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September 1993


News and Views
for the Eighth District

ss uEs

Community Banks
Demonstrate Resilience
In late July, the St. Louis Fed
conducted an informal telephone survey of community
banks to determine the effects
of the Midwest flood. Fed
employees reached
205 banks in
38 counties that
border the flooded
Missouri, Mississippi
and Illinois Rivers.

Federal Reserve Bank of St. Louis

s part of an interagency
effort, the Fed is working
to assist banks and their customers affected by flooding
in the Midwest. Among other
measures, the Fed has waived
federal appraisal requirements
for extensions of credit related
to flood recovery, permitted
the use of preprinted forms to
waive the right of recision, and
allowed more flexibility in


Despite the many obstacles to
overcome, including sandbags
and spectators, respondents
confirmed that all banks located
in flooded counties continued
to operate. Institutions that
were forced to evacuate found
alternate locations from which
to conduct daily business.
Many banks moved their
operations from their head
office to a branch or facility,
whereas others relocated to
contingency sites.
Of the 19 banks that had
to evacuate, one served customers from a gymnasium,
another from a firehouse, and
still another from a local

college library. In one area,
a competing bank cooperated
by permitting a displaced bank
to continue operations in its
building. In another area,
the bank was the only business
remaining on its main street
and was surrounded by a tall
sandbag wall. To get employees
and customers to the bank, the
managers brought them in
with a boat-and-pulleysystem.
In addition, for those who were

certain consumer compliance
matters. Specific information
about these initiatives follows.

directly affected by the Midwest
flood from real estate appraisal
requirements. For the next
three years, state member banks
and bank holding companies
are exempt from the provisions
of Regulation H relating to real

Waiver of Appraisal
As permitted by provisions
of the Depository Institutions
Disaster Relief Act of 1992,
each banking agency has
exempted transactions involving
real estate located in areas

(continued on next page)

(continued on next page)

Flood Survey
(continuedfrom front page)

not comfortable banking by
boat, an offke was opened in
city hall.
Thirty-one additional banks
responded that their operations
were significantly affected by
flooded roads and bridges,
which hindered employee and
courier traffic. To circumvent
potential problems, one bank
planned to fly key employees to
work had conditions warranted.

Also, the Fed made arrangements with several banks to
deliver cash letters to alternate sites.
Despite the efforts of these
bankers, however, the flood
did deliver some costly blows
to institutions. Ten banks
reported that either the main
office or a branch had sustained physical damage from
lengthy flooding. In at least

one instance, the facility is
estimated to be a total lo .
As part of the survey, the Fed
requested information about
the flood's effect on loan portfolios. Although respondents
believe that it is premature
to provide estimates concerning credit quality, two-thirds
reported that they expect an
adverse effect. As of mid-August,
however, most lenders estimated

that less than ten percent of their
portfolios would be affected.
The Fed will continue to
monitor the effect of the flood
on Eighth District institutions.

Regulation Zfor consumers
who need to obtain credit
quickly to begin repairs in
flood damaged areas. Bankers
may use a preprinted form to
secure a consumer's waiver
of the right to rescind certain
home-secured loans when the
loan proceeds are necessary to
meet a consumer's bona fide

examinations to minimize
disruptions to banking operations that are directly affected by
the flood or serve communities
affected by the flood. While Fed
examiners will take into account
any extenuating circumstances
on a case-by-case basis before
citing violations, the Fed is
not legally able to relieve state
member banks from re ponsibility for compliance with
these laws and the civil liability provided in many of the
consumer protection statute .

encourage institutions to
work constructively with
borrowers who experience
difficulties from conditions
beyond their control, the Fed
encourages institutions to
work with borrowers in a
manner that is consistent
with sound business practice .
oting that one of the principal
objectives of the examination
and supervision process is to
achieve an accurate assessment
of a financial institution's loan
portfolio and financial condition, the Fed recognizes that
efforts to work with borrowers
in communities under stress,
if conducted in a reasonable
manner, are consistent with
safe and sound practices and
in the public interest.

Regulatory Response
(continuedfrom front page)

estate appraisals providing
that the following conditions
are met:
• The property is in a major
Midwest flood disaster area,
as declared by President
Clinton, and designated
as eligible for federal
assi tance by the Federal
Emergency Management
Agency (FEMA);
• The property is either
directly affected by the
flood or, if it is not directly
affected, the institution's
records explain how a
transaction involving the
property would enable
disaster recovery;
• Abinding commitment
exists to fund transactions
no later than July 9, 1996;
• The lender retains documentation supporting the
property's valuation for
examiner review.

Consumer Compliance
Regulation Z

The Board is providing
a temporaryexemption to
Federal Reserve Bank of St. Louis

The Fed is working
to assist banks
and their customers
affected by the
personal financial emergency.
While using the form is permissible, the consumer must
sign and date the waiver. This
exemption is available immediately in counties declared
disaster areas by President
Clinton and will expire on
July 9, 1994.

Consumer Compliance

Reinvestment Act
In assessing CRA performance
in communities affected by the
flood, the Fed will give positive
consideration to financial
institutions' participation in
programs where most or all
of the financing provided may
ultimately benefit low- and
moderate-income borrowers,
even if such neighborhoods
are located outside an institution's delineated community.


The St. Louis Fed has
po tponed several Eighth
District consumer compliance

Consistent with its longstanding practice to promote
supervisory actions that

Small Loans Evaluated on Performance
Federal Reserve Bank of St. Louis

he four federal
banking age~cies
are encouraging
bankers to foster
the growth of
lending to creditworthy borrowers, particularly smalland medium-sized businesses
and farmers. In March 1993
an interagency statement on
credit availability outlined a
program that encouraged adequately capitalized institutions
to identify a portion of their
loan portfolios for examiners
to evaluate solely on performance. Recognizing that
as of mid-August few banks in
the Eighth District have taken
advantage of this program,
the following reiterates the
specifics of the program.


• Exempt loans: Bankers
must document in writing
assignments of loans to
this exempt portion of their
portfolios and they must
maintain aggregate lists
or accounting segregations
of the assigned loan
including the performance
status of each loan.
• Limit on value of individual loans: Aloan,
or group of loans, to one
borrower, assigned to the
exempt loans category may
not exceed $900,000 or
3 percent of the institution's
total capital (as defined in

the capital adequacy standards), whichever is smaller.
• Ineligible loans: Loans
to any executive officer,
director, or principal shareholder of the institution, or
any related interest of that
person, may not be included
with the exempt loans.
• Aggregate limit on
loans: The aggregate
value of all exempt loans
may not exceed 20 percent
of the institution's total
capital (as defined in the
capital adequacy standards) .
• Restrictions on loans
in the exempted portion of the portfolio:
The institution must fully
evaluate the collectibility
of exempt loans when
determining the adequacy
of its allowance for loan
and lease losses (ALLL)
or general valuation
allowance (GVA)
attributable to such
loans and must
include this evaluation in internal
records of assessment of the adequacy of its
ALLL or GVA. Once a loan
in the exempt portion of
the portfolio becomes more
than 60 days past due, the
loan may be reviewed and
classified by an examiner;
however, any decision to
classify would be based on
credit quality and not on
the level of documentation.
Institutions that choose
to designate a portion of their
portfolio for these exempt
loans may benefit by stimulating lending growth in their

Official Reassignments
Effective August 1, 1993, the
Banking Supervision and Regulation Division realigned many
responsibilities. Please call the following Division officers and field
directors with questions concerning
regulatory and supervisory matters.
Bank and Bank Holding
Company Applications
John W. Block, Jr.
Assistant Vice President
(314) 444-8486
Dennis W. Blase
Supervisory Officer
(314) 444-8435
Safety & Soundness, Western
Region (AR, MS & MO)
Timothy A. Bosch
Assistant Vice President
(314) 444-8440
Carl K. Anderson
Field Director
(314) 444-8481
Safety & Soundness, Eastern
Region (IL, IN, KY & TN)
Kim D.. ·et on
Assistant Vice President
(314) 444-8735
Barkley K Bailey
Field Director
(314) 444-8768
CRA & Consumer Compliance,
Trust & EDP Supervision
Harold H. Rieker
Assistant Vice President
(314) 444-8445
Monitoring & Enforcement
John W. Block,Jr.
Assistant Vice President
(314) 444-8486
Michael W. Declue
Supervisory Officer
(314) 444-8759

Fed Strengthens Fair Lending
Examination Activities
ome Mortgage
Disclosure Act
(HMDA) data
released August
5will soon be
subject to more extensive analysis by federal regulators. The
Fed, along with the OCC, FDIC
and OTS, issued a statement on
credit availability expressing
concern that some small business owners and minority
consumers may be experiencing
discriminatory treatment and
urged banking institutions to
increase fair lending activities.
In addition, the Fed is developing and testing a new compliance examination tool that
will supplement its analysis
of HMDA data and permit examiners to conduct more detailed
reviews and comparisons of
loan application files to detect
po ible discrimination. The
new examination tool relies on
a statistical model loaded on
a personal computer to make
detailed analyses of Loan

Application Register (LAR)
in specific mortgage applications in specific institutions.
data supplemented by addiWhile this new tool flags
tional facts from application
disparities for further analysis,
files. Using a technique based
the examination technique
on regression analysis, the
model will identify discrepanultimately relies on the
cies in credit decisions on ,
examiners' judgment when
loan applications that contain determining whether possible
lending discrimination exists.
similar financial data, but
are submitted by applicants
of different races.
Once identified,
' r:'f~-==--=-~---=- -::....:~. •
examiners will review II )1'
• i11
the questionable loan I111
applications more care- )
fully by gathering and II ,
analyzing applicant
information, such as
credit history and debt, •:'.
. 11
to test whether the
additional factors can
explain the institu- . ~ 1 !
tion's decision to deny ' r,/;, 1
- _
credit. This informa- ~~~
tion will serve as a basis to
discuss with bank management
any disparities in lending.
This approach concentrates
on identifying discrimination

n response to numerous
questions received at this
Reserve Bank, the following
clarifies exceptions to the
aggregate lending limit as
established by Regulation 0.
Specifically, the aggregate
lending limit for each institution does not apply to extensions of credit to insiders
(including executive officers)
which are secured by:

• Treasury bills, federally
guaranteed bonds, or other
obligations fully guaranteed
by the United States; or
• unconditional takeout
commitments or guarantees of any department,
agency, bureau, board,
commission, U.S. establishment, or any wholly owned
U.S. corporation.


0 lending
Federal Reserve Bank of St. Louis

• a segregated deposit
account in the lending



In addition, the Bank has been
asked whether loans secured
by such means are included in
the $100,000 limit that applies

to executive officers. The regulation does not provide for
collateral exceptions to this
limit. Therefore all loans
made to an executive officer
must be included in the individual limit for that officer
(i.e., $100,000 or 2.5 percent,
whichever is less) .
Please direct additional questions regarding Regulation 0
to Timothy A. Bosch at (314)
444-8440 or Kim D. elson
at (314) 444-8735.

Deposit Base Changes in U.S. and
District Banks
he relatively
slow growth
(1.8 percent)
of total deposits
in U.S. banks
between March 1991 and
March 1993 has been accompanied by a significant shift
among deposit accounts.
Comparing changes in the
deposit base of District banks,
which increased by 5.5 percent,
with that of their national
counterparts highlights a
difference in the behavior of
several deposit accounts.
As the chart below illustrates,
total time and savings deposits
in U.S. banks showed a slight
increase over this two-year
period. Moreover, time and
savings deposits in U.S. banks
of comparable size (less than


Savings & Time Deposits
U.S. Banks, U.S. Peer, Eighth District
Billions of dollars


110 - - + - - - - - - - - - - - - - - - - - - - 1
10s , - - - - - - - - =~_...._iiiiiiiiiiiiiiiiiiiiii,,,--~
· 100 t i_____
! : : : , . _ _ . . . : _ __ _ _ _ _ _ _

12/90 3/91 6/91 9/91 12/91 3/92 6/ 92 9/92 12/ 92 3/93




U.S. Peer
Federal Reserve Bank of St. Louis




Large Time Deposits
U.S. Banks, U.S. Peer, Eighth District
Billions of dollars



12/90 3/91 6/91 9/91 12/91 3/92 6/92 9/92 12/92 3/93




U.S. Peer

$15 billion in assets) actually
declined 3.9 percent over
the period. In the District,
however, time and savings
deposits grew 5.6 percent.
The primary reason for the
national decline was a drop
in large time deposits (over
$100,000). Of total deposits,
District large time deposits
followed the national trend
in the first four quarters as
illustrated above. Beginning
in March 1992, however, U.S.
•and U.S. peer deposits fell from
10.4 percent to 8.2 percent
as of the end of first quarter
1993 - a decline of almost
25 percent. This decline was
somewhat offset by an increase
in money market deposits
accounts (MMDAs). In contrast the District's $731 million
(6.6 percent) decline in large



time deposits was offset by
increases in more interest
rate-sensitive MMDAs.
Large time deposits now
constitute a smaller portion
of total deposits both in the
District and across the country.
on-District banks, however,
continue to rely more heavily
on such deposits than do District
banks. Overall, District banks
are experiencing less volatility
in their deposit base than are
their national counterparts.

CRA Hearings Held Throughout the Country
he federal financial supervisory agencies have been
holding a series of hearings on
the Community Reinvestment
Act (CRA) nationwide since
mid-August. The hearings are
intended to help the agencies
develop new regulations and
standards for assessing a financial institution's performance
under the CRA.

Specifically, the agencies are
meeting with the public, community groups and banking and
thrift industries to make CRA
implementation more effective.
The goal is to reform CRA
regulations and supervision in
order to improve performance,
clarify the regulations, and
make CRA performance assessments more objective.

his Reserve Bank has
received inquiries about
whether accounts that are
charged third party ATM fees
can be advertised as "free."
The Board of Governors has
clarified that fees imposed
by third parties for the use of
their ATMs worldwide cannot
reasonably be expected to be
known or disclosed by an
institution advertising a free
account. Afee imposed by a

third party for use of its ATM
is not considered either a
maintenance or activity fee
under Regulation DD when
it is merely passed on by the
consumer's institution.
Therefore in accordance with
the regulation, accounts that
might be assessed third party
ATM fees may be advertised
as "free."


Fot information on dates and
locations of future meetings,
please contact Harold H. Rieker
at (314) 444-8445.

Survey Results


Third Party
ATM Fees Do
Not Affect



Post Office Box 442
St. Louis, Missouri 63166

tJ:c op i es

Supervisory Issues is published bimonthly by the Banking Supervision
and Regulation Division of the
Federal Reserve Bank of St. Louis.
Views expressed are not necessarily
official opinions of the Federal
Reserve System or the Federal
Reserve Bank of St. Louis. Questions
regarding this publication should
be directed to Amy A. Helean,
editor, 314-444-4634.
Federal Reserve Bank of St. Louis


Thank you for your
participation in the recent
Supervisory Issues survey.
Your responses suggest
that we generally meet
your need for supervisozy
information. To continue
that trend, we plan to incorporate your suggestions for
more specific guidance,
information and details.
Your continued involvement is appreciated. Please·
direct your comments and
suggestions to Amy A. Helean,
editor, at (314) 444-4634.