Regional Outlook
 

FEDERAL DEPOSIT INSURANCE CORPORATION SECOND QUARTER 2000 

FDIC
 

Atlanta
 

Region
 

Division of
 

Insurance
 

Jack M.W. Phelps,
 

Regional Manager
 

Scott C. Hughes,
 

Regional Economist
 

Pamela R. Stallings,
 

Senior Financial
 

Analyst
 

Regional Perspectives 

◆ Economic strength in the Atlanta Region, low interest rates, and adequate available sources of credit have promoted growth in residential real 

estate construction in recent years, particularly in urban areas—Insured 

financial institutions in some of the Region’s metropolitan areas are providing residential financing, both permanent and construction, at a pace ahead of the national average, which may result in higher default rates in the event of an economic 

downturn. See page 3. 

◆ Structural and cyclical changes may heighten the risk for lenders 

engaged in residential real estate lending—Structural changes in financing 

have helped many first-time home buyers and allowed existing homeowners to 

increase their home-secured debt, which may be problematic if the economy falters 

and home values decline. Further interest rate increases may slow absorption of new 

supply and sales of existing homes. See page 6. 

◆ Commercial real estate development has increased substantially as 

high-tech ventures and supporting industries have moved to or expanded 

in the suburban Virginia portion of the Washington, D.C., metropolitan 

statistical area—Setbacks in the high-tech-fueled local economy could ultimately affect banks’ construction and development loan quality. The local banking 

industry’s ability to weather an economic or industry downturn may be further 

complicated by the fact that one-third of Northern Virginia’s banks have not been 

recession-tested. See page 7. 

By the Atlanta Region Staff 

In Focus This Quarter 

◆ Banking Risk in the New Economy—This article summarizes current economic conditions, with a primary focus on potential risks to insured depository 

institutions. It explores the implications of long-term trends that have led to the 

New Economy. Recent high rates of economic growth with low inflation have been 

made possible by increases in productivity arising from new technologies, higher 

investment spending by businesses, and large-scale industrial restructuring. Underlying these trends has been a financial environment that has largely accommodated 

the growing borrowing needs of consumers and businesses. Market-based financing, 

provided in large part through securitizations and mutual funds, has made capital 

readily available to start-up “new economy” firms as well as mature companies that 

seek to merge or restructure. Despite the clear benefits of market-based financing 

in supporting economic activity, there are also concerns. A recurrence of financial 

market turmoil, such as that experienced in fall 1998, has the potential to quickly 

change the currently positive economic outlook to one that is far more challenging. 

Detail is provided on commercial credit quality, market sources of revenue, and 

other risks to watch in banking. See page 11. 

By the Analysis Branch Staff 

A Publication of the Division of Insurance 
The Regional Outlook is published quarterly by the Division of Insurance of the Federal Deposit 

Insurance Corporation as an information source on banking and economic issues for insured 

financial institutions and financial institution regulators. It is produced for the following eight 

geographic regions: 

Atlanta Region (AL, FL, GA, NC, SC, VA, WV)
 

Boston Region (CT, MA, ME, NH, RI, VT)
 

Chicago Region (IL, IN, MI, OH, WI)
 

Dallas Region (CO, NM, OK, TX)
 

Kansas City Region (IA, KS, MN, MO, ND, NE, SD)
 

Memphis Region (AR, KY, LA, MS, TN)
 

New York Region (DC, DE, MD, NJ, NY, PA, PR, VI)
 

San Francisco Region (AK, AZ, CA, FJ, FM, GU, HI, ID, MT, NV, OR, UT, WA, WY)
 

Single copy subscriptions of the Regional Outlook can be obtained by sending the subscription 

form found on the back cover to the FDIC Public Information Center. Contact the Public Information Center for current pricing on bulk orders. 

The Regional Outlook is available on-line by visiting the FDIC’s website at www.fdic.gov. 

For more information or to provide comments or suggestions about the Atlanta Region’s Regional 

Outlook, please call Jack Phelps at (404) 817-2590 or send an e-mail to jphelps@fdic.gov. 

The views expressed in the Regional Outlook are those of the authors and do not necessarily reflect 

official positions of the Federal Deposit Insurance Corporation. Some of the information used in 

the preparation of this publication was obtained from publicly available sources that are considered 

reliable. However, the use of this information does not constitute an endorsement of its accuracy by 

the Federal Deposit Insurance Corporation. 

Chairman Donna Tanoue 

Director, Division of Insurance Arthur J. Murton 

Executive Editor George E. French 

Writer/Editor Kim E. Lowry 

Editors Lynn A. Nejezchleb 

Maureen E. Sweeney 

Richard A. Brown 

Ronald L. Spieker 

Publications Manager Teresa J. Franks 
Atlanta, GA

Raleigh, NC

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Macon, GA

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Miami, FL

ampa, FL 

Richmond, V

Naples

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Greensboro

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Green

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Regional Perspectives
 

Regional Perspectives
 

• Some Atlanta Region metropolitan areas have outperformed national single-family and multifamily housing markets. 

• Construction and development lending exposures for the Region’s insured institutions may be increasing as 

residential real estate construction activity continues to expand. 

• Changing economic drivers and the rapid pace of commercial real estate development in Northern Virginia 

may pose new risks to community banks located in the area. 

Residential Construction Surges 

in the Atlanta Region 

Growth in population, employment, and income, combined with low interest rates and adequate available 

sources of credit, has promoted growth in residential 

real estate construction in recent years, particularly in 

the Atlanta Region’s metropolitan areas. Four of the 

Region’s seven states—Florida, Georgia, North Carolina, and Virginia—rank among the top ten states 

nationally in terms of permit issuance. Insured institutions in some Atlanta Region metropolitan areas are 

providing residential financing, both permanent and 

construction, at a pace ahead of the national average, 

which may result in higher default rates in the event of 

an economic downturn. 

In tandem with the favorable economic drivers, there 

have been some structural changes in residential real 

estate financing during this expansion that could influence loss rates in a downturn. Low mortgage interest 

rates, a ready availability of credit, and increases in 

loan-to-value ratios have contributed to the rising level 

of homeownership. These factors have made home buying affordable for many first-time buyers who may not 

have the capacity to service debt should the economy 

falter. Also, rapid price appreciation has allowed many 

March 2000 were at 8.2 percent, up from 6.5 percent in 

late 1998. Mortgage rates have not been this high since 

September 1996. The higher mortgage rates have yet to 

significantly affect permit issuance, absorption of new 

supply, and existing home sales in the Southeast; however, if the rates reach double digits, sales of existing 

homes and absorption of new supply may slow. 

Residential lending exposures at some banks operating in many of the Atlanta Region’s urban areas are 

significant. In fourth quarter 1999, construction and 

development (C&D) loans accounted for 6.6 percent 

of community bank1 assets in the Region’s metropolitan areas, which is nearly 50 percent higher than the 

U.S. metropolitan average. Moreover, when compared 

with the nation, the Region is home to urban community banks with much larger than average C&D concentrations (see Chart 1). Specifically, while the 

Region accounts for 15 percent of the nation’s urban 

CHART 1 

Construction and Development (C&D) Loan 

Concentrations Remain High in 

Many Atlanta Region Urban Centers 

Banks Headquartered in an MSA with Assets under $1 Billion 

14.0 

mingham, AL

, FL 

C&D Loans to Assets

12.0 consumers to increase their debt levels through home 

equity lines. Any significant decline in housing values 

could strain households that have borrowed extensively 

on the expectation that housing prices will continue to 

rise. The combination of new homeowners and 

10.0 

8.0 

(%) 

6.0

4.0 

2.0 

0.0 

increased borrowing secured by home values may 

expose lenders to greater credit risk. 

An additional significant risk to real estate markets 

has been the recent rise in interest rates, which are 

approaching highs not seen since early 1997. According 

Note: MSA = metropolitan statistical area 

Source: Bank and Thrift Call Reports 

to Freddie Mac, mortgage rates as of the third week of 1 Defined as having assets of $1 billion or less. 

Atlanta Regional Outlook 3 Second Quarter 2000 
Regional Perspectives
 

community banks, it is home to 22 percent (123 banks) 

with C&D loan exposures above 10 percent of assets. 

Residential Construction by State 

Residential construction in Georgia is at an all-time 

high in the single-family sector and near-record highs in 

the multifamily sector. Economic growth in the state is 

dominated by Atlanta, where the vast majority of jobs 

have been created in recent years. Rising population, 

higher rates of job growth, and favorable interest rates 

have supported the increased demand for single-family 

homes during the 1990s, but continued interest rate 

increases could soften demand and create a surplus of 

available homes for sale. 

Single-family housing starts in the Atlanta metro area 

rose 13.6 percent in 1999, while total residential permit 

issuance increased by 5.2 percent. Single-family permit 

issuance has risen steadily since 1990, with the exception of a slight dip in 1997. In 1999, Atlanta accounted 

for nearly 20 percent of all single-family permits issued 

in the Region’s metropolitan areas (see Chart 2). Moreover, single-family permit issuance in Atlanta for 1999 

alone was greater than the total for the past three years 

in Charlotte, North Carolina, the next largest market in 

the Region. Demand for housing likewise appears 

strong, given that the Atlanta metropolitan area was 

ranked second in the nation by the Mortgage Bankers 

Association of America in its 2000 Hot Mortgage Market Index Rankings. In addition, the median existing 

home sales price in the Atlanta metropolitan area 

increased by nearly twice the national average in 1999. 

CHART 2 

Atlanta Accounted for Nearly 20 Percent of Single-


Family Permit Issuance Among Region’s
 

Metropolitan Areas during 1999
 

Tampa 

4.9% Raleigh Other Atlanta 5.4% Region
 

Metropolitan
 Northern Areas Virginia 53.1% 6.0% 

Orlando 

6.4% 

Charlotte 

6.5% 

Atlanta 

17.7% 

Source: U.S. Census Bureau (Haver Analytics) 

Georgia’s multifamily permit issuance also has been on 

the rise. Atlanta again led the state with the highest level 

of multifamily construction. Although this market has 

been quite active, low average vacancy rates have prevailed despite a shift from renters to homeowners. Still, 

slowing in-migration could result in overbuilding in the 

multifamily market. According to Reis.com, the reported average Atlanta vacancy rate in 1999 was 6.6 percent, which was unchanged from one year earlier. 

Lower-than-average vacancy rates in Class A units indicate that demand is strongest for upscale apartments. 

The Augusta-Aiken and Macon metropolitan areas 

also have experienced significant growth in multifamily residential real estate. Multifamily permit issuance in 

the Augusta-Aiken metro area rose by nearly half, while 

job growth increased by just 2.7 percent in 1999. Similarly, permit issuance in the Macon metro area rose 60 

percent, with job growth near the national average. 

Consistent with the level of building activity, C&D 

lending in metro Atlanta institutions is significantly 

higher than the national average. In fact, nearly 60 percent of Atlanta metro banks are above the 90th percentile of the share of assets nationally that are 

concentrated in C&D credits (9.9 percent). Real estate 

markets are very sensitive to the business cycle; therefore, an economic downturn may result in greater risk in 

the Atlanta metro area than in other parts of the Region 

or the nation. 

Residential real estate in North Carolina, reflecting the 

state’s robust economic expansion and population 

growth, has been growing rapidly throughout the 

decade. Existing home sales in North Carolina’s residential real estate market rose by 7.8 percent in 1999, 

with the strongest growth occurring during the first 

half of the year. Statewide, the median price for singlefamily homes has been relatively stable, with prices rising at a rate comparable to the national average during 

1999. Home sales contracts in the Charlotte metro area 

peaked in 1999, surpassing the 1998 level by 10 percent, according to the Carolina Multiple Listing Service. Single-family permit issuance in the CharlotteGastonia-Rock Hill metro area has recorded doubledigit growth throughout much of the decade. The median price of existing single-family dwellings in Charlotte 

rose by only 3 percent in 1999, down significantly from 

the near double-digit increase in 1996. Similarly, in the 

Raleigh metro area, median prices rose modestly in 

1999, a noticeable drop from the 14.6 percent increase 

in 1996. Residential construction activity in several of 

the state’s metropolitan areas has been declining, 

Atlanta Regional Outlook 4 Second Quarter 2000 
Regional Perspectives
 

although 1999 year-over-year residential construction 

activity in the Charlotte-Gastonia-Rock Hill and 

Raleigh-Durham-Chapel Hill metropolitan areas continue to strengthen. 

Potential overbuilding in the multifamily construction 

sector is of greater concern in the Charlotte and Raleigh 

metro areas. Permit issuance rose by nearly half in both 

Charlotte and Raleigh during 1999. During 1998 and 

1999, more new space in the Charlotte market was 

completed than absorbed, and asking rents did not 

increase as rapidly as in the mid-1990s, both of which 

indicate that the market may be slowing. In addition, 

vacancy rates were at the highest levels since 1993. 

Continued growth in North Carolina’s single-family and 

multifamily real estate markets could negatively affect 

some insured institutions, particularly in the Greensboro-Winston-Salem-High Point metropolitan area, 

where 4 of the area’s 20 institutions rank above the 90th 

percentile nationally in C&D lending exposures. The 23 

institutions headquartered in the Charlotte-GastoniaRock Hill metropolitan statistical area (MSA) reported 

an aggregate C&D loan-to-asset ratio of 5.2 percent in 

the fourth quarter, compared with the national average 

of 4.6 percent. Likewise, the Raleigh-Durham-Chapel 

Hill MSA reported an aggregate C&D loan-to-asset 

ratio more than one-half percentage point above the 

national average. 

TABLE 1 

In 1999, Existing Home Sales Prices 

and New Permit Issuances Had Robust 

Gains in Many Areas of Florida 

CHANGE PERMIT 

IN MEDIAN ISSUANCE 

AREA PRICE (%) GROWTH (%) 

DAYTONA BEACH 8.16 5.12 

FORT MYERSCAPE CORAL 6.83 18.20 

ORLANDO 5.81 8.91 

TALLAHASSEE 2.66 20.77 

TAMPA-ST. 

PETERSBURGCLEARWATER 5.69 13.67 

STATEWIDE 8.00 8.97 

Sources: National Association of Realtors and U.S. 

Bureau of the Census 

Population growth in Florida may be slowing, but residential real estate construction continues to heat up in 

many metropolitan areas. Florida’s economy is robust, 

as it has been throughout the nation’s longest running 

economic expansion. Job growth in 1999, at 3.6 percent, was well above the national average. Single-family 

housing sales were particularly strong in the Daytona 

Beach, Fort Myers-Cape Coral, and Lakeland-Winter Haven metro areas in 1999, while permit issuance 

was its most robust in the Miami, Tallahassee, and 

Tampa-St. Petersburg-Clearwater metropolitan areas. 

Statewide, existing home sales increased by 11.3 percent, according to the Florida Association of Realtors, 

more than twice the national rate of increase. Singlefamily residential real estate activity varies throughout 

the state’s metropolitan markets (as shown in Table 1). 

Multifamily construction in some of Florida’s metropolitan areas is showing strong growth, despite slowing 

population and job growth. In the Jacksonville metropolitan area, for instance, permit issuance in 1999 nearly doubled, while the vacancy rate was above 7 percent 

for the second straight year. Likewise, the Orlando 

metropolitan area continued to add space when absorption was not keeping pace with completions. Vacancy 

rates in the Orlando market also edged higher, 

approaching 6 percent. 

Despite Florida’s brisk building activity, only the Fort 

Walton Beach and Panama City metropolitan areas 

have C&D exposures significantly above the U.S. average. Of the seven institutions in the Fort Walton Beach 

metropolitan area with assets under $1 billion, three 

reported C&D lending exposures in the nation’s 90th 

percentile. The Panama City metropolitan area reported 

a 26.6 percent C&D loan-to-asset ratio, and two of its 

four institutions are ranked above the 90th percentile 

nationally in C&D lending exposure. 

The strong South Carolina economy was good news 

for the state’s realtors and builders. South Carolina’s 

economy turned in its best performance in over a decade 

last year. Employment growth was well above the 

national average, and labor markets remained exceptionally tight, especially in urban areas such as 

Charleston, Columbia, and Greenville. Reflecting the 

strength of the state’s economy, sales of existing homes 

and sales prices both increased rapidly. The CharlestonNorth Charleston metro area is the state’s hottest single-family construction market. Based on sales of new 

and existing single-family homes, townhomes, and condominiums, the average sales price of a new singleAtlanta Regional Outlook 5 Second Quarter 2000 
Regional Perspectives
 

family home topped $200,000, setting a record. Existing home sales prices also reached a record high. Since 

the second quarter of 1996, the average home price 

increased by nearly half. According to a broker in the 

area, “The rising interest rates have knocked some people from being qualified, but that hasn’t slowed down 

construction.” Should interest rates increase in the 

future, a glut of homes could exist, with buyers unable 

to obtain approved financing or with insufficient 

resources to repay lenders, not only in Charleston but 

throughout the rest of the Atlanta Region. Multifamily 

construction in South Carolina’s metropolitan markets 

has declined in all but the Columbia and GreenvilleSpartanburg-Anderson metro areas, where activity is 

robust. 

South Carolina’s greatest exposure to residential lending is in the Greenville-Spartanburg-Anderson metropolitan area, where 7 of the state’s 25 institutions 

reported C&D exposures above the nation’s 90th percentile. In the aggregate, the 25 institutions reported a 

7.5 percent C&D lending-to-asset ratio, compared with 

4.6 percent for the nation. 

Construction growth in Alabama has been skewed 

toward single-family dwellings, but, according to the 

Alabama Real Estate Research and Education Center, 

both sales and average selling prices of houses, condominiums, and townhomes increased in 1999. Home 

sales in the Mobile metropolitan area were the highest 

in the state. However, single-family permit issuance 

grew only modestly in 1999, signaling that construction 

is slowing. Conversely, some of the other metropolitan 

area markets may overheat if permit issuance is used to 

gauge future construction. The rate of increase in permit 

issuance in Tuscaloosa, for example, outpaced home 

sales by a wide margin. Multifamily construction is 

cooling in the state: permit issuance fell by nearly half 

in 1999. 

The Huntsville metropolitan area has the state’s highest 

C&D lending exposure, with two of the three institutions headquartered in the MSA reporting a C&D lending-to-asset ratio of 11.8 percent in the fourth quarter. 

Likewise, Tuscaloosa’s C&D lending-to-asset ratio 

reached 9.7 percent during the same period. 

Virginia’s economy continues to expand at a rate comparable to that of the nation. Most of the state’s employment gains have occurred in the larger metropolitan 

areas, which, not surprisingly, is where a large share of 

the residential real estate development has occurred. 

Statewide, home sales increased by 10 percent. Sales in 

the Northern Virginia area have been particularly high 

as a result of rapid economic development (see The 

Northern Virginia Commercial Real Estate Market). 

According to a report by the Wall Street Journal, many 

markets, including Northern Virginia, have long waiting lists for homes that are yet to be built. Multifamily 

real estate also is growing rapidly in Northern Virginia; 

with a vacancy rate of just over 1 percent, demand is 

strong. An increase of nearly 10 percent in asking rents 

also shows that demand is expected to remain very 

strong. 

While the Norfolk-Virginia Beach-Newport News 

metropolitan area has the state’s highest residential 

lending exposures, none of the state’s metropolitan 

areas exceeds the national average in C&D, multifamily, or total residential-to-asset lending. Nonetheless, 3 

of the 19 institutions in the Norfolk-Virginia BeachNewport News metro area rank above the nation’s 90th 

percentile in terms of C&D lending. 

West Virginia’s population growth is the lowest in the 

nation, and the state’s residential real estate growth is 

the slowest in the Region. The only hot spot in the state 

is in the panhandle on the edge of the Washington, 

D.C.-Baltimore metropolitan area. Now that residential 

growth restrictions have been implemented in Loudoun 

and Prince William Counties in Virginia, pressure to 

transform farmland into housing in the panhandle is 

intensifying. West Virginia’s insured institutions reported the lowest aggregate C&D lending exposure for the 

Region, at 8.4 percent of total assets. 

Implications 

Overall in the Region, structural changes in real estate 

financing and rising mortgage interest rates may result 

in higher credit risk exposure. Structural changes in 

financing have helped many firsttime home buyers and allowed 

many existing homeowners to 

increase their home-secured debt, 

which may be problematic if the 

economy falters and home values 

fall. Further increases in interest 

rates may slow new supply 

absorption and existing home 

sales. The combination of these factors may heighten 

the risk for lenders engaged in residential real estate 

lending. 

Atlanta Regional Outlook 6 Second Quarter 2000 
Regional Perspectives
 

The Northern Virginia Commercial 

Real Estate Market 

Throughout the latter half of the 1990s, commercial real 

estate (CRE) development has increased substantially 

as high-tech ventures and supporting industries have 

moved to or expanded in the suburban Virginia portion2 

of the Washington, D.C., metropolitan statistical area. 

The following analysis examines the local economic 

drivers and their impact on supply-and-demand forces 

in CRE markets, and identifies potential risks to local 

community banks of recent economic and real estate 

development. 

The Economy and Demographics 

Like many of the Atlanta Region’s metropolitan areas, 

Northern Virginia is undergoing an economic transformation as traditional employment sectors give way to 

newer types of industry. Government has long played 

the role of “traditional” industry. Since 1992, however, 

government and defense downsizing has resulted in the 

loss of nearly 7,000 jobs. These losses may help explain 

the decline in the Northern Virginia area’s annual population growth from a high of 3.6 percent during the late 

1980s to its nadir of 1.8 percent in 1995. By then, however, rapid economic growth had returned to Northern 

Virginia, as new and diversified industries emerged. 

According to an analyst with Real Estate Alert, “The 

area, dubbed netplex, has become a mecca for telecommunications and other high-tech companies,” which has 

resulted in thousands of new jobs. With the expansion 

of the high-tech industry has come a rebound in inmigration, which has helped boost annual population 

growth to 2.5 percent in 1999. Although government 

continues to play a significant role in Northern Vir2 The suburban Virginia component of the Washington metropolitan 

statistical area or Northern Virginia, as defined by the U.S. Census 

Bureau, is composed of the following counties and independent 

cities: Arlington, Clarke, Culpeper, Fairfax, Fauquier, Fredericksburg, 

King George, Loudoun, Prince William, Spotsylvania, Stafford, and 

Warren Counties; and Alexandria, Fairfax, Falls Church, Fredericksburg, Manassas, and Manassas Park Independent Cities. However, 

Northern Virginia commercial real estate data contained in this article (much of which was supplied by REIS Reports) refer to a more 

limited definition, which excludes the outer counties of Clarke, 

Culpeper, Fauquier, Fredericksburg, King George, Spotsylvania, 

Stafford, and Warren Counties and Fredericksburg Independent City. 

This definition accounts for 83 percent of the population within the 

Census Bureau’s definition of Northern Virginia. 

ginia’s economy, these new high-tech industries have 

provided the momentum behind the recent upswing. 

With the emergence of apparent government budget 

surpluses, some analysts believe that the push to downsize government payrolls may abate. In fact, in 1999, 

federal government employment in the area declined by 

only 700. Growth in new industries and a reduction in 

federal government job losses have supported greater 

demand for locally provided goods and services, including CRE space. 

Commercial Real Estate Performance 

An increasing demand for CRE space has accompanied 

the return of sustained economic growth in Northern 

Virginia. The high level of CRE completions in the 

1980s, the recession in the early 1990s, and the effects 

of federal government downsizing constrained demand 

for new space during the first half of the decade. From 

a peak 16.4 million square feet (sf) in 1989, CRE completions in Northern Virginia slumped to a low of 1.5 

million sf in 1995. Since then, however, construction 

activity has accelerated as growth in high-tech communications, Internet, and software companies and local 

support industries absorbed available space. Moreover, 

as some CRE submarkets closer to Washington, D.C., 

experience vacancy rates approaching 1 percent and 

as congestion increasingly has become a problem, 

new development has dispersed, particularly toward 

Loudoun County along the Dulles Greenway and near 

Dulles International Airport. Many analysts expect this 

trend to continue if rapid economic growth persists. 

Construction levels in individual market segments 

(office, retail, and industrial) vary, but generally remain 

positive. 

The Office Market 

Office real estate space represents the largest component of Northern Virginia’s CRE market, accounting 

for nearly half of all space. By virtue of the continued 

importance of the federal government, even in the face 

of recent downsizing, Northern Virginia represents the 

nation’s seventh largest office real estate market. However, it is the nation’s most active market, after Dallas, 

because of the rapid growth in the high-tech sector. In 

1999, according to REIS Reports, 9 million sf of new 

space was added to the market (see Chart 3, next page), 

accounting for three-quarters of all CRE completions 

in the Northern Virginia area. Despite high levels of 

Atlanta Regional Outlook 7 Second Quarter 2000 
Regional Perspectives
 

CHART 3 

Office Construction Activity in Northern Virginia Has Increased 

0 

2,500 

5,000 

7,500 

10,000 

12,500 

000s Square Feet 

0 

5 

10 

15 

20 

25 

Vacancy Rate (%) 

Source: REIS Reports 

’80 ’81 ’82 ’83 ’84 ’85 ’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 

Completions (left scale) 

Net Absorption (left scale) 

Vacancy Rate (right scale) 

construction activity, completions are just now starting 

to keep pace with absorption; the market’s vacancy rate 

edged up by nearly one-half percentage point to 5.6 

percent in 1999. The current market activity stands in 

stark contrast to conditions observed just a few years 

ago. In 1994, no completions were recorded and the 

vacancy rate was just over 15 percent. Commercial 

construction activity appears poised to remain at high 

levels: substantial amounts of development were under 

construction or in the planning stages at the end of 

1999. 

The Industrial Market 

Industrial market vacancy rates rose to double digits 

after defense industry downsizing (see Chart 4). As 

industry diversified away from dependence on military 

contracts and high-tech companies emerged, net absorption levels became positive and rose to above 1 million 

sf annually during the second half of the 1990s. As new 

development failed to keep pace with rising demand, 

market vacancy rates fell by more than half, from 15.1 

percent in 1995 to 6.9 percent in 1999. However, new 

construction activity has been rising appreciably, and 

in 1999, completions surpassed 1 million sf for the first 

time since the start of the decade. Even with this resurgence, construction activity remains well below levels 

experienced during the 1980s. Continued expansion in 

Northern Virginia civilian-oriented high-tech industries 

likely will remain the key driver for the industrial real 

estate market. 

The Retail Market 

Unlike the office and industrial markets, demand for 

retail market space is tied more directly to high-tech 

growth. However, a rise in population growth can also 

support an increase in demand for retail market space. 

During the latter half of the 1980s, annual population 

growth frequently surpassed 3.0 percent, while retail 

space completions rose to more than 3.5 million sf in 

1989. During the first half of the 1990s, however, annual population growth in Northern Virginia averaged just 

over 2.0 percent, with retail space construction moderating. The subsequent rebound in population growth to 

2.5 percent in 1999 coincided with the highest level of 

completions in a decade (see Chart 5). Should population growth continue and household income levels 

remain high, demand for retail real estate development 

could strengthen. 

Potential Risk to the Northern Virginia Economy 

and Commercial Real Estate Market 

Although it signals a return to strong levels of economic growth, the transformation occurring in Northern 

Virginia may change the local economy’s risk profile 

and, consequently, that of local CRE markets. In the 

past, the large presence of the federal government sector often helped stabilize the local economy, even during national recessions. Increasingly, however, the key 

to continued strong growth in Northern Virginia may be 

the success of companies in the high-tech sector, such 

as “dot-coms.” 

Atlanta Regional Outlook 8 Second Quarter 2000 
Regional Perspectives
 

CHART 4 

Rising Absorption Has Helped Lower Northern Virginia Industrial Market Vacancy Rates 

–1,000 

0 

1,000 

2,000 

3,000 

4,000 

5,000 

6,000 

000s Square Feet 

0 

3 

6 

9 

12 

15 

18 

21 

Vacancy Rate (%) 

Completions (left scale) 

Net Absorption (left scale) 

Vacancy Rate (right scale) 

Source: REIS Reports 

’80 ’81 ’82 ’83 ’84 ’85 ’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 

CHART 5 

0 

1,000 

2,000 

3,000 

4,000 

2 

Source: REIS Reports 

0 

4 

6 

8 

Completions (left scale) 

Net Absorption (left scale) 

Vacancy Rate (right scale) 

’80 ’81 ’82 ’83 ’84 ’85 ’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 

000s Square Feet

Vacancy Rate (%) 

Northern Virginia Retail Space Completions Have Risen to Decade High 

However, technologies can change, industry growth can 

slow, and companies can fall out of favor. Moreover, 

many of these high-tech enterprises are not recessiontested. The effects of setbacks in the high-tech sector 

likely would be felt throughout the local economy. Continued balance in Northern Virginia’s CRE markets will 

Atlanta Regional Outlook 9 Second Quarter 2000 
Regional Perspectives
 

depend on the ability of the area’s high-growth industries to continue to absorb new construction in the 

pipeline or in the planning stages. The effects of shocks 

to the high-tech industry could manifest themselves in 

the form of reduced levels of absorption in local CRE 

markets. Moreover, anecdotal evidence suggests that a 

growing trend in high-tech areas nationwide is that 

landlords increasingly are accepting equity or stock 

options in place of rent, which could elevate the risk 

associated with CRE development.3 More immediately 

in terms of absorption risks, however, may be the issue 

of obtaining qualified labor in a time of near-record low 

unemployment rates. 

Implications for Northern Virginia’s Banks 

Northern Virginia is home to 31 community banks 

(headquartered locally, each with assets less than $1 

billion), with total assets just over $6 billion in fourthquarter 1999. This analysis focuses on these institutions 

as their level of geographic diversity likely is low, and 

thus, asset quality may be more vulnerable to adverse 

3 See Solomon, Deborah. March 12, 2000. More Start-Ups Pay Their 

Bills with Stock. From Lawyers to Landlord, Options a Hot Commodity. USA Today, and Wilbert, Tony, and Mark, Clothier. February 

11, 2000. Landlords taking a piece of tech pie in lieu of rent. Atlanta 

Journal-Constitution. 

local economic developments. Nearly all local community banks in Northern Virginia are actively involved in 

real estate lending, with C&D lending totaling more than 

$300 million. (Bank and Thrift Call Report data limitations restrict the ability to quantify the amount of residential or commercial lending.) Some Northern Virginia 

banks hold C&D loans that account for more than 10 

percent of total assets. Setbacks in the high-tech-fueled 

local economy could ultimately affect banks’ C&D asset 

quality. Commercial absorption estimates could be 

reduced for specific types of space, and growth in supporting industries also could be adversely affected. 

The local banking industry’s ability to weather an economic or industry downturn may be further complicated by the fact that one-third of Northern Virginia’s 

banks have not been recession-tested, having been 

established after 1991. During the last recession, new or 

non-recession-tested banks were about twice as likely to 

fail or be assigned poor examination ratings than established banks (see Atlanta Regional Outlook, first quarter 2000). Nine of these non-recession-tested banks are 

considered de novos, having been open less than three 

years. Lenders should be aware that the dynamics of the 

Northern Virginia economy have changed, and consequently, the nature of local CRE markets likely has been 

transformed as well. 

Atlanta Region Staff 

Atlanta Regional Outlook 10 Second Quarter 2000 
In Focus This Quarter
 

Banking Risk in the New Economy
 

The Division of Insurance periodically assesses conditions in the economy and the banking industry to identify and evaluate trends that could adversely affect the 

performance of insured depository institutions. At this 

time, the banking industry as a whole continues to 

enjoy record profits and solid financial ratios.1 Much of 

the industry’s strength derives from the remarkable performance of the U.S. economy, which has been expanding for the past nine years. This article explores factors 

that have shaped this unusually robust economic environment and discusses how changes in the economy 

may create new types of risks for insured depository 

institutions. 

During 1999, the FDIC reported the first annual loss for 

the Bank Insurance Fund since 1991. This loss primarily resulted from an uptick in unanticipated and highcost bank failures. Some of these failures were 

associated with high-risk activities such as subprime 

lending, and some were related to operational weaknesses and fraud. The emergence of these problems in 

the midst of a strong economic environment raises concerns about how the condition of the banking industry 

might change if economic conditions deteriorate. 

The Longest U.S. Expansion 

In February 2000, the U.S. economy entered its 108th 

month of expansion, making this the longest period of 

uninterrupted growth in U.S. history.2 This recordsetting performance has also been marked by a recent 

acceleration in the rate of real gross domestic product 

(GDP) growth, which has exceeded 4 percent in each 

year since 1997. Meanwhile, price inflation has 

remained relatively subdued. The core inflation rate, 

which excludes the volatile food and energy components, was just 2.1 percent in 1999, the lowest core rate 

since 1965. 

Recent economic conditions have been highly conducive to strong loan growth, low credit losses, and 

record earnings for the banking industry. The important 

1 For a recent summary of financial performance and condition of the 

banking and thrift industries, see the FDIC Quarterly Banking Profile, fourth quarter 1999, http://www2.fdic.gov/qbp/. 2 The chronology of U.S. business cycles is available from the National Bureau of Economic Research, http://www.nber.org/cycles.html. 

question going forward is how long these favorable conditions might last. Is this remarkable economic performance the result of some long-term upward shift in the 

pace of economic activity, or is it the temporary result 

of a few transitory factors? More important, are there 

new and unfamiliar dangers that, at some point, could 

significantly impair banking industry performance? To 

evaluate these questions, we must assess the factors that 

have contributed to recent economic performance and 

think ahead to possible developments that could end this 

expansion. 

What Is the New Economy? 

The term used most often to describe the recent period 

of economic performance has been somewhat controversial: the New Economy. Much of the controversy has 

arisen because people interpret the term in different 

ways. Wall Street analysts use the term to refer to the 

high-technology sectors of the economy, such as computers and software, biotechnology, and especially the 

Internet. Some of these New 

Economy firms have been able to 

raise large amounts of capital and 

command market valuations in 

the tens of billions of dollars well 

in advance of earning a profit or 

even booking significant cash 

revenues. 

Economists tend to employ the term New Economy in a 

slightly different way. To them, it refers to evidence that 

some of the traditional economic relationships have 

changed. For example, intangible assets now appear to 

play a much larger role in the valuation of investments 

than they have in the past.3 Firms in some industries 

now may exhibit increasing returns to scale (rather than 

diminishing returns), reflecting the fact that the value of 

their product rises as it becomes a de facto industry 

standard.4 Individual decision making, too, may be 

changing. Some believe that investors have reduced the 

risk premium they demand to hold equity positions 

3 Nakamura, Leonard. Federal Reserve Bank of Philadelphia. 

July/August 1999. Intangibles: What Put the New in the New Economy? Business Review. http://www.phil.frb.org/files/br/brja99ln.pdf. 4 Brown, William S. March 2000. Market Failure in the New Economy. Journal of Economic Issues, 219–27. 

Atlanta Regional Outlook 11 Second Quarter 2000 
In Focus This Quarter
 

because of their perception that holding equity is not, 

after all, substantially riskier than holding debt.5 Such a 

shift in investor attitudes could help explain why the 

price-to-earnings ratio for the S&P 500 index has 

recently approached all-time highs.6 

Perhaps the most important underlying change in the 

economy is the relationship between high rates of economic growth and changes in inflation. Economists have 

long maintained that rapid growth in economic activity 

has a tendency to lead to excess demand for goods (thereby raising consumer and producer prices) and excess 

demand for labor (thereby raising wage rates). But during 

the late 1990s, as growth accelerated and inflation 

remained low, economists began to reevaluate their 

notions of these trade-offs. Some argued that the low rate 

of inflation during this expansion was the fortunate result 

of temporary factors, such as a strong dollar and low 

energy prices, both of which could diminish or reverse 

direction over time.7 Only a few analysts were so bold as 

to suggest that the fundamental workings of the economy 

had changed in such a way as to allow a sustained period 

of high economic growth with low inflation. 

An early Wall Street description of the New Economy 

appeared in an article released by Goldman Sachs in 

January 1997.8 It describes a number of fundamental 

changes in the economy—driven by global competition 

and advancing technology—that may permit business 

cycle expansions to last longer than they have in the 

past. At the same time, it warned that longer economic 

expansions might have a tendency to contribute to 

greater financial excess and the possibility of more 

severe recessions and more sluggish recoveries. 

If this hypothesis is correct, and an emerging New 

Economy would contribute to longer expansions and 

more severe recessions, there may be implications for 

how banks manage risks. Since the Great Depression, 

U.S. business cycle recessions have not necessarily been 

catalysts for large numbers of bank and thrift failures. 

5 January 24, 2000. Has the Market Gone Mad? Fortune.
 6 September 1999. Earnings: Why They Matter. Money.
 7 Brown, Lynn Elaine. Federal Reserve Bank of New England.
 

May/June 1999. U.S. Economic Performance: Good Fortune, Bubble,
 

or New Era? New England Economic Review. http://www.bos.frb.org/
 

economic/pdf/neer399a.pdf, and Brinner, Roger E. Federal Reserve
 

Bank of New England. January/February 1999. Is Inflation Dead?
 

New England Economic Review. http://www.bos.frb.org/economic/
 

pdf/neer199c.pdf.
 

8 Dudley, William C., and Edward F. McKelvey. January 1997. The
 

Brave New Business Cycle: No Recession in Sight. U.S. Economic
 

Research, Goldman Sachs.
 

During the period from 1983 to 1989, when the U.S. 

economy was in the midst of a long expansion, some 

1,855 insured banks and thrifts failed. This wave of 

failures has been attributed to a variety of factors, 

including severe regional economic downturns, realestate-related problems, stress in the agricultural sector, 

an influx of newly chartered banks and banks that converted charters, and high nominal interest rates.9 However, the potential for significantly more severe national 

recessions would represent largely uncharted territory 

that could cause losses and loss correlations to depart 

from historical norms, posing a new set of risk management challenges for the industry going forward. 

The Productivity Revolution 

As the essential element that links faster economic 

growth and low inflation, productivity growth is the cornerstone of the New Economy. Productivity refers generally to the amount of output that can be obtained from 

a fixed amount of input. Labor productivity is usually 

measured in terms of output per hour. Chart 1 shows 

that output per hour in manufacturing has risen at an 

average annual rate of 4.5 percent during the current 

expansion, compared with rates of just over 2.5 percent 

in the three previous long economic expansions. Moreover, productivity growth accelerated in 1999 to a rate 

of 6.3 percent. Why is productivity growing so fast now 

compared with previous expansions? Even economists 

who believe that economic relationships have fundaCHART 1 

Productivity Has Grown at a Faster Rate in This 

Expansion than in Previous Long Expansions 

Average Year-over-Year Growth 

in Manufacturing Output per Hour 

5.0% 

4.0% 

3.0% 

2.0% 

1.0% 

0.0% 

1961–69 1975–79 1983–90 1991–2000 

Source: Bureau of Labor Statistics (Haver Analytics) 

9 FDIC Division of Research and Statistics. 1997. History of the 

Eighties: Lessons for the Future, Vol. 1, An Examination of the Banking Crises of the 1980s and Early 1990s, 16–17. http://www. 

fdic.gov/bank/historical/history/contents.html. 

Atlanta Regional Outlook 12 Second Quarter 2000 
In Focus This Quarter
 

mentally changed are hard-pressed to explain why all of 

the factors came together in the late 1990s and not 

before.10 Still, explanations for the increase in productivity tend to focus on three main factors. 

Increased Competition. Expanding global trade during 

the 1980s and 1990s has subjected U.S. firms to new 

competition from around the world. Annual U.S. 

exports of goods and services grew by over 230 percent 

(after inflation) between 1982 and 1999, while imports 

grew by 315 percent. The construction of new production facilities around the world in industries such as 

autos and chemicals has led to excess manufacturing 

capacity that has kept prices low. In other industries, 

including air travel, trucking, telecommunications, and 

banking, competition has been intensified through 

domestic deregulation. Facing intense competitive pressures and a low rate of general price inflation, firms 

cannot rely on annual price increases to help expand 

top-line revenue. Instead, there is pressure to continually cut costs in order to increase earnings. For many 

firms, this means adopting new technologies and new 

ways of organizing operations. 

Expanded Investment. U.S. firms of all sizes have 

invested in new technologies at a rapid pace during this 

expansion. Chart 2 shows that business investment in 

equipment and software represents almost one-quarter 

of total net GDP growth during this expansion, comCHART 2 

Business Investment in Equipment and Software
 

Has Been Robust during This Expansion
 

Average Percent Contribution of Real Investment 

in Durable Equipment and Software 

to Net GDP Growth by Expansion 

25 

20 

15 

10 

5 

0 

1961–69 1975–79 1983–90 1991–99 

Note: GDP = gross domestic product
 

Source: Bureau of Economic Analysis (Haver Analytics)
 

10 One possible explanation is that there is a learning curve for adopting new technologies and that technology diffusion is an inherently 

slow process. David, Paul A. Organization for Economic Cooperation 

and Development. 1991. Computer and Dynamo: The Modern Productivity Paradox in a Not-Too-Distant Mirror. In Technology and 

Productivity: The Challenge for Economic Policy, 315–47. 

pared with around 15 percent or less during previous 

long expansions. While this investment has been motivated by the need to cut costs, it has also been fueled by 

the availability of new computer technologies that have 

fallen in cost over time and by the ready availability of 

financial capital on favorable terms. 

Industrial Restructuring. The third aspect of the productivity revolution is large-scale restructuring in the 

U.S. corporate sector. Chart 3 shows that both the annual number and dollar volume of mergers in the late 

1990s far exceeded the pace of the so-called merger 

mania of the late 1980s. Two classes of firms are leading the new wave of mergers. First, companies in 

mature industries such as oil, autos, and banking are 

faced with excess productive capacity and intense price 

competition. For these firms, mergers are useful in 

expanding market share and removing redundant operations. Second, the largest dollar volume of mergers is in 

some of the most volatile emerging industries, including telecom, media, and the Internet. It is in these sectors of the economy, in particular, where the business 

models are evolving rapidly and where technological 

standards are still being determined. Firms in these 

industries that can grow rapidly through mergers have 

the chance to achieve long-term market dominance in 

what appear to be some of the fastest growing industries 

of the new century. 

The implications of the productivity revolution for the 

banking industry have been decidedly positive. Higher 

productivity has allowed a long expansion and faster 

economic growth with low inflation, all of which are 

conducive to robust financial performance by depository institutions. Higher rates of business investment 

CHART 3 

Note: M&A = merger and acquisition 

Source: Houlihan Lokey’s Mergerstat 

The Volume of Corporate Mergers Set 

Another New Record in 1999 

Number of M&A Deals M&A Deal Value, Billions of Dollars 

’70 ’72 ’74’76’78’80 ’82 ’84’86 ’88 ’90’92’94’96 ’98 

0 

2,000 

4,000 

6,000 

8,000 

10,000 

1,000 

1,200 

1,400 

1,600 

0 

200 

400 

600 

800 

Atlanta Regional Outlook 13 Second Quarter 2000 
In Focus This Quarter
 

have generated demand for credit that is supplied, in 

part, by banks and thrifts. Perhaps most important, the 

recent large-scale industrial restructuring has been 

highly supportive of strong business credit quality. This 

process has moved economic resources to more productive uses in an orderly fashion, without the high levels 

of bankruptcies and defaults that often accompany 

industrial restructuring. Given the volumes of corporate 

assets that have changed hands in recent years (more 

than $1.4 trillion in 1999 alone), it is fortunate indeed 

that this restructuring has proceeded in this fashion. 

The Role of the Capital Markets 

A critical factor in heightened business investment and 

restructuring during this expansion has been the 

remarkably favorable conditions in the financial markets. Financial capital has generally been readily available to business borrowers, usually on favorable terms. 

One factor that has held down the cost of capital for 

publicly traded corporations has been sharply rising 

stock prices. Many of these firms have been able to use 

equity shares as a currency with which to finance mergers. Furthermore, existing accounting rules do not 

always require the amortization of good will that comes 

onto the balance sheet as a result of a merger.11 

By far the largest amount of external business financing 

has been debt financing. U.S. nonfinancial corporations 

issued net debt in the amount of $535 billion in 1999 

and repurchased equity shares, on net, for the sixth consecutive year. Businesses have used this debt to purchase capital equipment, finance mergers, and buy back 

equity shares. This increase in debt issuance has not 

been limited to highly rated corporations. Venture capital financing amounted to almost $15 billion in the 

fourth quarter of 1999 alone, with over 60 percent of 

that amount going to Internet firms.12 

Banks have been active participants in nearly every 

facet of this financing activity. Syndicated loan origination volumes rose by 17 percent in 1999 to just over 

$1 trillion, despite relatively high credit costs and facility fees, factors that helped keep total volume below 

1997’s record $1.1 trillion in issuance. Syndicated loans 

to leveraged companies also rose 17 percent in 1999 to 

a record $320 billion. More impressive still was the 

growth in high-yield transactions, which rose nearly 50 

11 April 17, 2000. Techdom’s New Bean-Counting Battle. Business 

Week. 

12 May 2000. Venture financing data are derived from a PriceWaterhouseCoopers/Money Tree survey, as cited in Upside, 43. 

percent in 1999 to $190 billion. It is difficult to determine precisely how much syndicated loan exposure 

resides on the books of insured institutions or, more 

important, how much high-yield exposure is retained by 

commercial banks. Loan Pricing Corporation estimates that 64 percent of high-yield volume in the first 

half of 1999 was retained by banks.13 Insured commercial banks are the dominant originators of syndicated 

loans, with a 79 percent market share of investmentgrade originations and a 56 percent market share of 

non-investment-grade originations in 1999. Commercial banks have also expanded their presence in the venture capital market. For some of the largest banks, 

profits from venture capital operations account for a 

large portion of total earnings. Chase Manhattan reported venture capital investment earnings of $2.3 billion in 

1999, accounting for 22 percent of total net income.14 

Innovation in the capital markets continues to provide 

new and more efficient vehicles for business financing. 

For example, issuance of asset-backed securities totaled 

$346 billion in 1999, up from only $50 billion in 1990. 

In this ongoing revolution in finance, market-based 

intermediaries, such as mutual funds and asset pools, 

have assumed an increasing role in the credit markets. 

Chart 4 shows that net holdings of credit market instruments by mutual funds, government-sponsored enterprises, and asset pools exceeded the debt held by 

depository institutions for the first time in 1997. 

CHART 4 

Market-based Lending Is Becoming More 

Important as a Source of Business Financing 

Share of Total Net 

Credit Market Lending1 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

Market-based Lenders3 

Depository Institutions2 

’60 ’63 ’66 ’69 ’72 ’75 ’78 ’81 ’84 ’87 ’90 ’93 ’96 ’99 

1 Total net credit market lending is defined as net holdings of open-market paper,
 

government and municipal securities, corporate and foreign bonds, mortgages,
 

and other loans.
 

2 Depository institutions include commercial banks, savings institutions, and credit
 

unions.
 

3 Market-based lenders include mutual funds, closed-end funds, government-


sponsored enterprises, and asset pools.
 

Sources: Federal Reserve Board (Haver Analytics); Regional Financial Associates
 

13 September 13, 1999. Junk Loan Market Is Feeling the Pinch of 

Oversupply and Rising Interest Rates. The Wall Street Journal. 14 April 3, 2000.What’s Really Driving Banks’ Profits. Business Week. 

Atlanta Regional Outlook 14 Second Quarter 2000 
In Focus This Quarter
 

While the expansion in market-based financing has 

made credit more available to business and consumer 

borrowers, it also creates some concerns. One issue is 

the susceptibility of the financial markets to periodic 

bouts of turmoil. These episodes, such as the one triggered by the Russian government bond default and the 

near-failure of the Long Term Capital Management 

hedge fund in the fall of 1998, can result in the interruption of capital flows even to creditworthy borrowers. 

During the 1998 episode, private yield spreads widened 

sharply as investors sought the safety of U.S. Treasury 

securities. Some companies that had planned to issue 

debt to the markets during that period were unable to do 

so. For companies whose business models depend heavily on a continuous supply of liquidity from the financial markets, the effects of these episodes can be 

catastrophic. For example, the relatively short-lived 

episode of financial turmoil during late 1998 resulted in 

significant liquidity problems for a number of commercial mortgage firms. Nomura, Lehman Brothers, CS 

First Boston, and others incurred losses, while Criimi 

Mae, Inc., was forced to declare bankruptcy. 

Because market-based financing has played such a large 

role in facilitating the orderly restructuring of the U.S. 

economy through mergers and the formation of new 

businesses, a recurrence of financial market turmoil 

could contribute to the end of the current expansion. 

Moreover, such an event could have serious consequences for business credit quality. A prolonged interruption of market-based financing could, in this very 

competitive economic environment, prevent businesses 

from restructuring themselves through mergers and 

deprive them of capital needed to invest in cost-cutting 

technologies. The loss of financial flexibility would 

leave businesses much more vulnerable to the effects of 

CHART 5 

competition and could result in more firms seeking 

bankruptcy protection. Such a scenario has the potential 

to bring about a significant increase in charge-off rates 

for business lenders. 

Financial Imbalances 

Another concern that arises from increased dependence 

on market-based financing is that it may contribute to 

the emergence of financial imbalances in the economy. 

These imbalances could, in turn, increase the potential 

for financial market turmoil as a result of some unforeseen shock to the markets. 

As recently as 1993, the public deficit was near the top 

of the list of economists’ concerns about the U.S. economy. During that year, the combined deficit of the federal, state, and local government sectors exceeded $300 

billion. However, on the strength of a long economic 

expansion, lower interest rates, and lower federal spending on defense, the consolidated government sector 

posted its second consecutive surplus in 1999 (Chart 5). 

As the government has moved from deficit to surplus, 

households and businesses have continued to borrow 

hundreds of billions of dollars every year. Taken together, the annual net borrowing of businesses and households has been referred to as the “private deficit.” In 

1999, the private deficit narrowed to $913 billion from 

a record $1.02 trillion the year before. Although this private borrowing indicates confidence on the part of consumers and businesses about future prospects, it also 

raises concerns about the ability to service debt if interest costs rise or if incomes level off or decline. 

Atlanta Regional Outlook 15 Second Quarter 2000 

Flow of Net Sectoral Lending 

(Lending Less Borrowing), 

in Billions of Dollars Domestic Financial Sector 

Note: “Nonfinancial business” includes farm and nonfarm, corporate and noncorporate businesses. 

Source: Federal Reserve Board (Haver Analytics) 

Net Borrowing by Businesses and Households Represents a Growing “Private Deficit” 

–1,200 

–900 

–600 

–300 

0 

300 

600 

900 

1,200 

Foreign Sector 

Nonfinancial Business 

Households 

Government 

’80 ’81 ’82 ’83 ’84 ’85 ’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 
In Focus This Quarter
 

The largest part of the private deficit was again 

financed in 1999 by domestic financial institutions 

($649 billion) and an inflow of capital from abroad 

($207 billion). Both of these sources of financing are 

potential causes for concern. The rapid expansion in 

credit created by the financial sector raises questions 

about credit quality. Financial institutions theoretically 

serve as the gatekeepers of the economy, financing only 

the most creditworthy projects and rejecting those that 

are not viable. The sheer volume of credit extended to 

businesses and households—almost $1.4 trillion in new 

net lending over the past two years—raises the possibility that underwriting has become more lax and that 

average credit quality is slipping. (See the inset box on 

page 17 for a discussion of recent trends in commercial 

credit quality.) 

Reliance on inflows of foreign capital raises a different 

set of issues. The fact that the U.S. economy has been 

growing significantly faster than the economies of its 

major trading partners has contributed to a U.S. trade 

deficit that reached $268 billion in 1999 and could 

exceed $300 billion in 2000. This deficit puts hundreds 

of billions of dollars annually in the hands of foreign 

investors. As long as foreign investors largely choose to 

reinvest their excess dollars in U.S. factories and financial instruments, as has been the case in recent years, 

the United States can continue to enjoy a strong dollar 

and relatively low inflation and low interest rates. However, if foreign investors should choose to invest elsewhere, they must sell their dollars in foreign exchange 

markets. Doing so would put downward pressure on the 

dollar and upward pressure on U.S. inflation and interest rates. 

Recent Shocks to the U.S. Economy 

Despite the potential for a declining dollar as a result of 

U.S. reliance on foreign capital, other adverse developments have confronted the U.S. economy over the past 

year. The two factors of most consequence to the macroeconomic outlook have been rising energy costs and rising interest rates. These trends have played a role in 

recent equity market volatility that may have implications for the future direction of the economy. 

Rising Energy Prices. After declining to a low of 

around $10 per barrel in December 1998, oil prices have 

risen dramatically over the past year and a half. The spot 

price per barrel of West Texas Intermediate crude 

peaked in March 2000 at just under $30 before declining slightly in April. The rapid increase in oil prices during 1999 was sparked by a cutback in output by oilproducing nations that was instituted just as global economic growth was recovering from the crisis of 1998. 

The OPEC nations and other major oil producers 

reached a new agreement in March 2000 that provides 

for a production increase of some 1.5 million barrels a 

day. But, because demand is rising and gasoline inventories remain lean, analysts do not look for a significant 

decline in gasoline prices in the near term.15 

The effects of higher oil prices on the U.S. economy at 

this time are uncertain. According to some estimates, 

the economy is only half as dependent on oil as it was 

25 years ago, when the United States was experiencing 

the effects of its first “oil shock.”16 Still, higher oil 

prices were responsible for nearly all the increase in 

consumer price inflation during 1999. While year-overyear growth in the Consumer Price Index rose from 1.6 

percent in December 1998 to 2.7 percent in December 

1999, the core rate of inflation (excluding food and 

energy items) actually fell. The question now is whether 

higher energy prices will be passed along to the rest of 

the economy through rising wage and price demands 

during the remainder of 2000. 

Rising Interest Rates. From low points at the end of 

1998, both short-term and long-term interest rates have 

risen substantially, contributing to a higher cost of debt 

service for businesses and households. At the short end 

of the yield curve, the Federal Reserve (the Fed) raised 

the Federal Funds rate six times between June 1999 and 

May 2000, for a total increase of 175 basis points. 

While part of this increase merely reversed the reduction in rates that took place in late 1998, the Fed also 

voiced concerns that inflationary pressures might be 

emerging because of continued rapid U.S. economic 

growth. Given the stated commitment of the Federal 

Reserve to price stability, most analysts expect the Fed 

to continue to push short-term rates higher until growth 

in the economy slows to a more sustainable pace.17 

Bond markets also pushed up long-term interest rates 

during this period. The yield on the ten-year Treasury 

15 Energy Information Agency (U.S. Department of Energy). April
 

2000. Short-Term Energy Outlook. http://www.eia.doe.gov/emeu/
 

steo/pub/contents.html.
 

16 March 11, 2000. Fueling Inflation? The Economist.
 17 See, for example, U.S. House of Representatives. February 17,
 

2000. Testimony of Chairman Alan Greenspan Before the Committee
 

on Banking and Financial Services. http://www.federalreserve.gov/
 

boarddocs/hh/2000/February/Testimony.htm.
 

Atlanta Regional Outlook 16 Second Quarter 2000 
In Focus This Quarter
 

As Commercial Credit Quality 

Indicators Slip, Trends in Commercial 

Lending Come to the Forefront 

Commercial lending, which includes both commercial 

and industrial (C&I) and commercial real estate (CRE) 

loans, represents the greatest source of credit risk to 

insured institutions and the deposit insurance funds. C&I 

loan growth continued to be strong in 1999, although it 

did moderate from 1998 levels, and recent underwriting 

surveys have reported a slight tightening of terms.18 Nevertheless, there are signs that commercial credit quality is 

deteriorating.19 Most notably, as seen in Chart 6, C&I loan 

charge-off rates, corporate bond defaults, and corporate 

bond rating downgrades relative to upgrades have all 

been trending upward recently. For example, C&I loan 

loss rates rose to 0.56 percent of total loans in 1999, nearly double the rate of loss experienced in 1997. Although 

C&I loan loss levels are well below historical highs experienced throughout the 1980s and early 1990s, these signs 

of credit quality deterioration are occurring despite 

extremely favorable economic conditions. 

At least three factors have contributed to weakening in 

corporate credit quality. First, corporate indebtedness has 

been rising, as businesses have been spending to increase 

productivity, cut costs, repurchase equity, and finance 

mergers and acquisitions. The second factor relates to a 

greater risk appetite in the financial markets. For example, originations of leveraged syndicated loans—in particular, highly leveraged loans—have tripled over the past 

five years. Finally, stresses within industry sectors hard 

hit by structural changes, global competition, and deflationary pressures have resulted in challenges for 

borrowers. 

Construction and development (C&D) lending continues 

to be one of the fastest growing segments of banks’ loan 

portfolios, while loss rates among CRE and C&D loans 

remain extremely low. However, there are indications 

that conditions could be worsening in some markets. In 

particular, as shown in Chart 7, strong office completions and construction activity have begun to outpace 

absorptions and are projected to continue to do so over 

the next several years. Moreover, these trends have 

implications for vacancy rates. The national office 

vacancy rate moved higher during 1999 for the first time 

since 1991 and is projected to climb higher. 

In addition, some local CRE markets continue to show 

signs of overbuilding. Last year, the FDIC’s Division of 

Insurance identified nine markets in which the pace of 

construction activity threatened to outstrip demand for at 

least two property sectors.20 Seven of these nine markets 

reported an increase in office vacancy rates in 1999. 

CHART 6 

0.0 

1.0 

2.0 

3.0 

4.0 

’84 ’85 ’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 

0.0 

1.0 

2.0 

3.0 

4.0 

5.0 

Note: C&I = commercial and industrial 

Source: Moody’s; Bank and Thrift Call Reports (Research Information System) 

Deteriorating Indicators Suggest Weakening 

Business Credit Quality 

Insured Institution C&I 

Charge-off Rate 

Corporate Bond 

Default Rate 

Bond Ratings 

Downgrades to 

Upgrades (columns) 

18 Both the 1999 Senior Loan Officer Opinion Survey (Federal 

Reserve Board) and 1999 Survey of Credit Underwriting Practices 

(Office of the Comptroller of the Currency) point to more stringent 

C&I loan terms since the latter part of 1998. This tightening follows a four-year period of easing C&I loan standards and predominantly reflects an increase in loan pricing. 

19 For additional detail, see Sothoron, Arlinda, and Alan Deaton. 

FDIC Division of Insurance. First quarter 2000. Recent Trends 

Raise Concerns about the Future of Business Credit Quality. 

Regional Outlook. http://www.fdic.gov/bank/analytical/regional/ 

ro20001q/na/Infocus1.html. 

20 These markets are Charlotte, Orlando, Salt Lake City, Dallas, Las 

Vegas, Phoenix, Nashville, Atlanta, and Portland. See Burton, 

Steve. FDIC Division of Insurance. First quarter 1999. Commercial Development Still Hot in Many Major Markets, But Slower 

Growth May Be Ahead. Regional Outlook. http://www.fdic.gov/ 

bank/analytical/regional/ro19991/na/Infocus2.html. 

CHART 7 

0 

20,000 

40,000 

60,000 

80,000 

100,000 

120,000 

140,000 

’78 ’80 ’82 ’84 ’86 ’88 ’90 ’92 ’94 ’96 ’98 ’00 ’02 ’04 

0% 

5% 

10% 

15% 

20% 

Source: CB Commercial/Torto Wheaton Research 

U.S. Office Vacancies Rose Last Year 

for the First Time since 1991 

Completions, Absorption 

(000 sq. ft.) Vacancy

 Rate 

Completions 

Absorption 

Projected

Actual 

Atlanta Regional Outlook 17 Second Quarter 2000
 
In Focus This Quarter
 

note rose from a low of 4.5 percent in October 1998 to 

6.5 percent by May 2000. Analysts have cited renewed 

demand for credit by a recovering world economy as 

well as concerns about inflation arising from the 

increase in energy prices as factors behind the rise in 

long-term rates. 

Higher energy costs and higher interest rates do not 

appear to have significantly slowed the pace of U.S. 

economic activity during the first quarter of 2000. The 

preliminary estimate of real gross domestic product 

growth during the quarter was 5.4 percent—a slowdown 

from the 7.3 percent rate of the fourth quarter of 1999 

but still well above what is considered a sustainable 

pace. Home construction, usually a sector that is particularly sensitive to movements in long-term interest 

rates, has remained surprisingly resilient. Still confident 

of their future prospects, homebuyers have increasingly 

turned to adjustable-rate mortgages to avoid some of the 

immediate costs of higher fixed mortgage rates. 

As for the business sector, higher costs for energy and 

debt service are most significantly affecting “Old Economy” firms that purchase commodity inputs and carry 

significant debt on their balance sheets. Airline companies in the S&P 500, for example, posted a year-overyear decline of 27 percent in net income from 

continuing operations during the first quarter of 2000.21 

Analysts have argued that New Economy firms, by contrast, are less vulnerable to recent economic shocks 

because they tend to carry little debt and consume relatively little energy. 

Equity Market Volatility. The notion that New Economy 

firms are less vulnerable to the effects of higher energy 

costs and higher interest rates may be one of the reasons 

that equity shares of firms in the technology sector 

began to dramatically outperform the broader market, 

beginning around the middle of 1999. Chart 8 shows 

that the technology-heavy NASDAQ index performed 

more or less in tandem with the Dow Jones Industrial 

Average between the end of 1996 and the middle of 

1999, but thereafter the NASDAQ soared far ahead of 

the Dow. Between October 1, 1999, and February 29, 

2000, the NASDAQ rose by 72 percent while the Dow 

declined by 4 percent. Moreover, this striking divergence between the equity returns of Old and New Economy companies was not limited to the U.S. markets. 

Parallel trends were observed in Europe, Japan, Korea, 

21 Bloomberg. The S&P 500 airline industry is composed of AMR 

Corp., Delta Air Lines, Southwest Airlines, and U.S. Airways Group. 

CHART 8 

and Hong Kong. The similarity in performance of the 

high-tech sectors across three continents suggests a 

worldwide flow of liquidity from investors to the shares 

of technology firms. 

However, emerging concerns about the technology sector contributed to significant volatility in technology 

0 

50 

100 

150 

200 

250 

300 

350 

400 

4Q96 4Q97 4Q98 4Q99 

Source: Bloomberg 

Tech Stocks Have, Until Recently, Far 

Outperformed “Old Economy” Stocks Worldwide 

January 1997 = 100 

United States 

NASDAQ 

DJIA 

May 12, 2000 

0 

200 

400 

600 

800 

1,000 

4Q96 4Q97 4Q98 4Q99 

Source: Bloomberg 

January 1997 = 100 

EASDAQ 

Bloomberg European 500 

May 12, 2000 

Europe 

0 

50 

100 

150 

200 

250 

300 

January 1997 = 100 

Japan 

4Q96 4Q97 4Q98 4Q99 

Source: Bloomberg 

JASDAQ 

Nikkei 225 

May 12, 2000 

Atlanta Regional Outlook 18 Second Quarter 2000 
In Focus This Quarter
 

shares during March and April 2000. The NASDAQ 

index lost 30 percent of its value between March 10 and 

May 12, 2000. Analysts cited the Justice Department 

finding against Microsoft and doubts about the ultimate 

profitability of business-to-consumer Internet firms as 

two factors in the sell-off. 

Equity market volatility also poses a threat to the economic outlook. One concern is the so-called “wealth 

effect” that a declining stock market may have on consumer spending. Since 1995, rising stock prices have 

helped raise the market value of equities held by U.S. 

households, plus their holdings of mutual funds, by 

some $5.7 trillion. This windfall is an important reason 

that households have continued to reduce annual personal savings (to just 2.4 percent of disposable income 

in 1999) and increase spending on homes, autos, and 

other consumer goods. Although it is uncertain what 

effect a prolonged stock market correction might have 

on consumer spending, the potential wealth effect has 

surely grown as more households hold a higher percentage of wealth in corporate equities and mutual fund 

shares. (See the inset box at right for a discussion of 

how financial market volatility could affect banks.) 

The Economic Outlook 

Despite the effects of rising energy costs, increasing 

interest rates, and equity market volatility, the U.S. 

economy continues to grow at a robust pace. The consensus forecast of 50 corporate economists surveyed by 

the May 1999 Blue Chip Economic Indicators suggests 

that the economy will grow by 4.7 percent in 2000, 

while consumer prices are projected to rise by 3.0 percent from 1999 levels. Short-term interest rates are projected to rise only slightly by year-end from early May 

levels. In short, the consensus forecast indicates that the 

New Economy formula of rapid economic growth combined with low inflation will continue for the foreseeable future. If actual events conform to this forecast, the 

result will likely be another year of generally low loan 

losses and solid earnings for much of the banking 

industry. (See the inset box on the following page for a 

discussion of other risks to watch in banking.) 

Clearly, risks are associated with the economic outlook. 

Recently, higher oil prices and higher interest rates have 

been the most visible signs of trouble for the economy. 

New Economy companies may be less vulnerable to 

these effects, but even these firms have experienced a 

sharp decrease in equity valuations as investors reevalFinancial Market Volatility Could 

Pare Earnings for Banks Most 

Reliant on Market Sources of 

Revenue 

FDIC-insured banks are deriving an increasing proportion of earnings from noninterest sources (see 

Chart 9), particularly market-sensitive sources of revenue. This is especially true for larger institutions. 

According to Deutsche Banc Alex. Brown, the 18 

most active generators of market-sensitive sources of 

revenue earned over 25 percent of net operating revenue from these potentially volatile business lines.22 

While market-sensitive sources help to diversify revenue streams, they can also introduce increased 

income volatility in the event of financial market turbulence. Deutsche Banc Alex. Brown also reports that 

for those 18 banks that generated the largest amounts 

of market-sensitive revenues during the third quarter 

of 1998, the share of total revenue derived from 

market-sensitive sources declined from 23 percent to 

13 percent. Thus, a more sustained downward trend in 

the financial markets could particularly affect the 

earnings of large banking companies that rely heavily 

on income from sources such as venture capital, asset 

management and brokerage services, and investment 

banking. 

CHART 9 

15 

30 

45 

60 

75 

90 

1970s 1980s 1990s 

Noninterest Revenues Account for a Growing 

Share of Bank Net Operating Revenue 

Percentage of Net Operating Revenue* 

* Net operating revenue is the sum of net interest income and 

noninterest income. 

Sources: FDIC Historical Statistics on Banking; FDIC Quarterly Banking 

Profile 

Net Interest Income Noninterest Income 

0 

22 Net operating revenue is the sum of interest income and 

noninterest income less interest expense. According to 

Deutsche Banc Alex. Brown, these companies are Bank of 

America Corporation; Bank of New York Company, Inc.; 

Bank One Corporation; Bank Boston; BB&T Corporation; 

Chase Manhattan Corporation; Citigroup, Inc.; First Union 

Corporation; FleetBoston Financial; JP Morgan; KeyCorp; 

Mellon Financial Corporation; National City Corporation; 

PNC Bank Corp.; SunTrust Banks, Inc.; US Bancorp; 

Wachovia Corporation; and Wells Fargo & Company. 

Atlanta Regional Outlook 19 Second Quarter 2000 
In Focus This Quarter
 

Other Risks to Watch in Banking
 

Subprime Lending 

•	 Subprime consumer loan portfolios contributed to 

the large losses associated with recent high-cost 

bank failures. During 1999, the FDIC reported the 

first annual loss for the Bank Insurance Fund since 

1991. The loss was primarily the result of an uptick in 

unanticipated and high-cost bank failures. FDICinsured institutions with at least 20 percent of Tier 1 

capital in subprime loans accounted for 6 of the 13 

bank failures that occurred between January 1998 and 

March 2000. Fraud and inappropriate accounting for 

residuals also played a role in some of these failures.23 

•	 Subprime lending remains an area of concern. 

Insured depository institutions that engage in subprime lending represent a disproportionate share of 

problem institutions. Of the 79 banks and thrifts on 

the problem bank list as of year-end 1999, 21 percent 

were institutions with at least 20 percent of their Tier 

1 capital in subprime loans.24 

Agricultural Lending 

•	 While a majority of agricultural institutions remain 

relatively strong, external conditions have put pressure on some agricultural producers. Many agricultural areas are experiencing low commodity prices as 

well as weather- and disease-related problems. Strong 

global competition and high worldwide production 

over the past several years have resulted in increasing 

inventories of many crops and poor prospects for a 

price turnaround in the near term. Moreover, in spite 

of record government farm payments in 1999, the 

U.S. Department of Agriculture projects that in the 

year 2000 one in four farms will not cover cash 

expenses, up to 20 percent of farmers will experience 

repayment problems, and 5 percent of farmers will be 

“vulnerable.”25 

23 See Puwalski, Allen. FDIC Division of Insurance. Second 

quarter 1998. Gain-on-Sale Accounting Can Result in Unstable 

Capital Ratios and Volatile Earnings. Regional Outlook. http:// 

fdic01/division/doi/outlook/2q1998/atlanta/infocus1.html. 

24 The problem bank list includes all insured depository institutions rated a composite “4” or “5.” 

25 “Vulnerable,” as defined by the U.S. Department of Agriculture 

Economic Research Service, applies to institutions that have 

debt/asset ratios above 0.40 and negative income such that they 

cannot meet current expenses or reduce existing indebtedness. 

•	 Some signs point to growing stress for agricultural 

institutions. Forty-two percent of FDIC-supervised 

banks active in agricultural lending showed a moderate or sharp increase in the level of carryover debt 

during third quarter 1999, compared with just 26 percent during third quarter 1998.26 In addition, net loan 

loss rates for agricultural production loans increased 

in 1999 to the highest level since 1991. However, at 

0.32 percent, the 1999 net loss rate is just one-tenth 

the rate experienced during the height of the agricultural crisis of the mid-1980s.27 

Operational Risk 

•	 Operational risks are becoming more prominent in 

the banking industry. Driven by consolidation and 

expansion into new product lines and markets, financial institutions are seeing an increase in operational 

complexity. Operational risk encompasses a host of 

factors not related to credit or market activities, 

including risks associated with processing transactions, legal liability, fraud, strategic missteps, and 

internal control weaknesses. Operational risks tend to 

be more pronounced when institutions engage in 

rapid growth, far-flung operations, and complex business processes. 

•	 Greater attention is being paid to operational risks 

in the financial industry. Recently, analysts have 

noted that the pressure to meet ambitious postmerger 

earnings predictions can result in cost-cutting measures that jeopardize the comprehensiveness and 

integrity of risk-management systems. In addition, 

the role that fraud has played in recent bank problems 

and failures reinforces the importance of adequate 

internal controls and audit procedures. The significance of operational risks to financial institutions has 

been noted in industry surveys and informationsharing efforts among financial firms.28 NetRisk Inc., 

a Greenwich, Connecticut, consulting firm, recently 

estimated that operational losses among financial 

institutions have exceeded $40 billion over the past 

five years. 

26 September 1999. FDIC Report on Underwriting Practices. 27 See Anderlik, John M., and Jeffrey W. Walser. FDIC Division of 

Insurance. Third quarter 1999. Agricultural Sector Under Stress: 

The 1980s and Today. Regional Outlook. http://www.fdic.gov/ 

bank/analytical/regional/ro19993q/kc/agricult.html. 

28 For additional detail, see March 2000. Operational Risk: The 

Next Frontier. RMA/PricewaterhouseCoopers Survey. April 6, 

2000. Tech Bytes: Banks Join Forces Against Operational Risk. 

American Banker. 

Atlanta Regional Outlook 20	 Second Quarter 2000 
In Focus This Quarter
 

uate the long-term prospects. Equity market volatility 

threatens to dampen consumer confidence and the ability of businesses to continue to merge, restructure, and 

invest. 

The economy has become particularly dependent on 

financing delivered through the capital markets. In this 

more permissive financial environment, rising debt levels and greater dependence on foreign capital have 

emerged as financial imbalances that may contribute to 

future problems for the economy. Businesses and 

households with high levels of debt are more vulnerable 

to problems if interest rates continue to rise or income 

growth falters. Rapid credit creation by the domestic 

financial sector suggests the possibility of lax credit 

underwriting standards. Reliance on foreign capital 

raises concerns about what would happen to the value of 

the dollar and to domestic inflation if foreign investors 

decide to invest elsewhere. 

Some analysts suggest that the New Economy, driven by 

increased productivity, heightened competition, and 

robust investment, may be characterized by longer 

expansions. Financial market imbalances may, however, 

contribute to deeper recessions and more sluggish 

recoveries compared with earlier business cycles. 

For the banking industry, it is clear that a recession 

would mean slower loan growth, deteriorating credit 

quality, and impaired profitability. But the biggest 

threat to the banking industry is a recession that is tied 

to disruptions in the financial markets. The ready availability of financing to start new businesses and restructure old businesses has been key to the New Economy. 

The process by which businesses have invested and 

restructured in response to competition has been orderly from the perspective of bank creditors. If this 

process should be disrupted, we could see a much more 

disorderly process, with more bankruptcies and higher 

losses to lenders. 

This article was prepared and coordinated by the management and staff of the Analysis Branch of the Division of 

Insurance. Contributions and feedback from analysts across the Division were essential to its completion. 

Maureen E. Sweeney, Associate Director 

Paul C. Bishop, Senior Financial Economist 

Richard A. Brown, Chief, Economic and Market Trends Section 

Steve Burton, Senior Banking Analyst 

Steven C. Cunningham, formerly Chief, Financial Institutions Section 

Alan Deaton, Economic Analyst 

Diane Ellis, formerly Senior Financial Analyst 

Mary L. Garner, Senior Financial Analyst 

Brian Kenner, Financial Analyst 

Thomas A. Murray, Senior Financial Analyst 

Allen Puwalski, Senior Financial Analyst 

Arlinda Sothoron, Senior Financial Analyst 

Ronald Spieker, Chief, Regional Programs and Bank Analysis 

Atlanta Regional Outlook 21 Second Quarter 2000 
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