2005 Federal Reserve Bulletin

Monetary Policy Report to the Congress
New Information Reported under HMDA and Its Application in Fair Lending Enforcement
Report on the Condition of the U.S. Banking Industry: First Quarter, 2005
Announcements
Legal Developments

Summer

Monetary Policy Report to the Congress
The U.S. economy continued to expand at a solid pace over the first half of 2005 despite the restraint imposed on aggregate demand by a further rise in crude oil prices. Household spending trended up, propelled by rising wealth and income and by low interest rates, and business outlays received ongoing support from favorable financial conditions, rising sales, and increased profitability. Moreover, the earlier declines in the foreign exchange value of the dollar shifted some domestic and foreign demand toward U.S. producers. Overall, the economic expansion was sufficient to create jobs at roughly the same pace as in late 2004 and to lower the unemployment rate further over the first half of this year.

Higher oil prices boosted retail prices of a broad range of consumer energy products and, as a result, continued to hold up the rate of overall consumer price inflation in the first half of 2005. With financial conditions advantageous for households and firms, a solid economic expansion in train, and some upward pressure on inflation, the Federal Open Market Committee (FOMC) continued to remove policy accommodation at a measured pace over the first half of the year, raising the intended federal funds rate an additional 1 percentage point, to 3-1/4 percent, by the end of June. At the June FOMC meeting, the Committee judged that policy remained accommodative. With appropriate monetary policy, however, the upside and downside risks to output and inflation were viewed as balanced, and the Committee underscored its commitment to respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.

The fundamental factors that supported the U.S. economy in the first half of 2005 should continue to do so over the remainder of 2005 and in 2006. Despite the upward pressure on costs and prices over the past year or so, core consumer price inflation is likely to remain contained and longer-run inflation expectations are still well anchored. Of course, substantial uncertainties surround this economic outlook. A further sharp rise in crude oil prices would have undesirable consequences for both economic activity and inflation, and the possibility that housing prices, at least in some locales, have moved above levels that can be supported by fundamentals remains a concern.
Full text (276 KB PDF)

New Information Reported under HMDA and Its Application in Fair Lending Enforcement
Robert B. Avery, Glenn B. Canner, and Robert E. Cook
In 2002 the Federal Reserve Board amended its Regulation C, which implements the Home Mortgage Disclosure Act of 1975, to expand the types of information that lenders covered by the law must disclose to the public about their home-lending activities. The amendments are intended to improve the quality, consistency, and utility of the reported data and to keep the regulation in step with recent developments in home-loan markets. Data reported for 2004 are the first to reflect the changes in the reporting rules.

This article presents a first look at these greatly expanded data and considers some of their implications for the continuing concerns about fair lending. The analysis highlights some key relationships revealed in an initial review of the types of data that are new for 2004. Some parts of the analysis focus on nationwide statistics, and others examine patterns across groups of lenders, loan products, and various groupings of applicants, borrowers, and neighborhoods. The authors explore, in particular and in some depth, the strengths and limitations of the information on loan pricing. They also describe how the new data are being used to enhance fair lending enforcement activities.
Full text (297 KB PDF)

Report on the Condition of the U.S. Banking Industry: First Quarter, 2005
Assets of reporting bank holding companies grew at a healthy pace, increasing $355.0 billion, to $10.7 trillion. Securities and money market assets accounted for most of the asset growth, particularly at the fifty large bank holding companies as these large companies added mortgage-backed securities and adjusted their interest rate risk exposures. Loans and unused commitments to lend grew less robustly, rising 1.4 percent and 1.7 percent respectively. Residential mortgage loans, including home-equity lines of credit, contributed significantly to this increase, as did commercial loans and commercial real estate loans. Weakness was evident in credit card balances, attributable to a seasonal slowdown in credit card spending and significantly accelerated repayments by which, in effect, households have transferred some credit card balances to the rapidly growing home-equity loan category.

Nondeposit borrowings increased sharply, rising 6.8 percent, as strong asset growth exceeded deposit increases. The increase in borrowings was mostly in short-maturity instruments. Regulatory capital ratios remained strong but tightened slightly during the quarter. Problem assets continued to decline from already low levels, reaching 0.76 percent of loans and related assets. Net charge-offs and provisions for loan losses also declined. Fueled by asset growth and improved asset quality, net income rose to $32.9 billion. Net interest margins narrowed significantly and non-interest income surged, supported by strong trading revenues and mortgage servicing income.
Full text (55 KB PDF)

Announcements
Press releases and Board staff changes for the previous quarter.
Full text (113 KB PDF)

Legal Developments
Various bank holding company, bank service corporation, and bank merger orders.
Full text (233 KB PDF)

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Last update: September 20, 2005