Regional President Speech

. f. g 1:,.~,-J'. • ~I ? 1: 1 o SILAS KEEHN ILLINOIS BANKERS ASSOCIATION ANNUAL CONVENTION OPENING COt+tENTS JUNE 8, 1990 - PAGE 1 I. PLEASED TO HAVE THIS BRIEF OPPORTUNITY TO CONVEY MY GREETINGS. A. THIS YEAR'S ANNUAL CONVENTION OF THE ILLINOIS BANKERS AsSOCIATION COMES AT A PARTICULARLY SIGNIFICANT TIME. 1. 1980s WE WOULD ALL EASILY AGREE THAT THE WAS A DECADE OF MAJOR CHANGE FOR THE BANKING INDUSTRY. 2. As WE START THIS NEW DECADE IT IS EQUALLY 1990s CLEAR THAT THE WILL BE NO LESS EVENTFUL 3. AND MANY OF THE CRITICAL ISSUES THAT WE WILL ALL BE DEALING WITH ARE INCLUDED AS TOPICS ON THE EXCELLENT AGENDA THAT HAS BEEN ORGANIZED FOR YOUR CONFERENCE. II. IT'S MY SENSE THAT ONE CHANGE WE'VE ALREADY EXPERIENCED HAS BEEN WHAT I WOULD CALL A 11RETURN TO BASICS." A. CREDIT CRITERIA THAT WERE ONCE FUNDAMENTAL TO THE LENDING PROCESS WERE RELAXED OR SOMEWHAT 1980s. IGNORED DURING THE Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS BANKERS ASSOCIATION ANNUAL CONVENTION -- OPENING CQt,tfENTS JUNE 8, 1990 - PAGE 2 8. AND THERE HAS BEEN A PUBLIC COST TO THIS. 1. THE THRIFT DEBACLE SPEAKS FOR ITSELF. A. JUST WHAT IT WILL COST AT THE END OF THE DAY IS DIFFICULT TO JUDGE, BUT CLEARLY THIS WILL HAVE BEEN A VERY EXPENSIVE EXPERIENCE. 2. THE FDIC HAS ALSO E~PERIENCED SIGNIFICANT Ct,,,...L ~~1M.C\.1".a...f. LOSSES RUNNING lfl SQME $20 TO $25 BILLION DURING THE 1980s. A. As A RESULT, THE FDIC ENTERS THE 1990s WITH RESERVES AT COMPARATIVELY LOW LEVELS RELATIVE TO THE DEPOSITS OF THE U.S. BANKS. 3. GEOGRAPHICALLY, THERE ARE, OF COURSE, CLEAR EXAMPLES OF JUST HOW DEVASTATING THE RESULTS OF RELAXED CREDIT STANDARDS CAN BE, A. MOST PARTICULARLY IN THE SOUTHWEST AND NOW IN NEW ENGLAND. III. SEEING THESE EXAMPLES, THE BANKING INDUSTRY IS REACTING. A. WHILE MANY BANKS CONSISTENTLY MAINTAINED HIGH CREDIT STANDARDS, SOME OTHERS DID NOT. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS BANKERS ASSOCIATION ANNUAL CONVENTION -- OPENING COJ.ttENTS 8, 1990 - 3 JUNE PAGE 1. IN THESE CASES A SELF-CORRECTING PROCESS IS UNDERWAY 2. AND THIS IS PARTICULARLY NOTICEABLE IN INDUSTRIES WHERE INCREASES IN BANK CREDIT HAVE SEEMED UNUSUALLY LARGE. 8. THIS MORE CONSERVATIVE APPROACH TO LENDING IS BEGINNING TO EVIDENCE ITSELF IN THE NUMBERS. 1. THERE ARE CLEAR INDICATIONS THAT CREDIT GROWTH THIS YEAR IS MORE MODERATE THAN WAS THE CASE LAST YEAR. 2. NATIONALLY, DURING THE FIRST FOUR MONTHS 1990, OF C&I LENDING AT LARGE U.S. BANKS 7% 8-1/2% GREW AT A ANNUAL RATE, DOWN FROM A YEAR EARLIER. A. IN THE DISTRICT, C&I LENDING ~T LARGE BANKS IS CURRENTLY GROWING AT AN ANNUAL 4%, 12% RATE OF DOWN FROM A YEAR EARLIER. B. THESE MODERATING TRENDS AT LARGE BANKS MAY WELL BE REFLECTIVE OF A MORE CAUTIOUS APPROACH TO TAKEOVERt~>) LEVERAGED BUY-OUT AND SIMILAR TYPES OF TRANSACTIONS. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS BANKERS ASSOCIATION ANNUAL CONVENTION -- OPENING COtf.tENTS JUNE 8, 1990 - PAGE 4 3. BUT, I THINK IT IS PARTICULARLY NOTEWORTHY THAT THERE IS SOMETHING OF A CONTRADICTORY TREND TAKING PLACE AT SMALLER BANKS IN THE DISTRICT. c&I A. LENDING IN THIS GROUP OF BANKS HAS 8.8% INCREASED AT AN ANNUAL RATE OF 5.8% THIS YEAR, UP FROM LAST YEAR. 4. AND, ANECDOTALLY AS I TALK WITH BANKERS THROUGHOUT THE DISTRICT, I AM ASSURED THAT THERE IS AMPLE CREDIT AVAILABLE FOR "GOOD LOANS" AND THE EMPHASIS IS CERTAINLY ON THE WORD 11GOOD. 11 D. THERE HAVE BEEN SOME FAIRLY DRACONIAN COMMENTS THAT THERE IS A SEVERE CREDIT CRUNCH IN PROCESS AND THIS IS BEING CAUSED BY THE IMPOSITION OF MORE STRINGENT EXAMINATION STANDARDS BY THE BANK EXAMINERS. 1. HOWEVER, THE ABOVE GROWTH RATES, IF SUSTAINED FOR THE BALANCE OF THE YEAR, WOULD SUGGEST A SLOWDOWN IN LENDING, NOT A CRUNCH IN THE MORE DRAMATIC USE OF THE WORD. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS BANKERS ASSOCIATION ANNUAL CONVENTION -- OPENING COfvt.tENTS JUNE 8, 1990 - PAGE 5 2. l WHILE WOULD NOT PRESUME TO SPEAK FOR THE OTHER REGULATORS, OR EVEN OTH.ER FEDERAL RESERVE BANKS, SPEAKING FOR THE FEDERAL RESERVE BANK OF CHICAGO, WE HAVE NOT INCREASED THE CREDIT STANDARDS THAT ARE UTILIZED BY OUR EXAMINERS. 3. IT MUST BE REMEMBERED THAT WHAT MAY BE REPORTED AS MORE RESTRICTIVE EXAMINATION STANDARDS ELSEWHERE IN THE COUNTRY A. MAY WELL BE THE APPLICATION OF CONSISTENT EXAMINATION STANDARDS TO LOAN PORTFOLIOS THAT HAVE SERIOUSLY DETERIORATED. 4. CERTAINLY THE ENFORCEMENT OF CONSISTENT EXAMINATION STANDARDS (AS OPPOSED TO ADOPTING LOWER STANDARDS OF CREDIT QUALITY) IS BOTH NECESSARY AND APPROPRIATE. A. IF WE DON'T MAINTAIN APPROPRIATE STANDARDS AND PROBLEMS ENSUE, THE HEALTHY BANKS SUCH AS YOURS WILL HAVE TO PAY THE BILL Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS BANKERS ASSOCIATION ANNUAL CONVENTION -- OPENING COt+tENTS JUNE 8, 1990 - PAGE 6 (1) IT'S AN OLD TRUISM -- "SURVIVORS PAY. 11 B. AND CERTAINLY THE SURVIVING THRIFTS HAVE BEEN PAYING AN ENORMOUS BAR BILL FOR THE PARTY THROWN BY THE ~ TRANSGRE$SORS IN THEIR INDUSTRY. E. REACTING TO~CHANGED ECONOMIC AND CREDIT ENVIRONMENT, IT SEEMS TO ME THAT THE CURRENT TIGHTENING OF CREDIT IS PRIMARILY THE RESULT OF A SELF-POLICING PROCESS THAT IS UNDERWAY 1. AND THAT BANKS IN THE DISTRICT ARE EXERCISING PRUDENT CAUTION IN THE EXTENSION OF CREDIT. 2. IN OTHER WORDS, BANKS HAVE TURNEDc''BACK TO THE BASICS." 3. AND THAT BY SO DOING, THIS DISTRICT, WHICH WE SHOULD ALL REMEMBER EXPERIENCEP A VERY DIFFICULT ECONOMIC ADJUSlMENT DURING THE 1980s, WILL AVOID SOME OF THE EXTREME DIFFICULTIES THAT HAVE BEEN EXPERIENCED IN OTHER DISTRICTS. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS BANKERS ASSOCIATION ANNUAL CONVENTION -- OPENING COt+1ENTS JUNE 8, 1990 - PAGE 7 4. AND TO LEAVE THIS ON A POSITIVE NOTE, THIS IS JUST EXACTLY THE WAY THE PROCESS SHOULD WORK. You. THANK Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

Silas Keehn (1990, June 7). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19900608_silas_keehn

@misc{wtfs_regional_speeche_19900608_silas_keehn,
  author = {Silas Keehn},
  title = {Regional President Speech},
  year = {1990},
  month = {Jun},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19900608_silas_keehn},
  note = {Retrieved via When the Fed Speaks corpus}
}