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Prepared Arkansas State Economic Forecast Conference By Julie L. Stackhouse, Senior Vice President Federal Reserve Bank

The State of Banking in Arkansas. Prepared Arkansas State Economic Forecast Conference By Julie L. Stackhouse, Senior Vice President Federal Reserve Bank of St. Louis October 29, 2009. Just over a year ago…. Source: Reuters.com. The country faced a financial crisis. Fall 2008.

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Prepared Arkansas State Economic Forecast Conference By Julie L. Stackhouse, Senior Vice President Federal Reserve Bank

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  1. The State of Banking in Arkansas • Prepared Arkansas State Economic Forecast Conference • By Julie L. Stackhouse, Senior Vice President • Federal Reserve Bank of St. Louis • October 29, 2009

  2. Just over a year ago… Source: Reuters.com

  3. The country faced a financial crisis. Fall 2008 Before the Problems

  4. The Federal Reserve, the U.S. Government, and the Federal Deposit Insurance Corporation all responded. “First Responders” to the financial crisis

  5. A picture of the Fed’s actions.

  6. Congress responded with the Troubled Asset Relief Program. Source: www.financialstability.gov

  7. The Federal Deposit Insurance Corporation responded with higher levels of insurance.

  8. The financial crisis and recession spilled over into the banking system. Source: Reports of Condition and Income

  9. Banks and thrifts in Arkansas have experienced some stress as well. Source: Reports of Condition and Income and OTS Reports

  10. The driver has been commercial real estate (CRE). Banks have significant exposure to CRE. 0.12% 5.98% 1.85% Source: CMSA, Flow of Funds Accounts 1st& 2nd Quarter 2009

  11. Relative to size, smaller community and regional banks are more exposed to commercial real estate. percent Source: Reports of Condition and Income 2nd Quarter 2009

  12. CRE risks are widespread. June 30, 2009 Source: Call Reports and OTS Reports

  13. A look at Arkansas metro areas as compared to other regional MSAs. June 30, 2009

  14. Understanding the valuation problem. 14 Source: Blackrock and Atlanta FRB

  15. Real estate loan write-offs tend to lag economic performance. Percent Percent Periods of economic recession are denoted by vertical gray bars. Sources: Federal Reserve Board and Bureau of Economic Analysis. Quarterly data through Q2.2009.

  16. As write-offs have grown, so have bank failures. Source: FDIC; data as of 10/23/2009

  17. When put into constant terms, it appears that assets of failed banks will exceed the 1980s.

  18. Yet, FDIC statistics tell only part of the story.

  19. While the FDIC has accelerated the pace of resolutions, the insurance fund is under pressure.

  20. In Conclusion Income producing property loans pose a considerable risk to banks as we move into 2010. Failures among commercial banks and thrifts will continue, even as the economy recovers. However, the resolution mechanism for community and regional banks is strong, although it is facing substantial strain. Banking organizations with strong capital and risk management practices will weather the storm and stand well-positioned for the future.

  21. Questions?

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