Professional Documents
Culture Documents
Summer 2009
N e w s a n d V i e w s f o r E i g h t h D i s t r i ct B a n k e r s
cra
communities. However, some observ-
ers say it is time to update the law. Fed
Gov. Elizabeth Duke, a former com-
munity banker, outlined the principles bankruptcy
needed for a new CRA framework in a
speech earlier this year. such a challenge during my 40 years in
“Keep the most effective feature of banking,” he says. “Foreclosures, bank-
the law—its flexibility,” she said. “Any ruptcy, unemployment and the banking
new regulatory structure should also liquidity crisis have made community
be clear about the problem we are try- development extremely difficult in most
ing to solve, determine who is in the markets across the United States. Now,
best position to solve the problem, and you have to work a lot harder to uncover
be transparent and designed to ensure opportunities for CRA.”
that community benefit is maximized To help you understand where CRA
without placing excessive regulatory is headed, download the Fed’s new
burden on financial institutions.” “Revisiting the CRA: Perspectives on
Locally, bankers are seeing fewer the Future of the Community Rein-
opportunities to pursue CRA activi- vestment Act” at www.bos.frb.org/
ties, and are wondering what’s going commdev/cra/index.htm. The book
to change. “Obviously, during normal offers a variety of ideas and opinions
economic times CRA is a challenge on revising the law.
for lending, service and investment,”
says William Stemmler, vice president
for CRA Community Development of
>> M o r e O n li n e
Cadence Bank N.A. in Memphis, who Read Gov. Duke’s speech:
attended a Fed CRA Interagency Train-
ing Workshop in April. www.federalreserve.gov/newsevents/
“These are not normal times, and I speech/duke20090224a.htm
must say I have never lived through
T h e F e d e r a l R e s e r v e B a n k o f St . L o u i s : C e n t r a l t o A m e r i c a ’ s Ec o n o m y ™
Central View
Editor
Scott Kelly
314-444-8593 By Julie Stackhouse
scott.b.kelly@stls.frb.org
Central Banker is published quarterly by the E arlier this year, Treasury Secretary
Timothy Geithner outlined a com-
prehensive plan to restore stability to
Public Affairs department of the Federal
Reserve Bank of St. Louis. Views expressed our financial system. The plan encom-
are not necessarily official opinions of the
passes several components, including a
public/private investment program for
Federal Reserve System or the Federal Reserve
legacy loans and securities, a mortgage
Bank of St. Louis.
refinancing program and a Capital
Assistance Program (CAP).
To subscribe for free to Central Banker or any The CAP has received significant Julie Stackhouse is
St. Louis Fed publication, go online to attention because it serves as a comple- senior vice president
www.stlouisfed.org/publications/subscribe. ment to the recently completed “stress- of the St. Louis Fed’s
html. To subscribe by mail, send your name, test” of the nation’s 19 largest financial division of Banking
address, city, state and ZIP code to: Central organizations. The stress-test is a Supervision, Credit
Banker, P.O. Box 442, St. Louis, MO 63166-0442. forward-looking assessment by bank and the Center for
supervisors, intended to ensure that Online Learning.
The Eighth Federal Reserve District includes these very large banks remain well-
all of Arkansas, eastern Missouri, southern capitalized in the event of a worse-
Illinois and Indiana, western Kentucky and than-expected recession.
Tennessee, and northern Mississippi. The So, why was it beneficial to stress-test large banks?
Eighth District offices are in Little Rock, Large-bank lending is of vital importance to the health
Louisville, Memphis and St. Louis. of the economy. Large corporations redeploy loans from
large banks into productive economic resources. Without a
healthy financial system, economic growth weakens.
Market concerns over the capital positions of these large
organizations have made it impossible for them to raise the
capital they need on favorable terms and have led them to
pull back from lending. This pullback materially reduces
the ability of the financial system overall to perform the
critical role of credit origination. A capital buffer increases
the likelihood of lending and reduces the risk that problems
at a very small number of institutions—through the many
linkages across institutions—lead to the failure of otherwise
viable institutions.
What happens now that the stress test is complete? By
early June, the 10 banking organizations needing to augment
their capital buffer were to develop detailed capital plans
to be approved by their primary regulators, in consultation
with the FDIC. The 10 organizations will have six months
to implement the plans. If needed, the Treasury is mak-
ing capital available under the CAP as a bridge to private
capital in the future. The assistance, in the form of manda-
tory convertible preferred stock, is expensive. CAP securi-
ties carry a 9 percent dividend yield. After seven years, the
security will automatically convert into common equity if
not redeemed or converted before that date.
Re-establishing Connections
With Checks Gone, Fed Staff Looks To Rekindle Frequent Contact
financial services account executives compared with the pay earned March
2009
of St. Lo
uis
and, now, our FI Touch program, we by those who have only a high
intend to meet the challenge. We can school diploma. The study found
serve you better by understanding the that there is an increase in annual earnings of 5 percent
unique economic conditions and needs to 8 percent for each year of community college education. Those
of your communities. who obtain an associate degree earn 16 percent to 17 percent more
For more information on St. Louis
on average than high school graduates. Kolesnikova has been
Fed banking and other programs, see
www.stlouisfed.org/banking.
presenting the results of her study to audiences around the Eighth
District of the Fed.
>> M o r e O n li n e
>> O n ly o n l i n e
Little Rock Branch:
www.stlouisfed.org/littlerock/ View a clip of Kolesnikova’s presentation:
www.stlouisfed.org/video/
Louisville Branch: community-colleges.mp4
www.stlouisfed.org/louisville/
Community Colleges report:
Memphis Branch: http://stlouisfed.org/community_development/
www.stlouisfed.org/memphis/ assets/pdf/CommunityColleges.pdf
Robert Hopkins is the senior branch executive
of the St. Louis Fed’s Little Rock Branch.
Table 2