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Central Banker - Fall 2009

Central Banker - Fall 2009

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Published by: Federal Reserve Bank of St. Louis on Aug 13, 2010
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Why Are Banks Failing?|Spotlight on Evansville (Ind.) Banks
continued on Page 7 
 By Jim Fuchs
 ultimately signed into law, the reg-ulatory reorm proposals presentedto Congress this summer could signi-cantly alter how nancial institutionsin the United States are regulated and,in some cases, structured.Since releasing its regulatory reorm white paper June 17, the Treasury Department has submitted more than15 legislative proposals to Congress.In turn, Congress has held more than22 hearings, ormally introduced twoo the bills to a key oversight com-mittee and conducted a ull House o Representatives vote on one o them,all in less than six weeks.The St. Louis Fed created theReorming the Nation’s FinancialSystem Timeline web site (www.stlou-ised.org/regtimeline/) to track theproposals, congressional and regula-tory agency hearings and testimony,and committee members’ statements.The most signicant proposals aso late August include:
creation o an eight-member Finan-cial Services Oversight Council toidentiy and mitigate threats tothe nancial system;
elimination o the ederal thritcharter and creation o one singlenational bank supervisor;
Congress Considering 15Regulatory Reorm Proposals
Track Financial Reorm with New St. Louis Fed Web Site
creation o an independent Con-sumer Financial Protection Agency to oversee and enorce consumerprotection laws and regulations atall nancial institutions (except orthe enorcement o the Community Reinvestment Act);
mandatory registration o all creditrating agencies with the Securitiesand Exchange Commission;
creation o an Oce o NationalInsurance to issue and collectreports on the insurance industry;
establishment o uniorm de novobranching standards, regardlesso charter;
conversion o industrial loancompanies, credit card banks andthrit holding companies to bankholding companies;
 jeanmanuel duvivier/munrocampagna.com
 News and Views for Eighth District Bankers
Vol. 19 | No. 3www.stlouisfed.org/publications/cb
Scott Kelly314-444-8593scott.b.kelly@stls.frb.org
Central Banker 
is published quarterly by thePublic Aairs department o the FederalReserve Bank o St. Louis. Views expressedare not necessarily ofcial opinions o theFederal Reserve System or the FederalReserve Bank o St. Louis.To subscribe or ree to
Central Banker 
orany St. Louis Fed publication, go online towww.stlouised.org/publications/subscribe.cm.To subscribe by mail, send your name, address,city, state and ZIP code to: Central Banker,P.O. Box 442, St. Louis, MO 63166-0442.The Eighth Federal Reserve District includesall o Arkansas, eastern Missouri, southernIllinois and Indiana, western Kentucky andTennessee, and northern Mississippi. TheEighth District ofces are in Little Rock,Louisville, Memphis and St. Louis.
St. Louis Fed StationingExaminers in Little Rock
 By Julie Stackhouse
uring these challenging times,bankers want answers quickly.And sometimes, there is no substituteor a ace-to-ace meeting.State member banks in Arkansas willnow nd this quick in-person accesseven easier with the opening o theSt. Louis Fed satellite supervision ocein Little Rock. The oce, staed with10 examiners, mirrors an initiativeundertaken our years ago, when theSt. Louis Fed established a satelliteoce in Memphis. Bankers in Memphistold us that the local presence enhancedoverall communication and supportedan eective supervisory process.Among the many benets we have seen:
greater accessibility and quicker response time;
more ecient opportunities to conduct advisory visitson matters o special interest, such as the Bank Secrecy Act and risk management practices; and
streamlining o collaboration with the state bankingauthorities, thereby promoting more consistency and higher quality in our examinations and othersupervisory processes.At the same time, we will continue our other communica-tion eorts, including the monthly “Ask the Fed” programand periodic inormational orums or bankers. In thesechallenging times, it is more important than ever that theSt. Louis Fed provide you with the inormation and answers you need.For urther inormation on the supervisory duties o the St. Louis Fed, please see www.stlouised.org/banking/saety_soundness.cm.
 Julie Stackhouse issenior vice president of the St. Louis Fed’sdivision of BankingSupervision, Credit and the Center forOnline Learning.
Central Banker
 By Michelle Neely
lthough the U.S. economy hasrecently shown a ew signs o lie,the nation’s banking industry is stillbeing battered by weak earnings andincreasing problems with asset quality.Aggregate prots at District bankssurprisingly rose in the second quarter,albeit by a modest amount. Return onaverage assets (ROA) increased ourbasis points to 0.22 percent. For U.S.peer banks (banks with average assetso less than $15 billion), the news wasnot even remotely good: ROA declinedanother 21 basis points to -0.30 percent.For both District and U.S. peer banks,the weakest perormers were banks inthe $1 billion to $15 billion asset range;excluding them, ROA was 0.65 percentat District banks and 0.15 percent atU.S. peers.The protability improvement atDistrict banks was driven by a slightuptick in the net interest margin(NIM), which increased three basispoints to 3.66 percent. Net nonin-terest expense also declined, whichmore than oset the modest increasein loan loss provisions. The averageNIM at U.S. peer banks also rose, butthat increase was dwared by a largeincrease in the loan loss provisionratio and a moderate increase in thenet noninterest expense ratio.Loan loss provisions as a percento average assets increased threebasis points to 0.93 percent at Districtbanks in the second quarter. ForU.S. peer banks, the hike was moresubstantial, as the LLP ratio rose18 basis points to 1.49 percent. Despitethe additions to reserves, the coverageratio ell again at both sets o banks.At the end o the second quarter,District banks had 70 cents reservedor every dollar o nonperormingloans, down 4 cents rom the priorquarter and 20 cents rom a year ago.At U.S. peer banks, the coverageratio declined 3 cents rom the rstquarter and stood 22 cents below its year-ago level.
Banks Still Ailing in District and U.S.
As indicated by the increasing loanloss provisions and declining coverratios, asset quality continues to worsenat both sets o banks. Nonperormingloans as a percentage o total loans hit2.44 percent at District banks in thesecond quarter, up 25 basis points romthe rst quarter and 91 basis pointsrom a year ago. For U.S. peer banks,the picture is bleaker, as 3.77 percento loans were nonperorming at theend o the second quarter, up 46 basispoints rom the rst quarter and185 basis points rom the second quar-ter o 2008. All major categories o loans (commercial, consumer and realestate) had higher delinquencies in thesecond quarter at both sets o banks.Commercial real estate (CRE) lend-ing continues to be the area o greatestconcern. CRE loans make up almosthal o total loans at District and U.S.peer banks. Thereore, problems inthis sector have a major eect on overallresults. Within CRE, construction andland development (CLD) loans arethe most troubled. In the District,7.35 percent o CLD loans were
When Will Woes Be Gone?
Q2 2008Q1 2009Q2 2009
District Banks0.81%0.18%0.22%Peer Banks0.60-0.09-0.30
District Banks3.793.633.66Peer Banks3.833.563.58
District Banks0.520.900.93Peer Banks0.721.311.49
District Banks1.532.192.44Peer Banks1.923.313.77
SOURCE: Reports of Condition and Income for Insured Commercial BanksBanks with assets of more than $15 billion have been excluded from the analysis. All earningsratios are annualized and use year-to-date average assets or average earning assets in thedenominator. Nonperforming loans are those 90 days or more past due or in nonaccrual status.
continued on Page 7 
Central Banker
Fall 2009| 

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