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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
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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
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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
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(U)
CONTENTS
Page
Opening statement of Senator Proxmire______________________________
Opening statement of Senator Schmitt_______________________________
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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____
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5
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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 ________________________ _
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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
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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_____
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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_____________________
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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 ____________________________ _
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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_____________________________________
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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
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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-
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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
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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
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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:]
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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
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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.
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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
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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.
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- 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.
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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.
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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.
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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
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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.
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Federal Reserve Bank of St. Louis
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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.
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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.
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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
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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.
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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.
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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.
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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.
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Federal Reserve Bank of St. Louis
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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.
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Federal Reserve Bank of St. Louis
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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
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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1975
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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
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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-
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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.
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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.
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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
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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
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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.
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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.
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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.
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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
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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
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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
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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.
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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.
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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
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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
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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:]
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()
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.
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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.
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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.
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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
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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
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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.
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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
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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
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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
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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.
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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.
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Federal Reserve Bank of St. Louis
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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.
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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.
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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.
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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
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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
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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
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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.
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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.
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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.
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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.
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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
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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
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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~
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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
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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.
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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-
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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.
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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
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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.
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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
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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.
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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
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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
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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
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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,
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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.
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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
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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.
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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.
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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)
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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
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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: ··)
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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
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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.
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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.
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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.
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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
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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
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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
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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
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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.
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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
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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
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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.
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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
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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
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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
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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.
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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.
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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.
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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.
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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
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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
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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.
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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:
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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.
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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.
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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.
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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
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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.
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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
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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.
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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,
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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.
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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.
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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
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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.
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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.,
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........, ......
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..., ....
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ll,I
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w.,
'·"'·' .....
....,
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....,
,u.z
.....
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,.,
..... ..... .....,.... ...,.., .......,,..
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.....
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 ...... .,._
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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
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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 - " - ·
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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
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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)
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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
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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)
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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.
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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
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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.
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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
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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
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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
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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)
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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
.;
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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
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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.
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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
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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.
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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
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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.
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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~
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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
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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.
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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
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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
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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
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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.
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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:
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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.
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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.
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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
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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
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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
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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).
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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
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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
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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.
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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
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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
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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.
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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
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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
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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
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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.
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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.
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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.
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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
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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
~
.....
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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:-.:>
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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,:>
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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.
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• 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.
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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.
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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,
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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.
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•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
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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.
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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:
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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)
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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:
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()
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
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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.
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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.
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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.
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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
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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
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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:
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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:
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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.
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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,
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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
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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.
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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
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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.
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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
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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.
\
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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~
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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
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
,a
19
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...
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32. Bond Oepreoahon
33. Bond Oeprtoalion/ACF .
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S1-----+-----+------+------l 1
....... ' t - - - - - t - - - - - - 1 - - - - - 4 - - - - - - - - - 4 8
. .. $ 1 - - - - - + - - - - - + - - - - - - - + - - - - - - - - < 9
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l~H prior tr.rn Jnit c11mlll nemln:i?I~ dst.1.)
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65
66. Managem!nl;A~1mstrabon ..
66
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74
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. . . . • . • . • . • ti
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76
76. Number of Cr:ricaed Loan Wr1le-Ups...
. .. #
~ n B1anllet Band-SilS1Arnoun1....
. .... s.t-----+------+------1,--------' 77
78
t> 78 Blanket Bond-Excess Amount . .
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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
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5~
ti
Si_
-
Interest Income .
Interest Expense
Grossloanlossn.
Ownersl'l1pand Management.
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118 Capga!Slructure
119 Typ5ofloans ..
.
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"'
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113
fi~}1114.
a"->8115
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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
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DIRECT
,c
88
89
90
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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
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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
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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.
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Federal Reserve Bank of St. Louis
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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.
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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.
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Federal Reserve Bank of St. Louis
s/
Regfonal Admfnistrator
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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.
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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.
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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.
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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.
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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
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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
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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:
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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
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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.
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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.
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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.
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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.
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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.
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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-
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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".
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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
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