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Banking

ViewPoint

Introduction | Spotlight: New Regulatory Capital Framework | Spotlight: The Dodd-Frank Act: Third Anniversary Implementation Status | State of the District | National Banking Trends

Introduction

By Michael Johnson, Senior Vice President
Supervision & Regulation
Federal Reserve Bank of Atlanta

Mike JohnsonAs we enter the final months of the year, I am happy to report that bank performance in the Sixth District continues to improve. Of note, the share of unprofitable banks in the district is now much closer to prerecession levels, a vast improvement over just a few years ago, when more than half of banks reported negative earnings. Despite favorable trends, the operating environment for the industry remains challenging. Community banks are struggling to find ways to boost margins and fee income in a competitive market while holding the line on costs.

In addition, at recent banker outreach forums hosted by the Federal Reserve Bank of Atlanta in Tampa and Birmingham, a common theme in our discussion with bankers was the impact of regulatory uncertainty. To help address some of these concerns, especially in light of the issuance of the final rule implementing new capital standards in July, we felt it would be beneficial to take stock of where we are in the regulatory rule-making process in this edition of Financial Update's "ViewPoint."

State of the District
After a few flat quarters, earnings for Sixth District community banks rebounded this quarter, with the aggregate return on average assets increasing to nearly 1 percent. The rise in long-term interest rates helped boost the net interest margin as interest rates on loans increased, but deposit rates remained unchanged. Provision expenses remained on par with the low levels reported in prior quarters, perhaps signaling the end of reserve releases. Declining concerns over asset quality may enable banks to shift their focus more toward further improving earnings and expanding business lending. Overall loan growth remained modest; however, most of the increase occurred in commercial and industrial lending.

The third anniversary of the Dodd-Frank Act
As we all know, three years after enactment, Dodd-Frank implementation is still a work in progress. In some cases, comment periods have been extended or reopened, multiple proposals have been issued, and deadlines have passed, at least in part to facilitate deliberative policymaking. Policy makers are seeking to avoid any unintended consequences for consumers, the banking industry, and the economy that could result from unintended rulemaking consequences. Despite the delays, progress has been made and regulators are cautiously optimistic that additional rules will be finalized by year-end 2013.

New regulatory capital framework
As you are aware, on July 2, 2013, the Federal Reserve issued a final rule implementing new capital standards. The new regulatory capital framework integrates existing capital guidance with new requirements mandated by Basel III and the Dodd-Frank Act. It strengthens capital requirements for all supervised banking organizations, making them more resilient in times of stress, and is scaled to reduce the burden on smaller institutions and to respond appropriately to the increased systemic risk posed by the largest, most complex organizations. We hope you find the articles on the status of Dodd-Frank rulemaking and regulatory capital helpful.

As always, I look forward to hearing from our readers, so please share any feedback you may have at ViewPoint@atl.frb.org. Best wishes on continued improving conditions and profitability for the remainder of the year.

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