| Quote of the Month:
"The remarkably good behavior of productivity during the recession taught us one important lesson. Those outsized efficiency gains of the late 1990s were not a cyclical or statistical fluke."
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July 2002
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| Productivity Gains Are Cause for Optimism |
| After the recent revelations that major U.S. companies cooked their books to boost earnings, one may be forgiven for wondering if the much-ballyhooed "New Economy" in the late 1990s was an illusion, too. Not to worry, economists have documented that the productivity improvements over the latter half of the last decade were real, and are likely to continue sustaining economic growth, even as the equity markets swoon and consumer confidence falters.
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| NABE Economic Outlook
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| A panel of professional economic forecasters recently revised their economic outlook for the National Association of Business Economics. Highlights of the panel's predictions follow. |
| Mortgage Delinquencies Remain High in First Quarter
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| The seasonally adjusted delinquency rate for mortgage loans on one-to-four unit residential properties was 4.65 percent in the first quarter of 2002, down 2 basis points from the fourth quarter of 2001. However, on a year-over-year basis, the delinquency rate was 28 basis points higher than the delinquency rate in the first quarter of 2001. |
| Delinquency Rates at Commercial Banks |
| The recession that began in March 2001 increased delinquencies on residential mortgages only slightly at the 100 largest commercial banks. As shown in the accompanying table, delinquencies as a percentage of outstandings peaked at 2.55 percent in the second quarter of 2001 and have drifted slightly downward to 2.34 percent according to the most recent data from the Federal Reserve Board. |
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| ATMs: Fees and Functions |
| The Federal Reserve has reported that most banks are now assessing ATM fees or surcharges on nonbank customers. The larger the bank, the more likely it is to charge ATM fees to nonblank customers and the higher the average fee per transaction. |
| Credit Report Sales to Consumers |
| Financial institutions are beginning to respond to their customers' interest in credit scores and credit histories. Banks and other financial institutions are beginning to forge partnerships, to varying degrees, with the major credit bureaus to meet customer demand for information about their creditworthiness. |
| E-Commerce Update |
| Each passing month seems to bring new evidence that consumers increasingly prefer the Internet for making a variety of transactions, especially those related to financial services. The rising popularity of online banking is evident despite rising costs (at least temporarily) of high-speed access. |
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| Crosscurrents in Credit Cards |
| As noted earlier in this report, delinquencies on credit cards have increased significantly over the past several quarters. This does not seem to have affected the volume of credit card direct mail marketing. |
| Racial Discrimination in Bank Lending? |
| Are minority-owned banks more likely to approve applicants for mortgage loans from Latinos and African-Americans than white-owned banks? A study just released by the Rusk Center for Real Estate of the University of Southern California finds that minority applicants with marginal credit records did not fare any better at minority-owned banks than at white-owned banks. |
| Metris Will Broaden its Consumer Lending Operations |
| Last spring the Office of the Comptroller of the Currency (OCC) placed Metris Companies under tighter regulator restrictions in response to its credit quality problems. Metris had been specializing in credit cards to subprime borrowers, but suffered soaring delinquency and chargeoff problems similar to those that plagued Providian during 2001. |
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| New Writers, but Same Old Story |
| You may recall our discussion of a paper released in October 2000 by the Association of Community Organizations for Reform (ACORN). That paper relied on data from the Department of Housing and Urban Development (HUD) to suggest that mortgage lenders discriminated against minorities in granting mortgage loans and loans to refinance existing mortgages. Now, the Center for Community Change (CCC) has published another study alleging racial discrimination in mortgage lending using the same database and methodology. |
| U.S. Supreme Court Rejects TransUnion Appeal |
| About ten years ago, The Federal Trade Commission challenged the Trans Union's practice of selling lists of consumers with credit reports to various types of credit grantors. The lists of names and addresses did not include information about their credit standing, but were based on certain elements of the borrower's credit report, such as whether they owned a bank card. The FTC challenged the practice on the grounds that the Fair Credit Reporting Act did not permit such sales. |
| FFIEC is Clamping Down on Card Issuer Accounting |
| Soaring losses at credit card specialists such as Providian and Metris has prompted the federal banking regulators to re-assess accounting standards related to credit card account management and loss reserves. Although the credit quality problems that made headlines last year were almost exclusively confined to card issuers specializing in the subprime market, the new regulations will likely impact all card issuers. |
| Card Issuers Sue California over Minimum Payment Disclosure Law |
| Five financial industry trade groups (American Bankers Association, America's Community Bankers, Consumer Bankers Association, Independent Community Bankers of America, and the National Association of Federal Credit Unions) joined with five large credit card issuers (Chase Manhattan Bank, Citibank, Bank One, Household Bank and MBNA) to file suit against the State of California. The suit was intended to block that state's new disclosure law that would give customers new warnings about the disadvantages of making only minimum payments on their card accounts. |
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