National Banking Trends |
State of the District |
Spotlight: Fair Lending |
Spotlight: Residential Real Estate
By Michael Johnson, Senior Vice President
Supervision & Regulation
Federal Reserve Bank of Atlanta
Welcome to this edition of "ViewPoint." As you know, banking conditions in the Southeast continue to be challenged, As a result, we expect bank failures in the region to be elevated throughout the remainder of this year and into the next. But while many challenges remain, there are signs of stabilization—and even some pockets of improvement—as you can see in our regular "State of the District" feature. Indeed, in some instances, the supervisory conversation with our banks has shifted from how to survive to recovery and how to return to profitability. While struggles remain for many Sixth Federal Reserve District banks, in aggregate, the banking industry is slowly emerging from the financial crisis.
Also in this edition of "ViewPoint," we revisit residential real estate conditions since these play such a pivotal role, both directly and indirectly, in the performance and financial condition of Sixth District banks. Beyond credit risk concerns, we also address fair lending compliance, which is another risk on our radar screen and one that deserves particular attention as banks struggle in their search for high-quality loan growth. Finally, I think all of you will appreciate a good speech given recently by Federal Reserve Governor Sarah Bloom Raskin titled "Community Bankers and Supervisors: Seeking Balance." I encourage everyone to read it as I believe it provides an excellent perspective on the complementary yet differing roles of bankers and regulators in helping to maintain the integrity and financial well-being of the banking industry. It also discusses some of the critical lessons learned in the recent banking crisis.
State of the District
Residential housing market
Tighter lending standards, high unemployment, and a continuing glut of distressed properties are leading to fewer sales. Despite these trends, there is some room for optimism. Low home prices have begun to attract buyers and investors back to the market, leading to a steady increase in home sales in some of the most distressed markets. For example, a record 35 percent of real estate transactions through March 2011 were all-cash sales, suggesting investors, at least, believe the bottom is near. In addition, very low inventory levels in some markets have led to a stabilization of nondistressed home prices and an increase in housing starts. Overall, we can expect continued volatility in home prices and sales over the next year, but we believe there's also some room for optimism as the level of foreclosures slowly declines and the overall economy gains more traction. You can learn more of the national and regional story in our spotlight on the residential real estate market.
Fair lending compliance: Marketing and redlining analyses
This edition of "ViewPoint" contains an essay that focuses on the need to conduct self-analyses from a marketing perspective so banks do not violate any fair lending laws or regulations. Moreover, the essay further describes how "redlining" could be a negative result of inappropriate marketing practices that are noncompliant with federal fair lending laws and regulations. We hope this essay helps raise awareness so all institutions can avoid the negative consequences associated with not complying with these laws and regulations.
Remarks by Fed Governor Raskin
For regulators, Governor Raskin mentioned that we should set the bar high when it comes to expectations regarding acceptable risk management and business practices. Regulators, she also said, must be careful not to be too hands-off when times are good and financial indicators are strong—which is when the seeds of financial crisis are planted—or, conversely, to overreact when times are bad. In this speech, she also shared an interesting analogy associated with the risks of "false positives" and "false negatives" in connection with our supervision practices. Again, I think reading the governor's speech is well worth your time, and I would be interested in hearing your thoughts or perspectives after you read it, especially if you have any differing views or opinions of the points she makes.
With that, I hope everyone is ready to enjoy the "green shoots" of summer. Please let me know if you have any feedback. As always, do not hesitate to contact me at ViewPoint@atl.frb.org.