess Amount ....•.•....•••• $ j 81. 12USC29 ....•..••••...••...••.•••••••.• 82.12USC60 ...•.•..•..•..•....•••..•.••... 83. 12USC82 .............•................. 84. 12USCB4 ............................•.. 4444 D C 4 4 13 4 3 3 4 4 10 3 3 2 2 2 65 66 67 66 69 70 71 72 2 2 3 3 3 3 73 74 75 76 77 78 79. Number of 511.-..S •••...•.....•...•••• ti 80. Numbef f e 79 # # # # 1 :: :::~::::::::::::::::::::::::::::::: ~ :: ;~:!~ i:m:::::::::::::::::::::::::: ~ 89. 12CFR23 ............................... # :! 90. 12 CFR 217 (Rig. 0) ....................... # :_-_ ~~~==-=- ~ 91. 12 CFR 221 (Reg. Uj •••••••..••.••....••••• # ,___ _ _ __._ __ !j! 92. 12CFR228(Reg.Z) .•.•.•••.••...••.•...•• # 93. 18USC ••.••.•...•..••.••••••.••••••..•• # 94. Bank-.OCompanrAcl .................. # 95.0lher ................................... # 96. C&DO I :J ifi e ;;·i $[-:~- --J - ~~~~bligatiansalinsidffl.etc..•..••••••.•...•.. 98. ObllgatiansafcorparatiOns,etc•...•....•..•... s 99. Obligaliansaralh.,.,etc..•••••...•.•..••...• s 100.1nves1men1s1nstoc1cs.e11:••...•.....••.•..... s .... - . ___ ..... ___ • _ -·· -+------·+·-----! 1·-=--~-:=-----I--~- -~ ~=.:::.- ~~ __ ---···-·- _ . _ -· __ - - · - ____ ·----- 97 98 99 100 11~~~11.2 r. · -1r-r. 1 =:}r~;~~~ d::· -~~~F-- ·: _·:-]: l!!~ INmRECT ~·~;-~··:::.-:.-:::.·::.·::.·.-:.·.-:[-=---___-% --~~=-~..: --,. ~-:..:: %[ --·- --·-u:- ·--·---%[_.__ v::---·- 109. Percent al Insider Loans IO Total Cnticindl.pls ........ : ....•........... .D -·"jl109 110 111 112 113 lli~l~00±"~•••••••••••••••••••••••••••••••••••••••••••••••1•119. Types ol Loons . . • • • • . • • . . . . . . • . . . . . • • • . . • . . . . . . • • • . . . • • • . . . . .•.•...•••.•..•••••••..••.•••••. 1# 114 11$ 118 117 118 119 Terms 1.1Md'" IMIOrftcorrtlPClftd tolftt IOllo'#llitttlrmllDnl n lnllruCtons t o , ~ ortonsahdllld ....,,o,Cul'IGlnonam IIIPDIUat Ir.Omit fotllAIMlt-l.tlltll f0U10tpoS11$-llntZ4 IJrall.Olfls-l.ml!91 NelLOIIIS-Ult!k OirtclLUSIFil\lllClfll-W~tttifonlmll'S-!kneaul!A.1:l!lltl lCf-Su'R0, . . . 31Plll31. Gr.F-S11mllll .... :II 31 lllll'M W-Gt'SflllllllSl!mand~.ort)Juf)lfd 'flltJdtu51911sumolluhlandilltl.~OIDoullllM.llld50'r.OIIWM••...,mOl'ildlullldClflllallvftdl 1 Mollpgn C-'111 Nrlffl. Dlllli!tut11. lie 1 iFIOMlfundsl'llrellalll lllf01.lor""""5lfaln,__Rll.,.,.lani.i!llm11mt1 lie •PurcllllldFundll.SflGltllffflflM'MlolfflOffl'lffllfllll~ IIIClfllforl'llllftplldeMillOc.ap,lalllOlllanl~tlnslOICtflol'lftflllClldt$fllt ..... tOIO'-fWIIII~ ~CM!clll Olllll'_,..lft1ffUll'IIIM11t._Of$'00000 1 fllttltfl91hvldlpo!lll("S01l'lduOl-,ctttrflClftotOIIIOSII https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 389 Attachment D () Comptroller of the Currency Administrator of National Banks Washington, D. C. 20219 Examining Circular No. 160 August 12, 1977 TO ALL REGIONAL ADMINISTRATORS AND EXAMINING PERSONNEL SUBJECT: Banks Requiring Special Supervisory Attention: Rated 3, 4, and 5 Banks. Composite To be currently informed about banks requiring Special Supervisory Attention, it is necessary that such banks be regularly identified and classified according to the severity of their problems. Under the new rating system, banks requiring Special Supervisory Attention will consist of those banks with composite ratings of 3, 4, or 5. In declining order of severity, these designations are: Group 5 - Critical: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Banks so characterized would normally exhibit a combination of weaknesses and financial trends which are pronounced to a point where the ultimate liquidity and solvency of the institution and its continuance as an independent entity are in serious question. The probability of failure is high for such banks, and they require immediate affirmative action to prevent imminent failure. 390 Group 4 - Serious: Those institutions of vital interest to the OCC which have unacceptable conditions which could impair future viability. The weaknesses and financial trends are not so severe as to threaten the immediate liquidity and solvency of the institution. A high potential for failure i~ present but is not pronounced. Group 3 - Close Supervision: Those institutions of major interest to the OCC which are experiencing a combination of adverse factors requiring prompt corrective action. Overall strength and financial capacity are such as to make failure a remote possibility. Nevertheless, certain well-defined ,problems remain and require more than ordinary supervisory concern and monitoring. Supporting Memorandum When an examination of a national bank reveals problems and characteristics which are deemed by the Regional Administrator to warrant assignment of a 3, 4, or 5 rating, the following procedures are to be employed by the Regional Office: A·two-page memorandum to the Special ·Projects Division will be·prepared. The first (narrative) page, OCC Form #CC 9060-04 (Exhibit A). of the memorandum should be divided into these three distinct sections: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 391 IDENTIFICATION AND NATURE OF THE PROBLEM The initial paragraph under this section should ·contain a concise des~ription of th~ specific problems or difficulties causing the designation of the bank as one requiring S_pecial Supervisory Attention as well as the names of those persons who are responsible for the difficulties. Next, discuss the events precfpftattng the problem and gfve an analysis of the current situation as ft relates to the condition of the bank. If appropriate, be certain to include information witb respect to self-serving or othe~ unfavorable tendencies on the part of management. Do not repeat statistical data shown on page two of the memorandu■• CORRECTIVE ACTION Identify any corrective action being taken at the direction of the Board of Directors or the Regional Administrator or otherwise, and list specific improvements noted as a direct result of such corrective action. Include information regarding the Region's plans to monitor the bank's progress through monthly progress reports, to meet with management and the Board of Directors, to conduct the next examination, and indicate in all cases whether action under the Financial Institutions Supervisory Act of 1966 is desirable. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis If a formal agreement or cease and desist 392 action is recommended, do not include specific charges and desired corrective orders; these should be incorporated in a separate memorandum to the Special Projects Division. GENERAL Provide brief information about the bank including location, economic characteristics of the trade area served, recent merger transaction, competition, number of branches, and whether trust powers are exercised. If not discussed under "Identification and Nature of the Problem•, specific information on where stock control is vested, who make management decisions, and an estimate of their capabi 11 ty fs desired. lli l!il sentence of this section should indicate the Regional Administrator's specific group rating, either 3, 4, or 5. If at all possible, the narrative comments should be confined to one page. Page two of the memorandum will be the •statistical Data Sheet" ~CC9030-21 Rev. 8/77) attached as Exhibit B. This will contain the Regional Admfnistrator's composite rating as well as the examiner's ratfngs by category. Washington Office Review/Resolution of Disagreements When the memorandum containing the Regional Administrator's rating of 3, 4, or 5 is received by the Special Projects Dfvisfon, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 393 it will be reviewed by a national bank examiner in that Division. If the review examiner concurs with the Regional Administrator's rating and the corrective measures which are to be employed, he w111 indicate agreement by placing his signature under the· date of his revi'ew. The Director of Special Projects, or his designee, will also sign·the memorandum prior to its distribution. All Group rated 4 and 5 banks will also be reviewed by the Associate Deputy Comptroller for Special Surveillance. If a difference of opinion exists between the Regional Office and the Special Projects Division regarding the rating or the anticipated corrective measures, the Regional Administrator will be contacted by telephone in an effort to resolve the matter. If agreement still cannot be reached, the matter will be brought to the attention of the First Deputy Comptroller for Operations for ultimate resolution. The final decision regarding the ratings and corrective measures rests at the Washington level. Change in Ratings Between Examinations If the condition of any ba~k changes significantly between examinations, a change in the composite rating can be made by the Regional· Administrator using OCC Form #CC 9060-05 (Exhibit C). The Special Projects Divfsion, after consultation with the Regional Administrator, may also initiate a change in the rating. The narrative comments should be very concise, citing a brief history of the problems confronting the bank, their causes, and the favorable or unfavorable developments which warrant a change 30-476 0 • 78 - 26 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 394 in rating. The form should be mailed to the attention of ~he Special Projects Division for review with any differences of opinion to be handled as noted in the preceding paragraph. Record keeping lt will be the responsibility of the Special Projects Division to distribute memoranda prepared for composite rated 3,. 4, or 5 banks and to maintain records of banks requiring Special Supervisory Attention, which will be considered confidential material. A computerized list of all composite rated 3, 4, and 5 banks will be provided the Regions on a monthly basis, together with a 11st of rating changes during the month. It will be the responsibility of the Regions to ensure that all data, memoranda, or other correspondence relative to the conditions of banks requiring Special Supervisory Attention be routed on a timely basis to the Special Projects Division through use of the "Priority" routing stamp presently in use. Regions should also certify the monthly list of 3, 4, and 5 rated banks to their records to determine that all reported changes have been recorded. Errors or omissions should be reported to the Special Projects Division. Quarterly Summary and Update An updated analysis of each composite rated 3, 4, or 5 bank will be provided by the Regional Administrators within thirty (30) days of the end of each calendar quarter. 0CC Form #CC 9060-06 (Exhibit D) should be used for this purpose and should be forwarded to the Special Projects D1v1s1on. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 395 A response should be made to each item in the printed portion of the form. The "Remarks"should include a concise explanation of the problem, an earnings update, a list of the positive corrective actions being taken to effect improvement with special emphasis devoted to those taken since the preceeding summary. In each instance, the need for formal action under the Financial Institutions Supervisory Act of 1966 should be considered. Input from all relevant regional staff members and the Regional Administrator's personal knowledge must be utilized in the preparation of the Quarterly Summary and Update for 3, 4, or 5 rated banks. The quarterly NBSS review must be coordinated and scheduled to permit the inclusion of the latest data in the Regional Administrator's Quarterly Summary and Update of 3, 4, and 5 banks. (e.g., A BPR as of 6/30/77, received on 9/15/77, ~ust be reviewed and its results incorporated in the Quarterly Summary and Update due within thirty (30) days of 9/30/77.) Copies of the NBSS Quarterly Review Memos on 3, 4, and 5 banks need not be sent to this Office. The Regional Administrators and the Special Projects Division will review each of the banks rated 3, 4, or 5 at the end of each quarter to determine whether or not the ratings should be changed. If any of these banks requires a rating change, OCC Form #CC 9060-05 (Exhibit C) should be completed and forwarded to the Special Projects Division within thirty (30) days of the end of the calendar quarter. Quarterly statistical aggregates will then be compiled https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 396 by the Special Projects Division for both internal use and public release at Congressional hearings. Enforcement and Compliance Policy It will be the general policy of the DCC to take formal enforcement and com_pliance action in the form of a cease and desist order or an agreement under the Financial Institutions Supervisory Act of 1966 on all banks rated 4 (Serious) or 5 (Critical). Exceptions to this policy may be appropriate depending on circumstances germane to a particular banking situation. However, be- fore formal enforcement action is waived by the Regional Administrator, the concurrence of the First Deputy Comptroller for Operations must specifically be sought under the following procedures: A. The Regional Administrator will generate a memorandum to the Special Projects Division, stating the reasons why a formal enforcement action is thought to be inappropriate, and indicating what alternative remedial supervisory action he intends to take. B. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Enforcement and Compliance Division and the Special Projects Division will review each request for an exception to the general policy and make their recommendations to the First Deputy Comptroller for Operations. 397 c. The First Deputy Comptroller for Operations will make the decision as to whether or not an exception to the policy should be made. For banks rated 3 (Close Supervision), the OCC general policy will be that formal. action under the Financial Institutions Supervisory Act be considered. If formal action is waived by the Regional Administrator, informal action using one or more of the following forms is suggested: an informal letter agreement backed by a Board resolution. a Board resolution, the substance of which has been requested by the OCC. an informal letter agreement acknowledged by the Board of Directors. a one-time report from the bank which addresses the major deficiencies set forth in the examination report and/or in correspondence from the Regional Administrator, and the bank's plan to correct same. a monthly, quarterly or other periodic report filed by the bank on the progress made in correcting the deficiencies as outlined in the report of examination or in other OCC correspondence. Conclusion In summary, the procedures just described are designed to ensure that banks identified for Special Supervisory Attention are receiving appropriate internal review and monitoring by the OCC https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 398 and that appropriate formal and informal remedial measures are being sought and implemented. While input from the Regional Administrator is basic and primary to the rating process, the final determination of ratings of banks requiring Special Supervisory Attention rests at the Washington level, where additional benefits may accrue .from a detached viewpoint, systemwi de perspe_cti ve, and ·standardized criteria. The lists, memoranda, and related data are solely internal working documents and are to receive the utmost in confidential treatment and security. It is recognized that the Regional Administrators may be presented with supervisory problems by banks which may not exhibit sufftcient financial or managerial deficiencies to warrant assignment of a rating of 3, 4, or 5. The Regional Administrators may, if they wish, maintain for their use a Regional watch list to such banks. \ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis omptroller 399 RANKS REQIJirr:;r; Sl'F.CI:,L sm·,:Rvr,:o:{'{ ATTENl'ION (Group Rated 3, 4, 5) EXHIBIT A N,\HE OF SANK ___A_n~y_B_a_n_k_ _ _ _ _ _ _ _ _ _ _REGION NO. _u.._Ct!ARTER NO • ..lll_ __ CI"rY_ _ _ _ _""A~n..__C"i"t=_ _ _ _ _ _ _ _ _ _ _ _STAT£_ _A"n"y'-'S=-tccacctccec..__ _ _ _ _ __ co:-:-r:.,:Ts , Identification and ~ture of Proble::n lbe unrealistic policies of a self-servir.g a.-mership/:rumaganent ha.ve resulted in an excessive volur" of classified assets, heavy loan charge-offs, imcleciu.>te capital, 8Pd the lack of a&,q-..iate provisions for liquidity. Subject became a matter of supetv;.so,:y concam f o l ~ the purchase of Sll of outstanding stock by Chai.man John L. Smith a:,d Presid""1t llenI}' J. Jones in October 1973. Dee to their liberal lending a.-,d lax oollectiori policies. classified loans increased to tha point ,.here close supe<Vision status was applied folJ.owi"6 the Sept<nber 1974 examinatio:t. Sina! then, the trend to deterioration has continued and loan losses of signifiCMt proportions have resulted. l..oBns have beeri granted without re3ard for the credit-,.,,rtlJ.nass of bonowers or adequate security and without repayment pror,rar.is. Il:,cozentaticn is -..nolly inadequate and violatiotlll of l,r~ are a continuing criticism. Reasonably acceptable gross earnings have been dissipated through loan losses, payment of excessive sala,:y, bonus, and expense allowances to Messrs. Smith a.'>d Jones, and unwarranted, unearned cash dividends. liquidity presents a potentially serious problan. Frequent use of bortaWII!(! finis has been necessary to si.pport the unusually high loan volu:ie. The securities portfolio provides only minimal support as a seoonda,:y :reserve due to a latge ~"lune of long-teim f.ssues and large depreciation. Chai= Smith (46) and President Jones (40) ca,pletely dao:lnate policy foxmulation in thoir role as p:irt-t:lme officers. Exec•Jtive Vice President Ja:es R. Grey (55), am,aging officer in name only. possesses limited ability and is ooapletcly subservient to the wishes of ooiaers~.ip. Junior officers are no better than mediocre. Tne other directors have been indifferent to the situation. Corrective Actia\ Previous meetings w-ith the Jirectora:. pc::icdic c.i3dnor '\'isitat.i.ons and required progress rlilporcs fru.n the bank have not prodoJCCd the desu-ed results. Tho undersignad reoonrly net wi.rh the directors again, but due to th~ cbninance and cavalier attitude of Smith and Jones, little was accooplished. Accordingly, a recor.ill>rldation for formal enforCEOll>rlt action is beir.g forwarded at this date. General Subject opened in 1951, h£S not been :Involved in any nmger-type transactions, is 110t eq,owered to act in any fiduciary capacity, a.'ld has no branches. ~titicn is provided by a loca 1 bar.k of similar size and there are four other banks within a 10-mile radiua. 1'he eCO<ICO!Y of the trade area of s""1e 10,000 persoas depends largely upon li""stock production, bu!: :resort activity in the area is becan!ng r.ore ilrportant. The continued deterioration in the bank• s oond:ltiori as well as the um,l.ll:lngness and :Inability of u:aru,genent to effect inprovements justify assignmant of the Serious Rating. By: _ _ _ _ _ _ _ _ _ _ _ __ ~1i'ona~trator (Date: June 14, 1977 ) Special Projects: Concur: _ _ _ _ _ _ _ _ _ _ _ _ __ c.oncur: "'Jr-..,--,.,-s""'H""ave....,,hear.--t,------t.'BE-Special Projects (Date:June 21, 1977 ) d~e~'special Projects (Date: June 21, 1977 ) Il~_Q}~: (l) This merora.-,...-\m should be coo;,leted and for-..arded for all banks rated 3 .4, or 5 at the conclusion of each ex.'.l.-:tinati?n. ecrn,..,_~ts should be 1r.,de uncLar the folla.,uig hoadin:;s: Jdentification ..md K1ture of Pcobl~s. C.On-ective /..c.tion, and General. If addi.ticna.l space 1s n~e.di~l1::.;e reverse s1.~"See l::.~~CLrcu1ir No. 7 . ~ (2) fotward to, o.-,.,,;,troller of the 0.r.,rency. Attention: Special Projects Division, W:1sh.iJ-6tc..-:1. D.C. 202l9 (3) llae "HU0RI1"t"' rc,,Jting st::n,p. occ ,onn /j fc~ ~:'.9~ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 400 STATISTICAL DATA NI.MF Of 8,'.,~iK _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Fk-CIOfl NQ. _ _ CHI.RTER NO - - - - - - - - - - - - - - - - - - - - - - STATE _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ A. CONTnOLUNG O W N E R - - - , - - - - - - - - - - - - - - - B. PERCENT OWNERSHIP-----C. C ►IA!'JGE IN CU:HROLUNG 0\', ~~EA LAST 12 MONTHS YES O rm o 0. DATE CHIEF EXEr.UTJI/E OfFICER APPOINTED_ 1 _ 1 _ CITY • m (Show prior three an::I c~rr.:r.l uz:mi:tall:n l!31a) • D C A D Th..,_,...,_,_•• "'°"'..... ... ,,........ 1. T~-pe ol EuminJl,on 2. 02.!e or Examinal.on . 3. Nime of harm,,er . ......,....... , _ _ _ _ _ ckllll,r9 ,._ ~ . .• $ 1 - - - - - + - - - - - + - - - - - - - + - - - - - - - - < . ........ S t - - - - - + - - - - - + - - - - - - + - - - - - l 4. lotalAss!IS. 5. Total Deposits . . .. S t - - - - - + - - - - - + - - - - - - + - - - - - - l !~: Net Loans . Direct l6ase Financing . GrossCapi~ f\Jnds (GCF) Tolal ~:;;!:JI Funds (TCF).. :~s~ee~;~~t=~~~ I~) . . 12. 13. 14. 15 16. 17. 18. Loans am:f Oirl?CI Le~ F,r.ancmg x TCf.. . .. x . - - - - - - + - - - - - - + - - - - - 4 - - - - - - - '; . ..... X t - - - - - t - - - - - - + - - - - - 4 - - - - - - . . . . . ; Total Asse!sxTCF... Nellains & OirectleaseF"1113ncing.'l'ot310eposits .. %' 1 - - - - ~ t - - - - - " ' t - - - - ~ " 1 - - - - - - - ' l .... s t - - - - - + - - - - - + - - - - - - + - - - - - ; Subsranda,d .. .......... , '' ' 1 - - - - - + - - - - - + - - - - - - + - - - - - - - < Ooutitfu! . . ............. S t - - - - - t - - - - - + - - - - - - 4 - - - - - - - ' Lou . . .... S t - - - - - + - - - - - + - - - - - - - + - - - - - - - - 4 Total C!ilss,f:edAssets.. 6. 7. 8. 9. Ne! ,. . . . 19. Class1liedAsstlS/GCF,, ~ .. . -----------~ . . '-1----~t-----" . .' .· - ~ t - - - - ~ t - - - - - " ' t - - - - - - - " " 1 - - - - - ~ . .........1--------''t-----''I- ------· ---------, 24. RPLUl!'lal Loans.. ...J..._ _ _ __. . 25. Loans Not Supported~ Curr111t C,. Info. . . . 26 Loans Nol Supported by Currem Cr. Into.I .% Gross Loins 28. Overdue LOll'\S'Gro,s LOins 2:J. Non-Accrual loins . ,.,. ........ S . ....... '- . . ,. 34. Net Liq1,11d A.isetSl'Nd Otpaslts lS. Direct or Indirect llt'lestimnt tn FA.ACF ....... ,_ .S 36. Stindby Leners ol Credi! . . .. S 37. Customer1L1abllltyonAceepta1"1Ces .S 38. Borrowings- Term Debi'.. ......... S 39. Botrowings-Purehased fur.dsi 40. Numblf of Days Net Borrowtel Lasl 12' Months' .. # 41. R311 Sensiltv1 Deposits (RSO)S11olal O~sitS . , . % 42. RSD plus Purchased fundslTotal DePOs:ts ptus . ... , . . . % Purchased funds . (S11ow IHI lhle1 lull cnltndar y1111 lrom Cr:nsolil!:ttsd Reporli ot lncom1 a.,d la!est inl•~m ticu111 nallabli- durini eaamirwlon) Income . 44. Optraling Expense . 43. Operaltng 45. 46. 47. 48 49. Income br,fore Inc. Tu & Sec. G&L . Applicabfe ll'lcome Taxes . lnco,ne before Set. G&L Secunfy Gains (Lossis) Net. Etc Net Income . ~- Add: Provision tor Possrble LO¥t Losses . 51. Add: Recoveries to RPLL 52. Less·.Los-ses Charged to RPU 53 Actiuste(I ~et Income . 54. Less: 0:\!1dands 55. Retained Earn,ngs . . . ,. s s s s s s s s .$ s . ... S s s 56. Relt!m on A'weraoe AsSl!IS ,~:BSS R~port) . . . ... PAY~E!HS, O!~tCT OR INO!nECT. BY SHU( l') THE P,\RENT o/o HOLD!::0 CC :.-1?1.flY ANO ITS AfflU,\iH tC::CLUOl PAYMENTS TO SUBS:Ol.MH$ OF lliE fiEr'Oi\TIN~ 6.U~ft) I ,. a ----..i 25 26 .,.,' 2726 . •.1 30 ... .,. ... ..,••! 34 ' 38 . . I 29 i 3, I 32 °'1' 33 35 36 I 37 .,. C ... '• 39 ' 40 41 42 D ffif'.'"·--..--.;, 1•1 43 44 45 46 47 48 49 so ,. . . . a 1•1 1•1 C 19i 51 52 SJ •. ' D';iio I'""1ny7r -- . ... s Fees ror computer servie~ . S 01tie1 service fee:; Ovcrtie:id th1r1Jes lot m:tnaJem,nt services .... S . ..... S Ll!a.se P.ryff,t'fllS . .S fi2 PiYmi:?nt'i tw income lilX l1;1b,!1ly . S 63 Ai? Ott-.~r ... S 64. To!:tl r.iymcn1:;. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ,a 19 20 21 22 ... 197 197 .$ 58 59. 60. 61. ... ,. ,. %1 ~ . .. tr. .. S 30. Hem-Accrual L0.111s:Gross Loa.is . . 31. Otller Real Estate Owned ... · ,. . , .. S ... ¾ . ...... S 27. Overdue Loans . 12 13 14 15 16 17 .. .. . -ir--------.j !! . . s______.._____.,__;...___ +------:+-----""' ,. .. ·.. ~1------=-+-----:: ,.: g1::,GCF ~: :::~;01 Possible Loan Losses tRPLL) 32. Bond Oepreoahon 33. Bond Oeprtoalion/ACF . 6 S1-----+-----+------+------l 1 ....... ' t - - - - - t - - - - - - 1 - - - - - 4 - - - - - - - - - 4 8 . .. $ 1 - - - - - + - - - - - + - - - - - - - + - - - - - - - - < 9 10 ___ ~: ! 1 - - - - - t - - - - - , - t - - - - - - + - - - - - ; 11 . ..•..•.• ·- ·- ·- 54 55 56 ,, 58 59 60 6' €2 r,3 ,;., 401 N•MEOf DAtlK - - - - - - - - - - - - - · - - - - - - - CHARIERNUUBEII _ _ _ _ _ _ __ l~H prior tr.rn Jnit c11mlll nemln:i?I~ dst.1.) D 65. Compo;.U• Rcting 65 66. Managem!nl;A~1mstrabon .. 66 67 67. Asse!O:J.llily 68. Earnmcs 69 70 :.i : ~.::..,"'"'""" 71 71 0hn!lship. 72 72. lnterl'al Conlto!S . 7J 73. Audit and credit review praorarns . . . 74 fxt:rnal Condrt'On"''fu'"" Pro"'"!,.."' . 74 75 People DiYS, . . . . • . • . • . • ti 75 76 76. Number of Cr:ricaed Loan Wr1le-Ups... . .. # ~ n B1anllet Band-SilS1Arnoun1.... . .... s.t-----+------+------1,--------' 77 78 t> 78 Blanket Bond-Excess Amount . . . ... 79 ~ 80 81 81 12USC29.. • 82 82. 12USC60 ..... •t-----+-- ----1---"-I---• - -·-. 83 -cc- : ::~~: •• :: :: 84 8S 85. 12USC371d. 12USC371c '!,. 86 . ....... ....... • 86 87 ... i :::::::::e~;:d--~~-~~:: . t-----+-----+------4------1 $.t-----+-----+-----1~---'-~ :t-----+-----+-----1'-----~ - :t-----+-----+-----lf----~ ~ ~ : ;~ ~~ !~~ ~ 89. 12CFA23 8 CFR . I :! :: ~~ ~~ ::: ~: 90 12 CFR 217 (Reg 0) . : •1-t-:::::::::t:::::::::11--_-:_:::::i~:::::::_~-l . •. : : : : : ~t-~--==::=_-==--==--t ⇒=--==--==--==--==--=;+--==--==--==--==--=~-l-==--==--==--==--=::j-l .. 11 . ..... • ::::·:: t------+------+------1------1 ~~ CompanyAcl . : : ~~~Orcte~OfA ~eements. ~ 97. 98. 99 100 r.:i ~ !J ~ c:: · · · · ·: :t-----+-----+--,-----4------l Obbgiti:>ns of o:hers. etc ... ln11es.tmen1s 11'1 stodr.s. etc. U:DlftECT 101. 01>!lgat1ons ol 111slClers. e!c. 102 Obllgalions cl COfl)OrallORS, elt. _g 103 Oblioati.:ms ol others. etc 1:5.; 104 Investments in s!OCkS, etc. ..., e. 105 Subtotal ~ I;; 106 Less Duplications belween Direct and Indirect ~~ 107 Total 108 Pen:em ot GrosSLoans ..• 109. Percent of Cr1t1azed Insider Loans to Tolal Crltiaz,d l0MIS . 5~ ti Si_ - Interest Income . Interest Expense Grossloanlossn. Ownersl'l1pand Management. Hok1ing Company Operations 118 Capga!Slructure 119 Typ5ofloans .. . '1',,1 "' 2: ... 113 fi~}1114. a"->8115 If[.!? 116. ~ ~ 117. :z.Zu "'a 109 ........ ·•·· .......................... "1------l 110 ..::::::::::::::::::::::::::::::::::::::~-- !~~ ··············••···········•··•·········•1------l"J .................. :::::::::::::::::::::::::: :1------, ~~: .... ·····::::::::: ::::::·:··::::::::::::· =~=========~ ::; ................... •t------, . .............. ~~: . Tt••"S ~Rd ,n lho~ 111111' co,rn11ollfkl llll lollll•"'O 11t•.,......,, :ft l"!ol"~Cl!>~S t;:i, P,~•11-.,n 111 ~ ~ S e i t c ~ ... """""lllntQl'llf lr..tfi;tl!i (I?•·~\••~ • contoM'~""l\,I""".,,,. 1,;o:rr\ r..•~i.l'I';"'~ l1nt1!:. rJ•.rO.:,,,i.K -l•~!2:r,z:~ ~~•L:i"I L•~P9• ~lea'!S l,,,..9,; 0.,.-0L_,...il!Clllg 1-•i')! 1•>111: i;tl ., Sur,olln<'SJI J7 ••·!'Jil A":1 c:;:1 ~r,,;ICl~ti••:"1 l--'Dill,11!.. I•~ ~,.Mn• s,,:i•,r ..."1Nl."1 , ot [)nulllb;l ;v,,1 !ill, ,,1 CACY I~ I:,•:•·• rt,l",.,\1 '1l U~•HI fur.fl, ~~t:~s~~~!~~;): !"~:; :~~;~7c;~~~~:;:~;'~~-~~;:~; :!~:.! !::--;.:~::.~.~ 5 .::.;~:!:,~:~ht!!<.,)()~••~ fol9J1 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Cllh.df f11Y ttfto!,,.I'! 96 llJ- J L-Ll~ I;:~ ~ 110 Local Economic Conditions (Bank's Domestic Trade Aru) 2 en° 111. Expected ct:ange in total resources in next 12 monttts . ~ !:? 112 Expected char.ge :n assel d1strlbullon In next 12 mos. 5 95 Jt--1----· ---4--- -··±+-8,~ Oblioations or ms:ders. etc Q!)flgalions of coroornuons. etc. GI ~S ! 92 93 : :t------+------+------1------1 94 DIRECT ,c 88 89 90 91 ~1,,~.,.,ld SJ,~\ ;•1"1•!1Cr.• ¥'1 r.-.i ~ ftMf'l'>..sl ,.nrtOGrnssl,•.1111 ~ O'fl!I' \ . I ~ • ~ \ ~ el $!11'flll0 ,.._ 9¥S• 117" ,,,.. .... ~ S,ct,t,1, .... A l:f'"ooll l('f ,~ ·~•..U ~ ~-~ ~: ,, •• " s,,... ,, 402 EXHIBIT C RATING C!!A.'lGE HE:-.ORANDL:t Any Bank NAHE OF BAl,K CITY An Cit REGIOll NO. _l_5_CHARTER110. _9~9~9~-STATE Any State (Show Prior Three Examination Data) Date of Examination Total Assets Rating 12-10-75 9,150 3 7-15-76 9,540 4 1-25-77 10,560 3 Present Rating: New Rating: Dominance and self-serving practices on the part of former directors and cont!."ol owners John L. Money and Henry J. Longterm brought a burdensome volu.~e of adversely classified assets, charge-offs, inadequate capital, and a tenuous liquidity posture, requiring a Cease and Desist Order in early 1976. Subsequently, Money and Longterm sold controlling interest ·to a local group, who brought in competent management, injected capital, and cleaned up the bank's asset condition. Monthly visits since previous examination indicate subject has retumed to a reaso~ably acceptable co~dition. It is recommended that the rating be chanbcd from a Close Supervision status to 2. Special Projects: Concur: _ _ _ _ _ _ _ _ _ _ Concur: John Mf.x Ni!E-Special Projects (Date: June 4, 1977 Ja.-ues Nix Director, Special Projects (Date: June 4, 1977 ) Il!S"!i'.UCTIO':S: (l) C:OC.,lcte and fon.-:ird this form for any ~site rating change between examinations. (2) For.-ard to: (3) t'.oe "PRIORITY" routing Sl:.-"'"11p. em.;,troller of the Orcrcncy, Attention: Division, Washington, D.C. 20219 rec ,o:n t• cc 9060-05 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Special Projects 403 EXHIBIT D QUAR'!:ERJ.Y SUM~IARY t..'ID U!'DATE BANKS RJ::QUIRrt:r, SPECIAL SUPEII.VISORY ATTEliTION .(G::oup Rated 3, 4 or 5) NAU£ OF BA.'IK._ _ _An..,,,_y~B,~a.,n,.k_ _ _ _ _ _REGION NO. ____!LCl!AllTER R0._..,.6.::c66.::c..._ __ CITY Any City STATE. COllTROLLlNG OWNER Joe Jerk/Harry f'leece Any State PERCENT OWNERSHIP_ _,5'-=2:.::~'-----(Show Prior Three E,._j.nation Data) Date of Exam Total Assets Rating Formal E & C Action Quarter Covered: 12-15-76 12,f49 reernent First Quarter, 1977 1977 ''REHABS'• Nature of Problem Dominance, laxness in lending and collecting, and salf-aerving practices an the part of two directors who acquired control in. late 197:) brought an excessive volume of adversely classified assets, significant loan lasses, inadequate capital, a concentration of low quality insider loans, and lack of liquidity. Earnings Bank has had three successive years of loss operations. During 1976 losses aggregated $70M further straining the capital situation. First quarter 1977 results are unavailable but an e1<amination in progress indicates substantial addition3l losses will be taken in the second quarter of 1977, which may well jeopardize the bank's ability to show a profit far the year. Corrective Action/Outlook The bank has not adhered to the provisions of the Agreement entered into after the last examination. Cease and Desist Action is contemplated at che cunclusion of the current examination. • By: _ _ _ _ _ _ _ _ _ _ _ _ _ __ ~~tra= SPECIAL PROJEC1'S AOinlDlM: Reviewed April 20, 1977. Enforcement and Compliance alertecl. Preliminary draf· of Cease and Desist Order is in process. INSTRIJCTID.'<"S: (1) · o:r.,plete on each bank rated 3, 4 or 5 and fo=d within thirty days of the end of each calemlar quarter. Rr.m:trl--.s shoc:ld b n-,ide I.Cider the following headin;s: Nature of Probl~, ~ . and Correcth-e Action/O~tlook. See El<amin:ing Circular~. (2) (3) occ forY,,rd to: °"'l>troller of the o~rr~::tey, Attention; Divh=ion, Wash:il".gton, D.C. 20219 Use ''PRIORITY'' rnuti.n~ s tclr.;>. farm t• CC 9060-06 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Special Projects 404 BANKS REQUIRING SPECIAL SUPSRVIS0RV ATTENTION (Group Rated 3, 4, 5) NAME OF B A N ~ - - - - - - - - - - - - REGION NQ, _ _ _ _ _ CHARTEll'lll~------ CITY _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ST,;,.___ _ _ _ _ _ _ _ _ _ _ _ _ __ COMMENTS: R_allng: □ By:--------------Regional Administrator (Oato: ) Special Projects: Concur: _ _ _ _ _ _ _ _ _ _ _ _ _ __ Con~r. _ _ _ _ _ _ _ _ _ _ _ _ _ __ NBE-Special Projecls Director, Special Projects (Dato: (Dato: ) ) INSTRUCTIDIIS: (1) Thi~ memQrandum ~hould be completed and forwarded for all b:m!(.s ratad 3, 4. or 5 at the concfusJon of eadt examin3tion. Comme:lls sh•Juld be made under the following heajhnes: Identification and Nature of P,abJsms, Corre"ctiva Action, and General. If add,t;ona! space is r,cedad use reverse side. Saa examining Circular No. 160. (2) For-11:ud to: Comptro!ler of the Currency, Attention: Special Projects Division, Washing~. O.C. 20219 (3} Uso "PRIORITY" rouling Sl3mp. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 405 RATING CHANGE MEMORANDUM NAME OF 9AN.__ _ _ _ _ _ _ _ _ _ _ _ RfGION N O . - - - - - CHARTER NO. _ _ _ _ __ CITY ST~.u,_ _ _ _ _ _ _ _ _ _ _ _ _ __ (Show Prior Three Examlnallon Data) :?!~~i~~~i:~::::::::::::::::::::::::::::::::::::::A::::::::::::::::l:::::::::::::::f:::::::::::::::I Present Rating: NewRating: 0 0 COMMENTS Regional Administrator (Date: ) Spoclal Projects: Concur: _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Con~r. _ _ _ _ _ _ _ _ _ _ _ _ _ __ NBE- Special Projects Director, Special Projects (Date: (Date: INSTRUCTIONS: (1) Complete and forward th;s form for any composite ratir.g change between exam!:,ations. (2) FoMard to: Cc,l"plrol:er of the Currency, Attention: Special Projects Division, \Vashir:gton, O.C. 20219 (3) Use "PRIOR:TY" rout•ng stamp. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 406 QUAnTERL:V sur,mARY ANO UPDATE BANKS REOlllRiNG SPECIAL SUPERVISORY ATTENTION (Gruup Rated 3, 4 or 5) NAME OF BANK _ _ _ _ _ _ _ _ _ _ _ _ _ _ REGION rm. _____ CHARllcR NO. _ _ _ _ __ ~N _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ S~n,_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ CONTROLLING OWNER _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ PERCENT OWNERSHIP _ _ _ _ __ (Show Prior Three Examination Data) , Date of Exam •..•••••••.•.•..••.••••..•••••.•••••••••• • -t ·........... ,.--i-·...............,........... ,.... t Ouarter Covered: Date Prep31ed; ~i~~:-~~~i~:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: "REMARKS" By;-------------Regional Adm!nis!rator SPECIAL PROJECTS ADDENDUM: fNSTRUCTIONS; (1) Complete on each bank rated 3, 4 or 5 and lorward within thirty days of the end of each calendat quar!e< Rlmarks olloUld be made under the following hc~ngs: Nature of Problem, Earnings, and Corrective Action/Oullook. See Examinit)g Circular No. 160. (2) f:orward to: Comptroller of the Currency, Att9ntion: Special Pro;ects DivtSion, ~•'ashlngton, O.C. 20219 (3) Use "PRIORITY" routing stamp. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis cc- 407 Attachment E () Comptroller of the Currency Administrator of National Banks Washington, D. C. 20219 Examining Circular No. 161 August 12, 1977 TO: ALL REGIONAL ADMINISTRATORS AND EXAMINING PERSONNEL SUBJECT: Special Projects Program On May 8, 1977, the Special Projects Group, Bank Review Group, and elements of the NBSS Action Control System were reorganized under the name, Special Projects Division. The primary purpose of the program remains unchanged. That purpose is to identify, for special supervisory attention, those banks demonstrating characteristics which have seriously weakened their overall conditions, and particularly those banks which have liquidity, solvency or other problems which threaten the future viability of the institution. The Comptroller has taken a personal interest i,n this program, which is designed primarily to keep him informed. Effective and timely communication, either written or oral, from the regions to Washington, and vice versa, is the key to success. Cooperation is essential. For the first time all banks with assets exceeding $2 billion will be assigned to the program regardless of overall condition. This will enable the Washington Office to keep current on substantive developments affecting these multi-national institutions, which are vitally important to the nation's banking system and the world economy. In addition, all banks assigned a composite rating of 5 (Critical), 4 (Serious), or 3 (Close Supervision! under the new rating system will automatically be included in the program. · In addition to the staff of the Special Projects Division, the staffs of other Washington and regional divisions and groups must participate in the Special Projects Program. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 408 Other minor changes to the Special Projects Program have been set forth in the attached revision. Please note particularly that the Special Projects/Bank Review Analysis Sheet has been replaced by the Statistical Data Sheet (CC-9030-21). This data sheet should be completed to the extent possible and attached to the SP memo in connection with all general, specialized ~nd special supervisory examinations, or any other visit which includes a credit review. You are reminded that once a bank has been assigned to the program a SP memo and statistical sheet must be completed and forwarded at each subsequent examination or visitation, regardless of the level of classified assets or improvements noted. This procedure should be followed until such time as the bank has been officially removed from the program, in accordance with procedures set forth in the attached instructions. Regional Administrators should take care that procedures are in place to assure the timely processing and forwarding of examination reports and other data and memoranda pertaining to Priority banks. In this connection, it is essential that such data be marked with the word "Priority" if expeditious handling in Washington is to be assured. It is our hope the changes just described will enhance communication between the Regions and the Washington Office. All Priority banks, large and small, and all banks assigned to the Action Control System will be followed by a single division. This should greatly reduce the number of individuals in the Washington Office the Region will have to contact regarding banks requiring special supervisory attention. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 409 SPECIAL PROJECTS PROGRAM PARTICIPAIITS: Regional participants will include the examiners who conducted the examination of banks subject to tha progra ■ as wall as the Regional Administrator. his deputies. or other dasigna••• In Washington. reiponsibility for banks in tha progra ■ will rest with the Special Projects Division. whfch will consist of a Director and a professional staff of natfonal bank examfnars. Overall supervfsory responsfbility for tha Spacial Projects Program wfll be vested fn the First Deputy Comptroller for Oparattons, with primary admtn1stration delegated to the Associate Deputy Comptroller for Special Surveillance, Other Washington Office staff participating in the progra ■ on a full or part-time basts include those of: 1. The Enforcement and Compliance Group. 2. All divistons of Bank Operations. 3. The NBSS Division and 4. The Securftfes Disclosure Group. CRITERIA: The primary purpose of the program is to identify, for special supervisory attention. those banks which demonstrate characteristics warranting closer review or which have liquidity, solvency, or other problems which may threaten the future viabflity of the bank. The following criteria will be used to determine banks assigned to the program: 30-476 0 - 78 - 27 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 410 A. All banks with a composite rating of 3 (Close Supervfsion). 4 (Serious), or S (Crftfcal). B. All banks operatfng under a-formal written agreement or a Cease and Desist Order. C. All banks with assets exceedfng $2 billfon. regardless of condition. D. Banks will be designated by the Regfonal Administrators when, in·their best judgement, the qualfty of assets. sufffctency of earnings, ability and .depth of manageNnt. capital adequacy and other factors militate for inclusion in the program. In addftion. all banks having critfctzed assets (lOOS substandard, SOS OLEM, SOS doubtful) aggregating 6SS of adjusted eapttal funds will be reviewed by the Regional Administrator for p_ossfble inclusion. E. All banks having crfticfzed assets (as defined above) aggregating 6SS of adjusted capital funds, and·not designated by the Regions under A, will be reviewed by the Special Projects Dtvision for possfble i~clusion in the program. F. Using the same criterta or adcl.ftional c_rfterta as may be developed, the Banking Operations, Special Projects. and NBSS Dtvisions may designate addftional banks for the program. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 411 REMOVAL OF A BANK FROM THE PROGRAM: When a bank no longer meets the criteria as described above. or in the opinion of the Regional Administrator the bank no longer requires special supervisory attention, the Regional· Administrator should submit a memorandum to the Special Projects Division recommending removal of the bank from the program. The de~isfon on such recommendations will be made by the Special Projects Division, subject to a review by the First Deputy Comptroller for Operations and the Associate Deputy Comptroller for Special Surveillance. The Division will retain the option to delete a bank from the program. COMMUNICATIONS: Written: All reports of examination of banks assigned to the program, as well as those recommended. will be marked with the word "PRIORITY.• In addition, letters, memoranda or other data pertaining to problems or the correction of problems. or matters of substance in the case of banks with assets exceeding $2 billion, will also be so marked. Such reports and correspondence should receive expeditious processing and should be forwarded to the attention of the Special Projects Dfvfsion. The Special Projects Division should be notified, in writing, of any significant corporate actfvities ·of banks assigned to the program, except branch applfcations. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Of particular interest are 412 applications dealing with mergers and acquisitions. equity and debt capital issues. and the establishment of operating subsidiaries. Other correspondence relative to banks in the program should be directed to the appropriate individual. division or group in the Washington Office through use of the attention line. Telephone: Conference calls will.be arranged on a case-by-case basis at the initiation of either Regional Administrators. their designees or Washington Office staff participating in the program. PROCEDURES: NATIONAL BANK EXAMINERS: The Examiner-in-Charge of each examination will communicate with the regional or Washington Office under the following circumstances and in the following manner: 1. By telephone to the Regional Office. during an examination as!!!!!.!!.!!. ft becomes apparent that there are significant adverse changes in a bank in" the program 01" there is evidence that a bank should be placed in the program. 2. In writing. to be forwarded to his Regional Administrator as per Exhibit A (the Special Projects memo) no later than the time of concluding his examination. The SP Memo will incl~de basic statistical information; a concise narrative of the bank's significant problems. to include cause and a summary of pertinent subsequent events; and specific recommendations for appropriate corrective action. The Regional Administrator will mark the SP memo with the "PRIORITY" stamp and add his opinion to those of the examiner. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The SP memo should be forwarded within 413 two business days after receipt in the Regional Office. Completion of the report of examination will not delay the forwarding of the SP memo. Once a bank has been assigned to the program. the SP memo should be prepared and forwarded at all subsequent examinations and visitations. regardless of the level of classified assets or improvements. until such time as the bank has been officially removed from the program in accordance with established procedures. REGIONAL ADMINISTRATORS: 1. New banks added to _the program are to be reported to the Washington Office by the Regional Admipistrator as soon as possible. 2. If during the Regional review process. it is determined that a bank should have been recommended for the program by the examiner but was not. the Region will initiate the necessary telephone and written communication to Special Projects. 3. The Regional Administrator. or his designee. and the examiner-in-charge must meet with the Board of Directors or a committee thereof. in conjunction with each examination of a bank 1n the program. 4. For banks in the program with assets exceeding ill million. a copy of the report of examination will be sent to the bank and to the Special Projects Division at least ten days prior to the Board meeting. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 414 5. The Regional Administrator's letter to the bank's Board of Directors, should include: a. A request that each Board member review the report; b. A summary of the major deficiencies disclosed in the report in an objective manner; c. A request that the Board prepare a specific plan of corrective action designed to correct the deficiencies of the bank as reflected in the examination report. The Board should be encouraged to discuss this plan at the meeting; d. If this letter is not incorporated in the report, ft should include a paragraph that indicates: "This letter is supplemental to and part of the .examination report requiring the attention of the Board of Directors. The letter and its contents should be treated with the same degree of confidentiality as the examination report." 6. Prior to meeting with the Board of Directors, the Regional Administrator will inform the Special Projects Division of the date and objectives of the Board meeting. When-appropriate, a Special Projects staff member and/or -a representative of the Enforcement and Compliance group will attend such meetings •. Participation in the Board meeting by the Washington staff is desirable to the extent that is mutually agreeable to the Regional Administrator and the Washington Office. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 415 7. The Regional Administrator should convey 1n wr1t1ng the results of the Board meeting. and the bank should be requested to send a copy of the minutes to the Special Projects Division. 8. The Regional Administrator should require the Board to submit periodic reports concerning specific action taken by the bank to improve areas which. in the opinion of th• Regional Administrator, warrant such attention. 9. Regional Administrators will continue to schedule frequent examinations and visitations of banks assigned ta the program as they deem necessary. However. an examinatfon projection of such banks will be completed by each region on a monthly basis. The form (Exhibit B) wtll be reproduced in the region as needed and forwarded ta the attention of the Special Projects Division tn sufftcfent time to arrive no later than five working days prior to the beginning of the month projected. Any amendments to the projection after it has been submitted. will beconveyed to the group vfa telephone communication. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 416 EXHIBIT "A• EXAMINER'S MEMO SUMMARY OF PROBLEMS Summarize your views of the bank's problems, taking into account all significant factors. Specific problems shoul~ be identified. Your recommendation as to possible solutions to the signiffcant problems should be included in the narrative. SUBSEQUENT EVENTS Summarize any pertinent changes since the date of your examinatfon. ·This would include the resignation of key offfcers or dfrectors; declines fn deposits; increases fn loans or commitments to lend; proposed mergers, etc. RECOMMENDED CORRECTIVE ACTIONS Your positive, open views are needed in thfs sectfon. You can be the most knowledgeable as to the £!!!ill. of the bank's problems and how to solve them. Please state your views without reservation. s/ Natfonal Bank Examfner REGIONAL ADMINISTRATOR'S OPINION Statements concurring or differing with those of the examfner should be made in t"hfs section. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis s/ Regfonal Admfnistrator https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis EXHIBIT "B" (f,iJNfH) PRIORITY BANKS EXAMINATION PROJECTION Name of Bank and Location Projected Starting Date (if under examf na t 1on indicate startino date. l Projected Completion Date Exami ner-1 nCharoe Type of Examination General Speci a11 zed Snecial Sunervfso"" l I Regional Administrator 418 AttlcllNllt F 'tho ratins system is b4scd upon an cv4luation of fivo critical diale\liJ,ona of a.bank's opera~iona that reflect in a c0111• prchonsive fashion an institution's financial condition, compliance with, b@king regulations and statutes and overall operating ?ho spocific dirnonsions that arc to be evaluated are 1ounclness. tho following: Capital adequacy Asset quality Hanagement/Aclministration Earnings Liquidity Each of thue dimllns1ons is to be rated on a scale of one through fi'Vo in as~ndin& order of performance deficioncy. 'l'hus "1" represents tho highHt and "5" the lowest (and most critically deficient) level of operating porfoi,nanea. Each bank ii accorded a summary or compoahc r;:ting t.'ist is predicated upon the evaluations of the speci!tc performance dimensions. the compoaite rating ia also based upon a acale of one through five in aacending order of supervisory concern. In arriving at a composite rating, each financial d:lr.:ar.don must be w~~ ..::.;.:l givon to the interrelationship ■ bllllk'• operations. i,ncl clue considoration among the various aspects of a 'Ihe dalineation of specific porformance dimensions does not preclude consideration of other factors that, in the judg• ment of th~ examiner or re~iewar, arc deemed rolevnnt to accurately re~lect the overall con4ition and soundness of a particular bank. However, the as,essment of the specific performance di~ensions represents the essential foundation upon which the co;:,posite rating_ is based. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 419 C=r.1:>n~!t,~ "'"--t: ...., '!lie iivc composite ratings arc defined and distinguished as follows: r.c1nposita Banks in this grou1> arc sound institution3 in di::ost ever, respect; any critical findings a~e basically of a minor nature :md c<1h be handled in a routine m:,nner. Such banks. 'Clorcovcr, a1.·c :-r:si$to,nt to c>:tcrn.::il economic and finane.io.l disturl:ancc,s and capable of withstanding the vazarics of business conditions more ably than banks witb l.om,r com-" positc retings. COt:!j>c>Slte 2 Banks in this· grc,up are also fundar.:cntally sound institutions but may reflect godcst weaknCsses correctable- in the normal course of business. Such h2nks arc stahle ;me! ,:l.,:o able to witlist~:-..:l business fluctu.itions quite ,:ell; ho1JC\9Cr. arcas of wanknc.ss could dcv~lop into conditinns of srcatcr concern. 1·0 the c:,:t:.cnt that the minor a.dju~tn-.ai1ts ~re b:?.ndlc.d in t:hc normal course of business, the supervisory response is limited. Com;mc:U:c 3 Banks in this group exhibit e. con-.bin~t:ion of we;.!a10.sscs ranr,in& from ~~deratcly severe to unsatisfactory. Such banks arc only n01ilin.1lly resistant to the onset of adverse business conciit:ions and could easily deteriorate if concerted accion ia not cf!cct:ivc in correcting the areas of t-."aal:noss. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Consequently,• 420 such banks arc vulnerable and require special supervisory attention. Overall strength and financial capacity, however, are still such as to make failure only a re!llOte possi~ility. Cornoositc 4 Danks in chis group have an immoderate volucc of asset weaknesses. or a combination of other conditions that are unsatisfactory. Unless prompt action is taken to correct these conditions, they could reasonably develop into a situation that could impair future viability. but is not pronounced. A potential for failure is present Banks in this category require close supervisory attention and financial surveillance. Comnosite 5 This category is reserved for banks whose conditions are worse t1t.::..;.;. dc!:ir:cd ~::~,:.:: ::: . "!·" 21.b:- 1:-e. T"ne volume and character of weaknesses are such as to require urgent aid froill the share- holders or other sources. Such banks require inmediate corrective action and constant supervisory attention. The probability of £ailur.'.! i!: 1':.i:;!.1 fc~ ::hc,=c b.in?:r.. Perform.2nce Evaluation As already noted, the five key perfor.nance dimensions -capital adequacy, asset quality, management/administration, earninas and liquidity -- are to be evaluated on a scale of one to five. Fcllo:-:~n:; i~ ,: description of the graduations to be utilized in assigning pcrfonnc;.nce rati~1s: Rating No. 1 indicates strong performance. It is the highest rating and is indicative of performance that is significantly higher than average. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 421 Rating No. 2 reflects satisfactory performance. It reflects pcrfor:.1.1ncc that is average or ~bovc; it includes performance that adequately provides for the safe and sound operation of the bank. ·Rating No. 3 represents performance that is !la.wad to some de&rce; as such, is considered f.cir. It is neither satis- fact:iry r.-:-!" un.:;;c":f~sf~c!:ory tiu.t is characterized by perfo-cmance of below average quality. Ratin~ No. 4 refers to marginal performance and is significantly below average; if left unchecked, such performance might evolve into weaknesses or conditions that could threaten t.,he viability of the institution. Rotin2: Ko. 5 is considered unsatisiac:.:c:.:::,.-. It is the lov.'C!:it rui:ir:::; -i..:"'.:~ is indicative that performance is critically deficient and in need of irn.~cdiate remedial attention. Such perfom.ancc by itself, or in co:1bination ·with other ,;-1ea!"nesses, threatens the viability of the institution. Capital Adequacy Capital is rated (1 through 5) in relation to: (a) the volume of risk assets; (b) the vol~~e of marginal and inferior qualicy assets; (c) bank growth exp~i:ience, plans and pros?CCts; ,:md (d) the strength of mar!.:ge.-ncnt in relation to (.:i), (b) and (c). In addition, consideration r.:..'..J:,' be given to a bunl:.'s c.:?t=,it.:!.l ratio~ 'l:'cla:::.ve t::, its peer group, its eornings retention and its acct?.ss t.:o capital t1.?=k~ts other ap;iropri.:i te sources of financial assistance. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis o= 422 B.:mks ra t:.cd 11 1 11 or 11 2" are considcl.6cd to have adequ.::ite capital althou~h the for.ncr's capital ratios will gene.rally exceed those of the la ttcr. A 11 3 11 rating should be ascribed to a bank's capital position when the relationshi? of the c.::pit3l st:=-..ictu.rc to points (u), (b) or (c) is adverse even giving weight to management as a mitigating factor. In most instances such banks would have ca?.:.~.!l rc;,:io~ i,.'.,;.J,.o;.; p~er group averages. Ba.nks rated "4 11 and "5" are clearly inadequately capitalized, the latter rcprcscati~g a situ3tion of such gravity as to threaten viability and solvency. A 11 5 11 rating also denotes a bank that requires urgent assistance frora shareholders or othe1· e}~ternal sources of fin~nci:?.l sar,port .. Asset Ou.1lity Asset quality is rated (1 through 5) in relation ta (a) the level, distribution and severity of classified assets; (b) the 1.::, ._:. :.:·:: :·.::.:·~ ..:~·--_.:.ca 0£ ~10~1accruc1l .Jnc! reduced i·a::c assets; (c) the adequacy of valuation reserves; and (d) demonstrated ~bllity to adminster and collect proO!..;:;{.~ credits. Obviously, adequate valuation reserves and a proven capacity to police and collect problem credits mitigate to sorae deg:i:~c the weaknesses inhei·cnt in a given level of classified assets. In evaluatinu asset quality, consideration should also be given to any undue c.iegree of conccnt:r.r.ti:.,u. o:::.:: c.1. ... .:::;::. v.;.: i;i.va:!::- ments, th•:? l:.::tu·c,e- .::;.-id volu:nc of special r:iention classifications~ lending policies, and the adequacy of credit administration procedures. Asset quality ratings of concern. 11 1 11 a.id 11 2 11 preclude supervisory Both ratings repre~ent sound portfolios although the level and severity of classifications of the latter generally exceed those https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 423 of the for:,er. A "3" asset rating ir.dicatcs an appreciable degree of supervisory concern, c,:pecially to the e:-:tcnt that current adverse trends augur potential future problems. Ratings "4" and "5" represent increasingly severe asset problems; rating "S", in particular, is indicative of an L-n.ilinent tllreat to Ca ..L!.: v~ .... b.:.:t.:::.l• throu~h the corrosive effect of s-c,:cre .;sset p'.':'cblcr.is on tha level of capi~~l support. Mane!?emcnt /Administration Management's performance must be evaluated against virtually all factors considered necessary to operate the bank within accepted banking practices end in a safe and sound manner. thus managamant :Ls rated (1 through 5) with respect to (a) technical competence, leadership and adciinistrative ability; (b) compliance with banking regulations and statutes; (c) ability to plan and respond co changing circumstances; or (d) ade~u£cy tin~ compliance with internal ,olic:l.es; and (e) depth and succession. A "l" rating is indicative of manage.11ent that is fully effective with respect to almost all factors and exhibits a responsiveness and ability to cope successfully with existing and foreseeable proble.11s that may arise in the conduct of the bank's affairs. A "2." rating reflects some deficiencies but generally indicates a satisfactory record of performance in light of the bank's particular cireumstances. ~~ .:t!~ir.g of 11 3': reflects performance that is lacking in sorn.e measure of ccm?etc.!1cc desirable, to meet the responsibilities of the oituation in which manage:nent is fou<td, Either it is characterized by modest talent when above-average abilities are called for, er it is distinctly below avera:;e for the https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis tj1 pc and size of bank, in which it operates. 424 Thus, its responsiveness or ability to correct less than satisfactory conditions m~y be lacking. The 11 4 11 n . .::'.ai:; i.; -".adicativc of a manage• ment that is generally inferior in ability compared to the responsibilities ..-ith diich J.: :i.• charged. .\ rating of "5" _is applicable to those instances whera incompetance has been demonstrated. In these cases, proalems resulting from managl!lllcnt weakness are of such severity that management must be strengthened or even replaced before sound conditions can be brought about. ~ Earnings will be rated (l through 5) with respect to (a) Che ability to c'over losses and provide for adequate capital; (b) earnings trends; (c) peer group comparisons; and (d) quality-and composition of net income. Consideration must also be given to the i;,~"'::,·,:~ationshi:,• that exist between the dividend payout ratio, the rate of gro«th of retained earnings and the adequacy of bank capital. A dividend payout rate that is sufficiently high as to cause an adverse relationship to e:<ist suggest$ conJitions warranting a lower rating despite a level of earnings that might otherwise warrant a more fo.-,::~!>le appraisal. Quality is also an important factor in evaluating this dimension of a bank's performance. Consideration should be given to the adequacy of transfers to the valuation raserva and the extent to which extraordinary it~, securities transactions, and tax effects contribute to net income. Earnings rated "l" arc sufficient to make full provision for the absorption of losses and the accretion of capital when due consideration is given to asset quality and bank growth. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 425 Generally, banks so rated will have earnings <:ell ;::hove peer groap averages. A b3nk whose earnings are relatively static or even moving downward may receive a "2" rating provided its level of earnings is adequate in view of the considerations discussed above. Norm:1lly, banks so rated will have earnings that are in line with or slightly above peer group norms. A "3" should be accorded earnings that are not sufficient to make full provision for the absorption of losses and the accretion of capital in relation to b:1nk growth. The earnings pictures of such banks may be further clouded by static or inconsistent earnings trends, chronically insufficient earnings, a high dividend i''F·'-~ ,:=tc "" less than satisfactory asset quality. such banks are generally below peer group averages. Earnings of Earnings rated "4", while generally positive, may be characterized by e.:ratic fluct.ations in net income, the development of a downward trend, intermittent losses or a substantial drop from the previous year. Earnings of such banks are ordinarily substantially below peer group averages. Banks with earnings accorded a "5" rating should be e><perie=i....; losses o:: reflee ti.ng a level of earnings that is worse than defined in No. "4" above. Such losses represent an immanent threat to t:he bank's solvency through the erosion of capital. Liquidity Liquidity is rated (l through 5) with respect to (a) the volatility of deposits; (b) reliance on interest-sensitive funds and frequency and level of borrowings; (c) technical co~petencc relative to structure of liabilities; {d) availability of assets readily convertible int:o cash; and (e) access to mo:1...::.r u,arkats or c:!1.ai:' rc.:...::y sources of cash. 30-476 0 - 78 - 28 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Ultimately, the bank's liquidity must be evaluated 426 on the basis of its c,ipacity to pro:n;,tly meet the dcm.1nd for payment of its oblioa~ivn's and tu rc~di:y fill the reasonable credit needs emanating from the communities which it serves. In appraising liquidity, attention should be directed to the bank's average liquidity over a specific time period as well as its liquidity position on any particular date. Consideration should be given, where appropriate, to the overall effectiveness of asset-liability management strategies and compliance with and adequacy of established liquidity policies. Ihe·nacure, volume and anticipated usage of a bank's credit commitments arc also fac:.:,.s to i>u ·.:eighed in arriving at an overall rating for liquic!ity. A liquidity rating of "l" indicates a more tbau sufficient volume of liquid assets and/ or ready and ea_sy access on favorable terms to external sources of liquidity within the context of the bank's overall asset-liability managc.'llent strategy. A bank developing a trend toward decreasing liquidity and increasing reliance on borrowed funds, yet still within acceptable proportions, may be ac:co:;c.ed a "2" rating. A u3,~ :i_:;_,;;..li-.:i~y 1:ati11.r» ~c!lc..:ts s.:'!. !nsufficient volume Of liquid assets and/or a reliance on interest-sensitive funds that is approaching or e.~ceeds reasonable proportions for a given bank. Ratings of "4" and "S" represent increasingly serious liquidity posi::ions. I:a"ks with liquidity positions so critical as to consitutG an im.'llinent threat to continued viability should be accorded a "S" rating. Such b~nks require imn,cdiate re.-nedial action or external financial assistance to allow them to meet their maturing obligations. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis TABLE 1 NATIONAL BANKS REQUIRING SPECIAL SUPERVISORY ATTENTION BY CATEGORY N "".... (~ ll1111on) "'Ill::, & .s GROUP 5 "'!s "' & GROUP 4 12/31/75* No. of Banks 7 Assets 1,669 Deposits 1,359 No. of ~ 21 12/31/76** 5 1,769 1,455 12/31/77*** 7 1,289 1,019 Ill ...••• GROUP 3 Assets 9,856 Deposits 6,242 18 9,031 6,155 45 10,668 7,125 No. of Banks 57 TOTAL No. of ~ 85 S Change lli!ll. S Change Deposits Assets 60,597 Deposits 49,_285 124 75,810 62,877 147 +73S 86,610 20S 70,487 24S 207 88,257 71,074 259 +761 100,214 16S 79,218 12S 72,122 Asset and Deposit figures are as of latest 1975 Report of Examination • Asset and Deposit figures are as of December 31, 1976 Report of Condition • Asset and Deposit figures are as of June 30, 1977 Report of Condition • The slgofficant increase in the number of National Banks Requiring Special Supervisory Attention in 1976 and 1977 can primarily be attributed to the new examination procedures, adoption of a new rating system In 1977, increased Washington influence which has imoroved consistency between Regions in the identification of these banks, and an increased OCC emphasis on early wamlng signals. DEFINITION OF GROUP RATINGS: Group :; - Critical: ·Group 4 - ~ : Banks so characterized would normally exhibit a combination of weaknesses and financial trends which are pronounced to a point where the ultimate liquidity and solvency of the Institution and its continuance as an independent entity are in serious question, The probability of failure Is high for such banks, and they require inll1edlate affirmathe action to prevent imnlnent failure. Those institutions of vital interest to the OCC which have unacceptable conditions which could Impair future viability. The weaknesses and financial trends are not so severe as to threaten the inll1edlate liquidity and solvency of the institution. A high potential for failure ts present but Is not pronounced. Group 3 - Close Supervision: Those institutions of inajor interest to the OCC which are experiencing a combination of adverse factors requiring prompt corrective action. Overall strength and financial capacity are such as to make failure a remote possibility. Nevertheless, certain well-defined problems reinain and require 110re than ordinary supervisory concem and monitoring. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis S Change 56,886 T A B L E 2 *NATIONAL BANKS PREVIOUSLY RATED GROUP 3 AND 4 UNDER RATING SYSTEM DISCONTINUEO IN 1977 ($ Mili1ons) Date ot List Total Number of National Banks Total Assets ot Nat, Banks Total Dep. ot llat, Banks GROUP 3 !lo, ot Banks Asaats De sits i ot Total-All Nat, Banks 110. ARieta oaits GROUP No, ot Banks Assets De i ot All-llat, Banks sits llo, Assets 193 .2 ,1 .1 ,1 ,1 12/70 4,348 323,359 . 269,690 104 3,058 2,685 2.4 .9 1.0 8 2ll 6/71 4,366 354,32'7 299,25!1 ll2 5,002 4,311 2.6 1,4 1,4 8 328 29'1 ,2 12/71 4,385 373,870 315,212 101 13,081, 10,990 2,3 3,5 3,5 8 121 l.09 ,2 6/72 4,417 398,278 333,843 11,399 2,4 3,4 3.4 5 93 83 ,l 12/72 4,449 425,550 354,442 9,107 1,4 2,5 2,6 6 Bl 73 ,l 2,5 2,4 8 131 116 ,2 2,8 2.6 8 144 131 .2 6/73 4,495 466,265 12/73 4,546 497,583 105 61 13,558 10,693 388,516 56 11,601 9,472 1,2 410,471 71 13,742 10,735 1,6 De oaits i,j:,,.. 1:-.,:) 00 6/74 4,612 545,290 444,084 110 119,603 97,397 2,4 21,9 21.9 u 225 202 ,2 12/74 4,659 579,715 li69,l.81 l.69 225,164 180,916 3,6 38,8 38,6 17 2,376 1,779 .4 .4 .4 6/75 4,703 599,803 489,624 251 2"9,725 201,919 5,3 41.6 41.2 25 3,527- 2,901 .5 .6 .6 12/75 4,709 600,860 490,594 251 2"9,747 201,917 5.3 41.6 41.2 24 3,487 2,866 .5 .6 ,6 4,672 ,6 .9 .9 6/76 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4,748 657,234 545,663 256 227,201 182,543 5,4 34,6 33,5 27 5,987 • A reconstruction based on examination reports of banks still In existence on 12/31/76. TABLE 3 NATIONAL BANKS REQUIRING SPECIAL SUPERVISORY ATTENTION ......, .... xi ::, Ji .B .,, CII C 0 .,, RECONCILIATION 12-31-76 to 12-31-77 ~, ~ .!. lbmer of Banks . .., Total Assets ($ Ml.llion) Total Deposits ($ Million) :::t ~ CLOSE SUPERVISICtl ~ 5 1,769 1,455 18 9,031 6,155 124 75,810 62,877 147 86,610 70,487 6 108 122 42 4,167 3,481 151 18,161 15,430 199 22,450 19,019 4 492 419 15 3,087 2,477 68 9,470 8,104 87 13,049 11,000 7 1,289 1,019 45 10,668 7,125 207 88,257 71,074 259 100,214 79,218 Ji https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Banks moving into each category belWefi 12-31-76 and 12-31-77 a.) Numer of banks b.) Total Assets ($ Million) c.) Total Deposits ($ Million) Banks moving out/ of esch category between 12-31-76 and 12-31-77 ~I '.!; ~ a.) Nuliler of banks b.) Totsr Assets ($ Mlllion) c.) Total Deposits ($ Million) Nlm>er of Banks Total Assets ($ Ml.llioo) ::I Total Deposits ($ Million) ---------------- ---------------- 'lhe significant increase in the tlUlliJer of National Bank/I Requiring Special Supervisory Attention in 1976 and 1977 can primarily be attributed to the new exanination procedures, adoption of a new rating system in 1977, increased Washingtat influence which has iq>roved coosistency bet,aeen regiats in the identification of these banks, and an increased BJl)hasis oo early waming signals. ~ ~ <:.o 430 Response to Request #6 NARRATIVE RESPONSE PERTAINING TO IMF AGREEMENTS In the normal course of the,,examination of international activities of national banks, examiners evaluate international loan portfolios including loans to foreign governments and their related entities. These evaluations involve an assessment of each borrower's present financial condition as well as the borrower's prospects for reversal of adverse financial trends, if such exist. Therefore, the evaluations necessarily take into account a country's economic performance and adherence to the various covenants of disciplinary standby agreements as they relate to the borrowers prospective creditworthiness. The Office of the Comptroller of the Currency does not believe it is within it's statutory authority to supervise agreements between foreign governments and international lending institutions. Therefore, we have not formulated a policy or established procedures to insure compliance by national banks with the terms of disciplinary standby agreements entered into by foreign countries with the International Monetary Fund. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis A M E N D E D Response to Request #'s 7&8 TABLE 4-A NATIONAL BANKS WITH ASSETS OVER flVE BILLION DOLLARS AGGREGATE ANO AHRAGE CLASSIFIED ASSETS 1973 - 1977 ($ Millions) YEAR No. of Banks Gross Capital Funds Substandard [GCF) Substandard asalof. GCF Doubtful Loss as a S of GCF Total Classified Assets Total Classified Assets as S of GCF Other Assets Especially Mentioned DAEM as (OAEM) S of GCF 1973 - Aggregate 1973 • Average 11 11,026 1,002 2,611 237 23.71 753 68 6.81 193 18 1.a1 3,557 323 32.3S * . 1974 - Aggregate 1974 - Average 12 12,351 1,029 5,479 457 44.4S 1,317 110 10.71 314 26 2.SS 7,110 593 57.6S * • 1975 - Aggregate 1915 - Average 12 13,245 1,104 9,840 820 74.31 3,224 269 24.31 439 37 3.31 13,503 1,125 10l.9S * * 1976 - Aggregate 1976 - Average 12 13,902 1,159 10,786 899 77.&S 3,625 302 26. 1, 513 43 3.71 14,924 1,244 107.41 7,206 600 51.BS 1977 • Aggregate 1977 - Average 15 16,661· 1,111 10,335 689 62.0S 2,74:i 183 16.5: 394 26 2.4S 13,474 898 80,91 6,484 432 38.4S . Not Available SOURCE: U.S. Comptrolle_r of the Currency examfnatfon reports. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Doubtful as a S of GCF . Loss ~ Ci,:) ~ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis TABLE 4-B NATIONAL BANKS WITH ASSETS BETWEEN ONE ANO FIVE BILLION DOLLARS AGGREGATE ANO AVERAGE CLASSIFIED ASSETS 1973 • 1977 ($ Millions) Sross No. of Banks YEAR Capital Funds (GCFl Substandard Substandard as a S of GCF Doubtful Doubtful as a S of GCF Loss Loss asalof GCF Total Classified Assets Total Classified Assets as S of GCF Other Assets Especially Mentioned (OAEMl OAEH as S of GCF 1973 • Aggregate 1973 • Average 49 6,800 139 1,010 21 14,91 186 4 2,7S 78 2 1.11 1,274 26 18.7S • 1974 • Aggregate 19/4 • Average 60 8,313 139 2,321 39 27.91 344 6 4.11 163 3 2,0S 2,82B 47 34,0S • 1975 • Aggregate 1975 • Average 58 8,675 150 3,577 62 41,2S 624 11 7.21 167 3 1,91 4,368 75 50.31 . 1976 • Aggregate 1976 • Average 67 9,628 144 4,271 64 44.31 680 10 7.lS 191 3 2,0S 5,142 77 53.41 1,632 24 17.0S 1977 • Aggregate 1977 • Average 74 10,134 137 3,601 49 35.51 558 7 5.51 138 2 1.41 4,297 58 42,41 1,259 17 12,41 . Not Available SOURCE: U.S. Comptroller of the Currency exuilnation reports. ~ i:,:i 1:-,:) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis TABLE 4-C NATIONAL BANKS WITH ASSETS UNDER 1 BILLION AGGREGATE CLASSIFIED ASSETS, AVERAGE CLASSIFIED ASSETS & CLASSIFIED ASSETS AS A PERCENTAGE OF GROSS CAPITAL FUNDS 1972 - 1977 (Millions) 0-100 Mi.Hien Aggregate Classified Assets Average Classified Assets Classified Assets as a % of Gross Capital Funds # of Banks 1972 1973 1974 1975 !lli. 6/30177 691 .2 156 ,2 1D'4 1,036 .3 1,468 .4 16% 4,052 1,619 .4 17% 1,570 .4 lD'I. 3,905 3,943 4,011 4,094 4,045 548 2 681 2 1,080 4 26% 1,951 4 26% 1,901 4 12% m 100 Million - 500 Million Aggregate Classified Assets Average Classified Assets Classified Assets as a % of Gross Capital Foods # of Banks lD'I. 12% 1,142 3 18% 336 375 412 470 485 498 506 8 701 11 2D'1, 1,114 17 m 1,150 16 31,. 1,232 17 15% 435 7 14,. 62 62 64 64 73 72 25% 500 Million - 1 Billion Aggregate Classified Assets ~:ffi~~~~:ci~!e~sof Gross Capital Foods # of Banks Sources: U.S. Ccq,troller of the Q.irrency exanl.nation reports. FJlP data base does not carry individual totals far substandard, doubtful and loss. 33,. ~ c,,:i c,,:i https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis TABLE 4-D NATIOIIAL BANKS REQUIRING SPECIAL SUPERVISION ATTENTlOR AGGREGATE AND AVERAGE CLASSIFIED AS&ED ($ Millione)' No. of llmlka 0-100 Ml.lliat- 108 Aggregate Av,,rage '& of Gross Capital Finis 100 Ml.llicn to l Billion ,0 ... "' ... ... 100 Million to l Billion "' Agg,:egate Aw,rage '& of Gross capital lilnls Over l Billiat Agg,:egate Average '& of Gross Capital lilnls SOURCE: .Aaeta 175 1.6 72.6' 35 l4 0.3 14.5'&. 5.8'& 92.97. z.o 41 0.4 17.07. 789 30.3 664 25.5 84.Z'& 14.1.'& 111 4.3 41 1.6 5,zi 816 31.4 103.4'& 147 5.6 18.6'& 4,182 321.7 3,994 307.2 95.5'& 1,109 85.3 26.5'& 210 16.2 5.ot 5,313 408.7 127.07. 2,077 159.8 49. 7'& 452 2.2 291 1.4 64.4'& 42 0.2 9.ll 0.2 8.8'& "° 373 1.8 82.5'& 86 0.4 19.07. 1,013 26.0 814 20.9 80.4'& 122 3.1 12.07. 990 s.n 25.4 97. 7'& 193 4.9 19.l'& 4,767 297.9 4,265 266.6 89.5'& 844 52.8 17. 7'& 162 10.l 3.4'& 5,271 329.4 110.6'!. 1,857 116.l 39.07. 0.1 224 OtherAsaeta Especlaily H!ntia,ed, 204 Average ... Losa 13 Aggregate '& of Gross capital Finis lbJbtful 26 Aggregate Average '& of Gross capital Finis 0-100 Milliat Total Clmm!.fial Simstandard 2.Z 241 Aggregate Average '& of Gross capital Finis Over l Billi.at - Grau Capital 39 54 1.4 16 U.S. Comptroller of the Currency examination reports. ~ c:,.:) ~ 435 Response to Request #'s 7&8 .January 16. 1978 For immediate release Countx,, Ezpoean Lending Simrey The results of a Sllffay of foreign lending by large United States banks u of lune .30, 1977 were mad• public today by th• Office of the Comptroller of the .Curranc:y, the tederal Deposit Insurance Corporation. awl th• Federal RaaU11e Board. The survey was made to iucreasa the infoi:matioa. available. on foreign lending, on a cowitry•by•country basis. The data. repo:cted cover claims on foreign ruidenta held at all domestic and foreign offic:u of 119 U.S. baaks with auats of $i billion or more. Based on the experience of this survey, the bank regulatory agencies have instituted a semi-annual "Country Exposure Report" to begin with data for December 1977. Results of future reports will be published approx1-tely four months after the reporting date. Types of Loans The information gathered in the survey concentrated on data concerning landing from. a bank's offices in one country to residents of another country, or lending in a currency other than that of the borrower. These are known as cross-border or cross-currency loans. Cross-border and cross-currency loans are those lllOSt closely associated with country risk. As shown in Table I, these claf.1111 totaled $164 billion on the reporting date. About 42 per cent of such foreign lewiing was accounted for by claims on residents of Switzerland and the Group of https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 436 Ten (G-10) davelopecl e01mtrtu. Aaother 20 per eem: represeatecl 10&DS to residents of "other ·developed coum:riu" •ml "offshore bauk:tng· centers."!/ C~s-border and eroH•currenc:y elaims on res:Ld1111t:a of aon•oil producing 1••• davalopecl c01mtr:L•• amounted to approximately $40 blll:tou. or soma 24 per cent of the total •. tn addltloa. the banks reported $44 bllilon ill loc:al currency claims that were held by their offices la foreign countries on reslc1eats of the country la which the office was located. An example would be Deutsche Mark c:la:lms oa German residents held by the Geman branch of the reporting U.S. bank. To a large extant, these local currency cla:lms were matched· by $37 blll:Loa la local currency 1:labil:Lties due to local residents. Approximately 75 per cent of these clafms ware on residents of Switzerland and the G-10 countries. Matartties The survey provided. for the first t:lma comprehensive date on the type of customer and the maturity distribution of banks' claims on foreigners (Table 1). About 63 per cent of the reporeecl cross~border and cross-currency claims had a maturity of under one year. Such short•. term claims were especially prominent in the G-10 countries and the offshore banking centers where, combined, $64 billion.out of $85 billion in claims matured in less than one year. This heavy concentration of short-term claims reflects the large volume of interbank lending in Countries where multinational banks conduct a large "intemational money market business. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 437 these countri••• Moat aacb plac-nta of deposits are for wry ahort: periods. For - t : ot:ber araupa of countriaa, abort:-t:am claa· accouat:all for about: ona-balf of total clailu altbougb t:be proport:ion varia4 -na s:lgDif:Lcantly iDclividual cOWll:ri•. Type of Borrower With rega:rd to type of cuatomer, private DODbanlr. sector lending was tbe largest, accoUDtiug for $63 billion. Ot:ber type• of lending were placameut:s with 'ballka - 1 : i q t:o $59 billion, and 1oaDa to t:ha public sector totaling $42 billion. Thia last category iDcladea foreign central government■, tbair political aubdivisioDa and agallCiM and c - = i a l non-bank enterpr:i.aea OWDad by government:. ficantly from country t!) c01mtry. ware on those located iD the Thia diat:ributioll varied signi- Here also, moat: of t:ba cla:lms on ballka G-10 countriea and t:ba. offshore bankillg centers. Guarantees In Tabla II, tiafozmation is provided on t:be cro■■-'bo:rder and cross-currency claims tbat are guaranteed 'by residea.ta of another count:ry • .Claims are· reallocated from the country of residence of t:ha borrower to another country ol'I two. ground~ First, clef.ma on a bank t.raac:h located· in o~. couni:n, wi,,.ra. the.head .!llffica is located in anbtliar country era allocated to the country of t:he- head office~ Since a branch- is leplly a part of the parent, claf.ma on a branch are treated aa being guaranteed by the head office. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Second, claf.ma on a borrower iD one counl:ry which 438 are fozmally guaranteed by a resident of another country are alloc:atecl to the latter country. These reallocations are thoughe eo prcwide a batter apprm:imation of country exposure in tha banks' portfolios then the unadjuatecl figures. The raaulta of tha reallocations appear in the laat col- of Tabla II. Moat of the shifta are accounted for by th• tranafer of clatma on branch•• (and, where guaranteecl, subsidiariaa) of baaks ~o their hea4 office■ ($25 billion out of $33 billion). In gaaral, the reallocat:lou prtmarlly affected the offahora banking canters and countries. ■CIH of the clwelopall For example, clam on· the offshore banking canters clec:reaaed from $16.8 billion to $4.4 billion and claims on the Unitecl IC:l.Dgclma decreaead from $25 billion to $15.8 billion. For most less daveloped countries, a relatively -11 portion of clam is externally guaranteed. The total ahown for claim - foraignaa by co1111try of guarantor is about $150 billion or $14 billion laae t ~ the total for claims by country of borrower. This results f:i:om U.S. residents guaranteeing about $16.5 billion in clam cm foraigllerll and foreign res:Lclants guaranteeing about $2.5 billion of clailu on U.S. residents. Comnitments to Provide Funds for Foreigners The survey also provided information on commercial ·letters of credit ail(! other contingent cla:lms on foreigners. The banks were as~ to report such contingent cla:lmaonly where the bank bad a legal obligaticm to provide funds. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis A.a shown in Tabla III, the amounts reported total $42 billion, 439 with 75 per ceat of that total being on tha private seci:i;,r. inclwliilg banks. Use of th• Deta "rhe results of the &Uffey need to be iaterp~tq wit'll soma c:auttoi:t,. "rh• survey wu axper:lmilntal ill nature, and it WU rec1Qpi&IIII tllat 1111 ballks might not be able to fumisb th• requuted info:matioZJ ill the elicm: periocl of t!ma they ware given. As a resalt, certaill daviat:io111 from the instructio111 ware pemitted and ill a limited numb•l:' of C41SH, clata were estimated for ballks tliat were unable to report: all i t - r~•ted.. In particular, soma ballks ware pemittacl to report cla:lms by "co11111;r,, pf tha guara11tor" rather thaa by country of tha borrower's ras:ldeace. cla:lms 011 some couat1:iH (particulady the ballkiag ceaters) result, be ■-hat -1, G~• aa a understated. In aclclition, the reported contingent claims may be somewtiat overstated, particularly as regards th• .private sector. because same ballks included advised lius (where actual atensiolll of credit uncl•r such lius of credit miglzt not be obligatory). In sp:l.te of tht!tt• clifficultiu_, it is baliaved that the reported clata provicl• a repruentativa profile ·of the foraigll cla:lms of U.S..- 11allks- Attachment: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table I Crose-border and Non-local Currency Claims by Residence of Borrower: June 1977 (in millions of dollars) Country G-10 and Switzerland Belgium/Luxembourg France Germany Italy Netherlands Sweden Switzerland United Kingdom Canada Japan Non G-10 DeveloJ?ed Countries Austria Australia Finland Greece Iceland New Zealand Norway Portugal Spain South Africa Turkey Denmark Ireland Eastern Europe Bulgaria Czochos lovakia East Germany Hungary Poland Romania U.S.S.R. Yugoslavia Total Claims 4,212 6,840 4,048 5,055 2,764 1,749 1,880 25,138 5,117 11,754 68,557 Banks (Placements) 3,601 4, 757 1,661 2,177 1,934 670 1,021 17,363 3,179 .J:..,111. 38,140 665 144 313 268 939 1,355 1,210 1,770 86 417 1,844 525 3,332 2,201 1,473 1,434 451 17,037 26 121 16 849 47 410 252 103 3,215 416 154 708 663 1,248 217 1,592 81 106 63 252 161 94 464 -..Wt -12. 5,982 l 1,236 Claims on: Public borrowers Other private Maturlt:,,: Distribution of Claims One year Over one and under year 90 692 232 1,717 117 314 103 2,475 680 289 6,709 521 1,392 2,155 l, 161 714 765 756 5,301 1,258 9,688 23,711 3,848 5,430 2,983 2,812 2,424 908 1,752 19,090 4,152 7,462 50,861 365 1,410 1,065 2,243 341 840 128 6,049 965 4,292 17,698 191 26 262 603 38 199 254 352 1,264 l, 186 448 467 248 5,538 84 1,185 635 898 47 193 1,469 157 1,219 968 615 715 100 8,285 775 840 591 592 11 143 605 377 1,382 937 1,023 651 i67 8,094 165 514 619 1,177 74 275 1,238 148 1,950 1,263 450 783 284 8,940 324 45 592 411 1,016 87 l, 112 jQ2. 3,996 12 3 54 1 72 36 16 223 105 282 292 350 157 653 194 49 427 371 898 59 940 ~ -1.11. -llll 754 2,233 3,751 ~ ~ 0 ., ;' Table I Cron-border and Non-local Currency Claima. by llea:tdence of Borrower: June 1977 (in mi11:tona of llo11ara) ~ 0 ..., "' "'"' https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Country Oil-Exporting Countries Algeria Ecuador Indonesia Iran Iraq Kuwait Libya Nigeria Qatar Saudi Arabia United Arab Emirates Venezuela Total Claims 1,470 831 1,980 1,831 88 399 128 70 81 336 401 Banks (Placements) Argentina Costo1 Rica Dominican Republic El Salvador Guatemala Honduras Jamaica Mexico Nicaragua Paraguay Peru Trinidad & Tobago Uruguay Matur:ttl,'. Diltr:tbut:ton of Claim1 over one One Y.e ■ r and under year 6 40 181 ..!...lill. !J!1. Lil td~~ Ul!Z. 1,793 371 10,588 620 356 239 194 161 181 251 11,322 433 24 1,904 53 134 80 331 38 10 946 104 3,748 300 151 56 62 l 29 154 5,910 187 l 1,328 10 22 13,009 713 187 6.510 281 196 184 107 160 132 71 4,989 232 23 543 991 184 3,321 401 178 111 121 73 119 74 5,459 268 13 922 48 76 12,359 -o- 219 42 -o- 954 6,377 Non-OU Exportiy Develop:ty Countr,ea Latin America and Caribbean Bolivl.R Brazil Chile Other private 1,129 . 392 1,350 653 76 37 78 14 68 32 96 12,163 18 7 132 208 Claims. on: Public borrower a -.ill 28,652 -o25 -o- 20 20 423 14 -o- 33 38 87 1,253 322432. 498 970 12143 :, 56 7 264 124 s -21 14,391" 340 462 836 1,031 20 360 124 66 56 291 249 6,742 1,130 369 1,144 800 68 39 4 4 25 45 152 1.640 5,420 802 187 7,267 218 179 128 74 87 61 177 5,864 165 11 982 5 85 16,292 ~ ~ I--' https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table I Croaa-border and Non-local Currency Claims by Realclance of Borrower: June 1977 (iu millicma of dollars) !.lid.ma on• Country Non-Oil Exporting Developing Countries (continued! Asia China (Taiwan) India Israel Jordan Korea (South) Malaysia Pakistan Philippines Thailand Africa Egypt Ghana Ivory Coast Morocco Sudan Tunisia Zaire Zambia Total Clat.ma 2,319 208 662 24 3,216 596 60 1,861 669 9,615 524 21 271 374 174 55 283 179 1.881 40,148 Banks (Placements) 112 11 112 -o- 293 82 33 279 80 1,002 78 -0- -o- 11 l 5 l -o- -"Tr; 2,351 Public borrowers 1,198 82 249 14 929 319 16 522 -21 3,426 300 -o- 138 286 168 JS 275 164 1.366 17,801 Other private Maturit:[ Distribution of Claim• One year over one and under year 1,009 115 301 10 1,993 194 11 1,060 492 5,185 1,541 55 504 12 2,274 224 57 1,055 531 6,253 778 153 158 12 942 372 3 805 138 3,361 146 21 133 463 8 51 128 89 42 74 100 62 13 220 246 85 13 208 77 5 lS 7 -12 619 19,995 955 19,567 -1! 925 20,578 :t t,,;) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table l Cro88•border and Non-local Currency Claima by leaf.dance of Borrower: June 1977 (in millions of dollar■) Total Claim■ Country Offshore Banking Claims on: Public borrowers Other private Maturi tJ,'. Dia tribution of Claim■ One year Over one and under year Center ■ Bahamas Bahrain Caymans Hong Kong Panama Singapore Liberia Lebanon Miscellaneous Othet' Western ·1urope Other Eastern Europe Other Asia/Pacific Other Middle Bast Other Africa Other Caribbean Other Latin America Other North America Grand Total Banks (Placements) 5,905 565 2,802 1,286 1,896 2,366 1,889 12S 16,834 222 1 470 191 370 1,029 1,160 ~ 3,487 164.208 5,762 537 2,707 443 738 2,166 10 12 10 1 SJ 321 34 lS 12,369 446 __ 6 -o- 130 18 93 789 837 166 1,8.64 119 4,016 5,822 SS4 2,696 9S8 l,lSl 2,271 430 63 13,94S -o- -o- 69 BS 102 82 2 44 107 -o405 219 67 300 84 367 23 1,129 1 148 43 68 901 684 21 l,9Sl 111 1 277 1S2 164 461 7SO 16 1,932 S8 1 670 41,996 63 1 S44 103,374 68 83 11 lOS 328 746 9S 1,4S9 _.,ll 2,889 111 -o- 193 39 206 S69 409 ---1! l,SSS 60,831 ~ ti:>,. ~ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table II Crosa•border and Non•local Currency Claims on Foreigners by Country of Guarantor: June 1977 (in millions of dollars) Claims on residents of other countries Claims guaranteed by residents of Total cla!.ma guaranteed by residents Total claims Total claims other countries leas guaranteed of this country by country of Country (by residence) en banks on othera claims on others guarantoT ..2.!!.l!!.!!!i G•l0 and Switzerland Belgium/Luxembourg ·314 4,212 131 2,838 191 1,243 3,343 . 270 France 6,840 1,312 1,091 5,479 577 7,368 Germany S87 234 3,675 2,119 6,381 4,_048 139 Italy 5,055 58 127 4,870 399 264 5,533 Netherlands 2,_764 109 2,562 221 93 187 2,970 Sweden 1,749 9 1,740 48 141 1,929 ·0· Switzerland 1,880 ·79 1.58 1,643 598 272 2,513 United Kingdom 25,138 9,811 1,200 14,127 1,047 661 15,835 Canada 5,117 186 42 4,889 1,593 212 6,694 Japan 11,754 213 252 2,467 11.289 1.083 14.839 68,557 2,607 53,112 12,838 9,995 4,298 67,405 Non•G·l0 Develo2ed Countries 26 Austria 46 939 35 878 53 977 Australia 1,355 30 81 1,244 259 44 1,547 Finland 1,210 17 1,193 1,353 88 72 ·0· Greece 1,770 46 80 1,644 5 117 1,766 Iceland 86 •0· 86 86 ·0· ·0· ·0· New Zealand 417 l 8 408 51 12 471 Norway 1,844 2 134 1,708 63 83 1,854 Portugal 525 •0· 518 16 3 537 7 Spain 3,332 30 91 3,211 240 31 3,482 South Africa 2,201 26 38 2,137 63 34 2,234 Turkey 1,473 1,426 1 21 •0· 47 1,448 Denmark 90 1,434 1,342 22 84 1,448 2 Ireland 451 12 1 507 5 434 72 17,037 16,229 910 571 17,710 Eastern Europe Bulgaria 2 414 414 416 ·0·0·0· 168 Czechoslovakia 154 2 •0· 152 16 ·01 711 East Germany 708 •0· 708 2 ·0· 10 663 Hungary 663 7 646 17 ·01,217 1,187 10 20 51 Poland 1,248 10 208 3 207 l Romania 217" 7 ·0· 1,646 1,552 U.S.S,R, 1,592 89 5 33 7 877 18 895 Yugoslavia •0· 89 ·0· _ill 5,940 761 5,982 188 44 m " m s, m ~ :t https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table II Crose-border and Non•local Currency Claims on Foreigners by Country of Guarantor: June 1977 (in milliooa of dolhrs) Claims on residents Chima guaranteed of other countries by residents of Total claims guaranteed by residents Total claims Lesa guaranteed of thia country by country of other countries Total claims (by residence) .!!!Ll!.!!!!! on others on others guarantor on banka claf.ma Country Oil•Exeorting Countriea 1,308 65 -o162 -o1,373 Algeria 1,470 18 765 765 831 48 -o-oEcuador 49 143 1,788 1,855 8 1,980 59 Indonesia 60 1,770 1,831 l 141 24 1,935 Iran 88 -o-o88 Iraq_ 88 -o-o24 372 10 3 15 397 399 Kuwait 128 118 -o-o-o130 2 Libya 67 -o3 70 -o7 Nigeria 74 Bl 81 -o-o-o2 83 Qatar 270 336 16 50 29 60 Saudi Arabia 359 68 331 401 2 9 18 358 United Arab Emirateo 109 4.432 79 12 Venezuela 4.548 -1. 5 162 60i 11,400 334 206 1 ,9 12,163 Non-Oil Exeorting Develol!i!!II t• f~ Countries Latin America and Caribbean Argentina Bolivia Brazil Chile Costa Rica Dominican Republic El Salvador Guatemala Honduras Jamaica Mexico Nicaragua Paraguay Peru Trinidad 15< Tobago Uruguay 1,793 371 10,588 620 356 239 194 161 181 251 ll,'322 433 24 1,904 S3 162 28,652 8 24 97 -o-0·-o-o20 -o-o89 -o-o17 •0- -o- m 182 32 579 16 24 5 10 20 9 8 . 474· 7 -o30 -o- 10 1,406 1,603 315 9,912 604 332 234 184 121 172 243 10,759 426 24 1,857 53 152 26,991 15 -o- S26 l -o-o-o-o-o9 1S0. 2 -o7 -o13 ru 8 16 63 -o3 -o- -010 3 16 32 l -o78 -o- 15 245 1,626 331 10,501 605 335 234 184 131 175 268 10,941 429 24 1,942 53 180 27,959 :t C11 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table II ,Cro11•border and ll011•lC1Cal Currency Claims on Foreignara by Country of Guarantor: June 1977 (in millions of dollars) Country Non-Oil Exporting Developing Countries {continued Asia Chlna (Taiwan) India Israel Jordan Korea (South) Malaysia Pakistan Philippines Thailand Africa Egypt Ghana Ivory Coast :tornr..co Sudaa Tunisia Zaire Zambia Total claims (by reeidence) 2,319 2Q8 66;1. 24 3,216 5!16 60 1,861 669 9,615 524 21 271 374 174 ss 283 179 Claims guaranteed by residents of other countries ~ on others 27 Total claims leas guaranteed claima 'i03 106 17 22 2 102 32 9 S3 23 366 2,186 191 638 22 3,106 514 Sl 1,803 635 9,146 -o·-o:.o-o-o-o-o- 27 3 22 20 1S 13 112 3 497 18 249 354 99 42 171 176 1,606 2,047 37,743 -o2 -o8 so -o- s 11 -o- 1,881 -=ii=' 40,148 358 275 Claims on residents of other countries guaranteed by residents of this country on others ~ 14 19 108 32 62 lS s 2S 86 5 3 6 7 58 37 14 16 17 366 m 2 8 1 -0- Total c laima by ccuntry of guarantor 2,205 213 752 61 3,226 566 70 1,844 738 9,675 -o5 -o-3 __ -o-o- 29 37 SOD 26 249 384 99 47 171 196 1,672 1,118 445 39,308 -o- 11 -o19 -017 ~ ~ 0:, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table II Crou•bordar and Non•local ·eurrency Claims on roreignera by Country of Guarantor: June 1977 (in millions of dollars) Country Of £shore Banki!!II Centers Bahamas Bahrain Caymans Hong Kong Panama Singapore Liberia Lebannn Miscellanew• Other Western Europe Other Eastern Europe Other Asia/Pacific ·other Middle East Other Africa Other Caribbean Other Lati1t America Other North America Total claims (by residence) 5,905 .S65 2.aoz 1,286 1,896 z·,366 1,889 12S 16,834 222 1 470 191 370 1.029 1,160 ~ ~ Grand Total 164 1 2011 Claim& guaranteed by residents of other countries· ~ o p others 5,279 439. 2,558 361 S33 1,799 -o- -11. 10,986 6B -0· 24 10 -o- 14 37· -o153 24,707 Total clef.ma l_esa guaranteed claims Claims on residents of other countries guaraoteed by residents of thi ■ country on otlu~-ra ~ .; Total claims by country of guarantor 41 •O· 21 293 404 S7 1,167 41 2,024 S85 126 223 632 959 S10 727. 67 3,824 41 113 1 419 18J: 35S 741 1,100 44 2,9S~ -o120 __ J 222 T.m 131,023 12. 783 6.234 l-!..!4a~ -o27 •O· 15 174 23 -0· 380 8,478 34 4 2 91 s 33 -o- 2 45 4 256 54 7 63 11 ffi 448 71 105 3 5 33 ··O· -a8 7 ·O· 29. 2 56 20 625 175 229 979 1,018 S50 78S 82 4,443 289 4 457 189364 797 1,149 47 ~ ~ " https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 'table lll Contingent Crosa•border and Non-local Currency Claims by Country of Residence: June 1977 (in million■ af dollar,) Country G-10 and Switzerland Belgium/Luxembourg France Germany Italy Netherlands Sweden Switzerland United Kingdom Canada Japan C0111111tmenta under letter■ of crgdit to; Banks and Public other private baTrawera borrowers -o- 41 9 12 -o-o- 2 22 -o- 1 87 Non•G-10 Develoeed Countries Austria -oAustralia -oFinland 3S 112 Greece 14 Iceland 10 New Zealand Norway 1 Portugal 16 Spain 37 1 South Africa turkey 79 -oDemnark Ireland ..i.Q. 355 Eastern Eurol!:e Bulgaria 16 2 Czechoslovakia East Germany 25 -·oHungary S8 Poland Romania 8 1 u.s.s.a. Yugoslavia u: 113 222 183 489 146 48 332 783 177 306 2,799 16 441 42 252 4 7 45 9 140 74 81 15 17 1,143 5 -o-o- 3 29 -o-o25 62 Other Ccnaitmenta to: Banks and other private borrowers Public borrowers 22 676 S4 174 1 1S1 9S 275 49 --11 1,53S 103 131 305 174 36 77 50 2 84 8 10 118 _!§. 1,166 40 6 136 94 145 139 282 S3 'ffi 594 1,808 1,754 119 776 81S 803 2,968 282 2 1 38S 12,304 168 381 154 518 3 31 486 35 895 154 52 442 102 3,421 5 10 60 29 20 2 76 100 302 Total Contiyent Claims on: Banks and Public other private boi-rawera borrowers 22. 717 63 186 1 1S1 97 297 49 --12. 1,622 103 131 340 286 50 87 51 18 121 9 89 118 118 1,521 56 B 161 94 203 147 283 S9 1,011 707 2,030 1,937 608 922 863 1,135 3, 7S1 4S9 2.691 15,103 184 822 196 770 7 38 531 44 1,035 228 133 457 119 4,564 10 10 60 32 49 2 76 125 364 i,j::,,. i,j::,,. 00 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table III Contingent Cross-border and Non-local Currency Claims by Country of Residence: June 1977 (in millions of dollars) Country Oil-Exeorting Countries Algeria Ecuador Indonesia Iran Iraq Kuwait Libya "Nigeria ~•tar Saudi Arabia United Arab Emirates 1/enezuela Commitments under letters of credit to: Bank• and other private Public borrowers borrowers 91 72 14 99 58 10 115 82 8 39 38 193 ---m- 44 102 62 64 28 57 17 42 34 299 85 245 1,079 Other Commitments to: Danita and Public other priv,te borrowers borrowers 95 89 149 93 119 3 7 64 27 13 76 251 986 Total Contingent Claims on: Banka and Public other priira te borrowers borrowers 229 322 105 44 ,'.16 34 6 179 87 -1§1. 1,925 1,805 69 173 291 386 133 101 53 76 40 478 172 1.032 3,004 330 97 421 47 13 133 16 141 115 10 698 16 10 30 3 12 2,092 220 69 21,a 139 24 73 10 45 31 6 329 6 10 64 62 62 1,398 429 125 529 116 28 189 30 145 135 10 798 26 17 67 5 23 2,672 25 186 .1.1 161 163 192 177 13 122 146 35 52 114 444 Non-Oil Exeorting Develol!ing Countries Latin .\merica and Caribbean Ar'!er..t1na llolf.via Rra,:il Chile Costa Ric11 Dominican Re pub lie El Salvador GuatemJ'lla Honciuras Jamaica Mexico Nicaragua Paraguay Peru Trinidad & Tobago Uruguay 81 22 33 69 14 43 5 6 3 4 101 2 -o- 39 19 19 460 99 ?8 108 69 15 56 14 4 20 -o- 100 10 7 37 2 11 580 139 47 215 70 10 30 5 39 28 2 228 4 10 25 43 43 938 ~ ~ t:O https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table Ill Cont_ingent Cross-border and Non-local Currency Claims by Country of Residence: June 1977 "(in millions of dollars) Country Commitments under letters of credit to: Banks and l'ublic other private borrowers borrowers Non-Oil Exporting Developing Countries {continuedl Asia ~ a (Taiwan) 238 India 70 Israel 4 Jordan 42 Korea (South) 56 Malaysia 40 Pakistan 41 Philippines 76 11 Thailand Africa Egypt Ghana Ivory Coast Morocco Sudan Tunisia Zaire Zambia 158 Other Commitments to; Banks and l'ublic other private borrowers borrowers 344 44 -o- 20 8 244 19 43 135 116 19 122 53 3 545 so 8 478 24 107 23 471 122 115 288 206 1,834 582 70 54 61 178 93 44 621 19 1,722 636 68 127 31 71S 141 158 423 322 2,621 178 43 59 119 23 32 18 ~ 260 JS 45 28 l 25 6 31 578 787 1,144 131 18 lZ 58 18 14 10 _A 160 15 20 28 1 8 2 47 25 47 61 100 20 25 18 8 l 17 4 19 ---2.lli 1,327 --11 ......lli 1,613 s ::ill 2,294 Total Contingent Claims on: Banks and l'ublic other private borrowers borrowers -o-o- ::iii 4,lll _ill 3,621 Jii 5,724 ~ c,,-, 0 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Table III Contingent Cross-border and Non-local Currency Claims by C011ntry of Residence, June 1977 (in millions of dollars) Country Commitments under letters of credit to, Banks and Public other private borrowers borrowers Other COlllll.itments to: Banks and other private borrowers Public borrowers Total Contingent Claims on: Banks and Public other private borrowe.rs boT't'OWera Offshore Banki[!S CenteTs Bahamas Bahrain Caymans Hong Kong Panama Singapore Liberia Lebanon Miscellaneous Other Western Europe Other Eastern Europe Other Asia/Pacific Other Middle East Other Africa Other Caribbean Other Latin America Other North America Grand Total 1 -0-01 4 2 8 -o- ---ii 22 3 -o- 157 15S 88 42 49 6 27 -o114 so 84 1 62 516 344 2 -o- 31S 136 268 :l02 11S 54 86 9 62 ---ill 1,594 -o- -o- 15 -o- 72 97 110 11 16 69 56 ---m- 41 44 20 70 48 __ 9 247 -o222 579 3,034 7,459 7,442 24,236 8 -o- -o- 19 18 60 7· 27 144 114 11 -0105 47 66 173 116 61 360 8 166 117 2 472 291 356 244 462 2,110 26 -o- -o- 141 153 129 29 76 146 91 86 243 164 70 -o- --m 826 10,476 31,695 = ~ c:;t I-' https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis TABLE 5-A ALL NATIONAL BANKS OVER $1 BILLION EXTENSIONS OF CREDIT TO DIRECTORS, OFFICERS, EMPLOYEES AND THEIR INTERESTS 1977 ($ Millions) $1 BIILIOO to $5 BIU.IOO (74 bmlks) L <l>ligatittlS of directx>rs, ~ffic:ers, <!lll'loyees, and their unincorporated caq,aniea. 2. <hligatims of corporations in which di.rectors, officers or enployces individually or with lll3li>ers of their families "'"' lOZ or more of the outstanding stock. 3. Cbligati.ms of others or portims thereof, collateraled by securities issued by corporatims in which directors, officers or enployees indivicita.lly or with menbers of their fanilles CM\ 1~ or nm:-e. moo. mRECJ: AND AH:XJNT AIDJlr DIRECT ~ 1,387 12.7 1,514 642 83 725 27 ~ 27 4. Investmmta in stocks, bonds, or other obligatims of corporations in 1ihich di.rectors, offl.cers, or ...,1oyees Individually or with nad>ers of their fmnilies or DDte, own 1oz SUB-1000. 0 2,056 LESS, lllplicatioos within and between 0 Tio =- 2,266 128 2,138 N) OVEl!. $5 BilLIOO (15 bmlks) L <l>ligationa of directors, officers, aq,loyees, and their mincorporated caq,anies. 759 2. <JJligatims of corporations in which directors, officers, or enployees individually or with mmt>ers of their fa:nilies CM\ 1~ or more of the outstandinp.: stock. 180 185 12 12 3. Cbligaticns of others or portions thereof, collateraled by securities issued by corporations in which directors, officers, or eq,loyeea individually or with neibers of their families OM\ 10& or oore. 4. tnvesments in stoc:ka, bends, or other obligations of corporaticn in lmich directors, officers, or aq:,loyees indivichally or with aeobers of their fani.lies CM1 lOZ or more. =- SIJB,.1000. rnss, SOUR.CE: lllplicati..,. within snc1 between U.S. Comptroller of the Currency examination reports. ~ C.11 72 831 0 1,028 65 963 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis T/\111.1-; ~-R NATIONAL BANKS REQUIRING srr.CtAI, SUPKRVISORY i\TTENTION EXTF.NSlONS OP CREDIT TO DtRECTORS, OFPICF.•!I, IKPLOYEIS AND ntEIR INTERESTS 1977 ($ Million•) ....... ....... l!!1!!!!!:! ~ 0-$100 HUlt.m (20. baika) 1. Cl:iligaticm of directDn, offlcen, 8"'WJl!U mil their \1'11ncorpcrated ~ • • ,. Cbllgatlcm of COrtm"atiai• in Vlidl directors, oUicen, or ~loyeea lndividually or vi.th mmlxfra of their flllllie■ CM1 lOX, or IIDte of tho ouc:ataldq ■todt. 3. Cbligaticna of others or portions thereof, collater■led " 116 mr.11.DDll:r ,a DIDlllECT 213 6.5 59 by 1ecurlties bsued by corporatl.onl in Mlidl director■, offiten, or mployees individually or vi.th of dmr fard.li.e1 wn tai or nom. ■mhera 4. Investnatta in 1todcs, bcxllla, or otmr cbU.aatiav of corporatiml in 111hidt dinctGrs, o[fic:en, or ...,lc,yft■ lftdlvi.imlly or with lll!llhen of their fadliea CM'i lOl or n:a. .........,. IF.SIi, Ck4tU.catim■ within a,d bet'til!el ~ .2-.. _!._ 161 123 -- $100 Hillian to :f:l Blllim (39 baic■) 1. Cbligaticna of directon, officen, 911>loyeel, and their ml.ncm:porated ~ Cbligatlons of oorporaticna in lhich directors, office-r1, or uq,loyeee indivldually or with IIDlttr'I of their fard.Ue11 a,o lot or IICICe of the outstanding atcx:k. 3. Cbll,..tion1 of others or portima thereof, collateraled by .ecurltietl ls.ued .. 117 167 10lllL ,. ... _3_ 94 48 142 117 ll us Cl,j Inwstment.a in atoc:ka, bmda, or other cbligatla,a of corporat.icns in \oll1ch directon, indivla.aally or vi.th mmbera of their fmillea CMI 101 or m . officer■, tr eapio,.■ SUB-TOW. LESS, Iq,licat.icna vi.thin aid betw11en 214 ~ . 273 42 231 10lllL -- CNEll $1 BIWCtl (16 banks) ,. Obllgat.1.ms of dincton, offlcen, 91ployeea, 800 thelr \l"lini::orporated ~ - 166 23 189 Obllgi;it.lo'la of corporations in ~lch directon, offlcen, or mployees indlvldually or vllh !l'Dlbets of t.!K-U" fmillica 01on tin or IIIOt'e of th!.- wt.stmdl.ng stcx:k. 92 13 10~ 3. 0!r0::S.:.=:!r'the~i!i1:!1::"~:~fr~ 26.5 ,. l. =!~ .. ·-· ~IIUl!d~ bcnls; llwesaaent:1 1n ■toc:ka, or other cbllgatlma of coq,orat.lcn■ in ""1ch dbectol'I, ~ ~ • • or Wlltloyee■ lndivicbdly or with IIDlt,ers of their fmnll.lea CM! 10'1. or SIJB-Tllll\L WIS, lqllicatia\a within 111d between grcq,a mw. SOURCE: U.S. Comptroller of the Currency eaatd.natlon 301 . 2 ,- -report■• ~ i:,-. by corporat.ia,a in tih!.ch directon, officer., or mployeea tncU.vidually or vlth lmben of their fmd.U.11a OICl l!Jl or more. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ..., "' TABLE 6 FORMAL ADMINISTRATIVE ACTIONS TAKEN BY THE COMPTROLLER PURSUANT TO THE CEASE AND DESIST PROVISIONS OF THE FINANCIAL INSTITUTIONS SUPERVISORY ACT OF 1966 t: :, 12 UNITED STATES CODE 1818 (b) ~ ... 0 3:C 0 YEAR NUMBER OF ACTIVITIES 1971 1972 1973 NOTE: 10 1974 19 1975 23 1976 33 1977 56 See attached for brief description of each action for 1977, prior to 1977 were previously provided. Written sumnaries for years There were 97 formal administrative actions issued and still outstanding on December 31. 1977. ~ Cl ~ 455 PROCEEDINGS BROUGHT BY THE COMPTROLLER PURSUANT TO THE PROVISIONS OF THE FINANCIAL INSTITUTIONS SUPERVISORY ACT OF 1966 12 UNITED S'l'ATES CODE S1818 (b) 1977 APPENDIX 1. A letter Agreement was entered into with a bank which required corrections of past violations of law including reduction of loans in excess of the bank's legal lending limit, reduction of classified assets through collection or additional collateral, formulation of a capital improvement program, correction of credit file deficiencies, an increase in the loan valuation reserve, revisions in the loan policy, and implementation of a formal audit plan. In addition, the bank was to ensure that income from tho sale of ~redit life insurance would not be improperly diverted from the bank's earnings.!,/ 2. An Agreement prohibited further violations of the legal lending limit to bank affiliates and required correction of past violations. The bank was required to eliminate criti- cized loans, and to draft new loan policies for the Regional Administrator's approval. Specific components to be included in the loan policies were listed, and the bank was required to secure adequate credit information on all loans. The Agreement required a Discount Committee, Examining and Audit Com.~ittee, and Compliance Committee to be appointed, and a plan for capital augmentation to be formulated. J. An Agreement prohibited further violations of the bank's legal lending limit and forbid loans to officers and By m=morandum from the Comptroller to all Regional Administrators, dated Januar~• 18, 1978, and as required by §501.3, ,12 of the Comptroller's Handbook for National Bank Ex~~iners, procedures have been established to ensure that the Comptroller's staff closely monitors compliance by banks with the provisions of all administrative proceedings. In addition, most Cease and Desist Orders and Agreements include provisions requiring periodic reporting by banks to this Office on their efforts and success in complying·with such Orders and Agreements. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -82- 456 directors which violated 12 u.s.c. S375a. of law were to be corrected. Past violations It required the board to adopt specific loan policies and required approval of the Regional Administrator before their adoption. The Agreement specifi- cally restricted the bank's president from self-dealing practices. It also required reductions of several large concentrations of credit, elimination of criticized assets, and the maintenance of an adequate loan valuation reserve. The Bank was required to submit written policies, for Regional approval, concerning its investments, trading account, and the collection of delinquent loans. 4. A Cease and Desist Order prohibited further violations of Truth-in-Lending laws and regulatiori.s requiring credit information. The bank was required to draft a new loan policy for Regional approval. It was also required to appoint a Discount Committee to review loans and an Examining and Audit Committee to ensure proper internal controls. The bank was ordered to eliminate its criticized assets, improve liquidity, and to inject capital into the bank. The Order also made provision for a new Chief Executive Officer and required review of the chairman's excessive salary. 5. An administrative hearing was held based on a Notice of Charges which charged that the bank had violated its legal lending limit, had made excessive out-of-trade area loans, had excessive criticized assets and past due loans, had failed to obtain adequate credit information and secure its collateral for various loans, and had inadequate capital and excessive problems with its internal controls. After six days of hearings, the Administrative Law Judge issued a recommended decision finding in favor of the comptroller on all points. Based on the findings of fact and conclusions of law, the comptroller issued a permanent Order to https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -83- cease 457 and Desi.st .igainst the bank <lircctinq the bank to correct all of the problems addressed in the Notice of ~harges. The bank has filed a Notice of Appeal with a United States Court of Appeals, but has not yet perfected the appeal. 6. A Cease and Desist Order required reduction of rate- sensitive certificates of deposit and improvement of liquidity, reduction of loans proportional to total deposits, and reductions of concentrations of credit. It prohibited further violations of the bank's legal lending limit and restricted overdrafts to officers. were to be corrected. Past violations of law New loan policies -re r·equired and were to be subject to Regional approval. Criticized assets were to be eliminated, and a Compliance Committee was ordered to oversee implementation of the provisions of the Order. 7. An Agreement prohibited further violations of the bank's legal lending limit and restricted overdrafts to officers as well as the purchase of illegal investment securities (12 u.s.c. be corrected. It required a written investment policy 524). ~ast violations of law -re to subject to Regional approval, the elimination of criticized assets, reduction of concentrations of credit, and a written program for internal control. The Agreement forbid payments to management resulting from credit life insurance sales and also limited loans to certain individuals. 8. An Agreement prohibited further violations of the bank's legal lending limit and improper loans to executive officers. Past violations of law were to be corrected. The bank was to hire a new Chief Executive Officer to eliminate classified loans and to formulate a n - loan policy for approval by the Regional Administrator~ Past due loans were to be collected and collateral exceptions eliminated. 30-476 0 • 78 • 30 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 458 Liquidity and the loan V3luation reserves also were to be increased. Written earnings and investment progra.~s were requested. Additional articles addressed capital and in- ternal control procedures. Noncompliance with this Agree- ment resulted in a second Agreement with subsequent new owners of the bank which addressed the bank's noncompliance, the self-dealing transactions of the new owners and the continued deterioration in the bank's condition. The Agree- ment required capital, a budget, a comprehensive external audit, a schedule of salaries and bonuses for the Regional Administrator's approval, and reimbursement of the unwarranted expenses charged to the bank for housing and for charter applications for other banks. 9. Six Agreements were entered into with six separate banks and Boards of Directors which prohibited extensions of credit to certain shareholders of the holding company and prohibited payment of management fees to the bank's holding company without prior Regional approval. colNftittee was required for each bank. An investment The authority of certain individuals at these banks was curtailed. All six agreements were modified to prohibit the payment of dividends by any of the banks without the prior written approval of the Regional Administrator. An additional, subordination agreement between one of these banks and the holding company required an ilNftediate subordinated deposit by the holding company to partially recapitalize the bank. 10. An Agreement required a new Chief Executive Officer subject to Regional approval, a budget, improved internal control procedures, and an increase in equity capital. Xt I prohibited the bank from paying dividends without Regional approval, and required analysis of the valuation reserve, elimination of criticized assets and a ,a-itten investment policy. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -85- 459 11. An Agreement required the Board to elect an executive committee which excluded directors whose lQans were criticized, to raise equity capital for the bank, and to refrain from further violations of the bank's legal lending limit and of limits on loans to affiliated insiders. tions of law were to be corrected. Past viola- It forbid the payment of dividends without Regional approval and required reduction of criticized assets and concentrations of credit. 12. An Agreement prohibited further violations of the bank's legal lending limit and required correction of past violations. It also required the elimination of criticized assets and the acquisition of credit information and adequate collatrral for all loans. The bank was to hire a new Chief Executive Officer and a new operations officer, subject to Regional approval, and the Board of Directors was required to submit a new loan policy and an investment policy for Regional review. An outside auditor was to be hired to evaluate internal control procedures, and a new internal control plan was to be submitted for Regional approval. Payment of management fees was prohibited, as was diversion of credit life insurance sale proceeds to officers of the bank. The bank was further required to correct deficiencies in its Trust Department, to reduce concentrations of credit, to develop an operating budget, and to secure additional capital. 13. After issuance of a Notice of Charges and a Temporary Order to Cease and Desist, a permanent Order to Cease and Desist was consented to by the bank. The permanent Order directed the bank to refrain from making loans in excess of its legal lending limit, to stop making loans to its affiliates in excess of the limits set by law, to make loans to executive officers in compliance with the statutory provisions, and to accept drafts or bills of exchange only as https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 460 prescribed by 12 to be corrected. u.s.c. §372. Past violations of law were The Order also directed the bank to procure stateaents of its director's interests, limited its transactions with certain, specific entities, restricted the payment of dividends and required the bank to hire a·new chief executive officer. The bank was also to adopt new lending policies, cefine its position regarding o~erdrafts, formulate a capital improvement program, evaluate and increase its valuation reserve for loan losses, obtain ade- quate credit information and secure its collateral on all loans, maintain current information on file concerning its affiliates, provide adequate fidelity insurance coverage and reduce fees paid to its directors to a reasonable level. 14. An Agreement was entered into with an individual and a bank, which restricted the individual's participation in the management of the bank and limited his financial dealings with that bank. 15. An Agreement prohibitP.d further violations of the bank's legal lending limit and required correction of past violations. It also required that a written loan policy be submitted for Regional approval, and that a new lending officer be hired subject to Regional approval. rn addition, the Board was to eliminate criticized assets, to obtain satisfactory credit information and collateral for all loans, and to correct internal control deficiencies. 16. An Agre~ent, prohibited further violations of the bank's legal· lending limit and required correction of past violations. It also required written loan and overdraft policies to be submitted for Regional approval, criticized assets to be eliminated, a new Chief Executive Officer to be hired subject to Regional approval, a complete external audit to be performed and satisfactory credit information and collateral for all loans to be obtained. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -87- 461 17. An Agreement prohibited violations of the bank's legal lending limit and of laws governing borrowing by bank affiliates. Past violations of law were to be corrected. Xt also required statements of directors' business interests to be filed in accordance with 12 C.F.R. Part 23 and enforcement of Federal Reserve Board Regulation u. Preferential loans to bank directors and officers and their interests were forbidden, and the Board was directed to collect loans extended to certain individuals. Xn addition, an Executive Committee was to approve all loans above $25,000, transactions in international finance were restricted, and the Board was to hire a new Chief Executive Officer subject to Regional approval. 18. A Cease and Desist Order, ordered the bank to submit both a general investment policy and an investment trading policy for R~gional approval, and required accurate valuation of foreign government bonds held by the bank. The bank was forbidden to trade in securities until these actions were taken. 19. A Cease and Desist Order forbid further violations of the bank's legal lending limit, required the bank to conform with state laws in accepting state deposits, and required the bank to adhere to its contract in handling deposits for the u. s. Customs Service. be corrected. removed. Past violations of law were to Criticized loans to directors were to be The bank's liquidity position was to be improved and equity capital was to be injected. The Order required reductions of large concentrations of credit, collection of past due loans, and acquisition of satisfactory credit information for all loans. 20. An Agreement prohibited the bank from exceeding its legal lending limit and required correction of past viola- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -88- 462 tions. It al~o required a liquidity proqram and elimination of criticized assets. The bank was prohibited from permit- ting any overdrafts and was required to inject new equity capital. 21. A Cease and Desist Order prohibited the bank from extending credit to certain individuals and their interests. It also limited the authority of the bank's president. It further required the Board to eliminate criticized assets and mandated accurate accounting for interest accrual accounts. 22. An Agreement prohibited the bank from making further loans in violation of its legal lending limit and from violating laws governing loa~s to bank affiliates. ction of past violations of law was required. Corre- In addition, the Board was required to raise additional capital, to evaluate officers' salaries, to eliminate criticized assets, and to obtain satisfactory credit information on all loans. An external audit was necessary to remedy internal control deficiencies. 23. A Cease and Desist Order prohibited further violations of the bank's legal lending limit and required correction of past violations. Loans to specific individuals and their interests were restricted. The Agreement also limited directors' fees, required corrections of violations of law involving loans to directors and officers, and mandated reimbursement to the bank by the Board of improper expenses. The Order also forbid acquisition of fixed assets, maintenance of certain large correspondent accounts with other banks, and violation of the Bank Secrecy Act. Removal of criticized assets was required, as was acquisition of satisfactory credit information on all loans. The bank was prohibited from lending outside its trade area, diverting proceeds from credit life insurance sales to its officers, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -89~ 463 hiring additional officers, or increasing officers' salaries without Regional approval. Written investment and capital augmentation programs were to be submitted for Regional approval. 24. An Agreement required a new Chief Executive Officer, training of bank officers, upgrading of the bank's electronic data processing system, securing of additional capital, and removal of classified loans. Improved liquidity was required, and a new internal control policy was to be implemented. The Agreement also required satisfactory credit information for loans and an increase in the loan valuation reserve. 25. An Agreement prohibited further violations of the bank's legal lending limit, excess credit or overdrafts to affiliates, and the purchase of government bonds. violations of law were to be corrected. Past It also required removal of classified loans, acquisition of satisfactory credit information for all loans, and a loan policy to be submitted to the Regional hdministrator for approval. The bank was to secure additional capital, refrain from paying dividends without Regional approval, and improve its liquidity position. A review of management was required, as was a progra111 to improve internal control procedures. 26. A Notice of Charges and a Temporary Order to Cease and Desist was served which prohibited the bank's chief executive officer from making loans, authorizing expenditures of bank funds, investing bank funds, and participating in the management of the bank. The Board of Directors subsequently consented to enter into a permanent Cease and Desist Order. 27. An Agreement was entered into under which certa~n deposi- tors agreed to subordinate their rights to those of other creditors at the bank for a certain period of time in order to strengthen the capital position of the bank. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -90- 464 28. An Agreement required the bank to raise capital through the use of subordinated certificates of deposit and required the bank's compliance with regulations governing HEW-guaranteed student loans. A new Chief Executive Officer was to be hired, subject to Regional approval. 29. A cease and Desist Order required the bank to review the adequacy of its management and to raise new equity capital. Criticized assets were to be eliminated and the loan valuation reserve was to.be increased. The order required a new loan policy to be submitted for Regional approval, past due loans to be collected, satisfactory credit information for loans to be acquired, and internal control deficiencies to be corrected. 30. A Cease and Desist Order required the removal of loans to certain individuals and forbid loans to certain other individuals and their interests. It also prohibited further violations of the bank's lending limit and required conformance with 12 u.s.c. S375a in loans to insiders. Past violations of law were to be corrected. The Order also prohibited bank employees from acting as shareholder proxies and required directors to file financial statements. It further required adherence to state law in loans made to municipalities, a full extefnal audit of the bank, fo:rlllulation of a plan to raise additional capital, a review of management salaries, a new lending policy, elimination of criticized loans and correction of defjciencies in the bank's electronic data processing system. Payment of divi- dends without prior Regional approval was also forbidden. 31. An Agreement, required this bank to hire a new Chief Executive Officer, subject to Regional approval, to formulate a new budget, and to correct deficiencies in its internal control system. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The bank was also required to increase its -91- 465 loan valuation reserve to reduce large concentrations of credit and to eliminate criticized assets. The Agreement prohibited the bank from investing in speculative precious metals or foreign securities, and mandated close supervision of HEW-guaranteed student loans. 32. A Notice of Charges and Temporary Order to Cease and Desist required the bank to stop violating the bank's legal lending limit and making improper loans to bank officers. The Order required a reduction of classified loans to in~ siders. The bank, after unsuccessfully seeking a Federal District Court Temporary Restraining Order against the Temporary Cease and Desist Order, consented to a permanent Cease and Desist Order. 33. -An Agreement prohibited further violations of the bank's legal lending limit and required correction of past violations of law. Compliance with the Truth-in-lending law and accompanying regulations was also required. A new Chief Executive Officer was to be hired subject to Regional approval, and the bank was required to raise additional capital. Statements of directors' business interests· were to be filed and satisfactory credit information and collateral for all loans, were to be obtained. The Agreement further required an increase in the bank's loan valuation reserve, a budget, fidelity insurance, and the elimination of criticized loans, particularly those loans to directors, executive officers and their interests. Internal control deficiencies were to be corrected, a Loan and Discount Committee established, and a Compliance Committee formed to implanent and monitor adherence to the requirements of the Agreement. 34. A Cease and Desist Order, prohibited lending limit violations and required loans to officers to conform with the requirements of applicable law. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -92- LOans to certain direc- 466 tors were to be rerr.oved and extensions of credit to certain individuals and their interests were prohibited. The Order also required that two directors be relieved of all decisionmaking authority, and that all expenses paid by the bank for the personal benefit of directors be repaid. A new Chief Executive Officer was to be hired, subject to Regional approval. A new loan policy was to be formulated and the bank was instructed to limit extensions of credit to its trade area. In addition, criticized assets were to be eliminated, liquidity to be increased, payment of dividends was prohibited unless approved by the Region, and internal control deficiencies were to be corrected. 35. An Agreement required that a new Chief Executive Officer be hired, that additional capital be provided, that credit extended to directors and their interests be limited, that past violations of law be corrected, that dividend payments be restricted, that a program to improve earnings be adopted, that the bank increase its loan valuation reserve, and that an internal auditor be hired for the bank's staff. 36. A letter Agreement required the bank to hire a new Chief Executive Officer and prohibited the Chairman of the. Board from participating in the bank's operations. An investment committee was charged with developing an investment policy subject to Regional approval, and a iending policy covering specific areas. Criticized assets were to be eliminated, and an adequate loan valuation reserve established. A liquidity improvement program and audit program were to be submitted for Regional approval. 37. An Agreement prohibited further legal lending limit violations ana required correction of past violations. Additional capital was to be raised, the paymeht of dividends was prohibited except with Regiohal approvai and the loan https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -93- 467 valuation reserve was to be increased. The Agreement re- quired the bank to improve its liquidity position, to eliminate criticized loans, to develop a budget, and to evaluate management salaries. Satisfactory credit information for all loans was required, as was the development of a plan to improve internal controls. 38. An Agreement required an asset and liability management plan to be submitted to the Regional Administrator. The bank was also to eliminate criticized loans, to appoint an Executive committee composed of non-officers, to amend its lending policies, to define its trade area, to increase its loan valuation reserve, and to evaluate officers• salaries. The Agreement further required the bank to adopt an investment policy, to establish a personnel committee, and to develop a policy for supervision of internal op~ations. 39. An Agreement required the bank to hi~e a new Chief ~xecutive Officer and to formulate an earnings program. Further violations of the bank's legal lending limit were prohibited, and corrections of past violations were required. Additional capital was tg be provided and c~itieiz~ loans were to be eliminated. The Agreement ri,,quired a new loan policy, the obtaining of satisfactory credit info:1:111atlon and collateral for loans. 40. An Agreement required Regional approval of a new presiqent to be hired by the pank, quarterly revie,,, of tne bank's loan valuation reserve, and elimination Qf criticized asset$. ~iquiµity was tQ be increa$ed, a ~ew loan policy was required, and a financial ~9recas~ was tQ ~e subalitt~ for Regional review. otvidends were prohibit~~ unless approved by the Region and a compliance progr~ related to consumer laws was to be established. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -94- 468 41. An Agreement prohibited loans to certain individuals and their interests, prohibited the bank's President from granting loans over $25,000 except with Board approval, and forbid the bank's dealings with other entities. Violations of the lending limit were prohibited and correction of past violations of law required. 42. An Agreement prohibited violations of the banJc's legal lending limit and violations of credit information regulations. Past violations were required to be corrected. Additional equity capital was required, as was Regional approval prior to the payment of dividends. Liquidity was to be improved and the Board was required to submit a new loan policy for Regional approval. The Agreement further required the Board to reduce criticized assets and to maintain satisfactory credit information for all loans. An audit com.-nittee wa.s to be established, lUld the bank was required to pursue claj_ms against its bonding company. 43. An Agreement dealt.with numerous bank problems, primarily involving insider abuses. Among the problems addressed were violations of the bank's legal lending limit: the necessity for an external audit relating to salaries paid, leasing of personal property and preferential loans to insiders: establishment of a Compliance committee to secure restitution to the bank in various areas; sale of a luxury automobile purchased by the bank for a director; general investigation of leasing operations at the bank; definition of the bank's trade area; and reductions of concentrations of credit. Internal control deficiencies were to be corrected, the bank wa• prohibited from paying dividends without Regional approval, and new loan policies were to be ~eveloped and submitted for Regional review. 44. An Agreement with another bank, controlled by the same individual as the bank discussed in Paragraph 43, above, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -95- 469 dealt with pro~lems substantially similar to those described in Paragraph (3. 45. An Agreement required the bank to hire a new Chief Executive Officer, subject to Regional approval, to review its management structure and to raise new equity capital. It stopped the payment of dividends unless approved by the Region and required the bank to develop an earnings program. Criticized loans were to be eliminated and the loan valuation reserve was to be increased. 46. An Agreement, prohibited further violations of the bank's legal lending limit, and required correction of past violations. Loans to specific individuals were to be re- moved from the bank, and the bank was required to bring loans to officers into compliance with 12 U.S.C. S37Sa. An external CPA audit was required to study loans to directors, payments of questionable bank expenses, salaries to officers, and legal fees paid by the bank. The Agreement required the bank to secure interest payments lost through loans granted at -preferential interest rates, secure restitution of excessive legal fees, and to adjust salaries of officers commensurate with services performed. The loan valuation reserve was to be increased, as was capital, and the payment of dividends was prohibited except with Regional approval. 47. A Cease and Desist Order required the Board to provide a new Chief Executive Officer subject to Regional veto, to formulate an earnings program, and to stop and correct all violations of the bank's legal lending limit. An overdraft policy was required, as was elimination of criticized assets. Collection of delinquent loans and current credit information on all loans were required, as was an increase in the loan valuation reserve. The Order required additional equity capital and reductions of a large concentration of credit. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -96- 470 Better internal control procedures and a new loan policy were ta be adopted, both subject ta Regional approval. An oversight committee was to monitor compliance with the Order. 48. An Agreement required formulation of a program to improve earnings, development of a loan pricing policy, an increase in the bank's loan valuation reserve, a comprehen- sive audit, modification of the bank's lending policies, a program to eliminate criticized assets, justification for the bank's computer system and restrictions on the bank"s future investments in fixed assets. 49. A permanent Cease and Desist Order was consented to after the issuance of a Notice of Charges and a Temporary Cease and Desist Order. This permanent Order prohibited further violations of the bank's lending limit and required the bank to conform to 12 insiders. u.s.c. S375a in making loans to Past violations of law were to be corrected. In addition, correspondent accounts were to be limited, and the Order directed the Board to withdraw all lending authority from two executive officers. A new chief executive officer was to be hired and a review of director's expenses charged to the bank was ordered. This Order also required reimburse- ment of improperly paid expenses, payment of interest on insider overdrafts, and elimination of bonuses paid ta Directors. The bank was prohibited from extending credit to specified individuals and their related interests, and from giving preferential interest rates on loans to insiders. Liquidity was to be increased, as was the loan valuation reserve, and new capital was to be raised. SO. An administrative hearing was held in 1976 concerning the issuance of a final Cease and desist Order. After receiving a favorable recommendation from the Administrative https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -97- 471 Law Judge, a permanent Cease and Desist Order was issued which required the Board to reimburse the bank for excessive salaries paid to the bank's two top officers. The case was appealed to the United States Court of Appeals for the Eighth Circuit by the bank. Oral argument was heard by the Court and a favorable decision was rendered which affirmed the comptroller's power to require reimbursement. The opinion also held that the testimony of three national bank examiners and the fact that the bank had repeatedly ignored warnings from the Comptroller over an extended period of time to correct its criticized practices constituted substantial evidence in support of the Comptroller's Order to Cease and Desist. Consequently, the Order could only be altered if it was shown to haVc been issued in an arbitrary or capricious manner, which the Court did not find was the case. 51. During 1977, this Office also terminated or removed two (2) Cease and Desist Orders and seven Ci) Agreements in cases where banks had complied with their provisions or circumstances had materially altered the relevance of their provisions in some other way. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -98- ........ TABLE 7-A VIOLATIONS OF LAij OR REGULATION NATIONAL BANKS WITH ASSETS OVER ONE BILLION DOLLARS 1977 "".... IA a, :::, & .s U USC 29 U USC 82 U CFR 217 12 cm 221 U cm 226 U U1C 84 U USC 371c U USC 375a 12 CFR 23 31 CFl 011!Ell 10 21 142 123 14 31 152 34 505 2 14 l 54 4 2 18 0 127 a, § $1 BD.Ual '11) $5 BW.Ial (74 banks) & Total IUlber of violations per ,mst recent Cannercial Report of Ellanination 65 1 0\/ER $5 BW.IQf (15 banks) Total lulber of violations per DDSt recent Cannercial Report of Examination SOORCE: 26 U.S. caq,troller of the Qn:-rency Ocmnerc1al Reports of Exanination. SUBJl!Cr IIF.ADilal FOR LAWS lnMIZED ABOVE: 12 12 12 12 12 12 12 12 USC 29 • • • USC 371c • USC 375a • CFR 23 • CFR 217 • CFR. 221 • 12 CFR 226 • 31 CFR • USC 82 USC 84 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Authority to hold real estate. Indebtedness of national banks. Lending limits. Loans to affilistes. Loans to executive officers. Required statanenta of business interest of director& and pdneipal officers. Interest on deposits. Credit by banks for the purpose of purchasing or c:arryu,g margin stocks. Truth in lending. Reports of currency and foreign transactions. TABl,E 1•8 VIOLATIONS OF LAW OR REGULATION NATIONAL BA.'IKS REQUIRIKG SPECIAL SUPERVISORY ATTENTION "' ~ 1911 0 .,..,' U USC 29 ' U USC 82 12 USC 84 12 USC 311c 588 m 54 180 12 USC 37Sa 12 CFl\ 23 12 CFl\ 217 12 CFl\ 221 12 CFl\ 226 31 CFl\ OIHEII ~ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 0 • $100 IIIU.IQI (204 banka) Total lbii>er of violat1"na per nDat recent eam.,n:lal Report of Exalllnatlon 46 I,/ 170 8/ 197 137 33 8 C/ 56 D/ I/ IA08 1085 25 144 f 100 !all.IOI to (39 banka) l BIWCII Totol llJdJer of violat1"na 52 ~..=Lr"'~ of F.Mnlnatlm 2 76 ~ ---l OVER $1 BDLIQI (16 brda,) i:,.., Total llml,er of violat1"na per 11DSt recent 0Jmerclal Report of Exanlnatlm S(lllCE, 14 4 8 61 U.S. ~ttoller of the Qrrency Conmorcl.al Reports of Exanlnatlon. =~ :~ ~~~--=··. I,/ Report of l barit Indicates ''rurctous". B/ Report of l barit Indicates ''turcrous". ~ ~5~ Cou,ted as only l violation. Cou,ted as only l violation, ~:r"!.':{y\~i~~~-::r,~- E/ Reports of 3 ba1ka Indicate ''nunerous". Cou,ted u only l violation for each bank. 12 12 12 12 12 12 12 12 12 31 USC 29 USC 82 USC 84 USC 371c USC 375a CFl\ 23 CFl\ 217 CFl\ 221 CFl\ 226 CFR Authority to hold real estate. Irdcbtedneas of national brda,. ~ llml.ts. IDanl to affiliates. lDBnS to executive officers. Required atatarents of buslneaa Interest of direct:or1 and principal officer■• - rnterest .... deposits. the purpoae of purchasing or canylng margin atodca. • • • • • :=\~i=.~ - Reports of c:urnncy and foreign trC181Ct1"na, 55 29 130 29 183 474 Response to Request #18 INDEX FAILED NATIONAL BANKS 1973 - 1977 DATE DECLARED INSOLVENT NAME Skyline National Bank Denver, Colorado March 26, 1973 First National Bank of Eldora Eldora, Iowa October 5, 1973 U.S. National Bank of San Diego San Diego, California October 18, 1973 Franklin National Bank New York, New York October 8, 1974 Swope Parkway National Bank Kansas City, Missouri January 3, 1975 American City Bank & Trust Company, N.A. Milwaukee, Wisconsin October 21, 1975 Hamilton National Bank of Chattanooga Chattanooga, Tennessee February 16, 1976 Coronado National Bank Denver, Colorado June 25, 1976 Republic National Bank of Louisiana New Orleans, Louisiana July 29, 1977 See. ~tt~che.d for ~rte.f de.scrlpttons., https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -101- 475 Fl\ILED 3111:KS 12/31/72 - 12/31/77 Uank - Skyline National Bank, Denver, Colorado 1. Nc1me of 2. D~te Bank Declared Insolvent - 3-26-73 3. Tptal Assets on Date of Declaration - $6,527,124 TOTAL ASSETS & DEPOSITS FOR FIVE YEARS PRECEEDING FAILURE (thousands) 12/31/lJ. 12/ 31 l12 Chartered 642 6,399 12/29/71 48 5,370 12/31/6..§__ ·4. Assets Deposits 5. 12/31/M 12/31/.ll!_ Summary of facts leading to failure: Due to imprudent lending policies the bank began to suffer significant loan losses shortly after it was chartered. During February and March, 1973, liquidity deteriorated to the extent that the bank was able to meet its obligations only by the sale of loans. The bank was declared insolvent on 3/26/73 when loan losses were determined to exceed its capital funds by $149,000 and it became apparent that the bank would not be able to meet future deposit withdrawals. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -102- 476 FAILED BAN KS 12/31/72 - 12/31/77 1. Name of Dank - First National Bank of Eldora, Eldora, Iowa 2. Date Bank Declared Insolvent - 10-5-73 3. Total Assets on Date of Declaration - $8,071,962 TOTAL ASSETS & DEPOSITS FOR FIVE YEARS PRECEEDING FAILURE (thousands) 12/31/~ 4. s. 12/31/69 12/31/70 12/31/71 12/31/72 Assets 4,831 5,244 5,384 5,957 8,292 Deposits 4,459 4,742 4,860 5,421 7,740 Summary of facts leading to failure: Self dealing and other irregular activities by the President involving the payment of cash-items-and loans to a-related company caused the bank to sustain losses of approximately $1.3MM, in excess of the bank's capital. When the Directorate was u.,able to provide the necessary additional capital, the bank was placed into receivership and sold by the F.D.l.C. to another group of investors. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -103- 477 FAILED BANKS 12/31/72 - 12/31/77 1. Name of Bank - U.S. National Bank of San Diego, San Diego, California 2. Date Bank Declared Insolvent c October 18, 1973 3. Total Assets on Date of Declaration - $1,265,868,000 TOTAL ASSETS & DEPOSITS FOR FIVE YEARS PRECEEDING FAILURE 4. 5. 12/31/68 H/31 /69 12/31/70 12/31/71 Assets 488,257M 535,762M 596,460M 737,441M 994,218M Deposits 429, 155M 424,212M 504,098M 632,544M 831,402M 12/31/72 Summary of facts leading to failure: Failure of the United States National Bank resulted from massive fraud, perpetrated by a handful of individuals through the use of bank credit to their corporations and other affiliated organizations. Borrowings by these non-bank companies were used to roll-over debt of other non-bank companies with no legitimate reduction experience. Loans ostensibly made to one corporation were surreptiously funneled to or used for the benefit of others. Cash flow problems of the companies precluded adherence to agreed repayment programs, necessitating an ever-increasing pyramid of debt. Significant questionable transactions were first detected during a routine examination which commenced on June 26, 1972. The culmination of this examination led to the disclosure of two extremely large concentrations of bank credit; the repayment of which was highly questionable at the time. The next examination of the bank was commenced on January 8, 1973 and reflected in essence a continued deterioration in the condition of the bank, due in large part to the credit weaknesses inherent in the large concentrations of credit, as well as recurring violations of law. On May 24, 1973 the Comptroller's Office issued a Cease and Desist Order which severely curtailed the lending activities of the bank and which called for the removal of the bank's Chairman of the Board and principal shareholder: Despite these supervisory efforts, the adverse publicity surrounding the bank and its parent holding company continued to cause a steady drain on the bank's liquid https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -104- 478 reserves. U.S. National was forced to borrow extensively both from other banks and the Federal Reserve, which borrowings reached over $80 million in early July. A special examination of the credits comprising the two large concentrations of credit was completed in late August, 1973. The examiner concluded at that time that some $45 million in credits was loss and another $98 million was viewed as being of doubtful collectability. After Intensive review of the exAminer's findings, efforts were put in motion to effect an FDIC-assisted sale of the bank, which was achieved on October 18, 1973. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 479 FAILED BANKS 12/31/72 - 12/31/77 1. Name of Bank - Franklin National Bank, New York, New York 2. Date Bank Declared Insolvent - October 8, 1974 3. Total Assets on Date of Declaration - $3,771,801,000 -000TOTAL ASSETS & DEPOSITS FOR FIVE YEARS PRECEEOING FAILURE 12/31/69 4. 5. 12/31/70 12/31/71 12/31/72 12/31/73 Assets 2,875MM 3,489MM 3,537MM 4,397MM 4,996MM Deposits 2,062MM 2,632MM 2,840MM 3,461MM 3,732MM Summary of facts leading to failure: During the 1960s and early 1970s, the bank experienced rapid asset growth funded principally by volatile short-term ratesensitive funds. The quality of assets booked during that period were not generally of high caliber, due in part to the aggressively competitive market in which the bank operated. The penchant for growth had its impact on the bank's earnings, which declined substantially during the period 1970 to 1973. Net income from operations for 1973 equaled $11MM, down from $24MM in 1970. Of the $11MM experienced in 1973, $7.7MM was generated from foreign exchange trading. Governmeht efforts to counter the most severe inflation since World War II by restricting growth in money and credit resulted in a rapid run-up in short-term interest rates. The federal funds rate, the rate banks charge other banks for the use of their excess reserves, rose to an average of 12.92 percent in July 1974. The prime rate also averaged about 12 percent during that month. This run-up in short-term rates not only created pressure on Franklin's cost of funds, but it also, through disintermediation, forced Franklin to acquire even greater amounts of volatile funds to finance its operations. Moreover, the sharp deterioration in economic activity that developed in 1974 was reflected in widespread layoffs, rising unemployment, and declining real incomes. All these stresses were thus reflected iri slower loan growth and rising loan losses, which served to the detriment of Franklin. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -106 480 Franklin, with a history of marginal existence as a New ~ork City bank, as well as poor earnings and an unimpressive management reputation, was simply too weak in too many areas of its operation to withstand the pressures exerted upon it in 1974. The final blow came with the loss of confidence in Franklin by the financial community. (For additional information see Oversight Hearings into the Effectiveness of Federal Bank Regulation, Franklin National Bank Failure; Hearings before a Subcommittee of the Committee on Government Operations House of Representatives; NinetyFourth Con ress Second Session· Februar lO, Ma 25, 26, and June 1, 1976 . https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -107- 481 FAILED GAriKS 12/31/72 - 12/31/77 l. Name of nank - Swope Parkway National Bank, Kansas City, Mo. 2. Date Bank Declared Insolvent - 3. Total Assets on Date of Declaration - $7,575,960 1-3-75 TOTAL ASSETS & DEPOSITS FOR FIVE YEARS PRECEEDiNG FAILURE (thousands) 4. 5. 12/31/~ 12/31/71 12/31/72 12/31/73 12/31 /1.!t. Assets 9,725 14,324 12,188 9,765 7,980 Deposits 8,455 13,233 11,344 9,407 7,748 Summary of facts leading to failure: Substantial loan losses arising from the imprudent lending policies of the bank's original management was the primary cause of insolvency. Operating losses resulting from a steady decline in deposits also had a negative impact on capital. All efforts made to generate additional capital funds failed and losses resulted in insolvency. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -108- 482 FAILED BANKS 12/31/72 - 12/ll/77 1. Name of Bank - American City Bank & Trust Co., N.A., Milwaukee, Wisconsin. 2. Date Bank Declared Insolvent - October 21, 1975 3. Total Assets on Date of Declaration - $158 million TOTAL ASSETS & DEPOSITS FOR FIVE YEARS PRECEEDING FAILURE 12/31/* 4. 12/31/* 12/31/72 12/31/73 12/31/74 Assets 239,809M 229,754M 188,170M Deposits 200,344M 181 ,741M 145,614M *Bank converted to National Charter 12/22/72. years as state bank not available. 5. Figures from prior Summary of facts leading to failure: The bank's principal problem was attributable to a preoccupation for rapid growth with concomitant disconcern for asset quality, liability management and capital adequacy. Desire for growth and profitability during the latter part of 1972 and 1973 was fulfilled through solicitation of poor quality loans to marginal borrowers. Over 70% of the bank's loan portfolio in September of 1975 was centered in speculative real estate development and construction loans which had been affected significantly by the escalation of building cost over-runs and a general recessionary economy. Many of the development projects were to out-of-area borrowers, intensifying the difficulties of problem credit supervision, which management proved incapable of accomplishing. ACB underwent a serious crisis of confidence in both 1974 and 1975, which crisis was further exacerbated by the failure of AC8's parent, American Bancshares Corporation, to publish its annual report for the fiscal year ended December 31, 1974. Further contributing to the adverse publicity surrounding the two banking companies was the April, 1975 suspension of trading in the shares of ACB's parent by the State of Wisconsin Securities Commission. Beginning in February of 1975, it became more apparent that ACB was steadily losing the confidence of its customers and approaching a crisis point. Losses in ACB's portfolio had https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -109- 483 steadily mounted. Between February and October, 1975, the bank experienced a deposit run-off exceeding $35 million, coupled with an inability to raise funds in the money market. Sustained reliance by ACB on the purchase of federal funds to maintain its liquidity, and a corresponding loss of creditability to sellers of federal funds, resulting from adverse published reports, had, since June of 1974, virtually foreclosed ACB from the federal funds market. During the Fall of 1975 bank management engaged in numerous discussions with bank holding companies and individuals to try to effect a take-over by qualified purchasers of the bank, and concomitantly inject additional needed capital without FDIC assistance. However, it increasingly became apparent that a solution short of FDIC assistance could not be accomplished because of the massive problems in the bank. The Marine National Exchange Bank of Milwaukee purchased certain assets and assumed certain liabilities of the insolvent institution from the FDIC acting as receiver. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -110- 484 FAILED BANKS 12/31/72 - 12/31/77 1. Name of Bank - The Hamilton National Bank of Chattanooga, Chattanooga, Tennessee 2. Date Bank Declared Insolvent - February 16, 1976 3. Total Assets on Date of Declaration - $441,267,000 TOTAL ASSETS & DEPOSITS FOR FIVE YEARS PRECEEDING FAILURE (thousands) 12/31/71 4. 5. 12/31/72 12/31/73 12/31/74 12/31/75 Assets 360,033 414,074 464,781 551,074 476,073 Deposits 298,691 336,593 372,892 448,194 408,004 Summary of facts 1eadi ng to failure,- Hamf Hon Nati ona 1 Bank was chartered by the Comptroller's Office in 1905. As of December 31, 1975 Hamilton National Bank ranked as the largest of the seven banks located in Chattanooga, Tennessee. In 1969, Hamilton National Bank became a subsidiary of Hamilton Bancshares, Inc., a registered multi-bank holding company. The bank and the holding company had been closely associated since 1930 because of common ownership. Hamilton National Bank was the largest bank of the 18 banks operated by the holding company in Tennessee and Georgia. The holding company also had several nonbanking subsidiaries which were engaged in real estate, data processing, mortgage banking, loan servicing, life insurance and factoring. These subsidiaries were formed between 1971 and 1974. The principal non-bank subsidiary, Hamilton Mortgage Corporation, was located in Atlanta, Georgia. An examination of Hamilton National Bank begun on September 30, 1974, and continuing into November 1974, revealed substantial asset difficulties. The examiner criticized the creditworthiness of loans and other assets amounting to 154% of gross capital funds. The· poor condi'tion of Hamilton National Bank was directly attributable to the large number of real estate loans originated or acquired from Hamilton Mortgage Corporation, a wholly-owned subsidiary of Hamilton Bancshares, Inc. Many of these loans represented 100% financing of acquisition, development and construction costs for large real estate projects. Most borrowers were highly leveraged and lacked the ability to complete or sell the projects undertaken. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -111- 485 The Comptroller of the Currency entered into an agreement with the Board ·of Directors of the bank on December 18, 1974, restricting extensions of credit or loan participations between Hamilton National Bank and the holding company, and its affiliates and subsidiaries. Successive examinations and visitations revealed further deterioration. The September 29, 1975 examination revealed assets acquired from Hamilton Mortgage Corporation aggregated an: of total assets whose c-redftworthiness- was questioned and 243% of gross capital funds. Non-accrual loans and non-income producing real estate exceeded $77 million. Almost 27·% of the 1oan portfolio was past due. Of these del inquent loans, 97% had been acquired from Hamilton Mortgage Corporation. During the first 11 months of 1975 the bank had a net operating loss of $8.2 million, principally as a result of heavy loan losses and non-accrual assets. During the period between January 31, 1975 and January 31, 1976 the bank underwent considerable retrenchment and suffered an absolute deposit decline of $76.9 million as well as a decline in borrowings of $15.7 million. These reductions, which aggregated $92.6 million, were met primarily through the liquidation of assets, including cash and due-from-banks, securities, and federal funds sold. This steady drain on liquid assets of the bank was in the end to cause its ultimate demise, At the end of 1975 it became apparent that without a massive capital infusion, Hamilton National Bank would be unable to sustain operations over the time period necessary to work out its real estate and other problems. Without such assistance the bank and Hamilton Mortgage Corporation could not fund out the real estate projects or otherwise complete them. In view of the extended litigation on many of the properties, their location fn economically depressed areas, and the inactive and incomplete nature of some of the developments, ft was the OCC's opinion that the liquidating value of the bank's portfolio of Hamilton Mortgage Corporation related loans and foreclosed properties was much less than the value shown on the bank's books and records. In early February, 1976, the Comptroller's Office estimated that on a liquidating basis, the loss inherent in the bank's $73 million of Hamilton Mortgage Corporation-related assets and the securities portfolio would exceed the gross capital funds of approximately $28.5 million shown on the bank's books as of January 31, 1976. The Comptroller opined at that time that unless the bank or its parent holding company was able to raise the needed capital immediately, the bank could no longer be viewed as a going concern. There were no available sources of capital to rescue the bank as an entity and place it on its feet. Hamilton Bancshares, Inc., was in an extended financial condition at the https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -112- 486 time and was incapable of ra1s1ng sufficient funds to recapitalize the bank. No other banking company or other private group had shown any interest in assuming the bank without considerable federal assistance. After months of negotiations, the FDIC had been unable to agree with major lenders of the holding company (a group of banks) on a plan calling for financial assistance to Hamilton National Bank by the FDIC pursuant to 12 u.s.c. 1823 (c). In early February, 1976 the bank faced a severe liquidity crisis. Up until that time, the bank had been able to meet deposit withdrawals through the liquidation of assets; however, it could no longer continue to do so. Hamilton Mortgage Corporationrelated mortgages and real estate were steadily becoming a higher and higher proportion of the asset structure of the bank and could not be sold to meet the demands of depositors and other creditors. Additionally, the securities portfolio of $82 million was largely pledged or sold under agreements to repurchase, leaving little margin for liquidity purposes. Finally, the adverse publicity surrounding the bank seriously hindered its ability to borrow from private sources to meet excessive deposit withdrawals. On February 16, 1976, having become satisfied that Hamilton National Bank was insolvent, the Comptroller appointed the FDIC as receiver. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -113- 487 FAILED BANKS 12/31/72 - 12/31/77 l. Name of Bank - Coronado National Bank, Denver, Colorado 2. Date Bank Declared Insolvent - 6-25-76 3. Total Assets on Date of Declaration - $2,612,693 TOTAL ASSETS & DEPOSITS FOR FIVE YEARS PRECEEDING FAILURE (thousands) 12/31/71 12/31/73 12/31/74 12/31/75 Chartered 12/31/72 2,905 3,393 4,127 3-31-73 2,364 2,876 3,895 4. Assets 5. Summary of facts leading to failure: Deposits The bank opened 3-31-73 for the purpose of serving the MexicanAmerican community of Denver, and was plagued with both operating and loan losses from inception. The problems resulted mainly from a lack of effective and experienced management in the bank. The bank's first two Chief Executive Officers exercised extremely liberal policies and were lax in supervision of bank operations. The third President resigned in February 1975, at the request of the Comptroller's Office. His replacement, while considered capable, was unable to stem the flow of losses. Operating and loan losses had depleted capital funds to a deficit $9,630 as of April 21, with continued monthly operating losses of $7,000. The bank was declared insolvent when it became apparent that the Board of Directors could not succeed in recapitalization or reorganization of the bank. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -114- 488 FAILED BANKS 12/31/72 - 12/31/7] 1. Name of Bank - Republic National Bank of Louisiana, New Orleans, Louisiana 2. Date Bank Declared Insolvent - July 29, 1977 3. Total Assets on Date of Declaration - $6,611,000 TOTAL ASSETS AND DEPOSITS FOR FIVE YEARS PRECEEDING FAILURE 12/31/72 4. Assets Deposits 5. * * 12/31/73 12/31/74 12/31/75 12/31/76 * 2,906,000 12,557,000 7,471,000 * 1,892,000 ll,573,000 5,785,000 sommary of facts leading to failure: During the three years that the bank was in existence, it suffered from inadequate director supervision, an excessive volume of poor quality loans, and abuse by directors and officers. Despite close monitoring, the capital structure was steadily eroded by the high volume of poor quality loans. Although the Board signed a letter of assurance (dated 2/1/77) and consented to a formal Cease and Desist Order (6/16/77), unsafe and unsound practices continued. State Of Louisiana funds and U.S. Customs accounts were mishandled; subsequent rapid withdrawal of state funds precipitated a continual liquidity crises necessitating borrowing from the Federal Reserve Bank on a daily basis. In June of 1977, local banks refused to purchase portions of the bank's loan portfolio because of its poor quality. Because of the extreme concern about the continued deterioration in the bank's loan portfolio, a Special Supervisory Credit Examination was ordered to begin on 7/25/77. On July 29, 1977, loan losses exceeded capital funds and reserves. Because of its negative net worth, and an imminent liquidity crisis, the bank was declared insolvent on July 29, 1977, and the FDIC was appointed as its receiver. *Opened for business on 6/lS/74. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -115- 489 Response to Request #19 MERGERS, ACQUISITIONS BY HOLDING COMPANY & PURCHASE & ASSUMPTION TRANSACTIONS EFFECTED TO AVERT FAILURES 1973 - 1977 NAME TYPE OF TRANSACTION DATE Beverly Hills National Bank Beverly Hills, California Purchase & Assumption January 22, 1974 Citizens National Bank Jackson, Mississippi Purchase & Assumption November 14, 1974 Security National Bank Hempstead, New York Purchase & Assumption January 20, 1975 The First National Bank of Tucker, Tucker, Georgia Purchase & Assumption March 24, 1975 Palmer First National Bank & Trust Company of Sarasota Sarasota, Florida Acquisition by Holding Company January 15, 1976 Community National Bank of Warrensville Heights Warrensville Heights, Ohio Purchase & Assumption June 18, 1976 Mercantile National Bank Atlanta, Georgia Purchase & Assumption July l, 1976 Red Creek National Bank Red Creek, New York Purchase & Assumption July 20, 1976 First National Bank of Puerto Rico Hate Rey, Puerto Rico Acquisition by Holding Company September 3, 1976 Chelsea National Bank New York, New York· Purchase & Assumption December 31, 1976 Midland National Bank Milwaukee, Wisconsin Purchase See attached for brief descriptions. -116- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 30-476 0 - 78 - 32 & Assumption July 23, 1977 490 MERGERS, ACQUISITIONS BY HOLDING COMPANY & PURCHASE & ASSUMPTION TRANSACTIONS EFFECTED TO AVERT FAILURES 12/31/72 - 12/31/H_ 1. Name of Bank - Beverly Hills National Bank, Beverly Hills, California 2. Type of Transaction - Purchase and Assumption 3. Effective Date of Transaction - January 22, 1974 4. Total Assets on Date of Transaction - $140,167,000 TOTAL ASSETS & DEPOSITS FOR FIVE YEARS PRECEEDING TRANSACTION (thousands) 5. 6. 12/31/71 12/31/72 12/31/73 83,429 102,853 122,146 145,928 65,614 83,222 102,911 122,724 12/31/69 12/31 /70 Assets 70,890 Deposits 58,210 Summary of facts leading to transaction: Beverly Hills Bancorp. (BHB), the parent of Beverly Hills National Bank (BHNB) became financially involved with a real estate developer. To aid in the funding activities of this developer, BHB issued short term commercial paper using Beverly Hills National Bank personnel to market it. Subsequently, the real estate developer became unable to repay its indebtedness to BHB due to a slowness of real estate sales. This precipitated a liquidity crisis for BHB. To relieve its liquidity problems during this period, BHB made several attempts to obtain funds from BHNB. On 12/31/73, due to a lack of funds, BHB discontinued both the issuance/redemption of commercial paper with the real estate developer declaring bankruptcy on 1/15/74. An examiner was placed into BHNB early in December 1973 to observe and monitor all transactions between BHB and BHNB. On 12/26/73 a Notice of Charges and a Cease and Desist Order was issued by the OCC to protect BHNB and BHB. Due to the problems at BHB, depositors at· BHNB became uneasy and began withdrawing deposits, which precipitated a liquidity crisis for the bank. On 1/22/74 BHNB was sold through a purchase and assumption arrangement to Wells Fargo Bank, N.A. to avert a failure. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -117- 491 MERGERS, ACQUISITIO"S BY HOLDING COMPANY & PURCHASE & ASSUMPTIOn TRANSACTIOns EFFECTED TO AVERT FAILURES 12/31/72 - 12/31/77 1. Uar.ie of Bank - Citizens National Bank, Jackson, Mississippi 2. Type of Transaction - P/A; First Mississippi N/B, Harrisburg, Miss. 3. Effective Date of Transaction - 11-14-74 4. Total Assets on Date of Transaction - $40,479,000 TOTAL ASSETS & DEPOSITS FOR FIVE YEARS PRECEEDING TRAHSACTION (thousands) 12/31/69 5. 6. 12/31/70 12/31/71 12/31/:ZZ. 12/31/U Assets 50,529 22,077 27,058 35,035 45,708 Deposits 13,630 19,683 24,274 31,074 40,441 Summary of facts leading to transaction: The problems in this institution stenuned from poor management{and involvement in a large kiting operation and imprudent loans wnich resulted in significant losses and the need for additional capital. The directorate elected to merge with another bank rather than raise additional capital. However, a purchase and assumption transaction was executed when litigation was filed against the bank and a liquidity crisis developed. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -118- 492 MERGERS, ACQUISITIONS BY HOLDING COMPANY & PURCHASE & ASSUMPTION TRANSACTIONS EFFECTED TO AVERT FAILURES 12/31/72 - 12/31/77 1. Name of Bank - Security National Bank, Hempstead, New York 2. Type of Transaction - Purch~se of and assumption; Chemical Bank. 3. Effective Date of Transaction - January 20; 1975 4. Total Assets on Date of Transaction - $1,726MM TOTAL ASSETS & DEPOSITS FOR FIVE YEARS PRECEEDING TRANSACTION (Millions) 12/31/70 5. Assets Deposits 6. 12/31/71 12/31/72 12/31/73 12/31/74 l, 161 1,415 2,185 l ,816 l, 715 969 l, 179 l ,713 1,497 l ,334 Summary of facts leading to transaction: Rapid asset growth of this institution in the late 1960s and early 1970s produced a need for qualified management and administrative controls. Significant management problems deve1ope-d·, highlighted by inordinate senior management turnover, inadequate staffing in the lending area, divisiveness among management, and both indifference and interference by the Board of Directors. Emphasis on loan growth necessitated increasing dependence on volatile funds purchased, particularly federal funds, large CDs and public fund deposits. Loan losses began to escalate in 1973 and by 1974 could not be covered by earnings or the available reserves. Bank's operating income was nearly non-existent as interest costs, nonaccrual loans and loan loss provisions were substantial. The bank's deposit base began to ebb in early 1974. During the summer of 1974 domestic and foreign funding sources evaporated. By early 1975, daily assistance was being provided by the Federal Reserve Bank of New York, as the federal funds market and other fund sources were virtually closed. Confidence problems were exacerbated by the atmosphere prevailing from the then recent demise of the Franklin National Bank and Security's acknowledged difficulties in banking circles culminating with explicit.newspaper coverage of problems in late 1974 and early 1975. Following the June 1974 examination, several meetings were hel~-with management and the Board to emphasize specific recovery measures. The Comptroller of the Currency and senior DCC personnel participated in several of these meetings. In the fall of 1974, it became apparent that the bank could not be recapitalized, reduce borrowed funds, improve loan quality, and otherwise solve its earnings and management problems. In January 1975, with the Comptroller's approval, an emergency purchase and assumption transaction was consummated with Chemical Bank. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 493 MERGERS, ACQUISITIONS BY HOLDING COMPANY & PURCHASE & ASSUMPTION TRANSACTIONS EFFECTED TO AVERT FAILURES 12/31/72 - 12/31/77 1. Name of Bank - The Fi'rst N/B of Tucker, Tucker, Georgia 2. Type of Transaction - P/A; National Bank of Georgia, Atlanta Georgia 3. Effective Date of Transaction - 3/24/75 4. Total Assets on Date of Transaction - $17,714,000 TOTAL ASSETS & DEPOSITS FOR FIVE YEARS PRECEEDING TRANSACTION (thousands) 5. 6. 12/31/70 12/31/71 12/31 /72 12/31/73 12/31/74 Assets 5,545 6,048 12,306 18,686 19,622 Deposits 4,877 5,098 11,183 16,397 16,561 Summary of facts leading to transaction: The problems in this institution were brought about by the origination of an excessive volume of loans in relation to deposits and capital, and a large volume of speculative real estate loans which resulted in fatal losses to the bank. The excessive volume of frozen loans in the bank negatively impacted on liquidity and by mid-1974 daily borrowing at a large metropolitan bank and the Federal Reserve Bank became necessary to meet deposit runoffs. Approaching insolvency eliminated these sources of funds and a purchase and assumption transaction was arranged. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -121- 494 MERGERS, ~~QUIS!TIO~S ~y HOLDl:G COMPA~Y i PURCHAS~ I ASSU~PTIOU 7RAlSACTIO~S EFFEC7EO TO AVERT ~nlLURES 12/31/72 - .!.UlJi.l!. _ _ _ _ __ 1. Nar.e 2. Type of Transaction -P/A: of Gank - Community N/B of Warrensville Heights, Warrensville Heights, Ohio First Bank N.A., Cleveland, Ohio 3. Effective Date of Transactton - 6/18/76 4. Total Assets on Date of Transaction - $16,131,000 TOTAL hSSETS & D~?OSITS FOR FIVE YEARS PRECEEDl~G TRAttS~CTIO~ (thousands) 12/31/ .1]. 5. 6. l 2/31 / _.!.2 12/31/73 1213;171, 12/3i/I~ Assets 32,504 38,331 45,983 33,171 20,280 Deposits 29,058 32,661 40,796 29,151 18,532 Summar:, of facts leading to tr:nsaction: In 1974, the bank purchased a large volume of poor quality lo.ans from an affiliated institution. This Office promptly entered into an Agreement with the Directorate calling for the removal of such loans from the bank through resale to the affiliate. Unfortunately, the affiliated bank was declared insolvent after repurchasing only a small portion of the loans. Subsequent loan losses and operating losses, due to high interest costs, heavy occupancy expenses, declining loan revenues and high employee expenses, eliminated all equity capital in the bank. The directorate was unable to recapitalize the bank and elected to enter a purchase and assumption transaction in order to avert failure. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -123- 495 MERGERS, ACQUJSJT!Ons BY HOLDl~G COMPA~Y I PURCHASE & ASSUMPTIO" TRA~SACTIO~S EFFECTED TO AVERT FhlLURES 12/31/72 -.. 12/31/7..,_7_ _ _ _ __ l. Name of Dank - Mercantile N/B, Atlanta, Georgia 2. Type of-Transaction - P/A: N/B of Georgia, Atlanta, Georgia 3. Effective Date of Transaction - 7-1-76 4. Total Assets on Date of Transaction - $11,021,000 TOTAL ASSETS & DEPOSITS FOR FIVE YEARS PRECEEDING TRA~SACTJON {thousands) 5. 6. 12/31/71 12/31/72 12/31/73 12/31/Z!± 12/31/75 Assets 14,898 15,548 13,502 12,093 11,860 Deposits 13,242 13,426 10,946 9,526 10,662 Summary of facts leading to transaction: Mercantile, among the smallest commercial banks operating in the Atlanta market, experienced rapid management turnover and an 18 percent decline in total assets during the years 1971 through 1975. These factors made the bank a relatively ineffective competitor and an uneconomic operation within the Atlanta market. During the same five-year period, Mercantile had net operating profits only in 1972 and 1973, and an average net operating loss per year of approximately $63 thousand. By the first quarter of 1976, Mercantile was experiencing an average monthly net operating loss of approximately $37 thousand, in addition to substantial loan losses, which seriously eroded the bank's capital structure. In view of additional operating and loan losses anticipated, and the unwillingness to recapitalize the bank at an adequate level, the.Directorate elected to effect a purchase and assumption transaction with another institution and voluntarily liquidate the bank. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -124- 496 MERGERS, ACQUISITIONS BY HOLDING COMPANY & PURCHASE & ASSUMPTION TRANSACTIONS EFFECTED TO AVERT FAILURES 12/13/72 - 12/31/77 l. Name of Bank - Red Creek N/B, Red Creek, N.Y. 2. Type of Transaction - P/A; Oneida N/B & Trust Co. of Central N.Y. Utica, N.Y. 3. Effective Date of Transaction - 7-20-76 4. Total Assets on Date of Transaction - $12,288,000 TOTAL ASSETS & DEPOSITS FOR FIVE YEARS PRECEEDING TRANSACTION (thousands) 5. 6. 12/31/71 12/31/72 12/31/73 12/31/74 12/31/75 Assets 6,645 8,646 8,948 10,775 12,759 Deposits 5,903 7,808 8,051 9,830 10,911 Summary of facts leading to transaction: The major factor attributing to the bank's condition was incompetent management. The Board of Director~ exercised virtually no supervision over the affairs of the bank and serious mismanagement of the loan portfolio by the Chief Executive Officer prevailed. The resultant heavy loan losses effectively depleted the bank's capital funds. When efforts to employ competent management and obtain financial aid from shareholders were unsuccessful, the directorate elected to enter a purchase and assumption transaction with another institution. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -125- 497 MERGERS, ACQUISITIONS RY HOLDING COMPANY & PURCHASE & ASSUMPTION TRANSACTIONS EFFECTED TO AVERT FAILURES 12/31/72 - 12/31[77 1. Name of Rank - First N/R of -Puerto Rico, Hato Rey, Puerto Rico 2. Type of Tran,action - Acquisition by Holding Company 3. Effective Date of Transaction - September 3, 1976 4. Total Assets on Date of Transaction - $25,979,000 TOTAL ASSETS & DEPOSITS FOR FIVE YEARS PRECEEDING TRANSACTION (thousands) 5. Assets Deposits 6, 12/31/71 12/31/72 12/31/73 12/31/74 12/31/7':J Chartered 6,797 23,661 31,001 31,406 9_zg_72 4,758 21,144 28,258 28,754 Summary of facts leading to transaction: Poor supervision by the Directorate, deterioration in the local economy, and imprudent lending practices resulted in sizeable loan losses and erosion of capital funds. Profitable operations were never consistently achieved, and the bank was able to raise necessary capital only through sale of a stock offering to a bank hoiding company interested in expanding operations in Puerto Rico. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -126- 498 M!RGE!tl!, ACQUISifIONS BY HOLDING COMPANY & PUllCHASE & ASSIIMPT!ON TRANSACTIONS EFFECTEb TO AVERT FAILURES 12/31/72 - 12/31/17 l. Name of Bank• Chelsea National Bank, New York, New York 2. Type of Transaction - P/A: Union Chelsea N/B, New York, New York 3. Effective Date of transaction - Decetnber 31, 1976 4. Total Assets on Date of Transaction - $30,133,000 TOTAL ASSETS & DEPOSITS FOR F!VE n/ulS PREeEiDINO TRANSACTION. (thousands) s. 6. 12/jl/71 12/31/12 12/31/73 lli31/74 12/31/7S Assets 26,151 31,697 36,107 32,980 31,082 Depoaita 21,808 28,13; 32,226 28,316 27,014 Summary of facts leading to transaction: The bank's problems stemmed from vety liberal and aggressive lending to clientele which larger New York banks could afford to tu~ down, and a history of deficit or only nominal earnings resulting from loan losses 1 and abnorm~lit high salary expense. SeriOlis deterior~tion in the banks loan portfolio first appeared at.the October 28, 1975 examination, where sizeable losses were identified. Subsequent examinations and visitations revealed continued deterioratien in the loanportl:olio and additional loan losses which, aiong with operating losse1, effectively placed the bank on the brink of insoivettcy. A new Chief ~xecutive Officer was appointed October 1, 1975, but was able to function as little more than a caretaker since problem loans were already in-place and negotiations were being undertaken to sell control of the bankl rather than raise the netessary capital. On December 31, 1~76 1001. of the stock was ptirchased by a group of individuals whd subsequently recapitalized the bank. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 499 & MERGERS, ACQUISITIONS BY HOLDING COMPA.~Y PURCHASE AND ASSUMPTION TRANSACTIONS EFFECTED TO AVERT FAILURES 12/31/72 - 12/31/77 1, Name of Bank - Midland_National Bank, Milwaukee, Wisconsin 2. Type of Transaction - P/A: National Bank of Wisconsin, Lacrosse Wisconsin (subsidiary of First Bank System, Minneapolis, Minnesota) 3. Effective Date of Transaction - July 23, 1977 4. Total Assets on Date of Transaction - $400,000,000 TOTAL ASSETS & DEPOSITS FOR FIVE YEARS PRECEEDING TRANSACTION 12/31/72 12/31/73 12/31/74 12/31/75 12/31/76 250,564,596 321,908,966 385,610,766 355,017,454 394,648,000 Deposits 199,282,239 242,467,071 266,932,678 309,898,834 337,313,520 5. Assets 6, Summary of facts leading to transaction: Midland National Bank was organized as a National Bank on May 5, 1965, when it was granted Charter No. 15510. As of year-end 1976, the Midland National Bank had total deposits of $337.3 million, and ranked as the fourth largest commercial banking institution headquartered within the State of Wisconsin. Serious asset problems became critical in Midland National Bank during 1976, resulting in a substantial net operating loss for the year. Most of the losses were attributable to the real estate loan portfolio. The severity and complexity of the real estate loan problems, as well aa the volatility of the bank's deposit structure, threatened the Midland National Bank's survival without a massive injection of capital. During the early months of 1977, efforts by bank management to secure needed capital were unsuccessful. At the same time close monitoring of the bank by the Comptroller's Office inuicated that its condition was continuing to deteriorate. An··offer had tieen made to Midland National Bank contemplating the sale of its assets and the assumpti~n of its liabilities, including all deposit liabilities, by The National Bank of Wisconsin in La Cros9e. Because of the precarious financial condition of Midland National Bank and the likelihood that a failure immediately to consummate this proposed transaction would result in the probable failure of this Milwaukee institution, with all of the attendant injury to depositor ■, creditors, and shareholders, the Comptroller approved the offer made by The National Bank of Wisconsin in Lacrosse, Wi1consin. Purchasing Bank, at December 31, 1976, had total commercial bank deposits of $54,4 million, however, it is a wholly owned banking subsidiary of First Bank System, Inc., Minneapolis, Minnesota, a registered multi-bank holding company that controls 86 banks, with total deposits exceeding $6 billion. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 500 () Comptroller of the Currency Administrator of National Banks Washington, D.C. 20219 April 6, 1978 The Honorable William Proxmire Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Mr. Chairman: The attached information is an addendum to the data we submitted to you on March 1, 1978. It is supplied in response to questions 5, 9, 10, 12, 13, and 15 of your request' of December 15, 1978. This data was originally furnished to you on a domestic only basis by the Federal Deposit Insurance Corporation on March 3, 1978. At- _t_h_e_ request _0£ Mr.-Undy-Mar-!ftaeeit>-,- Spe-c±at--eounsel-i:oche--C-orii" mittee, we recomputed this data on a fully consolidated foreign and domestic basis. For comparative purposes, the format is consistent with Schedule A-3 in the original submission by the Federal Deposit Insurance Corporation. However, there are some minor differences in the method used to calculate averages, total capital, total loans, net interest margins and average earning assets. Sinc,;ly, Joh~nn Comptroller of the Currency https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis NATl(J~AL RANKS 197?-1Q77 lOT~l OFPOSJTS JN FOREIGN I\ND 00"1f.STIC orrrCE'S ri,~n l 00-500 MIi LJOM Cl- l Oli TnTAL 1.1JLI. 10:-.l ------------- --------------- --------------- --------------"-·l I' ,. r ~ "' --1, •. ,. .. ! c-.11-·,,, 11- q_-,,., f 1qrf ' CM 1 r,,L r1(:,l o~-J"- n ,..~ •·Ct I T •_r,f UF r1HJ!l'f (/\PIT AL ro Tar r,.L n1-·o J ,, r,~ ,,r µf,-'CE :•.Ttif',F 1f'f;. 4J 4l,• 341 • 42ltl. 4?13. 4 J(,4. 41 l f. ]fi9. 46. 47 • 10. 11. 11. .,. 49. SI. 10. SR. 11. 11. )1 RA. SA88. &lA9. 6AJS. J03an. 447 • 301 I?. .33011. 3'::iii 17. 712/j. 791 l • A66~. <;,J3S. 9 /4». l 0099. SRo 11. i'l!)fit.;J. 44(t4 7. 4':,Q4?. R76~. 5147. SAO6. 6393. 6A79. 7700 • 7A43. 4313. 9069. S328. 11565. 136<1 • 14359. 6.51 5.41 ,,-.79 3374. 3599. JRf,9• :.uno. 7<22. 9730. ti? "i.43 Ir.- 11-·1 J lt".- n- 14 l(-H--h le- 11- ,.., $,44 ,. 15 7.•t] "'• 3b f o;.:n s.,,l fi.tio f,,.hb "• lA f>.27 6.50 5.!l.7 7 ... -;i 7 • (3 ,,.92 6.5? .,,91 1 .be; 7. I 0 "· 70 7 .-,q 8. l O 8.<+-5 7 .47 7.53 7.80 7 7.8? 7 .9~ 7.96 fr.HI! l Y ('t,.i:>J l "'L TO Tell tol llf Pfl~ t l c- ii- 1;, ti. ~7 lt'-Jl-71 It:'- 'IJ-14 1 r'- i l-7½ 6.59 6,40 A. 7'-1 7. 1 0 7 .2? s.os s. 12 s.s1 s. 78 i;.ss 4.?S 3.86 4.?s 4.SQ 4.57 re; .,,o (,. 75 6.56 6.67 7 • 10 7 .47 7.68 M.'+R 1 .as 7 .86 8.h] H. fQ A. 03 R.27 8.11 2,t,A J. I I s. 76 7.41 fl.64 7 .so l?.59 l?. 73 s.12 ~.29 &.84 7.04 7.56 12.56 11.36 11.01 10. 79 5.77 s.19 4.67 5. I 7 s.66 s. 72 CM'TTAL TO lOTA.L CAPITAL lc'-Jl-71 6.91 l c:-J 1- .'l li-Jl-/4 ll.-JJ-7S 6.38 5.91 J. I) 3.t9 lc'-·J\-7.., ot--J0-7 r 6. 1•; 6.12 3,"tA 6.fi'> 0, 0 I-' "'ssr rs 7. Uf iJf:_lil 56. 5B. SQ. 64. 406. 44?. 5. 7d lc-H-71', Qt,-J(•- -, 1 50 4f)7J. 4 706. 474C... 473!1. 4 7ll]. !i:'- i i - ,2 (lt,-·10- / 5C OVEQ 5 BILLIO~ tHl 1-11Ll IOr-;c;) }t'.'-JJ-,1? 12-j\-7) l t::-j 1-/4 lr'- l 1-·17 \,'- q .. fl-, 5" 1. 4SQ7. t ..:.g /',l"J-J••- ( i' fpT tl 1-~ BILL TUN ~ JC-iJ-7;.> 11- H-7 l ll-'1-74 SA 500 MlLLJONI A ILL ION ---------- ... ---- ------·-------- --------------- J.'+O s.64 s. 70 s. 74 7 .n3 S.?6 1t.1e 4.?5 4.9Q 4. 71 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis NAT J 0-.JAL t-1ANKS l'n2•}Q77 TOTIIL OEPOSJTS IN F'ORETGN ANO DOMF'STJC OFFICES 100-soo MILlIO!\! o-1oc MILLION TClTAl. [)AH 500 MILLIONl Rill.ION nvER 5 AILLIO'i 1-c; BJU.lOt.j SC 11-3 i -7t' 1.22 f,.~2 1.-:-J I- I i I. :iA 7 0 b4 7, ,}7 t'-.VO 8. l 3 f,.Hl 7 .oo 1.-:'-Jl-h Ir'- ~ l - 1--. \r.'.-.\J-/1-) (d>-30.-17 5F 1>~·-TE.~ 1 T.:..r.F •IF 1 rn M r .. ,· I 1 t,\ rn 7 .t!-4 8.\/4 )t'-.i!-/h H. IQ 8.tl", 8. JS 8.J~ oo-hi-77 .... l->C['JT'.r,r ,JF TnT~l 7 ,]4 7 ,53 fi.}9 s. 15 s.sh 4.48 4,ns 4.44 s. 7A 6.21 6.50 •.eJ 6.56 ~ 7. 39 1. :rn 7 .fiO 7.lib 7 .q2 "· 15 7,6J 7 ,25 1.•1 7 ,57 7 ,54 7 ,01 fi,f,(',, S.48 4. 73 4,?6 4068 6, \9 6,2A 6.6q h.95 7 .02 f/, ;/:, ,~;sl§ TOTAL l -i'r.' 12-31-11 12-·n -·,,. li'-':Sl-h }l-.1 5(, 1.os 7 .03 h 0 70 6.A4 t,.98 1.01 7 ,25 5.01 s.04 Ot 0 t,:) c:.l'J ll'oL f() Rl5K ASSFTc; le'- ll- 7? I c-!!-·11 l c-Jl- f<t , ~- t\-f"' lc'-JJ - 7t-> Ui- ill-// 11.1,?. IO• l 7 7 .9?. 7 .~, 1 (). -.)9 lU .c:'? ~::~~ l Q,bO ~.f,J l ?.-JJ -·it I c:'- JI - 7 3 lc'-.11-·14 l<'-J 1-7S 25<:i%o. JOI 3fi6. JS'JQfiP • JS.HO?. 11. i.14 11 olJ/'i 49015. 5491 ti, 5H53 I. 6U0?c1. lC-j}-7h 37C 1irt. 61791. ri,,-Jr•-71 341171 • 6:_"lkl:l l . 55, 12 lt'.'-Jl-7? n1.10 It!.- JI-7J Jt'.'- il-74 l ~- IJ-7<, tc-H-7A f.S, 74 01 .5v h~ 0 ',\] SIS,M7 ',7 .on 5&.~1 [1b-J'1-f7 tJ':,.i;,t '.:i~.J9 hC., 0 ]1 58. llli q. 32 Q.OJ q,?2 Q.63 l o.n4 1 n.?o ]E'.SSA. 4541 n. 4ASI o. 4~291. 5?fl2?. 54?46 • 59.41 bl.11 61. 14 SQ.Mi s1 .c;z 61).6tl Q.46 A. 70 A.87 9.?5 9.35 9,SI 8.41 23911. l7S77, 2A386, 291 rn. 27922 • 31 726. c;nf.94. 57649. 6t-lA49 7"t!496. 93682'. 121e2n. 1519~1 • 1~2314, 1~1893. 167022. ti).20 66.45 69.99 70.9?. 6'.11 63. 77 66.87 66.19 68."6 71 • 7• 11. ns 70.59 ,-,9. 77 67 ,37 t,7 ,?.2 64,57 61. 75 64.5? 1.n, 7.6c; e..s? 9, 13 9. 1 n fiJSt.O. 6?AA9. 0 1.?B 6.?6 S.47 &.ln ~,.,1 ll-/3/11 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis NAT IONA.L RANKS 1'77?-1977 TOTAL OEPOSITS HJ FOREIGN ANO DOMESTIC OFFICES 9(. PF .. n. 0 r, r,~ l)f .FT I 11 t;: o.?2 IC-ll-/"", I c'• q - -,_., ,H - l,l.7 l U.6tJ lt"-JJ-7? 27,,?1. 4?7?H. 42321. ]l'.-31-7] 1c-.n-1c; IC- ll-76 01i-.rn- n 1-'f>-O:, .. Ttr,f 1)F" lrt lJ1 'f 500 MILLIONl Rill 101'J 100-soo t.HLLIOt,! l-5 BILL 10N f'\YEP 5 R]LL]O~ l OC.',fS TO llVFI-MGf TOTAL t o.ar--.5 1?-:n-1? I?.- H-7.3 11.- Jl-/t+ lC-Jl-7 1 , lO~ 0-10{1 MllLIOn TnTAL Ot-TF 0.2s 0.3h o.,,o o.?o 417~P-. 5YCJ47 • fl2554 • o. 19 o.3? n.23 o.?4 0.25 0.4R o. Jq n.157 o.sJ o.47 n.65 0.61 o.66 0.11 0.15 o. 15 o.?2 0.27 0.28 o.65 0.67 0.24 74b. 130't• 1607. 1543. 15!:ib. ) 7Y2. J1nn. 4S7q. 2fl~2. K92n. 11999. 4158. l 356R. 13914. 13730. 19?11. 20441. 1•12n. 17067. 19232. 26824. 20139. o.?.? 0.23 o. JS o.~o n.23 n.?4 o.3B 4QC,F,. 4~03. 605?. 57%. 4716. 44SO. 5374. 53H6. o.s1 Jt::-Jl-7? lt'-Jl-/J JC-Jl-74 lt:'- ll-7S l .-'- _I J- 7f, f;f)- ifl .. 77 12-H-li-' 6.9~ 9.41 4.~7 6.59 '3.11 fl.• 32 6.foib Fi .• Olj l 0.40 1,.f;J 111.Fi'-1 6.54 a. 75 17 .34 10 .96 8~21 -9 .• 12 lft.54 IO.ZR L2.no 12.60 JR. 60. 12.2. 350. 595. &nz. f.l}Q .. 691 .. o.59 0.58 o.54 0.56 O.S6 0.26 lOF..O • 177'1. ??,ti.. 1871 .. 207. n.H3 o.a, o.n o.n 0.83 0.69 o.63 0.12 t>,.6A o.38 n.-t.1 o.JJ 1?-l!-71-i li-JJ-/"jt -17 o. 74 l <"---11-12 lc'-:-IJ-13 IC-Jl-74 I<'- l l - f~ I c-JJ-7A Oh-J0-77 12.2n 16.25 IS. I 3 23,. 22. 54. I 36. 1»2. J9J. lfi9 .. l?h. "J4J. c,!"!- 7 .83 11. 70 10.20 12.31 11.14 1n.s9 41. 79. l 91. l £- J 1 - 'f<+ u-.n-n o. 73 32. o... 79 O • .f,, 1 n. 77 O.f. 7 n. 72 (i.t,~ o.. 78 o.42 O. l':> °' 0 c,.:i r,vF1-1r,c;E RUPPOWINVS TO 30 fJIIY AV[I-IAGf:. [)EPOC.TTS n.1s ?A. '53. Sf>. 26n. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis t,.111, Tl 0"1AL RANKS 1~7?-1977 TOTAL DEPOSITS IN FORE.!GN ANO DOt-AESTJC OfrlCES TrTAL DATF I2-11-7e' 12, 14 l?, 71 12.1,.9 12. n f 11. 70 1£'-J]-73 l t- tJ -7t, lt'-Jl-!S ir'-.~J-71'-, r:t-I JC IS _!(i-7 / ._,F~"Ct:t• 1 tir,f Of t, F. T l 'iTU•t-.~T S.PH MA~l.d N 100-500 MlLLlfl~I 12,Sl I? !?,31 11-~? 1). 11. /4 6 .. 41 500 MTLLT-ON- 1 8lll JON 1 ?,50 l?, 11 11.f.4 l n. 74 1 J. ns c;.gz. 12,44 12,sn 11,67 11, 03 J.63 ]. 71 3.R3 3,"7 4.07 1,90 3. lH li-J]-/? 11- il-73 lt- 31-74 1.49 1.c:;1 1.hu Ja'::11 J.66 J.f',,6 4. vs 3. 78 lr'- jJ-7'--i 1.h',l 1a94 1.Atj 11-q-1,-., nc- Jn-rf J.~'il 4. l? 4.03 I, 7S 2. us ?,OJ 1?-.il-7? J?-.it-7J lr'-Jl-/4 1c:-n-,s ]t-.q-76 uti- _1u-·n 1-t:; ciV£R BILLION 11.20 5.63 12,83 13, 12 12.43 l? .. 49 l) .40 c;.68 J.53 3,47 J,6n 1.6B II, 73 I 2,63 I 3,46 13,66 12,37 5.67 J,nJ J.os J,Jn 3, I 0 1,49 0. n, £!';,Y.'i. 7 l <.,11,. H?.1"-f,. 112s. I I 37, 1168. 1239. 1134, 5774, 6149, 10527. l 11Hf'!. 1371, 89?6. Q-. 0 ~ J{)tJS) n, n. u. <. 2sv. lf':J. I 7u • ?R, n, Jin, 4S, ?37, 171. 4 lR. 4A4. 34A. 382. 450. Reports of Condition, Reports of Income, and Special Reports. Number of banks: Statistics for 1972 and 1973 include only those banks that were still in the national banking system at year end 1974. AVERAGES: Averages were calculated using the figures from each Report of Condition filed during the year plus the preceding year end. Three period averages are used for those banks submitting a consolidated foreign and domestic report in 1975 and prior since those reports were filed on a semi-annual basis only. 13c. This ratio is on a domestic only basis for 1975 and prior. Data for 1975 and prior is unedited. 3.04 I, 73 3.SA ~' 11.• S RILLIO-./ TO AVE/.IAUE f.AcNJNG A5Sf TS rr11r.1. <:;T"•,:)t-y LF I If!-<~ f•F c1;F tJI T {IN MILL SOURCE: 0-100 MILLION BJ! 3, 505 () Comptroller.of the Currency Administrator of National Banks Washington, D. C. 20219 May 5, 1978 The Honorable William Proxmire Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Mr. Chairman: On April 6, 1978, we furnished you with a recomputation of the June 30, 1977, Schedule A-3, previously provided to you_by the Federal Deposit Insurance Corporation. This recomputation was on a fully consolidated foreign and domestic basis. Attached you will find an update of this schedule with December 30, 1977, data substituted for June 30, 1977. Sin\:ely, Joh~nn Comptroller of the Currency 30-476 0 - 78 - 33 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MAY 11 Fir!) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis NATlQNAL AANICS 1'172--1977 TOUL OEPOS ITS IN FOREIGN 1,NO 0Qf,1£$TIC OATf. 0•1011 14JLLION TnTAL lP0•S00 MJI.LM!II ............................................................. ........................ S00 "'ILL10"1• I fllll.lUM orncts 1-5 BJLLIO" nVER 5 ~ILLIO~ NU"!BEA OF" t:IANKS lc! .. Jl-n 12-31 .. 73 1c:-J1 .. 74 1i-:n .. 1s 12-31-76 IZ-Jl-77 SA u-31 .. 12 3011?. 3·Jol t. 12•'.U-74 12•31-75 l l.. Jl-1t1 3~k77. u .. J1 .. 77 ,03. 5147. ~Sn6. 6)93. 61179. 7701). 81\66. 3188. 5118A. 8762. 3374. 35-J9. 3A69. JR70. 4565. 6189. 61'35. 9730. 10390. 56. SA. so. .. 64. 46. s1. 58. 65. 10. 11. 11 • 11. 11. 11. J'IDh9. 44047. 4tfttl4. 7128. 7911. 866Y. 913~. 974ti. 10103. 9t'69. 11565, 13~61. 10367. 14'113. 1•22. 5. 7d 5.44 5.'J.J '5.61 S.A7 S,hS l i ... Jl-74 1z.. :n-,s ll--Jl-76 lC:-31-77 6.117 h.59 6.4b ,,. 7-J 1.10 &.,cut 0:, 1.02 1.15 7.41 7.ct?. 1.13 1.,,3 ,._,.3 "i.36 ,..,.o f<.M, 6.92 "· 7ti 6.51 6. \M A.27 6.li0 6.~2 6.41 5.41 s.ns s.n 5.51 s. 78 S,AO 4.79 4.?S 3.A6 4.?S 4.'59 4,36 7.tJ9 A.lo li,'-5 8.48 fla'Jl tt.sn 6. 7'i 6.56 1'1,67 s.n 1.1n 5.17 7.47 5.66 1.2s 5.43 7,47 7.53 7.85 7.86 ~.03 7.R8 7.Bo 7.60 7.9A 7,96 7.R6 s. 76 l;.64 ~- 72 5.64 oe;;. 70 ~.OJ 7.41 12.s• 12. 73 7.A2 s.,. 4.67 PE~CEr-!T At\F OF OEl:I T C.6P t TAL TO TOTAL CAPITAL lt!•Jl-72 12•:H-73 lt' ... Jl-7'l,,!•JJ ... ·7!; 12-JJ ... 7,; li'-'.\l-17 6.91 4\.65 6.::ad S.'>I "• lQ 6.32 i:;t 0 PE~C£11•TAt;F. OF EOUJTY CAPITAL TO TOTAL DEPOSIT~ 12-J1-n l?. .. Jl-73 ,SU 4031. ....,. 3M,. 341 • )f,C>. 40Ft. 442'. 475. PERCEfl!TAt;F or EQUll Y CAPITAL TO TOTAL A'iSF.TS 12 .. :n-12 12-Jl-73 12-JJ .. 74 12-31-75 l~·Jl .. 7f, 12 .. JJ .. 7( SC 4073. 4140. Ct2ld. c.ZlJ. 416Ct. TnTAL EOIII T1 L DEtiT CAPITAL CIN MlLLION!iJ i i.. :u .. 73 sa 4491. 4597. 470f,. 4745. lt73fl. 4f1Sti. 2,&8 ),11 S.13 3.lq J.'-n J.~o 7.110 P..~9 6aA4 7.n4 9.53 12.56 11,36 l I .C17 in.so 7.n3 s.1.6 4. 78 4.?S lt.99 4,50 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis NATlO"IAL RA~ll<S 1972-1977 TOTI.L nEPOSJTS IN FOREIGH AND oo.-F.STIC OFFICES OATF SE TOTAL PFRCE~1T11.r.1: UF TOTAL r1ir.-ITAL TO TOTAi l~•JJ-7', !WE~ S F11LUO" 7.2? 7.JH 1i.a2 1-.Hl 1.n3 6,19 5,15 1.no fl. 70 f,.fl4 5. 7R ,.ti4 5.R6 4.48 4.ns ~.9o 7.b7 ti.Of\ ,.1:11 7.05 7.34 1.21 6.9fl 1.01 7.09 6.21 6.Sn 6.25 4.56 7.li4 7.19 7.38 7.60 7.6b 1.cn 1.11 7.63 7.15 7.41 7.57 7.54 7.63 6.66 t-.19 6.?8 6.69 6.95 6.67 5.48 •• 73 4.?6 Cr..68 s.n7 ,._ 78 (,.?5 6.03 4.44 4.83 PF~CE"ITAGE UF TOTAL rAPITAL TO TOTAL LIA.f:SILJTJEc; ~-"'8 6 0 ?4 A.04 fi.40 ,,_,,7 ij.JH <-.nc., 6.41 A.JS A. 10 B.~q A f,,2 7.C)it 7.57 R.?2 R.1'17 0 R 0 JU TOTAL LOAMS U:XC:LUl.itNU FEDERAL f'UNOSI li-:.U-72 ll-:H-73 12-JJ-74 12-JJ•7~ lt"-:,1-7" 17•11•77 10.17 10.09 10.c'~ }O.bO J 1.04 10. 72 C).32 9.03 C).~2 q.1,3 10.04 9.HO C).46 A.70 8.87 9.15 9.35 9.49 8.41 7.72 7.65 8.i;2 9. 13 7,28 6.,.6 S.47 6.20 6. 74 6.31 JRc;c;~. 4541 IJ. 4H51 n. 49;:JQJ. 52077. 57713. 2JQ11. 27577. 2R38ft. 29178. 27922. 333S4. 51)694. 57,-49. '-Jc;&n. 1,f1A49 0 83571, 93681.. 121020. 15198t • 15?.314. }f,189:1. 186837. ~9.41 f-i'l. 11 f.3.?0 b7.37 a.~? I IN tHLLinN!-1 2S5Rf,n. JU 136bo 3~1196fl. JS37o?.. 3·,2411. 42'1231'1. 491)1~. 54910. 5~531. 11,0020. 617'11• 6776~. fl?.~Rq. PE'QCEm Al;f OF TOTAL LO'IIIIS TO TOT .6L OEPO<t t TS u-:n-11 12•31-73 ll-Jl-74 12-:u .. 1~ l~-31-76 1c-:u-11 55. ,2 St:t.U6 SH.ti? 57.fJoO 66.45 6C).99 66.)9 bf.SO f.>l;J.32 h:\o )4 t-1.27 1n.cn SCJ.f,ij ~t't.~1 57.52 6!:,.t't~ 59.10 SQ.Qll 66.11 63.77 65,32 71.05 "3.97 64.c;7 bl• 75 63.5? h2. 70 6S. 74 C)1 0 -;r PFPC:Efrl:TAGE or TOTAL CAPITAL TO RISK ASSETS 00 98 l•S BILL IO"! ',.f,~ l?-JJ-77' ll-31 72 12-31-73 ]2-Jl-74 1i-:t1-75 lc'-'Jl-76 l?-iJ-77 9A 500 l!TLI fl>N1 RILL JON 6.?l S.Al 1~-:n-n, 12•11-7.? l?•JJ-73 ll·Jl-74 1c"•Jl•75 l~-:tJ .. 7F> 12-31•77 SG 1 oo-soo MTI_Ll0"-1 ASSETS 12-31-7? lc'•Jl-73 1i ... J1 .. 1,. SF 0-1011 t,,1JLL ION 68.56 71.74 70.59 71.17 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis l-Jn-1q77 TOTAL DEPCISYT~ IN FOl)EIGN ANO 00"1ESTJC OFFICES DATf: 9C PERCENT 1'r,f o, 500 ►tILL ION• l AJLL ION 1•5 IWEQ 5 RILLl0'4 BILL MM fl 0 o.JS o.:,o 1',U o.J9 O.Jl O.M 0.42 n. ?.3 0.24 n.'.HS n.32 o.2J 0.47 0.':>·1 fl.SJ 0.65 o.33 0.24 0.19 0.21 0.2s 0.4~ 0.2a n.51 O.M, 0.49 0 .'15 0 .67 0.47 8920. 13568. 13914. 13730. 1921 t. ?.3160. 11999. 4J5A 0 47H,. 4450. 5374. 6364. l 70',7. 19232. ?.68?4. 3437Z. 7.83 10.59 l l. 70 l tl.20 12.31 12. 76 l?..20 17.34 l~.25 1s. 13 IR.54 1q.04 e. 75 10.96 e.21 9.12 12.r10 13.52 n.61 0.36 TOTAL 30 DOY AVb~AU.. i-!O•IROwtr-.Gs t IN ~lLLJOl-lSl lt•ll-72 l?-31-"13 216?.7. ll-31-74 47.J~l. 4J75R • 59(147 • 7 I 7no. PF.PCENTllr.E o, 4?7?A. 30 U>Y AVERAGE IJORPOW J NGS TO 30 '(48. 1304. }b67 • 3lfH-lo 4Cj79. J ',41. 4A03. 6ni:.?. h215. J ':,Bb. lhSV. o,v 4Q51',. I912n. AVl:.RAGE f1F.?oSJTS 4.97 6.9~ 9 ld O.t!f, 1 ... 1 f,.59 8.37 tt.J,> 10 .4U lofl l.':1?. l .47 ..... ()9 11.'.H l .46 t', 0 6M 4b 0 3?. 41 • 79. 1 q1. 226. 203. 0 2R52. (,-f-8 f..RJ TOTAL OTHfR REAL E.5TAH (l"-1 MILLIONS) J&-31-72 ll-JJ-7.l 12-Jl-74 li!.-JI-75 12-31-1ti 12-31-77 13, o.c1 0.3b 12-:n-n !2-Ji-73 11.-31-74 l~-Jl-7~ 12-3]-71; 12-31-77 12 0.22 n .?2 n.2!:.I lt.'-Jl-75 I2•3J-1h lt.'-]l ~ !1 108 100-son. MJt LJO"-J r~E T LOflr,; L0S5f5 TO AVERAC;f TOTAL I_OMIS li.?-11-7? Ii:-31-73 12-JJ-74 12-Jl-7S li:'-Jl-76 12-31-77 IOA 0-100 MILLION TOTAL PEUCENT Al",E OF' NET IN(ljti[ 12-31-72 ll!-Jl-73 12-Jl-74 }69. ??6. 3QJ. 1060. 1770. 19\3. 50. ·Rl • 12J. 15!:J. 153. 23. 2?. 3A. 60. 54. 122. 136. 192. lbR. 350. 595. 635. ?8. 53. 56. Zf>n. 6n2. 755. o.AJ n. 73 n.69 n.63 0.68 n.E-7 rt.69 o.ss o.54 0.56 o.56 0.53 TO AVERAGE TOTAL ASSl:T5 O. ':'O o.96 l t'-:1 l-71:i 0 • 74 o. 73 0.67 o .r 7 n.1.11 o.t-4 lt'-Jl-76 lC-31-77 0 • f-9 (1.'12 o. 70 0 ·"" 0 83 n. 19 n.n 0 (!. 1i!. o. 7tl fl 0 HS O.A3 o. 7J n. 12 n. 75 rt. 79 o.59 i:.r, 0 00 .,,-, ' • <, • •• .._ l . . , •I~.;) 1·-n2-1 1n1 w .' 0 TOT/IL OEPOStTS IN fO~EJGN ANO DO~F.~TIC OFFICES ------------------------------------------------------------------------------1-s ------------ ------ ... -------- --------------- ................................ --------------- ____________ --------------- ~ ~ 0 01\TF. 0-10{1 TOTAL . w https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IF P[ACEtJTAGf. OF t..tET INco~·E rn 12.J4 l ?. 71 12.49 l?. n7 11. 70 l J .9':, 12.~1 13. )2 12.JI 11.2?. 11. f4 l~.t:I PfRCU. Tllr;f OF ,'I.if T l~TFVF:ST MARGIN TO AV[l-<'AGE [ADNJr,.1G /!SSE lt'-31-7? 1£-Jl-7.J li::-31-7 ➔ lt'-Jl-7'1 l~-Jl-f6 1?•31-77 J. /A J.9J ].f-9 J,Y4 4. 1?. 4.Cf! J.t:;5 4. 12.so 12.1 I 11 .f.4 lo. 74 11. f"l5 12.21 us 12.44 1?.90 11 .f..7 l l .nJ 5 RILLIO, I I .20 I I .s1 \2.83 13.!2 I ~.43 11. 73 12 .63 12.49 11 .40 \ 3.66 12.37 11. 75 Jl.8? 3.53 3.47 3.bb J.63 :I.hf, 3. 71 3. 7t:I J,A8 4. 03 4. 09 3.83 3."7 3.60 4.07 4,07 J.SA 3.56 13.46 3.6A 3.04 3.n3 3.os 3.3n 3.10 2.s9 ( IN t-1ILLI0:-.151 ll-31-7?. o. 11.-JJ- 7.! 259A. o. v. 0. 2s. JC-Jl-74 It-:H-7S 1 t".-JJ-71:, 71 qf-,. ?• 1?•31-77 OVER &ILL ION ,...,._ rs 3.49 3.51 3.60 3.~Y TOTAL 5r,,~10FJY LF.Tft f(S (lF CREDIT SOURCE: I Al Lt JON AVERAGE EQUITY CADJTAL 12-31-7?. 12-31-73 lt-Jl-74 lt'.'-3J-7S lt'-31-76 l?-31-77 JC 500 4JLl. lON- l 00-500 t-4lllION MILLION fi?t-lf.., 2so. 105?7. l.J54~. 17~. 45. :171. 4 l~. 20'1. 479. ---~~- o. o. 310. 1125. 1137. l I 6A. ?37. J4A. JR?.. 506. l 239. I 719. Reports of Condition, Reports of Income, and Special Reports. FOOTNOTES, Number of banks: Statistics for 1972 and 1973 include only those banks that were still in the national banking system at year end 1974. AVERAGES: Averages were calculated using the figures from each Report of Condition filed during the year plus the preceding year end. Three period averages are used for those banks submitting a consolidated foreign and domestic report in 1975 and prior since those reports were filed on l'I. semi-annual basis only. 13c. This ratio is on a domestic only basis for 1975 and prior . ..!_1. Data for 1975 and prior is unedited. n. I I 34. 5774. 6149. 8313. 10&35. Ol 0 <:O 510 () Comptroller of the Currency Administrator of National Banks Washington, D. C. 20219 May 22, 1978 The Honorable Wiliiam Proxmire Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Mr. Chairman: The attached samples of National Bank Surveillance System (NBSS) printouts and a glossary of terms are provided for the hearings on the Condition of the Banking System on May 25, 1978. Ji~:•-·~.,_.,,___ John G. Heimann Comptroller of the Currency Pages 1 - 22. Sample NBSS Bank Performance Report Pages 23 -25. Glossary of NBSS Significant Ratios Page 26 - 27. Sample NBSS Action Control Status Report https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 03/16/78 BANK PE~fORMANCE REPORT TABLE OF CONTENTS INFORMATION P•Ge NUAIBER SECTIONS INTROOUCTION SI:lNIFICANT ~ATIOS • , , , THIS tlBSS SANK PERFORMANCE REPORT COVERS THE OPERATIONS OF YOUR BAM( ANO fHAT OF A COMPARABLE GROUP OF PEER BANKS. IT I~ PROVIOEO FOR YOUR USE AS A MANAGEMENT TOOL BY TIIE COMPIAOLLER OF THE CURRENCY, DETAILED INFORMATION CONCERN• IN/l THIS REPORT IS PROVIDED IN .' USER'S GUIDE FOR BANKERS •NO UAMINERS FOR~ARDED TO YOUR BANK UNDER SEPARATE COVER, YOUR PEER GROUP 1' BALANCE SHEET INFORMATIO•: 2 3 TREND OF CONDITION • ASSETS. TRESO OF CONDITION • LIABILITIES ASSET DISTRl6UTION • • , • • , , LIABILITY DISTRIBUTION • , • , , , INVESTMENT SECURITIES INFORMATION, LOAN MIX . . , , • , DEPOSIT DISTRIBUTION , • , , , , , • 5 6. 7 8 17 INCLUDES NATIONAL BANKS HAVING ASSETS GREATER THAN $10 MILLION AND LESS THAN OR EQUAL TO 520 MILLION AT 12/31/76 ANO LOCATED HI AN AREA NOT CONSIDERED TO BE A HIGH DENSITY POPULATION AREA I Sl,1SA J , lN.;OME INFORMATION: INCOME STATEMENT • TAX EQUIVALENT, • , NET INCOME COMPONENTS, •••• •. , , ••. , • , • SUPPLEMENTAL INFO • RESULTS FROM OPERATIONS. INTEREST INCOME COMPONENTS • • , , , ADDRESSEE: INTEREST EXPENSE COMPOr-.ENTS. • • , • OTHER EARNINGS COMPONENTS, , , • , , NON· INTEREST EXPENSE COMPONENTS, , , INCOME TAXES & NON OPERATING INCOME, CHIEF EXECUTIVE OFFICER • 9 ,10 ,10 .11 • 12 .12 ,13 .14 OT~ER INFORMATION: • • • SPECIAL NOTE IP •• CAPITAL ANALYSIS • . , . . . • , , , • • • • ADDITIONAL CAPlTAL FACTORS • , • . • • , • • DIVIDEND ANALYSIS, , . • . . • . . • • . • • ANALYSIS OF RESERVE FOR POSSIBLC LOAN LOSSES CAPAC I TY TO HEDGE INTEREST MARGINS UNCOLLECTED INCOME AN•LYSIS, ASSET & LIABILITY CHANGES, PAST DUE LOAN AN.LYSI$ AMENDED REPORT~. , , , , , , •· , , PEER GROUP AVERAGES AND PERCENTILE RANKING FOR THE CURRENT PERIOD ARE BASED UPON A STATISTICAL SAMPLE OF AT LEAST 50 PERCENT, ALL PRIOR PERIOD PEER GROUP AVERAGES ANO PERCENTILE RANKING ARE CALCULATED USING 100 PERCENT OF THE PEER GROUP. AMENDED RATIO DEFINITIONS • SEE LAST PAGE ,15 .16 .16 .,a .17 • • 18 .19 ,20 .20 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 03/16/78 SIGNIFICANT RATIOS ( DOLLARS IN fHOUSANDS I PAGE ANNUAL DATA ............................................................................................. THIS BANK 1972 s s AVERAGE ASSETS NET INC0•1E 1973 s s 8600 69 1974 s s 10017 104 1975 s s 11291 79 RETURN ON AVERAGE ASSEfS ADJUS fEO RETURN ON AVERAGE ASSETS PRE· fAX NET OPER INCOME • TAX EQ, .BO 34 .92 48 1.49 44 1.04 43 .99 42 1.72 42 .70 15 .69 15 1 .27 18 NET INTEREST EARNINGS/AVERAGE ASSETS OTHE4' EARNINGS/A,..ERAGE ASSETS NOS· INTERESf EXPENSE/AVERAGE ASSETS PRO" POSS LOAN LOSSES/AVERAGE ASSETS 3,98 .23 2.58 , 14 66 31 69 67 3.83 .47 2.61 •,03 40 76 68 03 3,58 19 .47·75 2,68 68 .10 55 8.27 17,76 33-27 16.34 15 70 92 15.65 20.10 21.52 5.49 55 72 81 50 ASSET GROWTH RATE CHANGE IN ASSET MIX CHASGE IN LOAN MIX CHANGE IN LIABILITY MIX ... RETAINED £AANINGS••/AVG. EQ CAPITAL ASSETS/TOTAL CAPITAL (X) 94 8.85 48 12.18 34 12.22 63 12.52 36 11.45 12. 73 20, 74 2,92 62 45 BO 17 8.31 31 12.64 44 1977 1976 s 11833 31 s .26 04 .26 04 .34 04 12035 •ti -.09 01 •,16 01 .•.10 02 s • . 13224 101 ,76 16 .73 12 ,93 OB 3.00 .42 2.64 .45 06 67 64 91 2,83 03 ,40 66 2,83 67 .so 92 3,23 ,58 2. 73 .15 07 84 67 61 .34 9,54 13.37 3.88 06 27 60 18 4.84 24 12.7348 18.62 74 5.20 20 14.&6 25,30 30,09 2.59 2. 77 OB 11.92 34 :1 ,65 02 9.38 41 12,40 47 12,93 119 69 90 1)5 15 c.n I:...:> PEER GROUP .. .......... 11 I 719 BANKS) RETURN ON AVERAGE ASSETS ·AOJUS TED RE TURN ON AVERAGE ASSETS PRE· TAX NET OPER INCOME • TAX EQ. ,93 .92 1.57 1.10 1.05 1.89 1., 1 1.09 2.01 1,04 1,,05 1. 74 1.10 1.08 1. 78 1 .12 1.11 1.86 NET INTEREST EARNINGS/AVERAGE ASSETS OTHER EARNINGS/A,..ERAGE ASSETS NON· INTEREST EXPENSE/AVERAGE ASSETS PROV POSS LOAN LOSSES/AVERAGE ASSETS 3.13 .37 2.39 ,14 4,04 .36 2.37 ,13 4.26 ,37 2.45 .16 4.02 ,39 2.49 .17 4.18 .37 2,60 .17 4.21 ,36 15.46 15,06 14.05 6.14 15.48 16.06 14,22 6,86 10.24 15.72 14.96 8.60 11.80 15.90 14.80 10.63 9.25 15.00 14.86 ,, .10 12.01 14.29 12,15 8.60 13,52 10.87 13,49 10,88 13,11 9,74 13.16 10.09 12,H 10,13 ASSET GROWTH RATE CHANGE IN ASSET OIIX CHANGE IN LOAN MIX CHANGE IN LIABILITY MIX ... RETAINED EARNlNCS••/AVG. EO CAPITAL ASSETS/TOTAL CAPITAL IX) •THIS COLUMN DENOTES RELATIVE POSITION Of THIS BANK WITHIN PEER GROUP, ••NU INJ:0"1E LESS CASH DIVIOENDS, U•ENO OF PERIOD. 2.55 ,17 1.:n 12,48 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis CONSOLJOATEO TREND OF CONDITION (ENO OF PERIOD DOLLARS IN THOUSANDS) 03/16/78 ASSETS CASH & DUE FROM BANKS SUBTOTAL. U.S. TREASURY & AGENCY MUNICIPAL SECURITIES SECURITIES HELO IN FOREIGN OFFICES OT~ER SECURITIES TOTAL INVESTMENT SECURITIES TRADING SECURITIES 978 $ INTEREST BEARING BANK BALANCES $ 0 s 1272 0 1042 s 935 $ 1042 $ 1272 $ $ 2781 s s 2677 $ $ 2674 s 3715 891 0 338 $ $ s 1367 1367 $ 0 457 s s s 4505 $ 4546 $ s s s s s s s 0 190 1180 s s s s 1975 1316 0 11 0 502 1634 2362 1343 0 156 s s s s s s $ $ s s 1048 $ 3063 791 0 315 4944 $ 4169 $ 0 0 $ $ 0 700 s s 2504 2125 s s 4030 2164 $ $ $ 1137 $ $ 1412 0 27 s $ 47 21 s 0 398 $ $ 4120 s s 0 750 1856 2337 1209 0 2 N/A N/A N/A N/A N/A N/A RESERVE FOR POSSIBLE LOAN LOSSES TOTAL ASSETS s 929 $ OTHER REAL ESTATE OWNED INVESTMENT • UNCONSOLIDATED SUBS ID. ACCEPTANCES INCOME EARNED NOT COLLECTED OTHER ASSE rs $ $ REAL ESTATE LOANS COrt.tllERClAL & lN()!JSTRIAL LOANS LOANS TO INOIVIOUALS LOANS IN FOREIGN OFFICES LOANS • NET 935 N/A 12/31/77 978 s DIRECT LEASE FINANCING PREMISES s CURR OTR 09/30/77 $ FEDERAL FUNDS SOLO LESS: UNEARNED INCOME 929 N/A 0 79 OTHER LOANS s N/A PRIOR•OTR 12/31/76 12/31/75 12/J1/74 12/31/73 $ 4482 s 5495 s 5404 s 5725 s s 0 185 3 0 0 $ 0 269 77 0 $ 0 262 63 0 s 0 278 61 0 0 284 21 $ $$ s s N/A 206 10538 s $ s 0 $ s s N/A 239 11745 s $ s $ s s s 0 227 24 1178S $ $ $ s $ s s 12355 s s s s s s 0 159 26 40 7699 s s s s s $ s s s s s s s s s s s s s s 1141 0 1141 2963 788 0 266 4017 0 700 4302 1824 1384 0 206 16 44 76S6 $ $ 0 269 61 0 $ 229 35 s s s s 0 280 61 0 0 276 35 s 14434 s 141&6 s s s 0 s Ct ..... CJ.:> https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis CONSOLIDATED TREND OF CONDt'TION { END OF PERl'lD DOLLARS IN THOUSANDS I 03/16/.78 LIABIUTHS 4 CAPITAL 12/31/73 ····--- ..... ---- .. ·--· DEMAND DE~OSITS: INOIVIDUAC PART111ER & COR1'011ATIDN PUBLIC FUNDS 12/31/74 s s s 2252 177 0 0 52 $ $ 2338 182 0 0 40 s s s s 2303 314 0 0 342 2729 $ 2560 s 2481 s 29S9 7210 681 D D s s s s s s s 7779 323 0 0 $ s s 8278 565 0 0 8938 1437 0 0 8102 $ 0 s s s $ 1987 518 D 0 40 s s 2044 654 0 0 31 s 254!1 s INDIVUlUAL ~1UN.ER & CORPORATION PIIBLI C FUNDS s 6308 s B.tNKS $ SANl<S FOREIGN BANKS 0Tti£R fOfAL DElllAND DEPOSITS T?Mf & SAVJ'N.GS 'O!POSlTS: FOREIGN BANKS $ $ s s $ $ 619 0 D s s 6127 $ 9472 $ $ s s 0 0 0 169 $ s $ $ s $ 9641 s s s s $ s ·s s RES£R·~£S I 1975 & .PUOR YEARS.) s ·ss $ 52 SUBORDINATEO DEBT· EQUITY CAPITAL $ 0 842 s s 0 929 10538 $ 11745 180 0 s s 180 D TOfA'L Tl.,.E & SAVINGS 0EPOS'ITS DEPOSITS lN FOREIGN OFFICES TOrAJ. DE.POSIT.S F.EOERAL FU"llS PUACKASED OTHER ·aoRROWINGS ACCEPf.ANCES OTHER lllBILITIES TOfAL llABIUUcS T.OTt.l UABlllTIES & CAPITAL TlME DE.P0SlfS 1$100M OR MORE) STANDBY l.£TrERS OF CREDIT s s $ s 0 7891 D 10620 0 0 0 144 10764 s s s ·$ $ s s s s s $ s s $ $ 10662 0 0 0 105 10767 s $ s $ 10375 0 s 0 11324 s s s s s s 13334 0 0 0 35 $ s s s 11359 s s 0 996 11785 $ 12355 220 0 s 480 0 $ 0 0 0 71 13405 12✓ 31/77 s s s s s s s s s s s s s s s s s s N/A N/A 29 0 989 8843 s s s s $ CURR OTA PRIOR•OTR 09/30/77 12/31/76 12/31/75 1924 09 0 0 142 1005 9367 639 0 0 10006 0 U011 0 0 0 59 13070 Ht• s s 0 1029 s 0 1096 14434 214 s s s 1416& s $ s 0 s /114 D .... <:.11 ~ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ASSET OISTR16UTION 03/16/78 ( EXPRESSED AS % OF AVERAGE ASSETS•) ( DOLLARS IN THOUSANDS I ASSETS ANNUAL DATA ···· ··-············--·-··-····-···-········--··-------·········---------·-•--.----·· 1973 1915 1976 1972 1977 1974 THIS SANK' CASH & DUE 9. 38 N/A 46. 98 . 00 2 .97 37 .61 .OD 1 .24 . 00 1 .81 1DO.OO FROM BANKS INTEREST BEAR 1NG BANK BALANCES WVESTMENT SECURITIES TRADING SECURITIES FEDERAL FUNDS SOLO LOANS·• DIRECr LEASE FINANCING PREM I SES ACCEPrANCES OTHER TOTAL ASSETS AVERAGE A5S£TS• ASSET GRO~i!H RATE SDB'f L/C / AVERAGE ASSETS $ 8600 8.27 .00 8.61 N/A 44.39 .00 4.67 39.22 .oo 1.34 .00 1. 78 100.00 $ 10017 15. 65 .oo 7 .07 N/A 37. 62 9.05 N/A 40. 75 .00 1 .26 44.40 .00 2. 27 · ,00 2. 26 100.00 $ 11291 11 ,45 .00 9.22 .OD 37. 99 .OD 3. 32 44. 62 .DO 2.31 .00 2.55 100.00 .oa 3. 70 46. 74 .oo 2. 23 .00 2. 64 10D.OO $ 11833 .34 .00 s 12035 4.84 .00 8.01 .00 33.o5 .00 2 ,41 51.41 .oo 2.07 .00 2.46 100.00 s 13270 14,66 .oo PEER GROUP CASH & DUE INV ES f\1ENT SECURITIES Tr -~DING SECURITIES FEDERAL FUt-;0S SOLO LO.\NS>• OIRECT LEASE FINANCING PREMISES ACCEPTANCES OTHER TOTAL ASSETS 12. 35 N/A 34. 57 .00 4 .85 46. 46 ,00 1, 34 ,00 . 33 99,99 11.23 N/A 33. 50 ASSET GROWTH RATE 15.46 15, 48 FROM BANKS INTEREST BEARING BANK BALANCES soav L/C /AVERAGE ASSETS .oo .DO 6.51 47 .00 .03 1.36 .oo ,35 99.99 .00 11 .03 N/A 32.37 .01 6.50 48, 17 ,07 t. 41 .00 ,44 99.99 10.24 .00 • THE AVERAGE OF END OF PERIOD TOTAL ASSETS. hNET OF RESERVE FOR POSSIBLE LOAN LOSSES ANO UNEARNED INCOME BEGINNING 1976, 10.90 N/A 32. 72 .01 5. 92 48.35 .06 1.46 9. 72 .69 33. 23 . DO 4.61 49 .51 .08 1. 49 .OD .oo .56 99,99 .65 99.99 11.80 .01 9.25 .03 9.18 ,46 32 .02 .00 4.32 51 .83 .09 1 .44 .00 .66 100,00 12.01 ,03 °'...... °' https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 03/16/78 LIABI LIT I Elo ----------- THIS SANK DEMAND DEPOSITS TIME & SAVINGS DEPOSITS DEPOSITS IN FOREIGN OFFICES BORHOWINGS Arr:EPTANCES, OTHER TOTA~ LIABILITIES LIABILITY DISTRIBUTION ( EXPRESSED AS " OF AVERAGE AloSETS•) ...... -----·-·······1973 -----------··· 1974 ... --......................... ······1976 ... ---····-····1977 -- .... 1975 1972 ANNUAL DATA 29,69 60.01 26.90 63.27 24.91 65.43 23,40 67.06 21.25 69.97 .00 .00 .00 1.50 91.20 .oo .00 1.45 91.60 .00 1.33 91.68 .00 1.17 91.62 .00 .66 91.88 92.29 RES.EAVE l I 97S & PRIOR YEARS) ,39 .37 .44 .43 .OS SUBOROINATEO DEBT EQUITY CAPITAL TOTAL CAPITAL TOTAL LIABILITIES & CAPITAL .oo .oo .oo 8.41 8.41 100.00 8.00 8.00 100.00 .00 7.88 7.88 100.00 .00 8.07 8.07 100.00 .oo .oo .oo .oo .oo .oo .oo .oo 7.95 7.9S 100.00 21, 13 70.66 .oo .oo .49 NO .00 7.71 7.71 100.00 ---------- TIME & SAVINGS DEPOSITS DEPOSITS IN FOREIGN OFFICES BORROWINGS ACCEPIANCES OTHER TOIAL LIABILITIES 40.08 49.43 .00 .24 .00 1.36 91.IB 39,07 50.40 .OD .27 1,34 91.06 37.17 52.07 .00 .33 .00 1.50 91.07 1 .57 91.09 32.92 57.35 .00 .49 .00 • 72 91.49 .67 .65 .66 .68 .14 .03 8. 11 8.14 99.99 .07 B.22 .13 8.24 8.43 8.37 99.99 99.99 .11 8.11 8.22 99,99 .13 8.29 .09 8.11 8.20 a.&& 100.00 RESERVE ( 1975 & PRIOR YEARS) SUBORDINATED DEBT EOUI TY CAP! TAL TOTAL CAPITAL TOTAL LIA8ILITIES & CAPITAL I-' ~ PEER GROUP UEMANO OEPOSl TS Ot • THE AVERAGE OF END OF PERIOD TOTAL ASSETS. .oo 34. 74 54.48 .oo .31 .oo 99.89 31.'5 59.,04 .oo .61 .00 .53 91.44 NO https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis INVESTMENT SECURITIES INF0°RMATION ( EXPRESS EC AS %. OF SECURITIES) 03/16/78 ANNUAL DATA ---- .... -.. ---. -... -- ............ -... - ... - --. -...... --............ -. -. -- --.. -- ........... ........ PORTFOLlO MIX ( 800K VALUE) --.. - .. - . - ..... -..... ---.-. _ THIS BANK us TREASURY ·& AGENCY STATES & POLITICAL SU80IVISIONS SECURITIES HELO IN FOREIGN OFFICES OTHER SECURlllES TOTAL SECURITIES AVERAGE SE CURIT JES IN~ESTMENT SECURI l!ES/AVERAO! A'!SlfS• $ 1972 1973 1974 1975 1·976 1977 61 .62 28.25 .00 10. 13 100.00 60, 79 28, 93 ,00 10.28 100.00 59.48 30.42 .00 10.1 t 100.00 60,09 29,32 ,00 10.59 100.00 69.94 21 .64 73.94 19.00 .00 7,06 100,00 4040 46.90 $ 4446 44,3D $ 4601 40,U $ 4452 ;1,H .oo 8.42 100.00 $ 4572 a1,H s 4485 aa,n PEER GROUP ---------- us TREASURY & AGENCY STATES & POLITICAL SUBOlVISIONS SE CUR lT l ES HELO IN FOREIGN OFFICES OTHER SECURITIES TOTAL SECURITIES INVESIMENT SE~URITJES/AVERAGE ASSETS• 1.88 99,99 55.16 42,83 ,00 2.00 99.99 44. 78 .00 2, 15 99.99 2.06 100.00 54, 79 43,47 .00 1. 74 100,00 33,50 32 ,37 32, 72 33.23 32,02 62. 24 35. 71 .00 1. 76 99, 99 59. 92 38. 19 34.57 .oo 53,07 55.18 42. 76 .oo ENO OF PERIOD INFORMATION MATURITIES MATURlTtES MAT UR 1T I ES ONE YEAR OR LESS ONE TO FIVE YEARS OVER FIVE YEARS 18. 02 N/A N/A 5.23 N/A N/A ·1 .28 N/A N/A ·9. 37 N/A N/A 20.00 N/A N/A •18.-75 N/0 N/A N/A N/A N/A N/A N/A N/A N/A N/A 13.89 51.29 34.82 29 .28 35. 78 34,93 29,05 43.9~ 27 ,03 13. 78 10. 75 N/A N/A 7 .91 N/A N/A 16.18 N/A N/A 6. 70 N/A N/A N/A 4. 70 Nii NIA N/A N/A N/A N/A ,;A N/A N/A N/A N/A 24.43 N//1 PEER GROUP - --. --. - -- INVESTMENT SECURI TV GROWTH RATE TAXABLE SECURl TI ES-MARKET /BOOK VALUE NONTAXABLE SECURITIES·MKT/BOOK VALUE MATURITIES MATURITIES MATUl<lTIE5 . ONE YEAR OR LESS ONE TO FI VE YEARS OVER FIVE YEARS ...... --l ---··-------------------THIS BANK INVESP.'1ENT SECURITY GROWTH RATE TAXABLE SECURITIES-MARKET/BOOK VALUE NONTAXABLE SECURI TIES-MKT/BOOK VALUE ~ 1975 MATURlTY INFORMATION DOES NOT INCLUDE OTHER 80NOS, NOTES, NOTE: Tl"IE AVERAGE OF ENO OF PERIOD TOTAL ASSETS, ANO OE8ENTURES, 45.57 29.71 NIA 22 .ss· 44.16 33,18 23,82 41.06 35, 12 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis LOAN MIX I EXPRESSEO AS % OF A'✓ ERAGE GROSS LOANS I ( DOLLAR'S IN THOUSANDS I 03/16/78 ANNUAL DATA --·· ····-····--------··-·------······-·······------····--·····----········----·--·1976 1977 1973 1974 1975 1972 THIS 8ANK CONSTRUCTION & LAND OEVELOPMENT N/A TOTAL REAL ESTATE LOANS N/A 13. 27 8. 63 21. 91 RE IT & MORTGAGE COMPANIES ALL OTHER FINANCIAL INST! TUTIONS TOTAL FINANCIAL INSTITUTIONS N/A .00 .00 N/A 1 ·4 FAMILY RESlOENTlAL ALL OTHER 11 .90 COMMERCIAL INOil/lDUALS OTHER DOMESTIC LOANS LOANS IN FOREIGN OFFICES 27. 18 33.81 5. 20 .00 AVERAGE TOTAL LOANS/AVERAGE ASSETS• LOAN GROWTH RATE 6.83 25.30 .oo .oo .oo PURCHASE & CARRY SECURITIES FARM AVERAGE GROSS LOANS LESS, DOM UNEARNEO INCOME 8EG 1976 AVERAGE TOTAL LOANS 18,46 $ s 3235 N/A 3235 .00 10.68 27. 77 36.02 . 22 .oo $ $ 3903 N/A 3903 $ s N/A 21 .13 0. 21 29. 35 N/A 23. 53 7.91 31.44 2. 59 30. 54 9,65 42. 79 3.63 33. 79 N/A .DO .00 N/A .00 .DO .00 .00 .oo .oo .00 13. 78 30.48 25. 07 1. 32 ,00 .00 16.80 27,36 23.38 .00 15.42 20.87 20. 63 .18 .00 4952 N/A 4952 .oo 1.01 .00 $ $ 5495 N/A 5495 $ $ s 5448 63 5385 12.25 49.68 ,00 .n 12.89 16.84 18. 83 1.55 .00 $ $ s 6889 35 6854 37. 61 ·2.51 05 39. 22 39,28 91 44.40 22.60 80 46. 74 -, .66 10 44. 78 6.33 22 51,65 34,01 91 CONSTRUCT ION & LANO DEVELOPMENT 1 ·4 FAMIL'/' RESIDENTIAL ALL OTHER TOTAL REAL ESTATE LOANS N/A 15. 49 10.83 26. 32 N/A 16.14 10.98 27. 13 N/A 16.66 11.05 27. 71 N/A 17.11 11.37 28,48 1. 07 17 .17 11 .20 29.45 1.15 17,98 11,23 30.35 RE IT & MORTGAGE COMP AN I ES ALL OTHER FINANCIAL INSTJTIJTIONS TOTAL FINANCIAL INSTITUTIONS N/A . 69 . 76 N/A • 53 • 53 N/A • 43 ,43 N/A ,31 .31 ,03 .20 .23 ,02 .19 .21 .34 .28 26.90 16. 54 27. 24 1.38 .oo .26 26.51 16.92 26. 55 1.39 .00 .26 26,04 17. 21 26,24 1.38 .19 25.46 16.86 25.88 1.86 ,00 .15 25.45 16. 72 25,39 1. 73 47,00 48, 17 48,35 52.31 18.46 12,62 12.58 49.90 15.49 PFC:.:R GROUP ---- -. - -.. PURCHASE & CARRY SECURITIES FARM co11.:r.1ERCJAL INOI\I' !DUALS OTHER DOMESTIC LOANS LOANS IN FOREIGN OFFICES AVERAGE TOTAL LOANS/AVERAGE ASSETS• LOAfoc GROWTH RATE 21, 76 16.48 26. 68 1.45 .oo 46.46 16.06 • THE AVERAGE OF ENO OF PERICO TOTAL ASSETS. .oo .oo 18.01 ,.n ...... 00 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis DEPOSIT OIST~IBUTlON (EXPRESSED AS ll OF AVERAGE DEPOSITS) (DOLLARS IN THOUSANDS) 03/16/78 ANNUAL DATA ... -................. -- . ·······-····-. ··········· --- ........................................ THIS SANK INDIVIDUAL PARTNER & CORPORATION OTtiER SUBTOTAL: DOMESTIC DEMAND DEPOSITS SAVl~GS aitiER TIME DEPOSITS: •. $10CM & OVER 1973 1974 1975 1976 1977 24.37 8. 72 33.10 21.49 8,34 29,84 19.60 7.97 27,58 19,72 6, 15 '25,87 20. 79 2,50 23.30 18.64 4,38 23,02 15.59 15.88 16,06 17,21 20.41 25.05 1,99 1. 76 1 .87 52,29 70.16 54,60 72.42 55,06 74,13 2,67 53.62 76.70 2.18 49.75 76.98 N/A N/A IJIIIOER $100M 66.90 SUBTOTAL: DOM TIME I SAV DEPOSITS DEPOSITS IN FOREIGN OFFICES TOTAL DEPOSITS AVERAGE DEPOSITS 1972 $ .00 ,00 ,00 .00 .00 .oo 100.00 100,00 100,00 100.00 ·100.00 100.00 7715 s 9033 s 10201 $ 10703 s 10978 s 12181 DEPOSIT GllOIITH RATE 8.75 15.27 12.12 ,40 6.21 14,90 PUBLIC FUNDS DEMAND PUBLIC FUNDS • TIME & SAVINGS 8.05 4.60 7.46 7.05 7,58 5,55 5.67 4.47 1.98 2,28 3,35 37.00 7. 78 44,87 36.69 6.97 43,75 35,38 6,34 41 ,72 33.13 5,69 39,00 31.28 5.08 36.55 34,71 19.31 19.52 19.97 21,24 23.37 25,04 N/A N/A 7,71 31,64 56,25 6,94 32,83 58.27 6.57 34.20 61.00 5.36 34, 72 63.45 5,40 34,85 65,29 5.26 PEER _________ GROUP,. INDIVIDUAL PARTNER & CORPORATION OTHER SUBTOTAL: DOMESTIC DEMAND DEPOSHS SAI/JNGS OTHER TIME DEPOSITS: S100M & OVER UNDER StOOM SUBTOTAL: DOM TIME & SAV DEPOSITS 55,13 29,74 4,84 .00 .00 ,00 .oo .oo ,00 TOTAL DEPOSITS 99,99 99,99 99,99 99,99 99.99 100,00 DEPOSIT GROIITH RATE 16,16 15,22 9.77 11,84 10,91 12.24 6,76 4.10 6.01 5.42 5.06 4,8t 5,31 4,22 4.03 5,711 DEPOSITS IN FOREIGN OFFICES PUBLIC FUNDS • DEMAND PUBLIC FUNDS • TIME & SAVINGS 4,68 5.42 01 co https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis INCOME STATEMENT • TAX EQUIVALENT j DOLLARS IN THOUSANDS I 03/16/78 ANNUAL DATA -............. -- .. --1973 --......... -........ --............ -1975 ... -- . -...... -- ..... -- ................. -- -. 1976 1977 1974 1972 TOTAL INTEREST INCOME MUNICIPAL SECURITY TAX BENEFIT TOTAL INTEREST INCOME TAX EDUIV. lNfEAEST EXPENSE NET' INTEREST EARNINGS TAX EDUIV. CTHER EARNINGS NON•INTEREST EXPENSE PROVISION FOR POSS. LOAN LOSSES PRE• TAX NET OPER INCO"E • TAX EQ. APPLICABLE INCOME TAXES MUNICIPAL SECURITY TAX BENEFIT APPLICABLE INCOME TAXES • TAX EQUIV. NET OPERATING INCOME AFTER TAXES NET SECURITIES GAINS/( LOSSES) NET EXTRAORDINARY GAINS/(LOSSESI NET INCOME CASH DIVIDENDS INCOME AFTER DIVIDENDS s s s s s s s $ s s s s s s s s s s 654 58 7,2 5 s s s s s s s s s s s s s s s s s 64 $ 544 46 590 248 342 20 222 12 128 15 46 61 67 0 2 69 ·S 748 65 813 s s s 786 15 801 409 404 s 446 355 0 s s s s s s s s s s s s s 0 $ 0 s s s s s s s s s s s 104 $ 79 $ 6 s 5 s 5 98 $ 74 $ 26 329 383 47 261 •3 172 10 SB 68 104 53 303 11 143 D 65 65 78 so 312 53 40 D 15 15 25 6 0 31 s s s s s s s s s S. s s s s s s s s 818 D 818 477 341 48 341 60 •12 s $ 943 22 965 $ 427 $ 77 361 20 123 s s s s s 538 $ D D s s 0 22 22 •12 s 101 D 0 s s s 0 •11 0 ,101 5 s 5 •18 s 911 01 t-:i 0 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 03/18/78 NET INCOME CO•PONENTS ( EXPRESSED AS A i OF AVERAGE ASSETS) ANNUAL DATA 1972 1973 1974 1975 1976 1977 TOTAL INTEREST INCOME • TAX EQ, 6,87 89 6, 12 7, 11 83 6,60 7 .20 52 7.21 6, 77 26 7. 13 6.80 12 7.47 7 ,30 29 7.62 TOTAL INTEREST EXPENSE 2.88 78 2,37 3,28 BB 2.51 3,62 83 2,93 3. 77 85 3, 10 3, 96 84 3,29 4.07 86 3,40 3,98 66 3.73 3,83 40 4,04 3.58 19 4.26 3.00 06 4,02 2.83 03 4, 18 3.23 07 4,21 .23 31 .37 ,47 76 ,36 ,47 75 .37 ,42 67 .39 ,40 66 .37 ,58 84 ,36 2.58 69 2.39 2,61 68 2.37 2.68 68 2,45 2,64 64 2.49 2,83 67 2.60 2, 73 67 ,14 67 , 14 ·,03 03 .13 .10 55 ,16 .45 91 • 17 1 .27 18 NET INTEREST EARNINGS • TAX EQ, OTHER EARNINGS NON• INTEREST EXPENSE PROVlSION FOR POSS18LE LOI.II LOSSES PRE•TAX NET OPER INCOME • TAX EQ, APPLlCADLt INCOME TAXES • TAX EQ, NET OPERATING lNCOME • AFTER TAXES 1 ,49 44 I, 72 1.57 1,89 42 2.01 .so 2.55 92 ,15 61 .17 .34 04 I. 74 •,10 02 ,93 OB 1.86 .17 I. 78 ,72 57 .67 .68 40 .79 .58 23 .89 .13 06 . 72 ,00 01 • 73 ,17 04 ,76 .78 34 ,89 1,04 44 1.10 .69 14 1.12 .21 04 1.02 •,10 02 1.06 ,76 17 1.09 NET SECURITIES GAINS/ILOSSES) .OD .00 ,01 ,05 ,01 ,00 NET EXTRAORDINARY GAINS/I LOSSES) .02 .00 .00 .oo ,00 .oo NET INCO"'E • RETURN ON ASSETS .BO 34 .94 1.04 43 1.10 .70 15 1.11 .26 04 1,04 •,09 01 1.10 ,76 16 1.12 SUPPLEMENTAL INFORMATION • RESULTS FROM OPERATIONS TOTAL OPERATING INCOME • TAX EQ, 7.10 82 6,47 7.58 84 6,91 7 .67 60 7 .56 7.20 32 7.52 7.20 18 7.83 7 .BB 47 TOTAL OPERATING EXPENSES 5,60 80 4.90 5,86 82 5,02 6.40 81 5,55 6,85 88 5.77 7.30 92 6.05 6.95 83 6.12 1 .49 44 ,I ,72, 2.01 PRE• TAX NU OPER INCOME • TU EO, 1.57 .. 42 1,27 , . ,34 04 '· 74 . ,. •. 10 02 7,98 . .. ,9J 08 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis INTEREST INCOMa COMPONENTS I DOLLARS IN THOUSANDS l 03/16/78 ANNUAL DATA INCOME ON EARNING ASSETS INIEREST & FEES ON LOANS FEDERAL FUNDS SOLD & RESALES INIEREST ON DUE FROM BANKS [NV£STME~H INTEREST INCOME: US GOVEANMEN T & AGENCY MUNICIPAL SECURITIES MUNICIPAL SECURITY TAX BENEFIT OIHER SECURITIES TRADING ACCOUNT INCOME DIRECT LEASE FINANCING INCOME TOTAL INTEREST INCOME • TAX EO, ··-······-······-·-·········---------------------·---------·--··············----··-·· 1973 1975 1976 1977 1972 1974 $ $ .253 19 s s N/A s s s $ s s 181 59 46 32 0 N/A 590 s s s $ s s 319 30 N/A 198 71 58 36 0 N/A 712 s s 413 19 N/A 200 78 65 38 0 $ $ $ $ $ s N/A 813 s s s s s s s s 450 19 N/A 204 75 15 38 0 N/A 801 s $ s s s s $ $ $ s s 479 22 0 s s s s 237 51 0 29 0 0 818 s s s s s 623 15 0 236 45 22 24 0 0 965 YIELD ON: LOANS AOJUSTEO LOAN YIELD• DUE FROM SANKS 7,87 56 7.89 8.13 59 7,98 8.26 45 8.48 8.16 23 8.85 a. 10 38 9,08 8, 75 32 9,2:1 7, 50 47 7.59 8,20 74 7. 70 8.04 46 8.14 7.20 06 8,53 7.61 10 8.7~ 8,47 29 8,91 N/A N/A N/A N/A N/A NIA NIA 6.46 NO 6,46 5,75 4,94 5,16 5.15 5,30 5.08 N/A N/A MUNICIPAL SECURITIES 5.17 4.32 MUNICIPAL SECURITIES•TAX EO, 9. 24 89 7.27. 10,07 93 7.42 10.25 93 7.97 6,93 20 8,14 5,16 02 8.62 7,96 28 8.67 TAUBLE SECURIT l ES 7 .35 95 5. 76 7 .41 94 6,10 7.43 81 6.82 7,69 83 6,90 7 .42 6S 7,11 7,19 56 7.03 6,87 89 6.12 7. 11 83 6,60 7 ,20 52 7.21 6.77 25 7.13 6,80 12 7,47 7.30 29 7,62 TOTAL INTEREST INC•TAX EQ/AVG. ASSETS 5.52 4.34 5.57 4.54 COMPOSITE EARNING ASSETS: ( INCLUDES ALL INCOME PRODUCING BALANCE SHEET ACCOUNTS AS LISTED ABOVE l ······--·-··--····-····· AVERAGE EARNINC, ASSETS/AVERAGE ASSETS YIELD ON AVERAGE EARNING ASSETS 87.33 54 85,91 88,24 52 87,05 86.29 35 87,05 87,90 50 86,94 88.38 40 88.77 89,56 48 89,27 7.86 86 8.06 79 7.54 8.35 56 8.27 7. 71 25 8,21 7.69 15 8.42 8.15 30 7.11 NOTE: PRlOR TO 1976, ALL RATIOS ANO INTEREST FIGURES IN THIS ANALYSIS ARE BASED ON OOMESTIC ONLY INFORIIIATION, • INTEREST AND FEES ON LOANS LESS PROVISION FOR POSSIBLE LOAN LOSSES/AVERAGE TOTAL LOANS. 8.5'1 CJl t..:l t..:l https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 03/16/78 INTEREST EXPENSE COMPONENTS (DOLLARS IN TrtOUSANDS) ANNUAL DATA ... 1972 -- ..... ------ .....1973 -- ....... ······· 1974 ... -- --·- --···· ........... -- ... -- -............................ 1975 1977 197.6 INTEREST EXPENSE: OOt.1 TIME CD'S • $100M OR MORE OTHER DEPOSITS FEDERAL FUNDS PURCHASED & REPOS BORROWED MONEY SUBORDINATED NOTES & DEBENTURES TOTAL INTEREST EXPENSE N/A 248 D 0 0 248 $ $ s s s INTEREST RATE ON: 0014 TIME CO'S • $100M OR MORE s s s s N/A N/A ALL INTEREST BEARING DEPOSITS N/A 329 D 0 0 329 $ s $ s 409 0 0 0 409 $ $ N/A N/A 4.80 50 4.76 N/A s s s 446 0 0 0 446 $ $ s s s $ 14 463 0 0 $ 477 ·s N/A N/A N/A N/A 5.19 70 4.95 N/A 5.62 43 5.64 5.54 60 5.56 D s s s s s s 7 531 0 0 0 538 16.09 97 5.98 6.29 64 5.98 5.66 45 5. 74 50 B,66 5,69 NO 6.05 FEDERAL FUNDS AND OTHER BORROWINGS N/A 5.65 N/A 6.65 N/A 6.78 N/A 6.00 N/A 5.60 RATE SENSITIVE LUBILITIES N/A N/A N/A N/A N/A N/A N/A N/A 16.09 98 · 5.89 6.29 65 5.87 TOTAL INTEREST EXPENSE/AV EARN ASSETS 3.30 78 2. 74 3,72 69 2.87 4.20 85 3,35 4,29 83 3.56 4.48 85 3.69 4,54 87 3.80 TOTAL INTEREST EXPENSE/AVERAGE ASSETS 2.88 78 2.37 3,28 88 2.51 3.62 83 2.93 3. 77 85 3.10 3.96 84 3.29 4.07 86 3.40 42.00 59 38. 71 46.18 78 :'.>8,23 50.28 84 40. 74 55.65 92 43,55 58.31 95 44.01 55,.72 93 TOTAL INT EXP/TOTAL INT INC•TAX EQ. 44.63 OTHER EARNINGS COMPONENTS OTHER EARN I N:aS: TRUST DEPARTMENT DOM DEPO~IT SERI/ICE CHARGES OTHER SERVICE CHARGES REr'1 FOREIGN EARNINGS-4' UNCONSOLIOATED EARNINGS•• OTHER EARNINGS TOT AL OTliER EARNINGS 0 13 5 0 $ s s $ s s N/A 2 20 s s s s s s 0 18 6 0 s s s 23 47 s N/A OTHER EARNINGS/A~ERAGE ASSETS .23 31 .37 ,47 76 .36 DOM OEPOSI T SER CHGS/IPC .69 .63 .93 ,58 OEMANO OEP 0 23 7 0 $ s N/A 23 53 .47 75 .37 1.15 .61 $ $ s s s s 0 23 9 0 N/A 18 50 .42 67 .39 1.09 .65 s s s s s s 0 22 9 Ni A 0 17 48 s s s s s s 0 • 25 ·28 N/~ 0 24 77 .40 66 .37 ,58 84 .36 .96 .64 .ta ·•1976 AND SUBSEQUENT REPORTS ARE PREPARED ON A LINE FOR LINE FULLY CONSOLIDATED FOREIGN AND DOMESTIC BASIS. •• INCREASE OR ( DECREASE) IN NET WORTH OF UNCONSOLIDATED SUBSIDIARIES AND ASSOCIATED COMPANIES, .63 c.n tv i:,:i https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis NON-INTEREST E<PENSE COMPONENTS (DOLLARS IN THOUSANDS) 03/16/78 ANNUAL DATA ··--·-···········----·-···········--·-··--·····-------·--·-·······----·-··--····---1977" '1974 1.975 1973 1976 1972 14 16 15 11 16 16 8. 71 63 8.41 8.87 58 8.83 10.47 68 9.68 14.55 91 ·10.40 12.12 73 10.99 12.37 67 11.74 NO. OF EMPLOYEES PERSONNEL EXPENSE/NO. OF EMPLOYEES NO. FULL T UIE EOUI VALENT EMPLOYEES N/A N/A N/A N/A 16 PERSONNEL EXPENSE/NO. EQUIV EMPLOYEES N/A N/A N/A N/A N/A N/A N/A N/A 12.12 64 11.85 ND. EOUIV UIP PER SIMM OF ASSETS N/A N/A N/A N/A N/A N/A N/A N/A PERSONNEL EXPENSE s 122 s 142 s 157 s 0 NIA 12.82 .oo 1.33 1.23 160 s 194 1.13 s 198 -----------·-···· GROSS LESS RENTAL INCOME NET FURNITURE & EQUIPMENT SIJ&iCTAL H'>, $ $ s $ s 22 3 19 13 32 $ $ s s $ 13 .3 10 15 25 OTHER OPERATING EXPENSE $ 68 $ 94 TOTAL NON· INTEREST EXPENSE s 222 s 261 $ $ $ $ s s s 25 4 21 19 40 s s $ $ $ 18 4 14 13 27 106 s 125 303 s 312 1,42 63 1.35 1.42 64 1.33 1.39 60 1.36 1.35 54 OCCUPANCY EXPENSE/ AVERAGE ASSETS .37 70 .32 .25 39 .32 .35 64 .33 OTHER OPERATING EXPENSE/AVG. ASSETS .79 68 . 72 .94 79 .73 .94 74 .77 2.58 69 2.39 2.61 68 2.37 PERSONNEL EXPENSE/AVERAGE ASSETS TOTAL NON• INTEREST EXP/AVG. ASSETS i:,;-. t-:i OCCUPANCY EXPENSE: 2.68 68 2.45 $ $ $ $ 18 0 18 11 s 29 s s 341 118 s s $ s s s s 18 1 17 8 25 138 361 1.61 73 1.40 1.50 65 1.39 .23 26 .35 .24 27 .36 • 19 15 .35 1.06 83 • 78 .98 73 .84 1.04 BO .81 2.64 64 2.49 2.83 67 2.60 2. 73 67 2.55 1.37 . 'i' ~ . 0 .. "' ~ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis INCOME TAXES AND NON OPERAHNG INCOME I LOSS) (DOLLARS IN THOUSANDSI 03/16/78 INCOME TAXES ------------ ANNUAL DATA ···- --· --- .......... --... ·- --.......... -- . -- ..........1975-............. -- -. ·-··1976-.................. -1977 1973 1972 APPLICABLE INCOME TAX ON OPER INCOME s PLIJS: MUNI SECuRITV TAX BENEFIT $ APPLICABLE INCOME TAX • TAX EO. 15 46 61 s s s SB 68 ALL INCOME TAXES s 16 s .19 .30 0 65 65 s $ s N/A 10 s s 0 0 s s s s N/A 0 0 0 0 s s s s 0 .OD .oo .39 .25 s s s s 0 22 22 .17 .00 0 0 $ N/A s .10 .38 0 15 15 .13 .58 •1 0 $ s N/A ALL INCOME TAX/AVERAGE ASSETS s $ s .6B 15 0 $ 10 $ $ ,72 APP INCOME TAX • TAX EQ./AVG. ASSETS MEMO-TAX PROVISION: FEDERAL STATE ANO LOCAL FOREIGN 1974 0 0 0 0 s s s s 0 0 0 0 Cl t..:> .OD .00 .24 Cl .27 SECURITIES GAIN OR (LOSS) .. -----------·-·········· GROSS TU EFFECT NET s s s 0 0 0 s s s s s 1 0 1 s .oo .oo NET SECURITY GAIN ( LOSS)/AVG. ASSETS 0 0 0 s s s 0 s s 6 $ 6 .os .01 1 0 1 s s s 0 0 0 .OD .01· EXTRAORDINARY ITEMS GAIN OR (LOSS) .. --------·········-···········--GROSS TU EFFECT NET NET EXTRA. GAIN (LOSS I/AVG. ASSETS $ s s 3 1 2 ,02 s s s 0 0 0 .oo s $ s 0 0 0 .OD s s s 0 0 0 .DO s s s 0 0 0 .oo s s s 0 0 0 .oo https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis CAPITAL ANUYSIS (DOLLM!S IN THO.ISANDSI 03/16/78 CAPITAL cor,1POSITION: (END OF PERIOD! 1973 1972 ---------·-···········-·-··-···-·-· PREFERRED .STOCK co~..ON s TOCK SURPLUS UNDIVIDEO PROFITS CONIINGENCY & CAPITAL RESERVES TOTAL EQUITY CAPITAL SUBORDINA IEO NOTES & DEBENTURES TOTAL CAPITAL -- -......... --- .......... -----......... ANNUAL -. -.. --...DATA -- ...... -. ----- ... -. -..... -..... -............... . -.. -. $ 5 s s $ $ s $ CAPITAL GROWTH RATE D 50 150 448 100 748 0 748 $ 0 50 $ 150. s s s s 542 100 842 s e42 $ 0 $ s s s ·s s $. $ 12.57 SI 14.50 8.25 42 10.56 1975 1974 0 50 150 629 100 929 0 929 $ $ $ $ $ s $ s 1.976 0 SD 150 689 100 989 0 989 s s s s $ $ s s 6.46 25 11.38 10.33 43 12. 79 0 so 150 796 D 996 0 996 s s s s s s s s .71 07 13.13 1977 0 300 300 491 5 1096 0 1096 10.04 40 f2.45 CHANGES IN EQUITY CAPITAL: ------------------------- BALANCE BEGINNING OF PERIOD NET lNCOr.~E SALE OR PURCHASE OF CAPITAL CHANGES MERGERS 8 ABSORPTIONS LESS: CASH DIVIOENDS NET OTHER I NCREA~ES (DECREASES) BALAr.:CE END OF PERIOD s s s s s s s 691 69 0 0 5 ·7 748 s $ $ $ s $ s 748 104 0 0 6 •4 842 s s $ $ $ $ s 842 79 0 0 5 13 929 s $ $ $ $ s s 929 31 0 0 5 33 988 $ s s s s s s 988 •11 0 0 5 24 996 s s s s s s s 995 101 0 0 5 5 1096 CAPITAL RATIO ANALYSIS: (END OF PERIOD) .......................................... ASSETS/TOTAL CAPITAL(XJ DEPOSITS/TOTAL CAPITALlX) 12.18 34 13.52 12.52 36 13.49 12.64 44 13.11 11.92 34 13.16 12.40 47 12.65 12.93 59 12.48 10.99 35 12.21 11,25 38 11.43 46 11.75 10. 78 ·35 11.80 11.37 49 11.87 60 12.16 11.51 11.35 NET LOANS/TOTAL CAPITAL (X) 4.30 19 6.24 5.32 32 6.37 5.91 42 6.34 5.46 35 6.40 s. 75 36 6.40 6.99 54 6.55 . LOANS & ACCEP/TOTAL CAPITAL(XJ 4,30 6:24 5.32 6.37 5.91 6.34 5.46 6.40 5. 75 6,40 "6.99 6.55 TOTAL EQUITY CAPITA.L/TOTAL ASSETS 8.21 7.80 7.99 7.89 7.91 7.98 8.3.9. 7,91 8.06 8.18 7.74 8,26 TOTAL CAPITAL/TOTAL ASSETS 8.21 65 7.84 7.99 63 7,98 7.91 55 8.08 8.39 66 8.03 8.06 52 8.30 7.74 41 8,40 TOTAL BORROWINGS/TOTAL CAPITAL (X) .oo ,03 .oo .04 .oo .04 .00 .OS .oo .06 .oci .06 NET INCOME/AVERAGE EQUITY CAPITAL 9.54 25 11.88 12,97 38 14.14 8.88 13 14.28 3.30 04 13.25 ·1.13 01 13.62 9.67 16 13,61 <:;, t-:i ~ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis AOOITIONAL CAPITAL FACTORS AND DIVIDEND ANALYSIS (DOLLARS IN THOUSANDS I 03/16/78 ANNUAL DATA AOOITIONAL CAPITAL FACTORS 1973 1972 --------·······--···· 1975 1974 1977 1976 CHANGE IN UNDIVIDED PROFITS & SURPLUS 10,54 48 11.58 15, 72 57 15,58 12.57 44 13,84 7.70 31 11.22 12. 75 47 13.04 •16,38 OD 14.31 RETAINED EARNINGS( 1)/AVG. EO. CAPITAL 8.85 48 8.60 12.22 63 10,87 8.31 31 10,88 2. 77 08 9. 74 •1 .65 02 10.09 9.38 41 10.13 8.27 15 15,46 15,65 55 15.48 11.45 62 10.24 .34 06 11,80 4.84 24 9.25 14.66 68 12.01 ASSET GROWTH RATE SUBOROINATED DEST /TOTAL CAPITAL( 2) INVEST IN FIXED ASSETS/TOTAL CAP(2) INVESI IN FIXED ASSETS/COMMON STOCK(2). NET INCOME/SHARES OF COMMON STOCK(3) .00 .56 .00 1.20 .00 1.37 ,00 1.75 .oo .oo 1.69 1,86 15.37 17.06 21.97 17.30 28,96 17.89 26,49 18,74 27.91 18.59 25.55 17.70 230.00 76.92 370,00 81.48 538.00 524.00 84.28 89.28 556.00 94.52 93.33 93.53 N/A N/A -22.00 101.00 N/A N/A <:.11 ts:) ---1 Di\lIOEND ANALYSIS ----------·-····· NET INCOME ADD: GROSS RECOVERIES PROV. FOR POSSIBLE LOAN LOSSES LESS: GROSS LOAN LOSSES TAX ADJUSTMENT (4) s s s 69 $ 13 D 2 12 69 LESS: CASH DIVIDENDS DECLARED s s s NET AFTER DIVIDENDS s 64 NET BEFORE DI VI DENOS CASH OIVIDENDS DECLARED/NET INCOME 5 7.25 28.09 ( 1) NET INCOME LESS .CASH DIVIDENDS. (2) END OF PERIOD. (3) THE RATIO IS EXPRESSED IN DOLLARS P.ER .&HARE. (4) TAX RATE IS 50". s s s s s s s s 104 s 19 6 •3 $ 2 11 3 D s ..s s s s 104 .6 .98 5.77 .23,21 $ s s 31 .o $ 53 ·53 D ..s s s -s s 73 s 14 0 78 6.33 JM.48 s s s •11 11)1 60 s s s s 'l5 s 1 11 7 31 s s •15 5 '$ -5 26 s ·20 16.13 27.02 •4 -45,4·5 26.43 s s s .s .. 20 112 5 107 4.95 26.22 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 03/16/78 ANALVSlii DF llE!,ERV. FO~ PO£SI8LE LOAN LOSSES (OOLLARS 'IN THOUSANDS I ANNUAL DATA ------- -- ... COMPUrATJDN BEGINNING BALANCE( 1) GROSS LOAN LOSSES uROSS RECOVERIES NET LOAN LOSSES 1973 1972 'N/A N/A s s .$ PROVISION FOR POSSIBLE LOAN l.OSSES OTHER INCREASES/10ECREASES) ENDING 8ALANCEI 1) .s AVERAGE TOTAL LOANS(3) $ 13 2 11 $ Ill $ 3215 ·3 $ $ s s N/A N/A s 3925 14 2 <2 .$ 11 $ N/A N/A $ 4999 53 0 '53 $ $ s $ 1977 '1976 N/A II/A 3 6 •3 s s N/A N/A 11175 1'11'14 53 N/A 29 5512 .$ 29 $ 21 s s 75 7 s s s s s s s I 4 •3 s 68 s s s s 6D 0 21 5508 '20 0 44 7120 COMPARATIVE RATIOS ...................... PROVISION/AVERAGE ASSETS ,45 91 , 17 ,50 92 .17 .ts 61 .17 ·,08 03 .27 .22 55 .33 .96 92 .33 1 .09 94 .32 ,28 61 .31 .40 66 .38 ,08 30 ,37 .28 53 ,47 .96 89 ,43 1,36 94 .41 .34 79 .27 •,08 10 .26 .24 65 .35 .96 93 .31 1 .23 9B .32 •,03 03 , 13 PROVISION/AVERAGE TOTAL LOANS(3) .37 74 .29 GROSS LOAN LOSSES/AVG. TOTAL LOANS(3) NET LOAN LOSSES/AVG, TOTAL LOANSl3) .,o 55 , 16 • 14 67 .14 13.21 51.94 RECOVERIES/GROSS LN LOSS PRIOR PERIOD 66.67 56.17 46, 15 61, 70 66.67 59.29 ENDING BALANCE( 1 )/AVG. TOTAL LOANS(3) N/A N/A N/A N/A N/A N/A .53 22 1,08 ENOING BALANCE( 1 I/NET LOAN LOSSES(X) N/A N/A N/A N/A N/A N/A .55 .31 9.82 9,87 AOJUSrED EARNINGS(2)/NET LN LOSSES(X) 0. 55 47 30, 77 -~7.00 08 39,69 (1) RESERVE FOR POSSIBLE LOAN LOSSES. (2) NET OPERATING INCOME PLUS PROVISION FOR POSSIBLE LOAN LOSSES. (3) AVERAGE TOTAL LOANS IS BASED UPON AVERAGES FROM THE MEMORANDUM SECTION OF Tl'IE REPORT OF CONDITION OR THE LARGE BANK SUPPLEMENT, 7 .42 40 36,06 .00 52.86 1,47 21 29.75 .38 15 1.03 .71 17 33,21 .o, 12 .35 ,04 08 ,22 5,33 48,48 .62 , .o, 25 14,67 10.59 40,33 10 32.57 C.,1 t-.:> 00 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis CAPACITY TO HEO~E INTEREST MARGINS (END OF PERIOD OOLLARS IN THOUSANDS) 03/16/78 MARKET RATE FUNDS FED FUNDS .PURCHASED & REPOS BORROl'IED ~10NEV DOOi IIUE DEPOSIIS OVER $10011 FOREIGN OFFICE TOTAL MARKET RATE FUNDS YEAR END ................................. PRIOR QTR CU~R OTA 12/31/75 09/30/77 12/31./77 $ 0 $ $ $ $ $ MARKET RATE FUNDS/TOTAL ASSETS 12/31/76 s 0 220 0 220 $ $ $ BANKS TIME ONE YEAR & LESS SECURlTIES TRADING ACCOUNT SECURITIES FED FUNOS SOLO & RESALES VARIABLE RATE LOANS TOTAL MARKET RATE ASSETS• s $ 750 N/A 1267 $ 10.75 45· 12.61 MARKET RATE ASSETS/TOTAL ASSETS• NET POS IN MARKET RATE ASSETS • AMT' 517 0 s s s s s N/A $ s 1047 480 $ $ 0 1446 0 0 N/A 1446 $ 966 $ $ $ s s 0 214 $ D $ 214 0 214 s s s 0 1440 0 700 N/A 2140 $ 1926 0 1,51 24 5,32 s s s s s 14,83 75 11,02 0 1165 0 700 N/A 1865 13.17 57 12.52 s 13,34 86 7.82 54 7.21 7. 75 0 214 1.48 19 6.31 11, 70 52 12.68 e .ea ss NET POS IN MKT RATE ASS.ET/TOTAL ASSET• 0 D $ $ s 3,89 49 5.48 1 .87 36 4.86 MARKET RATE ASSETS 0 0 480 1651 11.&S 72 7,19 4, 71 UNCOLLECTED INCOME ANALYSIS ( END OF PERIOD DOLLARS IN THOUSANDS l INCOME EARNED NOT COLLECTED I ENC/DOM LOANS & SECURrTI ES • 12/3t/75 12/31/76 s $ 227 2, 73 97 .54 284 2.96 98 .64 OB/30/77 12/31/77 s s 229 ·2 •. 18 88 .72 276 2,67 97 DOES NOT INCLUDE VARIABLE RATE LOANS IN THE CASE OF BANKS WITH TOTAL ASSETS OF LESS TliAN S300 M1LLION. .66 01 ~ C;O https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ASSET & I.IABILITY CHANGES (DOLLARS. IN• THOUUNDS.l 03/16/78 ca PRIOR YR OTRc/CUR YR 12/3.1/76 TO 12/31/77 INCREASE/ lll'EC~US£l ... ASSETS •·••-·· --. -. -. ---.. -.. ., PRIOR CTR/CUR CTR 09/30/77 TO 12/31 /77 INCREAS£/ ID!tCMASE) ....... -.. -...... ----... - CASH & DUE FROM BANKS $ 99 s •t31 INVEStMENT SECUlfITIES $ •927 $ •152 TRAOING ACCOUNT $ 0 $ 0 FEO£fl.AL fUNOS & RUALES $ 700 $ LOANS s 1931 S, lllRECT LEASE FINANCING $· 0 $ 0 ACCEPtANCES, $ 0 $ 0 OTHER ASSETS s. a 5 58 1811 $ ·268 0 ·43 <:.n· 0.:, NET fNCAEASE (DECREASE) s LUBILITIES . --- - ....... •-- 01:.iwtANO DEPOSrrs $ 524 $ 46 TIME ANO SAVINGS DEPOSITS $ 1163 $ ·369 0 $ 0 $ ~EOERAL FUNDS & RUOS $ 0 s 0 OTHER BORROWINGS $ 0 $ 0 DEPOSJTS FOREIGN OFFICES. ACCEPtANCES $ 0 $ 0 DTHfR L IAB I LIT I ES $ 24 $ ·12 SUBOROl:NA T£0 DE8ENTURES $ 0 $ 0 EOUlTV CAPITAL s 100 $ 67 $ 1811 $ ·268 NET INCREASE (DECREASE) 0 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis PAST DUE LOAN ANALYSIS AND AMENDED REOORTS (END OF PERIOD OOLLARS IN THOUSANDS) 03/16/78 YEAR ENO PAST OUE LOANS BY CATEGORY --12/31/75 -· .. -- --·--··---· ...... i2/31/76 REAL ESTATE CO.,.,EACIAL & INDUSTRIAL TO INDIVIDUALS FOR PERSONAL EXPEND, AL .. orHER TOTAL s s s s $ 1 206 4 39 250 s $ $ s s ORIOR QTR CURR QTR 09/30/77 12/31/77 $ 66 120 22 $ $ 0 208 s s 52 143 14 0 209 s s s s s 51 206 27 54 338 PAST DUE AS X OF LOANS IN CATEGORY .05 2.60 2.64 2.82 1,29 2.63 1.37 2, 77 14,92 3.34 10.64 3.51 6,61 3, 72 8.07 3,51 TO INDIVIDUALS FOR PERSONAL EXPEND, .33 2.90 1.93 2.97 ,99 2.87 3.11 3.02 ALL OTHER 4,07 3.07 .oo 3.31 ,00 2,92 9.54 3,31 4.63 80 3.00 3.59 69 2.91 2.69 55 2,81 4.38 79 2.91 REAL £STATE COMMERCIAL & INDUSTRIAL TOTAL NOTE: FIGURES IN THE PAST DUE ANALYSIS ARE CALCULATED FROM GROSS LOAN TOTALS, AMENDED REPORTS THE BANK PERFORMANCE REPORT IS PRIMARILY BASED UPON CALL REPORT DATA AS ORIGINALLY FILED. LISTED BELOW BY QUARTER SINCE 1975 ARE THOSE AMENDED REPORTS PROVIDED BY YOUR BANK WHICH HAVE BEEN ENTERED INTO THE DATA BASE, 1975 1976 1977 REPOAr OF CO-'DIT ION FIRST OTR. • SECOND OTA, THI RO OTR. • FOURTH OTR, N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A REPORT OF INCOME • FIRST OTA, SECOND OTR. THIRD OTA. FOI/RTII OTA. N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 532 03/16/78 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis AMENDED RATIO OEFIN!llONS SEVERAL BASIC RATIO CALCULATION CHANGES HAVE BEEN MADE TO 1MPR0VE THE DATA REPRESENTED IN Tn!S REPORT. THESE REVISIONS SUPERSEDE THE RATIO DEFINITIONS DELINEATED IN THE BOOKLET 'THE NBSS BANK PERFOR• MANCE REPORT A USERS'S GUIDE FOR BANKERS AND EXAMINERS SEPTEMBER 1977. AVERAGE ASSETS: UNLESS OTHERWISE NOTED, COMMENCING IN 1977. AVERAGE ASSETS IS BASED UPON AVERAGES FROM THE MEMORANDUM SECTION OF THE REPORT OF CONDITION, THIS COMPO~ENT IS USED IN ALL INCOME ANO EXPENSE RATIOS UTILIZING AVERAGE ASSETS. ADJUSTED RETURN ON AVERAGE ASSETS: REDEFINED TO INCLUDE AN ADJUSTMENT !'QR THE TAX DIFFERENTIAL ON THE INITIAL INCREMENT OF TAXABLE INCOME. (FOR NBSS PURPOSES .fHE TAX RATE IS 25% ON THE INITIAL $50 THOUSAND OF TAXABLE INCOME ANO 50'11 ON THE EXCESS). TAX EOU!VALENT AOJUSTMEN.T FOR MUNICIPAL SECURITIES: MUNICIPAL SECURITY TAX BENEFIT IS REOEFINEO AS THE LESSER OF rNNICIPAL BONO INCOME OR PRE•TAX INCOME- INCLUDISG GROSS EXTRA· ORDINARY ITEMS ANO GROSS SECURITY GAINS OR LOSSES: ADJUSTED FOR TAX RATE DIFFERENTIAL ON THE INITIAL INCREMENT OF TAXABLE INCOME. IF PRE•TAX NET INCOME IS LESS THAN ZERO, THE BENEFIT IS ZERO. 533 GLOSSARY OF NBSS SIGNIFICANT RATIOS AVERAGE ASSETS An average of total assets from each Report of Condition filed during the year plus the preceding year end. Thus, each full year figure is an average of five total assets figures. Beginning June 30, 1977 the 30 day total assets as reported in the memoranda section of each Report of Condition replaced the as-of-date figure. NET INCOME This is the bank's after tax income as reported on the Report of Income and includes security gains or losses and extraordinary items. RETURN ON AVERAGE ASSETS This is the net income of the bank divided by average assets. It is a measure of how effectively the bank is using its assets to generate income and is a prime indicator of overall management performance. ADJUSTED RETURN ON AVERAGE ASSETS This ratio portrays Return on Average Assets using actual net loan losses rather than the provision for possible loan losses as a component of net income. An adjustment is also made for the consequent tax effect of this change. PRE-TAX NET OPERATING INCOME-TAX EQUIVALENT Total operating income-tax equivalent less total operating expenses divided by average assets. This indicator measures the profitability of the bank's overall operations before taxes, securities gains or losses, and extraordinary items. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 534 NET INTEREST EARNINGS/ AVERAGE ASSETS Tax equivalent Interest Income less Interest Expense as a percent of Average Assets. Net Interest Earnings is frequently referred to as "Net Interest Margin" or "Spread". This ratio measures the profitability of the basic banking function, receiving deposits and purchasing funds to invest in interest earning assets. OTHER EARNINGS/ AVERAGE ASSETS Operating income other than Interest Income divided by Average Assets. This indicator measures the dependency of the bank upon income derived from bank services other than from interest earning assets. NON INTEREST EXPENSE/ AVERAGE ASSETS All overhead expense not including the provision for possible loan losses divided by average assets. The components of this expense are personnel and occupancy costs and other operating expenses. This ratio measures the operating costs of doing business. PROVISION FOR POSSIBLE LOAN LOSSES/AVERAGE ASSETS Provision for possible loan losses (or actual net loan losses) divided by average assets, An increase in this ratio could indicate a possible deterioration in the loan portfolio. ASSET GROWTH RATE Total assets at the end of the current period less total assets at the end of the corresponding period in the prior year divided by total assets at the end of the corresponding period in the prior year. A substantial change in this ratio could prompt an investigation to determine the reason for this change and management's ability to cope with the situation. CHANGE IN ASSET MIX This ratio monitors changes in asset composition. It is the sum of the absolute percentage changes in each category of assets from the end of ~he corresponding period in the prior year to the end of the current period. CHANGE IN LOAN MIX This ratio monitors changes in the composition of the loan portfolio. It is calculated in the same manner as "Changes in Asset Mix". https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 535 CHANGE IN LIABILITY MIX This ratio measures changes in liability composition. This calculation is performed in the same manner as the two other mix ratios. RETAINED EARNINGS/ AVERAGE EQUITY CAPITAL Net income for the period less cash dividends declared in the same period divided by average equity capital. Average equity c1pital is defined as equity capital at the prior year end and at each subsequent reporting period divided by the number of reporting periods, This ratio measures the growth rate of internally generated capital. ASSETS/TOTAL CAPITAL End-of-period total assets divided by end-of-period total capital, This indicator measures the number of times total assets exceed total capital. Data is obtained from Reports of Condition and Reports of Income filed on a quarterly basis with the Office of the Comptroller of the Currency. Averages are calculated using the figures from each Report of Condition filed during the year plus the preceding year end, This gives an observation at the beginning and end of the year and at the three intervening call report dates, thus minimizing. seasonal fluctuations. . At present banks are divided into twenty peer groups according to asset size and a further break-down, in some size groups, by number of branches and location in either an urban or rural area. Banks located within a Standard Metropolitan Statistical Area are considered ~rban banks. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis PAGE NO. NBSS ACTION CONTROL STATUS REPORT DEC https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ACTION OATE A~D CODE :)U MO DA YR CD CD CONDITION CITED 277 10 28 77 02 XYZ NATIONAL BANK 77 TOT ASS TS 6B920 ASST GROW 03 OB 78 03 08 78 1AF RETLIR~ ON ASSETS 0•9 PERCENTILE OS 04 04 04 02 02 02 12 12 11 11 11 SZF 15 78 17 7B 17 78 13 78 27 78 02 78 02 78 22 77 ~2 77 15 77 15 77 15 77 ·.16 FIGU~ REPORTED SY BANK REPORTED BY BANK F IGU FIGURE REPORTED BY BANK PEER GROUP F !CURE LAST BPR FIGURE REPORTED BY BANK FIGURE REPORT ED BY BANK FIGURE REPORTED BY OANK FIGURE. RtPORTLD BV BANK FIGURE REPORTED eY RANK FIGURE REPORTED BY BANK BANK FIGURE LAST BPR PEER GROUP F !GURE LAST BPR 4 3 2 0 1 M M M 4 15 17 17 13 27 02 02 10 10 78 FIGURE REPORTED BY BANK FIGURE REPORTED BY BANK 78 78 ·FIGURE REPORTED BY BANK 78 PEER GROUP FI (;URE LAST BPR FIGURE REPORTED BY BANK 7B FIGURE REPORTED BY BANK 78 78 FIGURE REPORTED BY DANK 77 BANK FIGURE LAST BPR PEER GROUP FIGURE LAST BPR 77 AVER EARN ASSETS/AVER ASSETS 0·9 PERCENT I LE 15 17 17 13 03 27 02 02 22 22 10 10 10 7B 7B 78 78 78 7B 78 78 ENO•O·PER VAL RES/AV LNS 0·9 PERCENTILE 77 77 77 77 77 05 15 7B FIGURE REPORTED BY BANK f !CURE REPORTED BY BANK FIGURE REPORTED BY BANK PEER GROUP FIGURE LAST BPR BANK FIGURE LAST BPR FIGURE REPORTED BY BANK FIGURE REPORTED ·av BANK FIGURE REPORTED BY BANI'( FIGURE REPORTED BY BANK FIGURE REPORTED BY UANK FI CURE REPORT ED BY BANK BANK FIGURE LAST BPR PEER GROUP FIGURE LAST BPR FIGURE REPORTED BY BANK 3 28.07 ASST /CAP BOARO MEETING HELD ON DR BY LATEST EXAMINATION INTEREST ON ALL INTER'EST BEARING DEPOSITS 90•99 PERCENT! L 05 04 04 04 02 02 02 11 11 05 04 04 04 03 02 02 02 12 12 11 11 11 p PEER GP 06 CHARTER NO ROA IMPORTANT OATES 4CF STATUS CODE REG ,3.60 05/15/7B RESPONSE #U 36A 86 POSTING llATE MO DA YR ri M 0 0 3 2 0 1 M M 0 Q 4 3 2 0 9 1 M M M M M Q Q 4 12•15-77 08•08-77 C • .43 " """,: "D " D "" • .59 - . r,e, .e3 •1.32 •, 18 12·31•77 • .21 09-30-77 • .04 • .07 .BS 6.57 6.60 6.69 5,50 6. 70 6.6@ 12·31 •77 6.58 5.41 83.78 84.18 84.34 87 .41 76.22 80.74 77 .44 12·31-77 76.31.. 09·30·77 74.77 75.57 87.32 .27 C " "" "" OPEN e;-. OPEN "11 C " 11 I OPEN "" 11 II "" C " 0 II "" lt OPEN c,.:) ~ PAGE NO. :.,:f!~ OAT( A'10 COJE ~!It ,.•v OA HI CO CO tONOlflON Cl1£0 ASSETS/TOTAL CAP!TAL(X) 90•99 PERCENTILE 377 03 02 78 02 SR., https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 477 OS 04 78 03 04 OJ 02 02 02 01 01 11 11 11 13 OJ 27 02 02 26 26 10 10 10 78 78 78 78 78 78 78 05 04 04 04 03 02 02 02 11 11 11 15 17 17 13 03 27 02 02 10 10 10 78 78 78 78 78 78 78 76 05 04 04 03 03 03 15 17 17 03 03 03 XYZ NATIONAL BANK BORROiINGS ST INCREASE 77 m 77 77 77 77 REG XYZ ~lATIONAL BANK 78 78 78 78 78 78 REG 0 ST,llTUS COOE 04 18 78 04 17 78 6KA 0!;./15/78 87 RESPONSE POSTING OAH MO OA YR FIGURE REPORT~O BY SANK FIGURE REPORTED BY BANK PEER GROUP FIGURE LAST BPR PEER GROUP FIGURE LAST OPR FIGURE REPORTED BY BANK F!WRE REPORTED av BANK FIGURE REPORT ED BY 8ANK FIGURE REPORTED BY SANK FIGURE REPORTED BY. BANK F JGURE REPORTED BY BANK BANK FIGURE LAST BPR PEER GROUP FIGURE LAST BPR FIGURE REPORTED BY BANK FIGURE RE FORT ED BY BANK FIGURE REPORTED av BANK PEER GROUP FIGURE LAST BPR PEER GROUP FIGURE LAST BPR FIGURE REPORTED BY BAtJK FIGURE REPORTED BY BANK FIGURE REPORTED BY SANK FIGURE REPORTE~ BY BANK BANK FIGURE LASl BPR PEER GROUP FIGURE LAST BPR CHARTEr-: NO FIGURE FIGURE FIGURE FIGURE FIGURE FIGURE REPORTED BY REPORT ED BY REPORaD 6Y REPORTED BY REPORTED BY REPORTED BY CHARTER NO 2 0 PEER GP 06 1 .04 1.01 .20 .20 12•31-77 .25 09·30·77 9 1 M M M M M 0 0 4 3 2 0 9 0 0 p 4 3 2 1 D 9 'l 'l "1. 'l 'l C .22 'l D 'l • 20 1.00 1. 'l 24.16 24.G9 23.15 13.83 X X X X X X X C X X X 13.52 24. 15 28.07 12·31 •77 25. 70 23.46 13.58 1 M M M PEER GP 06 BANI-\ BANrl; BANK BANK BANK BANK .2l/ .24 3 OPEN 3 s s s s s 11261 13163 11680 13742 7799 11891 s 3 OPEN Ct c.:i '1