Congressional Testimony

S. HRG. 115–14 THE SEMIANNUAL MONETARY POLICY REPORT TO THE CONGRESS HEARING BEFORETHE COMMITTEE ON BANKING, HOUSING, ANDURBANAFFAIRS UNITED STATES SENATE ONE HUNDRED FIFTEENTH CONGRESS FIRST SESSION ON EXAMINING THE FEDERAL RESERVE’S SEMIANNUAL REPORT TO CONGRESS ON MONETARY POLICY AND THE STATE OF THE ECONOMY FEBRUARY 14, 2017 Printed for the use of the Committee on Banking, Housing, and Urban Affairs ( Available at: http://www.fdsys.gov/ U.S. GOVERNMENT PUBLISHING OFFICE 25–433 PDF WASHINGTON : 2017 For sale by the Superintendent of Documents, U.S. Government Publishing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 S:\DOCS\25433.TXT SHERYL COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS MIKE CRAPO, Idaho, Chairman RICHARD C. SHELBY, Alabama SHERROD BROWN, Ohio BOB CORKER, Tennessee JACK REED, Rhode Island PATRICK J. TOOMEY, Pennsylvania ROBERT MENENDEZ, New Jersey DEAN HELLER, Nevada JON TESTER, Montana TIM SCOTT, South Carolina MARK R. WARNER, Virginia BEN SASSE, Nebraska ELIZABETH WARREN, Massachusetts TOM COTTON, Arkansas HEIDI HEITKAMP, North Dakota MIKE ROUNDS, South Dakota JOE DONNELLY, Indiana DAVID PERDUE, Georgia BRIAN SCHATZ, Hawaii THOM TILLIS, North Carolina CHRIS VAN HOLLEN, Maryland JOHN KENNEDY, Louisiana CATHERINE CORTEZ MASTO, Nevada GREGG RICHARD, Staff Director MARK POWDEN, Democratic Staff Director ELAD ROISMAN, Chief Counsel TRAVIS HILL, Senior Counsel JOE CARAPIET, Senior Counsel JARED SAWYER, Senior Counsel GRAHAM STEELE, Democratic Chief Counsel LAURA SWANSON, Democratic Deputy Staff Director DAWN RATLIFF, Chief Clerk CAMERON RICKER, Hearing Clerk SHELVIN SIMMONS, IT Director JIM CROWELL, Editor (II) VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00002 Fmt 0486 Sfmt 0486 S:\DOCS\25433.TXT SHERYL C O N T E N T S TUESDAY, FEBRUARY 14, 2017 Page Opening statement of Chairman Crapo ................................................................. 1 Opening statements, comments, or prepared statements of: Senator Brown .................................................................................................. 2 WITNESS Janet L. Yellen, Chair, Board of Governors of the Federal Reserve System ...... 5 Prepared statement .......................................................................................... 45 Responses to written questions of: Senator Toomey ......................................................................................... 47 Senator Reed .............................................................................................. 52 Senator Sasse ............................................................................................ 53 Senator Tester ........................................................................................... 59 Senator Rounds ......................................................................................... 64 Senator Tillis ............................................................................................. 68 Senator Perdue .......................................................................................... 73 ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD The February 2017 semiannual Monetary Policy Report ..................................... 78 Wall Street Journal article entitled, ‘‘U.S. Banks Report Record Profit in Third Quarter,’’ dated November 29, 2016, submitted by Senator Warren .... 126 FDIC Quarterly Report, Third Quarter 2016 ........................................................ 128 (III) VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 S:\DOCS\25433.TXT SHERYL VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 S:\DOCS\25433.TXT SHERYL THE SEMIANNUAL MONETARY POLICY REPORT TO THE CONGRESS TUESDAY, FEBRUARY 14, 2017 U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. The Committee met at 10:02 a.m., in room SD–538, Dirksen Sen- ate Office Building, Hon. Mike Crapo, Chairman of the Committee, presiding. OPENING STATEMENT OF CHAIRMAN MIKE CRAPO Chairman CRAPO. The Committee will come to order. Today we will receive testimony from Federal Reserve Chair Janet Yellen regarding the Fed’s semiannual report to Congress on monetary policy and the state of the economy. It will come as no surprise to you, Chair Yellen, that improving economic growth is a key priority for Congress this year. Two thousand sixteen was the 11th consecutive year that the U.S. economy failed to grow by more than 3 percent. One way to improve economic growth is to study and address areas where reg- ulations can be improved. Since the financial crisis, regulators have imposed thousands of pages of new regulations. We all need to better understand the combined impact of these rules on lending, liquidity, costs for small financial institutions, and broader economic growth. It is time to reassess what is working and what is not. I am en- couraged by President Trump’s Executive Order on Core Principles for regulating the financial system. Directing the Treasury Secretary, in consultation with the heads of the other member agencies of Financial Stability Oversight Council, including you, Chair Yellen, to report on how well existing laws and regulations promote or inhibit economic growth will be a helpful step as we move forward. Financial regulation should strike the proper balance between the need for a safe and sound financial system and the need to pro- mote a vibrant, growing economy. I expect the Vice Chairman for Supervision, once confirmed, will play an important role in striking this balance. We want our Nation’s banks to be well capitalized and well regu- lated, without being drowned by unnecessary compliance costs. This is especially important for the community banks and credit unions in America, which lack the personnel and infrastructure to handle the overwhelming regulatory burden of the past few years, (1) VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 2 yet in many ways are treated the same as the world’s biggest institutions. At the last Humphrey-Hawkins hearing, Chair Yellen, you stated that simplifying regulations for the community banks continues to be a focus for the Fed, and I hope that remains the case. Our regu- latory regime should be properly tailored and avoid a one-size-fits- all approach. The Fed recently took an encouraging step in that direction when it finalized changes to exempt certain banks from the qualitative portion of CCAR, and I appreciate that. Another area I would like to address is the $50 billion SIFI threshold for regional banks. In prior hearings, we have discussed whether $50 billion is the appropriate threshold, and I hope we can work together to craft a more appropriate standard. My goal is to work with Senators of this Committee and financial regulators to better strike the balance between smart, thoughtful regulation and promoting economic growth. It has also been nearly a decade since Fannie Mae and Freddie Mac were put into conservatorship. Housing finance reform re- mains the most significant piece of unfinished business following the crisis, and it is important to build bipartisan support for a pathway forward. For many years, the Fed expressed concerns about Fannie and Freddie, and I encourage you, Chair Yellen, and the Fed to work with this Committee to help find a solution. With respect to monetary policy, it has now been nearly a decade since the Fed began easing monetary policy in the fall of 2007 in response to the emerging financial crisis. Today the Fed still holds close to $4.5 trillion in assets on its bal- ance sheet, which includes approximately 35 percent of the out- standing agency mortgage-backed security market. I look forward to hearing from you on how the Fed plans to normalize monetary policy and wind down its balance sheet. The Banking Committee has a lot of work to do this Congress. My goal is to work with Ranking Member Brown and other Mem- bers of the Committee to identify bipartisan approaches that we can quickly get signed into law. At the same time, we plan to start work on housing finance reform, flood insurance, sanctions, and legislation to boost economic growth in the country. I look forward to working with you, Chair Yellen, the Federal Re- serve, and other Members of the Committee to tackle some of these critical issues that I have mentioned this morning, as well as a number of others. With that, Madam Chair, we look forward to your comments today, but first I turn to Ranking Member Brown. Senator Brown. STATEMENT OF SENATOR SHERROD BROWN Senator BROWN. Thank you, Mr. Chairman. I appreciate the hearing today. And, Chair Yellen, thank you for—it is an honor al- ways to have you here, and a pleasure, and your insight is always helpful to all of us. Thank you for that. Since your appearance, Madam Chair, last June, the economy has improved enough, as we know, that the Fed raised the Federal funds rate in December for only the second time since the financial VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 3 crisis. Businesses continue to create jobs on a slow but steady pace, some 70-plus months in a row, and there finally is some wage growth. Yet there are concerns. Too many Americans who want full-time work still cannot find it. Many workers have left the labor force. The gains have been not large enough and been uneven. Fore- closures and job losses hit African American and Latino commu- nities particularly hard during the crisis. One study found that the average wealth of white families has grown 3 times faster than the rate for African American families and 1.2 times the growth rate for Latino families over the last three decades. At these rates, it will take hundreds of years for those families to match where white families are today. For affluent Americans, stock portfolios have recovered nicely since the crisis, but for most of Ohio and for most of our States, the story is very different. The State’s job growth last year was the lowest since 2009. We actually went backwards 5 out of 12 months. In many places, one in four homeowners is still underwater. As you have heard me say and as Members of this Committee have heard me say, in the Zip Code my wife and I live in in Cleve- land, in the first half of 2007 there were more foreclosures than any Zip Code in the United States of America. For Ohio manufac- turers, the strong dollar continues to hurt exports, and there is un- certainty, much of it injected into the economy by this Administra- tion already and by the majority party. Can Americans continue to count on having health insurance? Will U.S. manufacturers and ex- porters have continued access to foreign markets? Will importers have to pay a 20-percent sales tax? Will immigrants to this country have access to jobs and to our universities? They do not even know what to expect tomorrow let alone to do any kind of long-range planning. All of that our country and our economy is dependent upon. Americans elected the new President based on his promises to drain the swamp, to take on Wall Street, and begin to bring manu- facturing jobs back to the industrial heartland. We are all con- cerned, though, when you look at some of the nominees confirmed, with virtually every Republican virtually every time voting for amazingly ethically challenged nominees, nominees that would have stepped aside 8 years ago or 16 years ago with new Presi- dents, we are all concerned about that. Instead of focusing on infrastructure and real job creation and tax cuts for the middle class and education and workforce develop- ment, we have seen the new Administration target working Ameri- cans, furthering a billionaire’s special interest agenda, and threaten Wall Street reform based on the false promises that banks are not lending—false promises, some might call them lies. I think everyone on this dais can agree there are parts of Wall Street reform that could be improved and steps that can be taken to help small banks and credit unions. That is an ongoing process for both Congress and the regulators. I applaud the Fed decision, Madam Chair, its recent decision to remove banks below $250 billion in assets from part of its CCAR process. But many of my Republican colleagues are dead set on going beyond the reasonable, consensual, bipartisan adjustments VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 4 and seeking to repeal reforms that are key to preventing the next devastating financial crisis. Working Americans lost trillions of dol- lars in their retirement savings after large Wall Street firms made risky bets with other people’s money either failed or were bailed out during the crisis. That is why Congress put in place higher cap- ital requirements for large banks, mechanisms to identify and reg- ulate risky nonbank companies, and tools to make sure financial firms can fail without bailouts funded by taxpayers. Recent statements by top officials in the White House indicate they are specifically targeting these important safeguards, even though these parts of the law were supported by both parties back less than a decade ago. Now the Administration is putting Wall Street bankers in charge. Steve Mnuchin—again, every single Republican voted for him—was confirmed by the Senate last night. They are going after the rules that their former employers do not like. They are trying to take away the financial regulators’ freedom to make difficult de- cisions that will keep our financial system stable. These priorities are wrong. American voters agree: 80 percent— 80 percent in one poll, that is Republicans and Democrats and Independents—agree we need tough rules and stronger, not weak- er, penalties for Wall Street. I want to take a moment to recognize one person in particular who has been one of the chief architects of the stronger rules that have been put in place over the past several years to rein in Wall Street misbehavior and excess. Last week, Governor Tarullo an- nounced he is leaving the Board of Governors. I want to thank Gov- ernor Tarullo for his service to our Nation over the last 8 years. He is one of a handful of dedicated public servants who have made our financial system safer for a generation to come. I also want to recognize Scott Alvarez, who is in his 36th year at the Federal Reserve. He is seated right behind—if he would put his hand up for a moment, Mr. Alvarez? He is in his 36th year at the Fed. He has been General Counsel at the Fed I believe for over a decade. Thank you for your service, Mr. Alvarez. Madam Chair, I look forward to hearing more from you about the current state of the economy, the importance—especially the impor- tance of strong rules to guard against economic calamity—I know you are not going to be there forever, although I wish you were— and the importance of the strong rules that you have put in place and you will continue to put in place over the next dozen months or so, more than that, and what Congress can do to help the econ- omy create jobs and make it easier for all Americans—and I under- score all Americans—to accumulate wealth, to buy a home, to pay for college, and to have a decent, honorable, dignified retirement. Madam Chair, it is a pleasure to see you. Chairman CRAPO. Thank you, Senator Brown. Again, Madam Chair, we appreciate you being here. We look for- ward to your opening statement at this point, and then we will engage in some important discussion. You may proceed. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 5 STATEMENT OF JANET L. YELLEN, CHAIR, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Ms. YELLEN. Thank you. Chairman Crapo, Ranking Member Brown, and other Members of the Committee, I am pleased to present the Federal Reserve’s semiannual Monetary Policy Report to the Congress. In my remarks today I will briefly discuss the cur- rent economic situation and outlook before turning to monetary policy. Since my appearance before this Committee last June, the econ- omy has continued to make progress toward our dual-mandate ob- jectives of maximum employment and price stability. In the labor market, job gains averaged 190,000 per month over the second half of 2016, and the number of jobs rose an additional 227,000 in Janu- ary. Those gains bring the total increase in employment since its trough in early 2010 to nearly 16 million. In addition, the unem- ployment rate, which stood at 4.8 percent in January, is more than 5 percentage points lower than where it stood at its peak in 2010 and is now in line with the median of the Federal Open Market Committee participants’ estimates of its longer-run normal level. A broader measure of labor underutilization, which includes those marginally attached to the labor force and people who are working part time but would like full-time jobs, has also continued to im- prove over the past year. In addition, the pace of wage growth has picked up relative to its pace of a few years ago, a further indica- tion that the job market is tightening. Importantly, improvements in the labor market in recent years have been widespread, with large declines in the unemployment rates for all major demo- graphic groups, including African Americans and Hispanics. Even so, it is discouraging that jobless rates for those minorities remain significantly higher than the rate for the Nation overall. Ongoing gains in the labor market have been accompanied by a further moderate expansion in economic activity. U.S. real gross domestic product is estimated to have risen 1.9 percent last year, the same as in 2015. Consumer spending has continued to rise at a healthy pace, supported by steady income gains, increases in the value of households’ financial assets and homes, favorable levels of consumer sentiment, and low interest rates. Last year’s sales of automobiles and light trucks were the highest annual total on record. In contrast, business investment was relatively soft for much of last year, though it posted some larger gains toward the end of the year in part reflecting an apparent end to the sharp de- cline in spending on drilling and mining structures; moreover, busi- ness sentiment has noticeably improved in the past few months. In addition, weak foreign growth and the appreciation of the dollar over the past 2 years have restrained manufacturing output. Mean- while, housing construction has continued to trend up at only a modest pace in recent quarters. And while the lean stock of homes for sale and ongoing labor market gains should provide some sup- port to housing construction going forward, the recent increases in mortgage rates may impart some restraint. Inflation moved up over the past year, mainly because of the di- minishing effects of the earlier declines in energy prices and import prices. Total consumer prices as measured by the personal con- sumption expenditure, or PCE, index rose 1.6 percent in the 12 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 6 months ending in December, still below the Federal Open Market Committee’s (FOMC) 2-percent objective but up 1 percentage point from its pace in 2015. Core PCE inflation, which excludes the vola- tile energy and food prices, moved up to about 13⁄ 4 percent. My colleagues on the FOMC and I expect the economy to con- tinue to expand at a moderate pace, with the job market strength- ening somewhat further and inflation gradually rising to 2 percent. This judgment reflects our view that U.S. monetary policy remains accommodative, and that the pace of global economic activity should pick up over time, supported by accommodative monetary policies abroad. Of course, our inflation outlook also depends impor- tantly on our assessment that longer-run inflation expectations will remain reasonably well anchored. It is reassuring that while mar- ket-based measures of inflation compensation remain low, they have risen from the very low levels they reached during the latter part of 2015 and first half of 2016. Meanwhile, most survey meas- ures of longer-term inflation expectations have changed little, on balance, in recent months. As always, considerable uncertainty attends the economic out- look. Among the sources of uncertainty are possible changes in U.S. fiscal and other policies, the future path of productivity growth, and developments abroad. Turning to monetary policy, the FOMC is committed to pro- moting maximum employment and price stability, as mandated by the Congress. Against the backdrop of headwinds weighing on the economy over the past year, including financial market stresses that emanated from developments abroad, the Committee main- tained an unchanged target range for the Federal funds rate for most of the year in order to support improvement in the labor mar- ket and an increase in inflation toward 2 percent. At its December meeting, the Committee raised the target range for the Federal funds rate by 1⁄ 4 percentage point, to 1⁄ 2 to 3⁄ 4 percent. In doing so, the Committee recognized the considerable progress the economy had made toward the FOMC’s dual objectives. The Committee judged that even after this increase in the Federal funds rate tar- get, monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a re- turn to 2 percent inflation. At its meeting that concluded early this month, the Committee left the target range for the Federal funds rate unchanged but reit- erated that it expects the evolution of the economy to warrant fur- ther gradual increases in the Federal funds rate to achieve and maintain its employment and inflation objectives. As I noted on previous occasions, waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession. Incoming data suggest that labor market conditions continue to strengthen and inflation is moving up to 2 percent, consistent with the Committee’s expecta- tions. At our upcoming meetings, the Committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the Federal funds rate would likely be appropriate. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 7 The Committee’s view that gradual increases in the Federal funds rate will likely be appropriate reflects the expectation that the neutral Federal funds rate—that is, the interest rate that is neither expansionary nor contractionary and that keeps the econ- omy operating on an even keel—will rise somewhat over time. Cur- rent estimates of the neutral rate are well below pre-crisis levels— a phenomenon that may reflect slow productivity growth, subdued economic growth abroad, strong demand for safe longer-term as- sets, and other factors. The Committee anticipates that the de- pressing effect of these factors will diminish somewhat over time, raising the neutral funds rate, albeit to levels that are still low by historical standards. That said, the economic outlook is uncertain, and monetary pol- icy is not on a preset course. FOMC participants will adjust their assessments of the appropriate path for the Federal funds rate in response to changes to the economic outlook and associated risks as informed by incoming data. Also, changes in fiscal policy or other economic policies could potentially affect the economic out- look. Of course, it is too early to know what policy changes will be put in place or how their economic effects will unfold. While it is not my intention to opine on specific tax or spending proposals, I would point to the importance of improving the pace of longer-run economic growth and raising American living standards with poli- cies aimed at improving productivity. I would also hope that fiscal policy changes will be consistent with putting U.S. fiscal accounts on a sustainable trajectory. In any event, it is important to remem- ber that fiscal policy is only one of the many factors that can influ- ence the economic outlook and the appropriate course of monetary policy. Overall, the FOMC’s monetary policy decisions will be di- rected to the attainment of its congressionally mandated objectives of maximum employment and price stability. Finally, the Committee has continued its policy of reinvesting proceeds from maturing Treasury securities and principal pay- ments from agency debt and mortgage-backed securities. This pol- icy, by keeping the Committee’s holdings of longer-term securities at sizable levels, has helped maintain accommodative financial conditions. Thank you. I would be pleased to take your questions. Chairman CRAPO. Thank you very much, Chair Yellen, and I want to get into that last issue you talked about with regard to the Fed’s balance sheet. But before that, I have got two or three quick questions I just wanted to go through with you. First, Dodd-Frank established a new position at the Federal Re- serve, the Vice Chairman of Supervision. President Obama has never yet designated anyone for this role, and instead Fed Gov- ernor Dan Tarullo has acted as the de facto Vice Chairman for Su- pervision in various ways, including by chairing the Federal Reserve Board’s Committee on Supervision and Regulation, over- seeing the Large Institution Supervision Coordinating Committee, and representing the Fed at the Financial Stability Board and in Basel, among other functions. What role do you envision for the Fed Vice Chairman for Super- vision having? And how do you envision working with this person when we get one nominated? And is it your expectation that a VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 8 Presidentially appointed Federal Vice Chairman for Supervision will have the responsibilities that Governor Tarullo currently has, including, among other things, chairing the Committee on Super- vision and Regulation and negotiating on behalf of the Federal Re- serve in Basel? Ms. YELLEN. Chairman Crapo, I think, as you know, the entire Board has responsibility for approving new rules, but the Vice Chair would head our Supervision and Regulation Committee and would coordinate our efforts in this area. He or she would also rep- resent the Board on international negotiations of financial regu- latory standards, including representing the Fed in Basel. And beyond that, the new Vice Chair would fulfill any statutory obliga- tions such as providing semiannual testimony to Congress on supervision. I look forward to working with that individual. Chairman CRAPO. Thank you very much. Second, President Trump recently issued an Executive order di- recting the Treasury Secretary to work with the member agencies of FSOC to review the extent to which existing laws and regula- tions promote certain core principles. First of all, do you agree that it is important to promote the core principles mentioned in this Ex- ecutive order? And do you plan to work with the Treasury Sec- retary and other members of FSOC to ensure that this review occurs? Ms. YELLEN. So I certainly do agree with the core principles. They enunciate very important goals for our financial system and for supervision and regulation of it. And I look forward to working with the Treasury Secretary and other members of FSOC to engage in this review. Chairman CRAPO. Thank you very much. My third question before we get to the balance sheet is: Fannie Mae and Freddie Mac were put into conservatorship in 2008 and continue to dominate the mortgage market. I am not alone in call- ing for housing reform and considering it the most significant piece of unfinished business following the financial crisis. Do you believe that finding a durable, comprehensive legislative solution for the housing finance market is urgently needed? And are you willing to work with us to help achieve that? Ms. YELLEN. Yes, I think it is very important that Congress con- tinue to deal with the GSEs and figure out what the Government’s role in housing finance should look like going forward. The goal of bringing private capital back into the mortgage market I think is important, and I would hope that Congress would decide explicitly on what the Government’s role is and, if there are guarantees, that they would be recognized and priced appropriately. And we look forward to continue working with you to help achieve these objectives. Chairman CRAPO. Well, thank you. And I just wanted to get your comments on those few issues before I go into this final question on the balance sheet. The Fed has said that it will not begin shrinking its balance sheet until normalization of the level of Fed- eral funds rates is well underway. Recently, some Reserve Bank Presidents have suggested that it is time to consider beginning that process. What are the benefits of starting to let the balance sheet run off rather than relying solely on short-term rate hikes to VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 9 tighten policy? And as short-term rates rise, is it problematic to have the large balance sheet continuing to put downward pressure on longer-term rates? Ms. YELLEN. Well, Chairman Crapo, the Federal Reserve re- sorted to purchases of longer-term assets after the financial crisis at a time when the economy was very depressed, unemployment was very high, inflation running below our objectives, and extraor- dinary support was needed. But we would hope that that was a very unusual intervention and one that we would not frequently be relying on in the future. The FOMC has enunciated that its longer-run goal is to shrink our balance sheet to levels consistent with the efficient and effec- tive implementation of monetary policy. And while our system evolves and I cannot put a number on that, I would anticipate a balance sheet that is substantially smaller than at the current time. In addition, we would like our balance sheet to again be pri- marily Treasury securities; whereas, as you pointed out, we have substantial holdings of mortgage-backed securities. Now, to adjust financial conditions in order to influence economic developments in line with our dual-mandate objectives, the Com- mittee would like, to the maximum extent possible, to rely on vari- ations in our short-term overnight interest rate to accomplish that objective. It is our traditional tool. It is the one that we have the most confidence in, that markets best understand how we set it, and we have the greatest confidence in our ability to calibrate it relative to the needs of the economy. So we do not want to use fluc- tuations in our balance sheet policy as an active tool of monetary policy management. So what we would like to do is to find a time when we judge that our need to provide substantial accommodation to the economy in the coming years is minimal, when we have confidence that the economy is on a solid course, and the Federal funds rate has reached levels where we have some ability to address weakness by cutting it. And once we have that confidence, we will begin to allow maturing principal from our investments to gradually and in an or- derly way we will stop reinvestments or diminish them, and allow our balance sheet to shrink in an orderly and predictable way. The Committee has decided that it will not sell mortgage-backed securities, but as principal matures, we will begin to allow those assets to run off our balance sheet. So we do expect to be dis- cussing in greater detail. We gave general guidance that we want to wait to start this process until the process of normalization is well underway, and the Committee in the coming months will be discussing issues pertaining to reinvestment strategy to try to pro- vide some further guidance. Chairman CRAPO. Thank you very much. Senator Brown. Senator BROWN. Thank you, Senator Crapo, Mr. Chairman. Madam Chair, you testified last year that the banking system was more safe, more resilient. Is that still true? Ms. YELLEN. I believe so. Yes. I mean, there is much more cap- ital in the banking system. The quantity of high-quality capital, Tier 1 capital, has more than doubled since before the financial VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 10 crisis. There is much more liquidity. I believe the financial system is much more resilient than it was. Senator BROWN. Thank you. Now that we know that—and I think we already knew that—I appreciate your assertion and con- vincing arguments that you have made for some time. Some have remarked that banks are not lending now. Is that true? Ms. YELLEN. Well, a recent survey by the National Federation of Independent Business, which is smaller businesses, indicated that only 4 percent of respondents were unable to get all of the loans that they needed, and the fraction of businesses ranking inad- equate access to credit as their main problem stood at 2 percent, which is an extremely low number. Senator BROWN. So just because people—— Ms. YELLEN. Lending has expanded overall by the banking sys- tem and also to small businesses—— Senator BROWN. Thank you. Just because people in high places say it is true does not make it so. Are U.S. banks competing—others have said that U.S. banks cannot compete. Are U.S. banks competing relative to their inter- national counterparts? Ms. YELLEN. U.S. banks are generally considered quite strong relative to their counterparts. They built up capital quickly, partly as a result of our insistence that they do so following the financial crisis and, as I mentioned earlier, are very well capitalized. And they are lending. Their price-to-book ratios are substantially higher than the ratios of banks headquartered in other areas. And they are gaining market share, and they remain quite profitable. Senator BROWN. So banks are safer and more resilient. Banks are lending. Banks are able to compete with international counter- parts. Consumers—some have said consumers are worse off since the crisis. Are consumers better protected today from abusive and deceptive and fraudulent practices than they were? Ms. YELLEN. Well, certainly we have focused very much on pro- tecting consumers in our implementation of strengthening the financial system. And, of course, consumers were very seriously harmed by the financial crisis, but I think we have seen a signifi- cant recovery. Senator BROWN. And the Fed is tailoring rules, as we have dis- cussed personally and in this forum, the Fed is tailoring rules for communities and—for community banks, regional banks, the larg- est banks based upon factors including size and riskiness, correct? Ms. YELLEN. Yes. Senator BROWN. It seems to me that steps taken after the crisis with higher capital requirements, as you have said, with stress tests, with orderly liquidation authority, with the Consumer Finan- cial Protection Bureau have made our economy stronger, our finan- cial system more stable, our banks better capitalized, and our consumers better protected. I think that if the rules are removed, as one executive said during the crisis, if the music is playing, you have got to get up and dance. If the rules are removed, Wall Street will almost assuredly be right back to their risky and reckless behavior we experienced before you took this job, back before the crisis. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 11 A couple of other lines of questions, if I could, Madam Chair, Mr. Chairman. Recent Executive action directs the Secretary of Treas- ury to chair the Financial Stability Oversight Council, FSOC, to re- view the rules and other activities of each member agency of FSOC, including the Fed, to determine if they are consistent with the certain core principles of the executive branch. I know the Fed and other agencies regularly review their work to make sure that the rules continue to enhance financial stability and promote safety and soundness and to protect consumers. To the extent that you provide any information or conclusions to Treasury or to FSOC about your agency’s rules as part of this proc- ess, could you provide those materials to the Banking Committee? Ms. YELLEN. So I do not yet have any clarity about what the process will involve, but we—— Senator BROWN. But when you do? Ms. YELLEN. We always try to work with our oversight commit- tees to provide materials that are relevant to your oversight of us. Senator BROWN. Thank you. Ms. YELLEN. And we will strive to be cooperative. Senator BROWN. And we will count on that. Thank you. I have doubts about the Executive order that requires Federal agencies to eliminate two rules—in many cases, two consumer pro- tections—for every new rule. I am particularly troubled by what that means for financial regulators. It is a little like telling the highway department to take down 2 feet of guardrails for every foot it puts up. Is it clear that—I have a series of questions, and I will put them together, if you would answer. Is it clear that financial regulators, including the Fed, are not covered by this rule? Does it make sense to remove two safety and soundness rules for every new safety and soundness protection? Does it make sense to remove two consumer protections for every new consumer protection? Will it make our system more stable and better protect consumers from bad actors? Ms. YELLEN. So I believe that the independent agencies are not covered explicitly by the rules, but let me just say that considering regulatory burden and looking for ways in issuing rules and re- viewing outstanding rules, constantly looking for ways to mitigate burden I think is an important goal, and it is one that we have strived and will strive to achieve. And it is a legitimate and impor- tant goal. Senator BROWN. Understanding, of course, what some people call ‘‘rules and regulatory overreach,’’ others call ‘‘consumer protection and environmental protection and work protections.’’ Chair Yellen—last question, Mr. Chairman—I want to follow up on an issue we have talked about: diversity in the Federal Reserve System. We see the least diverse President’s Cabinet than we have seen at any time in the last three decades. The Presidents of two of the most diverse Federal Reserve districts in the country, Rich- mond and Atlanta, have announced their retirement. Each bank has begun its search for the replacement. What is the Board of Governors doing to ensure that a diverse set of candidates is con- sidered for these positions? Ms. YELLEN. The Board consults with the search committees that are charged with nominating individuals to serve as Presidents of VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 12 the Reserve Banks, and we consistently emphasize that diversity is an extremely important goal. We ensure that the search is inclu- sive, that robust efforts are made to identify diverse pools, and that the boards are focused on this important goal as they go about their searches. Senator BROWN. And the last connected question, significant ra- cial disparities in unemployment and wages persist everywhere— not, of course, just Mississippi, Louisiana, Maryland, South Caro- lina, places in both of these districts. What is the Fed doing to ensure that these challenges are understood by the Board of Direc- tors in these districts? What can be done by the Fed or others to address these issues? Ms. YELLEN. Well, I think we are trying to address issues of high minority unemployment by adopting policies that result in a robust labor market and strong overall job conditions. Over the last year, for example, the unemployment rate of African Americans I believe has come down about a percentage point, moved substantially more than that for white Americans. So a strong labor market does im- prove the situation of vulnerable minorities, although it is, as I mentioned, disturbing that such large disparities continue to exist. Senator BROWN. Thank you, Mr. Chairman. Chairman CRAPO. Senator Shelby. Senator SHELBY. Madam Chair, good to see you. Ms. YELLEN. Thank you. Senator SHELBY. I want to pick up on the theme that Chairman Crapo got into a minute ago dealing with the Vice Chairman of the Fed. We have been hoping that—we did at one time hope that President Obama would nominate someone, but he did not. But now, as I understand it, there are going to be three openings at the Fed. Tarullo—it will come in April, whenever it is he has resigned. Two other openings are there. And then your tenure, you are ap- pointed to, what, next February? Is that correct? Ms. YELLEN. That is correct. Senator SHELBY. Do you intend to fulfill this last year of your ap- pointment? Ms. YELLEN. I do intend to complete my term as Chair. Senator SHELBY. What will be the mechanics of how the Fed Vice Chairman will work—the Chairman got into that some—with the whole Board? You mentioned that he would come before the Com- mittee to testify, he would represent people at the international— dealing with regulatory relief, regulatory affairs and so forth. Have you got anything else to add to that? Ms. YELLEN. Well, importantly, he would chair our Board Com- mittee on Supervision and Regulation, and that Committee takes the lead on behalf of the full Board in working with the Division of Supervision and Regulation to craft rulemakings that are then brought to the full Board for a vote. The Vice Chair would head that Committee and would have oversight in that role for our Divi- sion of Supervision and Regulation and would also represent us in international supervision groups such as the Basel Committee. Senator SHELBY. So if we have three new appointments to the Fed Board of Governors, that will be three new people to deal with, and you will have to deal with that as the Chairman. Is that right? Ms. YELLEN. Of course. We have a diverse membership—— VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 13 Senator SHELBY. Sure. Ms. YELLEN.——which changes over time, and the role of the Chair is to work constructively with all the Governors to manage the matters that Congress has charged us with. Senator SHELBY. When you are getting into the area of monetary policy, inflation, deflation, and so forth, price stability, what is the biggest challenge as you are looking at all the data inside to see where inflation is rearing its head and so forth? Is it wages and salaries? Is that one of the big components? Energy is generally a component there, and food is a component. But sometimes you do not count that, you know. What is your biggest challenge in meas- uring, engaging, and configuring what inflation is doing or not doing? Ms. YELLEN. So we look at many measures of inflation. Our ob- jective—we recognize that food and energy are very important parts—— Senator SHELBY. Volatile, isn’t it? Ms. YELLEN. Consumers spend a good share of their budgets on food and energy. We do not want to ignore movements in food and energy prices in measuring inflation. So in my testimony, I began by saying that an overall comprehensive measure of price increases that includes food and energy ran at 1.6 percent last year. There are many different measures. We have focused explicitly in saying that we have a 2-percent inflation goal on the measure we regard as the best measure we have of consumer prices, which is the per- sonal consumption expenditure price index. It is less well known than the CPI, but we think it is actually a more comprehensive measure. Now, food and energy prices are very volatile, and in looking for- ward over a number of years and trying to estimate where inflation is going, we often look at measures called ‘‘core measures’’ that re- move food and energy prices. Wage developments, it is unclear that they have much direct ef- fect on inflation, but generally what we have found is that in a sit- uation where labor and product markets are tight, inflation tends to move up. And movements in wage growth gives us a sense of just how tight labor markets are. Senator SHELBY. In the area of regulations, the last time you came before this Committee that you alluded to—I believe it was back in June—I asked you what the Federal Reserve’s plans were to tailor the CCAR process to provide much needed relief to smaller regional banks. On January 30th, the Federal Reserve issued its final CCAR rule, which tailored the process for institutions that have less than $250 billion in total consolidated assets and less than $75 billion of total nonbank assets. What is the significance of what you did there? And how will that help? Ms. YELLEN. I think that change will reduce burdens substan- tially for—— Senator SHELBY. Regulation? Ms. YELLEN. Yes, for a significant number of institutions. After engaging in a 5-year review of CCAR and our stress-testing meth- odologies, we decided that the capital planning processes of those smaller institutions could be adequately reviewed and commented VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 14 on through our normal supervisory processes, and that it was ap- propriate to exempt them from the qualitative portion of that cap- ital review. But we still are subjecting them to our stress tests and requiring that they conduct stress tests themselves. That is an im- portant component of our supervision. Senator SHELBY. But as a regulator, you will continue to monitor that, and if that needs to be tailored, you will do whatever it takes? Ms. YELLEN. Yes, we believe very strongly in tailoring to make sure that our regulations fit the risk profiles of particular institu- tions, and especially for smaller institutions, we are very well aware of the burdens that they face and are looking for every way we can find to mitigate those burdens. Senator SHELBY. Thank you. Chairman CRAPO. Senator Reed. Senator REED. Well, thank you, Mr. Chairman, and thank you, Madam Chair, for your leadership. Some of my colleagues in the Congress have called on the Federal Reserve to use a formula, a very strict formula in setting interest rates. Many times they refer to the Taylor rule. Could you explain to us how this would affect particularly working Americans? Would it be good or bad? And how do we explain its ramifications to our constituents? Ms. YELLEN. Well, right now the Taylor rule would call for a short-term interest rate somewhere between 31⁄ 2 and 4 percent, which is obviously a much higher value of the Federal funds rate than the FOMC has deemed appropriate given the needs of the economy. I believe we would have a much weaker economy if in the last number of years we had followed the dictates of that rule. Un- employment would be substantially higher. The labor market would be weaker. And instead of inflation which is running below 2 percent—and we want to see it move up to our 2-percent objec- tive—I believe inflation would likely be lower than it is now. Senator REED. So we would see fewer jobs, higher mortgage in- terest rates, a weaker economy if we were essentially just auto- matically following a formula? Ms. YELLEN. That is right. I recently, a few weeks ago, gave a speech at Stanford where I tried to explain why I thought it was appropriate to address the recommendations of rules like that, to take into account, for example, the fact that not only the FOMC but most outside forecasters believe that the so-called neutral rate of interest has been unusually low in the aftermath of the crisis. And the Taylor rule would assume that it is at 2 percent. Current estimates would put that estimate closer to zero. Senator REED. All right. Thank you. There is another aspect I have been working on for years, particularly incorporating some of the language in the Dodd-Frank bill, ensuring that clearing plat- forms are used, but there is a risk because systemic failure would be significant. Can you give us an update on what you are doing, and your colleagues, to ensure that the central clearing platforms are adequately protected from failure, i.e., the consumers are ulti- mately protected from failure? Ms. YELLEN. Well, we strongly believe that well-regulated and well-managed financial market infrastructures—and that would in- clude central counterparties—play a positive financial stability role. They can help stem the propagation of disturbances, and they VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 15 reduce the volume of transactions among key financial institutions. And we think they play a financial stability role, but they can also be sources of risk to the financial system if they are not themselves well managed. Title VIII of Dodd-Frank created a structure in which the Federal Reserve, the CFTC, and the SEC have oversight responsibilities to make sure that these key infrastructures of our financial system are managing their own risks successfully, and we are cooperating with the other regulators in our examinations to make sure that appropriate risk management standards are in place. Senator REED. Thank you. A final question. Cybersecurity is the issue on everyone’s mind, and you recently have an Advanced No- tice of Proposed Rulemaking which would require boards of direc- tors to have adequate expertise. I have been involved in legislation that would apply not just to financial institutions but publicly held companies because the cyber threat is not limited. It is ubiquitous. Could you just briefly—very briefly—give us your sense of how important it is to get this cybersecurity expertise on boards? Ms. YELLEN. Well, I think cybersecurity is a major, major risk that financial firms face. I think they are very well aware of the risks, and my sense is that boards of directors generally appreciate the seriousness of cyber threats, but sometimes they do not have a comprehensive or enterprise-wide view of the institution’s capa- bilities in this area. And so it is very important for boards to have appropriate expertise. Senator REED. Thank you very much, Madam Chair. Thank you, Mr. Chairman. Chairman CRAPO. Senator Corker. Senator CORKER. Thank you, Mr. Chairman. And, Madam Chair- man, thank you for your service and being here today. I, too, want to thank Mr. Tarullo. I did not always agree with every decision he made, but we had vigorous debate, and I do think he was a com- mitted public servant, and I want to thank him for his service, along with Mr. Alvarez. We were in the foxhole many, many times back in 2008, and, again, I thank you for your service. Madam Chairman, I was interviewed earlier today, and, you know, people have always sort of hinged their futures on what you have to say and I guess are somewhat thankful now that it looks like you have a little bit of a partner. We knew at one time there probably were going to be no changes here—not being pejorative, it is just the environment we lived in. And yet now we look at po- tential tax reform, we look at potential changes to the health care policy, we look at things relative to infrastructure and all of that. As you see those possibilities occurring, is that affecting how you look at monetary policy decisions moving down the road? A stag- nant situation before, again, just because of the environment, a very changing possibility policy environment here, is that some- thing that is affecting your deliberations? Ms. YELLEN. So we recognize that there may be significant economic policy changes and that those changes could affect the outlook. We are very well aware of that. And we do not yet have enough clarity on what changes will be put in place to really clear- ly factor those policy changes into the economic outlook. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 16 So we do not want to base current policy on speculation about what may come down the line. We will wait to gain greater clarity on policy changes and try to assess—— Senator CORKER. Well, those policy changes, once you develop greater clarity on what you think is coming down the pike, could affect monetary policy decisions. Ms. YELLEN. Well, it is one of many factors that could affect monetary policy decisions. So I think the answer is yes, they could. Exactly how depends on the timing—— Senator CORKER. I got it. Ms. YELLEN.——size, composition, and many factors—— Senator CORKER. And growth I guess would generate—growth could generate additional inflationary pressures, and so paying at- tention to that, and when that happens, it can happen fairly quick- ly, can it not? Ms. YELLEN. Well, we will certainly pay attention to it. I think some policies may have supply side impacts and raise productivity growth—— Senator CORKER. All right. Ms. YELLEN.——and sustainable growth in the economy, too. Senator CORKER. You mentioned something about sustainable trajectory; you are hoping the Administration will develop policies that cause a sustainable trajectory relative to fiscal issues. Is there anything that you are seeing coming down the pike or being de- bated that has caused you to raise that issue? I agree with you, by the way, but is there something you are looking at that caused you to put a note in there, or is that just a standard line that would be in a report like this? Ms. YELLEN. Well, I think we have known for many, many years that the U.S. fiscal trajectory is not sustainable, and the Congres- sional Budget Office’s most recent forecasts show deficits increas- ing over the next 10-year period under their baseline and the ratio of debt to GDP as rising. Senator CORKER. So nothing—it is just a standard, there is noth- ing that you are looking at coming out of the Administration or Congress that is causing you to raise that alarm. It is more just the standard concern that many of us have that we are really con- ducting ourselves in a totally inappropriate way as it relates to deficits. Nothing that is being discussed policy-wise right now. Ms. YELLEN. Well, I mean, some of the policies that are being discussed might well raise deficits, and in that context, they may also have impacts on economic growth—— Senator CORKER. Yeah. Ms. YELLEN.——and the economy’s growth potential. So it is not a simple matter to evaluate. But I do think it is worth pointing out that fiscal sustainability has been a long-standing problem and that the U.S. fiscal course, as our population ages and healthcare costs increase, is already not sustainable. Senator CORKER. I agree 100 percent. You gave a very fulsome answer to the balance sheet question, and I understand how the Fed’s fund rate is much more targetable and much more accurate. I guess what I have not understood is just allowing the maturity— in other words, allowing these securities, $4.5 trillion or so, just to mature and rolling off, it is hard to understand how that would VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 17 create vagaries, if you will, relative to monetary policy that would be hard to predict. Could you share—— Ms. YELLEN. Yes, I am sorry, I did not mean to say that it would create a problem. Senator CORKER. Yeah. Ms. YELLEN. We want to allow that process to occur in a gradual and orderly way in order to—— Senator CORKER. But wouldn’t just allowing them to mature, when they mature, they roll off, isn’t that orderly? Ms. YELLEN. Yes. Yes, it is orderly, and that is why we intend to do it that way. Senator CORKER. But you have not started yet. Ms. YELLEN. We have not—— Senator CORKER. You are reinvesting now. I am just curious why—it just does not seem to me—— Ms. YELLEN. So I agree it is orderly, and that is our desire, to have it be an orderly process, which is why we intend to allow those assets to run off as principal matures. So we recognize, how- ever, that allowing that process to occur results in some tightening of financial conditions. And so before we turn that process on and start it, we want to make sure that we have adequate ability through our normal interest rate—overnight interest rate moves to meet the needs of the economy, particularly if it were to weaken some, which it would be a long process if it is running off, and we want to make sure we have enough scope and the economy is strong enough that that runoff would not create a problem for the economy. Senator CORKER. I just want to close with a statement. I know when you were coming in and interviewing for this post and being affirmed, you mentioned to me that when times called for it, you would allow interest rates to rise. And you are known as being a dove, but, in fact, you are—I know some people have criticized the rate at which those rises have taken place, probably me included, but I do want to thank you for allowing that to happen, hoping it will continue as we return to more normal circumstances. Hope- fully the balance sheet will roll off, and I hope you will continue to criticize us if we allow deficit spending to continue more so than it already is today. Thank you so much. Ms. YELLEN. Thank you, Senator, and I think allowing that proc- ess to take place, that is something that will show that the econ- omy is doing well and the increases have been a reflection of the strength we have seen in the economy. Senator SHELBY. [Presiding.] Senator Menendez. Senator MENENDEZ. Thank you. Chairman Yellen, thank you for your leadership at the Federal Reserve. Our economy, though not perfect, has made tremendous strides since the financial crisis and ensuing Great Recession, which wiped out nearly $13 trillion in household wealth and cost 9 million Americans their jobs. And I think these last 6 years have shown us how important and positive Wall Street reform and consumer protection has been to our econ- omy, to strong markets, and, most importantly, to American fami- lies and businesses. Now, I want to ask you specifically, as you know, healthcare accounts for nearly 20 percent of U.S. GDP, including not only the VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 18 delivery of life-saving, life-enhancing health services, but also fuel- ing innovations in patient care, in diagnostics, in preventative health, and research and development of cures to diseases. In response to the fiscal year 2017 budget resolution that Con- gress passed last month, the former Director of the Office of Man- agement and Budget sent a letter to Congress saying that the reso- lution would add $9.5 trillion to the deficit. Recent studies have shown that a major market disruption would have a detrimental impact on the labor market, including a reduction in job growth by nearly 2.6 million jobs in 2019. My home State of New Jersey is estimated to be among the top of the list when it comes to potential job losses as a result of a spike in the number of uninsured. Furthermore, stripping nearly 30 million people of their health insurance would have a significant impact on the productivity of the American workforce. Are you concerned about how this major increase in debt coupled with the downturn in the labor market and decreased productivity would have on the larger economy? Ms. YELLEN. Well, we would have to look at what the impact is of shifts in health care on the economic outlook. Health care, as you mentioned, does account for a very significant share of spend- ing, and a loss of access to health insurance could have a signifi- cant impact on spending of households for other goods and services and, beyond health care itself, have impacts on the economy. In addition, access to health care has for some individuals likely increased their mobility and diminished the phenomenon called ‘‘job lock,’’ where people are afraid to leave jobs because of losing health insurance, and that could have implications for the labor market as well that we would try to evaluate. Senator MENENDEZ. So we should tread lightly before we make major changes that create disruptions. Let me ask you this: In the years leading up to the financial crisis, many lenders and financial institutions exploited the unco- ordinated enforcement of consumer protection laws and misled con- sumers into expensive and risky subprime mortgages even if they qualified for prime rates. As part of the landmark Wall Street Re- form and Consumer Protection Act, we were finally able to empower a cop on the beat to protect hardworking Americans from unfair, deceptive, and abusive financial practices, and from my view it has been working. As an independent agency whose sole job is to enforce consumer protection laws, the CFPB has returned almost $12 billion in relief to more than 29 million consumers. And, more importantly, the Bu- reau helps level the playing field for hardworking American fami- lies, ensuring that consumers are protected when they purchase a home, open credit cards, take out student loans, and use prepaid cards. Do you believe that if an independent consumer-focused agency like the CFPB has existed to police mortgage markets prior to the financial crisis, much of the economic damage to working-class fam- ilies would have been avoided? In addition to protecting individual families, would better enforcement of consumer protections also have enhanced national financial stability? VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 19 Ms. YELLEN. Well, I do agree that consumer abuses in the mort- gage and securitization areas played a key role in the crisis. The Federal Reserve at that time had responsibility for enforcement of these regulations, and in retrospect, I wish the Fed had acted more aggressively and earlier to address those abuses. We have certainly learned from the financial crisis that it is critical to monitor this area and the potential for deceptive practices in consumer lending to create a financial crisis or financial stability issues. Senator MENENDEZ. So an entity like the Consumer Financial Protection Bureau, which has, in essence, done that since the Great Recession, has played a critical role in ensuring that. Certainly, I agree that had the Fed been more active, along with all our other regulators, about being the cop on the beat instead of being asleep at the switch, it would have been great. But in the absence of that, a bureau like the Consumer Financial Protection Bureau is actu- ally playing a significant role in ensuring that consumers have a level playing field. Is that not a fair statement? Ms. YELLEN. Well, they have been focusing certainly on these issues. Senator MENENDEZ. Let me close by saying in the 104-year his- tory of the Federal Reserve, it has had 134 different presidents of regional banks. Not one—not one—of those 134 presidents has been African American or Latino. That is pretty outrageous. And it is my hope that now that there are some openings, that we begin to change that reality. These are two communities that have an enormous part of contributing to the Nation’s GDP, and for them not to have any representation whatsoever in the process of these banks is not acceptable, and I hope we can begin to change the reality. Ms. YELLEN. Increasing diversity is a critical priority, and I share your hope. Senator SHELBY. Senator Toomey. Senator TOOMEY. Thank you, Mr. Chairman. Madam Chair, thank you very much for joining us yet again. I want to briefly ask you a question about the FOMC forecast for growth at the December meeting. As we all know, we had an elec- tion in November in which a President and a Congress were elect- ed, and a very, very central part of the message of both the Presi- dent and the Congress included a commitment to tax reform, a commitment to a very different regulatory approach, including a much lighter regulatory touch and rollback of existing regulation, and there was considerable discussion also about a fiscal stimulus in the form of an infrastructure bill. But I do not think anyone dis- putes that the President campaigned on tax reform, campaigned on lighter regulation, campaigned on this. It seems that most of the world responded with the view that that increases the likelihood—no certainty here, but increases the likelihood that we would have stronger economic growth. Equity markets responded powerfully and immediately. Bond markets sold off, which is consistent with the view of stronger economic growth. The IMF projected stronger economic growth. A poll of economists by the Wall Street Journal showed a very strong consensus that growth was likely to tick up. The World Bank suggested that tax reform alone would add eight-tenths of a percent to American GDP VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 20 in 2018. And yet at the December Fed meeting, the FOMC mem- bers had no change in their opinion at all, as far as I can gather, about the prospect for economic growth. In fact, the upper bound, the highest estimate, actually decreased. So it just looks on the surface like the FOMC members either be- lieve it is unlikely that any of those things will actually happen, or they think that those things are not particularly pro-growth. And, obviously, the rest of the world is of a different opinion. Does the Fed have the view that the prospects for growth are not at all changed by the prospect of tax reform and regulatory reform? Ms. YELLEN. Well, we do not yet have clarity on what economic policy changes will be put in place—— Senator TOOMEY. I understand there is no certainty. This is about likelihoods. Ms. YELLEN. Most of my colleagues decided that they would not speculate on what economic policy changes would be put into effect and what their consequences would be. A few of my colleagues mentioned that in writing down those forecasts, they assumed that there would be a mild fiscal stimulus. But most of my colleagues have taken the view that we want greater clarity about the size, timing, and composition of changes to fiscal and other policies before trying to incorporate those into our forecasts. Senator TOOMEY. OK. That is what I suspected. Let me move on to CCAR. I sent you a letter last week outlining some of the big concerns that I have about CCAR, and let me just touch on a few of them briefly. First of all, compliance is enormously expensive for the banks who are subject to that. There is a recent GAO report that suggests that the CCAR models employed by the Fed and testing procedures are not transparent. Well, that is, I think, generally acknowledged. The GAO report goes on to suggest that the Fed does not engage in sufficient risk management of the systems of the models it uses. The GAO report also concludes that the Fed has not assessed whether CCAR is inadvertently procyclical despite the intent that it be countercyclical. I am concerned that CCAR might actually increase systematic risk in one important respect by correlating the risks of bank behavior and allocation of capital. And the CCAR’s implicit risk weighting, which we have to infer because they are not explicit, is very, very different from those of the banks and, for that matter, Basel III. Now, as you know, CCAR is not required by statute. DFAST is required by statute, but CCAR is not. And you mentioned earlier that there has been a huge increase in the capitalization of Amer- ican banks post crisis, which is certainly the case. And the Fed already has other ways of boosting capital requirements like the countercyclical capital buffer and the G–SIB surcharge. So my question is: Given all of that, isn’t CCAR at least some- what duplicative? And since it is very, very costly and not man- dated by statute, would you consider bringing it to an end at some point in the foreseeable future? Ms. YELLEN. Well, I think it is a key part of our regulatory proc- ess. It is a very detailed and institution-specific and forward-look- ing assessment of the risks in the firm’s balance sheet, and I think VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 21 it has been a cornerstone of our efforts to improve supervision, es- pecially of the largest banking institutions whose stability is really critical to overall U.S. financial stability. The GAO in their assessment found that the stress tests have been useful and played a useful role. They did not recommend that we end them. They made a number of specific recommendations which we agree with and are working on, and we will, of course, continue to review our practices as we recently changed CCAR to exempt most of the institutions under $250 billion from the quali- tative part of the CCAR review. But I do think that stress testing has greatly strengthened our process of supervision. Senator TOOMEY. I appreciate that. I would just point out that in the absence of CCAR, that does not necessarily imply the end of stress testing. DFAST is a mandate for stress testing that occurs separately. Banks do their own stress testing. So I do think it is duplicative. Mr. Chairman, if I could just make one quick closing comment? That is, as we all know, we have had a de facto Acting Vice Chair of Supervision who never went through the nomination or the con- firmation process but, nevertheless, exercised the powers of that position. It is my hope that the President will soon be able to nomi- nate individuals to complete the Board of Governors, including a Vice Chair for Supervision who will go through the process, who will be vetted and confirmed by the Committee. And until such time, I hope the Fed will refrain from issuing major new regula- tions which I think really ought to benefit from the input of these new people. Thank you. Chairman CRAPO. [Presiding.] Thank you. Before I go to Senator Rounds, Senator Shelby had one quick question he wanted to ask. Senator SHELBY. I will try to be quick. We have not talked about this, Madam Chair, but the current account, our trade imbalance, would you share with us—and, of course, you are sharing this with the American people—the long-term danger of an imbalance in trade that we have been running for years and years as opposed to short-term and so forth? And where are we—you were an eco- nomics professor, but we were taught that is not a good thing in the long run. Ms. YELLEN. So we have a current account deficit that is—— Senator SHELBY. Tell the people what that is. Most people here know, but you have a nationwide audience here this morning. Ms. YELLEN. It is the difference between the amount that we spend on goods and services that we import from abroad—— Senator SHELBY. Import versus export, is it not? Ms. YELLEN. Correct, of goods and services. So we do have a cur- rent account deficit. It has increased in size, and ultimately it leads to a buildup of our indebtedness to foreigners. And so it can be a long-term concern if it is not on a sustainable course. Senator SHELBY. What is it roughly now? Ms. YELLEN. I believe it is—— Senator SHELBY. Roughly. You can furnish the exact figure for the record if you do not have it. Ms. YELLEN. I believe that in 2016 it amounted to about 2.6 per- cent of GDP. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 22 Senator SHELBY. And in dollars, what would that be, roughly? Ms. YELLEN. At about close to $500 billion is the deficit, a little bit below that. Senator SHELBY. That is in 1 year, right? Ms. YELLEN. Correct. Senator SHELBY. What is our total indebtedness? Ms. YELLEN. I do not have that figure at my—— Senator SHELBY. Would you furnish that for the record? Ms. YELLEN. Yes. I mean, we have had deficits for some time, so substantially—— Senator SHELBY. Would that be in the trillions? Ms. YELLEN. Yes. I would be happy to furnish you with that fig- ure. Senator SHELBY. Would you call that a troubling thing long term? Ms. YELLEN. It depends on what the long-term trend is. It also depends on what we earn on our foreign investments versus—— Senator SHELBY. Absolutely. Ms. YELLEN.——what we pay, and historically we have earned more on our assets that we hold abroad than we have paid to for- eigners who hold our assets. But the trend there is important. Senator SHELBY. When was the last time that we had a sur- plus—small, I am sure—in our current account, roughly? Ms. YELLEN. I am not sure. Senator SHELBY. Will you furnish that for the record? Ms. YELLEN. Certainly. Senator SHELBY. Has it been a number of years? Ms. YELLEN. It has been. Senator SHELBY. OK. Thank you, Mr. Chairman. Chairman CRAPO. Thank you, Senator. Senator Rounds. Senator ROUNDS. Thank you, Mr. Chairman. Madam Chairman, first of all, thanks for being here today. You have a difficult position, and you have a very important position, and I look forward to working with you in promoting sound eco- nomic policy in our country. As I am sure you are probably aware, the Ag sector of our econ- omy is suffering. The Wall Street Journal recently pointed out that soon there will be fewer than 2 million farms in America for the first time since the Louisiana Purchase. We are rapidly approach- ing a crisis in the Ag sector. Commodity prices have been sinking. The Ag Department estimated that those who are still able to farm will see their incomes drop by nearly 10 percent in 2017, and the strength of the dollar is making it harder for American farmers to compete abroad. Our Nation’s farmers are being left behind. My question to you is: Recognizing that they need compromise to capital and need access to literally being able to borrow money and during a time in which we have made it a little bit more difficult to borrow money, a lot of these folks are now seeing an end in which they—because they work in an industry which is seasonal and depends upon the weather, some years they make it, some years they do not. Is there something that—could you just suggest to us, number one, what you see in terms of economic headwinds for our Ag economy and what we as policymakers should be VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 23 focusing on if we want to help them make it through this next cou- ple of years? Colorado right now is setting up an emergency hotline for suicides for the farming and ranching communities. This is not something that is going to go away quickly, and clearly it is gath- ering momentum. Could you just talk to us in terms of what you see things that we can do to perhaps take some of the burden off of these farming families? Ms. YELLEN. So I cannot give you recommendations for what Congress should do to address the Ag issues. We are focusing on the fact that there is pressure on commodity prices and particu- larly on food prices after a number of years in which conditions were really very strong and land prices were pushed up. So in some cases, we are seeing increases in delinquency rates on loans. And certainly weak growth in the global economy coupled by a dollar that began to appreciate substantially around mid-2014 has pres- sured farmers and is putting pressure on agriculture as you indicated. Senator ROUNDS. I think more specifically farming moves from year to year. You can have a drought. You can have excessive mois- ture sometimes. And not every single year you are going to be con- sistently successful in your endeavor. Would it be fair to say, though, that with regard to our financial institutions and their ability to either loan or continue to carry debt, should there not be some understanding within the policy at the Federal level that the ability to survive not just a 12-month cycle but perhaps a 24-month cycle or a 36-month cycle, it would seem that that would be an ap- propriate policy to at least continue to explore? Would you see some value in that? Ms. YELLEN. Honestly, this is something that really is up to Con- gress to consider and to look into. You know, it is not something that the Federal Reserve has the ability to mandate. Senator ROUNDS. But the financial institutions, which are the source of that ability to borrow money—and during a year in which you have a bad year for crops or perhaps commodity prices even in a good year with yields may be down for a while, but in a cycli- cal manner, it seems rather illogical simply to base the ability to borrow money from a financial institution on a 12-month cycle, which seems to be what we do when we talk about balance sheets and so forth from one year to the next, should an operating loan be extended and so forth. What I am asking, I guess, is: Wouldn’t it make some economic sense to be able to allow this segment of the economy perhaps a different cycle to be considered in without having their loans being considered nonperforming assets in the auditing of those financial institutions that really do want to continue on and carry credit for- ward for more than a 1-year period or a short-term period of time? Ms. YELLEN. You know, it is something that we can look at, but, you know, I think financial institutions are trying to engage in safe and sound lending and want to be careful to protect themselves from losses. Senator ROUNDS. Thank you, Madam Chair. Thank you, Mr. Chairman. Chairman CRAPO. Thank you, Senator. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 24 Senator Cotton. Senator COTTON. Thank you, Mr. Chair, and thank you, Madam Chair, for appearing before us once again. I would like to discuss with you today wage growth, or maybe I should put it better, lack of wage growth. The Federal Reserve tracks wage growth as a measure of economic progress and infla- tion. Over the past 8 years, wage growth has been largely stag- nant, although fortunately we have seen a few positive trends in the last few months. But I also want to look back beyond just the last few years, start- ing in the 1970s, and I think we have a graphic that will display this. Wages for workers with college degrees have increased while wages for workers without college degrees have declined. For work- ers with less than a college degree, wages have declined by 17 per- cent, all in inflation-adjusted terms. Could you comment on what is driving the recent wage growth but also what is behind this phenomenon we see on the chart be- hind me? Ms. YELLEN. Well, over long periods of time, the general average nationwide trend in wage growth depends on productivity growth. And in recent years, productivity growth has been relatively de- pressed in comparison, say, with the very long period from, say, 1949 to 2005, productivity growth was probably a percentage point or so higher than it has been subsequently. For different groups in the economy, as your chart focuses on, changes in wage growth de- pend on structural trends in the labor market and in the economy. And what we have seen importantly because of technological change that has raised the return to skill, raised the demand for skilled workers, and raised the rewards to people who are able to use technology, I think coupled with globalization that has made it easier to offshore or outsource jobs that involve routine work that can be done elsewhere or is subject to technological change. We have seen different trends for much faster wage growth for higher- skilled individuals and much slower wage growth for those who are less skilled. The gap between the earnings of college-educated and high school-educated or less individuals continues to grow, and this has been a major source of the trends that you are describing in your chart. Senator COTTON. We have seen some improvement in recent months. Do you care to venture an assessment of why we are see- ing that? Ms. YELLEN. So the labor market is pretty tight, and wage growth has picked up somewhat. For example, average hourly earnings were up 21⁄ 2 percent in the 12 months ending in January, and that would compare with around 2 percent from 2011 to 2015. Some other measures are rising somewhat faster. There is not a dramatic increase in wage growth in recent years. There is some evidence of a pickup, but not dramatic. In part, I think you are see- ing a reflection of a healthy labor market, tight labor market condi- tions, but the fact that it remains so low is also related to weak productivity growth in the U.S. economy. Senator COTTON. And what has been contributing to a tighter labor market? VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 25 Ms. YELLEN. Well, you know, we are trying to do our job, and we have put in place conditions intended to lower the unemployment rate, improve labor market conditions. You have seen the unem- ployment rate come down. The pace of job growth really is strong and exceeds what is probably sustainable in the longer run, and the labor market has continued in a general sense to improve, al- though clearly the gains are not evenly distributed among different segments of the population. Senator COTTON. If the labor market were to continue to tighten through both more economic growth but also, say, through a grad- ual reduction in the number of unskilled and low-skilled immi- grants or guest workers that we are bringing into our country, would we see continued wage growth in particular for those with a high school degree or less? Ms. YELLEN. So I am not certain. I expect the labor market to continue to improve somewhat further. We have to be careful not to allow conditions to become so tight that we push inflation above our 2-percent objective, and we will be attentive to that. But I do expect somewhat stronger labor conditions—— Senator COTTON. Is that a serious risk at the time when the workforce participation rate is still at a relatively elevated level? Ms. YELLEN. So the workforce participation rate has been trending down. Senator COTTON. But historically it is still high? Ms. YELLEN. It is relatively high, but it is over time going to be trending down. And immigration has been an important source of labor force growth, so that would be reduced if immigration were to diminish. Senator COTTON. Thank you. Chairman CRAPO. Senator Warren. Senator WARREN. Thank you, Mr. Chairman. And it is good to see you again, Chair Yellen. So the 2008 financial crisis cost millions of people their jobs, their homes, and their savings. And in response, Congress passed the bipartisan Dodd-Frank Act which aimed to prevent big banks from blowing up the economy again. Now, President Trump has called Dodd-Frank Act a ‘‘disaster,’’ and he has vowed to ‘‘dismantle’’ it. He started down that road 2 weeks ago when he issued an Executive order on financial regula- tion, and he has put two men, Steve Mnuchin and Gary Cohn, who have spent a combined 42 years at Goldman Sachs, in charge of rewriting the rules to help big banks like Goldman. Chair Yellen, I know you and the Fed spend an enormous amount of time looking at actual data about the economy and fi- nancial markets, so I want to follow up on Senator Brown’s ques- tions and get your take on some of the Administration’s main rea- sons for calling Dodd-Frank a ‘‘disaster.’’ When he unveiled his Executive order, President Trump said he hoped to ‘‘cut a lot out of Dodd-Frank Act’’ because ‘‘friends of mine that have nice businesses cannot borrow money.’’ Now, I am aware of the small business survey that you cited ear- lier, but I want to look at the bigger range of data. What do the data show about business lending since Dodd-Frank was enacted in 2010? VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 26 Ms. YELLEN. Well, C&I lending, at this point it has grown, and it exceeds—after declining, it exceeds its 2008 peak on an inflation- adjusted basis. The same is true for total loans held by commercial banks. Since the end of 2010, total C&I loans outstanding have grown over 75 percent. Senator WARREN. Wow. Ms. YELLEN. And in the most recent period for which we have data, the recent 12-month period, C&I loans grew over 7 percent, and small C&I loans, which are usually sort of small business re- lated, grew almost 4 percent. So we have seen healthy growth in actual lending in the economy. The survey that I mentioned to Sen- ator Brown, I believe over half of small businesses indicated that they absolutely did not need to lend and had no desire for credit for a variety of reasons. Senator WARREN. You mean did not need to borrow? Ms. YELLEN. Did not need to borrow at all, including slow growth in the economy. Senator WARREN. Thank you very much. Very impressive. So the data do not back the President up here. Another claim, this from President Trump’s Economic Adviser, Gary Cohn, is that banks have been ‘‘forced to hoard capital’’ and have ‘‘been forced to literally build capital and build capital, in- stead of lending capital to their clients.’’ Now, Chair Yellen, when regulators impose a capital require- ment on a bank, does that requirement prevent the bank from lending out that capital? Or, in other words, is a capital require- ment a reserve requirement? Can banks do whatever they want with that capital, including lending it? Ms. YELLEN. It is not a requirement that they take money and stick it in a safe where it cannot be used. It is a requirement that they finance the lending that they want to do with a certain amount of capital and not only with debt. So the capital is used to make loans. Senator WARREN. Good. So the President’s Chief Economic Ad- viser is wrong about that pretty basic fact. Let us look at another statement by Mr. Cohn. He said, ‘‘We have the best, most highly capitalized banks in the world, and we should use that to our competitive advantage.’’ But on the flip side, we also have the most highly regulated, overburdened banks in the world. That sounds an awful lot like a contradiction to me. Either our banks have a competitive advantage because the world knows that we carefully regulate our banks, or our banks have a competi- tive disadvantage because of those requirements. So, Chair Yellen, which one is it? How have our banks done in comparison to their foreign competitors since we put our new rules in place? Ms. YELLEN. So I do not have all the numbers at my fingertips, but I believe that our banks are more profitable. As I mentioned, they have higher market values relative to their book values, and they are capturing market share, for example, from European banks. So I guess I see well-capitalized banks that are regarded as safe, sound, and strong as conferring a competitive advantage on those banks in competing for business. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 27 Senator WARREN. Competitive advantage, taking away clients from other banks. In fact, our banks have thrived since we passed Dodd-Frank. Both big banks and community banks are making lit- erally record profits. Mr. Chairman, I would like to submit for the record the most re- cent quarterly report from the FDIC to show that banks of all sizes are more profitable than ever, as well as this Wall Street Journal article from November entitled ‘‘U.S. Banks Report Record Profit in the Third Quarter.’’ May I do that? Chairman CRAPO. Without objection. Senator WARREN. Thank you, Mr. Chair. Senator WARREN. Look, on any issue, but especially on some- thing as important as the rules in place to stop another financial crisis, we need to start with facts—real facts, not those alternative facts that the Administration has become known for—and the facts show that Donald Trump is wrong and his Chief Economic Adviser is wrong about every major reason that they have given to tear up Dodd-Frank. Commercial and consumer lending is robust, bank profits are at record levels, and our banks are blowing away their global competitors. So why go after banking regulations? The President and the team of Goldman Sachs bankers that he has put in charge of the economy want to scrap the rules so they can go back to the good old days when bankers could take huge risks and get huge bonuses if they got lucky, knowing that they could get taxpayer bailouts if their bets did not pay off. We did this kind of regulation before, and it resulted in the worst financial crisis since the Great Depression. We cannot afford to go down this road again. Thank you, Chair Yellen. Thank you, Mr. Chairman. Chairman CRAPO. Senator Scott. Senator SCOTT. Thank you, Mr. Chairman, and thank you, Chair Yellen, for being here this morning. I guess about a month ago you had a Teacher Town Hall meeting with postsecondary economic educators, and you had a question about Dodd-Frank as it relates to repealing it or changing it, and part of your answer was, ‘‘Community banks feel the burden of reg- ulation is very great,’’ and ‘‘I really feel strongly that we should be looking for ways to mitigate the regulatory burden,’’ and we are looking for ways, ‘‘particularly for smaller institutions’’ to mitigate that burden. ‘‘There could be modifications to Dodd-Frank that could succeed in reducing regulatory burden for smaller institu- tions,’’ to quote you. I would love to hear your thoughts and your recommendations on ways to mitigate that regulatory burden for small banks, specifi- cally small banks in places like South Carolina and other States. Ms. YELLEN. So, yes, let me reiterate what I said there. It is im- portant to look for every way we can to mitigate the regulatory burden. What we have suggested previously and I would reiterate with respect to Dodd-Frank is that Congress might want to con- sider exempting community banks from the Volcker rule and some of the incentive compensation provisions that apply to them, and those would be examples. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 28 There is quite a bit we see being able to do ourselves, and we have taken steps to extend the exam cycle for well-managed and well-capitalized banks. We are reducing the duration of our onsite loan reviews. We have heard from community bankers that when big teams of examiners come in and stay in the bank premises for a long time, it can be quite disruptive, and so we are doing much more work offsite. We are trying to reduce our documentation re- quests and tailor them to areas that we think are high risk that we want to examine. We do a lot to—many of the regulations that we put out apply to the largest banking organizations and not to community banks, and so we try to make clear to community banks this new reg, this just does not even apply to you, you do not have to worry about that. We try and make clear what does apply to community banks and what portions of our regulations do not apply to community banks. We are trying to reduce the frequency of our consumer com- pliance exams for banks that are well managed and low risk. So those are some of the things we are doing. We are attempting through our EGPRA review with the other banking regulators to identify provisions that can reduce burden. We have reduced—we have put out provisions that reduce the amount of information that we require on our call reports—— Senator SCOTT. Thank you, Ms. YELLEN.——and many other things. Senator SCOTT. Thank you very much. I look forward to seeing some of that in writing so that we can—— Ms. YELLEN. Sure. Senator SCOTT.——fuse it all together. Earlier you noted that there was a 1-percent drop in the unemployment rate of African Americans, which, of course, is a positive sign. I think that there is certainly a correlation between educational achievement and un- employment rates. Whether you live in Cleveland, Ohio, or Detroit, Michigan, black unemployment without a high school diploma is at least twice as high as any other demographic with the same level of education. What do you think drives the disparity? And what ef- fects have your policies had on that specific demographic? Ms. YELLEN. So African Americans generally have unemployment rates and labor market experience that is more cyclical. In downturns, they tend to be very badly affected, and in a strong up- turn, their gains, they are basically regaining ground that they lost, and so we can see stronger gains. So, for example, just over the last year, whereas the white unem- ployment rate remained stable at 4.3 percent, the African Amer- ican rate dropped from 8.8 to 7.7. But, again, as you pointed out, that is a much higher rate, and the same is true at all education levels. So unemployment rates at lower education levels are much higher than those at higher education levels. For example, those with at least college had an unemployment rate of 2.5 percent in January; those with less than high school, 7.7 percent. Senator SCOTT. Yes. Ms. YELLEN. And, again, African Americans tend to have worse experience. Senator SCOTT. One of my concerns is, certainly, if you look at the 15.8 percent for African Americans without a high school VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 29 degree versus the 7.8 percent or the overall 8 percent for all demo- graphics versus the unemployment rate of 2.4 percent or 4.4 per- cent for an African American versus white folks who have the college level of education, my concern long term is that as we ex- amine the labor force participation rate, we know it is down to 62.8 percent or so, so the real unemployment when you add all the num- bers together, according to the U6, is around 9.2, 9.3 percent. Our entire financial system is still wired around a defined benefits plat- form. So your lower labor force participation rates means that it is incredible difficult for us to meet the obligations from Social Secu- rity to Medicare. So long term, if the growth in our economy from a people perspective or African Americans and Hispanics who are participating and having more kids in this Nation, the reality of it is that if 30 percent, 20 percent unemployment is persistent, 16 to 20, it foreshadows a very difficult future for this Nation to meet our obligations. Ms. YELLEN. I agree with you, and I think it is appropriate for Congress to focus on policies that might mitigate the trends that we have discussed. Clearly, education and training, workforce de- velopment are part of that, but other things might be as well. Senator SCOTT. Thank you. Chairman CRAPO. Thank you. Senator Heitkamp. Senator HEITKAMP. Thank you, Mr. Chairman, and thank you, Chair Yellen. It is great to see you again. I want to associate myself with the remarks of Senator Scott, but I also want at least some consideration for the underemployment and unemployment of Native American citizens. I think where you will look at those numbers, I will tell you they are even worse in Indian country because of the isolation of the geography and addi- tional education challenges. So I think we—I always want to point out that we cannot leave our Native American citizens behind. I also want to associate with the remarks on small community banks, but I do not want to spend all of my time talking about it because it gets eaten up pretty quickly. So mostly what I use my time for is to say: What is on the horizon? What are the challenges that we are going to have? We know that retirement security is a huge future burden in this country, but I want to focus on automa- tion and what automation will mean for employment, especially employment in the categories that Senator Scott was talking about. In a 2015 speech, the chief economist of the Bank of England ref- erenced a startling statistic that 47 percent of all U.S. jobs are like- ly to be replaced by technology over the next 10 to 15 years, and that would be more than 80 million all together. Obviously, we see this from automation in trucks; we see this from retail moving to online retail. So I am curious what steps the Fed has taken to study the issue of automation and the impact on the North Dakota economy and the U.S. economy moving forward. And I know you always say better training but, obviously, a lot of concern on how we implement that and how we move forward. So, automation. Ms. YELLEN. So we know that automation and technological change more generally has had very important effects on our econ- omy over many decades, and, you know, we are not seers of the VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 30 future that know exactly where it is going, but certainly there are dramatic accounts of changes that are on the horizon that could have profound effects on the labor market and on productivity growth. Senator HEITKAMP. Do you think we are paying enough attention to this issue? I mean, you know, obviously, during the campaign a lot of talk about trade and the displacement that globalization has played. A lot less talk about automation, which I think has been a larger driver of displacement. So how do we get the public’s attention to this? How do we get the educators’ attention to this? And how do we change the labor market and the skill sets that we need to change so that eventually we end up with employment in our country? Ms. YELLEN. So, generally, automation and technological change more broadly has been a source of growth in incomes for America generally, but it has created huge disadvantages for those with less education and often for those in manufacturing in other areas that have seen outsourcing or affected by both automation and globalization. And I think we need to think about ways to address the needs of those workers because they have seen chronic, long- standing downward pressure on their wages and income that are making it very hard for them to cope. Senator HEITKAMP. Yeah, I think one thing that gets lost in this is when we talk about those workers, really talking about people in their 40s and 50s, they are less concerned about their livelihood than the opportunity that their children are going to have. And so I think we need to be having a major discussion about what the job of the future looks like, what the job market of the future looks like. I want to get in one more question, and this is about the lack of prosecutions after 2008 and what we can do about it to hold peo- ple more accountable. New York Fed President Bill Dudley put for- ward an interesting idea by requiring firms to adopt a so-called performance bond as a large portion of executive and senior man- agement compensation. Under his proposal, any fines or penalties incurred by the firm would be paid directly by performance bonds, which would incentivize senior leaders to design and implement systemic changes to improve the firm’s culture. What is your view on the current incentive-based pay on Wall Street? Do you think firms rely too much on equity-based com- pensation? And what are the risks with the Dudley model? Ms. YELLEN. So I think that that was an important factor in the financial crisis, in inappropriate incentive schemes, and we have worked in our own supervision to insist that firms put in place compensation schemes that do not lead to inappropriate risk tak- ing. They may include longer periods of deferral or clawback or for- feiture provisions if an individual who takes risk on behalf of the firm, if there are losses that are suffered. But I think it is impor- tant to strengthen incentive compensation practices. Senator HEITKAMP. One of the concerns that I have—and, you know, I am not a big believer always that enforcement is a strong deterrent, especially if someone is addicted, but I do believe that enforcement is a strong deterrent in white-collar crime, and I think there is way too often the sense that if I did not know about it, VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 31 I am not culpable. And so I think in order to really respond to peo- ple’s concerns about Wall Street and what is happening, we need to have a better system of not only civil enforcement but criminal enforcement. And so I will be looking at this in this Congress and am very interested in feedback from the Fed and from other regu- latory agencies, because I think without that ability to prosecute, you know, a $1 million fine may shock a factory worker in Cleve- land. It is not going to shock a Wall Street banker. And so we need to do a better job holding people accountable. Chairman CRAPO. Senator Tillis. Senator TILLIS. Thank you, Mr. Chair. Welcome, Madam Chair. I have a couple of questions. One relates back to a discussion earlier by some of the Members about, I think, a discussion around dispelling the myth that banks are not lending. I do not agree with that. I think that there are—we are comparing probably not the right data sets, so that people are absolutely valid in assuming that based on the data they are using. There is a fair amount of academic data that says increased capital requirements do have a negative effect on loan underwriting. And I will not debate the aca- demics, but I think there is a fair amount of information out there. I think that what we see, particularly among households, house- hold lending, and small business loans, it tends to have a down- ward trend. You referenced, I think, a survey by the NFIB that said all but 4 percent of the people contacted were getting the loans they want- ed. I am trying to square that with research that shows a substan- tial decrease in the amount of loans pre-crisis versus post crisis, and I am not going to talk about household loans or mortgages. We know why there is a lower number there, because they should not have been underwritten pre-crisis. But with the business loans, that is a different—I think that that is a different consideration, and I think that I am seeing a number here that says that the av- erage growth rate post—2011 and beyond, so after Dodd-Frank re- forms, that we are at about a 4 percent per annum for large banks, about 7 percent per annum for small banks. And that is somewhere around maybe 60 percent of pre-crisis for, again, business loans. So is it possible that the reason why 4 percent of the people would say—only 4 percent would say they are not getting the loans they wanted is because far fewer people are asking for loans, in- vesting, and creating businesses? Ms. YELLEN. I think that is true, and we have had a slowly grow- ing economy, and many small businesses say their sales growth does not justify significant expansion plans that would make it de- sirable to borrow. They are not looking to borrow. Senator TILLIS. So it is—— Ms. YELLEN. I mean—— Senator TILLIS. To me, though, Madam Chair, isn’t it problematic to have people leave this meeting thinking that all the small busi- nesses that have business plans they think that they should move forward with to create jobs and take risk, to make us think that this is a phenomenon that only affects about 4 percent of all small businesses, that everybody else is getting the loans? I think that there is a pent-up demand out there, and please finish your thought. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 32 Ms. YELLEN. Well, I was going to say that sometimes small busi- ness loans are underwritten by banks in a way that is similar to credit card or home equity loans, and small businesses may borrow against home equity lines of credit. So one thing that may be hap- pening to some small businesses is that because there was a sub- stantial reduction especially in some areas of the country in resi- dential property values, their ability to finance business loans in that way—— Senator TILLIS. So in your professional opinion, do you think that the universe of potential small businesses that could be created are businesses that exist that want to expand, that they have unfet- tered access to capital given the current environment? Ms. YELLEN. Well, businesses that want to start up always need equity capital, and that can be quite difficult. Senator TILLIS. Do you think that when we are in an environ- ment—now, I hear this at a community bank that I have exited any investments in since I have come on to the Banking Com- mittee, but I speak with them and they say that the personal rela- tionships that they had in the past, where they could get a loan, underwrite it, were pivotal to them being able to get a loan. Now they feel like they have to go in—and, of course, if you have rough- ly the same amount of assets that you can secure the loan, then you can get a loan. But there are a lot stricter requirements that have a chilling effect on small business lending in the Nation. Do you agree with that? Ms. YELLEN. So, you know, certainly our objective is to encourage banks to lend, safe and sound lending and not be caught up in bu- reaucratic obstacles. Senator TILLIS. I think what we have here—and I do want to ask another question, Mr. Chair. I will go as quickly as possible, and I apologize to Senator Kennedy, but I do want to touch on a second subject. But I think we are talking out of both sides of our mouth in Washington. And I am not criticizing you for it, but when I take a look at the movement of capital, on the one hand we say, of course, banks can lend to anybody. On the other hand, on any given day we could have five or six regulators in there saying you better not lend based on outside of these very narrow parameters because of what I consider to be overreaches in enforcement. And so to me, letting a comment stand that banks are lending to any commerce is not—and you did not say that. It was a suppo- sition by a couple of the Members here on the Committee. I think it is just absolutely defiant what I am seeing in the small business community and the community banks, particularly the community banks but big banks in North Carolina, which leads me to my last question. The pre-crisis—and, incidentally, I think there were very impor- tant reforms that had to be implemented with Dodd-Frank. I just think what happened is you have a bill that is this big—that is this big—that expands into a regulatory framework that was enabled under Dodd-Frank that is that big. And, in particular, in North Carolina we had a very thriving financial services ecosystem pre-crisis. We had over 100 community banks. We have a couple regional banks in North Carolina and a couple of relatively big banks down in Charlotte where I live. Now we have seen a VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 33 substantial decline in the community banks in North Carolina, and I think that is a national trend. You know the numbers as well as I do. And since Dodd-Frank regulations have been implemented, we have had two de novo banks chartered. One is on an Indian res- ervation. The other one I think is primarily focused on serving the Amish community. So we have completely destroyed the lower foundations of the banking ecosystem, in my opinion, because it has to be—because the inflection point was after Dodd-Frank was implemented and CFPB and all the regulatory agencies started, I think, extending their reach. Do you believe that that is an area we need to be concerned with? You did say, I think, in response to one of the questions that the community banks probably do need some relief. You mentioned the Volcker rule. But can you talk a little bit more about that. Mr. Chair, I am sorry for going over my time. Ms. YELLEN. So I think community banks—I agree with some of the trends you just described. I think they have been under pres- sure. You had many years of a weak economy, very low interest rates, and pressure on net margins and compliance costs. I agree that it is very important for us to look for ways to relieve burden, and I am committed, the Federal Reserve is committed to doing ev- erything that we can to mitigate the burdens on these institutions. They play a very important role, as you have indicated, in the econ- omy and so many communities in supporting lending. Chairman CRAPO. Senator Schatz. Senator SCHATZ. Thank you, Mr. Chairman. Thank you, Chair Yellen, for your public service, and also thank you for enduring quite a long hearing and accommodating all of our questions. Before we get going on my questions, I want to echo the senti- ments of my colleagues in terms of what Dodd-Frank has done for the economy and for the stability of our financial system. It has, in fact, strengthened our economy, and undermining Dodd-Frank is not, in my view, the correct course of action. I wanted to ask you, Chair Yellen, about climate change. It is af- fecting our economy in a number of ways, such as prolonged droughts that reduce agriculture yields, coastal flooding, increased severity of storms, and the unpredictability of weather forecasts on which many of our industries depend. In 2016, NOAA reported 15 separate billion-dollar climate events. Combined, these events cost the economy over $200 billion. And lest we think this is an aberration, it is important to remem- ber that the number and the cost of these events has doubled over the last decade and has increased eightfold over the last 30 years. And so climate change events are taking a toll on our economy, and they are expected to become more and more intense going forward. And so my question for you is: To what extent does the Fed take into account the impacts of climate change in assessing our na- tional economic outlook and future economic risks? Ms. YELLEN. So in monetary policymaking, our focus is on trying to achieve a strong labor market and price stability, and our forecasts usually go out a few years, but not over the decades in which climate change plays a role in changing—— Senator SCHATZ. Well, let me—— VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 34 Ms. YELLEN.——affecting the economic outlook, and sometimes a hurricane or a drought can have—some of which may be related to climate change, but also other factors may have a significant eco- nomic impact that we take into account that may result in a period of weakness or movements in GDP that we see. But there is not very much that we can do in incorporating that into our forecasts. Senator SCHATZ. Well, I would like to disagree here, and I under- stand that there is going to be a reticence to enter into anything that may be either political or unknowable or too long term for it to be meaningful in terms of your analysis. But that is actually not the case anymore when it comes to what is happening in terms of climate change. You know, the billion-dollar event is a threshold for financial markets, for insurance, for NOAA, for the National Weather Service. And we are not talking about 15 years from now there may be a higher frequency of severe weather events and they may be more severe. We are talking about over the last 4 or 5 years we can actually measure this trajectory. So there is not a lot of debate in the scientific community—and you are all data-driven people—about what is happening. So actually in the private sector, in financial markets, especially in insurance companies, they are responding—the Department of Defense is responding to the reality of climate change and not in terms of a 10-, 20-, 30-year time hori- zon, but in terms of planning for, you know, Q3, Q4 2018. And so I would just offer to you that I think that analysis and that desire to stay on that which is knowable and that which is not in dispute is a good instinct. But we are now at a point where we know what is happening to the climate, and it is having material impacts on the economy now. Would you care to comment? Ms. YELLEN. So, you know, various international fora I think are looking into the economic aspects of climate change, for example, that could affect financial stability, the exposures of financial orga- nizations. And I think that is appropriate. We recognize that risk events or severe weather or climate changes could have effects on the financial system. Our general ap- proach since the financial crisis has been to try to build resilience among banking and financial organizations so they are well posi- tioned to deal with risk events. And so, I mean, those are a couple of reactions. Senator SCHATZ. I appreciate what you are doing here, and I un- derstand the difficulty of addressing something, but I would just like for you to consider the following proposition, which is just because we do not know the extent of the risk does not mean we should book it at zero. It is not zero. It is now material. It is also no longer 5, 10, 15 years from now. It is happening to us now. And you may need another couple of quarters of unfortunate events to be able to kind of assimilate that into your decisionmaking process. But at some point the Fed is going to have to recognize that cli- mate change is real, and it is not merely an ecological issue or po- litical issue but an economic one. And I thank you for your indul- gence on this issue you may not have expected to talk about this morning. Thank you. Ms. YELLEN. Thank you. Chairman CRAPO. Thank you. Senator Heller. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 35 Senator HELLER. Mr. Chairman, thank you, and thanks for hold- ing this hearing. Dr. Yellen, thank you for being here. I appreciate your time and coming through and following through on some of these questions. And I have not been here for the whole hearing, and I apologize for that also. So I will just ask the question: Did you make a comment as to whether or not interest rates are going to rise in March? Ms. YELLEN. I indicated that in our upcoming meetings we will try to evaluate whether or not the economy is progressing, namely, labor market conditions and inflation, in line with our expectations. And if we find that they are, it probably will be appropriate to raise interest rates further. We have indicated that we think a gradual path of rate increases is likely to be appropriate if the economy continues on its current course. Senator HELLER. Is that the same answer for an interest rate in- crease for June? Same answer? Because I think those are the two most important questions that are going to come out of this hearing right now as to how you answer that particular question. Ms. YELLEN. So my colleagues and I, in writing down our eco- nomic projections, we last did that in September, and, of course, the economic outlook is uncertain, and it may change. But given our expectations at that time, most of us concluded that a few in- terest rate increases would be appropriate this year. The median was three at that time. And that means—we have eight meetings a year, and it means that at some meetings we would, if things re- main on course, increase our target for the Federal funds rate and not act at others. And precisely when we would take an action, whether it is March or May or June, I think—I know people are focused on that. I cannot tell exactly—— Senator HELLER. They are. They are. Just so you know, they are. Ms. YELLEN.——which meeting it would be. I would say that every meeting is live and we—— Senator HELLER. And I would anticipate that the—or argue that the markets are anticipating rate increases and individuals are also. Would you agree with that? Ms. YELLEN. I am sorry. That they are? Senator HELLER. That they are anticipating rate increases this year. Ms. YELLEN. Well, it is our expectation that rate increases this year will be appropriate. Senator HELLER. OK. Let me tell you why I am asking the ques- tion. We have average sale prices of houses in southern Nevada right now of around $280,000. So I will shift over to housing mar- kets for a minute. So $280,000, and at the peak they were selling for $315,000. So you can still see that some of these homes are still underwater, and we are a long way away from a full recovery in the housing markets in the State of Nevada. So as the housing markets continue to struggle, how does this impact your thoughts on future interest rate hikes? Ms. YELLEN. So housing has been recovering nationally, but at a very slow pace. And we recognize that higher interest rates can have a restraining impact on the recovery in housing. House prices have been moving up. So it is one of many factors that bear on our VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 36 thinking about the appropriate path of interest rates. But remem- ber that employment growth is strong; consumers are doing well. That is an important support for housing, as well as the fact that there is so much potential for an increase in homeownership. So I expect housing to continue recovering, but overall we need to take account of all the different forces that affect job growth and inflation in the economy, and everything put together, we think that some removal of accommodation is likely to be appropriate. Senator HELLER. OK. How important is a fiscal stimulus to the next interest rate hike? Ms. YELLEN. So we do not know what fiscal plans Congress and the Administration will decide on. We are not basing our judg- ments about current interest rates on speculation about that. The economy has been making solid progress toward achieving our ob- jectives. The unemployment rate is close to levels we regard as sus- tainable in the longer run. Inflation has moved up, and it is those trends that are driving our policy decisions and not speculation about fiscal policy. Also, remember there are many factors that affect the economy. Fiscal policy may matter, but it is only one of many things we need to consider. Senator HELLER. Let me ask you this question on a fiscal stim- ulus. What is better, a tax hike or spending cuts, in your opinion? Ms. YELLEN. I think this is squarely in your domain to prioritize and decide on. Senator HELLER. All right. Let me ask you this question: Is it better to cut corporate income taxes or personal income taxes? Ms. YELLEN. Again, this is a decision that Congress needs to make, and it is outside of our purview. Senator HELLER. Do you support a border tax or do you not? Ms. YELLEN. I am not going to tell you that either. [Laughter.] Senator HELLER. I am trying. I am trying here. Mr. Chairman, thank you. Chairman CRAPO. Thank you. Senator Cortez Masto. Senator CORTEZ MASTO. Thank you. Chair Yellen, nice to meet you. Ms. YELLEN. Nice to meet you. Senator CORTEZ MASTO. I am the new Senator from Nevada, and thank you for taking the time with us today. Ms. YELLEN. Thank you. Senator CORTEZ MASTO. So let me just ask you, because I am new to the Committee, and keeping on with fiscal policy, some would say that the resulting Budget Control Act of 2011 signifi- cantly depressed discretionary spending and in turn significantly slowed the pace of the recovery of our economy. Would you agree with that? Ms. YELLEN. Well, I would say that the data suggests that the support that fiscal policy provided during the period of recovery overall, both Federal and State, was substantially lower than would be typical—would have been typical historically in an expan- sionary period. During the downturn, there was quite a lot of sup- port, but as the recovery proceeded until the last several years, VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 37 fiscal policy overall was relatively tight in comparison with past historical periods. Senator CORTEZ MASTO. Thank you. There are a lot of benefits to immigration in America. Our diversity is our strength, and the range of perspectives and cultures we have in this country are es- sential for innovation, competitiveness, and global leadership. Moreover—and I have said this time and again—immigration is important for our economic growth. We have proof that it contrib- utes to our GDP and our economy. And there is a report out there from the National Academies of Sciences, Engineering, and Medi- cine that, in fact, revealed many important benefits of immigration, including on economic growth, innovation, and entrepreneurship. And those benefits came with little-to-no negative effects on the overall wages or employment of native-born workers in the long term. And the report also found that children of immigrants on average go on to be the most positive fiscal contributors in the population. But despite this and immigration’s importance, we are hearing information coming from the White House and particularly Presi- dent Trump’s January 29th Executive order dramatically expand- ing the interior immigration enforcement and places an estimated 8 million undocumented immigrants at risk for deportation, includ- ing families and long-time residents. The order has the effect of making every undocumented immi- grant in the U.S. a priority for removal and directs the Department of Homeland Security to hire what is essentially a deportation force. Chair Yellen, in your view as a noted labor economist, what im- pact would that have on our growth in competitiveness as a Nation if we continue down the path of President Trump’s massively ex- panding immigration? And along with that, what would be the con- sequences for our labor market and the price of goods and services? Ms. YELLEN. So I am not going to comment in detail on immigra- tion policy. I think that is for Congress and the Administration to decide. But I would say that labor force growth has been slowing in the United States. It is one of several reasons, along with slow productivity growth, for the fact that our economy has been grow- ing at a slow pace, and immigration has been an important source of labor force growth. So slowing the pace of immigration probably would slow the growth rate of the economy. Senator CORTEZ MASTO. Thank you. And we are hearing a lot about proposals to impose a 20-percent tax on imports from Mexico in order to pay for a border wall, and I am concerned about the po- tential for a trade war with our third largest trading partner. If the Mexican economy were to go into a recession, how would that im- pact the average American? And, specifically, can you speak to any impact on our domestic economy? Ms. YELLEN. Well, our economies are closely tied. Both Mexico and Canada are important trade partners of the United States, and our economy is in many ways synchronous with the Mexican economy. Our developments here have a significance spillover effect to them, and there could be flows in the opposite direction as well. Senator CORTEZ MASTO. Thank you. Thank you so much for join- ing us today. I appreciate it. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 38 Ms. YELLEN. Thank you. Chairman CRAPO. Senator Kennedy. Senator KENNEDY. Madam Chair, I am over here. Ms. YELLEN. Yes, I am with you. Senator KENNEDY. Why is the economy growing so slowly? Ms. YELLEN. So the economy’s potential to grow is largely deter- mined by the growth of the labor force and by productivity growth, output per worker. And labor force growth has slowed. We have an aging population, and labor force growth is relatively slow, and pro- ductivity growth in recent years has been depressingly slow. So I guess over the last 6 years, business sector productivity has grown at an average of only one-half a percent per year. Senator KENNEDY. OK. So let me ask you—I do not mean to in- terrupt you, but I have just got 5 minutes. So it is labor. But we are almost at full employment, aren’t we? Ms. YELLEN. So the economy for a number of years has been growing faster than resource growth and productivity growth would have allowed, and the labor market has been tightening. Unem- ployment has been coming down, and labor market slack has been diminishing, and that—— Senator KENNEDY. Right. That should help the economy. Ms. YELLEN. Well, it has enabled us to grow at roughly 2 percent a year, and the fact that labor market slack has diminished in the face of 2 percent economic growth—— Senator KENNEDY. Well, we have grown at 1.9 percent. You con- sider that acceptable for the American economy, strongest economy in the history of the world? Ms. YELLEN. Well, when you say ‘‘acceptable,’’ I certainly wish it were faster. Senator KENNEDY. Yeah. Ms. YELLEN. But it is—we have seen, as I said, a slowdown in productivity growth. Senator KENNEDY. Why is that? Ms. YELLEN. I think nobody is certain exactly why that is. There are a number of elements that may play a role. We have seen a decline in dynamism in the U.S. economy, in new business forma- tion. Some people think that the pace of underlying technological change has—— Senator KENNEDY. Do you think it could be that people do not have the money to invest, the capital? Ms. YELLEN. Well, capital investment has also been quite slow. Senator KENNEDY. Yeah. What blame, if any, does the Federal Reserve System have to play in the fact that growth is so slow? Ms. YELLEN. Well, our objectives that the Congress has assigned us are price stability, which we interpret as 2 percent inflation, and maximum employment. And we have put in place an accommoda- tive monetary policy now over many years to get the economy oper- ating at its potential. So with high unemployment, there was a lot of slack in the labor market. The economy was falling short of operating at the level of output that would be consistent with what a full-employment economy would produce. Senator KENNEDY. OK. Ms. YELLEN. And we have tried to remedy that, and I think we have now come close. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 39 Senator KENNEDY. All right. Ms. YELLEN. So it is growth of labor supply and productivity that are going to—— Senator KENNEDY. I get it. I do not mean to interrupt you, but I do not have much time. Well, can we agree that 1.9 percent is not acceptable to most Americans? Ms. YELLEN. So I think it is a very disappointing level of per- formance. Senator KENNEDY. Yeah, we can agree on that. OK. Let me ask you this: I was not here in 2008. What did the com- munity banks do wrong in 2008? Ms. YELLEN. The—— Senator KENNEDY. By community banks, I mean $50 billion or less. What did they do wrong? Ms. YELLEN. Well, community banks were not the reason for the financial crisis. It was larger institutions that took risks and risks that developed outside of the banking system—— Senator KENNEDY. Right. Ms. YELLEN.——that resulted in the financial crisis. Senator KENNEDY. I think I heard you say nothing. They did nothing wrong. I do not want to put words in your mouth. So how come they are subject to Dodd-Frank, the same rules that apply to the people who did do something wrong, either because of incom- petence or greed? Ms. YELLEN. It is not the case that the same rules apply to com- munity banks that apply to larger institutions, and the most severe requirements in Dodd-Frank apply to the very largest and most systemic institutions. The Fed and other banking regulators have tried to tailor our supervision of banks according to their risk pro- files, and a large part of Dodd-Frank does not apply at all to com- munity banks. Senator KENNEDY. I am going to go over a little bit, Mr. Chair- man. You are not saying that Dodd-Frank has not imposed new regulations on community banks, are you? Ms. YELLEN. I said it has imposed some, but I said large parts of Dodd-Frank do not apply. Senator KENNEDY. Right, but many parts do. Ms. YELLEN. Some parts do. Senator KENNEDY. OK. So the water is not 12 feet deep; it is only 10 feet deep. But you can still drown in 10 feet of water. Ms. YELLEN. So we have done our best to tailor our regulations so that they are appropriate to the risk profiles of banks. But the regulatory burden on community banks is high. I would agree with you. Senator KENNEDY. But why? You just said they did not do any- thing wrong in 2008. I do not understand why. Ms. YELLEN. So we think it is important for all firms to have strong capital standards, including community banks, but the most severe increases have been imposed on larger banking organiza- tions with more complex activities. Senator KENNEDY. Did the insufficient capital among the commu- nity banks cause the meltdown in 2008? Ms. YELLEN. No, but a number failed. Many failed during the cri- sis because of the lending that they took on. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 40 Senator KENNEDY. I am going to ask one more question, Mr. Chairman, with your indulgence. Does it bother you that nobody, no individual person really responsible for 2008 went to jail? Ms. YELLEN. I think those who were accountable should have had appropriate punishments. It has been up to the Justice Depart- ment to—the regulators cannot impose criminal sanctions. That is up to the Justice Department. And my understanding has been that in many cases they felt they could not get criminal convictions. Senator KENNEDY. Do you understand that—and this is an opin- ion. Let me put it this way: Can we agree that many Americans, rightly or wrongly, this is how they feel: They are angry in part because they feel there are too many undeserving—I want to em- phasize ‘‘undeserving.’’ I do not want to paint with too broad a brush. They feel there are too many undeserving people at the top getting special treatment. Ms. YELLEN. I think that is how Americans feel. Senator KENNEDY. Do you think that is true? Ms. YELLEN. I think that we have tried to put in place following Dodd-Frank to greatly increase the safety and soundness and re- sponsibility for risk management and sound compensation systems, especially at the largest and most systemic institutions, and in that sense are holding them accountable. Senator KENNEDY. I have gone way over. Thank you, Madam Chair. Thank you for your indulgence, Mr. Chairman. Chairman CRAPO. Thank you, Senator. And, Madam Chair, I know you need to leave by 12:30. We have two Senators left, so if you will allow us, we will let them have their time, and we can move forward. Ms. YELLEN. Yes, sure. Of course. Chairman CRAPO. Senator Donnelly. Senator DONNELLY. Madam Chair, thank you for your service. We appreciate it. Ms. YELLEN. Thank you. Senator DONNELLY. Madam Chair, when we look at some of the things that have caused damage over the years—you were here at a time about a day or two after the Carrier layoffs occurred, if you remember that. And those layoffs in my home State brought to light a troubling pattern of corporate executives prioritizing imme- diate profits over the long-term health of companies. This short- term mindset may be due to the relentless pressure of activist in- vestors or poorly constructed executive compensation goals. But it has resulted in executives spending trillions to placate share- holders with stock buybacks and dividends. It has also occurred at the expense of workers and communities and long-term economic value creation. And new research finds that companies focused on the long term by reinvesting in the company far outperform their short-term peers in economic and financial success. I am wondering if you agree that short-termism, for want of a better term, could hurt economic and financial value over the long term. Ms. YELLEN. So I do not know of any rigorous work on this, but I certainly agree with you that focusing on long-term investments VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 41 that have significant payoff for companies and for the economy is important to the health of companies and the economy. Senator DONNELLY. Do you agree that the management and boards of public companies should be stewards of the whole com- pany, including its workers and its long-term health? Do you think that makes sense? Ms. YELLEN. Most companies understand that their workforce is a very important asset, and their success requires having a focus on their human capital that is a firm asset. Senator DONNELLY. At the same time that those workers were let go, the CEO made over $10 million; the previous CEO before him, when he left—and it was about 2 years before—on his last day re- ceived a payoff of over $150 million. And that is why the American people are so angry and they think the system is so rigged that you go we are going to fire—between Carrier and UTEC in Huntington, we are going to fire 2,100 people who have already agreed to a two- tiered wage—they already agreed to a two-tiered wage structure, but we are going to pay $150 million to our CEO on his last day. Does that not seem like a perversion of the American economic sys- tem to you? Ms. YELLEN. I think it is something that makes people mad. Senator DONNELLY. Yeah. What would you recommend in your infinite wisdom to us here in Congress as some steps, if you have any ideas, to change the short-term thinking that we see? Ms. YELLEN. That is really outside the domain of our responsibil- ities, and I believe it is a set of policies that Members of Congress and the Administration should be thinking about. Senator DONNELLY. Well, I was thinking that with your experi- ence and your abilities and talents, all good advice is welcome. When a small town is devastated by job losses, as has happened to so many towns across this country, where you look up and one day you have a company making windshields for one of the Big Three, and the next day that windshield company is in Mexico, it impacts the future of it, of that town. And it is not just the jobs that dry up but the economic development, the revenue base, the secondary impact on other businesses, gas stations, restaurants, grocery stores. How does a small town succeed when it feels like so many of these economic currents have been against them for so long? You have driven through some of these downtowns, I am sure, over the years and seen the devastation that has occurred. Ms. YELLEN. I mean, I think these are extremely difficult trends for towns to cope with, and many towns in rural areas have been very badly affected by these developments. Senator DONNELLY. Here is what also happens, just so you know when you make these decisions. You know, as these workers are laid off, their children who are dreaming about going to college, dreaming about the best schools, and dreaming about their chance to make it, you know, Mom or Dad comes home and the funds just are not there. The money just is not there to give them the shot to do it. And I worry about the intergenerational impact of this whole situation, too. Have you seen this intergenerational impact and its impact on success? And is there anything the Fed can do in terms of policies to try to make it so our next generation of leaders have a shot? VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 42 Ms. YELLEN. Well, I mean, our tools to deal with the issues that you are describing are limited, and we generally feel that the best contribution we can make is to use our tools to create overall strong economic conditions, a labor market that is generating enough jobs that there are opportunities there. But it does not al- ways mean that the jobs are exactly what people want in the places that they are. And I think Congress and the Administration need to think about ways in which they can foster greater inclusion, greater mobility, provide people with the tools that, if your father lost his job, a good manufacturing job, that the child can get a strong education and can get a job maybe in a sector of the econ- omy that is growing more strongly that has strong job opportuni- ties. And there certainly are things we can do to foster greater equality across generations. Senator DONNELLY. And I will finish with this, and I guess this would be to the CEOs who are thinking about this, the short- termism. One of my heroes in life—and you may have heard of him—was Father Hesburgh, and the advice he gave me was: Do not do what is always easy; just do what is right. Thank you, Madam Chair. Thank you, Mr. Chairman. Chairman CRAPO. Thank you. Senator Van Hollen. Senator VAN HOLLEN. Thank you, Mr. Chairman, and thank you, Madam Chair, for your service. I am going to pick up on a little bit of what Mr. Donnelly was raising, but from a slightly different angle, and that is the issue of wage growth, because as you know, we have had for really a pe- riod of decades high productivity growth over time—not recently. As you say, it is disturbingly low, but we have had high produc- tivity rates, and, unfortunately, those increases in productivity rates have not translated into large increases in real wages. And so I am trying to look forward from where we are now to see what the future holds for real wages. And as you indicate in your testi- mony, we have seen a tightening of the labor market, and we have seen a slight uptick in real wages. But as I listened to your testimony, it sounds like you may be- lieve that there is not a lot of slack left in the labor market. And if that is the case, what are your projections with respect to real wage growth going forward? Ms. YELLEN. So I think that somewhat faster wage growth than we are seeing presently would be consistent with our inflation ob- jective, and we are projecting—after all, monetary policy is still ac- commodative. Job growth remains strong. The labor market is still strengthening, and even if we move to gradually diminish mone- tary policy accommodation, we expect some further strengthening in the labor market. And I would expect that to push up wage growth somewhat more than we have seen so far, but ultimately real wage growth in the economy as a whole is limited by productivity growth, determined by productivity growth, and that is why I have lamented the fact that productivity growth has been so slow, and even over the last decade is so much slower than it was for much of U.S. post-war history and why I really urge VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 43 Congress to focus on policies—they may be fiscal policies or other policies—that would succeed in raising productivity growth. Beyond that, of course, as you indicated, the gains from aggre- gate productivity growth have been very unevenly distributed across the population, and we have had many decades of rising in- come inequality as a consequence, with those at the top of the in- come distribution seeing healthy increases in their incomes while those at the median or below have seen stagnation, and so that re- flects adverse structural trends. But when you see that those with more education and skill are doing substantially better than those with less education and that the trends in the economy are adversely affecting those with less education, to my mind that is telling us that investing in education and training and workforce development, which can take many dif- ferent forms depending on the population we are talking about, is an investment with a payoff, and we know that it does have an im- portant payoff. Senator VAN HOLLEN. Well, thank you. I think you in part antici- pated my question. I know you do not want to comment on specific policies that are before the Congress, but in terms of fiscal policies, actions the Congress can take that could increase productivity over time, investments in the area of education, is that the area you would most recommend? Ms. YELLEN. So, generally, there are a number of areas that im- pact productivity growth, and this could look to different kinds of policies. But policies that promote investment in people or human capital, fiscal capital, both public infrastructure and private invest- ment, are also important in promoting productivity. And then poli- cies that foster innovation, the formation of new firms, research and development, dynamism in the business climate, those things can also foster faster productivity growth. Senator VAN HOLLEN. Thank you. I think in addition to those policies—and I support those kinds of investments. As you indi- cated, a number of those policies were in place over the last dec- ades, and, nevertheless, you had a very uneven distribution of the gains in productivity, and I think there are other things. Ms. YELLEN. Yes, we have. Senator VAN HOLLEN. Is there anything—Mr. Donnelly asked you about incentives within sort of the corporate sector. Are there things that are within the power of the Fed today that could influ- ence those long-term versus short-term calculations that the Fed is not currently employing fully? Ms. YELLEN. Well, I think a strong economy and a sustainable economic growth so that business firms can look out and can see a favorable economic climate that they expect will be sustained with low inflation is a business climate that does foster investment, and that is the kind of backdrop for business decisionmaking that we would hope to provide. Senator VAN HOLLEN. All right. Thank you, Madam Chairman. Mr. Chairman, I just hope that as the Committee looks toward policy changes, we keep in mind the fact that over the last three decades we have seen over most of that period rising productivity rates, but the gains have been very unevenly distributed, which gives rise to what I think is a bipartisan sense that is shared by VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 44 so many of our constituents that, you know, folks who are doing really well have the rules stacked in their favor against the aver- age American. I think we need to look at all our policies that are outside the purview of the Fed and change them. Thank you. Ms. YELLEN. Thank you. Chairman CRAPO. Thank you, Senator. And thank you, Chair Yellen. You have spent nearly 3 hours here with us. We appreciate the work that you do and also your taking the time to spend this time with us here today. Senator BROWN. Thank you, Madam Chair. Chairman CRAPO. Without anything further, this hearing is ad- journed. [Whereupon, at 12:38 p.m., the hearing was adjourned.] [Prepared statements, responses to written questions, and addi- tional material supplied for the record follow:] VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 S:\DOCS\25433.TXT SHERYL 45 PREPARED STATEMENT OF JANET L. YELLEN CHAIR, BOARDOFGOVERNORSOFTHEFEDERALRESERVESYSTEM FEBRUARY14, 2017 Chairman Crapo, Ranking Member Brown, and other Members of the Committee, I am pleased to present the Federal Reserve’s semiannual Monetary Policy Report to the Congress. In my remarks today I will briefly discuss the current economic situation and outlook before turning to monetary policy. Current Economic Situation and Outlook Since my appearance before this Committee last June, the economy has continued to make progress toward our dual-mandate objectives of maximum employment and price stability. In the labor market, job gains averaged 190,000 per month over the second half of 2016, and the number of jobs rose an additional 227,000 in January. Those gains bring the total increase in employment since its trough in early 2010 to nearly 16 million. In addition, the unemployment rate, which stood at 4.8 percent in January, is more than 5 percentage points lower than where it stood at its peak in 2010 and is now in line with the median of the Federal Open Market Committee (FOMC) participants’ estimates of its longer-run normal level. A broader measure of labor underutilization, which includes those marginally attached to the labor force and people who are working part time but would like a full-time job, has also continued to improve over the past year. In addition, the pace of wage growth has picked up relative to its pace of a few years ago, a further indication that the job market is tightening. Importantly, improvements in the labor market in recent years have been widespread, with large declines in the unemployment rates for all major demographic groups, including African Americans and Hispanics. Even so, it is discouraging that jobless rates for those minorities remain significantly higher than the rate for the Nation overall. Ongoing gains in the labor market have been accompanied by a further moderate expansion in economic activity. U.S. real gross domestic product is estimated to have risen 1.9 percent last year, the same as in 2015. Consumer spending has con- tinued to rise at a healthy pace, supported by steady income gains, increases in the value of households’ financial assets and homes, favorable levels of consumer senti- ment, and low interest rates. Last year’s sales of automobiles and light trucks were the highest annual total on record. In contrast, business investment was relatively soft for much of last year, though it posted some larger gains toward the end of the year in part reflecting an apparent end to the sharp declines in spending on drilling and mining structures; moreover, business sentiment has noticeably improved in the past few months. In addition, weak foreign growth and the appreciation of the dollar over the past 2 years have restrained manufacturing output. Meanwhile, housing construction has continued to trend up at only a modest pace in recent quarters. And, while the lean stock of homes for sale and ongoing labor market gains should provide some support to housing construction going forward, the recent increases in mortgage rates may impart some restraint. Inflation moved up over the past year, mainly because of the diminishing effects of the earlier declines in energy prices and import prices. Total consumer prices as measured by the personal consumption expenditures (PCE) index rose 1.6 percent in the 12 months ending in December, still below the FOMC’s 2 percent objective but up 1 percentage point from its pace in 2015. Core PCE inflation, which excludes the volatile energy and food prices, moved up to about 13⁄4percent. My colleagues on the FOMC and I expect the economy to continue to expand at a moderate pace, with the job market strengthening somewhat further and inflation gradually rising to 2 percent. This judgment reflects our view that U.S. monetary policy remains accommodative, and that the pace of global economic activity should pick up over time, supported by accommodative monetary policies abroad. Of course, our inflation outlook also depends importantly on our assessment that longer-run inflation expectations will remain reasonably well anchored. It is reassuring that while market-based measures of inflation compensation remain low, they have risen from the very low levels they reached during the latter part of 2015 and first half of 2016. Meanwhile, most survey measures of longer-term inflation expectations have changed little, on balance, in recent months. As always, considerable uncertainty attends the economic outlook. Among the sources of uncertainty are possible changes in U.S. fiscal and other policies, the fu- ture path of productivity growth, and developments abroad. Monetary Policy Turning to monetary policy, the FOMC is committed to promoting maximum em- ployment and price stability, as mandated by the Congress. Against the backdrop VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00049 Fmt 6621 Sfmt 6621 S:\DOCS\25433.TXT SHERYL 46 of headwinds weighing on the economy over the past year, including financial mar- ket stresses that emanated from developments abroad, the Committee maintained an unchanged target range for the Federal funds rate for most of the year in order to support improvement in the labor market and an increase in inflation toward 2 percent. At its December meeting, the Committee raised the target range for the Federal funds rate by 1⁄4percentage point, to 1⁄2to 3⁄4percent. In doing so, the Com- mittee recognized the considerable progress the economy had made toward the FOMC’s dual objectives. The Committee judged that even after this increase in the Federal funds rate target, monetary policy remains accommodative, thereby sup- porting some further strengthening in labor market conditions and a return to 2 percent inflation. At its meeting that concluded early this month, the Committee left the target range for the Federal funds rate unchanged but reiterated that it expects the evo- lution of the economy to warrant further gradual increases in the Federal funds rate to achieve and maintain its employment and inflation objectives. As I noted on pre- vious occasions, waiting too long to remove accommodation would be unwise, poten- tially requiring the FOMC to eventually raise rates rapidly, which could risk dis- rupting financial markets and pushing the economy into recession. Incoming data suggest that labor market conditions continue to strengthen and inflation is moving up to 2 percent, consistent with the Committee’s expectations. At our upcoming meetings, the Committee will evaluate whether employment and inflation are con- tinuing to evolve in line with these expectations, in which case a further adjustment of the Federal funds rate would likely be appropriate. The Committee’s view that gradual increases in the Federal funds rate will likely be appropriate reflects the expectation that the neutral Federal funds rate—that is, the interest rate that is neither expansionary nor contractionary and that keeps the economy operating on an even keel—will rise somewhat over time. Current esti- mates of the neutral rate are well below pre-crisis levels—a phenomenon that may reflect slow productivity growth, subdued economic growth abroad, strong demand for safe longer-term assets, and other factors. The Committee anticipates that the depressing effect of these factors will diminish somewhat over time, raising the neu- tral funds rate, albeit to levels that are still low by historical standards. That said, the economic outlook is uncertain, and monetary policy is not on a pre- set course. FOMC participants will adjust their assessments of the appropriate path for the Federal funds rate in response to changes to the economic outlook and asso- ciated risks as informed by incoming data. Also, changes in fiscal policy or other economic policies could potentially affect the economic outlook. Of course, it is too early to know what policy changes will be put in place or how their economic effects will unfold. While it is not my intention to opine on specific tax or spending pro- posals, I would point to the importance of improving the pace of longer-run economic growth and raising American living standards with policies aimed at improving pro- ductivity. I would also hope that fiscal policy changes will be consistent with putting U.S. fiscal accounts on a sustainable trajectory. In any event, it is important to re- member that fiscal policy is only one of the many factors that can influence the eco- nomic outlook and the appropriate course of monetary policy. Overall, the FOMC’s monetary policy decisions will be directed to the attainment of its congressionally mandated objectives of maximum employment and price stability. Finally, the Committee has continued its policy of reinvesting proceeds from ma- turing Treasury securities and principal payments from agency debt and mortgage- backed securities. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, has helped maintain accommodative financial conditions. Thank you. I would be pleased to take your questions. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00050 Fmt 6621 Sfmt 6621 S:\DOCS\25433.TXT SHERYL RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY FROM JANET L. YELLEN Q.1. You indicated that you disagreed with a recent study that at- tempted to derive the relative risk weightings and capital charges for assets under CCAR, when compared to the risk weightings im- posed under capital methodologies. Please indicate whether the Board has conducted its own independent analysis of the relative risk weights implicit in the CCAR exercise and the potential im- pact thereof on bank lending activity. If so, please provide the anal- ysis. If not, please undertake such analysis and provide it as promptly as possible. A.1. Although I agree with the spirit of the particular study you mention, which is to improve understanding of the benefits and costs of the Federal Reserve Board’s (Board) regulations, including the stress testing rules, I disagree with the study’s conclusions and methodology.1 The study attempts to derive an ‘‘average implicit risk weight’’ from the losses projected in the Board’s supervisory stress tests. This approach fundamentally mischaracterizes the na- ture and purpose of stress tests. Stress tests differ from capital reg- ulations, where assets are allocated to relatively simple categories and then assigned risk weights that are roughly proportional to the average risk of these asset categories in order to establish a min- imum capital standard at any given point in time. Instead, stress tests serve a complementary purpose, which is to determine the amount of a bank’s losses and revenues through severe recession, like the one we experienced in 2007–2009. Unlike the capital rules, which have as a chief aim making sure that banks have sufficient capital in normal times, the stress tests address whether a bank can remain a going concern and continue to make loans through a severe recession. Some examples highlight this point: In a stress test, a bank’s revenues and losses have to be pro- jected—income is an important source of loss-absorbing capacity. However, many of the banks that are the focus of our supervisory stress tests earn significant income from activities that are not con- nected to particular assets on their balance sheet, such as asset management fees. An approach like the one taken in the study that attempts to convert the dynamic firm-wide path of revenues and expenses produced by the stress test into a single factor attached only to the firm’s assets at a single point in time, likely will misattribute the benefits from such income, producing potentially inaccurate results. An additional important feature of stress tests is their ability to use extremely granular, loan-level data. This results in projections 1https://www.theclearinghouse.org/∼/media/TCH/Documents/TCHWEEKLY/2017/ 20170130lWPlImplicitlRisklWeightslinlCCAR.pdf. (47) VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00051 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 48 of losses that are quite sensitive to the risks of the underlying as- sets and thus will necessarily differ across banks depending on portfolio characteristics. In contrast, the study attempts to infer a single average ‘‘implicit risk weight’’ across banks for each asset category. Further, the study does not control for any difference in the riskiness of those portfolios across banks. Thus, the study treats a bank with a portfolio of auto loans weighted toward subprime borrowers as having the same risk profile as a bank with a portfolio of auto loans weighted toward prime borrowers. This has the potential to result in misleading results because loan loss rates in the stress tests for a particular asset class, such as auto loans, may differ substantially across banks, depending on how the risk profile of the banks differ for that asset class. Table 1 summarizes the projected loan loss rates across banks for eight of the asset categories considered in the supervisory stress test and Comprehensive Capital Analysis and Review (CCAR). The results show how the assumption of a single average implicit risk weight can be quite misleading. This is because the loss rates differ across banks due to differences in the relative riskiness of their portfolios for a given asset class.2 Thus, the appropriate way to cal- culate an ‘‘implicit risk weight’’ in CCAR would be to consider the riskiness of a specific loan or subportfolio of loans at a specific bank. As with point-in-time risk weights, an average risk weight across all loans of a certain broad type—such as ‘‘auto loans’’—that is bluntly applied to all banks will miss important differences in how the individual loan portfolios would perform in an actual eco- nomic downturn. For these reasons, the results from the study should not be interpreted as capturing ‘‘implicit risk weights’’ from the CCAR, as the study suggested.3 We also note the Federal Reserve closely monitors bank lending and credit availability as part of its bank supervision and research functions, including the distribution of credit across segments of the U.S. economy. For instance, the availability of credit to new and small businesses is an area of the economy that we pay par- ticular attention to. The Federal Reserve’s most direct measures of the amount of credit provided to small businesses by banks are commercial and industrial (C&I) and commercial real estate (CRE) loans with balances under $1 million. If regulation is impeding the flow of credit to small businesses, we would expect slower growth in small business lending by banks that face greater regulation, for example, banks with assets over $50 billion. Since 2011, however, small C&I loans held at banks with assets over $50 billion have grown more quickly than at the smaller banks. Small CRE loans have declined somewhat in recent years at both large and small banks. Although we continue to study these trends, these results are not consistent with the view that either supervisory stress tests or the Board’s more stringent capital rules for large institutions are meaningful constraints on the provision of credit to small 2These projected loss rates are determined by the relative amount of each risk portfolio within an asset class at a given bank. A bank that does not have any portfolios in a particular asset class will have a projected loan loss rate of zero for that class. 3In addition to the conceptual arguments above, certain results from the study suggest that something other than implicit risk weights are being captured. An example is that the ‘‘implicit risk weight’’ for junior liens and HELOCs is estimated to be negative or zero, which is incon- sistent with the actual CCAR loss rates (which are not zero) shown in Table 1. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00052 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 49 businesses. In addition, Federal Reserve staff continue to inves- tigate the expanding role of nonbank providers of small business credit, who we estimate account for more than half of all credit pro- vided to small businesses, based on available data. These firms, which include credit unions, finance companies, farm credit bu- reaus, and online platforms, could help to offset any reduction in credit availability from banks. More generally, however, quantifying the specific effects of cap- ital regulation, and CCAR in particular, on credit provision is made more difficult by a number of confounding factors, which could also result in less credit provision by large banks. For instance, one of the goals of incentivizing large banks to fund assets with additional capital is to reduce the value of any remaining too-big-to-fail sub- sidy. With the reduction in that subsidy, the funding costs of large banks should rise relative to community banks, thus making the community banks more competitive in attracting new business. It will take some time to gain a more concrete understanding of the effects of new financial regulations, including capital regulation, on bank lending and the availability of credit, but the Federal Reserve is engaged and will continue to push ahead on this research agenda.4 Finally, undercapitalized banks are unlikely to be able to provide credit on a sustainable basis. Loans that are withdrawn at the first signs of a downturn exacerbate recessions with a ‘‘credit crunch.’’ Indeed, research by Federal Reserve economists has shown that banks with higher capital buffers (i.e., banks with capital ratios well above regulatory minimums) lend more freely during downturns, reducing both the severity of the downturn and the likelihood of a crisis.5 The supervisory stress tests and CCAR help to ensure that banks will be able to maintain such buffers above the regulatory minimums even during a downturn. Related re- search by Federal Reserve economists focuses on different channels through which bank capital levels affect the likelihood and severity of a financial crisis.6 4At present, most research on the new regulations focuses on specific pockets of the economy or financial system. For example, Calem, Correa, and Lee (2016) find that the market share of jumbo mortgage originations at banks participating in the 2011 CCAR exercise declined after that exercise (Paul Calem, Ricardo Correa, and Seung Jung Lee (2016)), ‘‘Prudential Policies and Their Impact on Credit in the United States,’’ International Finance Discussion Papers 1186 (Washington: Board of Governors of the Federal Reserve System, November, https://doi.org/ 10.17016/IFDP.2016.1186). Morris-Levenson, Sarama, and Ungerer (2017) find that while re- cent bank regulation has contributed to a reduction in mortgage lending by large banks, coun- ties most dependent on lending from the most heavily regulated banks have not experienced sig- nificantly slower mortgage origination or house price growth than less dependent counties (Josh- ua A. Morris-Levenson, Robert F. Sarama, and Christoph Underer (2017), ‘‘Does Tighter Bank Regulation Affect Mortgage Originations?’’ paper, January, available at Social Science Research Network, http://dx.doi.org/10.2139/ssrn.2941177). This suggests that the reduction in lending by the largest banks has been largely filled by expanded origination activity from small banks and nonbanks. 5See, for example, Mark Carlson, Hui Shan, and Missaka Warusawitharana (2013), ‘‘Capital Ratios and Bank Lending: A Matched Bank Approach,’’ Journal of Financial Intermediation, vol. 22 (October), pp. 663–87; Seung Jung Lee and Viktors Stebunovs (2016), ‘‘Bank Capital Pres- sures, Loan Substitutability, and Nonfinancial Employment,’’ Journal of Economics and Busi- ness, vol. 83 (January–February), pp. 44–69; and Ozge Akinci and Albert Queralto (2014), ‘‘Banks, Capital Flows and Financial Crises,’’ International Finance Discussion Papers 1121 (Washington: Board of Governors of the Federal Reserve System, October), https:// www.federalreserve.gov/econresdata/ifdp/2014/files/ifdp1121.pdf. 6See Luca Guerrieri, Matteo Iacoviello, Francisco B. Covas, John C. Driscoll, Michael T. Kiley, Mohammad Jahan-Parvar, Albert Queralto Olive, and Jae W. Sim (2015), ‘‘Macroeconomic Ef- fects of Banking Sector Losses across Structural Models; Finance and Economics Discussion Se- Continued VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00053 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 50 Q.2. Last year, the Federal Reserve agreed to implement a series of changes to its CCAR processes recommended in both an internal IG report and a GAO study. Please provide a detailed update iden- tifying what progress the Federal Reserve has made in addressing each of these individual recommendations and, with respect to any item not yet fully addressed, please describe the Federal Reserve’s remediation plan to ensure its implementation and identify the re- sources dedicated to that remediation. A.2. The Federal Reserve is making progress on addressing the rec- ommendations made in U.S. Government Accountability Office Re- port GAO–17–18, Additional Actions Could Help Ensure the Achievement of Stress Test Goals (GAO report). In a January 13, 2017, letter to Members of the House of Representative’s Com- mittee on Oversight and Government Reform and the Senate’s Committee on Homeland Security and Governmental Affairs, I pro- vided an update on the Federal Reserve’s plans to address these recommendations. Additional information on these plans is pro- vided below: ries 2015–044 (Washington: Board of Governors of the Federal Reserve System, June), http:// dx.doi.org/10.17016/FEDS.2015.044; and Gazi I. Kara and S. Mehmet Ozsoy (2016), ‘‘Bank Reg- ulation under Fire Sale Externalities,’’ Finance and Economics Discussion Series 2016–026 (Washington: Board of Governors of the Federal Reserve System, April), http://dx.doi.org/ 10.17016/FEDS. 2016.026. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00054 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.68071412 51 Inter-agency Coordination The GAO report recommended that the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comp- troller of the Currency (OCC) (collectively, the agencies) harmonize their approach to granting extensions and exemptions from stress test requirements. Consistent with the plans outlined in the January 13 letter, Fed- eral Reserve staff, in consultation with staff of the OCC and FDIC, have established a process to meet at least annually, and more fre- quently as needed, to coordinate regarding requests for extensions and exemptions from stress test rules. Federal Reserve staff met with staff of the OCC and FDIC on January 26, 2017, to review all the stress testing-related exemptions and extensions that the agen- cies granted to firms in 2016. The staff of the agencies have agreed to continue this practice. Federal Reserve staff will continue to work with the FDIC and OCC on a harmonized approach to grant- ing extensions and exemptions from stress testing requirements. Exclusion of Company-Run Tests from CCAR The GAO report recommended that the Federal Reserve remove company-run stress tests from the CCAR quantitative assessment. As indicated in the January 13 letter, Federal Reserve staff con- tinue to evaluate the benefits and costs of modifying its rules to remove company-run stress test results from the factors that are considered in the CCAR quantitative assessment. Before modifying its rules, the Board would provide notice and invite public com- ments regarding any proposed changes. Transparency of the Qualitative Assessment The GAO’s report recommended that the Federal Reserve pub- licly disclose additional information about the CCAR qualitative as- sessments; the basis for the Federal Reserve’s decisions to object or conditionally not object to a company’s capital plan on qualitative grounds; and information on capital planning practices observed during CCAR qualitative assessments, including practices the Fed- eral Reserve considers stronger or leading practices. The GAO re- port also recommends that the Federal Reserve notify companies about timeframes relating to Federal Reserve responses to com- pany inquiries. We continue to look for ways to further enhance the trans- parency of CCAR and respond to the GAO findings. For example, the Federal Reserve expects to publish a summary of the current range of capital planning practices after the completion of CCAR 2017. In addition, consistent with the plans outlined in the January 13 letter, effective with the first quarter of 2017, all firms that are subject to the Board’s capital plan rule, including FR–Y14 regu- latory report filers, receive a confirmation email that acknowledges receipt of their question and provides an expected timeline for a re- sponse. Additionally, firms now receive a direct response to ques- tions related to CCAR in accordance with the communicated timeline. Questions that the Federal Reserve receives regarding CCAR which pertain to all firms subject to the Board’s capital plan VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00055 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 52 rule are included in a general communication sent to all firms at least quarterly, or more frequently, as needed. Scenario Design Process The GAO’s report recommends the Federal Reserve take several actions to broaden the consideration of the types of scenarios to use in the stress tests and to better understand the implications of sce- nario choices. The Federal Reserve has procedures for generating and consid- ering scenarios with severity that falls outside of post-war U.S. his- tory, and that is reflected in the published scenarios. Federal Re- serve staff continue to explore mechanisms in which the severely adverse scenario in the stress tests would include deteriorations in scenario variables that lie beyond those historically observed. Staff also are developing additional analytical tools, including exploring a stress testing model based on more aggregated, bank-level data, to assess the capital levels that will likely be implied by scenarios of differing severities. Finally, staff are developing a process to analyze the severely adverse scenario for potential procyclicality. Model Risk Management and Communication The GAO’s report recommends the Federal Reserve take several actions to improve its ability to manage model risk and ensure de- cisions based on supervisory stress test results are informed by an understanding of model risk, such as by applying model develop- ment principles to the entire system of models that are used to es- timate losses and revenue in the stress tests. Consistent with the plans outlined in the January 13 letter, Fed- eral Reserve staff have amended the principles used to develop models to explicitly state that the principles apply to the over- arching system of models, in addition to each of its component models. In addition, Federal Reserve staff are developing separate documentation that describes the system of models. Several projects are currently underway to further test and document the sensitivity and uncertainty of the system of models, including re- viewing the relevant finance and statistics literature and exploring various methods to test the sensitivity and measure uncertainty. Finally, the Supervisory Stress Test Model Governance Committee has issued a memo to the Board describing the state of model risk and plans to issue this memo annually at the conclusion of each year’s supervisory stress test. This memo describes the general out- comes of the model development and validation processes for the models used in the supervisory stress test exercise, and provides a more detailed discussion of the potential impact of modeling issues on the uncertainty of post-stress capital ratio estimates. RESPONSE TO WRITTEN QUESTION OF SENATOR REED FROM JANET L. YELLEN Q.1. You have said the United States is at or near full employ- ment. You have also said that fiscal policy changes are not nec- essary to reach full employment under current economic conditions. There are, however, many long-term unemployed individuals in my home State of Rhode Island, and around the country, who would VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00056 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 53 take issue with the statement that we are at full employment. They would also argue that our unemployment system did not ade- quately adjust, as they continue to struggle in the wake of the Great Recession. How would you recommend that I answer my con- stituents whose experience leads them to question whether we are truly at full employment? What safeguards need to be put in place now to protect against job loss in the next economic downturn? A.1. The statement that the U.S. economy is at or near full employ- ment pertains to the national economy. Within that overall na- tional situation, there will be important variation by geographic location, industry, and skill set. As you correctly observe, it re- mains the case that not every willing worker in every location can currently find a job that she or he is qualified to fill. The policies (including monetary policy) that affect aggregate demand at the na- tional level will generally not be well suited to address these sorts of more-localized and more-specialized situations, as real and as painful as they are for those experiencing them. To address the real and important aspects of unemployment that remain today, a more-detailed set of interventions will probably be more appropriate and effective. These interventions may be designed at the Federal, State or local level, and may involve Gov- ernment actions at that level, private actions, or partnerships in- volving both the public and private sectors. In one of my earliest speeches as Chair of the Federal Reserve in October 2014, for ex- ample, I highlighted some potential ‘‘building blocks’’ for greater economic opportunity; these included strengthening the educational and other resources available for lower-income children, making college more affordable, and building wealth and job creation through strengthening Americans’ ability to start and grow businesses. RESPONSES TO WRITTEN QUESTIONS OF SENATOR SASSE FROM JANET L. YELLEN Q.1. I’d like you to elaborate on your statement to Senator Reed during your Senate Banking testimony that ‘‘cybersecurity is a major, major risk that financial firms face.’’ Q.1.a. How could a large scale cyberattack on our financial system impact the U.S. economy and international economy? A.1.a. The global financial system has a heightened level of expo- sure to cyber risk due to the high degree of information technology intensive activities and the increasing interconnection between firms across the financial services sector. In addition, the presence of active, persistent, and sometimes sophisticated adversaries means that malicious cyber attacks are often difficult to identify or fully eradicate, may propagate rapidly through the system, and have potentially systemic consequences. Given the highly interconnected nature of the financial sector and its dependencies on critical service providers, all participants in the financial system face cyber threats. The potential scenarios and resulting impact are diverse in nature and scale. In some cases, attackers may seek to undermine public confidence and im- pact an institution’s and/or country’s reputation. In other cases, a cyber attack on a financial institution or a group of financial VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00057 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 54 institutions could impact liquidity, thereby causing insolvency issues at the affected firms which could lead to systemic con- sequences. Q.1.b. What is the most likely cyber-threat to our financial system? A.1.b. In general, cyber threats against financial institutions are becoming more frequent, sophisticated, and widespread. The rise in frequency and sophistication of cyber attacks can be attributed to numerous factors including nation-states that breach systems to seek intelligence or intellectual property, hacktivists making polit- ical statements through systems disruptions, and criminals seeking to breach systems for monetary gain. While Internet-based denial- of-service attacks intended to disrupt or impede financial market activities are among the most frequent attacks on U.S. financial in- stitutions, potential attacks that alter or destroy financial institu- tion data are more likely to threaten U.S. financial stability. Q.1.c. When does the Federal Reserve expect to issue a proposed rule relating to cybersecurity? A.1.c. The Federal Reserve, Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency issued an ad- vance notice of proposed rulemaking (ANPR) on October 20, 2016, inviting comment on a set of potential enhanced cybersecurity risk management and resilience standards that would apply to large and interconnected entities under their supervision. The agencies received substantial feedback from industry on the ANPR through the public comment period that ended on February 17, 2017. In general, the feedback emphasized the burden on firms of trying to comply with multiple cybersecurity frameworks and encouraged the agencies to adhere to a common approach to cybersecurity devel- oped in collaboration with industry that leverages the work done by organizations such as the National Institute of Standards and Technology. The Federal Reserve is considering options for better integration with existing efforts and has not committed to a time- frame for any future notice of proposed rulemaking. Q.2. I’d like to continue our discussion about deficits and the debt. During your Senate Banking Testimony, you told Senator Corker that ‘‘fiscal sustainability has been a longstanding problem, and . . . the U.S. fiscal course, as our population ages and healthcare costs increase, is already not sustainable.’’ Q.2.a. In correspondence with me last year, you told me that ‘‘fiscal policymakers should soon put in place a credible plan for reducing deficits to sustainable levels over time.’’ What level of deficits and debt would the Federal Reserve consider sustainable over the long run? A.2.a. A sustainable level of Federal debt is when the ratio of debt to nominal gross domestic product (GDP) remains essentially con- stant or is decreasing over the longer run. Sustainability can poten- tially be achieved at different levels of the debt-to-GDP ratio. For example, the Congressional Budget Office (CBO) recently illus- trated the fiscal policy changes necessary in two different scenarios to put the Federal debt on a sustainable path over the next 30 years: one in which the debt-to-GDP ratio would remain constant at its current level of about 75 percent and another where the VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00058 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 55 debt-to-GDP ratio would be brought down to its 50-year average of around 40 percent. In regards to the deficit, a good rule-of-thumb is that the ‘‘pri- mary’’ budget deficit—which is defined as Federal non-interest spending minus tax revenues—needs to be around zero, on average, for the debt-to-GDP ratio to remain constant over the longer run. A declining debt-to-GDP ratio usually requires primary budget sur- pluses—that is, tax revenues must be greater than non-interest spending—on average. Q.2.b. What metrics would the Federal Reserve consult in order to evaluate the impact of the U.S.’s debt and deficit levels? What lev- els must these metrics reach in order for the U.S. debt and deficit to be sustainable? A.2.b. The Federal Reserve uses monthly data produced by the De- partment of the Treasury to evaluate the current state of the budg- et deficit and the debt. We use the periodic Federal budget and debt projections provided by the CBO to inform our view of the ex- pected future paths of Federal deficits and debt. As I described ear- lier, a sustainable fiscal policy is one in which projected budget deficits are at low enough levels such that the debt-to-GDP ratio is projected to remain constant or to be decreasing. Q.2.c. Assuming current policy and current demographic trends, how will population aging impact the U.S. fiscal situation over the next 10 years? A.2.c. As described in the CBO’s most recent budget outlook, popu- lation aging contributes importantly to the projected growth in Federal spending for retirement and healthcare programs over the next 10 years. Growth in these Federal spending programs is ex- pected to outpace growth in tax revenues, which is reflected in the CBO’s projection of rising budget deficits over the next decade. Q.2.d. Assuming current policy and current demographic trends, how large does the Federal Reserve expect the shortfall to be be- tween retiring workers and new entrants into the workforce, over the next 10 years? A.2.d. Most economic analysts expect that labor force growth will be slower over the next 10 years than it has been, on average, over the past several decades. This outlook reflects the well-known de- mographic trends of both a faster pace of workers retiring and a slower pace of new entrants. I do not think that our views on how these trends will evolve in the future—which are quite uncertain— differ materially from the projections of others, such as the CBO. Q.2.e. What policy changes could Congress consider to address the impact of population aging on our fiscal situation? A.2.e. In general, simple arithmetic indicates that the policy changes will need to include restraining Federal spending or in- creasing tax revenues or some combination of both. All other things being the same, policy changes that are more likely to help promote economic growth would ease the fiscal challenges somewhat, al- though it is quite unlikely that our economy could grow its way out of the long-run fiscal situation. Ultimately it is the responsibility of the Congress and the Administration to decide on the VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00059 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 56 appropriate policy changes to put the fiscal situation on a sustain- able path in the long run. Q.2.f. How would the Federal Reserve evaluate the economic im- pact of an unfunded $1 trillion infrastructure spending package, especially in light of the Federal Reserve’s concerns about fiscal sustainability? A.2.f. Federal spending for public infrastructure can potentially in- crease productivity and the size of the economy, although the mag- nitude and timing of these potential gains would depend on the composition of the infrastructure spending. Moreover, as the CBO has reported, the overall gains to the economy and the effects on the budget would depend importantly on whether the increased in- frastructure was financed by borrowing or by changes in other Gov- ernment spending or revenues. Q.3. I’d like you to elaborate on your discussion with Senator Cot- ton during your Senate Banking testimony regarding depressed wage growth in particular fields. Q.3.a. You stated that the United States has seen ‘‘much faster wage growth for higher skilled individuals and much slower wage growth for those who are less skilled.’’ Are there any fields where less skilled workers have seen more robust wage growth? Q.3.b. What conditions must be present in the U.S. economy for lower-skilled wages to increase? Q.3.c. Typically, the barrier to entry for entering a high-skilled profession is high. Do you know of any high-skilled professions that lower-skilled workers have had an easier time transitioning into? If so, what conditions allow for this to occur? Q.3.d. What higher-skilled professions are currently facing a labor shortage? A.3.a.–d. The widening of the U.S. income distribution over the past several decades has been evident in the wage outcomes for people of different skill and educational levels. For example, on av- erage over the past decade (according to data from the Current Population Survey), wages of people with a high school education but no college have just kept up with inflation, while wages of peo- ple with a college degree have exceeded inflation by about 1⁄ 2 percent per year. Similarly, wage gains for occupations typically classified as high-skill (managers, professionals, and technicians) have far outpaced wage gains for low-skill occupations (food prepa- ration and serving, cleaning, and personal care services). This pattern changed somewhat over the past year or so, as we have seen relatively large gains for the lower-skill, lower-education portion of the workforce. For example, median usual weekly earn- ings were almost identical for workers with college degrees, some college, and high school graduates in 2016 (all between 2.2 and 2.4 percent, not adjusting for inflation). This pattern is also visible in the wages for different industries; the leisure and hospitality sec- tor, for example, is dominated by lower-paid workers who for the past decade have had the lowest wage gains of any major industry group, but wages in this sector rose well above average in 2016. A portion of the explanation for the differing results last year is prob- ably that a number of States increased their minimum wages in VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00060 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 57 2016. But another portion of the explanation may be that the strengthening labor market, with ongoing solid rates of job creation and declining unemployment, has reached a point that it is bene- fiting these lower-skill workers more visibly. I am hopeful that con- tinued gains in the labor market will further benefit workers throughout the income distribution. Despite this recent wage news, it remains the case that signs of labor shortages appear most prevalent in higher-skilled occupa- tions. Data point to shortages primarily in management, business and financial services occupation, or in professional and related services occupations. Other anecdotal evidence points to labor shortages for some types of manufacturing and construction work, and in health care. As I noted, a strong labor market seems to be helping generate higher wages throughout the income distribution. Effective Federal Reserve policy can therefore contribute to further such progress, but I would emphasize that the primary forces leading to different economic outcomes for workers of different skill levels are beyond the realm of monetary policy. Most especially, I see education as a critical factor in enabling individuals to succeed in a labor mar- ket that increasingly rewards higher skills. And there are many aspects to improved education, from the quality of our primary and secondary schools, to the ability of high school graduates to afford college without incurring excessive debt, to improved job training opportunities for people of any age. Improved education, through any of these channels, is surely an important part of a strategy to help more Americans become qualified for these higher-skilled jobs. Q.4. I’d like to discuss the U–6 real unemployment rate. Q.4.a. What is the Federal Reserve’s estimation of the longer-run normal level U–6 rate? Q.4.b. Has the Federal Reserve’s estimation of this longer-run nor- mal U–6 rate decreased since the 2008 financial crisis? If so, why? A.4.a.–b. Federal Open Market Committee participants do not sub- mit an estimate of the longer-run normal level of the U–6 measure of labor underutilization. (This measure augments the official un- employment rate by also including the ‘‘marginally attached’’—indi- viduals who would like to work, are available to work, and have sought employment within the past 12 months but not in the past 4 weeks—and those who are working part-time, but say they would like to be working full-time.) As with other such measures, the U– 6 rose substantially during the recession and has been coming down since then. However, the U–6 measure still remains a little above its pre-recession level, and the difference between the U–6 measure and the official unemployment rate has widened by about 1 percentage point since that time. Some economists think that the higher level of U–6 could reflect structural changes in the economy, for example, because employers in some growing service sectors may have a relatively high propensity to use part-time labor. But the somewhat elevated level of U–6 also may indicate some remain- ing labor market slack that is not captured by the official unem- ployment rate. Q.5. I’d like to discuss the U.S. agricultural markets. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00061 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 58 Q.5.a. How would an interest-rate hike impact the agricultural sec- tor, given current economic conditions? How will the Federal Re- serve take this into account when evaluating current economic con- ditions? Q.5.b. According to the United States Trade Representative, Ne- braska goods exports totaled $7.9 billion in 2014. This number is a 238 percent increase from export levels in 2004. A recent report released by the Department of Agriculture titled, ‘‘USDA Agricul- tural Projections to 2026’’ predicts that over the next 10 years the U.S. dollar will remain stronger than any year since 2006. Accord- ing to the report, ‘‘A stronger U.S. dollar will increase the relative price of U.S. exports, thereby constraining export growth.’’ Does the Federal Reserve share this opinion about a stronger dollar and the impact on export levels? A.5.a.–b. The Federal Reserve considers all segments of the U.S. economy during the regular course of monetary policy delibera- tions. Our monetary policy mandate, given to us in law by the Con- gress, is to pursue price stability and maximum sustainable em- ployment. The concepts that constitute the so-called dual mandate apply across the full economy. That is appropriate because our pol- icy tools likewise have their effects across the full economy; they cannot be targeted to specific sectors. Turning to the agricultural sector, conditions there have softened in recent years. Many factors influence profitability in the agricul- tural sector, but a prolonged downturn in the prices of agricultural commodities has been the primary driver of the weakness in the farm economy over the past few years; in turn, the prices of many agricultural commodities are heavily influenced by global supply and demand conditions, not just domestic conditions. The nominal value of U.S. agricultural exports has declined modestly since 2014, on the tide of lower commodity prices and a stronger dollar. A mod- est increase in interest rates will affect economic and financial conditions in the agricultural sector through multiple different channels. For one thing, a modest increase in interest rates will often—as in the present circumstances—be accompanied by a strengthening overall economy, and so, generally speaking, will be accompanied by sustained domestic demand for the output of the agriculture sector. A modest increase in interest rates may also re- sult in a possible increase in borrowing costs. However, interest ex- penses account for a relatively small portion of production costs in the U.S. farm sector and farm loan delinquencies remain histori- cally low. As economic and financial conditions evolve, the Federal Reserve will continue to carefully monitor developments in the agricultural sector. Q.6. I’d like you to elaborate on your statement regarding automa- tion to Senator Heitkamp during your Senate Banking testimony that ‘‘there are dramatic accounts of changes that are on the hori- zon that could have profound effects on the labor market.’’ a. What industries are most vulnerable to automation? b. What industries will see the most growth because of automa- tion? VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00062 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 59 c. Does the Federal Reserve expect automation to permanently increase unemployment for lower-skilled workers? Or will the impacts of automation primarily be transitional, as new en- trants into the workforce adapt to new technologies? A.6.a.–c. The jobs that are most susceptible to automation appear to be those that involve routine tasks, either physical or cognitive. Many tasks in the manufacturing sector fall into this category, as machines or robots are able to carry out physical tasks. This is also the case for some services, where automation can substitute for routine cognitive tasks; prominent examples include banking, where ATMs have substituted for tellers, or sales workers who have been displaced by internet shopping. Conversely, tasks that require nonroutine skills appear least vulnerable to automation, and they may expand as other jobs are automated. These nonrou- tine tasks cut across the skill distribution, and include laborers and personal care providers along with higher-skilled workers such as managers and software developers. Of course, as technology changes, it may be that more types of occupations become suscep- tible to at least partial automation. As a result, demand and work- ers will shift to new occupations, some of which may not even exist today. Even though the likelihood of a job being automated cuts to some extent across the skill distribution, on balance, changes in tech- nology appear to have reduced demand for lower-skilled workers and have contributed to the increased inequality of incomes that have been in train for several decades. Moreover, as a recent report from the Council of Economic Advisers1 highlighted, reduced de- mand for lower-skilled workers also can help explain the ongoing decline in labor force participation of men 25–54 years old, which has been most concentrated among those with a high school degree or less. Knowing whether these trends will continue is of course difficult, and there is debate among economists about the pace of automa- tion and its likely effects. But as I said in the response to question 3, I see education as critically important for ensuring that new en- trants to the labor force are prepared for a work environment domi- nated by new technologies. RESPONSES TO WRITTEN QUESTIONS OF SENATOR TESTER FROM JANET L. YELLEN Debt/Deficit Q.1. Chair Yellen, I want to start this morning by talking about our Nation’s debt and deficit. Now, it’s my belief that our Nation’s debt and deficit continues to be unsustainable. I think we refuse to actually take a long hard look at our Federal budget to see what simply doesn’t make sense anymore and at the same time we con- tinue to hand out unpaid-for tax credits like candy. Now just recently my friends on the other side of the isle have proposed repealing the Affordable Care Act, which will reduce reve- nues by $350 billion over the next decade. On top of that, they 1https://obamawhitehouse.archives.gov/sites/default/files/page/files/20160620lceal primeagelmalellfp.pdf. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00063 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 60 have proposed a tax plan that would reduce Federal revenue more than 2 trillion dollars. Q.1.a. So I guess my first question is, what sort of effect will that kind of new debt have on our economy? A.1.a. The current level of Federal debt is equal to more than 75 percent of nominal gross domestic product (GDP), which is far higher than the average debt-to-GDP ratio of about 40 percent over the past 50 years. Moreover, the Congressional Budget Office (CBO) projects that Federal budget deficits and Federal debt will be increasing, relative to the size of the economy, over the next dec- ade and in the longer run.1 Additional Federal borrowing would ac- celerate those unsustainable trends. The CBO appropriately describes several reasons why high and rising Federal Government debt could have serious negative consequences for the economy over time. First, because Federal borrowing eventually reduces total saving in the economy, the Nation’s capital stock would ulti- mately be smaller than it would be if debt was lower; as a result, productivity and overall economic growth would be slower. Second, fiscal policymakers would have less flexibility to use tax and spend- ing policies to respond to unexpected negative shocks to the econ- omy. Third, the likelihood of a fiscal crisis in the United States would tend to increase. However, there is no way to predict with any confidence whether and when such a crisis could occur; in par- ticular, there is no identifiable level of Federal Government debt, relative to the size of the economy, indicating that this would be likely or imminent. Q.1.b. Do you believe our debt and deficit levels are unsustainable in the longer term? A.1.b. I agree, as do most economists, with the assessment that the Federal Government budget is on an unsustainable path, given cur- rent fiscal policies. As I noted earlier, the CBO projects that Fed- eral budget deficits and Federal debt will be increasing, relative to the size of the economy, over the next decade and in the longer run, which is unsustainable. In the CBO’s projections, growth in Federal spending—particularly for mandatory entitlement pro- grams and interest payments on Federal debt—outpaces growth in revenues in the coming years. The increases in entitlement pro- grams, such as Social Security and programs providing health care, are mainly attributable to the aging of the population and rising healthcare costs per person. For fiscal sustainability to be achieved, whatever level of spending is chosen, revenues must be sufficient to sustain that spending in the long run. Q.1.c. Does it inhibit our labor market? A.1.c. As I mentioned earlier, increasing Federal borrowing reduces total savings in the economy over time, ultimately leading to the Nation’s capital stock being smaller than it would be if debt was lower. As a result, productivity and overall economic growth would be slower. As described by the CBO, lower productivity growth 1Congressional Budget Office, ‘‘The Budget and Economic Outlook: 2017 to 2027,’’ January 2017, and ‘‘The 2016 Long-Term Budget Outlook,’’ July 2016. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00064 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 61 would slow the pace of gains in labor compensation, which would tend to provide individuals less incentive to work.2 Q.1.d. During the course of several meetings with President Trump’s nominees, folks kept telling me that they believe we can grow the economy so much that it will offset $2 trillion in tax cuts. Do you believe this is possible? A.1.d. In general, I think most economists tend to agree that the historical evidence suggests that most tax cuts do not usually pay for themselves.3 Even though well-designed tax changes could in- crease household incentives to work and save, along with poten- tially enhancing business incentives to hire and invest, the positive effects of these changes on overall economic growth appear to usu- ally not be large enough to offset the direct budgetary effects of a tax cut. Ultimately, the challenge for fiscal policymakers is that the tax policies chosen must generate revenue sufficient to sustain the level of Government spending that is also chosen. Economy Q.2. Chair Yellen, are there particular areas in the labor market that give you concern? Are there specific sectors you see strong growth in vs. others that are struggling? A.2. The solid gains in payroll employment that we have seen over the past several years have generally been fairly widespread across different sectors of the labor market. However, manufacturing em- ployment has been relatively flat more recently, reflecting in part the effects of the higher foreign exchange value of the dollar, weak foreign economic growth, and tepid domestic demand for capital investment. Particularly as economic activity continues to strength- en, both domestically and abroad, the prospects for the U.S. manu- facturing sector should improve. Indeed, the manufacturing employment has picked up in recent months as factory output has accelerated somewhat. Community Banks Q.3. Chair Yellen, I strongly believe that our community banks serve the folks that keep State’s like mine running. And I think ev- eryone up here knows that our community banks weren’t involved in developing and selling exotic and risky financial products, and they didn’t stray from the products that have served them and their customers for generations. I think it’s time that we provide our community banks with some regulatory relief. I don’t believe they caused the financial crisis and they shouldn’t have to pay for it either. Over the last several years, I’ve seen dozens of mergers and acquisitions of community banks across Montana and its very con- cerning to me. If community banks continue to consolidate, the real losers will be folks living in rural America, States where a majority of our institutions are community banks, and I’m not so sure any- one will fill the void once they are gone. 2Congressional Budget Office, ‘‘The 2016 Long-Term Budget Outlook,’’ July 2016. 3For example, see the Tax Foundation, ‘‘Do Tax Cuts Pay for Themselves?’’ at https:// taxfoundation.org/do-taxcuts-pay-themselves; and the Tax Policy Center, ‘‘Do Tax Cuts Pay for Themselves?’’ at http://www.taxpolicycenter.org/briefing-book/do-tax-cuts-pay-themselves. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00065 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 62 Q.3.a. Can you give me a sense of what the Federal Reserve did in 2016 to ensure that we are protecting consumers, but at the same time differentiating regulations between community banks, regional banks, and global banks? A.3.a. In 2016, the Federal Reserve took a number of steps to re- duce regulatory burden on community banks. For example, in re- sponse to bankers’ concerns about the burden imposed on small banks when large numbers of examiners participate in onsite ex- aminations, the Federal Reserve issued guidance to encourage ex- aminers to review loan files offsite for examinations of banks with less than $50 billion in total assets, if requested by the bank. To- gether with the other banking regulators, the Federal Reserve also reduced the regulatory filing requirements for banks with less than $1 billion in consolidated assets by eliminating about 40 percent of the items in the required quarterly financial reporting form known as the Call Report. In addition, the Federal Reserve enhanced its examination planning process to use updated statistical models to tier community banks by risk level. These enhancements allow ex- aminers to better target their work and should result in less exam- ination time being spent reviewing well-managed, lower-risk com- munity banks. For regional banks with assets between $10 and $50 billion, the Federal Reserve continued to refine its expectations for company-run annual stress tests required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). This included providing banks with additional flexibility with re- spect to required assumptions that must be included in the stress test and extending the length of time allowed to perform and report on the results of the tests. These actions are examples of how the Federal Reserve seeks to tailor its supervisory programs to reflect the lower systemic risks presented by community and regional banks. The March 2017 Joint Report to Congress on the results from the second Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) review highlights many of the actions that the Federal Reserve is undertaking to further reduce regulatory burden on community banks, including simplifying regulatory capital require- ments, addressing challenges in obtaining appraisals, and further reducing items collected on the Call Report. With respect to protecting consumers in their banking activities, the Federal Reserve System conducts specialized examinations to ensure compliance with consumer protection laws and regulations in the institutions under its purview.4 During 2016, the Federal Reserve Banks completed 209 consumer compliance examinations and 206 examinations for the Community Reinvestment Act (CRA) of State member banks. The Federal Reserve is mindful of the im- portance to balance efforts to tailor our supervisory approach in 4For consumer financial protection, the Federal Reserve has examination and enforcement au- thority for Federal consumer financial laws and regulations for insured depository institutions with $10 billion or less that are State member banks and not affiliates of covered institutions, as well as for conducting CRA examinations for all State member banks regardless of size. The Federal Reserve Board also has examination and enforcement authority for certain Federal con- sumer financial laws and regulations for insured depository institutions that are State member banks with over $10 billion in assets, while the Consumer Financial Protection Bureau has ex- amination and enforcement authority for many Federal consumer financial laws and regulations for insured depository institutions with over $10 billion in assets and their affiliates (covered institutions), as mandated by the Dodd-Frank Act. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00066 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 63 consumer compliance with our responsibility to ensure that banks are transparent and fair in their dealings with consumers, regard- less of the size or type of institution involved. Toward this end, the Federal Reserve has adopted the following procedures to conduct risk-focused consumer compliance super- vision, implementing this program in January 2014. Examination intensity is based on the individual bank’s risk profile and effec- tiveness of its compliance controls. In addition, more up-front work is completed offsite. This has improved the efficiency and effective- ness of our examinations and reduced regulatory burden for many community banks. In addition, we have lengthened time between consumer compliance examinations for community banks with lower-risk profiles. Banks with satisfactory consumer compliance ratings are now examined every 48 to 60 months if they have as- sets under $350 million (up from every 24 months). And banks with satisfactory ratings and assets between $350 million and $1 billion are examined every 36 months instead of every 24 months. The Federal Reserve also works to support institutions in their consumer compliance efforts through guidance and outreach to clarify supervisory expectations. For example, the banking agencies have revised the CRA Q&As twice in the past 5 years. The agen- cies are also working together to update interagency examination procedures and other process improvements. With respect to fair- lending examinations, the agencies issued revised Interagency Fair Lending Examination Procedures that provide more detailed infor- mation regarding current fair-lending risk factors that can aid a bank in its analysis of fair-lending risks and to prepare for fair- lending exams. We have also increased our communications with banks during the exam process and engaged in a variety of out- reach activities, such as regular participation in conferences sponsored by both industry and advocacy groups with the goal to highlight fair lending risks so that institutions can take steps to effectively manage compliance. Q.3.b. Is the Federal Reserve concerned about the consolidation we continue to see throughout the industry? A.3.b. The Federal Reserve recognizes the vital role community banks play in local economies and closely monitors consolidation trends at community banks. While several factors have contributed to the decline in the number of community banks, some have at- tributed a significant part of the decline to regulatory compliance costs. Recognizing that regulatory compliance costs may be a con- tributing factor to consolidation, the Federal Reserve seeks to en- sure that its regulations are balanced and provide safety and soundness benefits that are relatively proportional to the resulting compliance costs. In addition, the Federal Reserve tailors its pru- dential standards and examination procedures to banks based on their risk profile, size and complexity. Doing so allows the Federal Reserve to achieve its goal of promoting a strong banking system and preventing or mitigating against the risk of bank failures while minimizing regulatory compliance costs to community banks. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00067 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 64 RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS FROM JANET L. YELLEN Q.1. Small banks and community financial institutions are the cor- nerstones of cities and towns across the country, but they play an especially important part in the economy of my State, South Da- kota. While South Dakotans are proud of the role that smaller fi- nancial institutions have, the rules and regulations promulgated by the Federal Government since the financial crisis are making it harder for smaller institutions to compete. The Economist recently pointed out that more rules and regula- tions were heaped on our financial institutions between 2010 and 2014 than the total number of all financial regulations that existed in 1980. And a study by the Minneapolis Federal Reserve found that adding two extra staffers to the compliance department of a small bank would make the difference for one-third of all small banks between operating at a profit and operating at a loss. Recently I introduced legislation called the TAILOR Act to help ease regulatory overreach for our Nation’s small banks and commu- nity financial institutions. Is our regulatory framework for small banks and community financial institutions appropriate for the cur- rent macroeconomic environment? What further adjustments are needed by Congress? A.1. The Federal Reserve recognizes that the costs of regulation can be a significant challenge for small banks. Accordingly, it seeks to tailor prudential standards and supervisory guidance to commu- nity banks based on their risk, size, and complexity and to mini- mize unnecessary burdens whenever possible. Moreover, as dis- cussed in the March 2017 Economic Growth and Regulatory Paper- work Reduction Act Joint Report to Congress, the Federal Reserve has taken a number of actions independently and jointly with the other regulatory agencies to address issues raised during the re- view that should reduce regulatory burden for community banks. These include leveraging technology to conduct as much of the examination work offsite as possible, significantly cutting the infor- mation collected from small banks on the Call Report, and improv- ing examination planning efforts to better tailor examination work so that well-run, low-risk banks receive significantly less super- visory scrutiny. In addition, the agencies are initiating efforts to ease the conditions under which an appraisal is required to support a commercial loan and to develop a simplified regulatory capital re- gime for community banks. To help further ease regulatory burdens for small banks, Con- gress could consider exempting community banks from two sets of Dodd-Frank Wall Street Reform and Consumer Protection Act re- quirements: the Volcker rule and the incentive compensation limits in section 956. The risks addressed by these statutory provisions are far more significant at larger institutions than they are at com- munity banks. In the event that a community bank engages in practices in either of these areas that raise heightened concerns, we believe that the banking agencies would be able to address them as part of the normal safety-and-soundness supervisory process. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00068 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 65 Q.2. Congress has significant responsibilities with respect to cyber- security, and I’m honored to chair the new Armed Services Sub- committee on Cybersecurity. With its advanced rulemaking notice on cybersecurity in October, the Federal Reserve rightly recognized that our financial infrastructure is a significant target for our Na- tion’s adversaries. Q.2.a. Can you comment on the threats that our financial sector faces and the vulnerabilities that exist in the system? A.2.a. In general, cyber threats against financial institutions are becoming more frequent, sophisticated, and widespread. The rise in frequency and sophistication of cyber attacks can be attributed to numerous factors including nation-states that breach systems to seek intelligence or intellectual property, hacktivists making polit- ical statements through systems disruptions, or bad actors seeking to breach systems for monetary gain. Despite the increasing level of attack sophistication, it is more apparent that a significant portion of successful breaches could have been avoided by adhering to basic information security te- nets, sound technology governance and network administration practices. Q.2.b. Do you have the regulatory authority you need to keep this important part of our economy safe, or is additional action needed on the part of Congress? A.2.b. The Federal Reserve’s general safety and soundness author- ity is the primary source of its information technology require- ments, including those for cybersecurity. In addition, the Federal Reserve, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency have authority under the Bank Service Company Act to examine the services that third parties provide to financial institutions that are supervised under each of the agency’s regulatory authorities. At the present time, the Fed- eral Reserve is not seeking additional regulatory authority in this area. Q.3. The Federal Reserve recently issued a final rule in regards to its Comprehensive Capital Analysis and Review and stress testing rules. In September, Federal Reserve Board Governor Daniel Tarullo gave a speech on the next steps in stress testing. Governor Tarullo’s speech covered numerous areas of stress test- ing, but one particular aspect stood out: the stress capital buffer. Governor Tarullo noted that the Fed ‘‘will be considering adoption of a ‘stress capital buffer . . . ’’’ From his remarks, it appears that the stress capital buffer, which would include an additional risk- based capital requirement, would be substituted for the capital con- servation buffer. A.3. Could you give us your take on the stress capital buffer? And is the Federal Reserve still considering its adoption? At this time, the Federal Reserve Board (Board) does not have plans to propose any significant rules. However, the Board con- tinues to consider ways to more closely integrate CCAR and the Board’s regulatory capital rules. Before making any changes to the Board’s rules, we would provide notice of any proposed changes and invite public comment on them. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00069 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 66 Q.4. President Trump’s recent Executive actions took a strong stance on financial regulatory reform, and Congress has started to revisit and in some cases rescind financial regulations proposed by the previous Administration. Given these developments, do you think that the Federal Finan- cial Institutions Examination Council, including the Federal Re- serve, should take up review of the Dodd-Frank Act and rec- ommend to Congress what rules should be rolled back in light of the President’s recent Executive orders? A.4. The President issued an Executive order on February 3, 2017, that articulates his Administration’s core principles of financial regulation. The Executive order also instructs the Secretary of the Treasury to consult with the heads of the member agencies of the Financial Stability Oversight Council and report to the President within 120 days on (i) the extent to which existing laws and regula- tions promote the core principles; and (ii) any laws or regulations that inhibit Federal regulation of the U.S. financial system in a manner consistent with the core principles. I intend to participate in this Treasury-led review of U.S. finan- cial law and regulation, which will include all the Federal agency members of the Federal Financial Institutions Examination Coun- cil and likely will include review of the Dodd-Frank Wall Street Re- form and Consumer Protection Act. Q.5. I’m concerned that a number of factors abroad could be threat- ening our Nation’s economic recovery. The stalemate between Greece and its international creditors over the past week has been troublesome. And elsewhere around the world, major economies like China are grappling with trouble in their own real estate mar- kets as well as with ballooning debt. Can you discuss the downside risks to the U.S. economy given continued slowdown in China’s economy and Europe’s debt crisis? Do you think China and Europe could become more of a problem for the U.S. economy? A.5. In our highly globalized economic and financial system, no economy can be fully insulated from developments outside its bor- ders. Over the past several years, a series of foreign shocks have buffeted the U.S. economy—including the euro-area debt crisis, un- certainty about Chinese economic policy, and the sizable run-up in the dollar and sharp decline in oil prices. These developments have directly impacted the U.S. economy through their effects on trade and inflation and indirectly through confidence and financial channels. At present, the effects of these past headwinds appear to be wan- ing. Oil prices have stopped falling, thereby easing pressure on en- ergy companies and oil-reliant economies, concerns about financial stability in Europe and China have eased somewhat, and econo- mies abroad have been recovering. These are hopeful signs for the U.S. economy. However, several foreign risks remain a concern, in- cluding those that you raise about China and Europe. Chinese economic growth has been on a general slowing trend over the past few years as a result of demographic changes and the moderation in growth typical of maturing economies. There are concerns, however, that the rapid credit growth in China in recent VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00070 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 67 years may have increased financial risks, and a materialization of those risks could trigger a much sharper slowdown in the economy. Specific concerns include mounting nonperforming corporate debts; a growing reliance on short-term sources of funding in the financial system; rapid growth in house prices; and the possibility that ex- pectations of currency depreciation could cause an acceleration of capital outflows. Should the Chinese economy decelerate abruptly and severely, there would clearly be an impact on the global econ- omy. China is an important market for the exports of other Asian economies as well as for commodity exporters, and these economies would be hit particularly hard. U.S. export growth also would be restrained, both directly, as China has accounted for a significant portion of U.S. export growth since 2007, and indirectly, as other markets for U.S. exports are hindered. While we are attuned to these risks, we do not view a Chinese financial crisis and sharp slowdown in GDP growth as the most likely scenario. Growth remains relatively solid. Chinese authori- ties have recently taken measures to curb the rapid rise in house prices and slow the growth of lending. Market participants seem more comfortable with the Chinese authorities’ current approach to their currency. And the government has sufficient resources to pro- vide important support to the financial sector in case of distress. Regarding your concern about Greece, and Europe more gen- erally, European economies have shown considerable improvement over the past few years. The economic recovery appears to be gain- ing momentum and unemployment rates have been falling. More- over, the European Central Bank has taken a number of actions to help backstop sovereign debt, and the region has made substantial progress toward banking union. Thus, other European countries are better insulated from the situation in Greece than they were in 2010 when the debt crisis broke out. However, Greece still faces daunting financial and economic chal- lenges, including its very high and growing level of public debt, the resolution of which will require further difficult steps—including additional Greek reforms and additional debt relief from Greece’s creditors. Developments in Greece continue to have the potential for disruptions that could spill over and affect the European eco- nomic outlook and global financial markets. It is encouraging that Greek and European authorities have reached a preliminary agree- ment on a package of economic reforms that Greece must imple- ment to receive another disbursement of official financing. Europe faces other challenges as well, such as negotiating the United Kingdom’s withdrawal from the European Union (EU), fol- lowing through on the EU’s structural reform agenda, and continuing to make progress on economic recovery and lowering un- employment. We will continue to monitor the European economy, as we consider how foreign developments may affect the achieve- ment of our domestic objectives of price stability and maximum employment. Q.6. The Federal Funds rate has been at an extremely low, nearly zero level for quite some time since the financial crisis. On Feb- ruary 1, the Federal Open Market Committee (FOMC) decided to keep the target range for the Federal funds rate at a half to three quarters of 1 percent. The FOMC’s press release cited improving VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00071 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 68 conditions in the economy including a strengthening labor market, solid job gains and increasing inflation. Where would the Fed like to see additional improvements in the economy before raising the target rate? A.6. At the Federal Reserve, we are squarely focused on achieving our congressionally mandated goals of maximum employment and price stability. These goals guide our decisions regarding the appro- priate level of the Federal funds rate. At our most recent meeting, on March 14–15, the Federal Open Market Committee (FOMC) did raise the target range for the Fed- eral funds rate by 1⁄ 4 percentage point, to 3⁄ 4 to 1 percent. That de- cision was based in part on incoming data indicating that the labor market had continued to strengthen and that inflation had moved closer to the FOMC’s 2 percent objective. In addition, our decision in March reflected our expectation that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen some- what further, and inflation will reach 2 percent on a sustained basis. The same factors that drove our decision in March will be key for our future deliberations about the appropriate path for the Fed- eral funds rate. In particular, if the U.S. economy continues to evolve broadly as the FOMC anticipates—economic activity expand- ing at a moderate pace, labor market conditions strengthening somewhat further, and inflation reaching 2 percent on a sustained basis—additional increases in the Federal funds rate are likely this year. Indeed, the median assessment of FOMC participants at our March meeting was that an additional 1⁄ 2 percentage point cumu- lative increase in the Federal funds rate would likely be appro- priate over the remainder of this year, which would bring the year- end target range for that rate to 11⁄ 4 to 11⁄ 2 percent. Nonetheless, as my FOMC colleagues and I have said many times, monetary policy cannot be and is not on a preset course. The FOMC stands ready to adjust its assessment of the appropriate path for the Federal funds rate if unanticipated developments ma- terially change the economic outlook. RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS FROM JANET L. YELLEN Q.1. Chair Yellen, in your testimony you stated that you expect in- flation to ‘‘gradually [rise] to 2 percent;’’ ‘‘toward 2 percent;’’ ‘‘return to 2 percent;’’ etc. Can you expound on whether 2 percent inflation represents a target objective or is a ceiling? A.1. The Federal Open Market Committee (FOMC) sets monetary policy to achieve its statutory goals of maximum employment and price stability set forth in the Federal Reserve Act. As indicated in its Statement on Longer-Run Goals and Monetary Policy Strategy, which the Committee first agreed to in January 2012 and reaffirms each year, the FOMC judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures (PCE), is most consistent over the longer run with the Federal Reserve’s statutory mandate for price sta- bility. The Committee’s 2 percent inflation objective is not a ceiling. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00072 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 69 Indeed, the Committee indicates in the Statement of Longer Run Goals that it would be concerned if inflation were running persist- ently above or below 2 percent, and that its inflation goal is sym- metric. Communicating this symmetric inflation goal clearly to the public is important because it helps keep longer-term inflation ex- pectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee’s ability to promote maximum employment in the face of significant economic disturbances. In communications with the public over the past year—the state- ment issued after FOMC meetings, the minutes of those meetings, the Chair’s quarterly post-meeting press conferences, and the Mon- etary Policy Report and testimony—the Federal Reserve has indi- cated that it expected headline inflation to rise over time to the Committee’s 2 percent objective. In the event, 12-month PCE price inflation rose to nearly 2 percent in January, up from less than 1 percent last summer. That rise was largely driven by energy prices, which have been increasing recently after earlier declines. Core in- flation, which excludes volatile energy and food prices and tends to be a better indicator of future inflation, has been little changed in recent months at about 13⁄ 4 percent. The Committee expects core inflation to move up and overall inflation to stabilize around 2 per- cent over the next couple of years, in line with its longer-run objec- tive. The economic projections submitted by individual FOMC par- ticipants before the March 2017 FOMC meeting are consistent with this view, with projections for headline and core inflation in 2019 ranging from 1.8 percent to 2.2 percent, with a median projection of 2.0 percent. Q.2. Chair Yellen, the Federal Financial Institutions Examination Council is supposed to coordinate the work of different regulators, but I am hearing that in practice this is not happening. Do you be- lieve we need separate layers of examination at the holding-com- pany level by the Fed and OCC? What added value is there for having both the Fed and OCC examine a bank—is one incapable of doing the job? Does the Fed not trust the OCC to conduct exami- nations or the OCC’s expertise? Do you believe that there is regu- latory cooperation taking place as it should? A.2. The Federal Reserve has statutory responsibility for super- vising bank and savings and loan holding companies on both a consolidated and parent-company-only basis. Holding company su- pervision complements the examination work completed by the other banking agencies, including the Office of the Comptroller of the Currency, but its focus is different than that of bank super- vision. Specifically, holding company supervision aims to ensure that the parent serves as a source of strength to its depository in- stitutions and that nonbank activities conducted by the holding company, many of which are supervised solely by the Federal Re- serve and can be quite substantial for some complex holding com- panies, do not adversely affect the safety and soundness of insured depositories. Lastly, holding company supervision assesses the overall consolidated financial and managerial condition of the con- solidated organization, including all subsidiary banks, nonbanks and the parent company. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00073 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 70 In fulfilling its holding company supervision responsibilities, the Federal Reserve cooperates and coordinates closely with the Fed- eral and State supervisors of insured depositories and nonbank en- tities and relies substantially on the work and expertise of these agencies in evaluating the condition of any banks or nonbanks they directly supervise. The principle of coordinating with the other reg- ulatory agencies is required by statute and is a well-established tenet of the Federal Reserve’s supervisory process. For example, section 604 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, now codified in the Bank Holding Company Act, re- quires that the Federal Reserve rely to the fullest extent possible on the work of other regulators. The Federal Reserve reinforced this requirement by issuing SR 12–17, Consolidated Supervision Framework for Large Financial Institutions, and SR 16–4, Relying on the Work of the Regulators of the Subsidiary Insured Depository Institutions) of Bank Holding Companies and Savings and Loan Holding Companies with Total Consolidated Assets of Less than $50 Billion. Both of these supervisory directives require Federal Reserve examiners to work with the primary regulators of insured depositories to avoid duplication of effort and minimize regulatory burden. These directives and other Federal Reserve guidance also tailor expectations for examiners depending on an organization’s size, complexity, and degree of systemic risk. For smaller bank holding companies, where consolidated assets are composed principally of the assets of the subsidiary bank, nonbank activities are minimal, and parent company leverage is low, the Federal Reserve limits its work and relies substantially on the primary regulator’s examina- tion of the insured depository to assess the condition of the holding company. As holding companies become larger and more complex, and nonbank activities become more important to the organization, inspection work correspondingly expands. However, regardless of the size, complexity and risk of the holding company, the Federal Reserve endeavors to avoid duplication by relying on primary regu- lators whenever possible, meeting regularly with them to ensure we are not duplicating efforts, and using their examination work to reach a consolidated supervisory view. Q.3. Chair Yellen, you have been asked in the past whether there are liquidity problems in the bond market—can you tell me wheth- er or not there is a present or imminent problem? I think it is im- portant to get the diagnosis right, so I want to understand whether you think there is a liquidity problem in the bond market, and that if you are merely monitoring the situation, whether or not that in- dicates a cause for concern in terms of what lies ahead. A.3. In corporate bond markets, estimated bid-ask spreads have de- clined and estimated price impacts are lower than in the early 2000s, indicating that, if anything, liquidity may have improved de- spite the reduction in dealer holdings of these securities.1 Demand from buy-side market participants has been very high, which has likely helped to support market liquidity. Partly as a result of this high demand, corporate debt issuance has been quite robust, which 1See Bruce Mizrach, ‘‘Analysis of Corporate Bond Liquidity,’’ Financial Industry Regulatory Authority (FINRA), Office of the Chief Economist Research Note, December 2015. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00074 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 71 in turn can help to explain some of the decline in turnover as some of these investors may be more likely to buy and then hold the se- curities for some time. However, while acknowledging that some key measures do not show a decline in liquidity, we must recognize that our ability to measure market liquidity is imperfect. We have less data on deal- er-to-customer trading in Treasury markets than in the interdealer market, and, given the nature of the corporate bond market, esti- mates of liquidity are based on transactions rather than on direct observations of quotes to buy or sell these bonds. We have heard the concerns from market participants that they may not be able to buy or sell large quantities of securities in a timely fashion. The Federal Reserve is taking these concerns about market liquidity se- riously. We are committed to analyzing liquidity conditions across a wide array of financial markets as market liquidity is important for the conduct of monetary policy, the health of the financial sys- tem and financial stability. Federal Reserve staff regularly assess and monitor liquidity conditions on an ongoing basis for all of the reasons cited. Federal Reserve Board staff have also been involved in several projects on market liquidity both internally and with other U.S. Government agencies. Internally, staff have studied and are con- tinuing to study whether there has been a decline in secondary market liquidity in the fixed-income markets. Although we have not found strong evidence of a significant deterioration in day-to- day liquidity, it is possible that changes in the structure of markets have made liquidity less resilient. This is more difficult to analyze because it involves the study of relatively infrequent events. Among the factors we have looked at, algorithmic traders have be- come more prevalent in the Treasury market, and the share of bond holdings held by open-end mutual funds, some of which pro- vide significant liquidity transformation, has grown significantly in the post-crisis period. Internal work has explored the importance of these factors, and it has also focused on changes in the broker deal- er business model and on the potential impact of regulatory changes on market liquidity. We note that staff at the Federal Re- serve Bank of New York have also done a number of studies on market liquidity and have recently published some of this work online.2 Federal Reserve staff have also played a key role in the inter- agency work on the events of October 15, 2014, when fixed-income markets experienced a sudden and extreme increase in market volatility.3 Staff also continue to engage actively with the U.S. Treasury, the Commodity Futures Trading Commission, and the Securities and Exchange Commission (SEC) on work examining longer term changes in fixed-income market structure and their po- tential impact on market liquidity. Q.4. Chair Yellen, can you let me know Governor Tarullo’s precise responsibilities at the Fed, how you work with Governor Tarullo in his execution of those responsibilities, and can you commit to me 2http://libertystreeteconomics.newyorkfed.org/2016/02/continuing-the-conversation-on-liquid- ity.html#.Vs3HdXIUWmR. 3http://www.federalreserve.gov/newsevents/press/other/20150713a.htm. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00075 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 72 that you will work with whomever President Trump nominates to serve as the Vice Chair for Supervision at the Fed? A.4. As you know, among the duties assigned by Congress to the Federal Reserve Board (Board) is responsibility for promoting a safe, sound, and stable financial system that supports the growth and stability of the U.S. economy. The Board as a whole is charged with this important duty and is held accountable by Congress and the taxpayer for carrying out this responsibility continuously and under all circumstances. In order to better be able to carry out its responsibilities, the Board would welcome action by the President and the Senate to appoint and confirm a Vice Chairman for Super- vision as well as to fill the other vacancies on the Board. To update you on our internal leadership, as you may know, Gov- ernor Jay Powell is now Chairman of the Federal Reserve Board’s Committee on Supervision and Regulation. As a longtime member of the committee and a Governor steeped with financial services ex- perience, I believe Governor Powell will serve as an excellent chair- man. As I have indicated in my testimony, upon confirmation, the new Vice Chairman for Supervision will assume the chairmanship of this committee. Q.5. Chair Yellen, aside from the Joint Agency Frequently Asked Questions document circulated with supervisory letter SR–16–19, has the Federal Reserve conducted any research into the impact that the Current Expected Credit Loss (CECL) standard will have on capital reserves, credit availability, and the potential for a re- duction in credit during times of economic stress? If so, please de- tail. If not, why not? Q.5.a. While CECL is designed to help prevent the credit bubbles such as the one that fueled events surrounding the 2008 financial crisis, many have expressed concerns given the need for a financial institution to account for losses on the life of a loan at the time of origination and thus the capital reserves held against those losses- that in times of economic stress, financial institutions may reduce lending exacerbating the economic stress. What has the Federal Reserve done to address this concern and has the Federal Reserve discussed this with the other Federal financial regulators? A.5.a. The Financial Accounting Standards Board (FASB) issued the final Current Expected Credit Loss (CECL) standard on June 16, 2016, with the earliest mandatorily effective date of January 1, 2020, for calendar year-end SEC registrants. We followed the FASB’s CECL standard during its development and will continue to do so through implementation. One of the stated intents of the CECL standard is to align the accounting with the economics of lending by requiring banks and other lending institutions to record the full amount of credit losses that are expected over the life of a loan on a more timely basis. There was a general belief that the existing accounting framework resulted in loan loss allowances that were ‘‘too little, too late’’ and that the accounting framework should be changed to address this weakness. This goal is accomplished in part by requiring that the allowance reflects losses a firm expects to experience over the remaining life of their loans instead of un- duly delaying recognition until the point where losses have already been incurred. The CECL standard also requires incorporation of VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00076 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 73 a reasonable and supportable forecast of future conditions allowing firms to incorporate on a more timely basis early indicators of de- terioration in credit quality such as loosening underwriting standards. Since the FASB’s final issuance of the CECL standard, we have established various groups to conduct research on the impact of the CECL standard on loan loss provisioning, regulatory capital, and the availability of credit through the economic cycle. We are in the earlier phases of our research given that FASB issued the CECL standard in June 2016. We are working closely with other U.S. Federal financial institution regulators to monitor the implementa- tion of the CECL standard and its micro-prudential and macroprudential impacts. We meet on a regular basis to ensure consistent resolution of key issues and timely communication to the industry. Q.5.b. The annual Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Stress Tests (DFAST) require a covered fi- nancial institution to project potential losses under each scenario for eight quarters into the future. Starting in 2018, this eight quar- ter projection will begin to run until January 2020, the date at which CECL would begin implementation. While CCAR does not currently require calculations based upon future changes to the ac- counting rules, there is uncertainty about whether the Federal Re- serve will require institutions to essentially run two sets of calcula- tions for each scenario, one under the Allowance for Loan and Lease Losses (ALLL) and one under CCAR. How does the Federal Reserve plan to implement CECL into CCAR in 2018? Will covered financial institutions need to prepare two sets of calculations based on differing accounting standards for each scenario? Please de- scribe in detail how the Federal Reserve intends to address this matter. A.5.b. On January 6, 2017, we provided instructions to firms to ex- clude the effect of the CECL standard in 2018 Dodd-Frank Act Stress Tests/Comprehensive Capital Analysis Review (DFAST/ CCAR). In past CCAR submissions, bank holding companies were instructed not to reflect the adoption of new accounting standards in their projections unless a firm had already adopted the account- ing standard for financial reporting purposes. For 2018 DFAST/ CCAR, consistent with previous guidance, we instructed firms to exclude the effect of the CECL standard. RESPONSES TO WRITTEN QUESTIONS OF SENATOR PERDUE FROM JANET L. YELLEN Q.1. Madame Chair, currently among all the financial institutions under the Federal Reserve’s supervision: Q.1.a. How much are all the member institutions combined hold- ings in Total Risk-Based Capital? A.1.a. The Federal Reserve is the consolidated supervisor of all U.S. bank holding companies and savings and loan holding companies (U.S. depository institution holding companies), as well as the supervisor for State member banks. The Federal Reserve Board’s (Board) capital rules, which include the requirement to VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00077 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 74 hold a minimum amount of total (risk-based) capital, apply to all State member banks and to certain bank holding companies and savings and loan holding companies.1 The aggregate amount of total capital held by U.S. depository institution holding companies that are subject to the Board’s capital rules at the consolidated level is approximately $2.007 trillion as of December 31, 2016.2 The aggregate amount of total capital held by State member banks is approximately $272.3 billion as of December 31, 2016.3 Q.1.b. How much of it is comprised of Common Equity Tier 1? A.1.b. Approximately $1.554 trillion (77 percent of aggregate total capital) held by U.S. depository institution holding companies de- scribed above is in the form of common equity tier 1 (CET1) cap- ital.4 Approximately $247.4 billion (91 percent of the aggregate total capital) held by State member banks is in the form of CET1 capital. Q.1.c. Are there comparable figures that you can disclose from 2007? A.1.c. U.S. bank holding companies reported an aggregate amount of approximately $1.017 trillion in total capital as of December 31, 2007.5 The CET1 capital measure was not in effect as of year-end 2007. However, we estimate that, as of December 31, 2007, ap- proximately $523.8 billion (52 percent of the total capital) held by U.S. bank holding companies was in a form that would qualify as CET1 capital under the current capital rules of the Board.6 State member banks reported an aggregate amount of approximately $148.3 billion in total capital as of December 31, 2007.7 Using the same methodology as used for U.S. bank holding companies, we es- timate that, as of December 31, 2007, approximately $114.6 billion 1Total capital is defined in the Board’s capital rules under 12 CFR 217.20. 2This figure reflects the aggregate value of the total capital as reported by U.S. holding com- panies subject to consolidated capital requirements, including bank holding companies, savings and loan holding companies, and intermediate holding companies of foreign banking organiza- tions, on Schedule HC–R of the Consolidated Financial Statements for Holding Companies re- port (FR Y–9C). 3This figure reflects the aggregate value of the total capital as reported by State member banks on Schedule RC–R of the Call Report (Consolidated Reports of Condition and Income for a Bank with Domestic and Foreign Offices (FFIEC 031) and Consolidated Reports of Condition and Income for a Bank with Domestic Offices Only (FFIEC 041)). 4CET1 capital is defined in the Board’s capital rules under 12 CFR 217.20(b). 5This figure reflects the aggregate value of the total capital as reported by U.S. bank holding companies that were subject to consolidated capital requirements on Schedule HC–R of the Con- solidated Financial Statements for Holding Companies report (FR Y–9C), as of December 31, 2007. The Board’s revised regulatory capital framework, adopted in 2013, amended the defini- tion of total capital. Note that Title III of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) transferred to the Board the supervisory functions of the Office of Thrift Supervision related to savings and loan holding companies beginning on July 21, 2011. Thus, 2007 data do not reflect capital requirements for these firms. In addition, intermediate holding companies of foreign banking organizations were formed pursuant to the Board’s Regu- lation YY, which implements the enhanced prudential standards mandated by the Dodd-Frank Act. Thus, 2007 data similarly do not reflect capital requirements for these firms. 6This methodology used to create this estimate is consistent with that used by the Federal Reserve in 2012 to estimate the impact of changes to the regulatorily capital rule. That method- ology was made publicly available on November 14, 2012, as part of remarks made to the Senate Committee on Banking, Housing, and Urban Affairs by Michael Gibson, Director of the Division of Banking Supervision and Regulation at the Board. Those remarks and the methodology used by the Federal Reserve (see Attachment A) are available here: https://www.federalreserve.gov/ newsevents/testimony/gibson20121114a.htm. 7This figure reflects the aggregate value of the total capital as reported by State member banks on Schedule RC–R of the Call Report (Consolidated Reports of Condition and Income for a Bank with Domestic and Foreign Offices (FFIEC 031) and Consolidated Reports of Condition and Income for a Bank with Domestic Offices Only (FFIEC 041)). The Board’s revised regulatory capital framework, issued in 2013, amended the definition of what qualifies as total capital. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00078 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 75 (77 percent of the total capital) held by State member banks was in a form that would qualify as CET1 capital under the current capital rules of the Board. Q.2. Madame Chair, I am grateful for all the hard work that you and your colleagues at the Federal Reserve have undertaken. How- ever, I am concerned about the rising levels of global debt. Since 2007, governments alone have added over $25 trillion in debt, with the advanced economics contributing to 75 percent of the increase. The combined global household, corporate, and government debt has exceeded $200 trillion. a. At $200 trillion in global debt, global debt is leveraged at nearly 3 times as much as the global economy. Do you have concerns that the world is overleveraged? b. Where do you see the systemic risks in the global economy? i. Chinese corporate debt? ii. Greek debt default? iii. Capital flight from emerging markets as the Fed and Bank of England raise rates? iv. Japanese governmental debt? A.2.a.–A.2.b. Rising debt levels are a concern to the extent that borrowers could face difficulty servicing that debt if their incomes decline or the interest rates that they pay increase. Debt servicing can also potentially crowd out other spending, thereby placing a drag on the economy. Since the global financial crisis, debt has grown in many coun- tries. Much of that growth reflects increases in sovereign debt that were accumulated as governments supported their economies dur- ing the crisis, recession, and slow recovery. Such higher debt levels are a source of concern, both because they may signal diminished creditworthiness and because they may constrain governments in responding to future economic shocks. However, in most cases, debt remains on a sustainable path as evidenced by the very low level of sovereign bond yields. In some countries, however, sovereign debt and bond yields are at more worrisome levels, and more con- certed efforts at debt reduction are needed. In addition to sovereign debt, corporate debt levels have also in- creased in a number of countries, especially emerging market economies. By many assessments, the risks associated with high le- verage do not appear to be widespread across countries and sectors. In addition, rising interest rates in advanced economies by them- selves should not be problematic for emerging market borrowers if they are associated with stronger global economic activity. How- ever, a sudden reversal in sentiment that leads to a revaluation of risk-return tradeoffs and a rapid reversal in capital flows can cer- tainly have adverse consequences, especially for highly leveraged emerging market firms. This is a risk that we continue to monitor, although U.S. investors’ direct exposures to the emerging market corporate sector remain fairly limited. U.S. investors’ direct exposures to China’s corporate debt are also low, but China is a significant part of the global economy, and its corporate debt has risen rapidly in recent years. China’s corporate debt is currently estimated to be about 170 percent of gross VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00079 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 76 domestic product (GDP), which is high for an emerging market economy. That poses a potential vulnerability for the Chinese econ- omy, particularly to the extent that this debt has financed low- return investments. A mitigating factor is that policymakers have substantial resources and tools to address the issue, especially because the banks and most of the entities borrowing are state-owned. Greece still faces daunting financial and economic challenges, in- cluding its very high and growing level of public debt. European authorities acknowledge that Greek public debt sustainability re- mains a serious concern, and that a resolution will require further difficult steps—including additional Greek reforms and additional debt relief from Greece’s creditors. It is encouraging that Greek and European authorities have reached preliminary agreement on a package of economic reforms that Greece must implement to re- ceive another disbursement of official financing. Japan’s government debt is equal to about 200 percent of GDP, the highest among the G–7 economies. Ratings agencies have cited that high debt level in downgrading the rating of Japanese govern- ment bonds over the past few years. The burden of that debt is currently reduced by the extremely low interest rates that the gov- ernment pays, with 10-year Japanese government bond yields around zero. Domestic Japanese investors, including banks and in- surance companies, are willing to hold most of this debt at those low interest rates. Eventual rises in Japanese bond yields would in- crease the burden of that debt, but if the yield rises are driven by improving economic growth and rising prices, tax revenues would rise as well. Eventually, action will be needed to reduce the debt. Q.3.a. Madame Chair, I want to focus on the issue of currency re- valuations. With the election of President Trump and a likelihood of tax reform and an infrastructure package, the market is already building in higher inflation prospects into the value of the dollar. Now, we have discussions of a border-adjustment tax that some wish to implement. Do you believe that the authors of the Border Adjustment Tax are correct, that the imposition of a 20 percent tax on imports would result in an immediate 20–25 percent appreciation of the dollar or do you believe the effect of a border tax on the currency market is harder to both calculate and anticipate? A.3.a. There is now substantial literature on the potential effects of the border adjustment tax. While there is a logic for why the dol- lar might fully adjust to offset the effects on U.S. trade and import prices, it is unclear whether that would happen in practice. Based on experience looking at foreign exchange markets and the many factors that can affect them, there is considerable uncertainty about how exchange rates would evolve following the imposition of a border adjustment tax. Q.3.b. What is the effect of an overnight 20 percent appreciation of the dollar on the global economy, especially the emerging mar- kets? A.3.b. The economic effects of exchange rate movements will de- pend in part on the factors behind those movements. For example, if dollar appreciation were caused by a stronger outlook for U.S. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00080 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 77 economic growth, then one might expect a relatively favorable impact on the global economy. All else equal, however, dollar ap- preciation makes U.S. goods more expensive abroad and foreign goods cheaper in the United States. Over time this should have several effects. First, it should restrain U.S. exports and boost U.S. imports, reducing U.S. aggregate demand and economic activity. Second, it should put some downward pressure on import prices in the United States and eventually may put some upward pressure on prices of some consumer goods. The counterpart of dollar appre- ciation is the depreciation of foreign currencies. Currency deprecia- tion would tend to boost the net exports of our trading partners, but that positive effect on their economies could be offset by nega- tive impacts from a tightening of financial conditions, especially in emerging market economies, as capital inflows slow and some cen- tral banks are forced to tighten monetary policy to resist rising in- flation. In addition, some emerging-market corporations that have debt denominated in dollars could face difficulties. Q.3.c. If the dollar appreciates as anticipated, would there be sub- stantial risks to U.S. pension funds and other U.S. investors that hold foreign assets? A.3.c. U.S. investors hold nearly $8 trillion in foreign-currency de- nominated financial assets and nearly $4 trillion in foreign-cur- rency denominated foreign direct investment. Thus a 20 percent appreciation of the dollar, were it to occur, could generate signifi- cant wealth losses. These foreign-currency assets are held by a va- riety of U.S. investors, including households in the form of mutual fund investments, as well as by pension funds, insurance compa- nies, and other financial intermediaries. For pension funds specifi- cally, foreign-currency assets are a relatively small portion of their $19 trillion in total financial assets. However, for U.S. investors more generally, a decline in wealth would be expected to have some effect in reducing spending. Again, it is worth noting, there is much uncertainty about these potential outcomes. VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00081 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL 78 ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00082 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.83071412 for use all 0:00a.m., EST Froruaty 14, 2017 MoNETARY Poucv REPORT February 14, 2017 Board of Governors of the Federal Reserve System 79 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00083 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.93071412 lETIER OF TR ANSMITIAL BOARD OF GOVERNORS OF TfiE fEDERAL RESERVE SYSlF.M Washington. D.C.. February 14, 2017 Tue PResiOENTOI'Tfm SENA1'E TnE SPr:AKF.RO F TilE HouSE OF REPRF.SENTATtves The lloard of Governors is pleased to submit its Monetary Policy Report pursuant to section 21) of tbe Federal Reserve Act. ~{~ Janet L. Yellen. Chair 80 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00084 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.04071412 STATEMENT oN LoNGER-RuN GoALS AND MoNETARY Poucv STRATEGY Adoptc>d ei(ecuve January 24, 20 12; as amended eiiective January J I 2017 The Federal Open Market Committee (FOMC) is firmlyc ommitted to fulfilling its statutory mandate from the Congress of promoting maximume mployment, stable prices. and moderate long-term interest rates. The Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Suchc larity facilitates weU-informed decisionmakiog by households and businesses, reduces economic and financial uncert:tinty, increases the e!Tectiveness of monetary policy, and enhances transparency and aceountability, which are essential in a democratic society. Inflation, employment, and long-term interest rates fluctuate over time in response to economic and financial disturbances. Moreo~~r, monetary policy actions tend to influence economic activity and prices with a lag. Therefore, the Committee's policy decisions reflect its longer-run goals, its medium term outlook. and its assessments of the balance of risks. including risks to the financial system that could impede the attainment of the Committee's goalo;. l11e inflation rate over the longer run is primarilyd etermined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for ioDation. The Committee reaffirm> its judgment that inllation at the rate of2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. llle Committee would he concemed if inflation were running persistentlya bove or below this objective. Communicating this symmetric inflation goal clearly to the public helps keep longer-termi nflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee's ability to promote maximum employment in the face of significant economic disturbances. The maximum level of employment is largely determined by nonmonetary factors that afiect the structure and dynamics of the labor market. These factors mayc hange over time and may not he directly measurable. Consequently, it would not be appropriate to specify a fixed goal for employment; rathe~ the Committee's policy decisions must be informed by assessments of the ma.\imum level of employment, recognizing that such assessments are necessarily uncertain and subject to revision. The Committee considers a wide range of indicators in making these assessments. Information about Committee participants' estimates of the longer-run normal rates of output growth and unemployment is published four times per year in the FOMC's Summary of Economic Projection~ For example. in the most recent projections, the median of FOMC participants' CJ;timates of the longer-rnn normal rate of unemployment was 4.8 pen:ent. In setting monetary policy. the Committee seeks to mitigate deviations of inflation from its longer-run goal and deviations of employment from the Committee's assessments of its maximnm level. These objectives are generaUy complementary. However. onder circum>tances in which the Committee judges that tbe objectives are not comp~mentary, it foUows a balanced approach in promoting them, taking into aceount the magnitude of the de,~ations and the potentially dilferent time horizons over whiche mployment and inflationa re projected to return to lmls judged consistent with its mandate. 111e Committee intends to reaflirmt hese principles and to make adjustments as appropriate at its annual organizational meeting each January. 81 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00085 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.14071412 CoNTENTS Summary .................................................. 1 Part 1: Recent Economic and Financial Developments ................ 3 Domestic Developmems. .................................................... 3 Financial Developments .................................................... 19 International Developments ................................................. 24 Part 2: Monetary Policy ....................................... 29 Part 3: Summary of Economic Projections ......................... 33 The Outlook for Economic Activity ............................................ 34 The Outlook for Inflation ........•....•.•..•.•........•...........•......•.• 36 Appropriate Monetary Policy ................................................ 39 Uncertainty and Risks ...................................................... 39 Abbreviations .............................................. 47 List of Boxes The Recovery from the Great Recession and Remaining Challenges. . ...... 6 Homeownership by Race and E~tnidty . .. . .. .. .. . .. .. .. . .. .. . .. .. 14 Developments Related to Financial Stability ..................................... 22 Forecast Uncertainty ...................•....•....................•......•.. 45 Non: Unless staled odlMvise, the time series in the ligures e<teod lhroogh. fO< daily data, februa~· 9, 2017; for monthly data, January 2017; and, ior quarterly data, 201 &:Q4.1n bar charts, except as noted, the change ior a gii'Eil period is measured to iB final quarte< from the final quar~ of !he pr«:c;ding penod. for figures 14, 33, and 37, nolethatthe S&P 500 lnde< and the Dow Jones Bank todex are produe1s oi S&P Dow Jones lndicesllC an<l'or its affiliates and ha"e been licensed for use by the Board. Copyright" 2017 S&f' Dow Jones lndicesllC. a !Ubsidiary of the McGraw Hill Finaodallnc., and/or its afriliates. All righ~ resen-..1. Redistribution, reproduction, and/or photocowing in whole "'in part are prohibited without written penrission of S&P Dow jones Indices LLC. for more information on any of S&P Dow Jones lndioes llC's indices please 1isit """v.spdji.com. S&~ is a regiSiered traden1.1rl< of Standard & Poofs financial Ser\icesllC, and Dow Jone9® is a registered tl3derrorl< of Dow Jones Tr.~de<nark Holdings LLC. Neither S&P Dow jones lodices LLC, Dow Jones Tr.~demark Hol<fngs LLC, their affiliates nor their third pa1ty licensors 0\lke any representation or wa!T3rlty, express 0< iflllied, as to the abilit)' of aoy Index to accurately represent the assel class or market sector that it purports to represeo~ aod n6ther S&f' Dow Jones Indices LLC, Oow Jones Trademark Holdings LLC,Iheir affiliates nor d>eir third party licensors shall ha~~ aoy liabil~y for any errors, omissions, or interruptions ol an}' index ort he data included thecein. 82 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00086 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.24071412 SUMMARY Labor market conditions continued to spending has beene xpanding at a moderate strengthen over the second half of 2016. pace, supported by solid income gains and Payroll employment has continued to post tbe ongoing effects of increases in w~alth. solid gains. averaging 200.000 per month since The housing market has continued its gradual last June. a touch higher than the pace in the recovery, and fiSCal policy at aU levels of ftJSt half of2016, though down modestly government has provided a modest boost from its 225,000-per-month pace in 2015. The to economic activity. Business investment unemployment rate bas dedined slightly since had been weak for mnch of2016 but posted mid-201 6; the 4.8 percent reading in January larger gains toward the end of the year. of this year was in line with the median of Notwithstanding a transitory surge of exports Federal Open Market Committee (Fm1C) in the third quarter, the underlying pace of participants' estimates of its longer-run exports has remained weak, a reflection of the normal level. The labor force participation appreciation of the dollar in recent years and r.lte has edged higlter, on net, since midyear the subdued pace or foreign economic groMh. despite a stn1ctural trend that is moving down as a result of changing demographics of the Domestic financial conditions have generaUy population. Ina ddition. wage groll'lhsecms to been supportive of economic growth since have picked ups omewhat relative to its pace of mid-2016 and remain so despite increases in a few years ago. interest rates in recent months. Long-term TreasUI)' yields and mortgage rates moved Consumer price inOatiou moved higher last up from their low le\<els earlier last year but year but remained below the FOMC's longer are still quite low by historical standards. run objecth~ of 2 percent. The price index for Broad measures of stock prices rose. and the personal consumption expenditures {PCE) financial sector outperformed the broader increased 1.6 percent over the 12 months equity market. Spre.ads of yields of both ending in December, I percentage point more speculative-and investment-gradec orporate than in2 015, importantly reftecting that bonds over yields of comparable-maturity energy p~ have turned back up and declines Treasury securities declined froml evels that in non-oil import prices have waned. The were somewhat elevated relative to the past PCE price index excluding food and energy several years. Even with an ongoing easing in iten~ which provides a better indication than mortgage credit standards, mortgage credit is the headline index of where overall inflation still relatively difficult to aecess for borrowers wiU be in the future, rose 1.7 percent over with low credit scores, undocumented income, the 12 months ending in December, about or high debt-to-income ratio~ Student and Y. percentage point more than its increase auto loans are broadly available. including in 2015. Meanwhile, survey-based measures to borrowers with non prime credit scores. of longer-run inftation expectations ha'-e and the availability of credit card loans for remained generally stable, though some are at such borrowers appears to have expanded relatively low levels; market-based measures somewhat over the past several quarters. In of inflationc ompensation have moved up in foreign financial markets, meanwhile, equities, recent months but also are at low Je,~ls. bond yields, and the exchange value of the U.S. doUar hal"e all risen, and risk spreads have Real gross domestic product is estimated to generallyd eclined since June. have increased at an annual rate of 2Y.. percent in the second half of the year after rising Financial vulnerabilities in the U.S. financial only I percent in the first half. Consumer system O\'eraU have continued to be moderate 83 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00087 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.34071412 2 Sl!M'MRY since mid-2016. U.S. banks are well capitalized The Commillee has continued to emphasize and have sizable liquidity l>uffers. Funding that, in determining the timing aud size of markets functioned smoothly as money market future adjustments 10 the target range for mutual fund reforms took effect in October. the federal funds rate, itwiU assess realized The ratio of household del>tto income bas and expected economic conditions relative changed lillie in recent quarters and is still to its objectives of maximum employment far below lhe peak level it reached about a and 2 percent inllation. The Committe~ has decade ago. Nonfinancial corporate business expected that economic conditions 11ill evolve leverage bas remained elevated l>y historical in a manner that will warrant only gradual standards even though outstanding riskier increases in the federal funds rate. and that the corporate del>! declined slightly last year. In federal funds rate 11~1llik-ely remain, for some addition, valuation pressures in some asset time, below levels that are expected to prevail classes increased, particularly late last year. in the longer run. Consistent with this outlook, The Federal Reserve bas continued to take in the most recent Summary of Economic steps to strengthen the financial system, Projections (SEP), which was compiled at including finalizing a rule that imposes total the time of the December meeting of the loss-absorbing capacity and long-term del>t FOMC, most participants projected that the requirements on the largest internationally appropriate level of the federal funds rate active bank holding companies as well as would be below its longer-nm leYel through concluding an extensive review of its stress· 2018. (Tbe December SEP is included as Part 3 testiug and c.apital planning programs. of this report.) In Dectmber, the FOMC raised the target With respect to its securities holdings, the for the federal funds rate to a range of Committee has stated that it 11ill continue to ~ to'/. percent after maintaining it at Y.to reinvest principal payments from its securities Y, percent for a year. The decision to increase portfolio, and that it expects to maintain this the federal funds rate refiected realized policy until normalization of the level of and expected labor market conditions and the federal funds rate is well under way. This inflation. With the stance of monetary policy policy of keeping the Committee's holdings remaining accommodative. tbe Committee has of longer-terms ecurities at sizal>le lmls anticipated some further strengthening in labor should help sustain accolfUilodative financial market conditions and a return of infiation to conditions. the Committee's 2 peroent objective. 84 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00088 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.44071412 3 PART 1 RECENT EcONOMIC AND fiNANCIAL DEVELOPMENTS Labor market conditions continued to improve during the second half of last year and early this )l!ar. Payroll employment has increased 200,000 per month, on average, since june, and the unemployment rate has declined slightly further, reaching 4.8 percent in january\ in line with the median of Federal Open Market Committee (FOMC) partidpants' estimates of its longer·run normal/eve/. The labor force participation rate has edged higher, on net, which is a// the more notable given a demographically induced downward trend. The 12·month change in the price index for overall personal consumption expenditures (PCE) was 1.6 percent in December-still below the Committee's 2 percent objective but up noticeably from 2015, when the increase in top·line prices was held down by declines in energy prices. The 12-month change in the index excluding food and energy prices (the core PC£ price index) was 1.7 percent last year. Measures ofl onger·term inflation expectations have been generally stable, though some survey-based measures remain/ower than a few years ago; market·based measures of inflation compensation moved higher in recent months but also remain be/cf.v their levels from a few years ago. Real gross domestic product (COP) is estimated to have increased at an annual rate of 2¥< percent over the second half of 2016 after increasing just I perc ell! in the first half. The economic expansion continues to be supported by accommodative financial conditions-including the stiiJ. /cf.v cost of borrowing for many households and businesses-and gains in household net wealth, which has been boosted further by a rise in the stock market in recent months and by increases in households' real income spurred by colltinuing job gains. However, net exports were a moderate drag on CD P gr01vth in the second half, as imports picked up and the rise in the exchange value of the dollar in recent years remained a drag on export demand. Domestic Developments The labor market has continued to tighten gradually ... ""''"""'"'" Labor market conditions strengthened over the second half of 2016 and early this year. Payroll employment has continued to post sotid gains, averaging 200,000 per month since last June - lOG (figure 1). This rate of job gains is a bit higher than that seen during tbe first half of 2016, -200 though it is a little slower than the 225,000 - <00 monthly pace in 2015. The unemployment rate has declined slightly further. on net. since the -600 middle of last year. Afier dipping as tow as - 100 4.6 percent in November, the unemployment II I I I I I I I I I I rate stood at4.8 percent in Janual)', in line 2009 2010 2011 2»>12 lOll 1.014 201S 2016 1017 with the median of FOMC panicipants' estimates of its longer-run normal level. The labor force participation rate, at 62.9 percent, is up slightlys ince June 2016. Changing demographics and other longer.run structural changes in the labor market likely 85 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00089 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.54071412 4 PART 1: R(C!NT £CONO.YICAN0 FlNIINOAI. ()[VUOP.\IINTS have continued to put downward pressure on the participation rate. A Hat or increasing trajectory of the participation rate should therefore be viewed as a cyclic.'ll improvement 2. L3borf orce p3rtkip.t1ion r.rte nOO relative to that downward trend. Reflecting aq>lo)lDmt-to-popubtioo ratio ..... the slightly higher participation rate and the small drop in the unemployment rate, the employment-to-population ratio has moved -6$ up about Y. percentage point since mid-2016 -66 (figure 2). (For additional historical context r~~~ on the economic recovery. see the box "l'he - 6< Reco~try from the Great Recession and - 6l Remaining Challenges.") - 60 ... and is close to full employment -Si Other indicators are also consistent with I I I I I I I I I I I I I I I I I I I I I a healthy labor market. Layoffs as a share 2001200> 200$ 26»2®2011 :!613 2015 2017 of private employment. as measured in the Job Opening, and Labor Turnover Survey (JOLTS), remained at a low level through ~mbcr, and recent readings on initial claims for unemployment insurance, a more timely measure, point to a very low pace of involuntary separations. The JOLfS quits rate bas generallyc ontinued to trend up and is now close to pre--crisis levels. indicating that workers feel increasingly confident about their employment opportunitie~ In addition, tbe rate of job openings as a share of private employment has remained near record-high level~ Thes hare of workers who are employed part time but would like to work fulltime-whic.~ is part of the U-6 measure of underutilization from the Bureau of Labor Statistics {BLS)-is still somewbat elevated, however. even though it has declined further; as a result, the gap between U-6 and the headline unemployment rate is somewl1at 111der than it was in the years before the Great Recession (figure 3). The jobless rate for African Am ecic.ans also continued to edge lower in the second half of 2016. while the rate for Hispanies remained Oat as with the overall unemployment rate. tbese rates are near levels seen leading into the recession. Despite these gains, the a1<erage unemployment rates for these groups of Americans have remained high relative to the aggregate. and those gaps ha1<e not narrowed over tlte past decade (figure 4). 86 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00090 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.64071412 M0N£TARY POliCY R£~: F(Bit\JARY 1017 5 3. M=uts oflab<T undtrutiliz:1tim -II - 16 - 14 - 12 -10 -' lOOS 1011 20ll lOIS 1011 No1!: l~ioy:m;ILMt~II.UI tmeqlloytdua~eor~ ~b. U~manu~l ~'tdFblitecY.zqt.d•or'tm,ua ~ofOtltb:!t!Ofttpi'JS~w<d:m.Discoqcd 'I.'Otkc:sareadee'!.of~ly~dMii'mQoL~ :.etC'!l!'MIItyb)i-m&f'«wcck bemsctbeybckvoe•)-'obst~tMillblefutlhct..U·Stet.tSlltUoxal~plu.aD~ya:-..ICMIIOfllelabarfortt.as•~or(lle11bot fOlOCpllliipus<Qma:glt.lyllladiN:olhebborfot'Qt.Ma:tgitdy~wukcn~tc~DfiC!lbc«f«t<.v.Wlta:sdwtl\'lilal:lkttrwock,llldbt.vtioohd forajcba~p.tll~U-'mc:u:.aa~1ZX!Ilf!loyatpbalua;gillllly~wo.impbiCCillcmplo),.edpntG.c5of~rQI(:Qf;.l$& ~ o(tbt labor fott< rlllf aD flllliin&ly 11tadd n®s. Tile Wdcd bar mdic:l:q;a pciqd o41rJSbca ;~:ocssm aslic!IDC4by6c N~ hw.l or E«.oorr.i:R.tSa:Ch. ~ Dqlt."UU:Cl.o!"Ltb«,&.nnoft.aborSo.ati!l!ie&. 4. Unemplo)1llell! rnte by race and ethnioity -II -16 - 14 - 12 - 10 1011 lOll lOIS 2011 No!!: U~tlltt~w:alllla:lflYfni&St~of~b.botfortt.l'cncawbosefl!oit«yiti&u:i:ltduHispb::«l.ati!loaykof anycaoc. Tht WdcdW ~ apcriodolb:mcss~u dtfaedbytbeNcio:.al Btru.:~ol"S:uJo:ni.:: RuccdL 5o.3a: IJ<!>o.""""oiUbor,B:.mooi'LoborS*'"- 87 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00091 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.74071412 6 PAAT I: R(QNT ECONO\UCANO fL'IANOAl OEVELOP~~NTS The RecoveryfromtheGreat Recession and Remaining Challenges The Creal Recession severely affected the A. M<diMbo\J$tboldincoore,bymeandelhoicity U.S. economy ... - The Great Recession of 2008 and 2009, and the ~nancial cris~ that precipitated i' rest.lted in - so.eee rrossh~ job looes and falling incomes for An1<'rican households. The Great Recession was, along rmny ~ -iO.OOO dimensions, the most se•'Ot'edowntum since the Great ---- Depression almost 80 )~ars earlie<. Economic output ~ -60.000 declined ou~ight for 18 months, leaving real gross -lO.OOO domesli<: product(GDP)4V> petcenl belowi~ previous _,, .... peak. MOte than 8'/: mi!Jion jobs were Josl, on net. ~ and the une,..,loyment rate soared from 4 Y, percent in 2007 to a peak of I 0 pe<een in late 2009 (teld Blt..-k«Af:i.-cA:attnl! - lo.eeo frgure l). The labo< fO<Ce participation rate (lfPR), the I I I I I I I I I fraction of the pojlulation either e"l'IO)-ed or counted '/JIJJ 1W1 1011 lOll lOll as unempiO)'ed, f~l steeply, from 66 percent in 2007 to Na ~rrfa»~~d~btad.oC~b<ti lUBispcatoa 6 lu l r r p o e l r e c d e , n w t i i t n h 2 r 0 e 1 a 4 l i ( n t c e o xt m fi e g f u o r r e t 2 h ~ e H m o e u d s ia e n h o fa ld m i i n ly oo mes L m t: : i ! n i\ o '1 b ~ k i , r (o y r ~ re.d !l.'t a ~ n t - t< b r c i lb r s U t g tf p m ~ r m ~ d w II b )' i lt n , ~ ~ t .e. , S . c C o l t ! ~illbol.llliou. declining more than 8 pertentfrom2 007 to 2012. ~ ~tofCoczl::r.t:e.&.~JGol~Ceca(Z(tl6}.kO!It The hald!hips were p>rtlcularly acute for wt:ain 4RJ IWrr} ur rlrt U.lfJ Sbto.. NIJ. t.tV A·J: lmar~lb bf To:a.l grout)$ of 1\mericans. As text fogure 4 shows, ( t. W foe U ly : 1 . 1 p cw : :n ~ t, l l l a ' o U ! k , -t m l d l H l. ~ S ~ p ) Jm . tO - : w f! ~ mo p lH · ~ . I9 ~ 67 t 1 i 01 : 01 · S unempiO)'ment rntes for blacks and Hispanics rose lM®l6!&::».'p(b-t!6.hS. oonsiderably more during the recession than did such rates for the nation as a whole. (1 partiwlar note, inflation-adjusted median household incomes for black expansion are all the...,.. noteworthygi,oen these households declined more than 11 peroent from peak derrographic pressures. 10 ~ouglt, substantially more in percenl:agetenns than The labor 1113rket at present is likely dose to being for while, Hispanic. Of Asian households (f.g<..e A).' at full employment. The UOO"l'loyment rate is near the median d Federal ClpE» Marlcet Cormrittee tFOMC) ... but considerable progress has been made par1icipan~' assessmen~ ol i~ longe<-run normal \lllue. In addition, real GOP n<M~ sunds I I pE<CEnt abo>~ i~ In the eight years !lnce the crisis, the U.S. economy pre.recessJon peal(. and it is approaching, though still has m>de considerable progress acroo a broad range a bit bei<M~, the Congressional Budg« Offroe's eslimate of measures; ~>is prog<ess has occurred while the ol potential output-#lat is, the maximum su!lainable resilieoceof Ure fllancial system has been shored level of oconorric Output.> up. More than IS rrillion jobs have been created, on lncorres fO< the median iarrily have mosdy n<1, sioce the fall of 1009, and the unemplofment rate reco•oered from the Great Recession. Of note, real has fallen by half. In addition, the LFPR has fl\0'>-ed median income is repo<ted to ha•·e risen 5.1 percent roughly sideways since 2014, which should be ,;.,,-Ed in 2015 (figure B). as a cyclical improvennent gi>-en thederrographic The rf!C.OVf!f'( oompares favotablyw ith those of changes and other secular trends that have put other adva1lced economies. GDI' has increased faster da.vmvard pres..,re on participation for the pa~ and uncf1'4lloyment has declined 010<e quickly in the 10)-ears. The robult job gains seen during theament lJnited St<lles than in olhet rrojor achonced OC<lllOrries (figures Ca nd D~ And the Federal Resen'<!'s challenges in getting inflation bad< up to l:arget are similar to, I. MNsurescfhou:seholdincon"t>defi,'ecfliomsur\'e)'$- but not as se'l<re as, those faced by some o~rer 01ajor E w cO d I r \O " f r ! i h c e S C l! u l 1 p 1 i eo « 1 < P Ol q ~ > w w h t i S ch on ir S O u o< " m < s f s ! A he n C n .O "' S l u S s o B ci u •l r a ., r o o ' d s monet~ry authorities in the past few years. Although official suli-Siia-rroy not f!Jiy capu.~ earned income(such JS from the s<lf-errplo)-.di and unearned inco,.,{OJdr » 2. ~r.,...rol ~Office(20t7), The Budge< uans(e.-s and f(iirfflll"'ntiocoo~. Th('S(' b-sues are lil:efy to be .00 (conomicOutlcck: 2017., 20271WasliJ181Dll: CBO, m.Jdl m:>repr«~ouocOO b lht\arious stbgroq>J thant tl(!)' jaooo~l, p. 41, •ww.<bo~lsilO!Id<>lauh.foi.VIIllh­ Jre ff.lf the national mediu1. conu,..·l017·lOI:Vr~1JIQ-o<.<iool;.pdf. 88 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00092 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.84071412 \IONfTARY POliCY REI'Ottl: HBit\JARY 1017 7 has a'>erag«< only about2 percent pe1 year d ..i ng this B. Indexed howtb<Jid income, by peK<ntile expansion, the slo\vest pace ol any postwar reco ..- ety (flgure f). In pari, ~>at subduod pa<:e is due to slower growth in the labor force in recent decades compared - 106 with rruch ol U>e pos~var period.' - too Another source of slow GOP gCOivlh has been - 101 lackluster law productivity ~011'1h (fA>.xt figure 6). Sinoe 2008, ooipul per hour in the business sector - lot n hasrisen about I l"fC"lt pe1 year. far below the pace that prevailed Wore the recession. Cyclical factors. - % like weak business ln,-estn>enl and flnns rebuilding ~ worldorces after culling musually deeply during 92 the crisis, likely explain some ol the sl01v rise in 90 prodllCiivily during this expansion. But slructur.~l factors $$ may also be at play, $UCh as declines in inRO\\ltion, It < lKli I I 200:9 I I 2011 t I 20H I I lOIS I I reduced business dynall'ism. Of decreased produa market oompelition.• The productivity sl01vd01vn has SoMa: Dtt""'''"lC........J>"""eltlrC.....~OI6)L<­ taken place in nl061advanced eoonorries, which WPawrlfindtt l.lrdtJSI~a.:~WJ. Tliii:-A.J:.Seb.~Wtu-."'('Jft Kxatbo~ i:=1c ~ 191€ 1o l015 (\\'·~CUll b.u, suggestS a rcle forSIJUctui31 faClors not specific to the ~WII'Wma:l,Qir>tia.')'·'pcl'l11.~1fldeo:f~'=:IL United States. consumer price inilalio<l, as measured by the price index for personal consumption expenditures. hasr un J. In p;>ni<IJI.lr, il>e C<lflgfesionoiBWger Offke .,.;,., below the FO~\C's 2 l"fC"lt objective through most ol thao ohe coouib<Jtioo oo p01!1lli>l COf> growlh from uend the e.pan~on, in recent months inOation has n10''t!d 1.00. lorctgro•lh is 2p ercenoagepoims k>wefloday INn closer to the Conmittee'slarget (text figure 7). p il c w p a u s la 4 t 0 io n ) @ g > to ~ w a l g h o a . T n h d is a d S w \\h l! c lo h p f m ro e m n t a r< r is & i! : Y o 6 s L a F P ~0 R 1 ~ \i . t . e f a o l l l ing one, •"""& otlx< f•<1rl~. See Coreres6ionof8 udget Off< e. Nonetheless, challenges remain BudgE< >rrd EcoocmicOUdock. oable 2·3, p. 53, in..,. 2. 4. SeeRobMJ.Cor<lon(lOI~), TheR.'<o>rrdfallol cha W lle h n i g le e s r r r u e c m h a p in < o fo g r r e t s h s e h U as . S b . e e e c n o o m o a m d y e . , G im O p P o r g t r a o n .v t lh M W > .u e i r l' i > c i l l n lC C ft r < v lr M \ N ir: J . T : h P e r i U nc .S e . t S on tm ~r d i l v r e d n c i f t t y N P h re g ss 5 ); i n S c " e " t1 " e ' ! C . ivil C. 1\tali!JOSS Oolll<Sti< produ<t ill mtaaatioaal cont<xt D. Unemployment rate in internatioaal context ...... """" ~llllld..-.6ce.2009 -It -l - II --2 I -II - - 9 I - 6 -2 - I -_,l _, I I I I If 2010 1011 101' 2016 "" l01' 2.016 SOI.Irtt ~ rn &<COC:MC to.opem1011 a l)e_<,~ S<Ma: ();p:l~Uia;)Q ror Soo:4m~ co-~ t:~4 0:~ f2017A ~CD lk«!otr~tr: Ck.1ook. No.. 100 (Ea'.10e 201M:~· OEOl flOii}. "'O£CD Etoocolc Ottbli: No. 100 (Fd'lOCI 20W2)," OECO E.~~ S~t.'t cd fto~ (~}. Cllp;lldx.doi. ~~ o.tt:xt: S-.::alastiC~ cd.Pto~ (k.abl~).llilp:l'dxd.ourc O!)f!OJ1S1n&;tibfc.(arettJStdb:D:)'2011). no.tmn&lt7bt~ r~~1011). 89 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00093 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.94071412 8 PAAT I: R(QNT ECONO\UCANO fL'IANOAl OEVElOP~~NTS The Recovery from the Great Recession and Remaining Challenges rcCiltilt.re<fl Meanwhne, despite the notable piclcup in 2015, real Similarly, the ECOOOn'lic circurnslai1C<!5 ol blaclcs incomes for the median family are still a bit lower than and Hispanics have improved since !he dep~hs ol the they were pri<l< to the re:ession. Mor..,.-e<, thegaiM recession, but they remainw orse, on a\·erage, than have not been unifomiy distributed; families at the tha<e of whites rx Asians. Unemployment rates for 10th percentile of the income distribotion earned about blaclcs and Hispanics continue to be well a~ !hose 4 percenlles< in2015 than they did in 2007, while ior their white and Asian oounlerparts(lexl i'igute 4), families at the 90th percentile eomed about 4 percent ~>ilile incomes f<>< these groups ha\'e sb)..d noticeably rrx><e than before the Great Recessioo (frgure 8). lower (figure A). lhese challeng<slie S~tbsttntially be)'QI'Id the reach of mooebty policy to addres<. Mooetny poli<y cannot. Oawund )ohn Halo••nger (2014), 'labor M>riocot fluidity for instance. gene<ale tE<:hnologrcal breaklluoughs or aoo £conoo1c l'o<loomn<t,' NBERWorling P.oper Series addr es< the r001 causes ol inequalil)'. 20419 fCani>ridg<, M>S<: N>oona18ur. .u ol Econorric - Reseor<~ S<pc<ni>erl; ard l'llilippeAglliO<l, ~ick Bl«lm. llichard Bluncl<ll. Rachel Crilfrth, "-.1 Peoe< tmi• (2005), E. Real gross domtstic predict in historical tonte:<a 'Co"f>"i1i0<1 and ln.,..tion: Anlrn.,l«i-U Relatiol'6hip, • QJ>nedylo<rmalo(f(O(l()rni<s, '""· Jl0~1)'),pp.701-28. Economis~S aredrvi<k:"<< abo\lt !he causes oldie productivity _., !lowdown and !heir coosequences f« the oudool<. f« an q>tin'is,tic \1t"o\~ see £nk Sr)'njollsson al'ldAOOrewMeAfee (1014), Thes..:..d Mo1Chi1eJise:Wo.i, Prog,.,,md 1~1-.II) l'msperity il a Tinod8rii/JJm T~(NewYO<I:IV.IV. -ll C O No . t . r h d to o e n n r s , & '' R " C " o " e "1 m '3 d n f y > t J . f f o « f A a m le e s r s k < a l n Jl t C irr rc il . l . i . c V J ., l . ' , f r ' l l i< " r ' " in ' ' ! - h , i . s . n ote. -» argue< I lflat diffko.lties aS600al«l "ilh roonomic -_t,l. e ~ >""lJJ re e t , O o O " nt ; n d ' M ll . )' 8 ~ y gg r e n r e a , t ) . o e h I n N G s . l f o o w m d o o l w d n , : a s o e o e. M o b ~ lull B. _., R<insdorf(2016), 'OoestheUnit<dStatesliaVI!al'loducovity SJQ.d.,.n «a Me""'r"""'t Ptoblern!" ll<ockhgs Pipers on EcOO<>!Ii<:Aaivjy,Sprirepp.I09-57. i"<Jps.:lhlww.btool<ings. -10 eru'\\p..:on...V~lr.'Ollby"""""Pringl6bpea.pdf. A~. mJre ()f)bnistic e~na~on is thJ.lthe slowd<W~TI inproduclivityr ellocts a "coi'611UCcivepause• as fi~ adc:p1 ""• p<Oductivi~4'nhancing t>dlnology and «ganiutional l p l r ) a m ct m ic o e ; a s n o d e , t l f l o e r C e o < m a" p lJ u J t e tr , . P A ao n . I H A. i • D o a ri v c i a d l 0 Pf m fijl< • 'C "T tiv h o e on !he Non: R.ell g!OU dotlu'.a: pc*f. lldtxtd iO balats C)\'lt IP:IU8b a 1 v \ o b t. :i s e o rn ' ' P A r o o y d ), u 1 c 1 t 9 iv .J it s y s P - .a 6 ra t d . o x,." Nr.Mc.atl kMI>f-r.ic Rft~ 4 ~ 1 ( ~ ! l t { d ~ . J by i i ~ t b ~ l e o : N t ( Jb ' C : t o ) b o a t a l b ! m 9 i t e : : n A ~ c : v . : f - I £ t 0 c . C a I B c : u , l : t ~ r l l t . e t a ~ . : w o ~ i T F b ~A ! P x y < ul U d~~ 90 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00094 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.05071412 \IONfTARY POliCY ltfi'Ottl: HBit\JAR\' 1017 9 Labor compensation growth is picking up ... The impro1~ng labor madet appean; to be contributing to some111latlarger gains in labor 5. Mea.<U~tSofclnng<inboU'IyoompmsatiOD compensation. Major BLS measures of hourly compensation posted larger increases last year. Of these, tbe measures that include the costs of benefits have posted smaller gains than wage-only measures beeause of a slowdown =~-~: in the gro111h of employer health-care costs. A compensation measure computed by the Federal Reserve Bank of Atlanta. which tracks only the wages of worken; who were employed t tnlplo)~c;h'Oit cld: _ Ul attwo points in time spaced 12 momhsapart, A\'mtt~ftl!"'_ql shows even more pickup than these BLS measures (figure 5). I I I I I I I lOU lOll 2015 ... amid persistently slow productivity No:l:&-..sc~~ist.eliktt~.n~~ oldtf~MO\i:!&tvtnat.F«~~totti:J&x,clqtit growth ovtr lhe 12 :'IIOIIb m!q b b!: lulaonlh oreacbqaa."!e; iot l'lt!l&t t«utrtamiccJ.~isfoocall~e&dc;;f«teAllwahd'•W• As in the previous se\'eral yean;. gains in labor ~ m 'l m '! d :a e dt . t: . t, ~ ~d ~ &t 2 at 0 : l6 t . . :o--asa~{ll(cil*l'li!!&a~&!l! compe11sation last year occurred against a ~ ~tor~.ato:.~UJ..&borS".slln"S;F~Rtsaw BW«" Atla:a, W~tt<hla~ Tra.."ir:!:. backdrop or pen;istently slow productivity growth. Since 2008,1abor productivity gains have averaged around I percent per year, 6. Cbangc in tm<;i..,·scctor ootput pa bo'" well below the pace that prevailed from the mid-1990s to 2007 and somewhat below the 1974-95 average of I~ percent per year (figure 6). Since 20 I I, output per hour has averaged only a little more than ~percent per )'l:ar. The relativelys low pace of productivity gro111h in recent years is in part a consequence of the slower pace of capital accumulation; diminishing gains in technological innov-ations and down1111rd trends in business formation also may have played a role. Price inflation has picked up over the past year ... In recent years inflation has been pen;isteolly low. in part beeause the drop in oil prices and the rise in the exchange v<~lue of the dollar since mid-2014 have Jed to sharp declines in energy prices and relatively weak non-energy import prices. The cft'ects or these earlier dev-elopments bave been waning, howevet and ov~mll inflation has been moving up toward the FOMC's 2 percent target; the 12-month 91 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00095 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.15071412 10 PART 1: R(C£1ff(CONO,\UCAN0fi~~OAI. OtvtLOPM£1ffS 7. Clunge intbepriceind<x rorpmooalCOIIStllllptiOO change ino vernll PCE prices reached c~n.es 1.6 peroent in Dec~mber. compared with only0.6 percent ovcr2015. The PCE pric~ index excluding food and energy items. which provides a better indic-ation than the headline figure of where overall inflation will be in the future, rose 1.7 percent over the 12 months ending in December. somewhat greater than the 1.4 peroeot increase in the prior year, as prices for a wide range of core goods and services accelerated. Nonetheless. the rate of inJlation for both to!JI and core PCE prices remains below the Committee's target (figure?). "" 1 " \Q ' r - E: Tbt6:a~!h:\q)0~~16:1tcqp~ftuno:t}$ ... as oil and other commodity prices !«.>a: Dqor.ooll<l"""""""Bllnou<l!Jo=....,..• . moved up moderately The similar readings for headline and core PCE inflation last year partly reflect an upturn in crude oil in 2016 following thes harp decline - llO in the prior two years. Since July, oil prices - 120 - 110 traded mostly in the S45 to SSOp er barrel - 100 range until the November OPEC agreement 90 regarding production cuts in 2017 (figure 8). 10 In the wake of that agreement, prices moved -10 6ll up to about$55, roughly $15 per barrel higher lO since late 2015. Retail gasoline prices also rose - •o after the November OPEC agreement, bntthat 30 lO increase has partially reverned in rec~ot weeks I I ! ! , I I! t " " ! I I I " I I ! I I .2012 :Wil 201' lOIS M16 2011 After falling during 2014 and 2015, non-oil NoTJ:lbe~r:t~r~.:so(Qaz~Ut.t.date:lr.!tll:wP import prices stabilized in late2016. supported tdmu..")'t,l011. sr..uta:: N'l1o££X "" BIO<atq. by the rise in noofuel commodity prices as well as bya n uptick in foreign inflation (fig.ure 9). 9. lion-oil imp«! prices :md U.S. dollar e>dlonge rate In panicular, prices of metals have increased in the past few months, boosted by production _, cuts combined 11ith improved prospects for demand both in the United States and abroad. - ll However. f.1ctors holding non-oil imporl prices down include dollar apprecialion in the second - 10 half of2016 and lower prices or agric.ullural - l goods last fall, as U.S. harv~ts hit record-high ie>·els for manyc rops. -l - 10 2011 2012 2013 l(ll.t lOIS 2016 2011 ~lbtdata{ot!IO:I~~pri:u~~Ort«::be2016. SCt-x-t: ~ofUb«,&.""tG:r/t...borS:)tm;ftdmiR~ Bot.-t,Sut:it.jt:tJJtdWtfLIO,•f~~RAitS.." 92 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00096 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.25071412 MOI'<CTARY I'OliCV RER:>Rl: fE8RUARY l017 II Survey measures of longer-term inflation 10. MC<Iian ioOatioo expecbtions expectations have been generally stable ... Wage-and price-seuing decisions are likely influenced by expectations for inflation. ).li r c o : r Q : p : = n C t f 5 l' 1 (l 0 f 1 ~ 0)' O nlf D S $ Surveys of profe~ional foremten; outside -3 tbe Federal Reserve S}~tem indicate that their longer-term inflation expectations have - 1 remained stable and wnsistent with the FOMC's 2 percent objective for PCE inflation. In wntrast, the median inflation expectation - I over the next 5 to 10 yean; as reported by the I I 1! 1 tt 1 1 1; ft l l ft! I 1 I University of Michigan Surve)~ of Consumers ))OJ 200:S 2007 2009 lOll 2013 201S 2017 has generally trended downward over the past NT.i:lbt ~~ CNtjtal! ~·~ dtxlt!ld throuah few years, though it is little changed from a fftlnazy; ibc F.-~ ciA~\' ~. 'nc SPF dQ Co: im\:lo:l ~io::.t{(l:pesoa&J~~OD~i:udctqta:Urlfd~ year ago; this measure was at 2.5 percent in mll)l)lQte.-.lOil:QL early February (figure 10). It is unclear bow Bd S : « ol .a Ph a i l la i k - ~S . ; : r n wy ~ c o i ( Pr M o i f ; t$ b $ i i p oc ; d ! f $ oc ; t . \ " ue \ s ~ { o SP l F C ) ~ . F~R*"''e best to interpret that downtrend; this measure . of inllation expectations has been above actual It. S.to·IO·rou·forwaro inflation romprnsatioo .... inflation for much of the past 20 years. . . . and market-based measures of -B inflation compensation have moved up - l.o notably in recent months but also remain relatively low - 15 TIPS-based inHation compensation (5 to - u 10 yean; forward), after declining to very low le\>els through the midd.leof2016, has - IJ risen to nearly 2 percent and is about20 basis -1.0 points higher than it was at the end of2015. I ,,,,,,,,,,,,,,,,,,,,,,,,,, "'''''' ,, I liowever. this level is stiU below the 2\4to 2001 lOll lOU 201S 2011 3 percent range that persisted for most of the Nm:t'tlt&!attt~l'ft':I:&Uoldattj61lda~!h:ouah 10 yean; prior to 2014 (figure II). f ~ ~10. M te 1 !m 1. l T R I t P s S e i ;\ s 'C T & ~I ;I I tJ I N O ew & \' : or m \ · ; ~ S ~ c i dc n y . s :f~~ Bocd.sdn::~:Dale$. Real GDP growth picked up in the 12. Change in ,..li!JOS$OOmestie procl•ctll>d gnl!S second half of 2016 d.lmest:ic: income Real GOP is reported to have increased at an annual rate of 2Y. pen:ent in the second half of l ll:os"''""""""" _, 2016 after increasing just I pen:ent in tbe first l~s~~~ half (figure 12). Much of the step. up reflects the stabilization of inventocy investment, which held down GDP g,rowth considerably in the fi.n>t half of last year, as well as a pickup HZ'-3 _, in government pun:hases of goods and sef\ices. Private domestic fi.oal purchases _, that is, final putt:hases by U.S. households • O.O.~rc:.omelt~)'tllniltble(~lOI6:Ul $(oa ~IOI'Ctt~~!t~t!tt.,81t'SUOf£..'(I()Cica:'~'kl. 93 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00097 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.35071412 12 PART 1: R(C£1ff(C0NO.IUCAN0fi~~OAI. O(V[lOf>M(IffS 13. O>aoge io r<al p<rlOilal consum~ <:q><o:!ilur<S and businesses-trew more steadily than :md disposable pmooa1 incame GOP last year and posted a fairly snlid gain in tbe second half. PCE gr0111h was bolstered I I P O e t t i t p a o a l ! ; c0 & f b l l i t ' ~ ! I . U ' . 1 .- 1 o p me t ioe!~ - - s 6 f b i y x e r d is i i n n v g e i s n t c m o e m n e t s w a a n s d w w e e a a k l d ~t e . s p w i h te i le th p e r i lo v w at e costs or borrowing ror many households and businesses. Although the FOMC has increased the rederal roods rate twice as this expansion bas progressed--illtce in December 2015 and again in December2016--in Y. percentage point steps. overall financial conditions have been sufficiently accommodative to support somewhat-raster-than-trend growth in real activity. - Sew:£ Dtpat:aeu!oiC~.Btm~~<-t&:-OIIOC!IicA!!d)ft Gains in income and wealth have 14. i'rices of e:cistiog single-family houses continued to support consumer spending ... Real consumer spending rose at an annual rate - lO of 2¥. percent in the second half of 2016, a - IS solid pace similar to tbe one seen in the first - 10 hair. Consumption has been supported by the ongoing improvement in the labor market - s and the assnciated increases in real disposable - 10 personal income (DPl}-~tat is. income after taxes and adjusted for price changes Real - IS DPI increased 214 percent in 2016 follo11~ng It I I I I I I I I I I I - I ~0 a gain of 3 percent in 2015, wbeo purchasing 200S WI& 2010 2012 2014 Ml6 power was boosted by falling energy prices 20 N 16 o . n 1 : \ T t h e d d a lt .l I f « oe t ID t e S Z & illO f.{ IN '. u t o e . d sh • C k u d C ..o d & c: k t = i o : a d r t . n : s ~: : e o t u t F d N o ih \o ro b u c & r l (figure 13). ~ so 2 wo 0 : C 1 . ~ .. Loc"""" Pri<ell>la: Zilow; w.~~"" us. Consumer spending has also been supported Nllimlllo:o!: P!i.'tl*. TbtS&PlC...shdlet:d.aistpro('.:rtoiS&:P Dow Jcic:a ~ u.c .oo.w D a.ftihlkS. tr« J).y.v mes JnSm by rurther increases in household net worth. ll."e:Si~iti~ttt!htetl'.teo~Co:ttrupeJt.) Broad measures or U.S. equity prices rose I 5. Namirol hoUSt prices ao:! prlct-<<nt rolio snlidly over the past yea~ and bouse prices continued to move up(figure 14). {In nominalterllli, national house prices are -100 approaching their peaks or the mid-2000s. - 110 - 110 though relative to rents or income, bouse - llll price valuations are much lower than a decade -_,1.1,0 ago(figure 15).) Buoyed by these cumulative -I~ increases in home and equity prices, aggregate - 130 - 120 household net worth has risen appreciably liD from its level during tbe recession, and the - 100 10 ratio or household net worth to income Ill remains well above its historical average I - !llfiiiiiiiiiiiii!!IIIIIIJJ - II )1) (figure 16). The benefits of homeownership IWl lm 1998 2001 »l4 lro1 1010 lOB 2016 have not been distributed evenly; see the box Nm: lbc: da:& QUrl4 ~ I>t.x:Dbc: 10-16. 1k C«ri.ock: ~ "Homeownership by Race and Ethnicity." .i:dt:K is~yldJ.:.ndbyFC'dm!Rt:sen~Bon~~zr.fu~ n:aou tbc: tdOofiiOI:IIi:Jiho:atprimtoti:croor.::~~rtpo.e =xorre:~ c(p:iml.oy~ Ttc"-'a."' i:ldaed. :o 100inhma:y lOOO. LSoOl'blcto:Fro-r.p eicu.f.«tl..oP:;"'m~'ll,~oiUbo-.,Btrta~of 94 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00098 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.45071412 MOI'<CTARY I'OliCV RER:>Rl: fE8RUAR\' l017 13 - ... as does credit availability 16. We oltl>lo· income ratio .... Consumer credit has continued to expand somewhat faster than income amid stable delinquencies on consumer debt (figure 17). Auto and student loans remain widely -6..S. available even to borrowers 11~th lower credit - scores, and outstanding balances on these types of loans continued to expand at a robust - l.S pace. Credit card balances continued to grow and were 6 percent higher than one year earlier in December. That said, credit card standards - iO have remained tight for nonp rime borrowers. IIJ!I!I!Ifl!lllllfl!lll!!ll As a result, delinquencies onc redit cards are 1996 2000 200A 100e 1t1a 2016 still near low historical levels. Nott 1bt i&t rxiOl ~ bl16:Ql. Tbt t«its is 1bt tltit of ~ld:tilr'011ito~pmw&C:oclt. Soo1o: for ott~ F«5mmltstrw. &etc!. Str.irietl Rtkw l.l, Consumer confidence is strong •ficmritl At.."'ttll!S ol ~ I?~ Stan"; lix ictocllt, {)qclnad of ('~~of~:~ Household spending has also been supported by favorableconsumersentiment.ln 2015 and through most of2016. readings from the overall index of consumer sentiment fromt he - 1.000 Michigan survey were solid, likely reOecting "" rising incomes and job gains. Sentiment has 600 improred further in the past couple of months 400 (figure IS). The share of households expecting real income gains over the next year or two lllO+ 0 is now c.Jose to its pre-recession level despite ha~ing lagged improvements in the headline lllO .100 sentiment measure earlier in the recorery. 600 Housing construction has been sluggish I I 2 007 I l fm I W /J I l OlO I l 011 I l 01l2 I 013 I ) )14 I ) liS I :016 ! I despite rising home demand Nr."E: ~ m ~Clrd ~ ysd ~ )U'·ald t'X.-. 2016 cbqc$. wb1d& a:e c.alcuJcN l!o:;DQ} :.Ql.. Residential investment spending appears to Sr.w:2 J'o!ml Jl.dt':'o"e Boar4 Sl!!15bcal Rduse %.1, "fm&l);id have only edged higher in 2016 following a At«r-:Uo!'~Ucikcf~• larger gain in the previous year. Single-lamily LS. lDdexesof~umcrstfttimen.tand incomecxpWa.tK..II S , housings tarts registered a moderate inc.rease in 2016, while multifamily housings tarts flattened out on balance (figure 19). The pace of construction activity in 2016 remained sluggish despite solid gains in house prices and ongoing improvements in demand for both new and existing homes (figure 20). As a result. tbe months' supply of inventories of homes for sale dropped to low Je,~ls, and the aggregate vacancy rate moved to its lowest level since 2005. Reportedly, tight supplies of skilled I'"T'i'I'"Tt labor and de\~loped lots hal'e been restraining I I z ! oo ! t II m II II 2 I 1m ~u 2 1 0 11 j I home constntction. Non.. 1U d.u n·.= tlr<qh fcb:uaty ~17; W ftbn:.cy tbia ~ rrd~ nt~s=IM:'l~C'tiiiOCilhlydt.oei:wiQt410 100111 19r66. nt ttal ~ tx~ d.cl a:r takab:td Mille ttl ~t:O(SI!I'W)'tr.~!Sb:pte:E:&&mdy~~-lli'aot't ~ ~' p H r ·m i r : :d : m c t1 $ i I~I& i J b .\ t ' l f l l t 9 'r . .}'tlt«tvo-oplw IOOIIIllart ~-• ~lflli\'ttSi/fofM'a:·cbi8lC&:t\'f')'$olCOCS'CtWn. 95 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00099 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.55071412 14 PART 1: R!C~~TICONOMICANOfiNiiNCIAL OMLOPM£~'1> Homeownership by Race and Ethnicity Most househ<Jids in the United Slates own their Nationally reprolSefl~lil'e data from 1900 through homes, and among !hose ~>ilo do nol, m:my conlinue 2015 indicate thatlheOI'erall homeownership rate to aspire 10 own their homes.' The J)OtXIIarily of -sharply from 1940 10 19W (f~rel\). • Research homeownership may sltm from lheamtnilies and suggests that this surge in homeownership re{le(ted financial benEI"llS that are associated with o:r.'nership. a combination of faciO<$, including the postwar for example, on lhe Onanc~l side, owning a ~ economic boom and an easingolterm; for mortgage prorects households against YOlatilily in renl31 prices credit (such 3$ reruced down poymtnt requiremet\IS and may help them b<Jild wealth as they repay their and longer terms 1o maturity) through go>'('{nn>enl· m>r(g3ge.' HiSiorically, we have seen disparities in backed lending programs run by the Federal Housing homert.vnership across racial and ethnic g<oops, and Adnlnistration and theVeteransAdninistration.slhe these disparities are an important dimtnsion of racial homeownership rate then ooged up sligl'lly lurtloer, on inequalily in the Unitoo Slates.' net, boM'eEfll9Wand 2006. Howe>..; sincelheooset ol ~>e housing crash and lhe financial crisis in 2007, I. A 2014 SUM)' indical<dthatOI<r 90 pert"'tolyoong the ~vne!Ship rate has declined as foreclosures c l H C l h a 'f o z e lt s o er u ,r s ~ .S i u i l g o l ~ l e S I t . s o S t T w ' . h . ' d e ) l y ' ' : o d " S 1 n . " e 1 n t t " ' i t " e { h \ M V e 1 y 'o a o < i s e M h . t " i l e n 8 0 n " g 1 t d u 4 R e ) ) l d R , t f m t f o . l t M f p t~ f u n v l i r e . , c h ~ ~ M M m a a s l P a e e n , a N M d . h l o a h o o p e m n , . F e w / i i n v l. . . w .: . a t h b o ec m t a h e m e b s e u e y e p i l n e o v g s a t d < te r J o d i p s f i p o s e r d d s e e a c v n l e i d n ra e r l s e y m in ea a h r in s o e m a d n o s d o u f w b or d n st u e - r e t s i d m h . i ' e p have hnniemJe.oom~..,.r<es'fil~. ...r chihoosing><ffl!'/pdfl been similar for white, black. and Hispanic hoosdlolds nmnayl014presentauon¢t and somewhat smaller for Asian households! Thus, O< l c . u S p . ;e . d T H ~S o i u n s a i'@ ia " n d o H N < ic d t g . o o a b g s > S i . n ~ st ( R l oo O t O Ri S ll< ) ,' , 11 , 'O . wnet· the large gaps between the homert.vnership rates d Ql>netlyJoomalo/Erooomicr, YOI.120(2),pp. 76!-89: white housEholds and those of black and Hisponic ,..,lsoD•vid Laibson(l99n, 'Colden£118s.nd H)p«b<!ic households ha1>e held steady, while the smaller gap Oiscoundng • Qlanetly JoomllofEcon<;micr, YOf. 112 (24 between while and Asian households has narrowed p .., p . . , « • : • 1 , - . 7 ,,H 3 ., . -. 0 h 1 i> C c O a O rr r i s e < s \ a ri s s t b n . . fo . n . a . n u c . i . F ll o < r r e i o si c s a " n " vl d e. e h c i . g . h . l r y , slightly. Perhaps the most striking f<Giufe d the dal3 is le\'('fa_ged ho~TW\\'fl('f'S .Jre ~t risk of neg.ui\-e equi1yd house the per$i~ence of the bi:Kic-white homert.vnership gap, pric~de(lint, which ~«ids 10 in~ mcbilit)'; see ~nardo which has measured aboui2S to 30 pera.'nl3ge poin~ rena,., Joseph C)llu•ko. andlo"Ph r,.cytzoiO), 'Houong throughout the po~ II 5 )'Oa"-Potmlial reasons lcx this &osos and Mobility.' Joo""l <I Urf»n loonomicr, persistence will be discussed shortly. c Y a O i l I O . . 6 Ji 3 f a o l O l < ! o ( d A ) . h ) , ? i t n , r p g e p " a ' . s n l d 4 !h > - e 4 r l d l ra p . c r l l i t o !J n C of O ho , U ch S e < . l . o . o . ld _ s , !h . o . t , " t " ip n " ch " e ' ir i s lhu T ~ h e lh l c ik a e g li i h n o g o o d f o th f e o w u. n s i . n g Jl O on IX e I 's Ia h ti o on m c e w riS tr E i S b u w to it o h a to g e. llorrw.llws, ll'Mds ln household fofrnation i.nfiUMCe tteOOs in increasing homert.vnership before 2006 and would che ~• .,hi> rate, and declining hoosehold fomution H t r n a o t " e u . ' s " S < e h " e o ' A l ) d 'e n > F d O o re r n w h a a l t ' i :l o s c n io h ; r e R ~ k e r " tl l O W I 1 " 6 " " ) ' , • ' ' d T fc l h e o e n h l o o m n ~ " k " s " a , ' n n Y d « O S S I. h h 4 o i 4 p n ( o I f ), 2 20 0 4 0 0 . 6 0 , T 3 2 h S 0 e . 0 - d e 9 o l , l ~ l a O " s e A l d l m , e • o c n r e d ic n a l r O n i a C I l S O ' . II " ' F fO " o l r O " i O n ' i d d t i y a > t S i o d t \ f o n r a o e l m - y l " ( 1 A ' 9 f C l 0 S 0 c ) e d t n h a w r t o a s . m rr o o m pp.l-40. andACScbu.,.. 51<'1.., Ruggles, Kotiec.n.dek Rooold Goeken, Josiah Cro~<r, and Matthew SOOek 120 IS ), lroegraod A. Hom...,enhip ntts, by "" and <lhnicil)' Plill~ l!seMicrcxt.t. s.ries: Version 6.0 lnuehine-reodallle ..... h d .l . sto ~ .. l n c V o \ o O lu in c n l e < a d p o a l n i> n l u in a i l l l ' y ef b S y il ) c l h < e iM U. i S o . n c<..' !.Q..\.0.) . & T o h r e . A ,~ C ~ S . .,. 1000. Oa1a onhomeownMhip arenotaV<tilab&eoin~ l~iO - iS C(' 5 0$ . 1 1 S $ . d .O JU an , icl K. f<tt<r(2014~ 'Thelwer<i«h-Centuty -61 i l n n e E r u ~ g s t e n i e n N U . W S. f H lit o e m , K e e O n w n ~ ed r t s S h n i o p w : d F En ~ , a a n n d d P H ric y e p F od ' le I se S s ~ : - ss ods., H""'ilglfxl Mor'8.tgeMitkro i:> H,'s<oricil P~• (Chieago ll<lil'efSity <:(Chicago Press). -•s 6. S..Noil8ooltl!20I54 'ThelnsandO.~ol"~'ll'a< D<l>tduring dle Hoosing Boom and s..,· Joomlf <I MOt>«>ry -)j fOO<JM>icr, YOI. 76, pp. 284-93. - zs acc 7 o . o H & o '@ !M l> h o th fc e h r . > u < e e c a l n a d s e si t f h i r e o d i < b i y ty r ~ o e f t a he n t d o e o t o h s. n h k o ~ ld y head, - >S o df l . l t io ~ o d re h sp tr o • o a d s e n fi t c h if e o < l d !h e e r. " T " h ' e " H l' is rt p > . S 1 p n O ic O « < h Ie n nt i c 0< it ) c • h a e n ! d pO f l a l! C < e > II I I I I I II catepies.uenot mutually exclusi\'e, So""irdvid~l$ are, 1900 1910 lj;l) 1960 1980 10.."0 1020 fOf ~xa"lllf, both Hispanic and \\hite. The Asian category ! l b l e S X t ~ O • o ~ I r 1 A e 16 a a r l : .< 1 t h ~ 1 = • " t i 1 U c 1 e d U ' . M o t 1 : ! 0 n a p 0 a . l 6 d : M C . r o 2 o t : r 0 : Y l 0 : . 9 1 a w 0 . o c 1 r ) l l . m ! " ' l t t . l . L ) l & l3 . ' ' d m ~ \ ! d W i . ~ f m ~ J t y I i a : . m r P ( . b m t t p ( o . m t Q l u a • 9 . W ~ a~ t 2 b ( . ) ,t ) y ) • , a i a p n n n r e i d d o l u r A t c h t s l o o e i. s A i 1 n P 9 s .o i O 8 a c 0 n i O , fo p H c u o ~ p ~ l ~ u a ; n la n d t u i e io c r e s n s . t a w n H t a u o o s t s m s \ C h \ e f d G : o J S r w . , l n t • n • i o m • t b < a ! l e s U > h b i . > > e d r a 1 a t 9 e b 8 S o I 0 u O l b < d e i H r a o l u s c p s l a f e y , n !.: 96 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00100 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.65071412 MOI'<CTARY I'OliCV RER:>Rl: fE8RUAR\' l017 15 have caused lhe home<7.vnership rate lo contlnue rising some or these may hal'e had offsetting effects on the after 2006, all else being equal. fx.1rrining the dat> black-white gap. forecample, from 1940 to 1960, "'lJOrately by age group reveals homeownmhip ~ends the rrigration d many blade families from the Sooth to that diffe< from ove<all averages, with suonger dedines nor1he<n un~l cilies(whereowning a home was le<s in homeown<rship obser\'ed for young and niddle likely 1egardle<s of rau) tended to offset the positive aged households. For exa"l'le, among households rJfeds on the homcowne<ship rate fromg ains in headed by a person 30 to 39 r•a~ old, homeowr>E<Ship income And education. to raleS fdl more than 10 pe<cent>ge points between 2006 In more recen1d ecades, the relative rise in the and 2015 for all major races and E'lhnicities (fogure B).' fraction of blade households headed by a single parent For bod> white and black households in this age range, may haveoffsec factors that orherwlsewould ha1'0 the homeownership rate pe.1ked in 1980, n>Xh earlier generated incre3ses in bomeownet~hip rates, including than theo,-erallnational average; by20t5, it stood the iWmluction and enforcement of anti-discrimination well below i~ lt~'CI in 1960. 01'0<the past century. the 131>>, such as the Equal Credit Opportmity ACt •nd black-~>Me homeowne<ship gap hu actually widened the Fair HousingACI. Research on the black-white lor households in dtis age range. and Hispar>c-white gaps indiClles Uta! a large po<1ion In ligl'l of tbegajns in education, income, and of these gaps in recent)-ears can be attributed to ac.:ess 1o credit and housing Ol'ef the long term for socioecononic di~erences-such as age, income, rrinorities in the United Slates, the perliste<>ee of the and farrily Slructure--across groups." That sajd, some black-while gap is surprising. A considerable armunt of the 0\'erall gap is nO! explainable on the basis ol of academic research has sought to better understand those variables and could reflecl O!her facta<s such diifermces in homoownership rates across racial as location and housing prEferences; it also could and ethric g<oups' Many facto~ ha\'e been found reOect continued discrirrination in hous.ing and credit to influenc.e the likelihood of homeownership, and nwkets.11 finally, recent research has also documented larger differences in ctedil scores t>ooveen whites and minorities than can be explained by income disparities; 3. for"""'"""'"" do" oo h"""""neohip taoesb)' age dtus,lhe tighter morlgage credit en•ironment lhal sincet900,seelaurieGcodma~ Rolfl'fndall,.,'<l)unZhu prevails today relative Loa dozen or more rears ago (lOIS). HI'Od3hpzmiHcme<~~>nMh/p: IVh.lt Doe< II» f<~t<;r. could cause the homeownership gap to widen in the H sit e W id d i E ~ /a V u a lli s fi l le l s1 i 1 ~ 00 U 02 . S ,. 7 n .O tn O s> .d tu sh > i e p , - J > u n n d o . l J . l w om • ! w ow .u n lb e o rs n h . i o p ' »' nearterm.n whot-does-tbel,.ure-holdl><f. 9. forare~;.woltbefit"'"''"·""'OooakiR.Hauri~ C H •H l o v o u i m • s q e e > h o h o w e l l d < l s E E ; . C f H l ir a l )S b l < « i i p p t, ( G ' a . o n , p . d . s 1 S a . 9 t ~ u a ( l l " n ) " , S . p t . n p R c . . 5 o .. - . m - 5 .1 2 . \ . . a l n d (2 M 00 i 7 n ) o . < ity · b R p 1 l a c 0 c r e . J r a S i< n e d x e l W s H 1 o i 1 l > m l i E a e m c 0 o • 1 n 1 . c l C E m o i i s l c l h H in 4 i > s < a : : < n A ! d l) C ' , R e \0 n o 1 t o u . . 3 r r y t 8 A - l O . o M n o g . n I V r w g i o . r y . ( t : 1 p 0 p 0 . 1 6 ), 8 -91. I f. See StiWIA. Cobr;,.i andStuan S. RostrAAol (2005), 'H..,..,..,.,.,.hip in dte 1900<and t990<:Aggreg.ore Tr<M< B. Homeo\\11mhip rllte$, by rre and e(hnicity~ for and Racial Caps; lc<;ma/ ol Vrb.Jn f<rmmics, \01. S7 hoosebolr!s h<id<d by""""" aged 30., 39 0."'3<)'), pp.IOI-l7;and[ricft>sseirre)Ot KienT.l..,nd KiatYing S.ah (2012). 'A H-d~""" O.Corrposition ol lhe ll'hi~t-Biack Homeowneohip Cop; R<giooal Sdettce >nd Ul6arl koocmics, \01. 41 Oanua~), pp. S~2. 12. See KM\in Koli Chari"' and £rikHur• (2002), 'The -~-70 Transition to lion'~!' Owr.ership and !he Blad-White Weallfl -60 Qp; Rev;,.vol Eco.""'ics and Swislks, vol. 34 tMa)l, pp.231-97. - '-AJlr./\ - 50 1). See N<il8hull3 and Daniel Ringo(20161 'Credrt 1:1~«~---.1'\.\ Av.nl3bilit)·a~ !he DEcline in~~ lending lO Mnorittes =~ ~ =: af"' tbe Housing 8oom,' FEOS Notes (1\\lshingiOO: B"'rd ----J oiGove<nor>oflhe r.derat R...,..s~ Sepl«li>« 29), h1~ps:Nwww.f~lre$('n'('.g<>'t'+~onresd.1talno~· BIK".a:otAL'UI.AI:m.~ -20 l n e o t' t < w li l n 0 g 16 .. ' ,. c r r r < io '< o i r l it · i a e v w a f i " l '< a t b t. i -h li o t u y li ~ n n g d .b ~ o i o n m l' - i 2 n 0 · 1 m 6 o 0 rt 9 g l . 9 ~g .h c· m . - 10 f in a< r e a c d e rl n il t i o y n w .tl s, r . s .. e , e n S : l h e\ o 'e n n h l> <i u g l l « lt< a f n le d d A cr n e d d r i e t w S < P o a re c i t o h r < e e l: > hol<fs II I I I I I (2016), 'The [ffe<tsof MorrgageCredttAvailability: £vidence JgoQ J920 I~ 1960 19$0 21)()) 2lllO from MiniJmmCredit Score Lending Rules,• Finall(e aOO lb N t d <n .D l: , ~ _d a (« c e~ 2 · 0 t 0 r 6 t . i 2 O 0 ) 0 I ') f . C 2 J 0 I 1 ! 2 w , i d .: Pl 1 O 0 O 1 O 1 . . p o ~ ;ccp: l w t b s o o. u l t td .f lt t id ZO :y O O b . o E / c C oo o o v m " ic " s " O " i o sc f r lh .o e " r " . " d S e e ra ri l e R s e l0 « 1 'f\ 6 < - e o S 9 y 8 s t ( e W m a , s O hi . n C gt e o n n: t . B r o t ord 16t:!d&e.!llKifpll:lrorl..all:lo:aybtoC~ra.ooe l'«lps:ilwww.federal ,..,..,...go.I«<nresdata!ledl'l0161 S<:w:t-Dcpa.~oCCoaunttN,.Brart-..oC~Ctt~Pa. f~Q01609llpoppdf. 97 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00101 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.75071412 16 PART 1: R(C£1ff(CONO,\UCAN0fi~~OAI. OtvtLOPM£1ffS - J-lomebuying and residential construction have been supponed by low interest rates and ongoing easing of credit standards for mortgages. Banks indicated in the - _ .1 ..6 October2016 Senior LoanO fficer Opinion Survey on Bank Lending Practices (SLOOS} that they eased standards on se,·eral categories - 1.0 of residential home purchase loans.' Evens o, mortgage credit is still relatively difficult io access for borrowers with low credit scores, harder-to-document income, or high debt to-income ratios. Although mortgage rates I! I I I I I I I I I I I I I I moved up from their all-time low levels O\tr ~ 2006 »)8 ZOIG lOll l(ll.a !016 the socond half of last yta~ they remain quite N S m <A> : a n : . o ;. . • , mo . <~ - < o lr l . . ~ ... a O. - .- . .. . t.: - )) c l~ . c . ..... low by historical standards, and. consequently, housinga ffordability remains favorable 20. New ond "<istiog borne sales (figure 21\. Business investment may be turning up JJ- - 1.8 after a period of surprising weakness - 1.6 - " Real outlays for business investment- that is, private nonresidential fixed investment-were - ll s.s 1.0 generally weak in 2016 but posted larger gains .lA.,_ toward the end of the year (figure 22). Last .. year's ~~~almess occurred despite moderate - increases in aggregate demand and generally favorable financingc onditions, and it was !.l It I I I I I I I I 11idespread across categories of equipment investment. Investment in equipment and Co:~ l l 'i y l m q : l l ~ bt b do il a y ~ J t d - o . s . . d b: i ~ h .i r . « D < a e b b e ~ a c t : n a ~ i M e I l 6 c . r 1 h ' a i !e ~ s t t « q nt ~ l · l ft l m c d t y ~ , " ~ biet i l n ik t e a l n y g r i e b f l to es c t n in 10 g , ~ th d e d e o f w fec n ts O o l'e f r t h m e o c s o t m of b t i h n e a t y io ea n r . IO'NliUxn~d"C~XVMkl. SCUCI: for ~:~ew bo:ne t&kJ. Ct:i":f '9.-". tn; for CW'I::& ~ ale$, of low oil prices, weak export demand. and NtbOC:l!AJ*'iallceotlc&l'DI"S. a muted longer-run demand outlook among 21. Mortgage DI<S and bousiog afford1bilily businesses. Although such declines are unusual outside of a recession, spending on these items did tum up in the fourth quarter. Investment l:lotainc~cdt'J: - 20S in drilling and mining stmctures. which had - ISS been falling sharply since the drop in oil prices - 16S in 2014, fell further through most of2016 but seems to be bottomingo ut. Outside of the l - - l•l ·- energy sector, investment in nonresidential - Ill strucmres increased moderately in 2016. - IOl Finally, afier having beens nbdued for much of 3- - ss 2016. a widespread set of business sentiment indicators improved notably near thee nd of II I I I I I I I I I I I I I 111/i 2009 lOll 2J)!l :!OlS 2017 last year. The""""' Nom: df.ut.lcy .... <1o"' IIOOttll)' ~ A N ~ ~' l ~ a t: t ~ ! t ' l l i ' o l l d be o ) r : . ' d ' ' t t ! l W l ! l l a t ' l o ' ~ l f « . i f8 O p at O t r , ! k a n ~ t - b d i c b : t ( c« , w a t m t e : t d b y ~ tb l ~ r' . y - l & l ~ t ! l F w t ! t : t o t : a nz tl : D ~ )· . 9,2 ~ 1ll ~ 1. hll I p . s 1 T 1w he • S w L .f O ed O e S r a is l = 01 r '3 v il e a . l: g le 0 \ o 'l o bo J a b n e l B do o c a s r l d s ' n s l w oo eb n s s i u Je rv a e 1 y . ·-~.q,«<!by&d<W: &ua: f«~qaftot&baC,·it:Ctx,Nui.9AIIO.'irioc!.ofRttl~ lo:~.-F'~M~I'!-imuyMo:-~~~k'"'ol!f. 98 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00102 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.85071412 MOI'<CTARY I'OllCV RER:>Rl: fE8RUARY l017 17 Financing conditions for nonfinancial · firms have generally remained favorable Nonfinaocial businesses have continued to raise funds through bond issuance and bank lfl\;ipotcm.r.;d~lblttEpi:d -ll loans, albeit at a somewhat slower pace than in the first half of 2016 (figure 23). The pace of such borrowing was supported in part byc ontinued low interest rates: Corporate bond yields for speculative-grade borrowers ha\~ declined since last June. and those for in,~stment-grade borrowers have increased -10 but a fair bit less than those on comparable I I I maturityT reasury securities (figure 24). 2010 b'lll lOIZ lOI~ 201-' lOU 2016 Banks indicated in the October2016 and January2017 SLOOS that tl1eyeased lending terms on commercial and industrial loans in thes econd half of the year, but that standards 23. S<l<ct«l<MipOO<ol$ of net d<bo fioa11ting for ooafmmcialbu.\-inesses on such loans remained unchanged relative to earlier in 2016; bankscontinue.d to tighten standards onc ommercial real estate loans over the second half of last year. Net exports held down second-half real GDPgrowlh The rise in thed ollar since mid-2014 and subdued foreign economic gro111h have continued to weigh on U.S. exports (figure 25). Nevertheless, exports increased at a moderate pace in the second half of 2016. but 11ith much I I I I I I I I I I I I !fl I of the iocrease a result of rising agricultural 21X62l'm:OOS2009201020112912:0111014:ZOIS2016 exports. In particular. soybean exports surged S'4CI: Fo!ml R~e 8o1r6. Stl::istle&l Rd~ Z.l. "fiw:.J;i&l A~or~ucttc!SUL"' in the third quarter before falling back toward a more normal level in the fourth quarter. Consistent with the stronger exchange value 24. Col)lOI'tc bood yields, by S«Uriti« rating of the dollar. imports jumped in the second half of the year after having been about Hat in the first half, when investment demand lOr imported equipment was very weak. Overall, real net exports 11~re a moderate drag on real GDP growth in the second half of2016. Although the trade balance and current aceount deficit narrowed slightly in the second and third quarters of 2016, the trade balance widened in the fourth quarter. as imports significantly outpaced exports (figure 26). I !! I I I I I t I I I I I II I II II I I 1999 2002 11))5 lOOS 2011 l014 .b>l7 Nm: Tbc )lel!ubov.il If( )1tl!s I'CIIf.)-cc-\Kiodl;, S'.o.a: So(A~IciiLyn.i!GkhalR~'&'dwil!l~ia:. 99 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00103 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.95071412 18 PART 1: R(C£1ff(CONO,\UCAN0fi~~OAI. OtvtLOPM£1ffS 25. Change in «•I impmsand expoi1S of goods Federal fiscal policy was a roughly neutral aOOsc[\·i;es inAuence on GOP growth in 2016 ... .,..,.,. After being a drag on aggregate demand during much of the expansion, discretionary - ll ·~ QJ< )'_ ' changes in federal fiscal policy have had a more neutral influence over the past two ye;~rs. During 2016, policy actions bad little effect on taxes and transfers, and federal Hl purchases of goods and services are little changed over this period (figure 27). The - l federal budget deficit increased in fiscal year 2016 to 31 percent of GDP from 2.4 percent in fiscal2015. Revenues rose only I percent 2011 2012 2013 l014 lOIS 2016 last year in nominal terms and fell as a share of GOP because of soft personal income tax - revenues and a decline in corporate income 26. U.S inde:mdcurrmt:ICCOUDib>l:mcts tax collections. Outlays rose 5 percent, edging up as a share of GDP, owing to increases in m.1ndatory spending and interest payments as well as a shift in the timingo f some payments - I that ordinarily would have been made in fiscal - l 2017 (figure 28). Tite Congressional Budget -l OJlke forecasts the deficit to be about the same size (as a share of GOP) in fiscal2017 and in the next couple of years before rising - s thereafter. Consequently. the ratio of debt held - 6 by the public to nominal GOP is projected to - 7 remain near its current level of 77 pen:enl of I I I I I I I I I I I I I I I I I I I J GDP for the om couple of years and then ~I))) l002 ~ ).106 lOGS ~10 lOU 1014 l016 ~ l'btbt& for ee t"'...:mt ~tCQI1and ~2016:Q3. GOP. b.ogin to rise (fig.ure 29). crcudo:otS!ic~ $Q.;t.a: ~o(C~,9wm~ofE.."':QQIaalcN.d)11$ ... and real purchases at the state and local level continue to increase, albeit at 27. C eo l o u s n u g m t p in ti o R n a t l o g d o w im r · n e n si x :IO o O t U ~p rndituf($ on a tepid pace The fiscal conditions of most state and loc.aJ .,cd<:>l _, governments have continued to improve, ·~~&:ll!l~..,) though tbe pace of impro•~ment bas been =11 slower in recent quarters than it had been d " I 'm . _: 0 pre1~0usly. The ongoing imprO\'ement I pl l I I I I - facilitated a step-up in the average pace of employment gain in the sector to the strongest - l rate since 2008. At thes ame time, however, -· real investment in structures by state and local governments bas declined. on net. since the -I first quarter of 2016 after trending up during the prior two years (figure 30). All told. total real state and local purchases rose anemically in 2016. On the other side of the ledger, 100 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00104 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.06071412 MOI'<CTARY I'OltCV RER:>Rl: fE8RUARY l017 19 revenue gr0111h was subdued overall, 11~th liHie groll1h in tax collections at the state level but moderate gains at the local level. Financial Developments The expected path for the federal funds rate over the next several years steepened Against the b.1ckdrQl> of continued strengthening in the labor market and an increase in inOation over the course of 2016, the path of the federal funds rate implied by I 11!1111!1 11111111111111 market quotes on interest rate derivatires has 1996 20)) 10): )))& ))12 )1)16 moved up, on net, since the middle of last year. Nr.s: nt rt..'tV.sa!l!. apdilllftSdn. rttotunir~·~basit t:1! Following the U.S. elections in November, m (~ iial )"C'IN;(O...~tb:wcb ~ "*~): ~ (ODP)&t&L."C"fc:tlbtf.r.:qo.o.artme:dq cQl the expected policy path iutbe United States ~ Oftl:tof~f~etttd:Budgel steepened significantly, apparently reflecting - inl'llstors' expectations of a more expansionary 29. Fedml gov""""'" d<bt b<ld by the public fiscal policy. Mean111lile, market-based measures of uncertainty about the policy rate appro;<imately one to two years ahead also increased, on balance, suggestiug that some of -80 the firming in market rates may reftect a rise in ->l term premiums. - !0 Survey-based measures of the expected path -_.l<.,l of policy also moved up in recent months. In the Surveyo f Primary Dealers that was - 30 conducted by the Federal Resem Bank of - l!J New York just prior to tlte January 2017 FOMC meeting. the median dealer expected I 19 I 6 7 I 19 I 1 1 19$1 I 19 I 9 1 ! l00 I 1 10 I 1 7 I two rate hikes in 2017 and three rate hikes in 2018 as the most likely outcome.' ((O - dl.l.--t(G fu DP ) d & &. > ~ I ~ t a: m ~ :lW n: t l . !fJI.~_W,. a l f b t. t b ( d o ! • b r )• « f b - c publk opll kdmldtbtltu l!WW')'Sie.~ bdd irl frdml t:llployer: dtlbed br:lrfl ttdmncnl.IIXOUW.n..Wa~¢:tdoi!mql*rttr. U.S. nominaiTreasury yields increased A: S a o l oJ ) : ~ G ! f o F r o r ft o G . D n ~ l . & ~ ln. F ( td«a I a lt f te r C Yt « B n oW ~ . S 8 la u ! t W d : l - 1 .a l o R i t & lm co e o : Z n J a: , . considerably TC.·ialArt«lllts orlbrli:J:I!d$~.M Arter dropping significantly during the first half of 2016 and reaching near-historical lows in the aftermath of the U.K. referendumo n exit from the European Union, or Brexit, in June, yields on medium· and longer-term nominal Treasury securities rebounded strongly in the second half of last year. with a substantial rise following the U.S. 2. The Ftdernl Rese~·e Bani: of New York'sSu~-.yof Primary D<a!ers is "'~ilable at bttps;/l..,.w.neW}orlcfed. org/martetslprimarydealer_so~-.y_qu<Stioo<honL 101 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00105 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.16071412 20 PART 1: R(C£1ff(CONO,\UCAN0fi~~OAI. OtvtLOPM£1ffS elections (figure 31) . Markel participants have attributed the increase in yields following !be 30. State and local <Ulploymcnt and struclli'<S in•- eleclions primarily 10 expeclalions of a more expansionary fiscal policy. The boost in longer term nominal yields in recent months reHects roughly equal increases in real yields and intla1ionc ompensalion. Consistenl 11i1h !he changes in Treasury yields. yields on 30-year agency mongage-backed securities (MBS}-an imponanl determinanl of mongage inleresl rales- increased significaolly over Ih e second half of Jbe year (figure 32). Howeve~ Treasury and MBS yields remain quite low by hislorical slandards. I I ! I ! I I I I I I I I lOt» ))II 201) ~IS lOll Broad equity price indexes increased qo N a: o :c : r I ly : . lht~ymt!!!&llart~,d!lltlll"'l"ru!t$6:t.an notably ... ~ f'o: ~ymtut cia~ IXprtmd tl !Mot, Bu.-e&.:; ot Llbor S'.!!dlics:l«~'tl!!ttbll..~tof'Co!lcee:tt, B~cltco!omit U.S. equity markets 11~re volalile around A:al)sis. lhe llrexil vole in Ih e United Kingdom bu1o peraled without disruptions. Broad equity price indexes have increased notably 31. Yields oo oomim:l Treasury sec:witic:s ,. ... sine~ late June, with a sizable portion of the gain occ.urringafter the U.S. elections in _, November (figure 33). Reportedly, equity prices have been supported in part by tbe - 6 perception !hat corporate tax rates may be -s reduced. Stock prices of banks. which tend to benefit froma steepening in the yield curve. -l outperformed tbe broader market. Moreover, market participants pointed to expectations - l of changes in the regulatory environment as - I a factor con1ributing to the ontperformance -0 of bank stocks. By contrast, stock prices of It I I I I I I I I I I It I I I I I I I 2001200.3 200S !0011009 2011 21113 201$2017 firms tbattend to benefit from lower interest No!'t: tbtT~tmrd,-~01'~ lj).)W~!Mnri!y rates, such as ulilities, doc.lined moderately k'mlocfebc';&:yi$,Z001,CII!~Ibll.tt:~tsocf'dlna!y9,~. on net The implied volatility of the S&P 500 Sa.w:~<llh<T-.y. index- the VJX- fell, ending the period close to the bottom of its historical range. (For a discussion of financial stability issues om this same period, sre !he box '·Developments Related to Financial Stability.") ... while risk spreads on corporate bonds narrowed Bond spreads in tbe nonfinancial corporate S<."Ctor declined significantlya cross the credit spectrum, suggesling increased investor confidence in the outlook for thec orporate 102 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00106 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.26071412 MOI'<CTARY I'OliCV RER:>Rl: fE8RUARY l017 21 sector since the middle of last year. Declines in spreads were particularly large for firms in the energy sector, likely reflecting improved 32 Yield and '!"<>d oo agency mongagc·bailid securities prospects for U.S. producers as theyc ontinue to increase efficiency and benefit from higher prices. ,_ -.00 Treasury market functioning and liquidity - llO conditions in the mortgage-backed - lOO securities market were generally stable -llO Indicators of Treasury market functioning remained broadly stable over the second half of2016 and early2017. A variety of liquidity - lO metrics-including bid-asked spreads and - 0 bid sizes- have displayed minimal signs of I I I I If I II I II II I If II II I liquidity pressures overall, with a modest 1999lOOilOOllOOSUI07l009))11201l201S201J reduction in liquidity following tbe U.S. NWI: The b!a &rt t&ily, Yt:ld .;.':II~ (w ~ Fc::.~e ).flo: JO•}"<*f elections. ln addition. Tre<~sury auctions c ., e v r -J d a ~ w ~ ~, ~ ; ; pa J r . . t o: t f i lc i t . . W vW ' r b .S i J d m i d~ ~ i ~ s& ·~ o .U ~ C ~ . o . l .' t " i l o l c d generally continued to be well received by $• tDd 10.)lU ::omi;d T:u$Wl' )'lela. SMct: ~oflhtlm~wy.Btrelays. investor.;. Liquidity conditions in the agency MBS market were also generally stable. The compliance deadline for money market mutual fund reform passed in mid-October wilh no market disruption -16» In the weeks leading up to the October 14.2016. deadline for money market mutual funds (also referred to as money market funds, or MMFs) to comply 11ith a varietyo f regulatory reforms, shifts in i01~stments from prime to government MMFs were substantial. However, the transition was smooth and without any market disruptions. I!J!!IIIIII!!!'"'" """ I Overnight Eurodollar deposit volumes 1996 1999 lt»llOOS )))8 2011 lOll :011 fell significantly and have remained low as S«a.cr:~kPoot'•O\'IW.io;esiz&cs,•8~(ForD<r. ..· prime fnnds pulled back froml ending in this Jocts~l~i:fo:mlblla.werlAto:t«:.lbtCoc::mupaat.) market Meanwhile. the rise in total assets of govemment funds appeared to contribute to modestly higher levels of tal-e-up at the overnight reverse repurchase agreement (ON RRP) facility through late2016. <fttmight money market rates were little affected, although the spread between the three-month LI.BOR (London interbank offered rate) and the OIS (overnight index swap) rate has remained elevated. likely reOecting MMFs' reduced appetite for term lending. 103 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00107 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.36071412 22 PART 1: R!C~~TICONOMICANOfiNiiNCIAL OMLOPM£~'1> Developments Related to Financial Stability Financial vulnerabilities in lhe U.S. frnan(lal Asset valuation prCSS<rres have incre:Jsed, on syslem 01'""11 have continued to be moderate ~nee balance, since rrid-10t6, along with se\etal indicators rrid-2016. U.S. banks are well capitalized and hm ol investors' risk appetite. Although )ields on Treasury sizable liquidily buffers. Nonfinan(lal OO<porate securities and term prffl'iums increased as m.uket busine<s leverage has remained Ele,~ted by historical expectations abool future growth shifted higher in lhe standards, and household borrowing has increased fall, they both rermin low. In addition. !he spread d rrodesdy, Jea,;ng lhe household deb!-to-inOO<ne ratio )ields on corporate bonds oset those on comparable about url(hangoo. On balance, the ratio of aggregate maturity Treasury securities narrf1oved. Es6m3tes noofanancial credit to 81'065 domestic product (GOP) ol risk ptemiums in equity markets also declinEd. has 100\00 up alitUe in recent year> to about ils la'<'l in Outstanding riskier corporate dEI>t edgEd dOII'O over the mid-2000s but remains \Yell bEIC1oV its recent peak. the P'l~ year. but gross issuance of leveraged loans Valuation pressures in scme asset classes have been was strong and the share of bond issuance rated Bo r rising, particularly late last year. below remained in the fourth qua net atthe high end Vulnerabilities stemming from le.mge in lhe of its range over the past few years. Commercial real financial sector appear low: Regulatorycapilal has estate (CR£) valuations, which ha\'e been an area of rerminoo at historically high la'Ois for rmst large growing concem 0\'ef the past year, rose further, with domeslk banks, and all33 iinns participating in the p<operty prices continuing to climb and capitali~lion federal Reserves superviSO<y stress tests I<>' 2016 rates decreasing to hi~orically IC1oV les<els. While CRE \\"ere able to maintain capital ratios abo\'e required deb! renlains modc<trelativetolheos.,..ll si~eolthe ninimums through the severely ad\me rec~on economy and lhe tighlening in bank lending stmdards se«~ario.' Moreo\'tt, rm~et·b.lscd measures of f01 CR£ loans in the second half of last )~" may rcilect leverage for domestic banks ha~-edecreased somewhat sotre reduction in the appetite lor CRE lending. the since NO\'Cmber. Howe\'«, \'aluatioos of rmny of the ~ght<.11ing of \Oiuatioo pressores may leave some large<~ foreign banks remain depressed. Oespile the snlaller banks vulnerable to a sizable CR£ price settlement on December 23 be~'-Deutsche Sank decline. Also, r~dential home prices continued to rise and lhe U.S. Department of Justice and some progrESS briskly through Nm"'""". Although most measures of toward addr~ng problerro in the lllllian banking residential \Oiuation have 100\00 up SOtlle\>ha' they sedor, 'Se\rera:llarge European financial institutions are still ooly modestly above the le,.ts thatii'OUid be have continuEd to be vtJin.,.ble to unexpected rxedided, gi\'OO rents and in\'es1menl costs. The resulls developmenls. Available data .uggestthatlhe levtrage d the federal Rt-se<Ve's 2017 stress tests. fO< slhich the of nonbank iinanciaJ institutions was relatively s1able in scenarios were released on February 3, will help gauge lhe><Cond half d 2016. thevulnerabilityofla~U.S. banks to all ollheseassci On balance, vulnerabilities associated ~ith liquidity \•aluationpressl.l'es. and mah1rity llansfoonation are also somt.Y..tlat below Vul~bilities ~emming from pri\Ote nonfinancial ~r longer-run a'-erage. The rEliance t:l.large bartk sector borrowing remain moderate. The credil-to-GDP holding companies on short-term funding rerruins ratio f<>' the oorporale ><Ctor is elevated after ses-eral subdued, and their holdings ol high-quality liqtld )'<'<l<S d rapid growth. Despite tl-ls higllle.-erage, assets are robust, owing in part to Ih e imp1f'OY!ntalion int!.1est·Cxpet'&'! ratios are l<»v by historical standards of lhe liquidity Coverage Ratio. Money market mutual even among hithE<-rislc finns, as are measures of fund {also referred to as money market fund, 01 MMF) expected default based on ao:oonting and s~ock return rel01ms d~gned to reduce lhe advantages associated data, especially outside of !heal sect01. Tuming to with being the first to exit a fund in times of financial households, debt growth was modest through the stresoloo to large declines in pnmeM\IF assets under third quart!.1 of 2016, and the debl·to-inrome ratio rrunagemen~ with rrtJSt oflhese funds n1grating lo has changEd little Ol'ef the pa~ few years. Excep1 for governmenl M\IFs. While the ...._.ting smaller size ol a recenl increase in early payment delinquencies prime funds and the new regulations should make !he in subprime auto loans-a small segment of O\<rall induslly mo<e stable, the longer-term effect ,.;11 depend indEI>t~btoad indicalo<s of household soh"ncy on lhe degree to which such activity migrales to other ha\<erermined \Yithin historical norms. On balance, t)1l<'S of short·lerm in,~nl \-.hides that may be the private nonfinancial-sector credit~to-GDP ratio is far subject to sirrilar fragilities. below the levels""" late last decade and lies nearils levEl in the mid·2000s (rrgureA). I. TheiO t6 "4'6'i sory s•e«est merflodologpnd Last fall, the Federal Resers'l! Soard finalizEd its resli;s are .waibble on the Board's website at hups'iM'WW. framewotic f01 setting theCounterC)'dical Capital8uifer lederalroo\._80"banlinforr.fsrress.....not6.,.,._;!<lf)' stress·~l-lesults.Mm. 104 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00108 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.46071412 MOI'<CTARY I'OliCV RER:>Rl: fE8RUAR\' l017 23 ... minimum amount of unsecured long·tl'Jm debt thai could be COO\'erted into equity in a possible resoltrtion ol that firm. thereby recapit.llizing lhe frmw ithout putting 13Xpa)'er funds 31 risk and din"inishing ~>e threat that i~ failure would pose to financial Slabilit)'. In addition, the Soard complaed an extensive <O r~iew d its statutory stress-test and <Anlx'ehensive Caplal Analysis and Re-iew (CCAR) programs and rrode some related modirocalions to! he rules associated with those programs fe< the 2017 cyde.' <0 Among other changes, lhe Soard remG\'ed certlin large, nonc~lex fil'fffi from the qualitath-e asse-ssment oi lhe CCAR.' Mor.,.,.·er, the Board, logether with lhe other federal banlring agencies. issued an advance notice of proposed rulernal<ing, inviong putlic Ctlf!'lrenl"" a ~ ol potential enhanced C)bcrsocurity ~; lbtWoa~~·»-GDf'~~;!J)Jedtl)~~·tf')sS:O~ rislc·rro~land resilience mndards thai would " o c " l e t ' q m • - ' m " . ' r ' o " m . ." t t'S d SIO ) D · u W ~ & ~ rl ~ :ll I !il 6 ! b ' )• Q I } # T K '.. ~ cJ J W J e 4 91 W ::- : W t. l b o li r t .: E e t p o t o l o io a d a: s a co p n pl '! y )3 t n o i d e e s p w o i < th it O O < \ ) 'E ' < in S sl S i O tu b tio il o li s o n an i d n a re ss g e u iS la t a e n d d h t o o l ding N " t " : ~ " o ' c: . ~ . J O . p o c F r o t d l d b o t t ; n t U l " m " ld l " t' " d t ' t $ i \ t l t J > tt 1 & t' P "' A ; . ~ d b I . I w o S o to n . l o . s ~ l W l ' i I l t l o < o o l l < t . t O . t . t : . . A , . a Z _ a . J l; , u, . . , .' m 0: b 1 O .' : » a 1 l C l E he tta s i t n an f d in a a r n d c s i a w l o m u a ld r k b e e t i t n ie f r r e a d st , r " u i c t t h uc a e n C O ad f' d ll m ).)A o i n e a s J . ' set of highE< standards for systems that p<ovide key (CCyB) and later '"'ted to rminlain lhe CCyB at ze<o.' functionality to lhe financial secte<. In foming its view about the appropriate size oi the The B<>ard and the federal Deposit Insurance U.S. CCy8, the Soard intcn<k to monitor a wide range Corporation (FOIQ also h"c continued to adhdy of financial and eo:>nomic indicato~ and oonsider engage in the re501uUOfl·planning process with lhe their in-plications lor financial S)'Siemw lnerabilities, largest banks. As part ofthat process, the Board and including but not limited to a$$EI valuation pressures, the FDIC announced thatBanlr ol America, BNY risk appetitCleverage in the financial and nonfinaocial MeiiOfl, JPMorgan Chase, and Slate Stre<l adequately 1 sectors, and rmturity and liquidity lr.lnslo<n\ltion in the remediated defiCiencies in their 2015 resolution plans. financial secle<. The decision to mainlain the CCyB at lhe two agencies also announced thai Weils Fargo did zero in part rellected an assessment that vulnerabilities not adequate!)' remedy all ol its deliciencies and will associatecl with financial-sector le\'efage were al the be subject to rMrictions on c«tain acti\·ities until the lower end of lhar historical ranges. def.ciencies are remedied.' frna A n s c i p a a l r i t n o s i ti i l t u s t i e o if n o s r t a 1 n 0 d i O m \ p <e r r o al ' l " f i t n h a e n r c e i s a i l li s e t n a c b e il i o ty l , the oi 4 S . t r" S. ' . T O e o st n in i g ~ • K ! . p < T !< a C ru h l l d o e U !ii 0 'O 16 fe ), d · > ~ t . th .. t\ s 'a .e t p .U si n n i t W h < t > E it . y .to oon Soard has also tlkm several fut1her regulatO<)' ~epo. School ol Man~t leaders Fo....., NewHa\'('1\ Com., Among those ~epsis thai the B<>ard finalized a rule that Scjl4fll'b« 26, htipit,..wwJ«k<alres"'•P""'""'"'"' w tE o <m ul d de i b m t p r o eq se u i to re t m ll e l n o t s s s - o a n bs U o . r S b . i n g g lo c b a l p l a s c y i s t t y e n a " n i d c a l l o ly n g. { s l p O e s e I . d n sl , .. 'l · .a r c S N -d I . I e . o r r a : d N l o l R 1 l 6 e w 0 s 9 tn . 2 . • 6 . a B . .o . o o , o o n rd . l A lh n e n o r. u d n e c r e a s l h R t e u s l e iz rv < e d S ymm importlnl bank holding companies (G.SIBs) and on Stress Tesli11g Rules R@IT(Iving f\.~1~ firms from the U.S. opE<aUOflS ol cerlain fe<eign G-SIBS' The final Qualr~ti-.A>pect o/CCAA Effooi" f0<1017: pr.,. r~-. rule \vould require eadl covered firm lo maintain a January JO, https:l"""'.federalr""'"·&O'Inewse\Ofl~tpreS61 bcr'lj'101701llla.htm. 6. S..lloordoiC-ofthtr.tleoaiReserveSysoetl\ 2. S..Soirdofw «no• ol tho r.der>l ReserveS)""" Olf"" olth<COI11'uolle< oltlleCurrecq andr.deral (2016), "federal Resem Boord AllnooOC<'S It Has Voted ~)<posit lnsttanC< C«p<>ration (2016), 'Agencies Is.<"' ooAifrmCoomerC)dicat Clpital8uff« {0::)8) a1 Current Advanced Notic>ol Proposed Rulenuking O<l Enh>n<ed ltl\<l ol 0 Pe<ce"-' pr"' r~. .... Octobt< 24, hup,;.-.ww. C)bet Risk M>rogetneol Stul<brds; jointpr"' rele.,.., f..,.,alr'''"·~-~"'"""'~!prcswcf(>g/2016102. ..h un. 0C100H 19, ~h-ww.ledoo!Jr<')('I\'(J.g<W/n("'o'S('\'flliSlpressl l. S..8oirdofw«no•olthtf«<eral R""'~S)'•em bcref10161019a.i'«m. (1016). 1ederal R""'e 80>rdAdq>U fino IR ut. to 7. S.. Boord ol c-..., ollhe f«<eral Reserve Syoem SUt"flglhm lhtAbilil)•o f C<wc101ll(fltAuthoritic-s to Resoh<ein andFt>dr!<alllqlositlr•tn""'Corpootion(2016i 'Agencies Orderly Way largest ~<and f«<ign Banks Op"'ting Annou~OE!IefmiootioosonOctoOO' Resohltion Pla:n in the United S..teS,' P'"' "''"'· Dec"""' 15, ht~:/1 Submi"i""'o l row S)'llenlcally I"''''ont Domestic 8anki ~ wv.w.fedtr.lllc-serve.gov·'nc<WS('Vfflts.l'prts6-bcrcf} lf'6tiMions,• joor< press"'""'· Dec..OO IJ , htiJS:/1\\ww. :Nl161215a.hun. federalr""'"-80"'""'""""5'pres;1>r:reg/201612lla.htm 105 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00109 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.56071412 24 PART 1: R(C£1ff(CONO.IUCAN0fi~~OAI. OtvtLOPM£1ffS H, Ratio of t01al oommacial bonk =lit to nominal gross Bank credit continued to expand, and oomestic p-oduCI ..... bank profitability improved Aggregate credit provided byc ollUllCrtial banks continued to grow at a solid pace in the - IS second balf of2016 (figure 34). The expansion in bank credit was driven by strong growth in -~-'I) core loans coupled with an increase in banks' holdings of securities. Measures of bank - -6S profitability improved since the n~ddle of - - 60 last year but remained below their historical - ss a~·erages (figure 35). Municipal bond markets continued to l!tte!ttt!tto!tttl!!tltto!,uludut!ttlfwlw!l ~ 200& !010 lOll M~ 1416 function smoothly Lil S b t li . ' u Je c s t o fo l i C ml l ~ e:scM l B B d o . a $ .-d . c S l f l M o~i . \ : in 1. i 1 : t R 4 e S lA :R x r f ~ U D , "M ~ e') a : o :4 f Credit conditions in municipal bond markets Com:·u~ 8·.t."((;.. o(£."'000."18: /.:&b...._ have genemlly renmined stable since late June. 01~r that period. the MCDX- an index of credit default swap spreads for a broad 35. Prormbili1yofoonk holding ccuupanics portfolio of municipal bonds-d.ecreased moderately, white yield spreads on 20-year general obligation municipal bonds over - 30 comparable-maturity Treasury securities - lO were little changed on balance. llte Puerto - tO Rico Oversight. Management, and Economic Stability Act was passed into law in late June, J - 10 p p r a o th v id to in w g ar t d h e d c e o b m t r m es o t n ru w c e t a u l r t i h ng w . i A th l t a h o cl u ~ g a h r er u -lO Puerto Rico missed a small amount of debt IJ Lo- -30 payments on general obligation bonds in August, this default appeared to have bad no l!lll!!flltlll!lllll!lll '"' zoo1 ~ 2.001 Mto um l016 significant eft'ect on the broader municipal ~lbe6a:a.wlli~ttlei:ICICII.Ita!p;:ti!.L.~Ifl&t'.trlr~~ bond market. ~"0"-iblOI&QJ. S<Qct Fok!ai~~BoR.fonaFR Y·9C.C«:$$I~f~lll $)lemataiorWHcll.iqC~. International Developments Foreign financial market conditions improved despite global political uncertainties Financial market conditions in both the advanced foreign economies (APEs) and the emerging market economies (EMEs) have generally improved since June. Ln the AFEs, increasing distance from the Brexit vote, beuer-than-expectedeconomic data for Europe, and the continuation of aecornmodative monetary policies by advanced-economy central banks have 106 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00110 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.66071412 MOI'<CTARY I'OliCV RER:>Rl: fE8RUARY l017 25 contributed to improved risk sentiment. 36. tO-yw nominal bcncblll>lk yields insel«!cd Ad\'llnccd-economy bond yields rewrsed their advaoccdecooomi<S downward trend seen in the fitst balf of the year and increased notably following the U.S. elections, in part on expectations of a more -l.O expansionary U.S. fiscal policy (figure 36). -l.l -10 Equity prices in the AFEs have generally risen - Ll since June, with financial stocks outperforming - I,D broader stock indexes as third-quarter earnings largely beat expectations, several - j major risk events passed, and the steepening of yield curves was expected to boost profits - j going fOiward (figure 37). Despite some I I! I I I! I I I ! I I I I I lOIJ NU l016 l917 widening of curo-arca corporate spreads in the last months of 2016, corporate credit f<W N! t r ,; . m t y : 9 T , b ll t H W T . . - cv.'tetly•Tt:aCOofdai}fQI&Iod~~ conditions in the advanced foreign economies So.oa< ....~ have remained accommodative, with the l7. Equity iodc:<<S for S<lectcd forrign ccQllOillieS continuation of corporate asset purchase program; by several AFE central banks and with low corporate spreads. M~~ip<'i.'OIfi .O::I~r £. : ~ t " '"*_,._-•l.S ' 1 - us In EMEs. equities have risen significantly and ' -ll)l sovereign yield spreads have narro\\~d since - !)l June, supported in pan by higher commodity -" prices Financial conditions did tighten briefly following the U.S. elections, with increased - " lS capital outflow~ and wider sovereign spreads. on concerns that higher global interest rates. - JJ as well as the possibility of more protectionist I I I' I I I I I I I I ' I I I I trade policies, would weigh on EME growth 201' 201S 1016 2017 (figure 38). Howevtr. the favorable risk fft N lr m .al : :) · l 9 b ,lO t& IJ. a art 11'td:IY"~ ofdr.i~dall &:JC!n:..sd through sentiment seen in the summer and early fall S«.ila: F« ~'l»d. lbttip ~. !ISCI £-\FE le&:x ~ o m f o 2 s 0 t 1 E 6 M re E s s u . m ed by the end of the year for t l ~£ n : e w di : l . a u \ i b : D a . o - : u w ~ ~ a ! J . l a l o : & : h : ' t m . i e J . £ fo D t u o o : l & o . w .: S i x 0 n T 1 t v O 1 l i n . X t 1 t X ~ ; t . . : 8 . l f b o o c t e r l : k n d e C o rO o r : e . :l g t« o t i "t o n .": i g .t'e # s B ! C J D V C o t J " l o C t o i a ! . ! l ' t ! f l l O ! \ . q ' - ~ . 0 ; . ~ 0 ( 0 f ) o ! F ' r o 1 1 a r ~ , ~ u M . - J S o c . C a ~ s t 38, Emaging ID>Ikrt mutuol fund Do•> and sprca<l; After depreciating slightly in the first half of last year, the dollar strengthened in the second half I S..di'.Jldn..,(nglux¥) l<lO- I Eq<o~ftm.!O•>t(ri;)!W.) -JO llle dollar has strengthened since June, with the broad dollar index- a measure of tbe -I! trade-weighted value of the dollar against foreign currencies- rising about 4 percent on balance (figure 39). .Much of this strengthening - I! of the U.S. dollar reftects the combined influences of the large depreciation of the -JO Mexican peso, expectations of fisc.al and trade policy changes after the U.S. elections, and 201' :MIS 10!6 Mli Nm: 1bt El!Bt+ U~a m wrtkly ·~ of Qily de• w1 tnod ~Fdrl.wy9,1017.TceEPI-'Rd&lla:e~·f3S({"'«kJYcid. Tbef:=i tklwtb!lc:d!U.f tmds ~b Cbi::a. SGtJ.ct: F«t«dt:!d~f.mdilows.,EPfRGict.l; forEMBI+.lJ. M~£."ffeti:aM~~~Pt:$\'it8~ 107 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00111 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.76071412 26 PART 1: R(C£1ff(CONO,\UCAN0fi~~OAI. OtvtLOPM£1ffS 39. U.S. dollar mb3nge rateiodu"' market expectations of tighter Federal Rese1ve monetary policy. The Chinese renminbi also weakened notably against the dollar, on net, as capital outflows from China picked up: - 110 Chinese authorities tightened capital controls - 160 in tesponse. - ISO - 1'0 In general, AFE economic growth - 130 was moderate and inflation remained - 120 subdued In Canada, oconomic growth picked up It sharply in the third quarte~ following a contraction in the ptevious quarter, as oil extraction rocovered from the disruptions caused bywildfitesin May(figure40).Jn contrast, oconomic growth inJ apan in the second and third quarters slowed after a ~0. Real gross domcoti< product gJo\'1h in ~t - l<t!o - d stron~ first quarter, returning to a more typical adv:IOOOd fot<ign <OOCIOOli<s moderate pace. Euro-area growth firmed in .. the second half, and, in the United Kingdom, ocooomic activity was resilient in the aftermath -s of the Brexit refet:endum in June. Available indicators suggest that growth in most AFEs Ql was moderate nearthe end of2016aod early tltis year. _._..._._...__..._Uf: Headline inftation in most AFEs inct:eased over the second half of 2016, in part driven by higher oil prices. ln the United Kingdom, - I the substantial sterling depreciation after the Brexit referendum also exerted upward liO!l liOI' lOll 11016 pressure on consumer prices. Even so. core 20 ~ l6:Q{ lnllet ce!na: a tO * t l l ll : w t - U tr n z r :o ~ K ~ itp m ~ i "' : ! : ' . p( . n ~ : d l l ~ ttl u ;t b tl e il f n " i: . :3 C t . y ! e ~ fot inflation read in~ in AFEs remained generally tstimttt ror 2016..-QJ. Tbt c.u for J•pc a QeD oun1 lbro~ subdued, and headline inflation stayed helow lO S I o 6 ..' q iC l. £ Fotd!t1Jl!iud.~Ot"6oefotNnoeal~;f01!._ central bank targets in Canada, tbe euro area, r.et.c.~on'~«.C~othptn: t«ttC'Il:OIJ\'e. e:.."'SSII;t«Ccm. Japan, and the United Kingdom (6gut:e 41). b!A."SC&:!Ida;aD vit. Ht\!'t ~· AFE central banks maintained highly accommodative monetary policies In August. the Bank of Englandc ut its policy rate 25 basis points. announced additional purchase-s of government and corporate bonds, and introduced a term funding scheme. In Septemher, the Bank of Japan committed to expanding the monetary base until ioDation exceeds 2 percent in a stable manner and adopted a new policy framewort aimed at controlling the yield curve by targetings hort- 108 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00112 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.86071412 MOI'<CTARY I'OliCV RER:>Rl: fE8RUARY l017 27 and long-term interest rates. In December, 41. fnlbtioo in selected advnll«d foreigo e<XIOOmi<S the European Central Bank announced an extension of the intended duration of its asset purchases throug)t at least December 2017. albeit 11ith a slight reduction in those purchases beginning in April201 7. -l In EMEs, Asian growth was solid ... -_l, Chinese economic activity remained robust in the second half of 2016, as earlier policy easing supported stable manufacturing growth - I and a strong property market (figure 42). Howeve~ the property market cooled It' 10 . 1 4 ' I ' 20 ' 1 S ' I I XlIl & I I 2< ' 111 I I somewhat toward the end of the year foUowiug NT.£: lbtda!lf«~ttrerta~thtihshtt:i:!Mu-iklm!MY the introduction of new macroprudential 1017, r~ ~ !~~r CmCr.l~&o.1 !be IJuhe6 Kqdq:n ~ di.-wgb measures aimed at curbing rapidly rising house ~ SC 1 Ut 0 t f 16 « . ~~~Ot'li.'ei«I\Ra:.&ISIU-:i~Jtl"«~ prices. Elsewhere in emerging Asia, growth s W -.u u , t .. y .a o ( Offi.'<' ~ of lht A E f ' f lt . o L p n e t: d G C C o o : : l n l : : : u m . & Q ti : e i s o : o fo $ r ; C (e w ~< d ~ a . ~. S ; : o .t i . b _ :' ~ $ held steady in the third quarter but stepped Cwd.l;-lll\1lll;J\'G'A:oalytiel. down ins ome countries in the fourth, even though exports and manufacturing improved. 42. Re3l gross domestic prodllet growth in selected And in India, a surprise mandatory exchange emttgil1g nurkt:t tcanmnics of large-denomination bank notes- a move aimed at bauling tax evasion and corruption bas disrupted activity. . . -but many Latin American economies continued to struggle In Mexico, after considerable weakness in the first half of2016, growth surged in the third quarter, supported in part by a recovery in exports to tbe United States. However, activity weak-ened again in the fourth quarter. as consumer and business confidence dropped. 201! Furthermore, inftation in Mexico jumped over thes econd half of the )~r. pressured in pan T N h o < t w t' n il> c t r 4& u :a . ro . r . M . m .. .1 .. o n ~ yll : ;:s t >< l ~ b f y lu ll b o . t t n t l . s i: i d ll t l f T o h : o l c O !a ll l> ~ il> . t by the peso's sizable depreciation, prompting Mal\\\ ~ and Rena n ~I)' ldp:td. lly 4u mpt\'ti\<t &O\'e'-"3iet~ 'l'btbi«R."Uilmmd~20J6:Ql the Bank of Mexico to hike its policy rate S.:..to: fot Ch:a. Chi:a NIOOcd bl:lelS~Iisti"t;l« K«n. BW oiKo:ea; forMa~ ltis':~.o 1\;):IO:Ili& ~';1. y ~a; b sharply. Brazil's recession deepened in tbe third BtcL bs:lw10 BDMiroik Gql:af~a ~ &:&-..ti.~ all 'il ~u .bl)U. quarter, reflecting in part tight macroeconomic policies, although the central bank began to ease monetary policy as inflation dropped in response to the weak ec<>nomy. Elsewhere in the region, activity in the third quarter was mixed; Chile's economY rebounded. but Argentina's GDPc ontracted and thec risis in Venezuela deepened. 109 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00113 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.96071412 29 2 PART Poucv MONETARY In December, t~ Federal Open Market Committee (FOMC) raised the target for the federal funds rate by V. percentage point to a range of~ to* percent The fOMC's decision reflected realized and expected labor market conditions and inflation. Moreover, tiJe decision to raise t~ target range was consistent with the Committee's expectation that, 11ith gradual adjustments in t~ stance of monetary policy, economic activity would expand at a moderate pace, labor market conditions would strengthen somewhat fun~r, and inflation would rise to the FOMC's 2 percent objective overt~ medium term. T~ Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in t~ federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. How!!ver, the actual path of the federal funds rate will depend on the economic outlook as informed b)' incoming data.ln addition, the Committee anticipates reinvestingp rincipal payments of its securities holdings until normalization of the level oft~ federal flmds rate is well under way. The FOMC raised the federal funds rate pending further evidence of continued target range in December progress toward its objectives In December, in riewof realized and expce.ted labor market About a year ago, in December2015, the conditions and inftation, the FOMC raised FOMC raised the target range for the federal the target range for the federal funds rate funds rate after holding the range at near zero since late2 008 to support economic activity another Y. percentage poin~ to a range of Y, toY. percent (figure43).' The Committee and stem disinftationary pressures in the wake kept that same target range at its most recent of tbe Great Recession. At that time. the meeting, which concluded on February t. Committee judged that it bad seen sufficient impro,~mrmt in the labor market and was reasonablyc onfident that inflation "'Ould move back to its2 percent objective, which would 3. See BoanlofGowrnorsof the Federal R.serve System (:WI6), "Fedml R.s<rw l<sues warrant an initial increase in the federal funds FOMCS tatement," press release. Dooember 14, rate. Through most of 2016, the Committee hnp;J/wv.w.!<deralreseo·e.plnew5el·entslpressl maintained the target range of Y. to Yz percelll. mooetaryl2016t2t4a.htm. 43. S<lect<d int<r<St 1111.s ""' """' - s -· _, - l - I - o It I I 1(117 Ntm: The l·yqr cud 10·rw ~~~ld m tkewf'.aal"""-'"::a:itr ,iddst-1! on :be: ~attn-ely titdo41Mritia. So.llG: ~.mo!olthc:TftU.'%'YiftdcniR.ne\-c8d 110 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00114 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.07071412 30 PAATl: MON£TARYP OLICY Monetary policy continues to support the The size of the Federal Reserve's balance economic expansion sheet has remained stable The Committee has continued to see the To help maintain accomm<xlati~~ financial federal funds rate as likely to remaill, for conditions, tbe Committee bas continued some time, below the lerels that are expected its existing policy of rolling over maturing to prevail in the longer run. With gradual Treasury securities at auctiona nd reinvesting. adjustments in the stance of monetary policy. principal payments on all agency debt and the FOMC expects that economic activity agency mortgage-backed securities in agency will expand at a m<xlerate pace, labor rmrket mortgage-backed securities. The Federal conditions will strengthens omewhat further, Reserve's total assets have held steady at and inflation will rise to 2 percent over the around S4.5 trillion, with holdings of U.S. medium term. Treasury securities at S2.5 trillion and holdings of agency debt and agency mortgage-backed Consistent with this outlook, in the most securities at approximately $1.8 trillion recent Summary of Economic Projections (figure 44). The Committee has for some time {included as Part3 of this report). which was stated that it anticipates maintaining this compiled at the time of the December 2016 policy until normali7.ationo f the level of the meeting, most participants projected that federal funds rate i~ well under way. the appropriate level of the federal funds rate would be below its longer-run level Interest income on tbe System Open Market through 2018. Aecount, or S0~1A, portfolio has continued to support substantial remittances to the U.S. Future changes in the federal funds rate Treasury. Preliminary results indicate that will depend on the economic outlook as the Reserve Banks provided for payments informed by incoming data of$92 billion of their estimated 2016 net income to the Treasury. The Federal Reserve-s Although the Committee has expected that remittances to the Treasury hill'e averaged economic conditions 11111 evolve in a manner about $80 billiona year since 2008, wmpared that will warrant only gradual increases in the federal funds rate, the Commiuee has "~th about S25 billion a year om the decade prior to 2008.' continued to emphasize that the actual path of monetary policy will depend on tbe evolution The Federal Reserve's implementation of of the economic outlook. In determining monetary policy has continued smoothly the timing and size of future adjustments to the target range for the federal funds As in December 2015, the Federal Reserve rate, the Commiuee will assess realized and successfully raised the elfective federal funds expected economic conditions relative to its rate in December 2016 using the interest objectives of maximume mployment and rate paid on reserve balances, together with 2 percent inftation. This assessment will take an Ol<ernight reverse repurchase agreement into account a wide rnnge of information, including measures of labor market 4. Tow rtmiuanoesindudeaont·time transferor conditions, indicators of in Oat ion pressures $19.3 billion in D«:ember 1015ro reduce theawegate and inflation expectations, and readings on Rese"< Bank capital surplllS toStOb illion. as requin'd financial and international del'elopments.ln by the PixingAmerica-sSorfaceTransportatioo light of the current shortfall of inflation from Act. Set Boasd of Gc,-emorsof the Fcd<ml Rese"·' S)stem (2016), "Federal Resef\·e System Pablishes 2 per:cent. the Conmuttee has indicated that Annual Pinancial Sratemen~~· press releast. March 18, it will carefully monitor actual and expected htt'(>S1J>.ww.federalrestrv<.g01'/ne.WS<\. .t slpresrl progress toward its inDation goal. otherll0t603lia.bll)). 111 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00115 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.17071412 MONETARY POliCY REII:JRT: fEBRUARY lOll 31 44. F«<tml Rescn~ assetS and liabilities Asstll ~ OOu!Wil .-.;"&'hvlft.~HC>Rr·~ 2009 1010 2011 2012 1013 No1J; ~Q'C~mdlir:pdllyrtoiliic."Wl!fiAO:FJA'Y.~,&:d5CihOil&ldtla:m(I:.VT.IOllctedi&;OCOIIIIbcnltqadt."YJ",;*JI$;qlpOrtkM&lkn l,Qc, BewS~ md AI(); md«bcr;:redit !aa1-b.+Jdia&tbc P:irr.cy })Wa~F~~;ill.y,lbc A.c:~ComllCWII Pcpa }.Swcy Mckd. MlWal k:xiU1J1idir.yfacility, t!lt Co~ ..F ~P.aci~:y. d ~ fa'l'll A.actkk<d~IIC$ i,.ccQ f~~:ii:)· ~ 1$$Q" Q:lildq~ ~i'!!at:lddisoo:r.sor~s«o.Jtitinhdd<r~ ~a::d~lillbitir.ies"io..i:desft'<--otrq:et:hueq:tt..11CJ'.t., W:U.S. ~Gefml~ l!ldOt U.S. 'l'!ul.~-y~lcttdr.I."Yfioaci:D&A~ 'l'htba~coddaulgllFdo&ryt,20t7. SaJla: F<den.l~<tBOI!Il.S.:.ori:a!RdmcHA.l, ~MnecR.t:tcrVt&lo:o." (ON RRP) facility.s Spec.ifically, the Federal The total take-up at the ON RRP facility Reserve raised the interest rate paid on increased modestly in the second half of2016 required and excess reserve balances to as a result of higher demand by government ~percent and the ON RRP offering rate money market mutual funds in the wake to !h percent. In addition, the Board of of money fund reform that took effect in Governors approved an increase in the mid-October. discount rate (the primary credit rate) to 1.25 percent. The effective federal funds rate Althou&IJ the implementation of monetary rose into the new range amid orderly trading poticy has been smooth, the Federal Reserve conditions in money markets. Increases in has continued to test the operational readiness interest rates in other money markets were of other policy tools as pan of prudent similar to the rise in the federal funds rate planning. Two operations of the Term Deposit following tbe December meeting. Facility were conducted in thes econd half of 2016; seven-day deposits were offered at both operations with a Hoating rate of I basis point 5. See Boord of Govtmoi> of lh<F od<ral R<S<n< o,·er the interest rate one xcess reserves. In Syst<m (20t4), "Fodml R<Serve Issues FOMC Statement addition, the Open Market Deskc ondncted oo fl:>licy Nonnalil31ioo Principles and Plan~• pms several small-value exercises solely for the releao; Sept<mber 17, http<1/w"w.fodtralres<rve.govl purpose of rmintainiog operational readiness. newsmnt5/p~<'monetaryl201409ticJI(I)I. 112 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00116 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.27071412 33 3 PART SuMMARY oF EcoNOMIC PROJECTIONS The following material appeared as an addendum to the minutes of the Docember 13-14, 2016, meeling of the Federal Open Market Commiuee. In conjunction 11ith the Federal Open leveltbrougb2 019. All participants projected Market Committee (fOMC) meeting held on that in Hat ion, as measured by the four-quarter December 13-14.2016. meeting participants pettentage change in the price index for submitted their projections of tbe most personal consumptione xpenditures (PCE). likely ontc()mos for real output growth, the would increase over the next two years, and unemployment rate, and inHation for each several expected inflation to slightly exceed year from2 016to 2019 and over the longer the Commiuce's2 percent objective in2 018 or run.6Each participant's projection was based 2019. Table I and figure I pro\~de summary on information a1•ailable at the time of the statistics for the projections. meeting. together with his or her assessment of appropriate monetary policy, including a path As showu in figure 2, almost all participants for the federal funds rate and its longer-run expected that thee volution of economic value, and assumptions about other factors conditions would warrant only gradual likely to affect economic outcomes. The longer increases in the federal funds rate to achieve run projections represent each participant's and sustain maximum employment and assessment of the value to which each l'llriable 2 percent inflation. Many participants judged would he e~pected to converge, over time, that the appropriate level of the federal under appropriate monetary policya nd in tbe funds rnte in 2019would he close to their absence of further shocks to the economy. estimates of its longer-run nommllevel. "'Appropriate monetary policy·•i s defined as However, the economic outlook is uncertain, the future path of policy that eacb participant and participants noted that their economic deei!IS most likely to foster outcomes for projections and assessments of appropriate economic activity aud inflation tbat best monetary policy may change in response to satisfy his or her individual interpretation of incoming inlormation. the Federal Reserve's objectives of maximum employment and stable prices. A majority of participants viewed the lew Io f uncertainty associated 11ith their indi1idual Most FOMC participants expected that, under forecasts for economic growth, unemployment, appropriate monetary policy. growth in real and inflationa s broadlys imilar to the norms gross domestic product (GDP) would pick of the pre\~ous 20 years, thoughs ome up a bit next year and run at or slightly above participants saw uncertainty associated with their individual estimates of its longer-run their forecasts as higher than ao.erage. Most rate through 2019. Almost aU participants participants also judged the risks around projected thattbe unemployment rate would their projectious fOr economic activity, the run below their estimates of its longer-run unemploymelll rale, and inflation as broadly normalle11tl in 2017 and remain below that balanced, while several participants saw tbe risks to their forecasts of real GDP growth as weighted to the upside and the risks to 6. One participant did not submit longer-run projections for r<al OUlput &IC\\111, the un~piOjment their unemployment rate forecasts as tilted to tate. or the f«<ctal funds 101< the downside. 113 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00117 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.37071412 34 PART l: SUMMARYO f ECONOMIC PROJECTIONS Table 1. Economic projections of Federal RestJ''e lloaro mem~n and Federal Rese!Ve Bank pr<SideniS, under lhrir indhidual asstSSmenls of projee1ed appropriale monelary policy, Decem~r 2016 "'"''" ~,, lllinll!liS ll>l19 ~· ~~~ 1l0!1 120111 21)191" ::!" 1~ ~71lll"llll191 "::r l!)l! "-in~GDP 1.9 l.l lO IS U I.S-1.9 U-ll L&-ll 1.$-lOif.&-lO 1.$-lO Ll-l< 1.1-ll 1.5-lljL~-ll Stp~emktp«.'je<1ioe I.S l.G 2.0 U 1.S 1.1-1.9 1.9-12 1.8-11 1.7-1011.1-1.0 1.7-lO U-lS 1.5-13 1.6-11! U-12 U~Wmpjo,·IIIC'fltn~t. 4.1 4.S .f.S 4J U 4.14-S (.S....f;.6 U-4.1 4.3-4.Sj4J-S..O .f.7-lS 4.4-4.7 4.2-4.7 41...UJ-t.>-5.0 Stttt'mkc pcojcc1io. ~~ 4$ 4J '"' U <7..U 4.l-47 4.4-t7 H-4,$!<.7-M 1.7-49 4,4-4,$ <J-4.9 42·S.Oj4.5-S.O PCEitdlation Ll 19 2.0 211 2.0 IJ 1.1-lO 19-10 ll).1fi 211 15-U 1.7-10 1-S-12 1.&-Ui lO Stpltmher ~ice 1.3 1.9 tO U M JJ. . U 1.7-1.9 I.S..lO lj..lOj 1.0 I.J ..l .i 1.5-10 I.S.10 U··llj lO CortPCBilllbiioa' 1.7 U 2.0 l.O 1.7-U I.S..t9 1.9-10 10 ! U-1.8 1.7-10 1.&-12 1-S-<2! Stpttm.krpclljl«iee 1.7 U 2.0 lO lk-U 1.1-U t9-l0 l.O i 1.5-lO L!-10 1.&-lO 1-S-lli M~oao:Projtel(d IC'I*lpri•policypalti f'Nt111radsrw &p~tnlkc P«F!io. tk N t : . m l ' ~ P q f t ' v o t j t e t < o . t 1 t l lr O rc I > ; W Jd l e c h .- ~ f a « m td i J P 10 C 1 ! 1 I d II c t! c » l a !• u i d c : e ~ o ( u ( P ID tt P !l ) ll • lf D t t r: ~ o F l ~ t f n o d r l b t o p c c h r n n a a . ~ m n o . f . is - l u l ~ i < i b~ O ~ i JS t ; : at,l r ' ~ ! c f t \ o ' c O O~ t I d t . . u . e ~ uhom a d c l u c l f cc a : ~ b pc q r a i r iO t O t & t I( o O f M l II . I t ; t ~I p C r a n o; i p o c v .i , d c a u O! t I o r tpCS:)u4Ctprl«MallcPC!GCh4~fooltuAt~~f«tilt':.~ttUtl\11~~dK*"'C'CM\AUIU~*=«Jtnll*~bri'{U;tU~IIK~ ~Klelt.$ Ed J~tdcipn('IJ'fOjta11:4Uitbatd ~U«lu&~Wcl•~Jofi·IC ln:ll-dU)'pol~loqton!l:,;llt(6ou"'~~r.IU.C:.,pttlki~ft~lof6t fU ttw1ild.adi":nbk-oeldlicopcdc4to~IM~U6r.~liltlt»fKilt)'r*'JU16•tM~olfllrtl«kbiOfu«<CCIOUI).'fl.t~~bub'Chfo6mfh~ nl1&ntlll*-oltiKSid~;~oft.•~·~•ttl:tJI'Irv.ttf«IM~ti&HIAII«It.~~lWI'CoprluitlfV!tlt._,.Uxtk~!11t.~n."t&:tl1udot0. tPtC&6ctlrttlt)UIOtowtllltSot.ttttulkl\t~~~lft!t~il~iolwu)l,)ciCJI~..IDIOfdc~~O~aW.ut.ttc-r.wotfcpt~)C..ll, lOSt Ott ~14..ati)IR\41i$oq:M1tt'Q',*II(INf«IIK~Iartii00P.tk •t~ftl!M.,OIIkft4<ft!~41n!clt..,_. .". !\Mft.Qc$c9fdllblt »-ll, 20!,,~DD~bq.c.d~~~d~O':(ntd•~~~·Q,!U!:tool'llllltMDt~rU. . J4,lG!O..a:cli!lii- w l P tw >f r c o. t W ~~ it C ti . iO tU JI I ¢ J 1 d * l 1 \ . .1 ite;MiiQII!.'i!kp)jdotwt,olbc;~«tk06U:U!N1'4fiO•Jcwu!IOM&btA 'A\cttkt~of~~-..nq. tk-~it·U'C~el 2 nr«Unlltll'kMJad~UI~tl:l'!~~~uddett-~~ut~~tr;"},ovill>leilud)'(•· ) i'kNJtfwt~kiiiiJMl)Qr~li~~I(PtO~fiOIIIw.uttOW&kA.fotlhl'I'\MbkDllla!)Ul. ' l.oe-i!!to('Uf.IIOSJb«ttPCE8!rior.t.ttaotcol«~ The Outlook for Economic Activity Those increasing their projections for output gro111h in tbose years cited expected changes The median of participants' projections for in fiscal. regulatory, or other policies as factors the growth rale of re.al GOP. conditional on contributing to their revisions. However, their individual assumptions about appropriate many participants noted that the effects monetary policy, was I .9 percent in 2016, on the economy of such policyc hanges, if 2.1 pertent in 2017,2.0 percent in 2018, and implemented, would likely be partially offset 1.9 pcrtent in2019: the median of projections by tighter financial condition~ including for the longer·run normal rate of re.al GOP higher longer-tenn interest rates and a growth was I .8 percent Most participants strengthening of the dollar. projected that economic growth would pick up a bit in 2017 from the current year's pace The median of projections for the and run at or slightly above their individual unemployment rate in the fourth quarter of esti111<1tes of its longer-run rate through 2019. 2016 was 4.7 percent, slightly lower than in Compared 111th the September Summary of September. Based on the median projections. Economic Projections (SEP), the medians the anticipated path of the unemployment of the projections for real GOP growth were rate for coming years also shifled down a slightly higher overthe period from2017 to bit, with the median for the end of2019 at 2019, while the median assessment of the 4.5 percent, 0.3 percentage point below the longer-run growth rate was unchanged. Since median assessment of the longer-run normal September, almost half of the participants rate of unemployment, 1111ich was unchanged revised up their projections for real GDP from September. growth in 2018 or 2019, generally only slightly. 114 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00118 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.47071412 MONETARY POliCY REII:JRT: fEBRUARY lOll 35 Fig11re I. M<dians, cm!ral tendenaes, and ranges of eoonoouc projeotioos, 2016-19 and om the looger run PttO!nl Cllanteillrea!GDP - Mediuof ~jltl)o)U _ •cnuall>fldtacyor~ Tl~ - -.-- Ill C5 -l ~ "'"~ - I 21111 2012 lOB 21114 llliS 2016 2017 2018 2019 Looger rutl Pt.etnl _, U~meotra~e -· ~ -' _, -- - s m e!! !!!!::! - ' lllll 2012 lOB 2014 lOIS 2016 2017 2018 2019 Looger ""' Pccotnt PC£inflauoo - l ~ - EB !!!!! =_._ _ -I lOll 2012 lOll 2014 lOIS 2016 2017 2018 2019 Looger 11111 P<rotot Corei'CEinlldlioo ------ - l ... - !!!!'! ~ ~ -I 2011 2012 lOB 2014 lOIS 2016 2017 2018 2019 Looger TWJ Nom Defuritioos of l'tliaNes ud o1her exp:&nalicons min 1he DOleS to tal* I. Tht(fjta for tbe a.:tual l'lllX!S of the l'ariaNet arewual 115 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00119 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.57071412 36 PART 3: SUM\IAAV Of !CONOMIC I'ROj(CfJONS Figure 2. FOMC panicipants' asse>sment; of appropriate monetary policy: Midpoint of target range or target level for the federal fund• rate ht=L - _ - ,, -. ..-...-..-...-...-..-...-...-...-..-...-...-..-...-...-..-...-...-...-..-...-...-..-...-...-...-..-...-...-..-...-..-...-...-..-...-..-...~. ;,-. ..-...-..-...-...-...-..-...-..-.. _- M ·!····· ......- 4.5 ' . '''I' ----------------------------------------~~----------~ . ...,' . ......... ... ' - ......................................................................................................... , ............u ........... -15 _ .......................................................................................... a ........... ', .......................... _ - ----------------------------~--------~•-. _--~·--~~._----10 • ····~ • • ···:···········['···········-lS ••• 1 ··········r·························-O.S I ------------------------------------~----------M 2016 2017 2013 2019 Long<J run Non: Each shaded circle indicat« the value (rOilllded to Lb< """"' II per«ntlg< point) of an indi'idual Jl'Lnio:ipanf• jodgmmt oflh< ~int of the appropriatt rarttt ran8' for Lh< fedttal funds rate or Lh<aP.I:fopriatt tlr&<J kvel for the federal ~~~;:::~~unds ~f.~ spe<ilitd <Okndar yw or O\OCr the loog<J run. One participant did not suboit loog<J·nm proje<tioos Figures 3.A and 3.B show tbe distribulions The Outlook for Inflation of participants' projections for real GDP growth and the unemployment rate from In the December SEP, the median of 2016 to 2019 and in the longer run. The projections for headline PCE pri~ inflation distributions of individual projections of real in 2016 was 1.5 percent, a bit higherthao in GDP growth shifted slightly higher relative to September. 11le median of projoctions for the distribution of the Seplember projoclions headline PCE price inOatioo was 1.9 percent for 2017 through 2019. The distributions in 2017 and 2.0 peroent in 2018 and 2019, of projections for tbe unemployment rate unchanged from Septemher. Several shifted modestly low~r for 2016 through 2019, participants projecled tbal inO at ion will while 1he distribution of projections for the slightly ex~ed the Commiuee's objective in longer-run normal rale of unemployment 2018 or 2019. The medians of projections for was unchanged. core PCE price inflation were the same as in September, rising from 1.7 peroent in 2016 to 1.8 percent in 2017 and 2.0 percent in 2018 and 2019. 116 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00120 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.67071412 MONETARY POliCYR EII:JRT: fEBRUARY lOll 37 Figure J.A. Disrributioo of partici~ts' projtetioos for the d!ang< in r<a1 GOP. 2016-19 and over lhela>ger Clln --I"I - II ~n--- - - _1 l , l 0 r----J ____ _ -- ·I c I lA-- -u. ~ 10- ' u. "· -,1 17 u ll " " Ptn."ttllrantf _ 2017 -- "II - II - ll -_1,0 _rr==-=:r --·I ~I c r - - - - _,..,,. .----.," ~ j...=J ., I 1--, l "· 1.&- It- 10- U- 1J 1.7 lt Ll lJ Pt~te~~r rante 2018 -- "II - 14 - 12 - -_1,0 ;D--- -~ - - · I ~ .r~.,.~ ~F"="=b .. ---- ... -,l u. "· u. i$ " " u Numkrdf*rli-ipants 2019 -- 1"1 - II -ll -=_',·I :.:;;: ,_Br:t~ c -,2 '"- Jt- l0- 12· I<· 1.7 It 11 " u Pertet~tra.ore _......, .... _,, - II -II - ll =_',I r - - --..r~·.----n .. -· c ... •r:==d ~I I~ ...,2 ,.. u. 2.0- u . u 1.1 l.t 1.1 u u Ptrce11trauge Norr: Oftlnitionsoh'triables and other t:tplao1tioos are in lhe tiNtS 10 1a~ 1. 117 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00121 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.77071412 38 PARI 3: SUMIMRY Of !CONOMICP ROI!CTIONS Figure lB. Dislribulioo ofportiaJl'Ults' projectioos for the uo<mplo)meot rale, 2016-19 aod over thelmger "'" Nt*c~~llb 2016 a•• S~t""'"r""p.;r..oo~... r----, - - - 1 I 1 4 6 I an: - ll -_1,0 -- ·I r -,l U- '-2- 4.4- ,,_ U- M 41 ,, H 41 •J " Jl,rc:eolfiDC' 21)17 - II -16 - 14 :- s - --- -----~ .-- - _ , 1 1 , ls0 2 r . .. o~-- .. - . -, - 4 .<,J . ., •• u s• _,, - IS - 14 - ll -_10, .-_,I,l ~nc=-jl.-----~ r ... ., U- M· '' II 21)19 -- - ·I 1·6 I - ll -- s10 r ="~..---_,.,.,.~"E3... -----,3i .u, . ., - II - 16 -14 - ll -_1,0 r ... ... .. ... - -!I ,,_ I' I ... c::J;: - :; I l ., ., M " l$ " Il 118 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00122 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.87071412 MONITARYI'OUCYR£POIU: H8RUARY2017 39 Figures 3.C and 3.0 provide inform:uion on rate 25 basis poiniS. resulting in an in<:rease in the distribution of participants' ~iews about the median of 13 basis poiniS. the outlook for inftation. The distributions of projections for headline and core PC~ In discussing their December forecasts. many price inflation shifted up slightly relative to participants expressed a 11ew that increases in projections for the September meeting. Some the federal funds rate over the next few years participants attributed the upward shift in would tikely be gntdual in light of a short· pro)CCled inllation this year and next to recent term neutral real interest rate that currently data that sbo\1-ed somewhat higher inflation was i<M'-a phenomenon that a number of than they had expected. A few S3W higher participants annbuted to the persiste~ of inftnt1on in 2019 in conjun<:tion with somewhat low productivity grow1h. continued strength greater undershooting of the unemployment or the dollar, a weak outlook for economic rate below its longer-run normal level. gro111h abroad. strong demand for safe longer term assets, or other factors- and that was Appropriate Monetary Policy likely to rise only sl0111y as the effects of these factors faded 0\'er time. Some participants Figure 3.E prol'ides the distnootion of noted the continued proximity of short· participants' judgments regarding the term nominal interest rates to the effective appropnate ta~t for the federal funds rate at 10\1-er bound, e1-en Wlth an increase at this the end of each }Ur from 2016to 2019 and meeting, as limiting the Committee's ability to Ol'er the longer run.' All participants S3W an increase monetary accommodation to counter increase of 25 basis points in the federal funds possible adverse shocks to the ecouomy. rate at the December meeting as appropriate. These participants judged that, as a result, the The distributions for2017through 2019 Committee should take a cautious approach shifted up modestly. The median projections to removing policy accommodation. Many of the federal funds rate continued to show participants noted that there was currently gntdual increases. to 1.4 percent at the end substantial u~nainty about the size. of2017, 2.1 percent at the end of2018. and co~ition. and t1ming of prospectio.-e fiscal 2.9 percent at the end of 2019; the median policy changes, but they also commented that of the longer-run projections of the federal a more expansionary fiscal policy might raise funds mte was 3.0 pem:nt. The medians of aggregate demand above sustainable leYels. the projections for the lel'el of the federal potentially necessitating somewhat tighter funds rnte for2017through 2019 were 1111 monetary policy than currently anticipated. 25 basis points higher than in the September Furthermore, several participants indicated projections. A few participants re~ised up their that recent inftation data and the continued assessments of the longer-run federal funds strengthening in labor mar:ket conditions increased their confide~ that inOation would 1110\'t t0\111rd the 2 percent objective, making a slightly firmer path of monetary 7. One potQapanJ's proj<CQODS ilf lbe r«l<nll policy appropriate. runds me. lUI GOP grt>IV!h,lhe unemplo)menr raJ<, and rnftatioo ll'trti nbnn«l by lhe ,;ew lhar lhere are mutliple possible mt<Jium·ttrm rtpm<S for the U.S. Uncertainty and Risks toonomy, rhar lhese rePmesare persist.nr, and rharlhe eoonomy shifts.,...,....., rePro<> in a way rhat cannor be The left-hand column of figure 4 shows that, , I . O . r , e ; c ,. a . s d ~ r a U n n o d c e (< r n d z u o s d , b ;. y . e ·, : l x h p e a n < s e i o o n o o o m r y tC c IO u O n O tO ID d IC y a 1 c 1 t J in \1 1 1 ) ' j f u o d r g ta ed (h t h v e a r l i m ab l l s e, o a f m un a < jo :e ri n t a y i n o t f y p a a ss rt o ic ci i a p t a e n d t s •>lh lao pooct-=\11)' &roo1h and a low shon-rtm~IUI iotms~ rare. bot IODJ<r·tmn Ollalm<S il< ''lnllies ll'ith their December p~ns for real GOP «her lhan inll>tooo tallDOI bt as<fll!ly ptOJ«J«l grtmh. the unemployment rate. headline 119 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00123 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.97071412 40 PARI 3: SUMIMRY Of !CONOMICP ROI!CTIONS F-igurt l,C. D_ iSlribu_rim oC p articipants[ projectionls for PCE inflation, 2016-19aod over the longer ruo Nulllllerorpenidpa~IS 2016 - .. - II --s-..-o,-_~ -·----, - -I I ~ I - II ---_1·, a0 =~ r . -. - --- - - - - .... ... -,l II• IJ. ll " " - II - II ;----er:A - - 1 I< 2 -_1,0 -I 'J: - c ..,I~ 11- IJ· lS- 1.1- 11- ll " U U tt l'«<letlraoto 2018 -_I,I. - II 0 - ll -_J,O I I - I c . I .. -----'~ r====J -...,1~ 11- IJ IS- 1.1- U- 11- ll " 16 U 1t U c u. IJ J.i 1.1 " " in· - I! - II -I~ I I - II -_1,0 I I - I c ,I ,I ~ -~ 1 •• 1. • IJ 1.1- U- 11 " " >t u Non:: De6aitioos of variables and otbeaxpJaDabOnure iD the OOCeJI.:t ~ 1. 120 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00124 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.08071412 MONETARY POliCY REII:JRT: fEBRUARY lOll 41 Figure 3.0. D~lributioo of par1icipan1S' projectims for core PCE inflatim, 2016-19 2016 • ~kcpro~IIOM - II -·~ltrobuptojectto• - 16 -H ~r--------f-----~l -11 -_1,0 _______ , - _ ! , ,_ - 1 ,.,_ I " 15 - u l u t u Numl-tr f1 pubdpanlt 2017 ~;-------rr·----l~r-----1: ,_ ,,.. ,,.. " " utl · Pt'rctolr&ny: 2018 - 11 -16 l -14 -)2 -10 :-------T --_s·, , ,. _ ,_ ,_ I I 1 " 10 1\!«tnlranst 2019 - IS -16 -14 - u -If -_8, -· - ! 121 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00125 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.18071412 42 PARI 3: SUMIMRY Of !CONOMICP ROI!CTIONS Figure 3.E. Distribution of partiaponiS' jud!l1lleniS oftbt midpoint of !he appropriate large~ 111oge for !he f<deral fuods rate or the appropriaretargetlcvol for the federal funds rate. 2016-19 and over !he IOllger run -2016 - IS =8 - 16 -II - 12 ---_1·, s0 ri- J I - - t _. -,2 0.3C· 0"· Oa.- l.U· IJ8· UJ. us- w- ua. O.Q OJ1 I.U U1 142 1.11 lll 117 1Q l'n«ntr3llt" 2011 - 18 - 16 - II - 12 ---_s·1,0 c -,2 U ~ S - O ~ .Q . twa - 1wU - t ~ J& - 1w.4S - wUS - 1 m " - HwI - wUl . W t.n - u SU 1 - ' 1 J 6 : 2 S - 1 H t1 S - ~ U n ! l'n«ntrattt" :!018 - IS - 16 -II - 12 - --_1,· s0 -,2 Ut- 1#- 18$- l-IS- lJI- :t.Q- JM CQ U1 Ut IJJ I.Q Uf 112 1.37 lQ lt1 lU !Tr«ntr3llp 201? - IS - 16 - II - 12 --, --- sI ' O _r,=l.Or:J.---~! 1.0- Ut- 113- Ul- Uh ut- ).1). JJ8. UJ- US- 111 112 1J1 l..Q W Ul U? U2 U7 411 Pn«ntrante - IS -16 -II - 12 --_1·,0 - 8 c -,2 Olt- OM- 0#- I U IJ8- 1.£t US- 1U- Ul- W- 1.8*- JU- Ut- US- Ul- e.£2 UJ IU UJ l"l 111 1.12 U1 tQ U7 lU U7 lQ .U7 ~ll l'n«nt rante Nom: De:m:titioosoCv-ariablesand olbert:q)J&~S~tioDS are in l.heootes to table 1. 122 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00126 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.28071412 MONETARY POliCY REII:JRT: fEBRUARY lOll 43 Fig~~re4. Uncertainty and risks in ecooaoic proj<COoos - - n· ... Un001ainoyabooo GOP uo>lh RiwloGDPuo•lh - - ~-~!:'-:-:- --1 --1IS6 : 0 '" "S ~ ¢ b p u ~ p tl t l o l , b c « c p c oj i c o d w B • -I 1 S 6 -1< -14 :n~ =:; I -10 r = ,. -- -- I I I ! I ~ . J r .-- ~ -·1.1 - = S 2 : r - - -r .~ ---- ~ I ~ I I ••• • - 1 -- 2 •6 t Hi!)l<r Wriglll<doo do~de - ·n: ::: - n ... Jtis.k,s 10 lht Wlmlploymml (11ft> -IS -It - -16 -16 - -- I -ll I -10 --1.0 - I I - i - I I -t - I - 6 - I I- ----·- ' f-r·---1I 0 - 4 - 112 [ ~--- ~ 11 2 Broaclly Higher \Veiglli«<IO similat dOWDEide r1: Uncenru:nty about PCEin11aOOD Ri>ks 10 PCE iuJalioo -IS .-I.S. -16 -16 -. -12 I I = - - 1 : 0s : --1.0 I 1 - 6 -' .I LE3.J- l4 2 Broaclly Higher \Veigbi<d lo similar dOIIollsidt - n ... RiwoororePCEinllalioa -IS -16 -14 • I -10 - I I -$ -- - ---1 I -6 [ "I a r==J a.r:;;:J ,]- . 2 \Vrigll!Mio dOWD!ide Nort: For defioitiont of Ul'IOMaintyand risks intoooomk P'ojcctioon~ set lht boi "'Foreeastlhlctrtainly.'' Definitions l'lf variablesareiDtbeoOW$totable I. 123 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00127 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.38071412 44 PAATJ: SU><.w.RYOHCI:WO.IOCFI(()j(CIIOM inflation. and core inflation to be broadly Table 2 Aw~t hiscoricll proje<tion error,..,., similar to the average of the past 20 years.' 1\tm~poinb However, more participants than in September \'a11itW lO" ))17 lOll ))19 s t a b w e u u n n e c m er p t l a o i y n m ty e s n u t r r ro at u e n . d o i r n i g n f r l e a ~ t l io G n O a s P h g ig ro h w er th , u <l • A . •p ,, : ~ •W M« '" ~ Il t O n D t P r ' l ~ U ~· I !1 U .7 l tl l .4 l ". ! , l ', l than average. Many participants mentioned an Toui~M« ~-J 10~ !II Ill increase in uncertainty associated with fi.scal, trade, immigration, or regulatory policies as a factor influencing their judgments about tile degree of unc.:rtainty surrounding their projections. Participants cited the difficulty of predicting the size. composition, and timing of tllese policy changes as we-ll as the magnitude aod liming of their effects on the economy. As can be seen in the right-band column of figure 4. a majority of participants continued to see the risks to real GOP g!OI\lb. the uoempiOjment rate. lleadline ioftation. aod some participants judged that the recent core ioDation as broadlv balaoced: ~-e\-et fCI\lr particip;lnts saw risks to economic rise in nurl:et·based measures of mHat1on g!OI\1h and ioftatioo as \\lighted to the compell$1tion suggested that d~l!Side risks dOI'oside or saw risks to the unemplo)ment to inftation had dc<:lined.ll~~·lr, rn.:~ny also pointed to various sources of dow11side rate as weighted to the upside than in risk to economic actil-1ty. such as the linuted September. A number of participants noted potentia) for monetary policy to respond to that the prospect of expansionary fiscal policy had increased the upside risks to ad>e~ shocks when the federal funds rate is economic acti\1tya nd ioftation. and a few near the effoctile 101\~r bound. d01111side risks in Europe and China, a possible increase in a~ the possibility of a reduction in trnde barriers, and the possibility of a sharp regulation as posing upside risks to their rise in financial market I'Oiatility in tbe e•·eot forecasts of economic activity. Moreover. that fiscal and other policy changes diverged from marl:et expectations. In addition. some 8. Tabte2pr<Widesestimatesoflhefom•st un<t~ainty IQr the cllao'' in real GDP, the participants pointed to f.1cto~sucb as global unempiO)mmt ra1~ and total consumer prioe inHatioo disinHationary trends and downward pressure om tbe period from 1996 throuV.20t5. At the end on impon prices from further strengthening of lhissummaJ)',tbebox "For«:ast Unoenainty" of the dollar as sources of downside risk di""sses !.be souroes and interp,..laJioo of uncertain~· to inHation. to the economic forecastt and explains dte approa<:b """ to ._...,.the uncertainty and risl<s anendin: the paniapocts'projeccioos. 124 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00128 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.48071412 MOI'<CTARY I'OliCV RER:>Rl: fE8RUAR\' l017 45 Forecast Uncertainty The economic projections pro,;ded by the ,..,mbers 4.7 pe<cent intheseoondyear. and0.9to5.1 pe<cent ol the Board ol Governors and the presideo~ ol in the third and fourth years. The cooesponding the federal Rese~·e Banl:s inform diSOJS$/ons ol 70 pe<cent confidence inten~ls for overall inflation monelary policy among policyn13kers and can aid would be t.8to 2.2 pe<cent in thecurrenl year, 1.0 to public undffitlnding ollhe basis for policy action• 3.0 in the second rear, and 0.9 to 3.1 pe<cent in the Considerable uncertainty attends these projedioos, third and fourth )<ears. however. lhe economic and statistical models and Because current conditions may differ from !hose relationships used to help produce ecooon'ie iO<ecasts that p-evailed, on ~weage, 0\'t'f history, participants are necessarily imp.."ffect descriptions oi lhe real world, pt'OVide ju~ as to whether the uncertainty and the future path of lhe eoonomy can be affected by atladled 10 their projectioosoleach variable is gre>ter myriad urlo<ese<n de'eloprnenls and E!'tenK lhus, than, smaller than, or broadly similar to typicallf\'els in sating the Slanoe or monetary policy. partidpan~ oi forec.:tst uncertainty in the past, as shown in table 2. consider not only what app<ar> to be the most likely ParticiP<ln~ also provide judgrn<.11~ as to whe-ther the ec:ooomic outcome as embodied in their projedions, ri!lcs ID their proJections are •veigh ted to the up$ide, but aiS(IIhe ra~eof alternatiw• possibilities, the are wcigflted to the &wmside, ot are broadly balanced. likelihood of thEir occurring, and the potential c® to That is, parUcipants judge whether each variable is the eoonomy should they occur. mO<e li~.ely to be above or below their projections Tallie 2 summarizes the average historical accuracy ol the most likely outco,..,. These judgments of a raoge of foreeaols, inducing those rePO<ted in about the uncerlainty and the ri•ks attending eacll past Mcr.el<lry Policy Reporls and those prep.lred partidpanrs projections are distinct from the di•~rsity by the Federa I Reseo;e Board's staff in advance o/ of participan~· views about the most likely outcomes. meetings ol the Federal Open Maiket Committee. Forecast uncertainly is conoemed 1vith the risks The projection error ranges shown in the table associated with a particular projection r.uher than "ith illustrate the considerable uncertainty 3!SO<.iated divergences aero» a nurrber ol different projedioos. .,;th econcmic forecas~. For exa"'4'le, suppose a As with realaaivity and inflation, the oudook participant projoru that real gross domestic product for the futile path ol the federal funds rate is subject (GOP) and toW consumer prices will rise steadily at to considerable uncertainty. This uncertainty arises annual rates o/, respecth'ely, 3 pe<centand 2 pe<cenl pt'irmrily because each pa~icipanl's """'sment or If the uncertainty attending !hose proJections is sin'ilar the appropriate stance of monetary policy depends to that experienced in the past and the risks around importantly on the evolution o/ real activil)' and the projections are broadly balanced, the nun>ber> Inflation over ti,..,. If ecor>omic conditions evol•-e reported in table 2would imply a probability or about ina n unexpected mannerthen assessments of the 70 perca>tthatactual GDf' would expand within a appropriate setting ol the 1f ederal funds rate would ra~eof 2.t ID 3.9 percent in the wrrent )~ar, IJ to change from that poinl fonvard. 125 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00129 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.58071412 47 ABBREVIATIONS AFE advanced foreign economy BLS Bureau of Labor Statistics DPl disposable personal income EME emerging mar~'llt economy FOMC Federal Open Market Committee; also, the Committee GDP gross domestic product JOLTS Job Opening5 and Labor Turnover Survey UBOR London interbank offered rote MBS mortgage-backed securities Michigan survey Uni>ersity of Michigan Surve~; of Consumers MMF money market mutual fund 01s overnight index ~wap ONRRP overnight reverse repurchase agreement OPEC Organi7,ation of the Petroleum Exporting Countries PCE personal consumption expenditures SEP Summary of Economic Projections SLOOS Senior Loan Oflker Opinion Survey on Bank Lending Practices SOMA System Open Market Aoc<>unt S&P Standard & Poor's TIPS Treasury Inflation-Protected Securities 126 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00130 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.10071412 ! 1.1!017 THE WALL STREET JOURNAL. Home World U.S. Politics Economy Business Tech Markets Opinion Arts Life Real Estate BUSINESS U.S. Banks Report Record Profit in Third Quarter Institutions' profits soared and expenses moderated ihtU.S.SCD:mBOiltlilrfu~fd~faW10"6:t'~da1rl.ns&ntlllnoo'!llfttfoeflt:I'QJ-*,ti1F'DCs.cl. PhO:O ASS~TEDPRtss By DONNA BORAK Updated Nov. 29, 201610:49 a.m. ET WASHIIiGTO!\-The nation's com merrill banks and ,.,;ng.< institutions reported al3~ rise in net inrome in tlte third quarter, hilling a record as institutions' profits soared and expenses moderated. lie! income at the 5.980 banks insured by the Federal Deposit Insurance Corp. rose SS.2 billion. to S45.6billion. in the tltird quarter. compared with a year earlier, acrordingto data releasedTu~aybythe FDIC. "The bankingindustl)' reported anolherpositi\'e quarter." said f'DIC Chairman Martin Gruenberg. ... Revenue and net income were up from a ye\lrago, Joan balances incrtas~ osset quality impro\'ed, and Ute number of unprofitable and 'problem banks' continued to fall." Theri~in net inconlCwasdueinpart to aSIObiJlion inC'rease in net interest income, up 9.2%f rom nyearearlier,and a 81.2 billion gain in noninterest income. al.9~increase as tradingrev~nue imprO\'ed at L1l'ge banks. One-timeacrountingand expense items ::tt three institutions also had an impact on thegrowthofincome, the agency said. hap..: ,.,.. .., .";;.rotn'~tck•-."'b;I'Jk!<-r:por1·t«'((tJ.f'OIIH&Ihild~:at:cr·l"~)l\.'-IS9 1'2 127 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00131 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.20071412 !ll.l12011 US.IIoobR-Rmrdl'!o"•rudo.-.·~'SJ Stil~ Mr. Gruenbe!g cautioned banks cootinue to operate in a 'ciW!enging envirorunent• Low interest rates for an extended period have led someinstituti0111 to reach for yield, increasingtheirexposures to interest rate risk, liquidity risk, and credit risk, he said. "These challenges will only Intensify as interest rates norma111e,' said Mr. Gruenberg. 'Banks must manage risks prudently to ensure that growth is on al011g-run. sustainable path.' During the third quarter, ended Sept. 30, more than half of banks reported year-aver• year growth and less than 5'.11\ of banks said tlleywereunprclitab~. Itw as the lowest pertentage of unprofitable banks since the third quarter of t997. Communltybanks, Mlicll account for5,521 ol'the insured institutions, in particular reported a positive quarter with tbeir net lncomerisingSS93 million, or 11.8%from the 2015 period. Community banks' net operating revenue totaled S23 billion. up &5'.11\ from a year earlier. Loan growth was led by commercial real estate, residential mortgages and commercial and industrial loans. •eommunltybanks, Mlichaccount for4~ of the industry's small loans to bwinesses, continued togrowtlleir small business loansata faster pace than the rest of the industry." said Mr. Gruenberg. Thenumberoffinandal institutions on theFDIC's 'problem list" shrank to 132 &om 147 the year before, tbe fewest nuni>trof institutions since the third quarter of2008. There were two bank failures in the latest quarter. The federal fund that protects consumers' US. bank deposits grewS2.8 biUion during the third quarter toSB0.7billion.lts insurance fund reserve retio roseto LUI% of the institutions' estimated insured deposits. Write to Douna llorakat donnaborak@wsj.com e.,.p~GoJr2017.C.if.t . .... a...ecno..,ll'c./ID~t~ _......,....... na.,aw"",.,--.~-...,.Tocre~c:wn•~·,_~._•eus~neo• 128 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00132 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.30071412 QUARTERLY BANKING PROFILE Third Quarter 2016 INSURED INSTITUTION PERFORMANCE Banking l.ndusltyN et Income Is S5.2 BiiUon Hightr Than a Yw EarU<r CormnuttityBank Revenue and Loan Gr011'1h Outpace lnduslty Total Loan Balanc~ Rise 6.8 Percent During lhe Past Year Net Income Registers lncreaso:l n<l interest income helped boost operoting revenues at FDIC. insured institutions Strong Increase in tbe third quarter. Tbe indusltyreported net income o( S4S.6 billion for the quarter, an increaseofSS.2 billion (12.9 percent) compared with the year before. More than 60 perc:ent of all banks reporto:l year-over-year increa~ in quarterly earnings. Only 4.6 percentofbanks ~·ere unprofittblt for the quarter, down from S.2 peruntlhe previOui year. The ••~rage return on assets (ROA) rose to IJOp ercen~ from t.O> percent in third quarter20JS. Netlnttr"t Maegill$ Net ope111ting revenue-the sum of net interest income and total noninl<rl/$1 income Dedintata Majorityo f tObled $183.> billion, up $11.2 billion( 6.5 percent). Net inl<r<$t income wasSlO biltion Banks (9.2 percent) higher. whilenonintert$t income rose by SL2 billion (1.9 percent). The increase ''"s attributable to growlb in inrerest-bearinga$$<!U (up 6.7 peruntover the pastl2 monlbs) and impro\tment in the industry'uggregate net interest margin (NIM), wbitb rose !0 >.18 percent, from ).08 percent in tbird quarter 2015. Tbe NIM improwmentwas not broad· based..~ majorityoibanks-S>.S percent- reported bwer NIMs than tbe year earlier. In addition, an accounting change at one large bank r~ulted in a sizable incteast ln lts lnrer t$t income for the quarter that contributed to tbe size oflhe lmpro"ement in tbe industry's quarttrly NIM. The rise in noninter~t income~. ., driwn byaSI.I billion increase in trading revenue and a Sl.6 biiUon rise in smictng income. txpense Gr~1h Is Modest Total noninterestexpenses ~~re $1.1 biUion (I perunl) higher lban theJwr before. Expenses for goodwill impairment '"re S6i8 million (97.8 rerunt) lower, wbile itemi:~td Uligation expenses ~~re S248 million lcl$. Salary and emploJ~• benefit expenses were up S2A biUion (5 percent). lhe avmge efficiency rotlo-noninlert$t expense as a percentage of net opel1ll· ing te\-enue-improved to S7.5 percent in lhe third quarter, from 60.2 percent a J~ar earlier. This~ the lo~t le\~1 for the ratio since second quarter 20t0. Char11 Chart 2 _ Quarterly Net Income Unprofitable Institutionsa nd Institutions With I ncreasod Earnings l!«&."iild"OOoii~N!f ... l.'-:flO(f!M1!1tt'lo:ml 10 ... II t41 )) 411141 P1 f l )l4 t I l 411l '2(11iJ Mill !9U lOU :ol4 lOIS lO" ...~ 1'!100 FDICQ UARTERLY I 129 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00133 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.40071412 2016 • Volume 10 • ~umber ·I Loss Prol'isions Absorb a Loan-lou provilions roseyearm·tryear fora ninth oonse.:uti,~quarteriO Sll.4 billion, a RisinsShar< of Rmnuts $2.9billion (34 percenQ increase m~rthira quarter2015. Only 39 percent ofbanks reportoo increases in their plll\;sions, while 30 percent repOrted reduced pro,ision expense>. For the indu>lly, quarterly provi>iOns represented 6.2 ptrcent of the quarttr's net operating revenue, up from 4.9percentthe previous year. Charge-Offs Rise for • Net loan iosse!totaled SIO.I billion, up Sl.5 billion (16.9 ptrcenl) from a )WI earlier. Th~ fourth Construti\~ Qu•rttr i N s e th t c e b f a o r u g r e t - h o f q f u s a o r f te lo r o in ns a t o ro c w o m th m al e n r e c t i c a h l a a n rg a e i - n o d f u fs s t h ri a a w l { p C o & st I e ) d b a or ) r ~ o a w r· e O rs \ ' r t o ' s r e - S yw 9 4 in 6 c m re i a l s li e o . n {82.7 perrent~ whil<mdit card charge-<lffs were $658 million (ll4 percent) higher. Charge· offs of rtsidential aoo commercial rea.l estate loans "~re 5371 million (39.1 percent) below year·earlitrlevels. The average net charge-<>ff rate rose to 0.44 perren• from 0.40 percent the year before. hnproYcment in R~l Eslat< Noncurrent l<lans aoo lease!-those90 days or more past-ducor in nonaccrual ttatus Loans Ilelps RNucc Total decliocd fort he 25th time in the last26 quarters. falling by S2.S billion (1.8 percent) during Cl'oncurr<nt Loan Baltnces the thret montbsended Septtmber 30. During the quarter, noncurrent residential mort· gage loon balances fell by $2.7 billion (3.8 per<ent~ while noncurrent home equity loons declined b)• S386 million. and noncurrent nonfarm nonresidential real estate loons fell by $367 milliOn ().7 perU'Ilt). These improwments e.lceeded the Sl billion increase in noncur· rent credit cards. Noncurrent C&lloans increased fora seventh cooseculivcquarter, rising b)•SlS4 miUiOJL This is tbesmal~stofthese,~nquarterly increases in noncurrent C&l loans. Thea,~rage noncurrent loon rate fell from l.SO percent to 1.45 perren• the 10\\'tll 1<\~1 >iflC<)Wr-end 2007. l,oan-tO<S R<Sm~s Po>t a Sanks iocrea!ed their resen~s for loan aoo lease losses k>r a fourth consecuti\~ quar- Smalllocrme ter. as loan loss pro,isionse xceeded net charge-oils. Loss reserm rose by S3i2 million {OJ percent). At banks tbat itemize their rcsen·es, representing 90 percent of total industry resen'l'l, the increase "~s driwn by higher reserws forcredit canllosset which rose by Sl.7 billion (6.1 percent). In contrast with the pr~·ious se~~n quarttrs, itemized re.en·es iot lo>se<on commercialloansdeclined, falling by sm million (2.1 percent). The increase in industiy reserw~ combined witb the reduction in noncurrent loan balance.. cau!ed the cowrage ratio of res«,ocs 10 noncurrent loons 10 rise from 89.2 per<ent to 91.1 percent during thequarter.tbe higbcstlml ~n<eyear-end2007. Chart) Cbart4 Quarterly Net Operating Re<enue QuarterlyL oan-l.ou Provisions IQucw-.~l«en~: """" IQwWl!~rot!"te-.,. 10 10 2 FDIC QUARTERLY 130 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00134 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.50071412 QUARTERLY BANKING PROFILE Retilintd fArnings Total equit)' capital incm!Eii by SI6J billion (0.9 percent) in third quarter 2016. Relaine<l Account for Most of earnings contributed Sl S.l billion toequitygrowth in tbe third quarter, S4S8 million EquityGrowlh (OJ pe<cent) more than a )-ear earlier. Bank$ declared $}0.5 billion in quarterly dividend~ a S4.8 billion (18.5 percent) increase over thirJquarter 20tS. A $3.7 billion decline in accumu latooothercomprcbeMive income limited the g~owth inequity. The awrageequity·to·asseu ratio for the industry dcdinoo from 11.28 per<ent to 11.22 percent. At the end of lhequar· ter, more than99 percent of all banks. representing 99.9 percentofindullry asset~ met or excee<led tbe roqukements for the highest regulatory capital categoryasdefu!Eii for Prompt Corrective Action purposes. toanGrowlh Total assm rose by $232.6 billion (1.4 per<ent) during the third quarter. Total loan and lease RemainsS t,.dy balances increased by SIIZ billion (1.2 pe"ent), wbilt im~stment securities portk>liosrose by $86.8 billion (2.S percent), and balances at F<detal Reserve banks grew by $41.5 billion (lS percent). Assets in trading accounts dedined by S27 billion (4A pen:tnQ. Growth in loaM was led by residential mortgage lOOM (up $28.6 billion, 1.5 percent), loans secured by noniarm non,.siJential real estate properties (up $22.4 billion, 1.8 percent~ and creditcard balances (up $15.7 billion, 2.1 percenQ. For lhe 12 months ended Septtrnber 30, tolalloan and lease balances were up $590.8 billion (6.8 per.ent). The growth in securities "~satlrib· utable to a S5SJ billion (2.9pe<cent) rise in mortgage·backoo !eCUrilie~ and a $37 billion (8.5 pe<cent) incm.se in U.S. Treasury securitit'S. Unrealized gains on banks' al-ailab~fcc­ "'"' securities fell by $5 billion (11.4 percenl~ whilt unreal11,ed gains on securities in held to· maturit)' accounts decbned by $2.8 billion (11.7 percent). Depooits RiS< by Dtposit gr01<1h "~•strong in the lhird quarter. Total deposits rose by S270.7 t>iUion $271 Billion (2.2percent) in the third quarter. Deposits in dom<>tic offices increased by$259.6b illion (2.3 percent~ with balances in intmst·bearingacoountsrisingby Sl40 billion (IJ percenl~ 01\d balan<e$ in noninterest·bearingacoounts up b)• Sll9.S billion (ol perce11t~ BalaOc;e$ in consumer·oriented account! increa!Eii by$103.8 billion (2.6 percenQ, while all other domf!· tic oflke deposits rose by Sl 56.8 billion (2.2 per.ent~ Deposits in foreigno Hkes increa!Eii by $11.2 billion (0.8 pere<nt~ Banks J'duced tbeirnondeposit liabilities by SS4J billion (2.5 percent~ astradingaccountllabiliti<S fell by $44.4 billion (147 percent~ ChartS Chart 6 Noncuncnt Loan Ratea ndQ ua~erl)' Net Charge.OtfRate """" 110 1.1.0. 1!11 !;() 100 lOO 150 1!111 ;o 20M Z!rJi ~ ~ ~10 Mll ZOU 2013 1014 ~GIS 201-6 St.!«:!lttC ~~~ll*ll'fttbnlt~ FDIC QUARTERLY 3 131 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00135 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.60071412 2016 • Volume I 0 • :-;umber 1 1\umW..ofFDIC.Insurtd The numberoiFDIC-insurtdcornmerclal bonkt and savings iruUtutions reportingq uarterly Institutions Is 5,980 financial rt!ults li>llto 5,980 in thetbirJ quarter, from 6,058 in the S«<nd quartl'tof2016. Therowere 71 ml'tg<rs ofinsurtd institutions. while two insur<d banks failed. No new char ters were added during the quarl<'l'. Banks repor.ed 2,04M80 full-timeequivaltnt employ· ets, an increase of 4,990 from !bird quarter201~ The numberofinsurcJ irutitutionson the FDIC's "Problem List" dedined from 147 to 132,astotalaS$tUof problem banks fell from $29 billion toS14.9 billion. Author. Ross Waldrop Senior Banking Ana~st Division of Insurance and Rese<~rch (202) 898-39Sl Char17 Char18 Tw.d. l't-~lonlh Gro•1h Rate, Total Loansa nd~ ., IS ·10 2006 b101 !In l009 !0::•10 !011 Nil !GU :VH !OIS 201, S.:..«tiOIC- 4 FDIC QUARTERLY 132 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00136 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.70071412 QUARTERLY BANKING PROFILE TABLE I·A. Seleoted lndk;ators, All FDIC·Insured ln•tituti,o.n, . .s . .• . . , .. ,.. . , . ""' ""' =... ""' ,,. f A C R N N t t . W t M « t c " t l I t . < W 9 n l ( h . ' f o l U 3 ~ n f m " r t O l q 1 m ~ ' h O · M f t r ' o l I M a * ' I f f t t _ « f l t t y t S ~ O D N - ~ w ' r ! t o i N m r n h o t~ l f % h } . Wt1Ut~IO:lt$11U00 ..> ( . 1 ,. . 1 . 4! ,.9 , > . .O > " t · ! . . 3~ Q < ' . . 3 - . ' , 9 , ., .S " 2, .! ' . , . ~ , · ·., , . ~ . ~ . .. . . . . , ' t . ' , . . S , " . .". . , . . . I " 2 ' ' " " l ' f ., ' " . " l m . . " . . . i ' ' . . . 1 N ~ t O CI C I' * II i tr l ~ n ! OI N I r Q 9 Mt " t N p l'fenQ ' 3.1 " .1. .·.,,~. .3, " 0.1, ' '" IW 1 ' 7 " M ~ A P H ~ t t l o f ~ m C ~ , ( f o b ~ 4 - m t b Q , f o , J d . o f l ~ t P l ~ l l t . o ~ d o l h t . l l . . l b . t r l t t ' r " , ' n l * " A . i . o • s o , s * r f n t l l c l l . " J f • w f b " I i ' n )O c ~ • t r i o n n t e r' l h q . i l0 i b> O n M tf J %1 ~ $ 3 . . • 1 . U, • 9 1 , • s 0 0 l tl." " " i,O " " • • ' . . . ' " , . " • • . ' . S ~ w J " " · O . " ~ • ' . ) $ " . t 3 . " < i " . "• 1 ' . l 1M. " .... ' . " " .. " n~ • .. 1 .1 t ' . i ; 9 , ' ' 1 > . ' " " 2 " > S 3 1 Hl.mltror-.s~tdmm...,,.,. 0 0 •[~. ...t d:tnndlttoll. .b ri'fiBA.II1. ••nr~~t!Mc3Q.rMIOt~~*btr••opruct -'*""IOfCM1hr.Jttt.ctbUMonchu~VinQS.p~ti'I'W30. - TABLE II·A Aggregate Condition and Income Ooto All FOIC·Inoured Institutions Hu (M 'nb a e ' r li o g l t . rn .. l . nm .c i!O ~r !W tp ) O !tt'q """" " ,"." " ,.' ' 21, _ d0_W " f " lil ' f )lcf<hQ t " i r l l " ' M () 15 " 0H " i ' .0 " - ,3 Totlieftllky..etlhA..,_~IJ'fiNI1) tOU,.aG tol!.V. " too8.'!<1 .. toffOihOtH».U , Tot l0 . ¥ J 1 I 5 ~ t • tO JI'tdtrfrultttllt $1 U ~ $7 - .12 7 '0 ··~ $1 4 s ) ,I 1 O 1 O ,1 . 0 II 1 $ .•.• N I~ on F l J ~n ! «Y n . i ,. r .I ~ I f I ll( lf~ 1 U .3 $ \1 9 > , . .1 $ Q 11 un.m 1 t , e 19 et 9. < 6 t 6 l 3 ~ S .. l eoo.wecj.)ft..t•wloPMtfl' >03,~ "'"' """" 11.1 , O ( l O ~. f l J lc H h ' .b f.i t M . ,l ' r .M l_ l ~ ( o .' I. t _d n ll w • & & d c l u . v ~ l i - t l e l h l t . t o- ~ I 1 , . .~ ,· 3 « l H .U m , .. U 2 . ,- t & ~ . $ G. U 3 3 a. ! 1 1 1 , , ., 0 ~ 5 " ! 5 ' ~. 1 6 1 2 , " . _1 2 , 2 0 '. " 3 & i . 1 6 1 .. U ..e. I 1 . O . " . 1 n,. .I " ' , . . , . t '. c. 1 ". " .3 ' ~ , 0 , 1 ' 4. . • " " , . • 0 -l J( ~ IU U I M U •I I. l t f 8( 4 1t n J o M or t n. t. Z m .0 ~ J1 t.ll U t O m £ w..t..m... u t .. Rtten.-.JCflo•• U'l$ " HtUowa'ldl..,.• ts 9) 0 1 7 1 , , C i1 W 21 8 3. , 1 m 2 . 0 3 .~ ~ o U . O sn U )l O O t ; u I Oltltf~ ..... (IWtltd 11.180 1).1$1 16.11$ ·1<.9 G ~ o IO o I 6 I N w I a !M Me i t d ~ 0 1twwungclll• :tm l6 .M 3~ O C 3,~1&1",U'i' 3 3 ~ S< « 9S 6 > . " ". Tootll'.li,b.M..H .WldcJI)Ibl 16)'M.9)1 1Wl,.91i! '""'.11< I)Mlftlllcoi!Ktd~l:f 1 u V . !4 • .7 r 1 n & O 11 . .~ S . 2 \8 ~ 6 1 11 ,0 _ . .$ f.o 9 .t 0 !.I .4 ).O 3 , : .t ) .< " .I S O A lC l l I l h . o r C t t t ( t l f r b l d t b w C l N o f l , b r 9 r J r b t i o • d l l f - l y f M i . Q l d l P • l I i b I l : X ~ u f ! t s ~ ht b · $f ffl'ICII'A'C)',.t$ttl lt , ..l " ), , O. 8 " s . 'J J ' J . I > ; 1 m U ) 3 G ~ 1 I 1 t J , " • 8 I 8 S ' U 1 7 0 · f ~ i " 4 9 - 6 ! ' t l ' 1 1 , w 3 ., " U 7 . · J s , ; « " c t o 6 ' l ~ ~ .S , . , ~ · P• low.t ! t' U ld nt lf t l$ t tt p 3 t 1> y - ~ 3 a $ l da 'ftpM(dut .. , . 0, . .0 . . . . 1 0 . 6 7, 1 1 IM..U..U.. 1,. •.,~ t. ".-.' .·..1,.,8 R HM tfi C N w th r n « d t io l M o II w ~ t nd n l d u ~ -. '1.&1 1 " 36 A ,.3 I 7 O 1 ,.. 7 . 1 .. . , 1 . ~ , ~9fb~a.tCU~btt 1,97$.611 1.$2W1 hu~t..~.8.A.-od' .v."a.n.' c_n -- 15 1 , . S 1 11 U 8 1 1 , . , . 8 1 t $ 5 l1 ) 6 : N 1 , S A 3 . 1 . l S l l ) . J S ' lO 1 1 ! l 1 f l1 .. " t s. . ' l s. l " , l li . " :n ~ ' ." " " . Truc...u 17..S13A64 11)t.lht2 ~~~· A I T N l H o w O O i C . N O J t I l O M t l l t I ' . a l n - ~ l I l O a t l 1 R t t n A t f 1 i f t t I O C A l M r n i I f 1 : _ I t I m C I n . ll O w d d ~ M t i n t < Y U afN M " $ " 3,8. 3 ' '., 9 " ..b , . 7 " - .! 3 i,t \ _ .. S . . 3 w . , ' . - , . . " ~ . . , . , 3 m . .: 5 . , . , 6 · : ~ ' . " " . 1~ :1 ~ YI · . 3 W 1 d $ ~ 1 ' 3 " .') , $ ' . 1 " 3 , 1, . ' l 1!6 3 ~ 1 , d ' ~ 1 Q " 1~ 3 t1 u ' " ,5 l " 1 t 4 4 " ll 0 S ' r 10 .. 0 .. > . , " " ~ . ." . . . . · , .' ' . , P,~(l:(5Nn¥1dlt.lM-f IS.<U 11>1$ u• 11.400 a,st4 . T C E T $ N A o O c K t . w l a c t I v f . a T s . l i c i e h R l l t l : < n d t r h O l t b . o i i 4 l l C V w r n . n b Q i W . l s t t r a . . d t t C p n c · ~ t w r o r n t n r y e r d t f e o s :l l s t p c o s i 0 . o 1 c r r . o l u • w ' . • t l t c p . ~ s . o . • n e t f m . t t ~ f n e t t ' i . MI'Ittrtttt$W ) 1 1 1, . 9 S U 2 1 2 , 0 3 .1 i 1. M . ., , J . ) 2 , i 1 1 , 6 . C 3 U . l 1 1, . 3 S , 7 l ,! l 1 1 3 l " " 2 9 l 1 U 1 t 3 0 1 , " . , , . ; . ! 3 S S 0 ) l U 1 " 4 . ~ J l ! ) 6 O 2 l 8 . 1 ' . < H• . " " l " 0 O > . • 1 I . I I . $ O 2 • • .'O. < s s 0 . . . . _ . . i . o 1 . s 3 .U . f , . . 9 . . 1 . s i . , , l . S 1 0 s ; . ' ' . " G 4 . " . M . . . 0 ' 3 ." . " . .J . . . , . ,O - " . ," . . n . . . . , . ' t N . " " " ' ,• " . " . .• . . ' ' ' JWI*Nd • .,.. IS,&JJ "' " Htt(l(lffU!Qint6fl't '""" mm " f!-.111 "·~' IU 'S.•Noltsto\htrt~913COiottt;~ NMNol~ FDICQ UARTERLY 133 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00137 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.80071412 20J6 • Volume 10 • ~umber ·I TABLE Ill-A Third Quarter 2016 All FDIC-Insured Institutions ........ Aiw!Co110tiCJ~btiG!041Pl' H ' f T l O : $ u l o r l 1 8 ( S C C $ C ~ R i l O O . r W u w m O n w l i . - f Q ~ t I l t l f n n . t . M l t ' w J p , ' p U • u ~ f l : b l ' $ . M i i l f ' I w l f l s t p \ n l « N l t N C C R l ' ' 6 t ' I M ( t * I O I T c r O ~ I b u I ' A M I £ J i l b ( I i l I R o b I A t h I ~ ' W l ~ I ' i b I i l l O A o n r l n o I b 9 I n n i R ~ m n b M O b l W . $ M ~ ~ r ~ .p ott n1 ~i $ l 1 U 1 l v s t ' 1 < U 1 t . " , , . ' i 3 . 6 . & l l $ '! ; l . ' 3 " . 0 J ' U . l o t U 3 " 1 1 $ " n . , " . . . 4 1 2 5 0 • , i . ~ b ,. , ! l " h 1 . ' D . ., ' . 0 . .W .' " , " " 1 , . . . b _ . 3 ' ' , . . 3 ' ~ W.U St 2 2 4 i t J , . $ 9 U , t ! o m . , m I . 2 2 . 0 $ S 1 1 ~ b . . . ~ 0 3 s s 0 0 1 4 1 l ~·Ql s b ", ' t 1 u . D . ' u ~ , H " 4 . , ' " . 3 ~ I 6 a ' b , , . S 1 I 4 ~ ~- $ l ' ~ 1 t U 1 , - - 1 i ( " , i " ." · 1 . 2 C 4 . . ' ," & . 1 . , ". ~ 1 1 W ' ~ . - . . $ ." ' 1 U 1 . ' . · , ' 3 . . $ ' 1 1 . ' ~ M . M ... 3 . ' l 2 H ~ . " l 1 .. , " " S R " S . 0 H - ,. I . . . " ' S ' 1 1 1 ' .. ~ ~ ~ ,, ~ , m 1 . ' 8 , 0 " . " " . 8 0 " " " I a . 1 ' , ' 1 ' I ~ s 4 ~ 1 : 8 $ J ' . . " 4 I, " 1 1 m A : 3 I . . .~ . . " 8 1 o . . 3 . . ' .6 i 1 0 • l l <$ A 1 l l . ' ~ " . . .• I I, " , " .t U ~ . . . . . " l " . ~ • " . . · . ' . . l >SA $ t < U I 6 t .O . ,0 . , 2 1 . . ' 4 l , . ~ . l 1 1 t 3 1 1 . h 9 . 1 3 . . 7 1 . 8 . , w. . . 0 o ' , . 1 0 0 3 . P Y C w . 0 f H o W 6 f t o i ~ l . n . o ~ , . H f - t ~ ~ n f ~ ' n t f N i a g r f r ~ l l . ln D l > ' l( f lh ; HII ~ ~ .I ' S, " S, .t " .t.n. ' . ,2 . ,1. . 0 . 3. U 1 . ,3 . l . . . , . , . " ' 11 " ' 6 . 3 . < . 1 . 1 . . $ 1 , , 03 . 2 . ' • ,". • , ' ," - . 1. . . .0 ' . ~ I ( f l H N l N & N 5 W t t . 1 0 O 1 - o n ~ o 6 o o - l ¥ f 1 l t M Q . f l c t r t ' 1 . G . U ~ b u t l l P t t I r ¥ l n t \ . t U l a t ~ f t O ~ l t q r t d . · n I t . - u I I t l Q ! t . ~ d I ! U N f t " ~ - t t . . " m t q l . l I a ' M . b ) o l . " - O « l p l t - ' ~ * t l < ' I l a t ~ l l O ' o f n I o w ' € I e l t W l M U ~ ! • N - h . r e l 1 ) o o t c l l l ~ I o \ ) t $ M t D l . ~ : l M r w - ! - o l I n t l . l I d l M o r U ~ l D l l n • ' g O ~ l + ;p l n nt $ I " 0 U . ' " ' o " " " ) 1. 1 " " 3 " 1 i . ' ' 0 ' ' 0 1 l U . . . ," ' , · . , ' . l t ._ , " . l . i . " ~ . > , . ' . l .. ' . " " . . . O o t ", " " " " .3 _ .o . . lO . ' . , a' ' ' ', l ~ 1 " H · . l 6 . ," 1 t S ' e & . . 0 . , 1 " l3 < . o ' 4 . . 3 I 1 ~ 0 4 . . O 1 1 ' " 1 U 1 1 . . 0 " . 0 , J l 1 & : 1 . . . 0 i ' $ ) l H . S i . . & . 1 " t u . 1 " " . ! 1 . O . . . 0 P ' a 1 . . ' ' . 1 . J ~ ' H ~ . . l " 0 l l U " ' " . , \ . S 1 . " 6 " . . ' 1 J ' , $ l I ." O 1 . , . " ' 1 0 u · 7 < . . . " " ! 2 1 l ~ • , . 0 : . ' 1 6 ) . & " U a • . , 0 0 " ' 3 ~ " . " 1 f 1 l . ! ' S . G 0 l ' ! , . . , tO . 0 t , " 1 . U . ! . 1 . 2 t . . < C , . 1 , . 2 ' l a l l Str.cv,•U:Jt,afl;. .. • . ~ f . n a . t . t d , ~ , . . M c p U ( w : lt u b tf o t f o $ d t ' b & y lfWQ41'1 n ' 0 • • 0 0 0 0 "• 0 0 ' • 0 • • • 0 •1 0 ' ' ' 0 0 P ~ N R e o l I l C . l n . l l R n d l T w t M l Q '. i t I y R . i i D o t i l C w l i l ~ t » • f .R N t J l f E o R w S ~ lt••Cit " 1 " ' 0 ' 1 " " " !> . " 0 , , . . . 1 . ' , , 0 , , ' ' . " . " , , . . . 0 lO . . . 1 . . . 3 I . . 0 1 " 3 . . , 1 . . ' . . o 0 1. . 1 0 n . 0 0 . . . 0 U 5 . , , 2 1 . . . ." . ". . . . .' . . .1 ' " I " . . l " . . l . . .. ' I .. O . " . .. . .l . 0 , 1 3 . . . 1 , .. "" "' '" '" ''" "' SOl "' "' Ill 011 '" "' "' •S.tlabltV-A.IJ!*I<fb~ 6 FDICQ UARTERLY 134 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00138 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.90071412 QUARTERLY BANKING PROFILE TABLE Ill-A Third Quarter 2016 All FDIC-Insured Institutions H n f T o . 1 l o c D m S c C ( s T l o t O " " l O b i n l ~ " l t M " I t w Y " I U r N l ' ' " f o ~ ! t ¥ ' n M M 4 ~ t " t t « , i R O ! K _ " l t u I T J l ! I L " J ~ E I f f A l i I l I . . R b I t . ) J O b b u . b l , m i i l o n C t l l . i n b t . l I l f e I t ~ , o N t l p Ort"9 . , .. $ . 1 . 1 U t _ 6 i . . S 1 , . ! . , , . 1 1 I . ~ . O . 1 . t ' , 8 Q i , . ~ . : · l ,J 6 O . t . . . . ) 4 . S. · . . 8 $ . l le6 ~ $ . . 1 $ " " 8 , . . l 3 1 " • " . o . 3 9 0 . 1 . . • 1 ' 1 0 ' . .' . t 1 M S $ 1 il 1 i 1 o 3 o ,. " 3 i ' 1 1 A 1 l . . o , 1 1 .. 7 1 1 M , ' 1 " : o M 1 . 8 1 , ., & ' o 1 J s i t It S ~ C s r B .1 1 . 8 t t , t . , , o , i t ~ m N U ~ . ~ $ l . . " 1, ' " 1 c I 1 " . . ~ O , 6 i 5 0 ' . , ' b u ~S l» S ~ tt 1 t 3 t l B o . , , , . . .3 2 7 $ 9 i ! ,5 9 2 6 1 . m 1 . 6. 8 5 $ 1 " ) 0 . . : . , 0 0 8 6 0 8 1 l TI . I~ > " $ H . 8 , ' . . ~ $ i / ~ , l 2 ) 9• " O o . ' 5 1 1 $ • • a ,0 0 5 0 t S U l v l . J J " , S = 1 n . , " l . & _ " > U " , n 1 & ' ' , ,• l S . . 2 : 1 . . . , n < . , ,. . $ . . m . n u . , . 6 . , . o , . . . . 6 , . t l G c S N l . 2 l 2 . i , . . 6 , J 1 i 7 . 1 1 . a . ! 1 . 1 a . , 1 > l f . . . S 1 p l 2 $ i , . , . . . . ! 1 1 8 . h t i . l i c t f U " l A 1 2 , , . 6 , 1 , ; 7 . ; . i t ' n o • ' 1 . " $ U " 1 . ; , u 1 a 6 1 . ' ' I S I . M .8 . m I . ' ,1 J , . " I $ .3 . , I G " , r 8 ,0 . . L SJ ,1 1 .' , ,. . . - 3 3 ' 1 , < . 8 1 . " m 0 . & . 1 , 1 0 t . , . 7 ' ~ 1 a l ~ N C E Y f f & P H A H l N W t ~ ~ l : - o l t ~ n . M . . ( O o t i o t W c c S $ H t .4 . ( I a \ l l i t I M n . I i o w . ! M J f c w U ' w . l M « t . U r M o I I . l f h t l d f l < I u t ! f . ! f t t ' f 9 . I M t l C ¥ - d * y . U i o ! , m l t ) w 1 I. . ' t . i ~ ! I t I t n . l i . W r f V . l k ' O t N J · l . t l a 1 N . . i o I I i . o : M t q . t C n n o m n I m . " f S w • f . ' l J A . G f M o p . Q i l O l N b i . t b h f t. O . t l l y b , ! Q i h i t O t O • f . i . n t t , . l t ~ · . i n G l \ . M i i ~ r . l I w n S l ' ! * l l I N 1 l P t O O f . l . n t l $ P l l ~ l l I t . l ~ ' o t I ' M . n I ' t l l . o I l t s O ~ ~ I M ¥ a i . 9 W _ ! l a . . I ! . . f . d 4 I 1 . . d C u l M $ M i t i l ' t e t O I A f, I , M O ., ~ I$ I 4 1 S l . 1 ' 1 J . . , " 1 0 o ". 3 J . ' ' . > 2 1 1 . . 1 " , , 2 . 5 . " 1 u 3 3 $ " " · & . . , 1 . 1 1 . 0 3 1 ' ' " .7 ' , . . l ' 0 < " " . 0 O 1 1 ! " " . ~ l " 1 1 . t . 1 . 1 . I 1 . o 3 ' ' ' 3 , S l . . ' , $ 1 3 " " 1 S 3 . . " ) ' l , 0 0 ' 1 1 I. 1 l 1 l 0 . " . 1 1 " " 1 , 1 " 1 $ l 1 ' . 1 9 2 2 0 . 1 1 . 6 l 1. I ' 3. . , · . ' . , o · " " 1 l O " ' I . . 0 " l .. . " 5 l . , n ~ i i · . $ ' . ' 1 l . , a . i 1 I " ) . 1 t . . : . . . . , , 0 ' , . ' H " 3 l l i . . . . . . 1 1 " . i . . $ Q ~ " ! S . . . . , 1. . . 9 , I 1 ) ! , S > . " . ' . , 1 , " 0 0 0. , 0 , . , 1 A . . 3 . . . . . 4 2 . 1 ". 1 1 • . , i . . . . 0 3 , 9 . ' 0 0 I - 1 ~ ! ~ 1 0 . . ' , , I o 0 ' ' I , 1 " , 1 U . .. . I " M . " 1 " s . 1 . , 1 > ' , , . o . , 3 $ . $ l .o 1 " o . . . 1 ., . 3 O . . , , . U I . 7 l , o 1 . . $ i . . . . . " , . $ S b . ! n S . . 1 . . , . . . . 6 I l ! , " " & U . . ' , , , ' " 0 ' " " ' 9 - - J , " 1 " . . . " " 1 ," . " ' 1 . ' ' 1 . . I . . ' l " .5 U , i . . " 3 C 0 . & - . 0 w " " " 1 1 1 I 1 .1 $ . ' . 1 . 0 1 U 1 " , ) 1 . ' > 1 ' , 1 . ' ' 7 0 1 1 ' 1 . ' 2 , · , ' 0 3 . , ~ 0 " " ' ' 1. 1 U u ~. " 1 1 " ,5 i 1 ", , " , s · 3 ', $ ' 3 7 6 l l. s l 1 " • 1 3 l . , 0 O , 1 ' " ' " . 2 . 1 1 4 ~ m ' . 1 . < , " " " 1 ! 1 & 0 ~ . .1 . ' 0 ! . ' 6 2 1 . 0 0 0 ' i Solnil~Jtih~p-. 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Aiw!Co110tiCJ~btiG!041Pl' H F f T l: R u $ l o r r ( S f C $ C ~ 1 S n i O l W u w m O ~ b l i T . n . f t e l l t n . t - f M r ' t w l p , p u ~ l f ' o . l $ . i f ' ! l • • l f l s E t n l N « C l l ' ' 6 I t l I t ( * O I N l c O ' Q u ' ' - A M J i l I . ( I I i I l . A t b J b I ~ h . I I l ' l i b I ~ I ~ ' i O A l n J l n o I o t I n T b R n m n b O b W t ~ $ . M R ~ r ~ . S p ott n1 ~ $1 U 1 l i U s t l 1 U v 1 , . . . ' t 6 : i . . & $ ' l 1 ! l ' 3 . 0 ' U o 1 t J U 1 1 " " n . ) 1 . . 1 4 2 5 • t i ) . ~ b , M . ! 1 h 1 . . . D ) . . 0 O , . 1 , ." 1 . b _ _ , . , 3 1 I l , 3 ~ W.U St 2 2 4 i ' t J ' , . , U t ! " o m m I . . • S $ " ~ b . . • . ~ s s 0 3 1 1 ' ~·Ql s b , u , ' I 2 t 1 . . . ' 1 u , S H D 4 3 . 6 " 1 ~ . I a 6 t 3 b 1 . 1 . 1 I 4 ! ~ ~- $ l ' ~ 1 t U , t - - i ( " , i, " t · 1 C l ' _ , ~" & . 1 7 " W ~ . - . $ U · , U ' " ., ' . $. 3 ' ~M ... M . V 3 . 1 l H 2 . " l 1 .. " R ~ " S < . 0 H , - .. . 1 ' ' 1 1 . l . l ~ ~ ~ ,, ~ l m 1 I " , 8 < , 0 . . S l 8 0 > " . " " I U a . 1 3 1 . I ~ s 4 ~ 1 : 8 $ 1 J ' .. " J 4 I, , n A : " I l " ,.~ . " , o t . • ..1 . i l • l l <$ A 1 l l . ' ~ " . . I l l " , " , .t . . U . " l . " . .f . ' . l ~ >AS $ t . s I 6 t . . O l 0 . , l , " 1 m . 4 . G . ~ l t , 1 h 9 " _ . . < 7 8 o w. o ' , . 1 ' S , I f H P Y C N l N & W t 1 O o . - t o w 0 1 l f ~ H 8 C W l r M . . f ' t t 6 u O U o w r t t l o I o i t I f \ n l p l a U M t . O t f t J r t . . n I ~ o u t ' I l M I , i ~ ! - d I * . H . t p f t t m ~ n C ' " q l . a 4 M n I t ~ ~ " - « . I p - i f l I ~ * g < l ~ ' l t t ~ ' f b I ' o N I f J n W i ~ a € I o M U r r ~ f • ( 9 r l l i ; e 1 . l M o l n l l D m l ~ o > t ' t t l t ~ M ( t f - o l t w h ; o . H U D ! t I • ~ ~ ~ l $ IU IO . . . " ; " . l J " 1 1 1 l S U . . S, . 1 0 0 4 7 . , ' ' < ' S 6 1 I ) 1 1 1 I ) . ' 3 S < " " , V ' 1 ~ 1 1 0 . " 1 " < 2 i ' ' Q # , 1 1 I ) . '' . " . ' 1 " 1 0 o 1 1 " J . 1 . 3 0 3 " , O . 0 , ' 1 0 0 . l 1 , , O o 0 . . " ' ' I . < . " . . l l , " ~ H S . ? . . ' l 3$ S. . ", . . . . t .1 ' . f l i , , , . S . n 3 . l ", . , ! ' . S .3 . . l 1 1 . . ' ' . , o 3 O U . " 1 3 4 . l . " . t " . < 1 0 0 ,l u ' J . . 1 £ 1 0 ) 1 . " . . ," I 0 " 1 1 1 . . . t 0 . 1 0 0 o . . 1 , 1 ' . ' 0 0 ' I . " < . " , 1 ' > ~ 5 ! & 1. . S . 6 " . < . , ' . > ' 1 0 o . . . ' 3 0 a • 0 " " " . . 0 . ~ 1 ! 1 l , S . 1 . ' 0 < 0 0 ' ' 41t , . ' ' . U 9 2 . , 3 " " m 1 - . . . " " . ; l 7 , 1 0 . . . l ' ' i ~ ( l N 0 . 1 o n ¥ 6 - f Q 1 t c . l t t b l n . t ¥ l ~ q d . ~ - t ! t N U " ~ ·Q t I M ' f b )O l l ' l t I t l l O a ' W o l l - N . l) r c I l \ M D $ : . ! o - I l n IM l d l l I n O + n m . , . s , , . . t t . . 2 . . ' . 4 . " ., 1 . .S . 1. .0 0 O . ,6 $ . . O 3 , . l . ." . . . I , " , " . . I G M ., . t - ! .1 l ' $ I .1 ~ 6 , " 1 . ~ , ' u " a I " < ~ I . . " . ". . . " .. '. . ". , " ". 0 . 1 , . " 8 ' . . Us , . m . ! . U , , ~ol~wt!ht)ftllrlgl;pnt 63.46 "" ~ , 0 , & . ,,. .... CollliitlonRM~!ftt . I N E C T H U C T ~ M t ~ 1 m . o M o t t m P o d l H c t n t i i o . c o o l . • o w ' t t o 1 - 1 t t f i ~ " t . , t n i W n 1 1 t l U M r c ! t Y c . l d ' Q i t . . l . u U t - 6 I _ · ~ · h b O w - r b q N . J i l o . t d U s m ' a t ( t l , _ t U • l . « & l t l . t f d m W t t t I . n I _ t y 4 f * o o I l o 1 n t i b t U o l H o w · a t 0 O i w J > ! 1 o R t & p W m P e ~ t b a U i i t t c • t i i t - e D J t p n u ~ l p d b . t l b ' o o l I l J l o m e ~ t A d t W a ~ a ! u - i b f i . O t • . , ! " " " • 1 1 > 0 ' . . 1 I 1 u . 1 U " , . " " l 2 " 1 & • , . 2 ~ l I . ". , " " i , ,1 l ~ ' S . . " ' 2 . " , U " . . . , " 1 ~ t . $ ' . . . ~ , , $ ~ ' ' " 1 1 . . ' , t 3 " I " 4 5 . l " 4 . S " 1 ( , , O ' ~ ' 9 1 1 I , . . . ' 1 & o 1 ' l . " . . < 1 l . " U \ w M . . . 1 6 4 , I ' 0 1 , . . 0 l 1 . " ~ ~ . ' 1 1 " 1 , . O " 0 1 4 I t . . . " " J 3 , 3 U 1 l 1 & ' . l 1 2 1 • . , . " " 1 " 9 u . . , m 1 I 5 , . " " , 1 " I . 1 u , . & . . ' 1 $ " " " , . 1 I . . 1 0 , t . " 1 ' ' 0 " . . . . . I " " 5 > ' , , 0 . , $ ' . " " 3 ' ' 3 l 9 I . . 1 < b " ' l 1 " " . . l . " 3 1 " 1 l S . . ' 3 1 ' 0 ' l ' . 2 " " " 1 " I 1. $ ' 1 1 ! t 0 1 O ' . 3 " " 0 6 ~ 1 " $ . 3 ! 0 1 ] . , " . 1 1 I . I , W . 2. , 1 1 U . " . . 2 . . ! . 4 O , 1 0 . . . . 6 Str f K f . a t I n ' u l W f M r 'd ~ r * l t n p M t' o l t I . r • : t l ~ t \ l l l ) n t v O - d f ' t b l. yiiWg.t$ ., " .' 0 ' • • • ' ' ' ,• • . " ' ' ' • • • • • • 3 • • 1 • I 0 ' ' I Pfii)RRRSTTIIIQ:OUAAltlS ., Hl ! , T m lM bt tw ro J f J ~ itwa..J ',"..', ,,.., ". I . I •' 1 1, , . 5 , 3 , 6 ,3 3., . 0 1 .2.) S. " "$ ' " "' , 3 '. 3 ", 1 " "' ' " ''" 1,131 ' 1.5£/ .. ' . " . " ... "'I " f T t o e tJ ," I. " a " $ . 11 . M( , $! . 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"..". ,' 1 " 3 1 .' 1 . 1 11 13 10 4 1n1n4t ''" 11.M lm n.!O "" lli$ 1U7 8 FDICQ UARTERLY 136 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00140 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.11071412 QUARTERLY BANKING PROFILE TABLE IV-A First Thr. . Quaners 2016 All FDIC-Insured Institutions H F f T & o o F n 1 l c T t m : S C c C ( S $ s \ S l o l l w . J " T O M b l i l n ~ " I t . J f M .~ I w t ! Y I " 9 H . I r I N .l ! ' ' o ~ f 1 I ¥ . ! ' . t n R ~ I ' I M M f t , . t t k ' l « E l 1 , o l O. : ! . ) _ n u K t m t S I . ' J . b l Q ! J I l L , I b f h A W i t. l i l I ! I M . b i h t l . I . , i O u . b b . i l l i G . . r , ! P n n i l o O l C t i . O . b l . T l o t n t . . l I M I f o U ' l e I I ~ I , N ' S t l p l O ~ r t"9 .... m .. 1 1 . 1 m . 1 . 1 $ 1 ~ I . ) . . 1 , Q ~ . ) ( ! $ . ~ . 9 1 ~ 1 J ~ , , , . 3 . 1 . ) 8 1 ~ ( 1 . . . . n 4 1 ' . ,. l ~ S 2 . . .. 8 0 $ " la hQ b , " 1 $ I . 1 ' 8 . 1 . « 5 " 1 I " " ' , 3 1 & o " . & ' ( " $ 1 , f 1 1 : ~ . ' ' $ l ) l M S $ i t l 1 i 8 - l .~ , ' , ' : ), . ' U ~ l - , " . o . 7 . 1 . ' 1 , _ :S . , · " 1 . " t r ' t , o , . . U 8 l ' , i ' I .D ~ a S 1 . 1 t t 1 I t l 1 , , . , o i " " . 1 3 l 3 .1 J r 4 i . & . . $ .$ , : 2 i 1 f l " ! k , " ! N 1 . I . : . l i 3 1 1 9 O 0 : S S 3 1 . i ' . t 6 t ' l o 'l'o S t t 3 3 1 o " . 3 t w j , . . 1 i ) $ 1 i U 6 · 1 $ 9 , . l 2 S . J 1 1 i " 1 < l . , 5 1 M " 1 1 0 G O O : , . 0 . 8 6 ' 1 1 8 J TI . P~ > " $ . c ". 8 , l ' . . . ~ $ i / .. l ~ , ) 2 m o 9 . • " O . ' , 5 . 1 1 f $ • • • , 0 0 5 0 l . t S U v ~ l 1 1 J J " " t W 1 S = 1 n . , " m . l & ! " ! > . ' U " , 1 n 1 & 9 ' ' , ' 7 • I S A . ~ : " 1 ! . . o < n , ' ,. ' . . ". . . m · n ' u . 1 " . , , J . " o 1 . . . . , . t G N S ~ l 2 " l ~ ~ . i , . . J 6 o . 1 i . 1 I . . 7 a " a 1 .J ! l 1 , 1 p l f 1 .$ S. o e. . l 2 1 i " h , 0 1 ., . . i ! , . 1 8 . t i i . c l t r. U l ' 1 . 2 , l 2 C ; , . 6 ~ < , 1 i ' 7 ' . - o t, n " " • ' 1 ) - . " $ U . 1 " _ < 1 u " a 1 2 : 6 ' 1 ' l 5 . ' ' I S I o M .8 . , 1 . . I ~ ' . , . . J 1 1 , " " • . . I $ . .3 . U . . . G " ' . 0 ,8 , . . l ~ SJ " 1 1 - . · 1 ' . ' . - S ~ 1 3 3 1 ' ' ' < f 0 , . 8 ) 1 ' " " " l < & 0 1 , . 1 " $ 1 : . ~ 7 , ' ' ' 1 a 1 l N C Y P N l ~ o M . : t o W l o H t f n i c o l ' « t t U r o d i t < u l l ' M i l * m t t t N . t i l w W M t J t t i • l t C n l i " f n l M t O N l p Q i Q t t i f t • t n i * \ . . l w ~ l N I l P f I l t $ n l I ~ l o t n l ' t M o l s t a ! i _ 9 I . . . . I . 1 . . M C u $ M ' e t I f I ,, O . ~ , I$ ,. o . , 3 H _ , , . . 1 . . 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' ' ' l 1 .5 1 " • O , , " 6 3. . 1 3 • . . l ' , 3 ' 9 t , .1 , . . ' 0 ,) ' 1 1 ". .. . " 4 0 $, . . 1 3 6 '. . . l 6 U . ' a 1 ' , , m " . 4 ~ " 0 l , 4 .• l ) 1 " , ' " 8 , 1 ,· 0 I_ . 1 " ! 1 ~ 3 " 7 . 1 ' . ' ,I , I . i I " . 0 t . t H $ ! a ' 1 . . O " I ~ 1 1 J . . 1 5 1 ~ 0 " O 6 0 " " " 1 . 1. 0 S 7 ' 1 1 ' ' ' . 1 I ". " . , " , " ' 1 '_ ' . " 1 " " , " , ' 0 , 1 . . , I " 0 2 . . » L ' ' . 1 , . O 2 " " 1 , 6 . 1 ' 0 . J l E o a s r t. M9 . ~» .) 1 !l( o .t U to f ' Btt!J. . !l . m .. !I:U! tlli "" &.it ' . " .. ' . ..,..,.. ..l 't "" ( C H C q o o ( n . u l l H n l t h N t o 'r ! • y e n r I M i a l ' c i f c I r O p u U ~ f f l t n . f a ' f t t q P l i U d f U t l l t J .C i W U M D l C « y l ' o ~ t S D o o ~ a n e w J ~ rl m n * u d p td ' l !l l t . o l l i a r t a u H ii O c r ,", . > I. .. " l I . .S l " , ,1 " ,3 L 1 . _ " 1 . U U , . !, ' . I " I V 1 S ' " U S " " 3 ' 7 J ! 1 1 . 1 o 0 1 . " H . 4 . 7 . 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IOU 1156 1213 6GI "" Ill!. 11n FDICQ UARTERLY 9 137 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00141 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.21071412 20J6 • Volume 10 • ~umber ·I TABLE Y·A loan Performance -All FDIC·Insured Institutions bwtCooc.Mutio.~· S.!*~t~be.30,2016 All!.uttd 0 a ~ .b ~~-- b ~ rl ~ b ~A.Xu b t i w b ~ ~~- ._ - .. ~ .~ ~ ~ ~ .. d .. ~ .,.. ~ c ~ .-.-;J S 4 P 1 i 6 t 11 ~ ae ~ <S A 1 n 8il ~ ion ~ >A$1ItOill.o.a. A Pl l f O C l I H c ll t o I l r * o m h t U lt : t t t M o t n t o . i i · t t Q i b U t .A ~ N m < i a a J t t , n r l M . r n ' " t t ' d » " l k w . y b 8 l . ~ t y t n 9 m . . . W r . 0 t ~ , , J C . ~ , I . ! . r « a P u * . l - l . _ t t U 0 t . . . . . " . " 0 , ,1 , , ', 1 ' . . ' 0 0 0 0 " 2 .0 0 1 1 .0 0 ' ! 0 0 0 1 1 1 0 1 4 0 0 1 1 0 1 0 0 0 . . . O Q 0. . . . . « S . . . . s. 2 . . . I t . ". o · . , . .n ~ , . ' . . . . . . 0 0 . , . . . 0 1 . . . . 7 0 0 . ' 8 0 0 . 3 . 3 ' 5 1 1 4 . 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''NOflCIW'WCioW~I.Kftftflftt41!tth.p~.QC!o.Jntn~Uitgory!Nt•tPt«6.-..$0Pft<otriiOttOf~lutVtf'IIMJW\RI$UIW 10 FDIC QUARTERLY 138 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00142 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.31071412 QUARTERLY BANKING PROfiLE TABLE V·A loan Perfonnance All FOIC-Jns;ured Institutions ..... eo.,... .......... AMtSU.~• ~ P A t~ t ~ O M N e o l . t m l n . o Q t . l M M b I t h l r ~ J o N b . w t C l N m ) ) t m t C t ~ O f o n i l b y o O , - M r - I c f ~ M ~ . l I a 4 . t - I d t n t I ~ " t d r . M I f M d 1 t t i M t • O A - D t a i I - r ~ . l ~ d _ . ~ l t l . l t A t . * t N • D u • . e ,. . titati . .' O ' Q o t ". 2 . " 1 N a , . 3 1 > l ~ A ~ l $ . l . U l 1 1 l I i :C . . o 6 0 l O 3 . . 0 3 • l I M $1 il 8 f! 1 O! . ' " " " ' O 1 f " . " t S b t , ' ' ' o . i t S s *G ,' Bi ' , . . " " 0 l '. i .2 : " " 1 n , , ' . 0 $ 1'10ID B s i a . t l ' Q 0 l 1 a 0 i: m . " 3 M i 0 ! 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A I f IC U d O * W o r I f " I t Y j ' M A f . I ' n O \ f 'I U l H i < ! n C X m . I O l " O * ~ I ' S -0 !'*-tt ....t lt O.. . r ' t . " M . ' a. , . " . . . . . .", . . - " · ~ " · O. ' .r " too ' 0~&: . "a . ' f . e " " . .r . ' " 1 " ' 5 . 0 " .• J . ' . - ' , " ' · _ " " . .. . .1. . 1 . . , . 0 ~ . . , 0 b ~ S . t i " l : . : l • l " . o l ~ a . o ' t rib tll . !.i . o . •. .$.1 . .0 eo.. . . ... .. . ... . .. Nwnberoill'lti(D:ottp«t~dtnrr.Wift \110 1,q!l Ulf " " "' SJ " ·T T IO o O t U I J -~ I I. " . d . " . n , ' o -- * t * r - . o . f l f . ll - llo . n . l . rt l p i O Q ! ' llf W 'I ! O ~ d - m a t t J a II - it . S . . 1 S 1 t l ) i t , . . ! S W 11 U R . ) , 9 2 $ U $ 3 0 $ l$ 1 1 ' ! l 1 > ;M . , 3 .0 " , 0 4 1 3 & 3 ) $ 3 G 8 1 i ~ f 1 l 1, , 1 i -B ~ ~ $ , ', 7 $A 99 S S "t 1 '0. t . . .s U $t'4 2 3 . 3Q 4 ) 4 7O 2 6 : t 1 U 1~ ,l' ~ 1 4 1 1 ) ,9 5 1 7 8 3 ,' · - ~ ' s U t! " l « 3 ' l sm 2,7 ..J S .. $ 3.) 3 6 S IJ U ) J C J l 0 J m . A 61 \ ' 2 6 l s t . ' s - t . . ' m n " a '" . . u u " a o ' 1 W 3 ~ 1 1 . ,. 1 0 S i t . l 1 l J f 1 1 l S . - , , " ' ' f C f O o . . " " u o . M . O " . i t " o ' . r . i .b " n f " i l! l ' . l l m 'n l . i ' l o t " ' _ & t - i f d " l t b w y C C w 6 < . . c t w t f : r f t d w x l t l t t x t m C ! . J h b r f d l t n r l g n ~ d i u t o t t d n f t c r y i d o P t l t n t v ~ D l£ t ~ l r t t 1 1 1 1 , l 1 1 3 t 1 ! 6 , t ~ _ 0 1 5 ) 2 , . 0 , , 4 J " 9 . m . . - J ( 4 Q 9 1 . l ' $ " 2 5 3 $ . , i P 3 1 . ' . , . t Z $ 1 2 . " . , , I 1 9 ' 4 J $ 1 . . . " , 1 i I l 1 3 0 . . , l l , t ' 1 l I n , a . K 3 1 ~ l . 2 , O . l .9 7 . . . 3 . , ) . m 0 . 2 J 8 ) , M J . . 0 0 I 0 . U ! , - . J 1 _ 1 1 _ I , ; ' U O ) i t l . ) : ; . 3 , & 8 : m . m e G . > 9 6 8 . . . l 1 ~ 1 1 3 l I 3 ~ H 1 G > e U ~ 1 7 1 ~ , . . , . , , I , . l $ . 1 1 0 O . 4 n 1 £ 8 2 4 > 1 ~ 9 7 & & ! : . 1 M t J 1 ) J 4 . £ > J 2 . ' & . 7 U $ l 1 ) 6 m l n 3 $ 6 S ' 9 1 $ ) U I . 1 " 1 1 0 n& 1 $ S l , 7 S . 1 ) , " m 3 , . ! , I . f 3 1 m 1 . f G 6 I 0 . Q " , l l 1 . t , . ; M , . , 1 , , , $ 7 m ' t 8 . " ? ~ 9 & M ~ I 7 ~ 0 3 6 9 1 1 l ,t 3 4 1 3 U ~ l . 1 & 1 i 6 ,8 1 , s & . , . . , , .. 3 2 . 1 $ W t ' m . (. 1 & 3 ! 3 > £ . 1 : . . 1 . 1 . & , . . $ ' S 3 ,3 . ,l . . 1 1 6 & $ 1 n J . $ . ' 1 1 l 5 1 $ 3 1 n 7 . 1 1 6 · · . . " " " l . " "S - O• 7 . . ' .S •S ' . . ' · ! , I m I 1 " J , > • • • • ' 0 . l ' , " , " " . 1 " . , . ; $ ' " < . " ~ 4 ' •' ' . I I l U 1 1 , ) 2 3 . . ~ 0 $ V l $ , . . . " N . · 1. , $ # . . n 1 , ~ 1 " ' i . 1. 6 l l 5 S \1 & C U S $ 5 l i 1 . J ' , . J 1 J l " i S 4 a t ~ 4 s l 1 1 I J m , . " U I & 1 ) . U l . I 1 . l & t " 3 $ o" ~ S 2 l ~ a ' l 7 I ~ 1 3 I $ " ~ 6 O 3 ~ . ~ 0 1 , 3 1 . , ' . t , $ W . f " ) .' ~ & U m 3 ) 1 . l . , " . : . J l . 2 . . , o 1 o t. J t M ' ' i . 1 1 . , 6 i " 1 ~ 3 & i 1 S 3 l , • ). ,..,., { f C C h r C q • M r ~ 0 r . e V f t & f d f d . ' i C : • l . l t . t • O 4 o l M e . M r I 9 t . 'f ( d \ O J . : r I w O a I . . M C - t ~ . f . h o ( « . N . ( d W . a l _ . * c . l b . h , a . . t d t C n .-l t t « i nn 6 • i Q . o t W a a rt c )' b de dtnv•ttt · n u. o , 1 . . .; . m 1 .m a .. n ~ ., ~'. . " 1 . . · , . . 0 1 " , 3 6 . ,' 1 1 1 l l.$. t 2 . ! . .. , . . 1 ! 3 s .& 0 . 1 ; 1 . .1 1 ; $ 1 · ~ . 2 1 1 U . A , .) S 0 2 & $ , 1 1 > & 1 1 . 6 • 1 i ~ S , ~ ' ' - .." . _ 6 l.. . $ " 9 ., u 1 2 ..' ~ . " " m . · " ".. • • • •0 0 ~ · 0 0 0 0 I " . • ·. • • ' I . M . . .1 l' 1 . !. ) 8 3 l . . ) .. t · ~ l U 1 . I ) J ~ ) 1 . 1 S I 1 · 3 3 , 1 9 O.. f h i .. r , . i .« l m i < ' c ( l c t r : t N o l n f t t v l t t l .w i ~ \ w < l b fQ i J I r ) ~ Id it ( t ll ' ) ' l ' '( tJcl' 1 .H > ) < < · s S S y I . I V , ) ' y . t ( . . . M J . t . V . n . . I , . . 3 I e s • 1 & ! S 3 , . 8 , S , •. 1 3 3 l : 8 n J J r» 1 2 . ~ ; ) . , nM 3 '1 . t 31 8 . & 3 l ~U ' 3 l U , ) l . Q . ! 0 . « \ 2 0 l l l O l J , , ) U 4 J , ) S S W 3 3 U I 1 O 4 4 ,~S 2 . 1 0 ' · - , , . 2 & . .·7 '3 1- . 1 9 1 . 4 , , , 1 " 3 . ~ 6 1 . t 1 i 5 , 0 t ,! 1 2 ~ ..6 1 U 9 . , . , ~ i 0 Z t 4 . ( C . 7 I $ , I ) , ; , . ., . & U 8 3 M . 0 6 $ U . 1 - 1 f 0 3 l S , S 4 0 l u ., ) , J 6 7 o " , O 1 $ 5 o ,3 4 < & ,, , , 0 . 3 , u .0 ~ " $ , s 2 & ? " " u u 4 ~"1 1 s s ' , " n • 0 0 . " 8 ~ , ~ " 7 ~ 0 • 0 0 ~ ~ 1 2 U, 1 8 _ _. 1 , l . 1. < 1 ; ~ & 1 . t l 1 1 U u t 1 3 G u, . .0 i 1 ., l 1, 1 & . l ,, 0 . 8 t .5. ~ , " 1 1 , , . ~ $ : i J 3 n I ~ t l J t S , J . l n : O ) l O / i l 1 ! l t $ l , U ) 2 1 . I ~ ! 1 ~ t S & t ( d C q . w u . M . ff o e c t « t i i C r - y . n • & c d C t l I l d o I n tw Q c Q on d ~ d ra o C o t t J m tn c t 2 W t n l 1 1 ; ) l < > ( a . ~ · ~ £ l S ' 1 ~ I y t ( - . . ) 1 , l . . . w u i .. ' l . . • . t . 1 ~ •, $ . ~m 6 9 ) 1 0 S 9 0 , I l ,· . . l 1 , m ! _ " S U O " , l 3 1 , $ . l , I J ( S J . ~ U 7 I I . . ! . . t . ) $ l l < $ . . 3 4 3 7 0 I 7 . • 1 U I , 6 A 1 U U , 1 , a , . _ 4 O Gm 1 a ] i 1 $ ! 1 n S 0 6 9 1 t ~ f , . l . Q J · 6 & t . ~ 9 3 1 > t . , . . , 1 2 V t ~ . ! l Q i 1 S . l 3 . ! t . i $ , m· ~ . 1 n . Q ~ . i . , , -5 . . . O f W 1 3 . " . 1 ( . $ 9' S ) . . . . . ' 2 1 . . , 1 " 0 , . < , 1 1 , .. • • • 0 0 0 . .. ' ' 0 0 0 0 " 1 " l ~ 1 O 0 ' l 1 . 3 5 · t , $ 1 ~ 1 , , .. , 1 . 1 . .1 . , , l , 1. 9 . . J 2 1 A , ! $ > 1 I I I 6 1 J I U : 3 J S , M . < . , Q . 2 l U 1 f 1 C 3 . 1 > - 8 ' T R T T C e t o I o I u t O t b ~ l d l l C I r i c H l i Y t w ~ . l p J h ( o w i f « l u r t t u ! ~ t t ) l ! o ' t p $ J . i a 1 J c t : . 0 I l i O I 1 t d i t ' r 1 N i 6 - i 1 l e V 1 f ~ t ' ) t £ l t i t 0 q i « J 1 j q V e J m n i n c u ' l i r ~ ' n ; l t ' c r M i a O I 4 p I O 1 I d U 1 t I ( t t % ' k l ( d n 1 i I o ) u C ~ al t n if ,1 " .<, ' ! ." ' ll . " O ' , " a " • : • o ' ' ~ . • 3.0 •· ..1 • 3 ' 1 " 1 ' , 0 ' . .. , .. .. . , , . 0 . " , . 3 . . •" . 1& . • . ' I I " " " 1 '~ ( " 3 I · 1 I H H l T t o l o l m D t b t F . e O r l I i o i I T l f R M ~ ~ A M M i D « b fl I o H f b G l , t Q r t ! n t t O p t « O t f l . ' ~ )9 ~ I d d d I « ' i w * J M t i • I m ~ s ~ 1 ' U3 · :& ' 1 .. ! n ~ >1 3 U ~j ,! $ « . i $ _ ( l l $ 1 i 1 6 0 n u . n m .o . " o w " ; n a , , c '6 .; Q o " $ ,w U ' 1 & 1 .& .3 1 & 3. " ' 0 .U 1 ' 0 t .". , 1! .• J 1 IQ 3. 2 3 1 9 9 0 m l$ . , £ ,! > > 2 1 . 6 8 3 l .2 . W Si .4 t & " ~S 1 . 8. , S . 1 ., U M 'I • l t o lr . ( r tr i t n t~ l r i • ' • f tCorlllxbbt'Un~tR4lili:$0Uit 130.,490$H 111,3\6,4$$ U.-.4.,$.S...;, M . ! . I t);..{Q9.."63 1116.1lU17 I <I • • 1,!1» 31,2» ~.111.8JS $1.119,.8(:& . l T f C < .< p U _~ ~ I ! f y o . A . : .. I - A . w 1 l 6 J 1 l 7 ) , _ ~ 3 W & 1 . G t 3 J. , & K H l$ I 1 9 I , a ,, 2 - , U . X Q . X \ ~ I . S . & O J J U U 1 3 182 t I s , ., i X U Q $ 1 . . 4 ) . < i 3 S 6 9 8 t n 3 U u U n J O t O J !i : . . . l 1 t ~ 0 & e 1 9 $ 1& ll U , l 1 1 ,W & t . i 1 i U . , 7 O A W 2 U H 7 • ~ • · s • • • 0 1.6t6 •0 I 3 l $ ,.'U . " S ' ~ 4 $ 1 ,2 l ~ & U, 8 . ._ t , . , J , $ M. 4 7 . 6 6 1 2 U l 8 U , ,! . U 0 0 ' 3 0 3 1 l 1 , . . . . 3 2 1 , . 1 l ! A t 6. 1 O 0 . 1 S T T f c T T . r l r « ~ o l l . . • . . " r l m t t . ; , o f a R , , l ~ i l 9 r c ' n I A t f ' t M d t f I 1 M . < n M t o r . r I g l , t W a n ( r . : : l u w I . t ~ d t . t f _ ; t r c ) t . 6 a t . ( . . n l J l t ' o O l . ~ C t O , h t . l . f . . t k iq . t d l n . i w . n , ! ~ l . t • Y t . N l t l . ' ¥ l t l t m y t , M t l l t1 2 ~ ~ ' I ). " . 0 " l . " 1 ,l . 3 l I , , , ' , l . I $ O n . ! " . J $, < 6 o l ! ~ 1 . ' . .. o < 4 . " . R 0 .n . .] J . U . , .1 1 " 1 . 1 . 1 5 1 . 1 S , 5 . . 1 > , I , . . . ,! !3 ¢ s U , . . . 1 1 o, . . . 1,3., .I 1 f. , 4 4 U . , . 0 $ . ~ • • . 0 0 0 0 ..,. 0 0 0 I I , . " " " . 3 . . ' l I " ' 1 " ." " l 1,. ' 2 l . t . w l . ..5 l . .1. 8 .2 . - T H H O t i U l f D I n . F b M O e H R -r ~ o P I l I o A " f t I t P . e O . ~ l l s t l t t u S p O u c T o . i n ' tE . t l R l ' f f l i W ! ) O M A d f n N " t m ' a !! A i d H C o t I _ s N , O m ~~-.s 1, a 31 ; 9 11)'54 U ,& ! i S 1 ,1.1.,...5.J5 1 3, ; 31 1 ! l 1! l1 8 ,,.._010-1"' 13.9SO.S&i •"• t,1 • 1S .l.2.1.,.1 1 . 1 S ,2 I 1,22(.31» .......".. s.n$.w " T T O h ~ c .t o O . c. ~ t t U i ~ r i n t v I ! M l t i ~ ~ & ' n I t t I f ! t t o l N C o « i t a l i m t l w r l M " x lt ~ t ! A b t l l f b U t ~d c tt ' t d yf ~ l d tR e i r ll r £ , QO a M , I! . t 1 . t 1 . . . s S 2 . o O 1 . 1$ 1 . t 1 U . . , ; ) 2 Q , 3 . S 9 1 O I & 0 'I 3 I U U .t ~ ~ o $ 1 U 1 o t .. 5 . b . 1 l 9 ..» > $ 1. f 1 6 . $ 9 t 3 S l . 0 0 I " ! 8 M . 1 3 . " S , & J " a n t 0 > 9 ' l I U , O , 4 3 X ,' 3 3 u" U 3 . , 4 " i $ : 1 U $ : 1 ' . 1 . 2 0 . . . . $ . . l . 1 , l . $ , . . .~ $ J . , $ . 0 . 0 t 0 , $ 0 l . , - " n . " . 1 .s . ' 2 . U " " >3 • • • ' ' . 2 . .fA .. ;t • ' 1 . 0 !J . ! t 1 . A ' . ) O " " . . 4 ". J O ' ' . t; 3.1 . 5 S " , 1 U 1 t . 1 : .! . 1 , : I . ' . G . • 9 : , S / 1 : , 3 . ~ 1. . ~ . . . ., . . ...$ . 8 ' .< " 1 . ,1 S . . AJIIir'led«ntll'eUJ!OI1.clot'l.ll~tttlyi>Mil H,M·NOIMt~ 'ltlchdttpOCfor•«~roMtXUAI«tttfr.Jw-.'Sl9"'•fXd\wloec.n.)(UII'Iwflidtnc.rioNI'I1btore.rvabs.,rtporWuduJttPI)Ikwq\etcNnofcotel*d1. ''0tnvJCJwcotCrxt:$~tothtnii~IJit6Up1(.1irtq,Wtrnt!Ok.rdonv.lbWS •"lhe!lflcnA90iuNt5Mwon6tiMIMt!fJPP'ubltlo .. bddl~lhtffi(CG31nportlolm¥ldlolhottbt.ttlflll!lldltrfi(CGUr~bn'IIIYthMS1001!'111onl)l' ~·ntcol~ 12 FDIC QUARTERLY 140 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00144 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.51071412 QUARTERLY BANKING PROFILE - TABLE VII A Servicing S.Curitization and Asset Sales Activities tAll FDIC lnsur&d Call Report Fit.rs) .. - .b'MtSi.•.D.i.w k.iM.. . "" - '" • " • """ " " " ' .,._ "' ... , . . . , . . . o.. . . .. . . c..., < . " .''. " ,". l 1 o 1 $ 0 1 0 . " . " .S. ' 1 . . . . . . .S , .W , . Ct " i.NI.C "..., dol.wluit~mmllont;) "" "" "" 1GQ:l Milio11 lliliM ailiotl A.mtJStaStd~nds.M•fiS.C•ki1191tttMit4«-.ilh ,. R N K w « n < bt !t r . o t , o J r V O I I UI M I f ~ S ~ e Yn l a l t « t • P t M f J O ! 't O i t t l . ( . : !C t ! l . f d l i l t i f l ~ .II. < K - o~lltt b ~ 1$ " .1.3 " .u 0 1) Jl 1 O To u C H A 0 c . l 1 u - : ~ r I - U . t t A t 1 d » C » ~ ! O o i . l M M , C ~ l I l i « I o t * I - l i I n d J d l W P t ~ w l t J i n f t l ~ f C i l l d r f . V l * t l ~ . o • t ~ I . < . i I d . t ! n . ! , i * J . U l , . t U I t . f I l . . o d . l b l' f l r l l : . h S b e w r- t . l . r . P , t so 1 6 . s 6 ~ . $ 1 e ~ 3 . . . " , 3 . ~ t ) r ". t 3 U ~n a . ' ) ua 1 : l J 8 . i ~ l U , U . , . . l 1 t . O o f 8 W " . , e G 6 $ . . t S 6 1 1 0 1 0 3 ~ ~ 4 3 U , . , ) . 1 4 7 1 . J ". 0 0 1 6 9 , . 4 1 0 : s Q n 1 s u ( , t . $ ~ l . , . 8 t . , 2 r 0 . 1 ~ . 1 .t . . . 1 ! l C $. - $ £ . S s 3 n O 1 U 6 ~ t ~ I . , . J 0 " . " 1 s . " 0 " l ' ' U ) ! ' ' l . 10 ~ ·1 . m & · ~ l. 2 t . 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" .".' .3.1 Z184 . .•. . . • . 0 • ~ S f l . d d w . . t C A H C O c H C C ~ t A l i r i ( i . r ~ c I i i I - . - < ~ l . Q d W t . ! d w b _ t . I R .Mt . 4 . . o J I m f . . . . l 4 n . o I q f . i l l i . b . . M d . l t o . l ( . ., • l l a o n a . ~ l. . i ~ ~ . t. o • ~ o r ' u ~ , . M ~ . I r o ~ c e . t , , n n C . d . w ~ l i , ~ • . Q l c y . t . , . ! . , f " L ~ . l . I . . , l o ~ . W m d r ~ o t l d _ . O . M o . o f .I d " n . I n & t s l . . U t J !. _ i h l . i ; ~ a t M a a I l o ~ n r t ~ t f i n w d . d I r t c d o . . O d O l . w « l w O i w _ l n t w ' , l * . ! t M . a A A M M u u r t t • • b b i J O N ~ tD c a r r M • o P r • t t P t I u II . t l ! \ N 1 t f\1 , , . . . . . " • s3 I , " , I I . • . . . , . S S s1 , . I <. ,. . . " " ' u " 1 1 " 0 S · . , . , . 1 3 3 ' I t . . . , . . . . " • 3 0 O " " " U , . o 1 1. . . , , , S ' , " H . . . . " " O , " 1 1 " I , . . . . .S 2 . 0 l ,. . .1 " " 0 0 O " . 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' .. " 4 ., , 1 . ' . " . 1 . " 1 3 ... " ! , 1 . , . 1 I t . " S . $ 2 . n l 1 ! t ! l _ . . 1 H n n h 0 ! 1 1 S 1 J " 1 I. " " 2 ' ". 3 ' . 1 . . , 11 ~ . 0 0 0 2 , 1$ . . . < 1. 1 1 " ,• < 1 , . 1 ~ 1 0 . " . " 1 1 U " 1 3 " ' < 0 l , , . t , 6 , . I 1 a . . I l , Q 0 , ~ . ~ $ . 1 " . " ; , , n . " • , ' . l M f« a . H ~ l 1 u i , m l - R - . . u c . . t r l a o ~ n C f ( O n t d ) . w . I l & ' i t r a . • l h M C l ~ f p I l ) t . o M M d l f i t l ' I l I ~ e t d w I b ~ < f f C o r "" h ~ w w a w H t . T - . ) . i . ' . f . - .II"dtbwOIInMIMtt~ , .. , , . 1. . . 1 , . . 0 , 3 1 11 U .U > " " , 4 0 ! G 3 O ' ' 3 " 3 f 1 · . , r 5 1 " " m 2 0 I '1 9 , , 1 . . . , . ,1 l. . . S 0 . , . 1 , I, . , " 1 ~ 0 " , . " l . S " , ~ . I '~ ' 1, 1 ~ 0 U, · 4 " "• • 0 3 " ,3 " 0 " " • 1 ' . J, . O . ." . ) ,s I . , " u ,S . 1 ' u « . " 0 ' 1 J . 1 . 1 8 . , . . , ' . 1 0 ~ . " .0 2 . l S l « u 1 t ~ 1 a f at « r d S i r te t o . c c u h P ! M w IO t o • U i f iod ~ !F r ac . l5l - lt . t$ . p: ~ ln 1 .a - . . - t - ,O ~ ih f wl l ,. w t1 ' 1u « ~CI b I.t t n ... 10 ., 4 "' " " " u.1o1n0 ....H.I. U.2 1 1 1 1 0 •~•· • • I 1 ", ) . 1 " " ' , ", ,,,.,• of<•CI·1\ Ina.td~ccam!IIMC• 1,411 !)Q 1.3$1 all 1$1 '" I 101 "' AM«tNW:tdlor<dlln' • • -• • • . 0 . 0 . 0 • 0 0 ,. .•. AI:Mt.flo.dCO*III..:ill•tonlllcJ • • H ~ t : f t O .h ; M . . w : M I I M l f d « . 0 " d 1 j J 1 . ~ ~ 1 X . 4 n 1 ~ - . : 't ~ u . - V n Q e ( t : O O c t r r I t l I h o ! • I c = ~ I r I « o = - d ) . ~ l n . · b i ~ t ~ • ~ ~ b l t ¥ ( ~ n W t i ~ d J « O 1 J M b n M I ' 1 " '~-. ' " " " l " 1" ' 1 1 · 1 l. ) J "~ ~ 8 O ~ 1 S 13 . ; , " . ) . . " , " 1 , 3 " . , 1 9 . 1 " 0 . , > 0 1 I! .7 J .,. > i " .: . ! J. O 1 .. IS" I I I O £ ' 0 • 0 8 ' " , 1 •. 0 ' " " " ' ' 0 ,. . " . 3 . . , 0 0 ' . 2\ t ,& •,l " : ~.S 'Theii'I'IOin.olft'lanca.itw.tt.,.,lttdlor~oct.ln.doetd·fl'd1-tl.,.,.twdtno.at~.._.,..,.tv.t~en~t-..•*'* ..• •""•slon:wtiC!n .. foll6mdtl•~•tnducSt•fhtun'-'11,.11wMintltffNMtd.Totlllutdll:aPQM~r1•rtpOittdJbo_.. FDICQ UARTERLY 13 141 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00145 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.61071412 QUARTERLY BA:-IKING PROFILE COMMUNITY BANK PERFORMANCE Community banks a.re identltlailxued onc riteriad ~finM in the PDIC's Community Batt king Study. When comparing communityb ank perfonnanct across quart.,.~ prior-quarter dollar am oun!! are based on community banks designated in the current quarter. adjusted for mergers. Inc ontrast, prior·quartl'1 f"rfonnance nllios are based on community banks designatM during the previous quarter. Quuttrly Net Income Increases 11.8 Percent to $5.6 Billion Fromt he Previous Ytar )let Interest tncome RiscsSI.2 Billion From 2015, Ltd by Strong Loan Growth "'ttlntercst Marpn of3.58 P<rcent OedineS FromT hird Quarter2015 Loan-Loss Provisions RiseS ISS Million From2 015 to S718.2 Million )loncumnt and :-let Charge-OffRateslnaease for Commercial and Industrial Loans Close to 60 Percent of Quarterly net Income lor tbe 5,521 community banks totaled $5.6 billion in third quarter Community Banks lncre.st 2016, an increaseofS592.6 million (ll.S percent) compared with the 2015 quarter. Higher ThcirQuart<rlyNet Income net operating rf\·enue (the sum of net interest income and total noninterest income) helped lift quarterly net income. wbicb was partlroffset by higher loan-los$ pt~Wisions and nooin tmstexpet\se. Noncommunity banks increased their quarterly net income by $4.9 billion (13.8 percent) from third quarter201S.Ied by a few latgt' noncommunity banks. Pretax return on assets for community bankSI•¥sl.38 percent. up 4 basis points from second quar tl'1 2016 and &b asis poinl3 from a ytar earUer. The numberofFDIC-InsurM community banksdeclinoo from 5.602 in thtsecond quarter to 5.521 (down 811 with two community bank failures. Ket Operating Re.-.nu• Improvement in net interest income (up S1.2 billioll. or 7.2 percent) and noninterest income lncrnses 8.5 Perctnt From (ur SQI3.Sm illion, or 13.1 ptrccnt) belpM lifi third-quarter netoper:ttingm·enue to Last Year m billion, a $1.8 billion (8.5 percent) increase from the pr<!l'ious year. The benefitofhighl'1 interest incomt from non 1-t<>-4 family real estate loans (up S75LS miUion,or 10.1 pereenl) drove tbe in<rease in net interest income from the 2015 quarter' Close to67 percent of theyeaN)\'ef year increase in noninteresl incoffit'was led by net gains on loon sales (up $410.1 million. or 3M percent). 1Nolll•too4 ftmUy rt!le!ilt~a&l.:»tDtlndlkkt<oll1!n&;:bc)tl.uaddtw:lof'll'ltlll.&nltlaod, rmibG•IIy, and 110116.rm Molllt~tbl. Chil11 Chart 2 CootributontotheY ear-Om-Year Change in lncom• tid lntert.st Matgin FDICI.tWm!CoouuWI'f Buk:s Sllihs Poiilb'tF*Ck~c ~>lfiln't.T1d(lf " 4 " h "'' Ll S.l.,l9. StU9 So.fl SCl91 """' >)10 I l.O Iof< ts I•Ull - • .... • ... •llli - •ll" - '" " " " " ' "" "" " " . l . l .. o .. l . l l.t.a~~b~:P!':"-.'t *'. <l. :tt .lb:. l•. c-c .4 I"="' SOI!tctFtt"! FDIC QUARTERLY 15 142 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00146 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.71071412 2016 • Volume 10 • ~umber ·I N<t lntenst Maf'8in The averagt net lntereu margin (lliM) Mdine.l from 3.62 per .:tnt in third quarttr 2015 to Dedi nos .llodesUy 3.58 perctnt,asasS<'t yields decrtaled (dO\\'n >l> asis poinU) aod fuodi.ngcosts increased (up From a Year Ago lbouis point). NIM at community banks was 46 basis point> higher than tbatoi noncommu nity banks. The differenct narrowed from third quarter 20!S. as NIM for community banks decUnedand NIM for noncommunity banks improved (up 13 basi! points). 1\'onint«est El:p<nS< 01~r the past 12 month~ noninterest e>'J>ense grew by S909.S million (6.4 percent) 10 lnatasos for SIS.! billion. Close to 70 pl'm'nt of community banks increased their nonint11rest expenS<' Community Banks from theytar before. Tbe annual i.ncteale in nonintete!texp<nse was led b)' higher salary and emplo)·ee benefit~ which <OS<' by $676 million (8.5 percent). Ful~time employees at community banks were 12,SSS (3 percent) higher than third quarter 2015. Thea1·erage asS<'t per emplo)~e totaled SS million tOr the third quarter, up from S4.8 miiJion a year earlier. Nonintemt expense as a perc<nt of net operating re-.nue dedined 10 6$.8 percent-the lowest le\~1 since third quarter 2007. Loan and Least Bdancos Total assets of S2.2 trillion rose by S37.S biUion (1.8 percent) from second quarter 2016. as lncruse9.4 Percent From loon and leaS<> balances grewbySll.l billion(2.1 perctnQ.CIOJe to71 perctntofcommu· Third Quarter 2015 nitybanksgrewtbeirloanand leaS<'balancMirom thepte\•iousquarter. Thelargestquar· terly increase ~'liS among nonfarm nonresidential loans (up S9.7 billion, or 2.3 percent~ t·to-4f amily residential mortgages (up $6.3 billion, or 1.6 percent\ construction and dml· opmeotloans (up SM billion, or 3.6 percent~ multifamily residential loans (up$3.-1 billion, or 3.4 percent), and comme"ial and industrial loons (up S2.4 bHUon. or 1.2 pctcent). Loan and leaS<' oolanct~ role by $127.6 billion (9.4 percent)o,~r the pte\'ious 12 months. exct«<· ing6.S pen:eot growth at noncornmunit)' banks. Close to62 pe"entoftbeannual increase in loon and lease balances was led by nonfarm nonresidential loans (up S40 t>illion, or 10.2 percent~ Ho-4 family residential JOOttgages (up S22.4 billion, or 6.2 percent\ and multifamily residential loans (up $16.5 billion, or 19.1p ercent~ Unused loancornmitroenu were S6.2 billion (2.3 percent) higher than in third quarter 2015, with commercial real estate, mdudingconstru.:tionand development, riling by $11.9 biiUon (16.6 percent). Chart) Cbart4 Chan~ein Loan Balanmand Unused Commitments Noncnrrent Loan Rates forfDI~In~11ed Communi!)' Banks - 1.10-fAomlyU: ··CitdiC.:Il st!llo. . I • C Oq bq d d Q Q ~~ 20 n : l tn Q ) : () £ : ~ l! 6 S P :,:, m f / llcf!.Otnrd:io \ ~ ·- c ~ t I n .G :. M .. I . . -- -~&:ntsqro~q u '" ·~ $ ' 16 FDIC QUARTERLY 143 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00147 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.81071412 QUARTERLY BANKING PROFILE Small Loans to 8U>in~ses In third quarttr2016, small loans to businesses ofS298.3 billion rost by $1.6 billion lncmse Almost 3 Ptrctnt (0.5 percent) from the p.wiousquarter while de<:lining by $1.7 billion (0.4 percent) for From the Ym Before noncommunity banh1Tbe increase at COmmunity banks was led byagricuhural produv lion loons (up $1.2 billion, or 4.3 percent). while commercial and industrial loans de<:lined (down $4n.J miUion. orO.S ptrcent). The 12-month increase in small loans to busintssesat community banks (up SSJ billion,or2.9 percenO "~'led b)' nonfarm nonresidential loons (up S3.4 billion, or 2.4 percent) and commercial and industrial loans (up $3.2 billion. or 3.5 percent). Commun.it)' bG.nks held 43 ptrcent of small loans to businesses. l\onrurrenl Kate Slightly more than balf(S0.4 ptrcent)of community banks rl\luud their noncurrent Continues to lmpr<rl'e loan and lease balances from seoond quarter 2016, resulting in a decline of $87.6 million (0.6 percent~ Tbe noncurrent rate "~s 0.99 percent, down 7b asis points from the previ· ousquart<rand SS basis points below the 1.$4 percent for noncommunity banks. All major loan categories at oommunl.ty bGnks bad l01,·er noncurrent rates compared with the pm•i· ousquarttr exe<>pt for oommettialand industrial loans (up 1o osis point~ Rlr the past fiVe conseculivequart<n, the noncurrent rate for oommerdal and industrialloanl\\'aS IS basis points above the third quarter 201S rate. Tbe largest quarterly impro,~ment in the noncur rent rate "~s amongconstriiCtion and development loans and l·t<H family residential mort· gages, with both declining by 10 basis points. Net Charge· Off Rate For community bankt the net charge-off rate rose by 1b asis point from the p.wlous year R<mains Relatively Stable toO.I S )lfrctn~ for noncommunity bank~ the r<te increased by 4b ash points to O.S percent From the Ym Befor< The net charge·o ff rate for all major loan categories at community banks impro,·ed from third quarttr 20IS,except for commeKial and industrial loans. which rose by 17 basis points to0.4S percent. Author. Benjamin Tik'\ina Senior Financial Analyst Division oi Insurance and Research (202) S9S..6S78 FDIC QUARTERLY 17 144 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00148 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.91071412 2016 .Volum•IO .1\umbtr •I -· TABLE I·B. Selected Indicators, FDJC.Insured Community Banks . ... ... ,.,. ""' 2.0.1.5 ""' ""' "."..' R P C N N A H N t M « t o t . t l b t t t l t n b C l h t ( n n c . 1 p . l 1 t o * m l , p e > n . ' e . r b l i 1 O f t $ n o i I t n I 1 l . w 0 I l t M I m f M I - tp s t a O . ( i \ : f ' t s \ . y J 9 f 1 J o Y I u ~ f 1 I I " 9 l p ' . t ' o I I ) - . h l ~ l ' w ' J l ~ r ' o e t S : w o r- a i l : h h 1 .1 e f 1 r ' o N l ~ ' ~ ) t Ueownedb)a~tt~ o , . U " ' ' loU. . " " . n . ' 1 ) . o ' , . ' ~ " " o . ". . , " n , . ' ' 1. . ' 2 ' 0 S 7 . ." 6 1 3 , .1 ' . I . " ' . O O u 1 1 . " .. 3 . . 2 S l s ', 1 . ! l l . . I. .' ' O , 0 . " : , " . . . " 1 U , , , 2.' . H . ' , 0 .I " .. i $ " !, l,S S 3 .' .. IO . .0 , ' . J 5 . . . " . . & 1 . . , . > I N~oi ....W OMtfi)Ottll\9 ...,1 ~ns <,$<1 "" TABLE II·B Aggregate Condition and Income Data FDIC·Insured.. .C..o.m. munity Banks tdol•f.-eSU'HI'II~ ,~ ,, . . " , . . ." . , , 2-.d0.N ".r.1 ".t.r "'"" " '" " " I! " Q " >.I ". IQ .- ) N. ...o l .....I A!OI'I$t~ 5,,312: ·SO TOUf~s!ftA-Irrnl.,q~.~~• 13<.000 f,Jt,19$ C To Ofi u DU t lO ~ HD AU. $tiSI!..Git S2.U'-40l S1.0!'5,<30 . .". , low N C 1· ~ o ~ M N ~ c : a U t r f r m K t ~ t d I b i f I y O r . - t u l v l ~ f • l ' l • d m ~ • o d • t t l0 ~ 9 l t 1 ~ 1 ,1 9 3 3 " 1 S 1 ) ) W 0 ' 6 1 ' I, 3 I 1 Z , . $ 3 S . ,0 t , , . o , .. . .1. 'l 0 . , 6 f, .0 J : t.m - U O .9 ~ . l 0 _ r . . . G 2 e . .. . ! 7 9 , . l 1 ) • • ) • • I ~tqllty(M .s.o...s.~ , L C . o o .C m , n r w. t . .r d .. d w u. c w l in ~ l h ~ l ~ iu 'ILII 1 . $ ,l U A.,& t9 .' lO ;1 I 2 ) . , , . U 8 . 1 9 . l 59 t , ) 9 t 1 ! 1 ' · " I l I 8 Ofltf~&k..- IOJJ68 "S)U.".l.l " '" ' '" " " ' ' 3 " 8 S I t T N . • t t t U lo U . l n .o I . , u . . n ~ r , . f _ . 3 s 'o . ,n .& f . d d l. l . f t . i , . C OM ., I t C . f _ tl I o I , ' t " le " 1 t , W 4m6 . ! . 1 .) ..( '. m1 M ", 8 . 8 1 l • _ m • l ~ 1 ,. 3 ., . a , 6 . . 4 o} . 5 o 1 , 1 1 U ).$. 1 IU S. 4 . , . 6 3 ,O 7 8 6 ,1 o 1 9 $ . · • ." S » • . 2 - l O CtOOl b !o t t r ft t · lt l · lw l a t n $ d• U o• t• i l t w o r~ w tt n a t n d gt iblet 2H u 5 . . 8 ,3 . S 0 . O 6 . " u M " ; 'l n i l l 21 n 0 m . $ w $ • ·1 , " $ . • r~u• Ubill•ues .ardqp~ut 1 2. , 1 7 ! $ .1 t . C $W &t 1 I. . J 1 ' 1 S 0 V .4 $ 0 ' ' 2 1 . , ~ 1J7. 0 3&0 . , H 2 . .1 O Fo oo r 'l t eS ~ I g I! n to o .f f llO l I i I d c f . C ~ I t• O ~ V\12.4 t2 3 1 1 IJW,3 1 S 0 5 0 l).li,,.," .~.l,t ' U ~ . v . llrok.trtd6fpo.u l<t& >S>OI O ~- h m rb a « l r 4 O - ' d Ir . o . 'fd , b 4 l 4 d 4 • t~t 1. 1 3 ! " :1 - .. • .6 0 .8 0 ,6 1, 1 3 3 1 1 8 . .) 1 ,1 5 9, 1 1,3 '" «.. " $7 " 1 ,.u, s A .J lo x l t b li t iW rbJ II b .d U dt • b • t ,. 1 . 1 . . . S , U . IUGG .. I . . . . I,S , .S. . , " . N f l t o o tt n T t w N N o ~ t U b h ' : I l ' l i l t M tQ r t u t t . I t l d I o q X I l V o o n l • a o . n ¥ y a s \ u J 9 d . p h e d c ( d l i l m ~ l ' ) l t d H ' t o S f t d t p t $ M t t nl f ll M <l nfylnt•t81tl m 1 8 1 ' . , , " u 3 1 1 $ ' e 1 5 ' 2 2 • t U .$ , 3 . . , , J 6 I . .S g 7. .6 2 a . · 1 . .6 ~ , ..$. . .) . · 0. · I.1 • , u 0 l, • 7 l E MO • f I i 'W Q.J if ~ * · " ~ - c ' b4$tW'IOtt 2.0 11 0 & 1 1 )$ 2 1 3 l 18 ~ 3,3t$ l ,, l . &. 5 .• J.M 2..3.t .. fii.8Adva-.tn lo·o,3- •• 100..013 " U T A N t I O . u ' b . ~ I O . ~ . N U ~ U i M • l 4 M • l ~ t . t . • « n , 1 . C m : U t ' ' d M l a , l . o n . l d . d. , d n . d w . ~ YM .......... .... 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". 0 .,1 1 , 5 l.} , . 1 1. ! .l • . , . 0 l 1 ' 5 · .1 1 '" 5 0 1 0 ' . 0 & . . 0 I &1r.ao«kurypns,ntt' 0 1 II·Y "Htt T <" $ N 18t r w o tr - l u if l . l f .C & . - '. t_ f l'lf{ilcWttfn~l'lt.t.rMIS! ' ,,, ' ,0. " .8,1 ' . ' ' . " " 1.,3. " ' 0. " 1. ' . S to. b " $ " 04 ' , ." . . l. ". i. . b, '. l . & a , O . I Calft~ct.ncls ..M 7 . , 15 i 1 l &331 · 7 ~ 0 3 7, , 1 m 51 >.m 16.6 Ntc_~!Jb\il~ ~ 1U6l 5.~83 S.11! " 18 FDIC QUARTERLY 145 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00149 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.02071412 QUARTERLY BANKING PROFILE TABLE 11-8. Aggregate Condition and Income Data, FDIC-Insur&d Comnwnfty Banks Prior Period-s Adjusted for Merge11 ...a .,-.. wo... ...... fdobrfiotltt•l'lm~ 31d·~ '"' ...,, 15 ~ 0>10Q3 ~ JG o h t l ; ~ . t c if t u ~ f K t ~ r M ot r . ~ q ~• "~"'""' 421-'11 ttS S . . 9 S 6 ll i " " COIIDITJONo.l.D lCI . U ( l l l . ~ I l . . l M • - " cH . . m ~. . o < N " . . . l n W . C . f « - " f. f .r ~ t c w . 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M , ' U " 3 ! ~ !O 0 u 1 S Mtl~lftt(JMI IS.i(6 """ "'' """ "' FDIC QUARTERLY 19 146 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00150 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.12071412 20J6 • Volume 10 • ~umber ·I TABLE 111-B Aggregate Condition and lnc<Mne Data by Geographic R·eg-ion FDIC-Insured Community Banks T\idOiu!11120te ....... " . " . " .. ' . " .. " '..,;...· ..... fdc;f•lip"'"m~Jontol AICotnlallllilyi.M..i,b, """''"' Sa.fl'~ NIA'I"'btfofiMMIAI*If()OIU'IIJ .,..., "" "' 1,liS 1.40 1,1tla "-" C T O o H t D . in ! o i tf ~ l» t . j U ~ t~mttqt.-~ $))(6 ,,. ~ .,., ,,. ! ) 1 ) 0, ) 1 , 4 . 0 ~t.m ,. " ,, " . " , ,,. 3 . 7 m .1Q TO..ct Sl.Jtl.!i(Q SU$.i92 $)34,.1~ l C 0 O ¥ I H N ~ ~ ' 1 ~ o M J a ' n S ~ l f n c M « M t t n d m n U ' e U ~ a . i I . & t t r v ' t ' y d K t M ~ t i b n ~ d ' y f t t I Q t O . t u O - p i . . o • m . U ~ t . w • ~ - ~ t ~ U • ~ ~ . 3. $ 3 1 . U ~ . 0 t1 ~. 3 - . O £ . 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' ". 1, 1 lS l 3 ' , l D .I .0 S ,3 l ' f5 " ,f ' ' 1 l I 1 i lS 19 l . , 4 / 6 1 -•1 0 ffi.&Z I 8 S A lo ll u o l t • .l t 'l y e a l' p il ~ b u l• l 1 f . w s k d.tfrfMfllil'l'ltl'tetil 2U 17 , , 3 S 2 U 0 6t ~ ,S , & . 8 moe U " f ' i " ll 3 t J. l ~ l8 · t ~ l " & ' ,,1_,1,!0. lbnk~~· 1U)m 6:l,&!e "-.",' "-"' 37,liCII 6S,..6.1,1. U,317 loowii. ...3 NS.,.,_dot 7,547 1)61 l,tS1 1,1~ "" J N t ( . l " n - ti N .I t J l t ~ ii ~ ii t O dl -l o l . l• w • a n n 4 d t l .M nt a 1 ~ f) 1 '. 1 4 tu41n8 1 1 , , 1 1 7 1 3 ) 1 lP )1) " ; 1 '" .81 " 1 ) 1 .J .1 lO '.. & 4 " G~ ' 6 l b R U U . ' M M A t d f ~ 9 Y ~ » J l f ~ M d K d t M t i & ' C M OO I i ~ lt • s 2, 2 ,0 1 . 1 0 1 ,1 $ _ 3 , M 2 ) , 2 9. 9 8 1, S > S 1 l 1 1 l ll ) . ~ 1 t " 1 < 1 3 1 ) 2 3 2 1 1 $ 0 0 : . 0 , ! , 3 , 1 1 . 1 . ; ? S 1 1 6 3 . 3 & " IS 1 . - U , . ,C 1 " . 0 I 9. 1 » 7 ' 3 " 1 l ls U f · . . M ." U I . 1 S $ '. l I l 3 l D 4 S U . . C ) 1 > l 1 U & 1 S l , l "s l . t . , ' ) O s ..U. a O . 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Q \ l l . t v n • n C f. c I y t o ( - : n p l f o k ( t n n O t I ' t n N . l f I « e t M n l n ~ c a ~ f H W • t • t fi'WIOftllydtr~ ~ ~ 1 6 ) w " 1 1 ' ~ 1 5 ,t..O ' " " ,)S • , ' . " S S 1 1 l 3 0 ' 0 l l lf ' P l. " ! • . " l 1 I . , ' 0 O 0 S " " J 1 0 1 l I U ) " m! l < ' ' l . " , I 0 ' , ~.-wdttrfW9$ u l.J. n I1. " " " ' .l,i.S. S '" it . .0, .$. .1 " '" ' 1 1 . . . . Nif!II*DI!iii'W»ff'Jt ~~ 11)ll;~ !.16 '''" '"' 6lS 20 FDIC QUARTERLY 147 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00151 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.22071412 QUARTERLY BANKING PROFILE TablaiV-B Third Quarter 2016 FDIC-Insured Community Banks AICo.-.ity.S..M..b. .... fhild~,. . 2l)M.GM9r"l'bitlltcjo~a' Y 1 C NM W t . e H i o o f l r d tl f t ~ o -* f n • ~ ' M f f u l t t i t l ' t I l R n W m i C ~ o : I O J Q O : I 1 t 9 V N l M 1 i I I O t n t - I t I a N Q ~ C & t a 4 ~ "'"", , , ' . " " ". . . . , " ' " . . . . 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" 1 ), 1 . 1 9 1". 1 O 0 ' ' . U 0 - U . ~ " 1, J I ~~~~~o!Ubltt~lii•WOM. "' 180 3.21 "' "' "' S31 i(.ofll'llbUM$'tllbtam~l'IOJGW8 '"1 '"' "''0 '"' 51>0 OU1 Table V-8 First Thre• Quarters 2016 FOIC-Insuretd Comroonity Banks I'Mor~M•uti031~ o.: " . A r I ' . " o C ~ " n . o 2 " 0 . . 1 . 6 ' - ' C tJ h.w B F a i t b t . n t b l 2 b 0 r 1 . S . NewYort .F.i.n.t.T. h-Ol.u.!. . M.~. . . . ~J .. \ .. 9 ..c .a o .. m.' lblbi blk•• Y c ' . i K M . t M t o ' d * i t t 1 l ' l W ~ tfN l • 9* I : W V m I n l n 'S o ..-$ ..0.4..&.. . " " "" ' ' ' 3 0 l . " 1 !> 4 .0 u H .< G . • $ " 3>1 ' " . " , ' ' ,. l 0 .l .< 3,.0 . > 0 " > .n. 3 ' " l N " m « " w " t ' w m tr :l t t l l t t ~ M i d C , t O _ lo I . N w .. I p 9 I , 0 8 . . t , w . - . 1 . l t l $ o w...tt .1 . ..& . .3 . ', 0 _" . 1 , ,' 1 ' ! O ! " H .0 ' o " n " .". ' .' ' · 2J ~ 6 2 " .S ' ,". ". 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" 1 0 . . 1 0 ,' ' ' 1 , 3 I 1 1 1 0 l < " 0 3 U l 0 , < 1 . 1 1 t 1 ' 3 5 1 I i "ofii'IIUb)Miiltlh~O*M '"' '"' '"' i(l~ <l§l 681i FDICQ UARTERLY 21 148 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00152 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.32071412 2016 • Volume I 0 • ~umber ·l Table VI 8 loan Perfonnance FDIC Insured Community Banks " ~ ~ I n I H C M N I i M I o o l c A n n N t t • ! b o M I b r $ f N r f t ) t . n n d < . ~ n ) i i , V M o . t . s r n t t m , a » d r r k n G M b n t . .d y d w c t t t f e l d m D t M c a t . $ a ! b ~ l l l t p : ~ t i t l P n t t a - t l n . t 0 . • . . '"""""'"" .. . . . .0 0 . . . . 3 1 . . . 1 . . . , 1 lkwY . . ,0 0 . o 3 . , 3 . . t 9 k . . . . 0 Atb. . , O 0 l. . , 3 l l b. . . 3 t C.., . . . . . •' . . . . " . • , , . . • .< ~._·, . .~ . . " , . . . ". ' . . . .. " " " O . .. J , ' ' ' . S S.Jf.Mt . i .. . . . ' >, . ,. . " c , . . o .. . l C N f o I o ~ .a O C O O t n a h ~ ! t f s c l n r t ~ n t o k f l W d w . l e - o i t n d . 4 d n w l v d 1 l l d o l d ~ t W ) u w l f r ~ . o t n l ¥ n . < l - l : . 1 d t . v 6 t l l r k o l c ~ k l R • i o • I ~ q ~ ~IWI) . . . O 1 1 " . , . J 0 ." '. , $ " " o 0 I 1 ) 7 l n ' 1 1 ' l . . 0 0 " " 1 1 .1 5 C ! ~ .1 0 1 ' I . .. t t · " . l S . ~, 2 S ,' . .' . 0 1 . . 5 " 0 . . . 1 . ! 1 0 l 0 0 I " C l 1 ) 0 . 1 2 4 i ' ) . l ) . . 0 0 1 . . , $ > 0 2. . 3 1 l , 'f t li . :. l .C ll o o .f n lN MQ n¥ ~ N .. o S 1 b 1 y C " u ~ n " • ' n • t. " . ... .11.7..1 I.l.l 111 .."..' . o . . . . ...0.0 ,.> H O C N fA o o ' M - h n n *t ' f i . ~ II . 1 N t I 4 m . c t q 1 n i t ; J o i i n ~ f r t ' i d k l w t O i t t ( W r I M t t• ' a i d t I l t ~ n a r t N n l i l d l t ~ • t ~ • .• " " .• ' .• ' O " " 01 J 7 ' ' S . . 0 l u l . . , \ 7 • . . S & . . " 1 0 I . . 1 0 U. 1.' 0 . . o 1. , 1 .n . . . 0 . . .0 I ..8 l . ,2 . l .. .. . . .. . . . C L A M O I I I O O i O n ' ' ! l e ' I N o S , c e t _ r k o c r . U ~ k < l J i W l a l n n d d t o u i f - o ' t l . c t i • w k t u hl . l ~ n . a . i ~ ~ iO n M ' Q I& bm(l . . o 0 I, . , . . l n, . . ~ l o 0 " ' 1 6 " $ s 8 1 s ' . o o 0 . 6 . . u 8 . . . oU " .. s7 . s ' ~ .0 ,1 .7 0. . . 1 .1 . , O 2 1 lS. $ 0 S , 1 0 I I . 0 0 0 0 . $ ) ! ) 1 . 1 6 ) ) l ~ ouflo o ~ f a l, n o 4 ,n S ~ . C . l t . tt a s t ttd.oll(elt..Yltl! . .. . . . 107 .. 1 . 0 , 7 . "' ... .111 ,ldi N i e M O l o o < W l n n l b . i M e m N M C f C ln v I U r o d I n ' u t O S r d t . I s b n i r ' y d ~ I r « a t l t t a r u r l t t d . l l tl f d t t ~ tl t l lt . . 0 . ..0 . .1 . 0 O 0 . 0 0 J. 1 » 6 o 0 . 1 . 0 . . ." 0 0. . 0 0. . 0 7 ' . . . 0 O . . . i " l . . . ? .. . 0 . e .. 0 . .. l 1 . .l . . . . · . ( ' 0. . ) . 0 ".1 . > .. . 0 CO H O II b ' ( \' l l I f M ' l'l l I t ' . - u - . ~ f ll Y 1 r) - l l o $ " 1 ¥ l '! l l d $ d u ! e tn n : b .w a i l lo n . ' o , " n . .o 0 . 0 .. 7 .. ' O 0 " 0 M 7 ' O 0 . .1 l, 0 l ... ..O.ll,i ., l A J O o I M I l O C O a ! t t I f t ; h I I C ' ~ M O r W k W l f i t k a o d I . r C n J l d n t b t iO o d r . a U ~ l J n l J i N k d ~ t l C t tJ i W \· s ~ i« • bblngbm'l.l " ' 0 0 $ 1 " 2 1 ' . . 0 · 0 ~ .6 1 . I 1 o .6 . 0 0 0 u, . 1 1 •. . 3 1 " o ' 0 " 1 . ' 1 . U. 0. 0 . . . ! I ) ! O 1 . .) . " 1 0 . . 3 1. . . ' 7 7 . " o O 0.1 ( n " . l 0 i u AUi - C N o o o . ~ n w n f . t M . C i w ~ m N # n t a o o i f n • b M t y a t r . M t ~ . - ~ . l ~ , d t . t . ~ t $1. " ,1 . . 3 . . .' ? . . . 2 ' $3 1 . 1 1 1 . 0 9 t . 7 7 ') S1 . 1 3 . 5 U , 5 "" 1 1, 2 · , . ", 1 ' $1 ! 1 5 . . 3 6 U . . 1 1 $1, 0 >. 0 7 1 1 ,, , . . . . , , , CO O l M ! i ! o m ~ h t t « n W r w tf t n O W . l f ; a I I v t M n y r d ! l • ' O t o ld ~ t . t u W t l t ! . C t r ld n t t 1 n J 1 i : i l J o ; t I w I i U tt , " 1 . ,0 . " 2. . $ 1 ~ 1 l .' l 1 -, O 2 2 . I u . . . 7 U . , . 7 m I 71 I 7 ' ' ' " " ~1 '• " " " • . 1 1 0 . . " ! .. 7 1. low O O .I i t w O dl l I l ' I l e ' o I . J I a t n r ld d l1 l u 0 o a 1 w k '1 6vdJ1h $ " 70 1 l 1 iS 7 • O • l 1 1•1 1 •1 7 . 1 o. " 0 .5 1 . 1 I u 1 . U . , 1 " u A U 1 f . C o J . 1 1 C C C 1 O J I o I 4 ~ Q : I 1 O U n o u t U I a & n I i l I n w r - U J l J ~ c . . ' n t I . c . t C d N . ~ i ~ U c C l d o W ! U W n \ i c C . . a : d . « . n . O r J t Q < m . d M . t t t M d n n o t : i t I f I l d u v t ' , M l ~ l n e b ~ t : l :b ~ C l t R l ! r l f t £ I i t M · l n f ~ f I l f b I '\ i 1 o r ( M M lf J y M rt r iJ MIII 2 U ! $ W 1 0 7 N ' . t , . t " 1 m O . $ " . n 7 n . m 1 ; . . U ,1 l m . l 1 l 6• . 7 l 3(.1 I U . O , 5 3. I 1 0 U O .S 0 . 1 . . 1 . z. U . 1 1 .. . m. ~ 6 . , n · . , ! 1 , . ' m . 4 " . , . , " . m . • , ' . 0 ~ .0 2 ., 1 3. 1 1. 3 1. . . . . , . " . . . . , . . " ' . . . . . ' . . •SMT~V..AI~11)kr~ ••Non«ntnll*t1CttttPI'WIIfltp~JOJOIIionlllntht.Mtgoryitlxitt~ttdl.lt90cbytttf'llo)ftOII~Mtfi~Uut 22 FOIC QUARTERLY 149 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00153 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.42071412 QUARTERLY BANKING PROFILE Insurance Fund Indicators ll\$urtd Deposits Grow by2 .1 Percent DIF Resen• Ratio Rises I Basis Point to 1.18 Percent Smral Changes to Assessments Began in Third Quarter 2016 Total auets of the 5,980 FDIC-insured institutions increa!OO by 1.4 percent (S232.6 billion) during tbe third quarler of20161 Total deposits iocreased by 22 pmc11t (S270.7 billion~ domestic ofllct deposits increased by 2.3 percent (S259.6 billion), and foreign offlcedepO$· its increased by 0.8 perctnt ($11.2 billion). Domestic interest-bearing deposits increased by 1.7 percent ($140.1 billion~ while noninterest-bearing deposits increa!OO by 4 percent (Sli9.S billion). For the tweh·e months ending September 30.total domesti>: deposits grew by 7.6 percent (SSIIJ billion), 1<ith interest-bearingdeposiu increasing by 81 percent (S627.3 billion) and noninterest·bearingd eposits increasingby61 percent (SI84A billion). Other borrowed money increased by 7.8 percen~ securiti<!s .old under agreements 10 repur chase declined bj· 12.5 percen~ and foreign office deposits declined by 0.2 perctnt 01~r the .arne twelve-month period.l Total estimated insured deposits increa!OO br 2.1 percent in the third quarter of2016.1 For institutions existing attbe start and the end oftbe most recent quarler, insured deposits increased during the quarter at 3,588 inllitutions (60 percent~ decrea!OO at2,371 insUtu tions (40 percent~ and remained unchanged at30 institutions. Estimated in~ured deposits increased by6.4 percent a.-er the 12 montb<ending September 30,2016. The Deposit hssurance Fund (OJ F) increa!OO by S2.8 billion during the third quarter of 2016to S80.7 billion (unaudited). Assessment income ofS2.6 billion and a negath~ provi sion for insurance losses ofSS66 million were the main dri1~rs of the fund bal3nce increase. lnterl'Ston investmenu and other mil(t!Janoous income added another $174 million 10 the fund. Third quarler operating expenses and unrealrad losses on available-for-sate securities reduced the fund balan:e by SS89 million. Two insured institutions, "ith combined assets ofS88 million, failed during the third quarter. The DJF's reserve ratio (the fund balance as a percent of estimattJ insured deposits) wu 1.18 peramton S'l'tember 30, up from 1.17 percent at june 30. 2016. and 1.1:11 percent four quuten ago. Effecth·e April!, 201 ~ tbe depo~t insuranceasseswent base changed to awragecoD!Oii dated total assets minusawrage taoglble equity.'Table I shows the distribution of the assess ment base as of September 30.2016. by institution asset size category. Cb•nge$ in Assessments FDIC regulatiom provide that sevtfal changes to the assessment system ue to take effu<t beginning thequarlerafter the Dlf reser1~ ratio first reaches or exceeds 1.15 percent. The reserve ratio surpas!OO 1.15 percent and stood at 1.17 percent on june 30.2016. Therefore. significant changes to deposit insurance assessments went into effect in the third quarter of2016. 1'1hf01l$b6lll ibtia18.111l(tfunddi$(UJiiOo.A>fCil'"'ltdiMiituli011Sitld~ill'IOxdt~tdJibukl•.tSJ\111$J u.:buoo•toJ.a.:tpttfbrrtJOitd.a.i~JeiiUlllfdbrt~hrt6ffttdp blab. lOihtfbotMIICd moneyt.duJtsRUBaJo.•UK'ti.ttrmttdtr.Jf~mortg:asrlndtbttdom.•adothtJborroor.·Jogs. lFlJ•uufortslllaaltd&Lr.6.i~l•th~di«u.Sooiodudtinmrtdht~olitt'So~lllu.lttd.lt!Ottoialllttd i<nomnem l t ft r o d .t a .t l . h !A ob io i n .& jf U .. .' . t1 . . ~ , ~ i ~ n a~ t l l l k f > ll l l b io tt u J tf•mtt.~bt1e fof Noktr'•bub tod <u$tOdiaiNW. urcrmltkduNet Do6$. frUikW•UStr«lkbmandConAimcrPtotto;IIODA<t. FDICQ UARTERLY 23 150 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00154 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.52071412 2016 • Volume 10 • ~umber ·I Table I Distribution of the Assessment Base for FDIC-Insuted ln~titutions• by Asset Size Data as of September 30, 2016 Percenl of A$sessmet~t Base" A.ue!Sile NlllllleroiiiiSiilltioos TOiallns6!UiioiiS ($BiLl Perceotol Base less Than Sl Billion 5,245 87.7 $1,111.7 7.8 Sl -S10 Billion 621 10.4 1,536.9 10.7 $10 • SSO lllllion 74 1.2 1,482.5 10.4 I SSO · $100 Billion 12 0.2 741.2 5.2 Over $100 BiniOil 28 0.5 9.448.7 66.0 To1al 5,980 100.0 14.322.0 100.0 • Exelucfest.nSt.Wed U.S. bt~neiles ol fioc'e.gl'l b.tr.tt ·~ A\'$rage eot~soida:ed IO!al assetsfllinusavorage t-angibSeequity, With adpstme-nts tor b3nto(s b31'1l:sand Ql1~ial banh. Decrease in Overall ASS<$Snrtnt Rates Ol'etall initial auessment rates ~li.ned from a range of5 lxlsis points 10 35 lxlsis points to a range ofl basis points 10 30 basis poinu beginning in tbe tbird quarltr, puC$uant 1o regul:r tions appi'OI'ed b)' the FDIC Boon! of Directors (Boord) in February :!011 and April2016. As a mult oilhis change. FDIC estimates tbat regular assessments~llned by about one third. New Pricing Method for F,stoblisheli Small Bnnks The April2016flnal rule adopted brthe Board amends the way insuranceaueismentrnlts are calculaitJ for established small banks."The rule updates tbedata and methodology that the FDIC uses to determine risk-based assessm<nt ralts ior these institutions to better reflect risks and 10 help ensure that banks Ural take on greater risks pay more for depo$it insurance than their lts$-risky counterpart& Tbt rule revises the llnandal rnUos method used todttermintaslessmentrates ior thele banks so that it is basa:! on a stati>tical model that estimates tbe probabilityoffailureol'" three years. The ruleeliminalt$ r~kcategories for established small banks and uses the financ.ial ratios method for all sucb banks (subject to minimum or maximum aS!tssment rates based on a bank's CAMELS composite ratin8). Changesto asSts!mentsapprored in tbe April final rule are rerenue neutr•~ thali~ they lea1~ aggregate aS!tssment rewnue collected from small banks approximate~· tbt same as it would have been ablent the final rule. Table 2 shows tbe scheduleofiniti:al and total assessm<nt rateSlhatapp~· beginning in tbe third quarierof2016. The rate schedule incO<porates both the reduction in initial assessment rates from a rangeofSbasls poinu to3Sbasis pointstoarangeof3basis poinu to30lxlsis points and tbt new pricing method for estabU!he>l small banks. FDIC estimates that as~ess­ ment rates tOr upproximately 93 p~?rcent of small banks have de< lined with tbe adoption of the new rate schedule. SGtoenlly.kolalbalbl'l'¢bslhlnSIVbilion1nUf<bduttu~b«nWcfall)·l:cNfed~atlwtit.'t)ttrs. 'Mrpd,"w•'W.fPO.f?VrfJs:)'f'Jt;:&Jf'NOIO·O$-lfJJffGO~.JIISlrdf 24 FDIC QUARTERLY 151 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00155 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.62071412 QUARTERLY BANKING PROFILE Tabid Initial and Total Base Assessment Rates• lin basts points per annum) After the Reserve Rauo Reaches 115 Percent•• htatli$JledS•allllanu CAMELS C001posite large& Hithly 1or2 3 4orS C011plex lostitotioiiS I lnrnal Base Assessment Rate 3 to t6 6to 30 16to30 3 to30 Un~ured Debt Adjustment"* ·5 toO ·StoO ·Sto 0 ·StoO Brokered DepoSit Adjustment N/A N/A NIA Oto 10 1 Total Base Assessment Rate 1.5 to 16 3 to 30 11 to30 1.5 to40 'Toul bas.o usmmeftt retn IB tM ub&&do not tnclude cit-e Dtposflory IMbtu·IJon Oebt A.dpruntnt(OIOAJ. '• Tht tCU1YO rltio fOf tho immcdift(lfv pfiOf usc»monl period mu,t•lso be I~ then2 pcr,cn.L .-..Tho IMISCWroddobt~j.lstmont Rn£101 cx'cod the lo;~r cl Sb .sia points« SO pcrunt ot 811 iDWroddtl)OJilory iNUU1JOn'; initi.l buo.uoumcnt R1c; tlwt,. for cxarnplo. an insurod dopoJitory inttitutjof'l with an iBitAI ktcnsoumtnt moof 3 basis pointfwill hove • ma>umumun~rod dtbl tdjus1tn""tof 1.5 ba:$is poinU and c.4nnot hovo ttotAI b.atoaStonmont rt!O lowortban l.5 buia points. Lnrge Blllri Surcharges and Small Bank AS5f<SIIItnt Crtrlils In Marth 2016, tbe FDIC Board approved atlnal rule to increase the DIFto the statutorily required minimumoi!JS rertentof estimated insuredderosits.' C<lngres~ in the Dodd· Frank Wall Str«t Reform and C<lnsumer Prol«tion Act {the Dodd-Frank Act). increased the minimum DIF r""n-e ratio from I.I S percent to US percent anJ required tbatthe ratio reacl! that level by September 30,2020. Further. the DodJ·Frank Act required tba~ in setting aSS<'Ssments,tbe FDIC offset tbeeffectofthe increase in the minimum reser\'eratiofrom 1.15 to IJS percent on lr•nks with Jess than SIObillion m assets. To satisfy these requirements. the final rule imposes on large banks a surcharge of 4.5 basis points of their assessment base, after making certain adjustmeots.uTbe rule prescribes that surcharges begin the quarter after the rtse!l'e ratio first reacbesorsurpasses 1.15 percent. Therefore, large banks"'" subject to quarterlpurtharges in addition to lower regular risk-baled assessments beginning in the third quarter of2016. The surcha'b"" amounted to Sl.2 billion for tbequarttr. The FDIC expecutbat surcharges will last eight quarter~ In any mnt,surcharges will continue tbrougb the quarter in which the reset\~ ratio fint meet.s or exceeds t.3S percem, but not past the fourth quarter of20!8.1ftbe resen< ratio has not reached !.35 rercent by the end of101$, a shortfall assessment will be imp<>sed on large banks to close the gap. Small hanks wiD recti1·ecredits to offset the p<>rlion oftbeirassessments that help to raise the rtse!l'e ratio from LIS percent to 1.35 percenL Wben the reserve ratio isat or ahol"e l.lS percent, the FDIC "'illautomaticaUyarply a small bank's credits to reduce iU rtgular assessment up to tbe entire amount o( the al$eSSmenl Author: Ke~in Brown Sen.ior Financial Analyst Divisionofinsuranceand Research {202)89&.6817 1M~pt,-.gfedtrd$PskttoV.'jtli&slb}~1'QJJ2SJ2016.~tiitt!WIIli. •u~Nnlatrt.pttllly.blakJwlhts•bof$lOtlilho.o«MTt. 1Thea~~~Q,ttlc5arduq~tltth.lp~ak.'utplntuw~*ftJ~t,SIOWI1oD(u4~~,._11)(01 fOfJtl'lh.tl(JbJnb\- FDICQ UARTERLY 25 152 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00156 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.72071412 2016 • Volume 10 • ~umber ·I Table 1-C. InS-urance Fu.n.d Balances and Selected Indicators .. .. ....,...,... ... , . . . . . . . . . ""'" " " ' ...,... . ., . ., . . ....•.•. "" ~ ' ·. " l. " i. i iM . M .. 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" . .n . , ' . , " · " . ~ " , .l,lcehettlltOint. ntttiiA~ II " Un.wt,UJIi\ai;b:lt.-fdt9.f.•fo1a\lt' ~on ,., ,, ...,.. ,. ., E T« n . f J ' . . d J t C c I i l U e .J ~ n 'I id l F t lt b c $ w a f d l b b . l n c a t . td t c h g . m n gt ..1.) I 9. Q 1. 1 t 1. m 9 '" 10 " 2. ' 1 " " >1 ' ' 1 n 2 .I . O 43 > & 1 U 0J l " I < S " U " O " > li 1 6 . " £ .l 1 S 6 ' . , ... . . . . . .. 3 . . . . . N ~ . . . 1 . ..t . . 1. . " .~ . . ,.". . . . '.' . , " 0.1 " 91 , l q . . , W . . - 1 ,. . 1 e '*~••r l!i14) lS.tJ ""' "" ~~ 3,1.),1 '"' "" "" )$/> '"' 6118 - . h S . c P . . i . t M . t . w . . I . . l . . ' . -W l f t t d m a l o M .l ( l ' l l 9 f o t hd l h nt 6,1 :1/ I i M tb t"'. I , l ~. l '-~. . ! I I . U . I &.~ . U I . l S l . i41U . ' 8 . " . l ' C.ll1,) . 6 . i,lU, I r O ol l 6,20, I U . ~ I . 5 S,UJ,ol9 6,.101,,M . 1 . 6.111,.9,8.3 5..!0 " 0)! ' \ S,9S2,ftt ».r~ttft8r "' 3}~ "' ·1&!'5 ms "·""'"" IWD,rn 1t,1SI,i..<IS O.MC® ~"""I 0.62Ml7 IO.i1i.t&l t0.'£8.'31 1o,m.m 10,0'*1,~15 !1,.$61,543 J,82S,,,u.t U31.W ~ W ~ 41. ~ *t. t ._. o . m , "' Sl$ "" Sll <n '" ._<l,ol "' jOt .......'.".. S>l "· ~-&Ht·· 1073.~ 11..1~.011 14.G21..4,Q. 13li6$m 13.W.$11 J.GlO.<I&!> . U.36G.17t IJ.1n.£'' ll,l;OO.,. 1l.1!J.OU 11.,..., Hl P tm l tR b t w n w o t~ iW ~ il t ll • tO ~ o n m • r SOl "' .J.1. , • Ill $.~1 ~.·,.· .n "' .; J s 3 o S .. > , I , I lSI .."..' S,!«J i!J01 ""' 6)!9 051 i.fil8 """ G,lt21 DIFRes<n·eRatios Deposil Insurance Fund BalaJ1ce and Insured DeposiiS (S.IIiltions) IIJ LJ# !.IS Glf Glf~n..m 1.01 LOJ lQi I.W l11 811Met Oeposi!J 9n3 140,158 SS,96Z,2!11 12113 47,191 5,999,191 Jn• 48,893 6,111,983 ~~· S!,t69 5,101.961 9n4 S(320 6.)33,019 12114 6Z.2SO 6.~1.915 3115 &5,296 6,341 SO> 6115 67,5$9 6,34!,745 911S 70,11S 6,4l4,3S1 12115 n,60o 6,52S.12S 3/16 7S.120 6,669,911 6116 77,$10 6,6$0,8(16 9!U ll1U JJU Ml4 9!11 WU JIS 6tlS 9iiS IV1S JiU 6.'16 tll6 9/16 80,10J e.sn.sss Table 11-C Problem Institutions and Failed Institutions .... 2015''' "'' ""' 2012 ''" Pl ~ o**-llh 9 tl 1 t W v l t 4 i U ll l l W t Oil$ m l03 ra3 m '" 4$1 '" toulaut SJI)U SSI,Ct38 s.t6,l'M IN)U,. Slst&$1 SW.JOI S31MJ2 ~~.~~~.~-..t,ito-l.-.ol\.Ga ~ ,; & " " " fOIIIasui~HH $}17 StiA16 S6)N SJ.!IIt St\OU S11.6U Slt.!lll •au.-t..tyli~Mift!Tdr'"'-'••\lltuiftd 11Av.r.~tdtotaiU:WIIn'IIUitf9blte.pl'f',Wltl\~~•tc.rbrief'"sbrisand~odiWbanb­ '"1~o>JoSool"""'" •••• rGt•~"*nNMd~WC.RtPGt~t~td~fa.dl'"*l~ 26 FDIC QUARTERLY 153 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00157 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.82071412 QUARTERLY BANKING PROFILE Table III·C. Estinated FDIC-Insured Deposits by Type of Institution ..".."..' . [ . ) . )I . M .. 6 . 1 . it &t.. ............ ~b F fO l O I I o o b r f f f C C · e M C oi I • no d n ) o I $ • v o t d 1 : t : t . R ~ d: : ~ ,. . t l . .~ _- M l . " t I $ .. d ! . d ! N . " R ~ l .~ o J t u l " i e t f e i t "u M i c J . I l w f " · 8 o l · v r " ~ t i O ~ f » -M u i . O O . O O M I . l 5 , . ' C .. . " , . 1 , . . " . . 1 f '. . . . . 0 l $ 1 1 t U $ 0 t S ,t 3 , n . - t f i ,1 2 t 3 1 3 l ! . . 9 , 1 o M J , .$ , , J . 5 e 4 , 1 m 1 3 J 3 & .. 1 S 1 1 $ . $l0 1 t ~ . , . . 3 . $ " 9 ). . 4 9 6 I C t " . . M i t , t , ) . . V U " ' 4 , 3 " , I 0 $ , ' l l ' S . 3 ,M . . , , , 9 8 1 , .7 . , ' 1 1 . . l U . b . t 5 . U .9 , . . . ; . . 1 J . J 3 1 . , , 1. ' S S S b , & . , , 16,.~8)1 11.460)11 OO!trfDICJuurtdlmeiMK. ...... ... U$bcheloff«et1Jft811*t u.nt ...3,U 36 TotJII~•fdltljf.IIUrionJ 1S.&&&J5& 11.5f:6.<.6l Table IV-C. Distribution of Institutions and Assessment Base by Assessm.e.n.t .R.at e Range -·· ONI•bditl;-30.2016 (flollt~il&.f~ ... Hllmbtlof '-*'ollo\11 PloiC*ltol~l A.lllo~llbttiii.,_PoiM$ Wit. .,,....,.... A~~,_~, ~ UO·S<IO "" 1130 Stl·l5o0 3,101 Slli lt.WO 1JIO 75\.1000 , U..l.l Il,l.S..! $.11 IOOt.,S.OO "' ,., .tl,l 1S.Ot10C:O " .. .,. M.Ol.$06 01 ."' '" lSot-3009 0 000 .0.0.0 3t.014S." l$ O,.U, •S•l 001 QI'UI«fun3S00 FDICQ UARTERLY l1 154 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00158 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.92071412 20J6 • Volume 10 • ~umber ·I Notes to Users than one ollke. and tht maximum number of ollk" """at 40 in 19$Sand reachts?; in ZOIO. Tht maldmum lml of dqxi<i~ for This puNl."1tion wtnim fioandal data aod oth~r information f'or 3.11)' Oil< oil'JC< is su; bilion in depooib in 19$5 and $5 biDion in depo<itOI)' inllituti""' lnsur<d by tht Ftdenl D<pOSi lns11tanct d<posks in 2010. Tbt """iningg<csnpbl: liml,.ions art abobasol CO<pOration (FDIC). Thest JlO(es areao integr~ part of this public• on 1!13Ximums for the number of sblte> (fixed at J) aod big< metro tion and pl\)\'idt iofor.,.tion r<gan!ing the CIOmp<U11binyof. ,ur,·e polhanareas (f.xed ot l) in whi.:b tbt organization mainl>im ob dot• and reporu" diffmn<es o1<r time. Bnn<h olti«~ ,,.. bar«! on the mool re«ot <bt> from !he anooal Tables 1-At hrough VIll-A. JW>< 30 Summary of Dqmiu Sumrthat aruvailable • the timeol pubt<otion. The information pmented in Talmi·A tbro<Ogh VIll-A of lh< C FD al I l C rq Q >O ua rt r f rt & rly n . & b n o b th n c g o 'P m . m of e i r l < t U is I o b gg r r i t 3 ga a te n d d f l o av r i a n l g l > F l D ns IC tit i a n t s io u m red . f " i ~ n " a ' l ' ly "' , t o h v t m <k lm lln t, m to n r < ru st m ab p l ! i < sb . " f r a o n m a . s s. z <e ; t o ·O m ::< i l l l 1 io 1 o tll l i , n al $ 1 0 9 8 a 5 d j to u ~ $ e 1 d b il· " S b S a o s m S o " l t S 0 ta " 0 b • l p e in r s e s a d t r i o e tu o a t t i i m n o 3 n ) 1 s • l b l d m y b . y , . . . g . a o ro r s o i . p z . < e . . a o t n f c d F o D 8 o " o IC ' : 8 < - 1 n ln " tr P s a u t h i r o l e : o d r . < w i g n i h s o i t n le ~ . U o Q i t i h u o a e m r r t t m ab y ! " g l 1 i 1 o " 10 n ! 1 ' l 1 i t n o k f l O " th " < I > O P S , e ' b • a c m t l e o a U w w a w b i a \ b ' r \! k l< d b , s i T t b h h t a U l t i m a li r o i t t a s n l s o o t t e e p x n a cl c u " ~ d - o i d e a a d s c g s ti p < v e 1 s < i i t e a b s lt a t y n f b a d a a g n t « k h > s a t and full-rear daa are provided foutlected iodlaton. indudi" meet the "'!•it<m eats lor banking oaMties aod gt081'pbic limks in aggrtgate condition ;~od income data. pubmaoce r.t~ coodilion a.tl)'t\'('l1t ntios, aodstruct~ dtloges," wdlas pMt dut. OOll<WTtD1,3Dd Summary of FDIC Research Definition of Community clwg<-otTioformatioo for loans outstanding and other'""" Banking Organizations Tables 1-B through VI-B. Community boola ore deoigmted 3t thel"•l oftht boOOng The ioformationpmeoted in Talmi·B through VI·Bu oggr<gat<d organiz3tX>n. lor all FDIC insured romm<tcUI OOnb and savings instltotiom (AD chort<n under d"ignated holding companies "e <on>idered m~ tht criteria for coromunilybrulb th• .-.re dtwloped for communi1y banking charters.) the FDIC'• Communi(¥ &nkiogSrrtdy, poblisbed in D<t.mber, 201~ ExcbSe: Anyorganilarion with: bttp:J/fdl:.govlrcgulatioos/rt$0Ur<n/<bV!!!!Ortl<bi-full.p<lf. - No loans or oo cort dtposirs Th~ determioatkm o( .,,,-'hid! insured iwtituti()(IS m considered com· mWJily bonb it bar«! on five $1ep<. - Foreign Asset•~ Ill% of tot~""'' of""'' Th~ Mt i1ep in defining a commun~)' bart i$ to agg.regJtt aD - Morethao 5096 in certain sp«Uityblnks. includi~ chartor·l"•l d.i> report«! under tach holding comranr into ·<reditardspecialills a• •b onki" O!poi.z.atioo. TbisoggrcgatiooappUes both to • consunttr nonbank ball.k$1 o b f ~ f n < < " N ' b U e n e d t er t t n h e e a s F u D re IC s a d n e d f t t o h i e ti o n n u . m ~ be t r o h nd e lo ~ cot i o o ' n t' n o i f u b . a t d io d o n g is • u>d<lll rial loon companl<s de>ignated as • commuolty brulk. every dtlrter reporting under thai •lnlStcotnpani~ otgani2:9tioo ts alsorons-ide·red 3 rommWlity bank "·ben "''odiing • bo.Un'bonb with data 3l the cbartet level lncltJde: All remaining bonking org.ruzatioos with: T th h a e o s S « O o p n e d n : s e t o e t p o ~ f t t 0 o 1 e a xc l. lu .. d a e s a a D re )' h b e o l n d k i i n n g < O er t t f a < in o i s x p J « li U on i t w y b b o l r n e k m in o g r t - Tot~ assets <i ndtxed oil< threshold' chartm. indlldiog: m.Ut a;rd '!'"iolists. ""'''""" """''"'~ &a•b. - Totalassets~iodaedsiJlctbmbold.•ner<: ir.dustrial Jean comJXlnies, trustt oOOoI'lf.!.J,i.,f ~ Nr.ktrs' bdttks, ,_od banks • Loan to assets> 3316 belding 10 ptr«ot or more of in foreign offices • Cor< dopom to ossets> 5096 O i m nc e n o I : s • u t ~ r h < t d s o b p ~ y « a U t n h i i t e u y t t o o i ~ o l • a l o l l i l ! o . z a t . h o a a s t · t i t e o o - n n O g < S a a S g r < e e U u r 1 r r o m b ti a o o s v k e (g c b l r , e o t • h n te t k r t i h t " h i r o a d c n t s } iv t } " it ' i p ' < e i s n r o w ' s " l " l) " • n M u o m re b t t : h r a o n f o I A o ic f t f > i S c . t l but no more than tbt indexed maximlllD and the ntio of rore d<posi~ to assets (gcutor than SO percenl). Core , 1\umbtr oflargo MSAs •ilh oRI<es S l d<posus m ddlned" DOO·brok<r<d d<posos in dome>ti< olf<<S. • l'lllDberolstat<>•ithoil'Kes~l Wy!lsof the underl}ing data sbo-. tha thest threshold.! establbh • No si"8ie offi« •ilh dqxi<it> >indexed maximwn bn10cb mesniogfullevcls olbosk le~ aod d<pOSi g>tbtriog and still deposit size.• allow for a degree of diwrs~)' in bow lndlvid~ banb <<>ll>iN<t their ~ocesll<<ts. The fou llh step ioduder otganiutioos that operote wilhio a Umited gt081'pb~ S<ept. This limntioo of ""P' is uso:l "a proxy mOISart lor a bank's relatlonshlp approodlto bonldog. Banb that operate within a Umlted marktl area have mort taSt i.n mAl.l38~ relation· ships at a P<f"'mllmL Uoder this st<p. four <ril<m art appli<d 1¢oiiJUIOQ'IIQnbaakbnJautflullrillbi'IJful••id!limik441nlrl:r$cll11CJII to ..:b bonki~ orgoni.zation. They indude both • minunum and mab«W~~Il'ltfdlll-»ut>~~4rpofu.bttaotbolb. moxiroum oumberoft01al~ollic<s,oma"x'<irmiau.m lewlof 1 AUt1$i#thrtshoidtode:xcd totqOJI$ 250mVIiotllll!l$Stllol $1 bill loti. 2010. d<pOSks lilraoyooe olf.-., ""' locaJioo-bar<d ThtlimiUoo )~1ulmam-*roloft1..-al~lotqll.lllol01ti9&Sstld7Sioltll0. th• DII!Ober ofa '" n " d 'l d f' < l< p , o sits pero&ktar<gradoall)' adju!ted upward '~Ut!dlltlllibu.&depotil sbtlt1&stdl0tquai$J.UY:Iioolt119Maa! SSY!ion ovtr tlm~ For ior ~ offie<s, banb mllSI have mort l•~l>l 28 FDIC QUARTERLY 155 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00159 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.03071412 Ql:ARTERLY BANKING PROFILE Tablesi·Cthrough IV·C. ACCOUNTING CHANGES A" !'<nit<"' oltablts (Tables l·C duoogft JV.C) prmits compa11· Accotl'ltinQ lew Mtasure~~ent·Periocl Adjuoents Relaled to a til•qoartmrc!JC• ..Wtdtoth< D<po<itlnsumOC< Fund IDIF~ prob Business C.O.binMioo ltm iNtitutiom. faitdl..,ot«i imtk"io••· ,.;,..cd FOIC.lruw<d In ScJl(•mbtr XI IS. tb• fin•n<lal A<C<>utlli'l! StRl!d.lrd! Board deposils.u wtU 3$ :wmtntnl ratt lnfonnation. Otpos~ory lnshtu~ (FASB) bu<td Accoumir~Stondords Up<blo (.ISU) No.XIIS·i6. tiooJ thm "'not in!u!tdl>y tht FDIC throogft tht DIFa rt not lndud "Slmplifyblg tht A@urdulg li>r M..,uren~lll Ptriod Adjustmtnt•• td In th< FDIC Qu.11itly B~~r.!:~r.t Prcfilt. U.S. braod!t! ofinltiutlons UnJtr Aw>wlling Standards Codillonion Tq>l< 30S,Illuu"" beodquo~•r«i io fore~o """"""and ooo-depolit tJwt compw!i<l Combinatio01 (formtdy PAS8Stattmtrlr No.I~ I(RI. "flluln"' '"not indudol Wll<" ocht!Wist iotlkatoi Elfoonrt l1l3dt lo®in Cornbirutiolll"),lftbt iniial ""'""ti'l!lo" bwin"' combinmioa firvncill rqxH'ts &;,rail a..-6\'t irutiiUii:lcls. H~·C'\'fr. W$0mt CUt$, is ln<ompl<1t h)'thttnd o[tht tt('Ortillg ptriod in wbi<h the <onJbi o ~I r D " I " f " u " p ~ o o . l i~ t h "f r < lr l d lU w : t u m t n . o tavalbblt li>r inltkution< thatlu><cbtd d M a l l l s o t n a < t X tt < n U " N " ,. ' t f b o t r k tb q t u I l t : t t . tr . r t ~ f r « w t h l r i< ro b ' r t i h s o io "n"a"J 'I'I"IOinOWtli l k S i i l n > i : t o s m 61 p \.1 lt 1 t 1 t · . DATA SOURCES DwioJ tht .......,,,.. .. ptri>d. the "'!uirtr II rtqulrtd to adjust tbt T p1' h 11 t 1 ! > U '11 w 1y x b i o d l i l n t fo h r t m ff a i! t t i r o a n l ' r ! . ' ~ . " . " . r . ~ i ng l i m o t tt h lu ~ l p io c o tN s i . W :aO . O .O o i . s O ® . i a o <d a ~ p l r > o o o u ' l r u r o x . . . a , J d a a j n U m d I o I " m u " o < ' t o " s t ' " 1 " ' 0 O t p a S d " I ' w ' " iz i ! t l b d L o " t t o - th t r t t i " d l ' « !u t u l - s o ll i l f l f o t o h a r m t < l " o > < t< r t J M , i • s ' r l t > i i b O a C o • I b r d t o a o n i te n t · td Cotto.:ftmECJC..S..iui.JidR.1'<'t1Jo/Ccrodrw•.Wisc""" tb.ot.~"-n,woddbmali<.ttdtht......,.,.r11o[rbtamOUI1U (C.I RtporulandtbtOlS 11lr{rfi.....,.J Rqora..tbmltttdby n<<>glllrtduoftb<ilk. AJ pmttlluodtrToplcM,an""JW'ttit • FD!Cilmu<d dqoooilorrinlliretioos. (TFR filtn btgan llhag rcqoutd to rtiJOOF"11\<ly adlGfl tht p<OV!IIod ........ r<a>piztd c.t Rtpocu decm.•"th thtqaarttt <odiog Mar.:h Jl.XIlll Th» "o"t"t"h"t""~"dlaotr ttottil«ttht ""'"""-"" Tosiltfhlrtht • I alon - tutJo • o S) l ' I < IC o S m ( l I o U a S a ) o d d o t t t < ba !r o lm t. d !rom tht FDIC'• Raatdl l01~16dlll'" th "" t a th d t ja " r " u " l " t - a " lj ' m "' d "" t P 1 " 0 ' p I t m O t)' V a< \ c I o i l o ll ll l l l l l - o A r S tl l: tt COMPUTATION METHODOLOGY odjooo.D<"" A<"""""'.tht ASl: -ads TOft' M"' uqo!rua _.,o,....,-+-atstopmisiooal.-.utlulart l'utat ............ ,. "'JJmdto iilt~rq'<llU.""" idallieddunoa tht --ptnod Ia tbt "J''Ohhlll ptriod MsobridWy &mtldllinol-lltSiill requmdto lilt"!'<· 11-.id ·--••aredrtmtuool. l:adsrtbt ASC,tbt raft r<p0rt1. Db froll ..oodiuy lostilutioG rtpOIU Itt iodoGtd "'!W"'alooll•r«.,-iothtliaaa<illswrn•a:sfortht..,., .. t11t Qumlf &ut.ilrfPrcfilc!Jitleo. ru'!IC2111..dtodoolf.,. ~ptriodtbt&oat1111111p.tfaay.~froottht ~ sidurydo ! t• ' M o~ !> a r r io t n l ll ! ly l , l ,,. d .. t ,.r f J o U r S O 1 ! m I < ) m 'd ar o tm oN a < c! · tt ~ o o tb l t s O u T l S > abduju._lta,.>..t.a.l.j,i.O..t.h, t b ! a " d " b '· « i o o • i O ao ID al p - l • r t t f td th " t o a lt . b " t " a " < " q ! u J l l s ! l f lo o o r t d b o t l t. T r h ~ n a i F n " r "" l '"' I ~ IIJ><w to r r e r q M uir i e t m cb er < u r o e l < tb > t n F fo F ra IE w C >C c t • . i l l R h r t p h o t m . Ia grnml. tbt .,....,.meat ptriod Ia a bu.tn<t1 combtnatloo il m (l l l l ' n R g r M um &r b c q b ;a J o l. f l i O lio i g l c ) .n Rtpom d«tive with tht quarttr a th dJ • W pt I n rr o o d 1 ' d 11 < lo r a t a h l t . . • , : . q w .. s . t , l r o t o ('O d d o t lt d d f " « " ic 't lt w t1 h d l. 'u :h b t l• b " t " " ' " ~" a " < " q u m ir a o y l. All condlioa and ptrfo""""' rotioo "J'Itf<lll ... ;pttd "•"S" • b i a ll h .: ~ h • l t e b t t m ln u ~ m W o " l. " a " nr " l " < ' o " r f » o ld r tl t 1 b li t o b a w '" i " n ' m ltr c ! o t m d l l i o n r > t u b o t n " " il ! ln W .." I O « m b r Lt.,tbt""" oftbt indn-l:!..r nummtomlut$ dJvidol bj· tht own rltt• a th«od o1 th< ltJ'()dl'l! r<riod In •ilkh tht combllUiioo o in fi n a d k l u v b i:l i u !J > l l ! d p tn tr o io m rm iru an to c m t r l . u lli < o s l . r A tp l m l• t " ll " la a v t> m ll g i> < b d a • m ty O ~ IIll " b lo u t < th td r " pt ' r " io '" d · . T w q b > k k h 8 sh 0 a S D p 1 n 0 ot 1 a ld , u t t o d dd o r n ll < o r>ul• g"u fr ld o . m tn c t e h o t n a. . t q h u e i m ln w io u n r d e o m t• < . m ptriod ~ning-<>i·p<riod ll!l<lWlt pillS tnd-of·ptriod amount plus ""' adjwtm<nu to provl&io!DI amoun~ duri" thil ptri>d. any illl<rim ptriocb. <Iiii dol bj· the totalwmbtr of ptriods). For " t n h p r e t o i d r n e i r n s .: u l g U l - u < o k o f d · r i i n a n t l m l a m , S e I ' " l t i e m . d < ~ i r s n g l < i l l i . l u , n t t l h c o • o t . s , t . h . N e . o ~ )" o C o f d C j t ll u b ·t s c t t > m " -d 'J e a W r 1 t t . ! h r a t x d r o e i m l o l l l t l 3 i i t d n u t c t l f l o u o n d r ( t s s ) G w Fo k M r b i i n P n l , t t k h A o u S o U U e o f l o 1 O 1 l < I t S o h l o r 1 t a 6 a b n ll . t p W b u tg N M h ! l w . w b i w n fo g l r n a f1 t f S s te 1 < r > t I O l l ) l e 'e k .< l i r 1 t t n s .a b ,. o t , r d d I t I ~ f n in t l e O t r d i i m S u . n p F d t o < rl r s r x U h .S . ·purchase occounti< mtrgtrs.. GIO'I\tb rates reprmnt tbt rtrcrnt inllltuuoru that'" not p<d>ll bwin<» on!r'i"tl"" (L<. U>illart priwl< oge ,ru.ng,ovu all· month ptriod io totals lor itl!tilutioos in tbe con>f''"lts~ the ASU b t!TC\1rvt for IU<ol btguu>lt!G ofttr i m t r b i n Q m a 1 c 1 I s < o 1 I e 1 m m p 1 in r u t y t r t b t l a i h o o o ~ d t d n Y t n o b b ' u ' t a f , < m " n " l ~ k b l " a . e s l ". r u s a u b ' f o g . o o d r r , f o g l i d u d N r W p t o t r . i u u g l t g p u i r t o e l l r i e s w o n s i n t t o o l h s l f l t "i i h h n o ' t " t s t n b t " w . i t t " U c u i ' u t l ' a l l o a r l r m o t n e t s 6 n d i d t « o < l p d t l s t l i d r . b i : i g t o > i a " i t d o t l " d . t t g s d F O a . • o a l 0 b r n c l t \ d t b o . w , t m is t. s a t n O i h m i o n n o O o g u - u . l a m i d n w f t h t b s t l < t r t t r h h a O I a p a S i t p c t O U . e a l m l 0 e « o d 1 u b o 6 p r t . . " r a l a " " f n I y J t S d t l " . r « 2 l r n t l l 0 h t l \ < 1 l o t • 7 r . e l l . ; n r t d T f > , r ) t , h o ' 1 p t t 1 M t a r 1 A d i • o t S ) h d d u U . s i l t ' l t • w m o t a o r . m < t h [ n p • l t u c n n b l J > r t m f o i " i A o ' e p - ; S r . . 1 1 b U , 1 . w l . l s l T l \ " n t o o m h " ! w T D t1 b o . 1 I t 1 p i g 1 r k i u l n > t I · I < ~ O • S S · ' g " r " ow 'P th " ' n k i " t " s m or tb n t o " t o '" d " ju " lt '" .. ' t ! b )'b r u lt l l k t! g O < l D bp o o r o o r th . er cb>nga in the " M m ' . U o " t ! < " I h a a r J l p i i l u y , l l t a 0 b n i • 6 l W A .l S ) l U ' l l l , t ~ l o \ u ) a t 1 o l 6 y o , • a b d . e . ll - b g h t i a a n w a ~ l n t u w r > t l o lh l p u i t \ h W r< tw I v I i C o il c s .U t < > 1 l R l l a ) t l < p tiO o > n W rt s h il f 3 f o 1 t r h m 3l All dJta mooll«ttd anrl pltf<llltd based o• tbt location ol tor:h rlll'>lt COflli"AAIo ..., . opply tht ASU to aayad•ustmtllb to prori "f<ld!Jl! UlSillutloo's....., oftl.'t. Rtpontd daJ may indnde II1CIJ siooll.-..• that"""'''" lotawy i, Mi, brpoaiag W1ll> tlW and~loatol001>icltoltht rq>OIIinsiastitutioa'sbomut.a~ Cal Rtpons "'Dn-ttlbtr Jl,l017. udy ~·of ASl' WIS. laaddil._-Ill)'t dr.>:au """'sutelioa «<haag< 16 • pclllllltd ioCall Rtpon• tiNt liA-r Ml>«a sobllal<\t thnrdwtm,~ioaiator·~oriatu ialrutt!'"'P Forlllilaiooal """""'""' ......_ sboulJ .... toASl' . b ,_ a . r . . b . . , m _ . a " , y " _ < '' . " . . . . " .. . , " . o " C o J " l a " l r ' _ ia _ t g o r C i . n OI s t ! h ti I t t t i l t r t l i b > l o t m r ! n . d t a o l l b f d ~ s a , o b t < < lw n~ w ~ G ~~ " ~ " t~ " t " il ' l S l c 0 i 1 ." ~ !!D 16 !! . P . !s . < . S . tn . l , . ll b > ' 6 o 1 m 5 r 6J W I l 6 < 10 a & ~r . . L"". ..~ ")Ir!FASB.1'!:<' FOIC QUARTERLY 19 156 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00160 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.13071412 20J6 • Volume 10 • ~umber ·I Oebtl""""eCost• >12temtot )AI a mull of the r«eol accowuing dt""Se, l""·t<>date loAprillOIS.theFASBi!su«<ASU No.WIS.O~ "Simpl!f)ingthe Third Quarter 2016 'Extmrdinary gain>. n<t' on the QBP iJ>.-ludes Pr....,tst;,n of Debe I""'o ct Colt. . This ASU r«juirtS debt l<>u· only Di!<Qillinu«l operation• t!Cpfns<. A«ordin~y. comparisons : a m s a te d c i o r s t t d s d ~S t ( d )I u . a il io tc n d w fr i o t m h 3 l h r e « o fa s t n t U am ed o d oo tb t : o li f a t b h i t li l r } d 'I a O te b d e ~ pres l e i n lb tt U d · t p o e r p io tr d l s x i l n s d p u ri d o « r l t o a l S l E ep x t t e t m ao b r e d r i 2 n 0 a 1 ry 6a g r a e i n ~ u m n e d a n D i i n > g < f o u n l ti . n u $ « n l - o et p p e r ra io · r o m ~y f e . d n ! t t i b m g c i ~ J ~ l S i a $ c r b u t D . o : < d u e < ) t f b t o t c r o d s > i t U > s < ; c o b tb u ' n e " t r ' s t ~ . " i 1 r s t n , u e t n h A J t S f f e U 't c 0 i t 0 s e £ l d i n m . i I t J i h o « p o r i < a t n o $t d t n h ! m < , t A a p S « m U O n t I n .'- t I a n ti ~ on P t t i o o m A n / s S S e e U x c t p l i O o en I n 5 s P - • 3 0 ) ! 1 l F , < o • & r ·b a < i d d id d t • i i t l s i l o i a 6 n v 1 a a 5 l i 6 l i a n 3 b f 1 l o e 6 r 4 a m t 9 a h 8 t t . i ! o r n J . / . i - n ,. s w tit . u la ti s o b o .o s l s i h fu o p u / l F d A r< S f B tr / St.ndruds Codifi<:atl>o (ASC) Subtopk SlS. 30. lnter<st-lmput.>tioo AccOUilling by Priv>le Cotnjtlllies b lde<diable lrla111Jiltle Asset• ""''"'""'II oflllltml, rtquir« dtbo to bt reponed on the balance in a Business Coltbinarion med" m ""'<t (i.e., a dtftrr<d charg<). For Call Ro:pon P•'l"""' lnDetemb<r20B,the FASB i>suedASUNo. 201~-13, "Actoot•ing a th m ec o o n s iz iS a t o io f n is . s i u n i n 'O g t d h e e b r t - .:u . r s rt : o tlpre reponed. n<t of ".:umulat«l i fo l a r c ld o tn " t " i& "" b " le o I f n t t h a e n g P i r b i l v e a A te l C se o t m s p in an a y C B O w U io D o < s D C ( o P m C b C i ) n . a T ti h o is n . A • S w U lt ich For imtkutiom that ..-e puNk bU>in"' entili<s, as dttln«i under U.S. pro~ an a«OWlting alterm.th-e that ptnoits a priv,.e company, GAAJ>, ASU 2015-03;, eliectivt for &cal 1...,., and interim periods as defm«! in [).$. GMP (3lld di><u""' in a later $«<ion of these •ithin theo< llsal you>. begir~ M<1 O..:trnber IS. 2015. For Suprl.,.entallmtru<tioo•),to•irnpli&lheacwuntu'S for """'in exsmplt, iiJStiutions "'ith acaltll!br )'roJ fis..-'3) )'t'.ar lbat 3rc rub!'=' intangible assets.. TheacrountiDg alteroatn·e appllt$ "''ben a pri\'ltt bwinm entifu must apply the ASU ln their Call Reports~ company is required to rt<OSDiuorotherwise comi<kr the fair v~a.e Mar<h 31,1016. For imt~utions tim ar< no< puNk bwinm enlt'i'li"<'s of intangible assets 3S 3 multo( ctrtain transartiom. in.:hld~ wbtn (ie., that are prii'Ole companies), the ASU is ell'ecti,. for As..-.1 :Jp¢)"1 the ~KqWsition lll(thod to a bwioess combi.~»tioo WK:Itr begiMing after De"mbtfl 5,2015, •nd interim periods •itbin lls ASC Tq >i<SOS, Bwinm Comblll3lioot(f011Dtdy FASB Statttll<ol cal )Ufl ~aft" Dec<~ob<r IS.l016. Thus. imtilutions •itb No> 141 (rms.d 2007~ "BusinmCombinatloo!"). acalendar).ar lb.-a! l"" that are private companies must apply Under ASU roJ4-18, • privlie rompany that elects the """""ting the ASU in thrir De«mbtf 31, 2016, and suh!equem quarterly Call alte""'h• !ltoold no looser "'"'SJliu"!"rolely from goodwill: Ro:pom. J:.dyodoptioooftheg~~i<laoce in ASU 201>03 is perm~ted. • Customer·rdat«l irnngihle asseu unl"' lheym copable of b<ing Enao<dinaty~•$ $0[d or licensed ind<pendently li<>m the otherassds of a busin"' lo)amouy 2015. the FASB i>su!dASU lio.lOIHI, "Simp!!f)iog and l E tl x 'o tr m ao e rd S io t• : e II r ) n ' e lt n tm t P s. r " e T oe h n i• t • A io S o U b d y i m El i i n m a i t n e a s t f i r n o g m th U e . C S. o G nc A e A pt P o t f h < • Noncomp<t~ion agretroeol$. c lo o : o o « m pC e S o l f l l e e x r t o n m or t d - io E o x ry tn ~ o " rd " i ' na A r t y P an " d " l " iD '- II A W S O C I S II u em bto s p (f i< o r 2 m 25 e · r 2 ly 0 . g H i < b M ks ' t : r J t .J r t , r l t : g «: a : r .\ d l$ t t d m ~a or p t a g b a k s o t s f t b r e vk :i 'i n n g s s ri o g l h d ts o a r n l d k e to !)$ r e t d ~ il i xlq t .:'t i 'n n d ta e n nd )'. d l A o i f o c i O n s c p d i e o s r * u p o r t o n e i : ~ s t o D u o P t O s n r " < i r r ~ d > d i r : t r < i o u p q u l b e u y < s i t m a B \> n o e a o o o n r r t d s d < i O m m na p i i t r t i ) r y n ' . t i m 3 o o l n l s " d a N ' ' c u " o t s f i u . o ' a l 3 m 1 e 0 l . . . y " .1 A R 1 d n o v o : ~ s e p y s o \' o ~ n t f n , in t t p g h o ~ e t r h m t r e f e 3 o R . p J t l o e $ s n 3 a u C i n l n · t d > g a F t n w h A i p i z t m S e r h l B \ t A ' l h 3 S l S 1 " t C t f a r a ' t o i t i T r m n m o 1 ta p e p - n a n i a c l g . t n u 3 i N ~ ) b 5 ' l 3 o ! 0 e h l . , l m a d l l o l t • Z e t l u " l . b t b " d " o S G & s e i e q b o p u t k o h a e s d r i n s - a w G t t a l e i y c l l o l c y o a m o f U n d r e d o J w " ' m O l u l li l n r h g t e g h o o n t o " d h d h e J O w t m m m t i h l a i l a e " . n t S r ~ l O v ( i w b f t < o k m c l r o m A u r y d . e n " a r m e r l > r b y c e : . e " ' a C ) s o . u g r · e emily unless el'idenct dearly "'~'!""~ its cla&il\;ation as an "''"'"' dioary item. If an twnt or tr.ansaction cururlty roms the criteria for A prh·.ait CCifliPJn}' tba1 drctslht> :k-<0\lnli~ alttntalivt in extroordi.nat)·<bssifntion. an institution must ~regatt the ext.raor~ ASU 2014-13 ~"'must adopt the privatt company goodwiii:I('('Ouol· dioary ittm from the rmt!ts of itsordin:II)'operatioound ro:pon the ing altemativede.cribed in ASU 2014·01, •A ccounting for Goodwill • extraotdlnat)· itt.tn in is income Sbtement as -e.xtraordinaty ltem.1 Howt\'tf, a pri\''<llt .:ompany Urn t1eds lht goodwill a"oultiog -and other adjustments. ntt ofiocome taxa.• a.~emati>< in ASU lOJ4.j)l ;, not r<quir<d to adopt the"counting .>\SU 2015-01 is tff«tivt for &cal yrus. 3lld interim periods within alte!ll3liw '" ldelllift:Jble inl>llgiblt ""tt in ASU 2014·13. tho« f..,.) l'""-beginning olter De<embtr I;, 201l. Thus. for Ap ri»t• comp:my'sdecision to adopt ASU WI~· IS must b< mad< exam pi~ iml~utio. .• ith. weodilr )'W fiscal year mull begin upon tht ""'"'""'of the fint bwinmcomblrutioo (or other to apply the ASU in thcirCall Rtpom for Mar<h 31,2016. Early traota<1ion within th"copeofthe ASU) in &cal,.. ., beginning ad<>ptloo of ASU 2015-01 is pennitt«l pr<Wid«i that thtguicb"'e Mer Decembtr 15.101 ;. Theefl'e<th• date of th< pri»tecompaoys is appiW from tht beginning of the &cal )'eat of ad<>ptlon For Call db:ilion to adopt the accounting olttr,.tiYe lor idellli&ble int~ible Ro:pon PWJX""-an imtitution with • caltndar )W &cal y.... must assdS depeods on tbe timing of that ~nt trntsactioll apply the ASU prooptdively,lhat it, ingeneral,toe~•m• or uamac lflht 6rst.lrall$3dion occun in lht private comp:my's ~l$l fuel) ye.n tk>ns(}XUrrins afterthe<b1fo( adopciorL Hown'(:c~an itJStituzioo btgirunng M« Ot<.,nbtr 15.201 S.lht adoption will b< effo.'livt for •·ith • f..,.) yearothor tbao aaltodaryw maydM to awlr ASU that &cal re•r's aMualfioan:ial reponing period" 'a"n"d' ianll i nterim and Jl)IS.j)l p!C>!P"1ivelyor. alttrDJtively. ~may''"' to •pply the ASU aWlual periods ther..fter.lfthefit>t t......aion as. .- .~ retrospe<1lvely to all prior caltodar quarten iodudtd in tht lnstitu· rear beginning after Decetnber 15,11116. the adqition wil b< effec. lion'• )'W·to-date Call Rtpon incorot ltaleJt>tnt thal indudes the th't in the inlerim period tb-at iodudts tbtdate oft ht! lrnltsa.."t.lon aDd begiMing of the AS<al rear of adoption. suimquent irtttrim and annual periods thereafter. Afttr an im1itull¢t! adopiJ ASU 2015·01,anyNtnl ortrJJlS:t."tion Early ~L--atioo oi lhc htl<uJSibtes a«o.u)rirrgaltwtalivt is penni!.· that would ha\'t Mtt tht trite ria for ~I30rdiJnry d4lSSltkation ted tOr any31lllualor i~erim pe:riod forwhkb a pril'3lt: comp3.D)''' t b e tf m or t < i t n h c e o a m d e o : p o ti r o n "O o t f h t e h r • n A o S n U in s t h tm ou t l d tx b p t t n re s p t, o " n » « l ~ i r n o ' p O r t l h a < t r t n , o u o n iJ le > s s f C iw ol n to c m ial e s r· t r a e t l e a r t o !d m i " n b ta a n ve g 0 ib 01 le y " < " t b " < a e n n d m oo ad nc < o a r v n a p i < la t b ~ l i e o f o o a r g " J " « ' '"'~ tht C'\'tnl or Cian$;Ktion would othtTVtist be reportable i.n tbe income mentl that ai!t"' of th< beginning of the period of adoptl>nshoold 30 FDIC QUARTERLY 157 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00161 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.23071412 QUARTERLY BANKING PROFILE continue to b< acCOWIIed for S<pantelr from goo<!wil. l•.su<h aoniiSI periods b<ginning•iier ll«emb<r IS. lOIS. Goodwill exist· exis11ng iota'1;ible ""'' .oo.Jd ool b< combined •ith goodwill iog as of the beginni'1;ofthe period o(o dq>eion;, to be mortiltd A tO b > a n n in k U Q1 . S sa .C vln M !;$ P a i s s s p «" e i m ati t < i > tt D e d tb . a 0 ( 0 m 1 o e o tU tr < th q e u p ir r e h d ' . l t t o e : > co d m ql p c a A n S y U de 2 f 0 in 1 i 4 · p at r < o ~ s p T e h c e th A -t S ly U O s \ < 'tr a t 1 " e n th < ) 1 - 1 n e r$ a r ( l o p r p l p es ij s c l n h t a io n n t r o n ( ) t h U e n go i o f d m w o U r J e a -a = p t p n rw tl f n i. s 18li>r Call Rtport I"''J'OS<S and 1113)' choose totarlradopt the ASli, altemaiw is permioed fo< any anrnw or interim period for wbi<h a pro1ided I also odopt> the pm·ate company goodwill a:counti'1; pri~>te COIDJ"lny's finonciol mtemeou have not )'<l been made 3\>U· oltemati-..lf a pri;'Jle institutioo "'"" U.S. CMP fwaocbl ""'' 3blt ~r issU3JXe menu and adopl> ASU 201'1-IS. it sbouldappl)•t he /.SU's int..plt Ab aJil or "'vings association that m«ts the pril'3le compaoy dtl\ni asset acwuntingaltematiw io its Call Rtport io a rnaru'ltr cornistt.Ol tioo io ASU 201!-0t as dOOJssed in thefollowi'1; S<Ctiooofthese with its rrpot1ingofi01~ibk assets inks finaocW $btellltJts. Supplemffital hmructions (<e. a private institution). is p<rmhted. For addilioRII informa.lion on Ih e pth'att compaJIY a«oumitls alttr· but not required. to odqlt this ASU for Call Report PUf!lO"' and ..u ,. lor identifiablt intangible"""· imtlutions •booid refer to ""Y <h..,.. to early odopt the ASU. If • priv31e institution"'"" U.S. ASU lOH·IS. •t>:h is avaioble at htte//www.fusb.oJK!'•piFASB/ CMP fioaocial statemenu and adopts the ASU. ~ .boold 3fll'ly the Pas<iS<ctionPageS;dd=l 176156)16198. ASlfs goodwill acco11Jlti'1; olte""'tive in its Call Report io a monner Private C..pany Acclllllring Akematives o T o h n u s s i , s l t o eo r t t i '1 W \'itb ll p it l s t. r a tp p c r > i1 rt > in te g o im fg ti o l o u d tl w on il l w io it h it s a a 6n le a n u d d a a r l s Y t- " at ' t m fi t • n l$. lo M.y 201 t the FU..ncW " A '' c " r ' o • u •i n b tl' l 1 • ; Fowt<btion,tht indcpend<JC colye>rtbatcb....,toadopt ASU 2014 Ol muupplytheASlh pri>at< '"'or "'i"nitllioo lor tht M<rsigbt of the FASB. pro>isO>m inks Dmmb<s Jl. 201S . :ondsubs<qurot quanerlyCall approved tbttstablisbtnt!ll <>i tht PCC t<> itnptO\•tthe pro..*t:Ssof! tf· Reports unless e1rly appllcutionolthe ASU "'-" dected. This •..Wd ting acoountiog standards lor prlv>lt OOIDJ"lni« The PCC is cb:uged requln the privote instoution to ~'P"• in is Dt..-.mb<s 31, 201S.CaD with working jointly with tbt FiiSB toddermioewbether sod in Report one )<at's amortization of goodwill tldsting" oljanu.uy I. "''hat dr.:umstaoca to provide alttrD3~\'t rK<Jgnilion. me-asurement. 2015, and the amortization olany new goodwill ro:ogniud ln2015. d c a v o p a is m p t d t l p i l c o l a o $ t n b u m i l e r e s • p . a d r a i i > m l t p ti l p n a m g y o a , ~ U y e . l i S u f n « . n d C U d ll A t - & r . A d U P a m .S l s e o . t , d G o o i o t n A i d " d A a " t t m P t d i . o s n A . m s l i t o l t i r r o o e o a :x l g . c h t u - p t l t l g k a u > o i n d « s a t . f o D o o ' r t t h p r t r o . i r J 1 ' p ' \ J ' r l is t i· e S 0 F al 2 o e t , r < e • a m t t d i a i < o l d i i o h l ~ i P < o ; n f , @ O a m r l ~ J g i d o n o l • b o 'o l d I n I e • n 7 · i O a 6 ll t 1 l , i b 5 i o n 6 t n q s J t o I r i J 6 t o ( u 1 I t t 9 . i h , o 8 . e - n . . p s ·. r f s i a b ~ s > o b t . u < e l > d c r o r g m t [ f " p e P a r I t F n o y A A S a. B S :t I U o P u ! 2 l n l 0 ! t 1 L l' 4 1 · ; The banking asencie> bm coodllded that. baJil"' saving< mocia Oefin«ions of Private C..pany anti Public Busine. . &tity tion thot is a pm'3le compaoy,., deSned in U.S. CMP (as di«USS<d io a ht-.S<ttioooftbeS< s..pr!eme••~ Instructions). orermitted A«ording to ASU No. 2014·0~ •A ccounli'1; li>r Goodwill," a pri•>te t w o b U en $t p pr r iv e :t p lr ~ co m iL p S 3 C . a Il D ')' ~ R ' < X' p O < O. > ! r t ts l . i .'"ng'q n>hetn a ~ s a l p h r - o n ~i i d s e su d a in i b 1 ) 2 · t U he .S F .C A . S B c N o o m . 2 p 0 a 1 n 3 y · i 1 s 2 a , " b D u e si f m in s it s i o < n n t o it f y a t h P a u t b i l s i c n 8 o 1 ta 1 S p i u " b "' l E k n b t u i s t i y D , < " S w S b t i r < u h ly •" . ' A SU ISJin(•)asd""ril>ed in the followi'1; S<nten,•lftheagmdes is•ued in ll«emberZOil, added this term to the MasterCloswy determin< that a partkular accounting principle •'lhin U.S. CMP. in the A""""till! St>ndatds Codi&atioll This ASU """that' • i i n t d h u t d h i e ~ s t a at p u r t i o v r a i t ly e c s o p m <c p i a f n •d y s a n c p c e o r u vU nt o io < g y a O lt O er j« o t 3 iv ti e v s e . . t i h s e i . a o g .; e o n n c si i s e t s e :n m l oy o b n u e s l o n f m fi , tr . ' l c t r it i ) t ' e . r s i : > o c " b ' a s f o a rt b h a i n n k t o h r e A sa S v U in g b s a M J s " o lh ci l a ic t i b o u n s . i t n h e a s t s m er tt u t i : t s y a f n o ) r ' pr<o:ril>un aooruntingprinciple for r<gllhloly reporting pU!J>O"S r<p<>rting pOrpos<S under U.& GMP,lnduding lor Call Rtport pur· t t h u a ti t o I n s n w o o o le l s d s n st o r t i n b g < e p n n t m tha a n tt d U . t & o u C s M e P t . h I a n t > p ~ o J rt < i< b u " br i p l" r ' i l v io at n ec .a om n p im an tl y · P to " o " w '· l Y A n th im t p t r i i t v u a tl t o e o C t O h I a D i J " b lD a )' g p o u o N d i w c b il u l a s c im co s u s n e t n in ti g ty a l i t s e 0 r. 01 . t p il e 'e r m dis ln · ol accowting altemniveorother ac00Witi'1; prin<fle •itbin U.S. CUS!ed !nth< pr«eding!Ortion whtn preparing bsCaD Rtport. CMP for Call Rtport PIIIJ>O'"-The agencies •'llllld provide 3j>pn> For additional inlOnnation oo the &finit.ion ofa public busL'Iffl priate notkt ift hey 'ft'ttt to disallow any accoull!lng alttrtJ:ativt uodtr eruity,lmtHutO>ns.oo.Jd r<f<r to ASU ZOil-12., wbkh ls avaUable at themtutol)'proc& hnp:/,..'WWiasb.orgllsp/FASB/Page/SertionJ'm&dd= Accounling by l'liville CollpMie$ for Goo<Mill ~ O "A n c f o a o t u m ot l i ) '1 ' ; I l t o \ r 2 C 01 o 4 o , d t w h i t ll F . • A • S i 8 ti i c o h s ~ is ~ a t d CO A l S l$ U < N 11 o $ . 11 2 $ 0 o 1 f 4 t · h 0 e 2 P . C C. This R U e p p o o n r F ti e ng re ~ cfo i st n l'e CO¥ern•ent-Golaranteed Mortgage lt>all$ ASU g<norally penn[s a pri~>te <OffiJ"lDY to elect to omortiz• good· In Ausust 2014, the FASB iosuedA<coonti'1; Stmdortb l;pdate will on a stmgbt·lin< bosb 0'" a p<tiod of teo l"'" (or less thao ten (ASU) No. 2014-H. "Cias<ilication of Certain C<wernmert· l""" II mort appropmt<) and apply a ~mplitled impairmtll mOOd Cuanmeed Mortg•ge Loar. UJ"ll For«losure.· toa dd"" dh•nit)' to goodwill In addition, II a prh'Jle company cboosa to adopt the in practke tor howgowrnmenc.guannr«d IDOf1Meko.m ate AS\fs goo<i'-iU accounting ~temativ<, the 1\SU rtquir<S the priv>t< r«<>.W upon lon<lo!ure. The ASU updatts gullan<t contained in companr to rook< an a<counti'1; pol~1· elt\iion to tnt good-ill ASCSubq>ic 31~10, Receiw.bl"-Troubled Deb! Re.tructuringt b1· for impairrneal jl tilhtr l.bt ertity ltvd or the-rtpOrting uhltltwl Creditott (formerly FASB Stattmem No. I5 , •A ccounting by Deb!"" Goodwill mU$1 b< ""ed for impainnelt •-hen a t~<riog """' nJ>:i CrtdiO<s forT roublol Deb! Re.trudurin[!!." at amtoded), occw< that ind>:at,.tha th•lairvolue ol an tllity(or a r<p<>rting becaust U.S. CAAP pr<Violllly did not prov!& sp«if~ guidar><< on wtit) may be below ils carr)ing amool1.1nconua., U.S. CMP does bow to 'ot<gorize or meosuttloredooed mortgogt looru that are gov DOl odtetwist J"rmll goodwill to be amortized, U.tead requiring ernment g"'nntttd. The ASU d:~rili<s the conditions und<rwbkh a gocxlwUI to bt tc~ed bri mpairmC'~ at tbr rq»rting unitln-tl annu~ trtdi1or rntlSt dtrt'l.-ognizt ag ovtmmttt·gua.nuuffll mortg:.~ge loan aDyand J::,tn...·cm aruutal tfSI$ in certain cirtu.mstath."'tS. Tht ASl.i"s and r~nizt as tparnu ·omn r«ti\oable• upon fortdasurt (d!alls, good•iU accollflling altermth-e, II dt<ted by a private ooropaoy, l! whtn a tttditor r«th't'S physical J>OS$t$$ion of real tstate property eflt<til·< prosptctlvdy lor""' good•111 reoogni1.ed in aJmualr<riods collateralizing a mort gag< loon in accordaott with tbt gui<hn<e in begiMing ofier De<<rnb<s I;, 2014, and in interim periods wilhin ASCSubtopk 310--10). FDICQ UARTERLY 31 158 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00162 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.33071412 20J6 • Volume 10 • ~umber ·I UOO<r the ASU, imtkutiom. bould dtrec<JSlliu a mortgos<loon and • Theimtitutionob<ainiog legal tide upoo completion of a fore· r«<rd a wpante othtr rt\'"tivable upoo (oredosurt o( the real estate dowse even ift he borrow""" rtdtmption ~" th3l pro>id<tht cdlattral ift he (oU~ing coodhlons are met: borrow<rwhbalegal rigJu fora ptriodoftlmtafttfforedosiiJ'<to • The l<:on has ag o-.•tmmenl guaranttt that 6 not StparaNe from 1lw I'O<bim tbt pr~l1y br payi~ ctnain amOOJ\1> spt<if1<d b)· law, or loan bttorr lor<dOIUI< • The oontplttioo of adetd in lifu of fora.iosurt or similar ltgal . At tht tbne o( tOr«:IOGurt, tht institutioo hu the Uttnt to con\'t')' agrtement uDder which the borrowerc onveys aD internt in the the proptrty to the guarantor ..d milia daim on lh< guattnt« residenti>l real ntate proptrty to the institution to ..US~' tbt loan. and it b" tilt abi!i1y to r•:<rm undtr tbot cl.>im. Loons stcured by rod est.>t< otbtr than comwner mortg~~g< loans col· • A m t i l l h la e l t o im n t t h o < fl ~ or"lo o < f u th r e < , 6 3 i J r 1 ) V ' a J! m 11 o t u o n f t t h o • f l r h o e d d o a s i l m > tt t ; b , > f t i x is t d d < ( t t e h r a t t ! o .t O tr. R ~ E li O za l w b b r e r n e s ! i h d t e i l n ll s ia ti l t r u o li d o a es b t> a t s e r .b «t o i u n l o d d c p o h m }' i s ll k u a e l t p o o s b S t t S re S c io la n s o > f il a k d b.'"' bor!O\\'tr•s rt.d tstatt, regardlts.s ofw hether iormal fortdosurt pro dum . r n .a d l t b .. u . s .t . t h p t r i o r p u t l r ~ ty ut " io " n; " , ' l ' i ' O " C a " p 'P pr P aO "< a ' l t ' o " ch r l a lf o ! S 'O " " i S n o lh f t t b fa t i r c«ding> takt pla«. VJ!utoftheproptrty). For irulhutio"' tbot m ptlhlic bu!i1"" ento~~ osdtfilltd Wider U.S. T gu h . l r s . l g ll\ u « i < d 1 a n m c o ti r s tg a o p g p < l io lo o o b m lt t p o ro fu > D id y ed .n t d h e p o th rt r l « a l c l o y n g d o i ~ t t io mm " e ' i r d u e ­ milkd ! g ls e c o a m l y ll o y a a ro c . c o e n p d te i d n t a < < ri < m O p O < r r l i l o in d g s p w ri i n th c i i n p l t . h ,,A or S < l } !l s 2 c 0 a 1 l 4 ) - ' 0 .. -1 .. . b , e b f t f g " i 1 n i n v i < ng fo r aboo."t ha\'t' btm mtt.ln w..-h situatbns. tq;tOn for« burt. the stpa· a!ler Otcember 15, l<l14. For txampk. inst ~ utioos 'A'il.h a calendar rare olher ra:ti\'able shoukl bt-mcasurN bastJ on the :UilOulll of the )"t.ar ~ yt.arthat art public bus11)tS.S eoti1ies m~ aprlytht ASU loon hoL>nC< (principal and ha<t..,.)<xr<"td to bt rtco~tr<d &om ill thrirCaU R<ports btginning Mardi 31.101;. H""""·i""~u­ Lheguanntor. tions thot are nc< publ.i< bwinm tntiti" art not «qUired to opply bull"'" the guidan<e in ASU 2014·C)! Wllil annuol ptriods btgiMinga&er For inllitullom that artpul:lk <rllfle$, as dtfilltd Wld<r December IS. 20H,.ndinterim periodswitbinannwlp«iodsbtgin l U n S st . r G u< A ti A o P m ( ). . , A d S i U sc 2 u 0 s 1 st 4 d - 1 in 4 a i1 o < e f a f r ta li . e iv r t . . f ,. o 1 r i o & n se o al f y lh u <> n < . S a u o p d p i l n tm ter t i n m ta l & ni c ~ a l o )" it 1 t r r t D b> ec t e m mb o e o r t 1 $ p , u 2 b 0 l 1 k ; b . T iU h i u ll t m , in tn st t o it u ie ti s o n m s u · s ~ t'f a 'l' l c y a t l h en tA da S r U ye ar ptriods within thor< &al )...,..., btgiMing aft« Otctmbtr 15. 20Jt in thtlr De<tmbor 31. 101;. and sui>l<q11t01 quantrly Call R<ports. For t·xamplc. h~~utions -.lth a caltndar )tar tlsc:al )~.ar that art Eaditr odq>tlon of tht guidm:e in ASU 201 4-0·l is ptrmitted. b t p b o u t u g a b s i U p i n n c p n m l i b n y u g t l o h ! M t i t k " g a i " u e r ' i s d e d i ( n m L 3 tb 1 e : i . . t . < 1 t i s h 0 n a " 1 t A S " a . S " r H U c a o p 2 p w r 0 p h 1 t l l - y 4 ' . e . - l t r 1 e h , 4 e C i W " m A o t S l m ~ lu U u p a a t I n n i n i n o e t u s h m ) o t a t b l h r C p a t < t n a a r l o i r l o < t l d \ r q o s e c x q e < > o u p d i n r u e s b d lk o t E t h m r p a ~ a r n ; n o . a o s p , p i p t C t l \ ) J i 1 ' Q i o n n e n ~ g l 1 ~ t l 1 c h o W t t i r t o A l a i p S o o U r p n o p b o l o a y o p s t a i t h \ s e i m i ! l A h ' o t o S d u o U i a l l k d m o d n b i l e r t i e o a Je b n t s " e s b " r a o f a < o l l " s m m . l A i o p '• d l p " i t p ' t t \ l f w t ) o d i r n i r i g i e n o t t n r h o n i e s t u b p .o a e f \ s i < S o i m s u " . o · ' e n i~after Otctmbor IS, 201S.Wldinterim p<riods btginni~afttr Und<r tht prospoctiw transition method. an irulitmion mould apply D tho " t e m m p b r t i r v I o S t . e 2 c 0 o 1 m 1. p T o h o u i s ts . i m ns v ti s t t u a ti p o p ll l S y w th i e th A a S " U l t i n n d th a e r i r y o w ..; f .,n a bt r r < } > I r , tht newguidancttoall instances •·here <" '""' pb)>>:al po!S<S'ioD of rtslckntial rt:al t.sUte propttty rolbter.dizitlgtonsumer mortgagt lOIS. andsub<oqutm quartedyCalll\qx>JU. Eod~r ad"l(ionoftht loons tb>t occur aft" the dote <>fa doplion of the ASU. Und<r tht guidaoct in ASU 2014-14 is p<nnitttd ~the institution h., olready modilkd "'roop«<lv< tr.wiion mttbod. an lmtitmioo should apply adopled lht aromdmtnts in ASU No. lOIHl-1, "R.d,ril\-.,.tlon of ar umulativt-effect adjustmt'Jt to midtntial oonswntr mortg:agt u R p e$ o i n d < F n o ti r a e l c R b o u d r & t. • ta t< C<>llat...Uud Con•wn<r Mong>g< Loom [ k> ., r . • . i a >. n \: d h O th R t E A O S U e x b i t s f t t< ~ c a t s h < o . f t A h s • b a t r g e i s n u o lt i n ol g a d o o f p t l h i t < t a ~ n n th u t o A l p S < U ri o o n d a For additional information. institutions should r<fer to ASU rnodilkd rd""Jl<''h• basis..,., redassifled from OREO to loons 201+ H. •ilicb h available a ht1!1<1f•......,.fa>b.org/j•p!FASB/Pagel d10uld bt m..,urtd ar tht ar~ing volue of tht"" "'~' ar the date S.ctioo!'!st&dd•l I 7615631~!18. of odoption wlill< as•tt• mbssilltd &om loam to OREO !OOuld bt ReclassifJCalion ol Residential Real Eslate Colloteralized me3$.Uitd at the lower of the Det amount of the Joan mriwbtt or the eons.-Mortgage !DansU pon Forecloswe OREO proptrty's &~ vn!u< 1.,.« ><b to !dl at tbt lim• of adoption. lni3Jiuary liJI4.1ht FASB O.utdAccounliri!Staodards lipd.>te For odd~io•w iok>noation, institutiom should rel<r to ASU 2014-0-1. (ASl;) No.l014·1>1. "R.d..,ifkatioll ofR.iw!tnrW Rnl F.siatt "hkil i• 3\>Uabi< at lu!p!/t-w.f>lb.org{•p/FASBJl'.gt/St~ionPags C ad o d U .re 3 $ l $ e r d a h l - i e u - d rs C ity o n in s w pO ne O r K M e o f r o t r g o " g '·b e e L o o ce w rt a u in p o lo n o F n o " r d e o c s e i iw iJ b ' l ~ a · s t h o o Wd & Tr c u i e d - • U l p 1 7 li 6 a 1 l> 5 i 6 l 3 iy 1& U 19 n $ d . e r *' FDIC loss-Sharing A,--en~ bt derecognizal and lht real ntatecollotml r«<~SDized. The ASU An insurtddepusitor)' instltlllion tbot acquirtsa falltd illsurtd iM.l S up u d bt a o l p td ic g 3 u 10 id .4 m 0. : « R o .c m tiv a : i i n b t k d .s i - n T A ro c u cO bl W td i t M ing e St R an " d 'N ar c d t s u C ri o n d [ i ! f l k b a y 1 ioo " tu h t i i . o .' n h t m b a t y F e D nt I < C r i 'S nt . o .. . a , t l o o. a . b ·W so r r i b < t a ~ p a o g rl r l « o m oo < f n t t h • e · i " tb ' th - e o F n D • I C sp W td id fi e t r d C an r d < d C b r o ed n i ( to k> rs r m fo t r r l T y r F o A o S l: B lt d S l O > . t b t < m f e k o a t c N ru o c . I t S w . i " n A g c > c< ." l " W a l m tin e g n b d ) e ' d D ) d . >tor> l p b oo t l a o c i q d ui ~ ri f n U g l « n l s t i i n tu st t i k t > u s t l i o c n y • p s k a a s l . l s y t t r s t d ~." u '' r r m d:s s a a n s i p n t d r t i m A~ n i L f im ~ e i o p n er a i s « s ~ e . t UOO<r prior >:OOWltiJ'I! gllilbo<e. all loon r«ei»bk.s "''"red.,. rq>r,..nring its right to rt<tivt paymtmt from th< FDIC for"""' sifi<d to oth<r real fStote owotd (OREO) "boo tbt imthmion." during the sptdlled tim< ptriod oo asstu cover«! Wldtr theloss crtd~or. obtained ph)'ical J P 'O ' ' " S ' 'S " S " i " on " o ' f tbt prop<rt)' • ..gardl"' of dwing agr,.m. .t •iloher k>rmal foredoelltt had tol:tn pi:~«. The.,.. Sin« 2009. mO<t losNiwing agmments bm indii<W • IJU,.ttp p A o S s U se s d s a t r o i o li e ( s re w s.u h l e ti n D o g m fro d m < a o n r J in s - o s o u n b si f d ta er t t n d r to tp h o a om " " io 'r n iv o e r d lO pb re y d s o k :ll p F r D o I v C is i i f o c n w th n a u t l a m ri a v y t r IM cq e u s iu io th th t < a c a q c u q i u ri i n rt s d i J n o st . i . l . w w io r n e 1 p 0 o n r k ri > m li b o u a r r s e t l l t h s e s sur<) of midential ml-ecollateralizing oc owumet mortgoge than the amOWit ofioo8" <bimtd by tht instaution througbow the JOQo. UOO<rthe new guidano~ physical po!S<S'i<>n k>r thes< "'ideo loos-.baring ptried. T)pkall)', • trot-up lbbiit)' roar muh btt>ust t r l « a < l . iv .. a J tl t e < w 1> o !t u p ld ro b p t t r r t l < l l " .> k $$ c i o fl n ed s l c d o tr O < R d E to O h o a n v ly e o u r p o o u n r : < d .nd a loan th• '"""~'ptr\od on tho (06$-Wrt""'' (<.g.. •iSfd !=)is 32 FDIC QUARTERLY 159 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00163 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.43071412 QUARTERLY BANKING PROfit£ l~er than 1he period during •ilidt 1he FDIC ag"" to "imoo"' for lmpairm«ll.• toacSdm$ concerm about tbe CQSl aod compltx· the JC<luising ln<litution for IOSS<Son the losHbare podiOJio(<s. ~yofthe ~good~'illlmpainm"" tmlnASC Topic 350, fll'e)'eanl. lntaogibles·GoodwiD and Otbtt (fO<merly FASB Stattmtlll 1'1<>.142. Coosistenl•ith U.S. GMP aod bank gu;lan<e for "Offsettifl;," "GoodWilond Other In laogibk AlS<ts). The ASU$ amendments to imiMions ar< penui\ted tooft>d assru and liabililito mognized ASC Tori< 350au efft<th< for annual and inlerim goodwill impair· io tbe Report of Condition wbeo a "r¢t of setolf' exists. Under m<lll '""performed for f"'all""' b<glnnifll after Dr<emb<r IS. ASCSublopk 210.20. Balaoct :lt«t-Oili<t1ing (~ll$oedy FASB 2011 (le., foranoualorim<tim t..tsperformed0<1orafttt )anual)' I, hl!erpr<totion No. 39, "Offstning of Am<lWl1S R&ted to C<rtaw 2012, for inst~utiorn •ith acaleodar )-.atliscal )'<2r). Eadyadoptioo Contracts"). iogener.U. a ~t of ..tofft ldst$ when a tq'OI1illg of the ASU ""permitted. Under ASU 201l·C6.an lnstitatioo bas l 3 o J s ! t t l o u u t n io ts o .l b a e n d rt p - : h >r e tiJ r ' i p ti a S n 1 y it u t l : .i ~ o < n h o b w -1 es h t e h e r i o J l ! h t e t r o d it c t te o rm ff i ~ l M l> > b a k m ouou t ~ h b to l p le t ( i t o .S n S o al f )' f t i o m p " r. " rf " o ' m in t t g h q e u I a W li O ta .J ti i v qJ e q fa u c a t n o li , l a to J i d w e t g e o r o m d i w n d e l w i h nt < p t ~ h ir tt ­ eodt p>rty""" and also Intends to"' ol{ and 1he riglu of sttofi'is melllltstde.crib<d inASCTopic350. Kalierconsldningall rde· enfor<nble 01 law. B<ausethecoodliont forlhe exlsttr>:eof ar¢t \'Jilt t\ttats and cit\"UUIUtances.an imtilutkm determines it is unlikely of offset io ASC ~op< 110.20 M<mally woold not b< md •ilh (that is. a hkdihood of 50ptrtent orl"') that the fair valueoi a mped to an illdtmllif"'tioo-.nd a true-up liabaity Wlder ''""' r<pOrtlrlg unit iJ lw thaolts carrying amount (il>:ill<lifll goodwil~ w n< r tt i e n d g f O .g < r C « : m oll < R D tp t o w n it hp t"h"e" F"D"I' C T . h t e h ref i o s re - , i a m n l d it u li t a i b o i o li s t y s h •b o o w u d ld r < D p o O t r b t < i t m he p n a i t n h m el e o n s t t t ir " u '- tio If n t d h o e e im t n l o it t u n ti e o t o d i t n o s t p < e a r d fo c r o m n d 1h u e d t e w t o th -s o t t c p th g e o o o p d p w o i s ll i te l U h a ( b i i n li d y e ) n i u n d O tl t c h a e ti r : ) M na s s < s u r . t a g n ro d s s a n ( y L t t . r , u w t i · 1 u h p 0U li 1 a r b ~ ii r ly d In t o O a t n b y t t t l r u u M t·u h p l .._ i th l 3 tr l u l e it $ (t O ha ll i J i ) s io . g II a is m li o k u el n y t t ) h . 3 lh 1 e t n h e h f i a s i t < v t a q l u u i e s o d f t a o p r< tr p r o o < r t m log 1 W he i f lt i m il l l " lt ' p and, if D«""'ty. the so:ood lt<p oftbetwo·st<p goodwill imp:Ur· c I m a o a w a rl d r r d e lg d it p i b o e y n r i . I o " a d " n ' e . i J n ~ l s • a t n r i1 i i n 1 f l g t l i h o a e n g t s r t e h rm t o m u s l t d m o f 0 s t 0 h a : e f c t l e o o r n s > t t h i · r e w t u " r e 'P i t n o i g n r t t a i p o g o n r -r « t o m a f s e t s h n e e t l s J r o eq .. u . ire m t p h r e o t q l c u l e l a e t l " d l L t d a i t U " i ' ~ o l < l c y " k t r " o A " p S m e U r 2 f e o 0 l 1 n t 1 o f ~ o in a r n g a l n th l y t l r $ < 1\ 1 p t< ~ o t r u s t t l t n t i g p o o u n f n t m i h t a e In y " c a ' b '0 n O - y s O p te e O p ri t g o tO o d o b a d ) n l w " d $ l ' l rtimbu.rsemenh from tbt imtitution tolhe FDIC for certa.inarnouots impairment ttst. du~dl•rt<Q\•ryperiod. Accot.nting for Loan Participaliom • Ameoded ASC Topk 860 lndetnnifico6oo As..u andAccllllllling Slaodards Updale (fO<merly FAS 1661 modified lbtcrherio that must b< mct In order S N t o a . n L d 0 a 1 r 2 d · ! 0 6 U - pd In at 0 t c (1 to .$ b 1! t ) r 2 L' 0 >o 1 . l l . 0 t 1 b 2 e . ( F ;6 A , S " B S u is b s s u eq td u e A n c t t A OW cco ili u n n g t ing f p o a r li a o n tr . a t o o s q k u r a o Ji f f a y p fo o u rt a i l o e n : o t« f a < W fUW lt J in 'ia g l - a . s ,k .se r t t . o s L p K J h t\ ' a lo $ u a s l l o y a p n ll p bl l i r sb tn ed " f ln o a s r t a i R o u a t l i o u o d o lt e , o " m f t o a n i o G l o ' d a ~ d t t io n r" t o a ' t A ~ h t > e n s t < •u · l b A R . « , « < i " ! s U ! t J e < n d o l z A t t m d c e q a 3 u t $ i t U s h i I e i < o A I o ll c < o q ll { l t l o l ' s F f h • i i m o • n o i o D d d a a e ! t m e oili· Q gb < p t n M ot k h rl t y o B ~ • . r rkir.g Profiie nold: hltp:/,.._.Hdis.sov/gl!p!201 hoar/ c in a < tio lu n d 3 e $ s S " d ' F fK D O I g C ll i I .z. = .>d . b in a r a i n n g :t. ' . S "q r u « i: m ril. e io n n L o ( T :1 h f i! in A an S c U ia a l m in e s: n ti d lu s t A io S n C t hat O io t v h e e s r l · m T h to an l · in T . a , . n p o in r d a i r v y id . u . a p l a a '1 in 1 l iW en > t k • · f l o l r 'l . t , t . o Je tb " e ' h & d I d t · v lo a - lu m e : o rl f u a r n ily Topic 80S. Business Co.mbimtioru (formerlv FASB Suttmem No.l•l S«urity i$lm dun ils 00$1 ba.sb.,tht lmptitmtot is titbn-wopont)' (revlsed 1007), ·ausinessCO<Obimtlons·~ ~ili<h io:ludesguidonce orolher·tlwHtmporary. Tht 3JDOWII oithetota!olher·than·ttmpo applicalJ!e to FDIC.3SSisted acquis~ioos of tilled imi~Ulio"" b r. u al t } ' t h lm e p a a m i.r o m on tr t u o ! { f t m la a t l ~ l m to p < a r l t r d ro it e l m os t s t ! m at u e s d s b 10 t o ~ th i er n fai. d o n in m eu w ni t f b ~ < S s. c U a 1 sb .1 t o r . \ .h,~ t ~ " S P U " . ' e wh d ~ t n o a b 1 t 1 o i o 1~ ll l « b t t e i d o o n o n : a p n e r F i D ~n I e C t $ ,. a .,. c , h b a a n r g in e g in ln ~ d ~ e m· r«<gJliled in other comprehensi-. income. ntl of aprlicablt tam. To cletnmiot •ildherdle illljl<irmento other·than·tempO<Ory."' c n o ii l ' l . < .U ct . t o d a o > n s t e h t e b< " c " o " u ' S co < \O of r a < < d h b a y o t g h < t i l n o t s h > t · a .b o a h r i 6 fl o l • l H jlr J « < r p o e e c o te l d t t h o t b < l p n r< •i Y tu io ti w o ! o y p m u u b ~ li> a b p e p d l y Q d M le M a U w rl l y i< B a a b n le ti a n < g o i o t W •f l o ti t f l n l o g ! u < l " d h a t o tp c < .- l r l < >" fe w r S to . lnstiMion.Jlould aro>u<l forthe<hllJ\!< In dlt mw11r<me<1 ofdle fdigo,·/<R>/101 lmar/gl!onothtml. iodemnilkOiion asset oo 1he 13m< bo.sis as the change In dle amu "''*"to lndtmnlintioa. Any amortl.uion of changts io the value Accotrlling Slandards c.d~iclllion. r<fer to pmiously publlshed oftbe indtrnniJkation""" shoold be limited to the''''" of the Quanerly Banking Profllt ""'"' bnp.Joo..-;.fd~j[JW/qbp/20II!<p/ Ierro o( the indtmniJ>:alioo '@le<m<nt "'d the remaining life oflhe gbpnot.btml. indemnitled -~. DEFINITIONS (in alphabetical order) T fis h < e a A l y S e U a n is . b e < t! g M ir h u · t e l n fo g r o f n tS o C r a a l l ) i ' < e3 t . r D S. r a < n e d m i b n < t r t r 1 i 5 1n ,2 p 0 t 1 rJ 1 : . x F b o " r ' l i n th sl i i l t l u !h · ost All ndttt assecs ·total cash. balances dut from depos~Of)' iootJ. tio,. with a calendu r•ar fucalym.lhe ASU t<l<e<tfft<t Januarr I, tutk:ms. rTeroi:si!S, (JXrcf .SdS.. dirtct itsvtstmt(IU in rtJ.! f$blt, 201l. Early adoption oithe ASU ispennitted. The ASif• pn>~i<iOil! i:Wt$lment it! UA."'osolidattd subS"icUari.."S. customtn' U3blliyon .JlouJd b< aprlied proop«tiv<ly to any """ iockmllif•..OOo """ ""''"anc<$OUU13nding. -·hEld In t<>ding ae<ounu. ftdel'lll a<quised aJ\er lhedote of adq>tiooood to iodemnilkOiion asse~ funds sold,...:urilies purdta.ecJ w~h agr<tment• to ttsdL fair mar· exilllngas of the <ht• of adoption :uiliog from an FDIC·.,sisted ket \>lutof derivatlm, prepaid cltpo<it ln•urance .,...meol>,and acquisiioo of alioaoo.J iostitu!ioo.lnslitU!ioM with in<lemnift..-.. olhtr3SS((s. tiooasstts :uising from FDIC '""·Wring agreemeut> m expo.1ed All other lial>~dies • baok'aliabaityoo '"''JlWlC"'Iim~ed·(ife P"' to adq>t ASU 2012-(16 for Call Rlport pUI]l<lkS in o:OO«J..ncr with femd st«k. aDO\\~f'Kt for esfjnl3tt.•d oft'.bmnct·sh~ crtdi bses. the efi<Ctl~t date of thl! oandard. Fot additloll>i lnfonnatioo, refo r talr m:uket valutof dtril·~i\w.and other lbbiliti« to ASU 2012·06. "'Uabl• at bup:Joow.f.rsb.orgJ'•piFASB/Page/ Asse$$1111!111 base· eff<>-tiY< AprU I, 2011. thecltpo<it iosunnce Stdioi!P>gt&dd•II76156JI6l98. wtssmtni bastclw!gtdto ·a,~ragt oonsdidattd tocal a.uas minU! Goodwilllntpairmenll e$\ing • In S<pttmb<r 2011, the fASB issutd awrage tangible equit)' witlun additional a<ljwtmenl to 1he ..,.... AcQ)Wl(ingSt>ndatds Updalt(ASU) No.lOII·OS. 'testing Goodwill mont bose for b3Ji<tr'• baol<.and QIStndi:IJ ooih. . permitted under FDICQ UARTERLY 33 160 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00164 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.53071412 2016, Volumt 10 • ~umber ·I Dodd· Frank Pr""""'IY lhe "'"'m<nt b"' "' '.......ble dtposi•' Each institlltioo is as:signtd a risl<·bosed nrte for' qu.rt•rlr """' and consis1cd ofDIF dtpo<iU (dtpo<its in>urtd by tht FDIC D<po<it mttll period near the end of tht quarter followi~ tbt a$$t$Smtnt lmunnce Fund) In bank&' dom.,tk offi"' wab ctrtalu adjnstmellt& ptriod Payment I! geomlly due on the 30<b day of the last molllh A~ rate schedule -lniti>l b3Sl,....ment rat" lOr sm.U o( thtqu.rttr following tht """meI ll p<riod Supervisory rating iostituliom art bGscd on a comb-ination o( tioanc'-t! ratios aod changes art effecth~ for asses:smet• purposes as of the: mml..lntion CAMELS component~· lniial nt<S for brge iost.lltiom tnnsminaldat~ g<D<r>lly thoot with at lean $10 bDiion In US<ts-arubo b3Sld Assets se<urdi!ed and sold-ootal ouu1aodiog prin<ip<l bolaoct on CA.>.tilS compontnl nlillgs andrtrtain &:m:-ial meu:um o( US<ts securitilJ«! and sold with S<rvidng rtt2incd or lllhmeller· comblotd imo I:W'O$COrta.tds--oot for mon 1argt 1ns~.itutiom and provi<kd credit enbarK.emmts.. a M n O d i o h p e t r r a fo ti r o t r h 1 e 3 1 r l e yc m o a m i p ~ l" ' v o e r r y th l M ar g p e o I o n t s U tit J u Ji t q i u o c n d s l l . h tl a lt t o a g r < t S " a ru nd c t r u is n k l s l y C un a d p e it r a t l h P e l l T rd A o R as P e ,t P he lo T g " r a " m " ' ( Y CP ll I < 'l p - < a ar s t m ao e r o r t o p u u n i . < :t b d a i s n e O of a o o o b n t r t u 2 m 00 u 3 b in""o { f.lllurt (highly com pi"' instnutiom). The FDIC may take tlw ptrpttual prtferrcd •ockand rtlatcd ,.,mnts that lstrm<das 3dditioml inforlltlt.ioo intoac<'OWlt tomakealimi«iadjwtmeot to a la l r a g r e g i t n i s n ti s t t u i t t lo ut o i ' o s o ~ 'u i ~ a "" l O r b « 3 a S r l d " m '" W "" ts e . w n h t k ra b t < m used to detennine a r T t u q o m l e l r i u l 1 } la ' c c t a l a > p p < a it a a p l l O r . < • > f S e r u r r r c < c b g d u \ o '1 i t a - o a t d N o < r a y n i c l U $ a u p to e a d o p b l u J y re l p W b u a I b s 'O e li c d " o ' y i m · s t r m i a n d c o < l n u d d s b t e o a d n c k k in & o " a r T r n o t o t a n l · \\'Me risk cattgOM lor smaD iostkutiom (<x<<J" ntw ~ilu· rclle(ttd as weD in "Surplus.• Warrmts to purchMtcommonsto.:k or tior»)~<<Rdlmioatcd ell'tctivt july 1,!016. iniful OJI<Sior smaD ooncumulativt prtferrcd stock of nlll·pubiid)'·lrndcd l»nk •ock are hl$dtutions art subjn-c to minitrultiU and n'l3.Ximwns bastd on aJ1 cb.uiJW in a bank's bai3JI<t shtd ""Oth" IW>iiit<" i i n n > st U lM M io io l o l$ 's " C ' t " ~ e , l I i ! m EI. i S n c a o t m ed p o in si t 2 < 0 1 n 1 n . i ) o g (Risk ""gories for large Commoo equity tier 1c apdal ratio-ratio of common oquity t~r I "l'ital to risk·weigbtcd """'Common equity tier I <>pitol in<ludes Thecurrent ,....m<nt nt< .tcdule b«ame elleak·e july 1.2016. common $lOCk i.nstJwnenls and rclattd. su.rpiU$, retained wnings. Undtrthtcurmlf Kb«luJt, initial bast 3$S(SSmtnl r11ts raJJSt ~"('Ufflulattd 01hn compubtnsh~ iBcome (AOCI), aad limitd (rom 3to 30 lnsls poinu. An iostilution's totall:we8i5e$$ment rnte amowtJ of oommon tqujly1ler l minority inltml, minus applicaNt ( m I) a y l! d r i l l l l « 'o < r l f r 1 t 1 d >m O a .b s t i n A ki d al l 1 u '3 ru 1< n t d n u t e A to n l io h s r t e i t t u p t o io < o S ' i • b l r • n o e :l j m us a tm y d <n e l e $: r .,. l r r t o gu rn b r to o r m y m o ad n j o u q st u m it cn y t t s ~ : r u d I a dM plt w a : l t i i o n n d s u . d h t e g m co s d th w a i t l l r . u o t t h fu e ! r J i y n t ! k 3 d J u lS c i t l l l o l< d by up tO 5b osis poinU for Wl!fCUicddtb<. The WUKurtd <J.bt ass<ts (txcluding mortgag• strvlcing asS<ts) and «rUin dtf<rrcd tax 'Od)wwentcaM<It a<«d th< (..,.roflbosbpok!tsor 50 p<n:tnt m-ets:; hems th3t ate s-ub}ea to limits in comroonequ.i.ty tier J a.pibl of"' ~~ution's inllal baS< '""'ment nrte (IBAR). Thus. lor include mortgage mvklng asS<ts, digible d&rrtd tu auet.o, and e<r· txMnple.an ~iiUilon with an lBAR ofl bosis points •~uld have o t1in sjgnifirni im·estmelis. moxiroum Wl!mtrtd dd>l adj\l.ltment oil.; boils poino lllld could noC havu Iota! base 3S$t$SIDtnt rate lower than I.S baii$ poUts. Cooslruetion and dmlopotert loans-indud" loons for .U (1) Ott!OSilory lostiturk>n Debt Adju.sthltllt: For iostitutio~ that rropert)' t)pn un:ltr construdion, as wd) asloa(lS for lard acqu.isi bolclloog·t"m uns«urtd <kbt Issued by &OOthtr inrurtd dtposJ. ti<>o and dMI~m.eot tory ~ution, a 50 boiis point <haJi< is applied to tht amount oi C..e • ..,ilal-common equityapital pi"' nonrumulati" perpetual such d<b( h<ld in excmofl pt~<ent of an institution's Tier I C3j>Oal pref<rrcd llod<plus minority inter"t in coosolidatcd subsidiar;., (J) Broketcd 0.00.1 Adjustru<nt Rates forlorst in>tltutlooslhat "' It$$ goodwill and «he inrhgiblt inlar~il:ft 3$$ds. Tht amoWll of not woB capit~ilcd or do oot b"• a<ompo<itt CAMELS nting of digible intangibles (including "rvl:lng rigi>U) induded locoree>pl· I or l mil)' lnmo" (noc to exceed IObalb poino) ift heir blliertd tal is llmticd in ac<crdaoct witb SllJ"rvi>ofy upi to! r<gulation< d<po<os "'<ted 10 p<r<tnt ofd omestic d<po<ir< Cost o! fur•ling earning assets-total interm expense poid oo The ,...ssmeru nte KhcduiHftecth• July 1,1016, iubown in the deposits and other borrOI\·td moDe')' 3$ 3 pth."t!Ugt or; a~~rase e:JID fdl ....i ngt>ble: ingWtt< haiS•tM.,..,Iltwf' Cttdil emancelleots-t«hniqU<S wbmbyacompanyattemr• to t•l - CAJ . « . lS . ) S C I . I p .I o II l 8 i . te . .. ••• .. ' c " "," " t." t_ " " il " " . . o t p r t t r r l d h o ig v a u i o i n u d c a e e t t d b o m e r b e ( < y i o n r a t t t d t m e h i n t a i u r y r d l i b s c k p t r a o o t s r d f t s y i ~ o t s ( n d e o t x a b b t t a e l t i n r d g n - l : a w ll ~ l i l m t o e b e m r l t a d l . D l g C ~ _ h r t a t n W d o h d l i a t t o s m r s n c u e o h a m a r o n t c e c t e h n e . t a m ) n t o r O . r 'l D b t t y m -t t ) a h p y e t b o e ( A lrl s it s i e a s i s S m .. e e n t Rata ••• 16 6tol0 10to30 lto30 Deposit lnsuCliiK:e f»nd (Difl-the Bar* (BIF) and Sa>lngs Associarion (SA!F) lnslltall<e Funds""' merged in 2006bj· the M Ull ,u $ t 0 tm CU c r n ~ t O et. ·StoO -5100 ·StoO .StoO Fcdml Deposit '"""'"" Rtform Act to form the DlF. B A r d o JU ke $ f t \ m ld e 0 f'l $ 1 p o$11 NIA N/A NIA Oto 10 O of e c r k iv r a i\ 6 'a v t e iv s " n o"c!i'o"n"al"a'1 l 1 h o e l l l l m l- ! t h o e l i o m o d tl v o e ru m l, e o n r t c i o n r u th r < a c l) t j u l< a S l. a o m f ounts A T s o t t o 3 $ 1 & 8 r a n s o o t'l 1 Rato 1.5to 16 3to30 ttto30 1.Sto40 d cr tr t i d \' i a t t r i b V k d . } L \ r ( n )( .O .io S n a. a .1 l i a o m N : o an un d t a s r r t t p n r o e t $ a tn q t u t a b n ~ t i a f m ica o t u io n n ts o w fm td a t r o k t c l . a r k is u k b o te r "• A'l*~• forthtt~t!MWtlll~H*ntatnnu.,. ToulbJHUtHlNt contractual <osb fto•> to bt exdlangcd. fltMirllmli~Otl'l'ltlll'rNM t.ttt-.llvwybfM._.tlltMIU. . foUl but Deoivatives crtdit OCJ~italtnl aooourt-th< &it \Oiueoflhe derh>tivt ~ * " t " r " ( x 1 ' N e * t c l b d ~ v o • t M . n J I « \ ! t d 1 t o 1 t , r d l l < u o n d $ t t .1 t l . M - t Q M l t i t ln h ~ S t w ll r y tl . . i J . I M I O . O W , I\ u . t o . . V n , t 6 . a t r l b 5 . t 0 J : t i W . l J o j d t t « i h I u O m : 1 l s 1 ~ t S l l p l l t ' f R I Y « I C M t l o l p h lu t s o a o n ti a o d n d al d a i t o n u O a < l l a ll m l, t o h w t r t < f m or a p in c l t n o g n t m i:l a l t " u - r " it " y c a r n e d d ~ i ' t P " ' ' J o J l I l l h U e l o f o b m as r « a ! c 0 t 1 1 115 pttcftll Thtudlltl'9ft1ll'IN'IIIO'!ibnupo~ntJolabrgu'l$btUbon·• ~~ battlafurmabnogt«U~t~ad!uta"*ltsi. Yl FDIC QUARTERLY 161 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00165 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.63071412 QUARTERLY BANKING PROfiLE Oeriv1tives transaction ljpeS: Fair Value. theval. .t i<>nof variow """ andli>bilitles on the baJ. Ftnurt$ and forward colltracts-concncts inwhkh lht buytr we sht<~-includi~ tndiog.,..~ and liabillti<o, avalla!J!t.for-ult agrees to pwdlase and the seDer agrees to ..U..r a'!""&! SKUritl"' loans hdd for salt, assets and lla " bi ' i ' t ' i " u - ac il c \" o ' w 1 t '. le ., d fot lirturt dat~ a 'J><(if~tquant~yofa n w!deriylng vari.lb!t or indtx under the &ir volut optioo, and foredOS<d the use ala'!""llWprictOr)idd. Theseoontmtsexl• foravari<tyof of fair""""' Ouri~ periods o(m atkd "'""the fair volues of aome """'bl" or in<lk"' (tnditioml ogri<Uitur.d or physi<al oommod· lioandal illstrumtw and nonlinaociol ....u moy dedi..,, •itt. 3S wtllas nu:rtn>."ie:J and in1emt r:Jtn). Futures contra.:ts are FHLB advances-.n borrow~1 by FDICi nsured imtitutioos from staodardiltd aod are tradtd on organiltd txcha~ '1\·hidt $d. the Ftd"'l Home leon BankS)st<rn (FHtB) . ., reported brCaD Iimas on <OOOI<'!"rtY mclit apoou" foiWlrd rontrods do noc Rtport l1l•"· and byTFR flit" prlot to lta. ..: h 31,2012. h O a p \ t ' i t o $ • 1 a C o 4 d n a. l r f d iC i: / u $ d • t t C n O m Ol r a A n " d 's i a n rt w 1f b a i< d b ed d e t w t b e u r y tb < t r a C < O q il u tl i t m er. lbt right G ris o b o t d s w , p il u l r 1 d 1 t 1 > d s o e t d h e c < re i d r i l t a c n u g r i d b l t e tl o a ti - on i . n < t h a lp ~ < i . ~ a • n a d l S o t t l h ! t in t c W lu . d m e i s f. e . n b • le id ng to buy from Of sdJ to anolh" party some 'J"<l!W amOWll of an intangib!t '''"' Goodwillb dtea<t!S of the pur<bost pn.-eowr dte a w p !d tr t i r o ly d i l o lg r v o a n r a ia l b p l < < c o lf r . e il d ld < fu x t a u t t a td s a b t < e t . d ln p r r e k t e w ( o s u f \ o k r t r p o r m k p t) t d ,. w tlo i n ~ l m ai t r D t I n a a d r j k < t ts t t \ m 'a < l D ut I < o O f lh th t e n r d uu a • $ n $ g d i S b l a e c q al u S ir tl t s d a .lc rt s : r s < s r u o b r s d t t q d u a t t n f t a i l m r \ p o a l ir u · ~ (such as af tt Of premium~ The seller Is ob~ated to purdw< or Jt.s subsequ<OS ~<rly amortizati<>n and impalrmttl adjustment• sdJ the vuiabltor index at the dlscretionoftht bu)'<Ofthe CODiract. l.oMs secured by real eSillte. illdudes bomt equityloaos.junlor c $ o W b II f a lS . , • . , o b at l i p g e ;l r t i i o o d o i s c l > in < te lw n• « a n l s t w (! o < t p tl< a m m < .. n t t o d a e te x s d ). t fo ~ r a a s S p < e r c ie if s i e o d f s U e t c o u s r S ed « b u y rr r d e a b l y . . I . 1 .. f . u mi!y mldeotial proptrtiet, and aD otber low f p o t r r i n o c d b . 1 s D e t t t t l u tm b , f . lO t d "i a \1 l e o f b a y s m w u ar l a t rt ~ e g ith th er e t q b u ct . d n . t o < r y d ( e o t o e d rm on in al r d o l. t o h M er s $ t t o < U in r d t i d v a id od u a U ls ll K • \. i " ll U d f u ed c k ~ s ou r t.u.n d l i ~ n m g . c rtdi cud bolances aod priodp31) of th• undtri)it'!l »ri.lble or index by sp<>.ified rtf<r· l.ong-t!rm mels (» yeonl-loans aod dobt ~«Uritle$ wilh remain· etl<t rn.tt$ orprkt$. E.xct'p"rb fo r currt.ncys""·.aps, the ooctonal prin illg maturities 0)' rtpridng itlrtrvab of 0\'tr fh.·t ytars. cipal is used to cakulale payso<OS bulls not mbang<d MaxiiiU• creel~ exposure-the nuximum rontm..iu:.tl credit OerM!tives tllclerlying risk exposure-tbepotenti>le"'""ure<har· t:q>O$u.rt rtmtining u.Ddtr rcoourst arrt:ngtnttnu and other 5tlkr+ acttrlled by dtel<Vd oll>lnks' eooceotnllon ill parti<Ubr undorl)ing pro,;ded credl enhatXtmtnO provldtri by dte rtpOrti~ bonk to imtrumtrus., in gt:ntral Etposurt C3J\ mult from markt1 rhk. cmi!t S«uriti:za1ions.. ri$k. and openlioo~ risk," wdlas, inter<~~ r.tl< ri$k. MOitgage-backed SOCIIKieo • <trtlfKater of patfidpati<>n in pool! 0011estic deposits to total assets-total dom~tk off"IC e ckposil$ as of rtsideDiiAL111«1g'S"and«&ter.diud mortgogeoblig;ltions a ptr«lll of tot>I....U on a eonsolidat<d ball• Issued or gu:arantetd b)·goverrunttt·.sroosortd or privatttnltr· Earning assets -all1oans and other iuvt$lmtllU that ea.rn inte-mt or pris<s. Also..,. "S<<wiiet." hdOI\'. divldendlncom< Net chargHfts • total loans and ltastl <hatged off (relllO\'td &om Efficiency ralio. Nooiotete<t aptOS< I"' amorti2alion ofilllangible balanct sbeot t.-':1"'' of uncollt<Ubllay).l"' amounu r<C<I\'ntd on assets 8$ ar er..:e.nt of net intert$t iocome plm ooointerest iocome. looos and ;,..., previou~y charged oli This ratio mcas.u.ru the rroportion of nd operating mrmu.ql.ha1 Net nerestmargin. thedift'ertoct b<lweeo inttmt and cl'l'lidtnds :ue aboorbed by Ol'<rhead '"~'<"'"· oo that • lo-o·<r value in<li<ates 01rotd on lolffiSt·~ alStls and int<rat paid todtpositor"nd greattfd!kitocy. other cr«iitms. fXPress«< as ap trctntagtof awrage earning assets. Estinated insured deposib-in gtntr.d, insured dq>osia arc toul No adjust me ott art made for interest i.Jx:ome that is t-ax exempt. dom<Ok dq>os<s mlnus "ti mattd unlnsured deposill. B<g'mnl~ Net loans to tO!> Ia ssets-loaos and lease finaocing n<eivabltS. II<\ i M B t q s m ;l '" n h n t i o 3 n t 1 g o , S 2 ! " 0 q 0 " '1 8 ' e ! . m a f b o b r l e e i s m 3 d t q 0 i . > t 2 u o 0 t s i 0 i o t> 9 n . s m u th i • n u a u r t s e 6 e d 1 < t t d C i e m p o ; o l l l o t e R il d > e p u i o n n r i d t m s u , u d i r e m e d d u q d r > t e d o p s o d b o e s i p i ~ o n s . a o s f s W d.s lW on 1 l 2 e d c o io m c o o l m id t .l , t a cd ll o b3 " $ n i$ < , e aod rtS<NtS. as a per<eol of total accowis of SI 0 0.000 to $2;0,00(1 that are cowred by a t<mpo"')' Net operating illC01Jie -iB."'C''Ie txcludltJS dJKrtlioMr)' lrnnsac i ( r S x ~ re I . D a I se A i ~ n T tb h e e D FD o I d C d ~ ·F $ n b n n k d a \V rd a l m l S a u ~ . u ,r s R n tf d o e rm po r a it t d in C su o r o a s n u c m e a t m r QU.l)l, t t i x o i m ra o s r u d cb in a ll s ) ' g i : t i e l m iu . s ( . o l r o I c C o 4 l' $ l ( l $ f ) t o ax n t s t $ h u e b $! t I r .e a c o t l t ia d v ( o r t o $ m U n q t > n f t r a $ t « in u g ri l i l D t$ :o a m D e d Prot«tioo Act tnacted on)ulyll, 2010, toarl<ptrm>nent tbt stan· ba\• been adju1ttd to tl<.:ludt the portion appllcabk to S«uriti<s dard maximumdtposh inswancumoont (SliDIA)of$150,000. gains(orlossto). Also, tbt Dodd-Frank Act am,.<led the Feder.d Deposit llllUI1ntt Noncurrent.,.eu • the sum ofloa.,, J....., dobt SKUritie.t, and A\1. t<1lodude ooninlem:t·btari!l lrausactioo a«owlHUJ new otbtr assets that att 90 days or more past due. 011lo nona.:-crual Shtus. l«Dpor.uy dq>osit imllt.lB't acrowt at"Of)'. AD funds hdd in Nonc111ent loans& leases-the swn of""""andkases90 da).or n li o m n i i t n , l f : r e o r m m - O b . e .: a .m rq b t t t r . 3 ll 1 lS ,2 3 0 tt 1 io 0 n , t 1 h K . C oo ()W gb )U D w o: m trD h b i e ll r y 3 i 1 n , s lO ur l ~ l. "itbout mort past due, and"""" and le"" in "'"''"rual status. Number of instillJiioos reportii'Q -lbe number ofimtitutioiiS dtot railed/misted institutions. anlO!litulion faib wb. . regulator< actuaDy fled a fw.mcial rtporl tal<e roll!d ol the imtitution. placing tbe alStlund llol>iliti" Into o bridgt bonk ron,.tv.ttonbip, rectwmltip, or :mothtr hnltby iwtl· New reporters· imwed inoihltionsliillg ~erlyl\nancial rtpO<U tutio11 This action m~rtqui~tht FDJCtoprovidt fundstorortr lOrtbe ftn~timt. 1~. An institution Dd e6ned as ~aMtrted• "''hen the institution Other borrowed funds-fedenl hmds purdo"'d.•«umes .old •ith «mainsoptoand rwi\u ;wistance iD order to continue ope~iog. o FH gr L e B m a en d ts '" t " o " r ' e o p t u h ! e < r h b as o t, . d - tm ed an m d o n n o e te y s , m isi o U rt t g d a g to < t i h n e d o u. b S t . e T d r n e " a " s wy. FDIC QUARTERLY 35 162 VerDate Nov 24 2008 16:26 Aug 04, 2017 Jkt 046629 PO 00000 Frm 00166 Fmt 6601 Sfmt 6601 S:\DOCS\25433.TXT SHERYL spe.73071412 2016, Volumt 10 • ~umber ·I ob~os un<kr "!'itaiU<d )...,., and u.di~ liabilili<>.l•" revalu· Seller's intett$1 il iml~ution' sown seeuritizations-rbt repottiog axionbm:onas$tU bcldintradblgac('OUnts. bank"s owntrsb' intt11$1 in lorans and odltr a.utts Wt b.a\'! btel'l Other reale11111e owned-primarily l'oro:k>s<d prop<ny. 0\"'1 and S«'Uritiwi. ex«pt an inttte$.t t.lut is a form of ~"'O.ltSeor odlcr ; in , d re ir 6 e r c o t < it d t\ o 't a : o S f t v m a ~ l u in a t r io ta o l a e i s i t " M "'3 t J > \ . 't " l < l ~ u . r F t: o s r a l r n t ~ t k x u c t lu i d o t m d 1 ! 1 1. ' 1 h f t i a t .m a o u.m s l d . le h "p t r ~ ov k id s e i d s s m ut d d i t l o e n il b l\ 3 't 1 S 1 t C o e n m b tl y lt . t h S t .O se t . r . ' : s u i r l k l iz t a tt ti " o t D ' d st i r ff u e c r t u ir r o e m . T ht Thrift Fi••nciol Rtpcn (TFR), the valuation allowrux• •ubtrnct<d •i>o prin:ipahmount of a stUdslnteM isg<nmlly <quallo the total incl.W.. :ollo•·anc" for other repo!Sm<dm<ts. Abo,l'or TFR lite" prill<ipol amouol of the pool of m<ts inclodtd in the se<uriti:r.tion the componeots of other real estate O\\'oed ate reported gtoS$ of \'alU· WU<\Uie Ins lh• prill<ipal amount of thost.,..u attributablero atioo all..-.o"" (I'FR lilen beg>n liliog Call Rq>o<ts effroivewith inYe$10rs, i.t., in tbt formo(S«Uri1i« issutd to Uwntors. lhequartermdingMnch 31. 2011) Small8t1Sineosl.ending rmd. Th< Small Busintu l<odiog FW>d l l p ' b e a n r r c t s d e t n r h o l a t t o h U l t i x n s r s a t t ' m i J t $ u t e t p d io t t r n h io s e i w d r i a n t e h y t e e i a n ar r c n o n i m n d g i e t s t ( o . g r a d in e s cr - n t s h e e d P th " t " ir " l ' o o s f s i ~ o ) s c t o il m u· · b ( B S y u B p r L r in o F \ " i ) ' d w J l o n .l b g S s e 0 A n 1 c p o t W < o t a f « l l1 l O i o n I q O t u o a b t l o 1 w 6 e i o n o d c S o o t o p o r m t a e g r m n e u b k n t - r i n l l d y Q i i n l I l g O lt 1 i o i . U , s m J ii l o ' a r n U lo s f b • th o · e k s S i b m " " " a " " U " ' ofkss than SIO billion. TheSBLF Prognm io adminlrtertd by the "Problem· instiiOOons -leder.J r<glllatofi "'ign a<OmJ'O'ile rating U.S. Tr=uy O<p3rt.meot (httyJ/•""'""wy.gov/....,w«·ctlll<r/ to each fiiDnciallnstitulioo, bo$td upon an cv:olu.tion of financial sbp!O!!rams/Pagts/SmaD-BusultS$-I.trullng.fund.!!!>x). atldoper.1tional crite-ria The ratingls based on aK ale of I to S io ascending ol"\kr of wpervi5or)' con:e rn. •probk;m • institutions art Under rh< SBLF Program. the Treasury O.partmtnt putdustd • th . o ., s . t . i n th st a i i iU rh ii m oo t s t w n k th b e l i i r o 0 .O 01 O 1 a tl l o . u o < p d e f n in t a io ll o C a id l, o v r ia m b a il ~ it D y g . < D r e i p l e l n w d e i a n k g · i n n o s n t < it u u l t ll i l o U n I s U a iW nd p h e o l) l ' d < i t n u g a l c p om rti p e a r n re ie d s o ( o n . t : h k t t & t o h o a n n q S u u ~i b f .: y b l a o p g t e d r c S po a s n ~ d o ry upon the dtgrttof risk and supervisory conwo, they are"'"' mutual inst~utions). When tbil stod< bos been issued b)· a dqx<~ory a i e n i ~ s t t b i r t o u a $ ti t o . d .. n r o s · n < w 1 F r b D ·s o I . C • « T p c r o h i m e '" o p " w o )' s o ( f b < o e d r r e a a r. n J t d i re l ~ g $ u $ P ! d O r t i l o o O f r r " r w o p a r M s o t b h " l e e 'h m O l " T l S . im . 2 t ( t h 1 i ( t e 6 u O . U l T ' o o S n r s $ ~ p u t h t r p u p t t l t u u i s. a o . • 1 o F . p o . ~ r .t e r i> t n g r < u tp d 1 o a s r t r o t o o r c y d k c a q a s p u " i a t P l a i e l O ! p p O d a u s a ~ a l c p o re m t f h e p i r s o r e o n d e o ~ n n o c t c o u l f m < T u a i< n la d r U I r \ d ' " t a ! t 'i o t d a l. cornposilt r.tling wu uud.. Q wt u $ a « li u lj r ·i t n d g s S u u b b o c r h d a ia p . W ttt d S c c k o b ljlO tn < t a u t r io d n 1 s 0 a t n h d e m T~ u t U u I o ) l l ' o D st e i p lu a t r i t " m " e ' n is t s ue RecOO"se-an aJrangtJnt!l in whit.-h ab ank ~taint.. in form or in throogb the SBI.f. O.posllory lrulilutions ib.u IS!ued th"' substao:e, any u<dl risl: dire.11)'or in<lm<tl)':mociatod with an ckberuures uport them as "Subordinattd ootts aod dlbtnlu.res. • ''"'i l !~.a sold (In ..-c ordan<c •ilb goner.Jiya<«p<..S accounting For r<gulatory"i'ilal P•IJ'O!"· rht deberuur« art tlipbl< for prin<ipks) rhat e:o:eeds a pro nlll shm of the book's dalm on the inclusion In an lrullMion's Tltr2 caplral lo :100>rdan.."t •'orb their ""'-Ifa bonk bas no claim on,...,., ith " sold, then tbe reltlllion primaryfodtr.J reguloto?•"''~alstan&.rds. ToJl<'.oop.!t in the of any credi1 risk b rexw"- SBI.f Pros ram. an imlilutioo with out~tand!og $tcurili<s l"ued Re....,.. for losses-rh• allowan« for loon and '''"to.... on a to th• T" "ury Dcp.rtmoru ut~dtr the C.pial Pur<ha!e Progoam coosollcbt<dbosls. (CPP) '"' r<quit<d to rtfiiW!(t or It)")' in full1ht CPPsecurillts Restrudllrtd loons and leases -loon and 1,.... financing rt<tiv· a im l t l h il e u t t i i m oo e i o ss f u th ed e . S to B L th F e f T un re d a io su g r . y A O n . y p ; < o l r U tm !J . ia el n lt d u in n g d , e . r , r , h . e , C ., P r P h a r t t m an o io a m ~ b r o ! u d a r i w l t k u i d 1 r h t e e " d r " m l ' o " s a r . e n s s t a ru n c d t " u ' r " e " d ' t f h ro a m t a r t t h no e t i o n c ~ om c p o li o ol t n r c ¥ e t w E a x h cl t u h d e e ! o P u ro t• g a rn n m di u ng o a lm tit r th 1 e b i t m m li l l l u ll l l i l o k n i n d g lo o o f t m he t C o P r P ep A o < r > < <I< h t , h .. r o th u e g m h . th• SBLF Retained earnings • net lllCOmt Ins <3>1! div\dtods on common and S as u a l> p c 3 h S ap S r ·t e h r r S ou e g c h r p tn or li a ) l ' i . o s n im - i a la S r u 1 b 0 c a h p a a p r te tn r S tr c sb o . o ,_ p o fo r: r u i i o t& o i r s a J tr i t n a c t< oc d n t pr<ftrrod >10<1< l'or rbe rt~ period. tax PWJ'OS"' It Is g<nerally 001subjt.1 to any feder.J 1noom<laxtS at Return on ....U-b:ui oet incom• (including gains or losS<S oo theoooporattln•l This can ba-. theeff«t of red!rdng inslilllliolll' S«Uthi<s and < " X ' 1 e I> l o ' rdiJWy ~ems) as a ptt«llt'S' of a-.rage lOt~ rqx>rtai. laxtS and kntrt3.$iog thtir afttr·tax tarai~ (consolida!td) The bos~ yardstick ofba~'l< profdalnlity. Trust assets-ma&d vnluc, or othtr rt.asQ~Jal:ty availalie valutor Return on e"'ily-bank D<t Income Oncbuling gal"' or loss" oo lidu<imaod rel:atod asseltiO inclodt marl<ttoble S<CiltiOO, and s«Urilies and extraordiwry ~ems) as a percentage of a"t~ total other funncial and ph)>ical """'Common Jlhyskalasset• hdd In tquilyapilaL 6du.1aryaccounts l"'lud. rod mate, <quipmtru, colle<~iblo, and Risk-wei;.ted asstls. ""'' adju<led lor risk·bo$td "''iW dtlioi· bowthrld good< Sud! fidu.'hry ....a art not iocludtd in tho......, i l l i t : m ms s " m 't u .k l! h ip i U o o c d lu b d r t o rl n sk -W -•· a ri n fl c t c iS -- . t s h h a m i r I a I$ n . g .,. e d J ir o • m o f " t: ' b o d 1 a 0 n 2 c 0 t 0 ·s p h < « r< t eru. o U f n th ea tA rn n e m d i c n la c l , i . m .e t i & lu c t i o o n n tr . a accOUI'IIS-...,.med lnconl< ilr CaY A ronvtrs.ion factor is used to asslgn alxdanct Ui.M tquival<DI. RIP""' lilmonl)'. amounl for sd«tedoff·bul•n<t-shtttaccowt•. Ullllsed loan C<MIMitments -in<ludes mdit card 1;.,., bomt <quil)' Sewr•ie$ ·ad! Ide! "curii<s held In uading accouru Banks',..... lioo. rommitmt.nts to make l03J'I$ for cooS1Juctic>n.loans st~--urtd rill<$ portiolio< coosist of $0.-urili" de!ign>tod as "bdd·to-m31uriry," byc»IMitrtitl retlesta.tt,aod wlt.l$tdComlaimtmtoorlgio!tt •l>>:b '" "J'((ftod a1 amortiud cost (book \'3/ut), and S«urili<$ d.,. or pur<haseloaJlS. (Exdudtdart oommilmenu after Jun• 2003 for igt>ated" "availab!t-for...Jt," rtportodar falr(market)valut. originated mong.tgtloans h<ld l'or ..Jt. wbidr art:I«<ulltod for., Sewr•ie• gains (lo,...)-renJilod gains (1....,) oo bdd·to d.riYatk., on tht bol.tnce sb..r.) m31urity and avallablc.for..salt $t'Curltlts, btfort ad,i~mtnl1 for Yield on earning assds • toto! lntt~. dividend, and let iocome inconlt raxa Thtifr F""' ,c;.r Rtporl (TFR) film al5o include g>ll• earned on loans aod im't'$tmtnts as a ptf'tDtJgtof averagt (to....) on th< ..1" of ""U bcld lor ..I<. (TI'R 6ltrs began filing tamingasscts. Call R<pomdft<ti><wdb thequarrertodlngMarch 31,2012) 36 FDIC QUARTERLY

Janet L. Yellen (2017, February 13). Congressional Testimony. Testimony, Federal Reserve. https://whenthefedspeaks.com/doc/testimony_20170214_chair_the_semiannual_monetary_policy_report

@misc{wtfs_testimony_20170214_chair_the_semiannual_monetary_policy_report,
  author = {Janet L. Yellen},
  title = {Congressional Testimony},
  year = {2017},
  month = {Feb},
  howpublished = {Testimony, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/testimony_20170214_chair_the_semiannual_monetary_policy_report},
  note = {Retrieved via When the Fed Speaks corpus}
}