The views expressed are my own and do not necessarily reflect the views of the Federal Reserve Bank of Atlanta or the Federal Reserve System.

Transcription

1 The views expressed are my own and do not necessarily reflect the views of the Federal Reserve Bank of Atlanta or the Federal Reserve System.

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4 Twelve districts, based on input from bankers, businesses, and the public in 1914

5 Federal Reserve System: STRUCTURE Board of Governors Federal Open Market Committee (FOMC) Functions: Monetary policy Banking supervision Financial services 12 Reserve Banks and Board of Directors

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12 Open Market Operations FOMC: Buying and selling of treasury securities in the open market Fed Funds Market (overnight borrowing among banks) FOMC votes Fed Funds Rate Inject $ Withdraw $

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16 Georgia Banking School: Economic and Monetary Policy Discussion May 2, 2016 The views expressed are mine, and not necessarily those of the Atlanta Fed or the Federal Reserve System.

17 Atlanta District and Branch Locations 2 Nashville Birmingham ATLANTA Jacksonville New Orleans Miami

18 At the Atlanta Fed, we use data, forecasts, and information from Main Street to develop our policy recommendations. The Atlanta Fed Process FOMC Meeting Debriefing with economists and Regional Executives. Discuss issues/questions in preparation for upcoming meeting(s)

19 The discussions are ongoing, with new information being added on a daily basis. The Atlanta Fed Process FOMC Meeting Debriefing with economists and Regional Executives. Discuss issues/questions in preparation for upcoming meeting(s) Economists prepare briefings for the President REs conduct field interviews with District contacts and Board of Directors

20 Forecasts are developed and weighed against what we hear from business and community contacts. The Atlanta Fed Process FOMC Meeting Debriefing with economists and Regional Executives. Discuss issues/questions in preparation for upcoming meeting(s) Economists prepare briefings for the President REs conduct field interviews with District contacts and Board of Directors Formal forecast meeting with President REs share anecdotal feedback with President (and forecast economists)

21 Our initial forecasts are shared with our Boards of Directors and altered based on their input. The Atlanta Fed Process FOMC Meeting Debriefing with economists and Regional Executives. Discuss issues/questions in preparation for upcoming meeting(s) Economists prepare briefings for the President REs conduct field interviews with District contacts and Board of Directors Formal forecast meeting with President REs share anecdotal feedback with President (and forecast economists) Director meetings/reports used to test out forecast

22 The final step is the development of President Lockhart s statement about the economy and monetary policy views. The Atlanta Fed Process FOMC Meeting Debriefing with economists and Regional Executives. Discuss issues/questions in preparation for upcoming meeting(s) Economists prepare briefings for the President REs conduct field interviews with District contacts and Board of Directors Formal forecast meeting with President Director meetings/reports used to test out forecast REs share anecdotal feedback with President (and forecast economists) President s statement for FOMC prepared by REs and Research Officers

23 ... when Dennis talks about business and financial conditions, we listen. 8

24 9 How we think about the economy starts with our Dual Mandate this is our job as defined by Congress. Summary of the Economic Environment: The March 2016 Federal Open Market Committee (FOMC) Policy Statement: Economic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months. A range of recent indicators, including strong job gains, points to additional strengthening of the labor market. Inflation picked up in recent months; however, it continued to run below the FOMC s percent longer-run objective, partly reflecting declines in energy prices.

25 Source: Bureau of Economic Analysis through Q Economic growth slowed in the second half of 2015 Real GDP growth, seasonally adjusted annualized rate

26 ... and Q is looking rather anemic. 11

27 Consumer spending has held up well in recent quarters, but it may be slowing. Meanwhile, consumer confidence is well off recession lows but is also leveling. Sources: The Conference Board, Reuters/University of Michigan through March Conference Board: Present Situation (SA, 1985=100) University of Michigan: Current Economic Conditions (NSA, Q1 1966=100)

28 13 The employment picture is positive. Labor markets continue to improve. In March, U.S. employers added 215,000 net payrolls. Over the 12 months ending in March, monthly job gains averaged 234,000. The unemployment rate ticked up to 5.0 percent in March from 4.9 percent in April. More people joining the labor force is largely behind the increase in the UR. Broader measures of labor market utilization, such as the U-6 measure, have shown improvement, and we ve seen signs that worker confidence is increasing. Despite substantial improvement in measures of labor market utilization, we have yet to see a convincing pick up in wage growth.

29 Source: Bureau of Labor Statistics through March 2016 Employment growth has been strong. seasonally adjusted, thousands of jobs 600 Monthly change month average

30 Unemployment and participation rates also point to a healthy labor market, although broader measures of unemployment hint that there is still healing that needs to occur. monthly, percent, seasonally adjusted Broad Unemployment Rate (U6) (left axis) Civilian Unemployment Rate (U3) (left axis) Labor Force Participation Rate (right axis) Source: Bureau of Labor Statistics through March 2016

31 Source: Bureau of Labor Statistics through March Average hourly earnings have yet to recover. year-over-year change, seasonally adjusted 4.0% 3.5% 3.0% 2.5% 2.0% 1.5%

32 17 The inflation picture is improving as well. For much of the past few years, inflation has remained below the FOMC s target of 2 percent, year-over-year growth. Inflation is expected to remain low in the near term, in part because of low energy and commodity prices. However, inflation should rise to 2 percent as the transitory effects of declines these prices dissipate and the labor market strengthens further (which should support wage growth). Survey-based measures of longer-term inflation expectations have remained relatively stable.

33 The effects of low energy prices and a stronger dollar pushed headline inflation down near zero for much of These effects appear to be wearing off. Sources: Bureau of Economic Analysis; Federal Reserve Bank of Dallas through February year-over-year percent change, monthly PCE Core PCE 16% trim PCE FOMC Inflation Objective

34 The Atlanta Fed s Business Inflation Expectations Survey shows that in April, firms anticipate 1.7% inflation over the coming year. 2.5 year-ahead unit cost expectations percent, monthly Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Source: Atlanta Fed Business Inflation Expectations Survey For more information, visit: April

35 20 The Monetary Policy Response: In March, the FOMC decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation. In determining the timing and size of future adjustments to the target range for the federal funds rate, the FOMC will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including: Labor market measures Inflation rates and expectations Readings on financial and international developments

36 Final thoughts: Georgia. Total employment is back above pre-recession levels. 21

37 Job gains have averaged between 2-3 percent for the last few years. 22

38 Georgia is outperforming the nation in terms of the rate of job creation. 23

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41 Georgia Banking School: Economic and Monetary Policy Discussion May 2, 2016 The views expressed are mine, and not necessarily those of the Atlanta Fed or the Federal Reserve System.

42 SUPERVISION AND REGULATION G e o r g i a B a n k i n g S c h o o l P r e s e n t e d b y : S c o t t S m i t h D i r e c t o r o f E x a m i n a t i o n s F e d e r a l R e s e r v e B a n k o f A t l a n t a T h e v i e w s e x p r e s s e d h e r e a r e m y o w n a n d d o n o t n e c e s s a r i l y r e f l e c t t h e v i e w s o f t h e F e d e r a l R e s e r v e B a n k o f A t l a n t a o r t h e F e d e r a l R e s e r v e S y s t e m

43 OBJECTIVES Purpose of Supervision and Regulation What Agencies Are Involved Types of Institutions Examined What Areas are Examined

44 THE FED EXPLAINS: BANK SUPERVISION AND REGULATION

45 PURPOSE Ensure the Safety and Soundness of the Financial System, Financial Institutions, and protect the FDIC Insurance Fund Ensure that Banks and Bank (Thrift) Holding companies comply with all Laws and Regulations including Consumer Compliance Laws and Regulations

46 AGENCIES INVOLVED Federal Reserve System (FRS) Federal Deposit Insurance Corporation(FDIC) Office of the Comptroller of the Currency(OCC) Consumer Financial Protection Bureau(CFPB) National Credit Union Administration (NCUA) State Banking Departments

47 INSTITUTIONS EXAMINED Banks National Banks OCC State Member Banks FRS, State Banking Regulators State Non-member Banks FDIC, State Banking Regulators Thrifts OCC (States) Bank Holding Companies FRS (States) Thrift Holding Companies FRS (States) Credit Unions NCUA (States) Foreign Banking Branches and Agencies - FRS

48 AREAS EXAMINED Financial condition of the institution (Safety and Soundness) Consumer Compliance Information Technology Bank Secrecy Act/Anti-Money Laundering Trust Activities

49 BANKS - CAMELS CAPITAL ADEQUACY ASSET QUALITY MANAGEMENT EARNINGS LIQUIDITY SENSITIVITY TO MARKET RISK COMPOSITE RISK MANAGEMENT

50 RATINGS 1 STRONG 2 SATISFACTORY 3 FAIR 4 MARGINAL 5 - UNSATISFACTORY

51 CAPITAL ACTUAL LEVEL OF CAPITAL CAPITAL LEVELS IN REGARD TO OVERALL RISK PROFILE CAPITAL PLANNING PROMPT CORRECTIVE ACTION

52 ASSET QUALITY LEVEL OF PROBLEM ASSETS CONCENTRATIONS IN LOAN PORTFOLIO CREDIT ADMINISTRATION ALLOWANCE FOR LOAN AND LEASE LOSSES

53 MANAGEMENT QUALITY OF MANAGEMENT TEAM STRATEGIC PLANNING COMPLIANCE WITH LAWS AND REGULATIONS SUCCESSION PLANNING

54 EARNINGS QUANTITY OF EARNINGS QUALITY OF EARNINGS BUDGETING ACCURACY OVERALL NEEDS OF INSTITUTION

55 LIQUIDITY LIQUIDITY SOURCES Asset liquidity Liability liquidity OFF-BALANCE-SHEET COMMITMENTS CASH FLOW Loan payments Liability withdrawals

56 SENSITIVITY TO MARKET RISK QUANTITY OF RISK Net Interest Income Economic Value of Equity QUALITY OF RISK MANAGEMENT Size and Scope of operation Does bank management understand the risks facing the bank

57 COMPOSITE RATING NOT A NUMERIC AVERAGE USUALLY DRIVEN BY ASSET QUALITY (BUT NOT NECESSARILY) REPRESENTS THE OVERALL CONDITION OF THE BANK

58 RISK MANAGEMENT OVERALL RISK MANAGEMENT OF INSTITUTION FEDERAL RESERVE LOOKS AT SIX RISKS Credit Risk Liquidity Risk Market Risk Operational Risk Legal Risk Reputational Risk

59 CREDIT RISK OVERAL CREDIT ADMINISTRATION EFFECTIVENESS OF LOAN REVIEW CONCENTRATIONS OF CREDIT ALLL METHODOLOGY

60 LIQUIDITY RISK CONTINGENCY FUNDING PLANS UNDERSTANDING OF LIQUIDITY POSITION EFFECTIVE MANAGEMENT OF LIQUIDITY POSITION

61 MARKET RISK APPETITE FOR MARKET RISK SKILL AT MANAGING MARKET RISK DECISIONS THAT LIMIT MARKET RISK

62 OPERATIONAL RISK INFORMATION TECHNOLOGY CYBERSECURITY INTERNAL AUDIT INTERNAL CONTROLS BSA/AML

63 LEGAL RISK COMPLIANCE WITH LAWS AND REGULATIONS POTENTIAL LAWSUITS ARISING FROM OPERATIONAL OR LENDING PRACTICES

64 REPUTATIONAL RISK USUALLY ARISES FROM OPERATIONAL RISK OR CREDIT RISK USUALLY RELATED TO LEGAL RISK POTENTIAL DEPOSIT WITHDRAWALS OR REDUCTIONS IN GROWTH

65 BANK (THRIFT) HOLDING COMPANIES RFIC Risk management Financial Condition Impact on Organization and Bank Subsidiaries Composite

66 RECAP WE COVERED Purpose of Supervision and Regulation What agencies are involved Types of institutions examined What areas are examined

67 QUESTIONS?

68 THE FED EXPLAINS THE PAYMENTS SYSTEM