Richard W.

Fisher
President and CEO Federal Reserve Bank of Dallas Dallas, Texas February 11, 2014

Total Nonagricultural Employment Since 1990 in Selected States
Index, January 1990 = 100 170 160 150
Increase since 1990

Texas +61%

Florida +43%
140 130 120 110 100 90 1990 1995 2000 2005 2010

U.S. +26% California
+19% +8%

Illinois +11% New York Michigan +5%

SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas.

Total Nonagricultural Employment Since 2000 in Selected States
Index, January 2000 = 100 125 120 115 110 105 100 95 90 85 80 2000
Increase since 2000

Texas

+21%

Florida +10% U.S. +5% New York California +4% Illinois –3% Michigan –12%
+5%

2005

2010

SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas.

2013 Employment Growth in Texas
Thousands of jobs 80 70 60 50 40 30 20 10 0
Trade, Transp & Utilities (20.1%) Prof. & Business Services (13.1%) Leisure & Hospitality (10.2%) Educational & Oil & Gas Construction (5.4%) Extraction and Health Mining Services Support (13.4%) (2.5%) Financial Activities (6.1%)

2013 total jobs gained in Texas = 266,900

67.0

46.7

43.6 34.9

17.6

15.4

14.7

10.7

10.4

9.0

Government Manufacturing Information (16.0%) (7.8%) (1.8%)

NOTES: Categories are North American Industry Classification System supersectors. Data seasonally adjusted. SOURCE: Federal Reserve Bank of Dallas.

Job Growth by Wage Quartile, 2000-12
Percent change 35 30 25 20 15 10 5 0 -5 -10 Lowest wage quartile -6.9 Lower-middle wage quartile Upper-middle wage quartile Highest wage quartile 9.7 10.4 9.9 18.6 Texas U.S. minus Texas 31.0 30.3

0.9

NOTES: Calculations include workers over age 15 with positive wages and exclude the self-employed. Wage quartiles constructed based on U.S. 2000 wage distribution. SOURCE: Current Population Survey Merged Outgoing Rotation Groups, 2000, 2012.

Adios Texas Ratio
• Texas has more banks than any other state yet experienced just 11 of the 489 U.S. bank failures since the Great Recession began
– Time to rename the “Texas Ratio,” a measure of bad assets versus available capital

• The state escaped the brunt of the housing sector fallout and the spike in underwater mortgages

NOTE: Texas ratio defined as the book value of all nonperforming assets plus other real estate owned divided by tangible equity capital plus loan loss reserves.

Share of Unprofitable Banks: U.S. and 11th District
Percent of banks reporting a net loss 35 U.S. 30 25 20 15 10 5 0 11th District

2006

2007

2008

2009

2010

2011

2012

2013 *

* YTD through third quarter 2013. SOURCE: Federal Reserve Bank of Dallas.

Texas Export Growth
Index, Jan. 2000=100* 260
Other

2013:Q3
11%

15%

18% 3% 8%

240 220 200 180 160 140 120

Mexico Canada European Union Asia, excl. China Latin America, excl. Mexico China 9% 36%

Texas

+26% since peak

+3%

U.S. minus Texas 100 80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
* Real, seasonally adjusted. SOURCES: Census Bureau; World Institute for Strategic Economic Research; Federal Reserve Bank of Dallas.

Employment by Metro Area
Index, peak employment = 100 112

Austin
110 108 106 104 102

Houston Texas Dallas-Ft. Worth San Antonio El Paso

100 98 96 94 T T +10 T +20 T +30 T +40 T +50 T +60 T +70 T = months from peak employment
SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas.

Bank Reserves Have Ballooned
Billions, Reserves ($) 3000 2500 2000 1,597 1500 1000 801 500 43 0 '07 '08 '09 '10 '11 '12 '13 '14 1,149 1,073 1,521

Total Reserves of Depository Institutions
QE3 2,540 2,558

SOURCES: Federal Reserve Board of Governors, H.3 release.

Fed’s Balance Sheet Has Quadrupled in Size …
Trillions of dollars 4.5 Total assets 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
SOURCES: Federal Reserve Board; Federal Reserve Bank of Dallas.

Lehman failure

QE3

Jan. 2014 $4.13

Interest rates cut to the zero bound 9/10/08 $0.94

9/26/12 $2.86

Now Has Large Holdings of Agency Debt and MBS …
Trillions of dollars 4.5 Other assets 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
SOURCES: Federal Reserve Board; Federal Reserve Bank of Dallas.

Lehman failure 9/26/12 10% 32% 58%

QE3 Jan. 2014 8%

Agency MBS + agency debt Treasury securities 9/10/08 48% 0% 51%

38%

Share of Total Portfolio 11/28/07
Other assets 15% Agency debt and MBS 0% Treasury securities 85%

54%

And Has a Portfolio with Longer Terms to Maturity
Trillions of dollars 4.5 Other assets 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
SOURCES: Federal Reserve Board; Federal Reserve Bank of Dallas.

Lehman failure 9/26/12 79% 20% 1%

QE3 Jan. 2014

More than 5 years Over 1 to 5 years Up to 1 year 9/10/08 39% 34% 27%

Share of Total Portfolio 11/28/07
> 5 years 22% 1 – 5 years 30% < 1 year 48%

79%

21% 0% '14

But Newly Created Money Mostly Sitting Fallow as Excess Reserves
Trillions of dollars 4.0 Excess reserves 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
SOURCES: Federal Reserve Board; Federal Reserve Bank of Dallas.

Lehman failure 9/26/12 $2.56T Monetary Base 54% 4% 42%

QE3

Jan. 2014 $3.73T

Required reserves Non-bank currency

65% Share of Monetary Base 9/10/08 $0.85T
Excess Reserves 0% Required Reserves 5% Non-bank Currency 95% $2.45T in excess reserves

4%

31%

U.S. Economic Dashboard
5.5 5 4.5 4 3.5 3 Junk-bond spread (%) 7.5 7 6.5 6 5.5 5 8 8.5 9 9.5 6 6.5 7 7.5 8 8.5

1 0.5 0 -0.5 -1 -1.5 -2 -2.5
10 10.5 9

1.5

2

2.5 3 3.5 4 4.5
0.5 0 -0.5

1.5 1

2

2.5 3 3.5

3.68

1.4
-1 5 Trimmed Mean PCE Inflation (%) 6.5 7 7.5 8

4 4.5

9.5 10

2.7
Year-over-year Real GDP growth
Percent of jobs recovered 9 0 . 0
Warning lights Engine Unemp. Yield jump curve stall Oil shock

5 5.5 6
5.5 5 4.5 6

8.5

5.81

6.6
4 Unemployment 10 rate (%)

9 9.5

!
High Yield 11 Corp. Debt (%)

NOTE: Data updated as of February 10, 2014.

Corporate Bond Yields and Spreads Remain Low
Percent 23 Percent 10 21 8 19 17 15 13 11 9 7
5.81

Junk bond / 7-year Treasury spread

6 4 2 0 '10 '11 '12 '13 '14
Historical average spread: 1997-Present

5.6 3.7

Junk bond yield

5 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

SOURCES: Moody’s, Bank of America Merrill Lynch, Federal Reserve Bank of Dallas.

Richard W. Fisher
President and CEO Federal Reserve Bank of Dallas Dallas, Texas February 11, 2014