2005 Federal Reserve Bulletin
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     Federal Reserve Bulletin - 2005

Indexes of the Foreign Exchange Value of the Dollar
Industrial Production and Capacity Utilization: The 2004 Annual Revision
Fair Value Accounting
Report on the Condition of the U.S. Banking Industry: Third Quarter, 2004
Legal Developments


Indexes of the Foreign Exchange Value of the Dollar
Mico Loretan
At the end of 1998, the staff of the Federal Reserve Board introduced a new set of indexes of the foreign exchange value of the U.S. dollar. The staff made the changeover, from indexes that had been used since the late 1970s, for two reasons. First, five of the ten currencies in the staff's previous main index of the dollar's exchange value were about to be replaced by a single new currency, the euro. Second, developments in international trade since the late 1970s called for a broadening of the scope of the staff's dollar indexes and a closer alignment of the currency weights with U.S. trade patterns.

The author discusses several practical aspects of the design and implementation of the exchange rate indexes--the choice of index formula, the design of currency weights, and the selection of currencies. The author also reviews the performance of the indexes over the past twenty-five years and discusses three minor methodological changes that the staff has applied to the indexes since their introduction.
Full text (73 KB PDF)

Industrial Production and Capacity Utilization: The 2004 Annual Revision
Charles Gilbert and Kimberly Bayard
In late 2004, the Board of Governors of the Federal Reserve issued revisions to its index of industrial production (IP) and the related measures of capacity and capacity utilization for the period from January 1972 to November 2004. Overall, the changes to total industrial production were small.

Measured from the fourth quarter of 2002 to the third quarter of 2004, industrial output is reported to have increased a little less than shown previously. Production expanded more slowly in 2000 than earlier estimates indicated, whereas the contraction in 2001 was a little less steep. The rise in output in 2002 was slightly stronger than reported earlier.

Although the level of IP was a bit lower in the third quarter of 2004 than previously reported, the rate of industrial capacity utilization--the ratio of production to capacity--was revised upward. At 78.2 percent, the utilization rate for total industry is 0.9 percentage point higher than previously reported but still 2.9 percentage points below its 1972-2003 average.

The revision indicated that industrial capacity expanded at a slower rate in 2002 and 2004 than estimated previously. Capacity is reported to have declined a bit in 2003; previously, a small increase had been reported. The current figures for capacity in 2000 and 2001 indicate a slightly stronger rate of increase than the earlier estimates did.
Full text (130 KB PDF)

Fair Value Accounting
Governor Susan Schmidt Bies
Advocates of fair value accounting believe that fair value is a more relevant, more useful measure for financial reporting than historical cost. However, fair value accounting poses many challenges.

In remarks before the International Association of Credit Portfolio Managers, Governor Susan Schmidt Bies shared the Federal Reserve's views on the proposed standards for valuing assets and liabilities currently measured or disclosed at fair value that were recently issued by the Financial Accounting Standards Board. Governor Bies's remarks highlighted fair value measurement issues, considerations for credit portfolio management, and the accounting treatment of credit derivatives.
Full text (26 KB PDF)

Report on the Condition of the U.S. Banking Industry: Third Quarter, 2004
Assets of reporting bank holding companies rose $245 billion (2.5 percent), more than half accounted for by loans. Commercial real estate and consumer revolving loans were the principal drivers of loan growth, while commercial and industrial loans rose only modestly, most in the small-business and middle-market segments. Other earning assets grew $49 billion (1.4 percent), primarily trading and money market instruments, while total holdings of investment securities again declined slightly. Equity rose sharply ($79 billion or 10.3 percent), principally because of unrealized valuation gains on assets and off-balance-sheet instruments that are not included in regulatory measures of capital adequacy. Net income increased $2.9 billion (11.6 percent) from a second quarter that had included large, nonrecurring, litigation-related expenses at two of the largest bank holding companies. Already low nonperforming asset and net charge-off ratios fell further during the quarter.
Full text (35 KB PDF)

Press releases and Board staff changes for the previous quarter.
Full text (77 KB PDF)

Legal Developments
Various bank holding company, bank service corporation, and bank merger orders.
Full text (317 KB PDF)

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Last update: February 12, 2009