consider a standard measure of problem loans : the ratio of noncurrent and delinquent loans to bank capital and the allowance for loan loss. in the first quarter of 2009, that ratio rose for all loans to 24 percent for the median minnesota bank, double the 25 - year median level of 12 percent. for commercial real estate loans, the problem loan ratio rose to about 9 percent, nine times higher than the 20 - year median of 1 percent. bis central bankers ’ speeches the problem loan story has changed completely. the ratio for total loans is at 9. 5 percent for the median minnesota bank, right around the 25 - year low. and the ratio for problem commercial real estate loans for the median minnesota bank is at 2 percent and rapidly returning to pre - crisis levels. these same general patterns hold for the nation ’ s banks. the low earnings and negative loan growth for the median minnesota bank have also improved, but not yet to pre - crisis levels. return on average assets, a standard measure of profitability, has been holding very steady for the past several years at just below 1 percent. this is clearly better than the trough of 0. 5 percent during the crisis. but the 20 - year median is 1. 15 percent. currently, the return on average assets of the median minnesota bank is at 0. 94 percent, which is at the 19th percentile for the past 20 years. year - over - year net loan growth for the minnesota median bank is at 4. 6 percent. again, this is much better than the – 4. 7 percent crisis trough ; indeed, negative growth persisted through the end of 2012. but the 25 - year median is nearly 6 percent for minnesota banks, while 4. 6 percent is at the 39th percentile. the nation ’ s banks show similar general patterns. so, yes, there has been recovery in important ways for community banks in the state. but other important measures continue to lag historical norms more than five years after crisis depths. this weaker - than - hoped - for performance is one factor raising concerns for community banks about the additional supervision and regulation burden that faces them post - crisis. i ’ d like to turn to those concerns now. post - financial crisis supervision and regulation of community banks low earnings levels have many potential sources. let me mention three. first, on the revenue side, weak loan growth naturally leads to more competition for available loans and drives down returns. second, if banks can ’ t make more loans,

narayana kocherlakota : on the objectives of monetary policy speech by mr narayana kocherlakota, president of the federal reserve bank of minneapolis, to the economic club of marquette county, marquette, michigan, 22 september 2014. * * * thanks to david fettig, terry fitzgerald and sam schulhofer - wohl for their assistance with these remarks. introduction thank you for that generous introduction, and thank you for the invitation to join you here today. this is my second trip to marquette since becoming president of the federal reserve bank of minneapolis five years ago, and i ’ m glad to be back. i ’ m planning to spend most of my time today talking about the objectives of monetary policy. as you will hear, the fomc has made great progress in formulating, and communicating, the objectives of monetary policy to the public. i will discuss some of that progress and then move on to some ideas about how the committee can make further improvements along these lines. i look forward to your questions, as well – i always learn a lot from q & a sessions. before i start, though, i must remind you that the views i express today are my own and not necessarily those of my federal reserve colleagues. federal reserve system basics let me begin with some basics about the federal reserve system. i like to tell people that the fed is a uniquely american institution. what do i mean by that? well, relative to its counterparts around the world, the u. s. central bank is highly decentralized. the federal reserve bank of minneapolis is one of 12 regional reserve banks that, along with the board of governors in washington, d. c., make up the federal reserve system. our bank represents the ninth of the 12 federal reserve districts and includes montana, the dakotas, minnesota, northwestern wisconsin and the upper peninsula of michigan. eight times per year, the federal open market committee – the fomc – meets to make monetary policy. all 12 presidents of the regional federal reserve banks – including me – and the governors of the federal reserve board contribute to these deliberations. however, the committee itself consists only of the governors, the president of the federal reserve bank of new york and a rotating group of four other presidents. i ’ m one of those four presidents this year. in this way, the structure of the fomc mirrors the federalist structure of our government, because representatives from different regions of the country – the various presidents –