Announcements.

FEDERAL OPEN MARKET COMMITTEE STATEMENT

The Federal Open Market Committee decided on September 16, 2003, to keep its target for the federal funds rate at 1 percent.

The Committee continues to believe that an accommodative stance of monetary policy, coupled with robust underlying growth in productivity, is providing important ongoing support to economic activity. The evidence accumulated over the intermeeting period confirms that spending is firming, although the labor market has been weakening. Business pricing power and increases in core consumer prices remain muted.

The Committee perceives that the upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal. In contrast, the probability, though minor, of an unwelcome fall in inflation exceeds that of a rise in inflation from its already low level.

The Committee judges that, on balance, the risk of inflation becoming undesirably low remains the predominant concern for the foreseeable future. In these circumstances, the Committee believes that policy accommodation can be maintained for a considerable period.

Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Ben S. Bernanke; Susan S. Bies; J. Alfred Broaddus, Jr.; Roger W. Ferguson, Jr.; Edward M. Gramlich; Jack Guynn; Donald L. Kohn; Michael H. Moskow; Mark W. Olson; Robert T. Parry; and Jamie B. Stewart, Jr.

STATEMENT BY CHAIRMAN ALAN GREENSPAN ON THE NOMINATIONS OF VICE CHAIRMAN FERGUSON AND GOVERNOR BERNANKE

"I welcome the announcement that President Bush is nominating Roger W. Ferguson, Jr., for a second term as Vice Chairman and nominating Ben S. Bernanke for a full term as a Governor of the Federal Reserve Board.

In making these nominations, the President affirms the many contributions Governors Ferguson and Bernanke have brought to the Board. They are exemplary public servants, with strong experience and sound judgment. The Board will benefit greatly from their continued service, upon their confirmation by the Senate."

STATEMENT BY VICE CHAIRMAN ROGER W. FERGUSON, JR., ON NOMINATION TO SECOND TERM

"I am honored President Bush has announced his intention to nominate me to serve another term as Vice Chairman of the Federal Reserve Board. I am particularly mindful that the policy decisions of the Federal Reserve influence the economic well-being of all Americans. I have been privileged to serve as part of this dedicated institution since 1997. I very much look forward to continuing this work with Chairman Greenspan and my colleagues on the Board, upon my confirmation by the Senate."

STATEMENT BY GOVERNOR BEN S. BERNANKE ON NOMINATION TO FULL TERM

"I am honored and grateful that President Bush has announced his intention to nominate me to a full term on the Federal Reserve Board. I appreciate his confidence. I'm very pleased to have the opportunity to continue my work with Chairman Greenspan and my colleagues on the Board."

RESULTS OF THE SHARED NATIONAL CREDIT REVIEW OF SYNDICATED BANK LOANS

The quality of large syndicated bank loans stabilized this year, according to the Shared National Credit (SNC) (1) review released September 10, 2003, by federal bank regulators. However, regulators noted that adversely rated loans remain at an elevated level and will require continued vigilance. The results-reported by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision--are based on analyses that were prepared in the second quarter and reflect business and economic conditions at that time.

Total loan commitments (2) classified as either substandard, doubtful, or loss fell $4.9 billion, or 3 percent, over the previous year, compared with a net increase of $39.8 billion, or 34 percent, the year before. Commitments rated special mention decreased $23.8 billion, or 30 percent, in contrast to 2002 when they grew $3.5 billion, or 4.6 percent. None of these figures include the effects of hedging or other techniques that individual organizations might have employed to mitigate risk.

The ratio of classified loans to total commitments rose to 9.3 percent, close to the previous peak in 1991, driven by a 12 percent decline in total commitments. At the same time, total adversely rated credits (classified and special mention combined) stabilized at 12.6 percent of total commitments.

Adversely rated credits (also known as criticized credits) are the total of loans classified substandard, doubtful, loss, and loans rated special mention. Under the agencies' Uniform Loan Classification Standards, (3) classified loans have well-defined weaknesses, including default in some cases, while special mention loans exhibit potential weaknesses, which may result in further deterioration if left uncorrected.

Overview

In aggregate, the SNC program covered 8,232 credits totaling $1.6 trillion in loan commitments to 5,111 borrowers in 2003. Total commitments were down 20 percent from the 2001 peak of $2.0 trillion, driven by lower customer demand, tighter underwriting standards, attractive capital market financing alternatives, and repositioning by banks to exit nonstrategic business lines and less-profitable customer relationships.

For the 2003 review, total loan commitments classified as substandard remained roughly even with the previous year, while doubtful credits edged up $3.2 billion, or 12.3 percent. At the same time, commitments classified as loss remained elevated at $10.7 billion, but were down 43.8 percent from the extraordinary level of the previous year. That decline in turn led to a fall in total classifieds of 3.2 percent. Although total classified commitments fell moderately, the portion of outstanding classified loans not accruing interest (4) was unchanged from the previous year, at $51.0 billion.

Industry Trends

The quality of the SNC portfolio was mixed as modest-to-strong improvements in the majority of industry sectors were nearly offset by deterioration in the energy sector (oil, gas, pipelines, and utilities). In total, improving industry segments more than offset deteriorating ones by $4.9 billion. The strongest improvement occurred in manufacturing, with an $18.2 billion decline in classified commitments largely driven by loan repayments from a handful of substandard borrowers. Classifications in the telecommunication and cable segment fell $2.4 billion, but remained at significantly elevated levels. Other segments, such as financial services and insurance, showed modest declines, with classification rates that were below those for the entire SNC program. In contrast, the energy sector showed rapid deterioration with a $21.1 billion rise in classifieds, which were largely attributable to leveraged firms involved in energy trading. In addition, the well-known problems facing U.S. passenger airlines drove a $1.1 billion net increase in classifieds for the lodging and transportation sector. Credits identified for special mention fell $23.8 billion with strong declines experienced in nearly every industry. These declines were driven by a migration of a portion of special mention credits from the previous year to classified categories, as well as a decline in newly identified potential weaknesses.

Despite a decline of 44 percent in loans identified in the loss classification, this year's level of losses, $10.7 billion, was the second highest on record. Of total losses, $5.0 billion, or 47 percent, were directly attributable to the weakened telecommunication and energy sectors, the Argentina default, and asbestos-related litigation. The remaining losses were spread widely across a variety of industries. In contrast, during 2002 more than 60 percent of losses were attributable to the telecommunications and energy sectors. Nearly half of 2003 SNC classified commitments were related to the telecommunications and energy sectors, compared with roughly one-third in 2002.

Trends by Entity Type

During 2003, the share of SNC commitments held by nonbanks (5) continued to grow, edging up 1 percentage point, to 11 percent, although the share held by foreign banking organizations (FBOs) fell to 44 percent and that held by U.S. banks (6) held steady at 45 percent. U.S. banks experienced a 20 percent decline in classified assets during 2003, compared with a rise of 5.5 percent at FBOs and a 6.0 percent rise at nonbanks. These disparate trends further differentiated the quality of holdings among entity types, with classifieds amounting to just 5.8 percent of total commitments for U.S. banks, compared with 9.0 percent at FBOs and 24.4 percent at nonbanks. Similarly, total non-accrual outstandings fell for U.S. banks and rose for FBOs. However, despite a rise in classified commitments, non-accrual outstandings for nonbanks fell.

To a great extent, the deteriorating trend in SNC credit quality at FBOs is explained by their higher share of riskier energy commitment holdings relative to U.S. banks. Of the $21.1 billion increase in energy commitments, $16.1 billion was attributable to FBOs, resulting in a 23.5 percent classification rate in energy commitments. In contrast, U.S. banks experienced a $2.9 billion increase, and a classification rate of 10.2 percent in energy commitments. At the same time, nonbank classifieds were up $2.1 billion, amounting to 31.4 percent of energy commitments. Notably, both FBOs and nonbanks increased their dollar holdings of energy commitments in 2002 and only began reducing them in 2003, although U.S. banks reduced their exposure in both 2002 and 2003. The increasing share held by nonbanks likely stems from the purchase of troubled loans in the secondary market at steep discounts.

The significantly higher classification rate for nonbank holdings is consistent with market observations that nonbanks continue to be active participants in the subinvestment-grade portion of the syndicated loan market and are active purchasers of distressed loans in the secondary markets at discounts to par value; all dollar amounts in this release are par amounts.

Response by Banks

Banking organizations have continued to remain vigilant in identifying problem credits and have generally reflected the appropriate risk rating in their internal credit ratings. Although credit problems have stabilized, banking organizations must continue to carefully monitor the condition of their borrowers in the current environment to ensure that they promptly identify and address any emerging weaknesses and adjust levels of loan-loss allowances appropriately. (7)

RELEASE OF DATE OF ISSUE FOR SERIES-2004 $20 NOTE

The U.S. government announced on September 9, 2003, that the first newly redesigned Series-2004 $20 notes, featuring background colors and improved security features, will be issued on October 9. On the day of issue, the Federal Reserve System will begin distributing the new notes to the public through the nation's commercial banks. "This is the most secure note the U.S. government has ever produced," said Federal Reserve Board Governor Mark W. Olson. "Its enhanced security will help ensure that our currency continues to represent value, trust, and confidence to people all over the world. It will co-circulate with older-design notes, and the public can rest assured that all U.S. notes will continue to be legal tender." The U.S. government launched a worldwide public education program last May when the new $20 design was unveiled, to create awareness among the general public and to help banks and businesses prepare for the new $20 note. A wealth of training and informational materials, highlighted by an interactive demonstration of the bill's security features, is available to download or order through www.moneyfactory.com/newmoney. Since the Treasury's Bureau of Engraving and Printing (BEP) began taking orders last May, more than 7,500 businesses and organizations have ordered training materials. The September 9 announcement of the October 9 date of issue signaled to banks and businesses that they should make final preparations for the new notes.

"Our aim is the seamless introduction of the newly redesigned bills," said BEP Director Tom Ferguson. "To that end, the Bureau of Engraving and Printing has been working with the vending machine industry for more than a year to ensure that they have the information they need to make their equipment compatible with the newly redesigned bill by the time it enters circulation on October 9. Additionally, we have been working with businesses and industry associations across the country to provide them with the materials they need to educate their employees on the new $20 note and its updated security features."

Counterfeiting: Increasingly Digital

To stay ahead of counterfeiters, the U.S. government plans to introduce new currency designs every seven to ten years. The new design for the $20 note will be followed by new designs for the $50 and $100 notes over the next few years. Redesign of the $5 and $10 notes is under consideration, but there are no plans to redesign the $1 and $2 notes.

Counterfeiters are increasingly turning to digital methods, as advances in technology make digital counterfeiting of currency easier and cheaper. In 1995, for example, less than 1 percent of counterfeit notes detected in the United States was digitally produced. By 2002, that number had grown to nearly 40 percent, according to the U.S. Secret Service.

Yet despite the efforts of counterfeiters, U.S. currency counterfeiting has been kept at low levels, with current estimates putting the level of counterfeit notes in circulation worldwide at about 1 to 2 notes in every 10,000 genuine notes.

Security Features

The new $20 design retains three important security features that were first introduced in the late 1990s and are easy for consumers and merchants alike to check:

* The watermark--the faint image similar to the large portrait, which is part of the paper itself and is visible from both sides when held up to the light.

* The security thread--also visible from both sides when held up to the light, this vertical strip of plastic is embedded in the paper. "USA TWENTY" and a small flag are visible along the thread.

* The color-shifting ink--the numeral "20" in the lower-right corner on the face of the note changes from copper to green when the note is tilted. The color shift is more dramatic and easier to see on the new-design notes.

Because these features are difficult for counterfeiters to reproduce well, they often do not try. Counterfeiters are hoping that cash-handlers and the public will not check their money closely.

The New Color of Money

The most noticeable difference in the notes is the subtle green, peach, and blue colors featured in the background. Different colors will be used for different denominations, which will help everyone--particularly those who are visually impaired--to tell denominations apart.

Although consumers should not use color to check the authenticity of their currency (relying instead on the user-friendly security features noted above), color does add complexity to the note, making counterfeiting more difficult.

The new bills are the same size and use the same, although enhanced, portrait of Andrew Jackson on the face of the note and historical vignette of the White House on the back. The redesign also features symbols of freedom--a blue eagle in the background to the left of the portrait and a metallic green eagle and shield to the right of the portrait in the case of the $20 note.

REQUESTS FOR COMMENTS ON PROPOSED RULEMAKING FOR RISK-BASED CAPITAL STANDARDS

The federal bank and thrift regulatory agencies on September 12, 2003, requested public comment on an interim final rule and a notice of proposed rulemaking (NPR) to amend their risk-based capital standards for the treatment of assets in asset-backed commercial paper (ABCP) programs consolidated under the recently issued Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). The NPR would also modify the risk-based capital treatment of certain securitizations with early amortization provisions.

An ABCP program is usually carried out through a bankruptcy-remote special purpose entity generally sponsored and administered by a banking organization (banks, bank holding companies, and thrift institutions) to provide funding to its corporate customers by purchasing asset pools from, or extending loans to, those customers. The ABCP provides funding for these assets through the issuance of commercial paper in the market. These issuances may be credit enhanced by various means, usually by a sponsoring bank.

Under the interim rule, sponsoring banking organizations may remove consolidated ABCP program assets from their risk-weighted asset base for purposes of calculating their risk-based capital ratios. However, sponsoring banking organizations must continue to include any other exposures they have to these programs, such as credit enhancements, in risk-weighted assets. The interim rule also amends the risk-based capital standards to exclude from tier 1 and total capital any minority interests in ABCP programs consolidated by sponsoring banking organizations under FIN 46. The interim rule will be in effect only for the regulatory reporting periods ending September 30, 2003, December 31, 2003, and March 31, 2004.

The risk-based capital treatment set forth in the interim rule does not alter the accounting rules for balance sheet consolidation as set forth under generally accepted accounting principles. Consequently, banking organizations will be required to report consolidated ABCP program assets in their tier 1 leverage ratio calculation.

The NPR solicits comments on a permanent, risk-sensitive, risk-based capital treatment for the risks arising from ABCP programs. In particular, it proposes to permanently permit banking organizations to exclude from their risk-weighted asset base those assets in ABCP programs consolidated on sponsoring banking organizations' balance sheets as a result of FIN 46. In addition, the NPR also would require banking organizations to hold risk-based capital against liquidity facilities provided to ABCP programs with an original maturity of one year or less. This treatment recognizes that such facilities, which currently are not assessed a capital requirement, expose banking organizations to credit risk.

The agencies are also proposing a risk-based capital charge for certain types of securitizations of revolving retail credit facilities (for example, credit card receivables) that incorporate early amortization provisions. The goal of these capital proposals is to more closely align the risk-based capital requirements with the associated risk of the exposures.

The interim final rule and NPR are being issued by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision.

NEW ONLINE APPLICATION GUIDE FOR US. AND FOREIGN BANKING ORGANIZATIONS

An online guide for U.S. and foreign banking organizations submitting applications to the Federal Reserve has been added to the Board of Governors' public web site.

The new web page, www.federalreserve.gov/ generalinfo/applications/afi/, describes the regulatory requirements and processing procedures for applications, notifications, and requests necessary for a broad range of activities, including mergers of banking organizations.

The site describes specific types of applications as well as the statutory factors considered by the Federal Reserve in evaluating applications, including the banking organization's record of compliance with the Community Reinvestment Act. It provides links to application forms and lists contacts at each Reserve Bank for questions regarding the submission of applications or the submission of public comments on applications.

RELEASE OF MINUTES OF BOARD'S DISCOUNT RATE MEETINGS

The Federal Reserve Board on August 21, 2003, released the minutes of its discount rate meetings from May 19, 2003, to June 25, 2003.

ENFORCEMENT ACTIONS

The Federal Reserve Board on August 20, 2003, announced the issuance of a consent order of assessment of a civil money penalty against the Community State Bank, Avilla, Indiana, a state member bank. Community State Bank, without admitting to any allegations, consented to the issuance of the order in connection with its alleged violations of the Board's Regulations implementing the National Flood Insurance Act.

The order requires Community State Bank to pay a civil money penalty of $5,250, which will be remitted to the Federal Emergency Management Agency for deposit into the National Flood Mitigation Fund.

The Federal Reserve Board on August 20, 2003, announced the execution of an amendment to the written agreement by and among the Consolidated Bank and Trust Company, Richmond, Virginia, the Bureau of Financial Institutions of the Commonwealth of Virginia, Richmond, Virginia, and the Federal Reserve Bank of Richmond.

The Federal Reserve Board on August 27, 2003, announced the issuance of a combined consent order to cease and desist and an order of assessment of a civil money penalty against WestLB AG, Dusseldorf, Germany, and its New York branch.

The foreign bank, without admitting to any allegations, consented to the issuance of the combined order for violations of anti-tying restrictions in section 106 of the Bank Holding Company Act Amendments of 1970 and related unsafe and unsound banking practices. The combined order resolves allegations that in 2001, WestLB conditioned the availability or price of credit to corporate customers on the corporate customer's appointment of WestLB as an underwriter for issuances of debt securities.

The order requires that WestLB pay a civil money penalty of $3 million and implement various policies and procedures designed to prevent future violations of this law.

The Federal Reserve Board on September 2, 2003, announced the execution of a written agreement by and between the Ridgedale State Bank, Minnetonka, Minnesota, and the Federal Reserve Bank of Minneapolis.

The Federal Reserve Board also announced the issuance of a cease and desist order against Robert C. Arneson, the president and a director of the Ridgedale State Bank, Minnetonka, Minnesota.

These enforcement actions were issued in coordination with the U.S. Securities and Exchange Commission, which announced settlements with the Ridgedale State Bank and Mr. Arneson for alleged securities law violations.

The Federal Reserve Board on September 2, 2003, announced the execution of a written agreement by and among Gold Banc Corporation, Leawood, Kansas; the Gold Bank, Leawood, Kansas; the Office of the State Bank Commissioner; and the Federal Reserve Bank of Kansas City.

The Federal Reserve Board on September 11, 2003, announced the issuance of a cease and desist order against Craig Van Stone, a former senior vice president, chief financial officer, and cashier of the Premier Bank, Denver, Colorado, addressing Mr. Van Stone's compliance with the Bank Secrecy Act.

TERMINATION OF ENFORCEMENT ACTIONS

The Federal Reserve Board on September 15, 2003, announced the termination of the enforcement actions listed below. The Federal Reserve's enforcement action web site, http://www.federalreserve.gov/ boarddocs/enforcement, reports the terminations as they occur.

* The PNC Financial Services Group, Inc., Pittsburgh, Pennsylvania Written agreement dated July 12, 2002 Terminated September 12, 2003

* United Central Bank, Garland, Texas Cease and desist order dated October 26, 2000 Terminated August 29, 2003

* ShoreBank Cleveland, Cleveland, Ohio Written agreement dated August 21, 1998 Terminated August 21, 2003

* Olathe Bancorporation, Inc., Olathe, Colorado, and Olathe State Bank, Olathe, Colorado Written agreement dated September 12, 2000 Terminated July 11, 2003

* Allfirst Financial Inc., The Allfirst Bank, and Allied Irish Banks, p.l.c. Written agreement dated May 15, 2002 Terminated February 24, 2003

NEW SCHEDULE FOR THE FEDERAL RESERVE BULLETIN

The Federal Reserve Board on October 3, 2003, announced the move to a quarterly publication schedule for the Federal Reserve Bulletin and the creation of a new monthly statistical supplement.

Beginning in the first quarter of 2004, the Bulletin will be enhanced and published four times a year. A quarterly report on the condition of the banking system and an annual report on changes in consumer regulations are among the new materials to be presented in the Bulletin. The Bulletin will continue to include topical research articles and summaries of Board survey findings, the Board's semiannual Monetary Policy Reports, a Legal Developments section, and other features such as lists of staff members, lists of Federal Reserve publications, and maps of the Federal Reserve Districts.

The Legal Developments section of the quarterly Bulletin will contain Board orders issued under the Bank Holding Company Act, the Bank Merger Act, the Federal Reserve Act, and the International Banking Act. Final rules and pending cases involving the Board are available on the Board's web site under "Legal Developments" at www.federalreserve.gov/ releases/h2/.

The revised publication schedule responds to the results of customer surveys, the increased use of the Internet to access information on a timelier basis, and the Board's desire to provide a broader range of articles on topics of interest to Bulletin readers. A quarterly schedule will also make the planning and production of the Bulletin more efficient.

The tables that now appear in the Financial and Business Statistics section of the Bulletin will be published monthly as a separate publication titled Statistical Supplement to the Federal Reserve Bulletin. All tables that now appear in the Federal Reserve Bulletin, including special tables, will appear in the Statistical Supplement. All statistical series will be published with the same frequency that they have currently in the Bulletin. The first issue of the Statistical Supplement will be published in January 2004. The Publications Committee will monitor the usefulness of this publication in meeting the needs of the public over time, especially in light of the widespread dissemination of data through the Internet.

A Bulletin editorial advisory board has been established under the direction of Lucretia Boyer, the Federal Reserve Board's Chief of Publications, to oversee the quality of content of these two publications and to ensure a diverse range of Bulletin articles.

Separate subscriptions for the two publications will be available starting with the January 2004 issue of the Statistical Supplement. For further subscription information, contact Publications Fulfillment at 202-452-3244 or 202-452-3245 or send an e-mail to [e-mail].

Articles published in the Bulletin will remain available online at www.federalreserve.gov/pubs/bulletin/ default.htm.

STAFF CHANGES

Donald J. Winn, Director of the Office of Board Members and long-time congressional liaison for the Board died on August 14, 2003, after an extended illness. Mr. Winn was a trusted adviser to four chairmen in his nearly thirty years at the Board.

The Federal Reserve Board on September 10, 2003, announced the appointment of Winthrop P. Hambley as Assistant to the Board and head of the Congressional Liaison Office. Mr. Hambley, who had been Deputy Congressional Liaison, succeeded Donald J. Winn.

Laricke Blanchard, who had served as Assistant Congressional Liaison since April 2002, was appointed an officer of the Board with the title Special Assistant to the Board.

The Board also announced the appointment of Michelle Andrews Smith as Director of the Office of Board Members, also succeeding Mr. Winn. The Office of Board Members includes the Public Affairs Office, the Publications Department, the Correspondence Unit, the Office of Congressional Liaison, and the administrative staff that supports Board members. Ms. Smith will continue as Assistant to the Board for Public Affairs and, with her new position, will add responsibility for directing the internal management of the rest of the Office of Board Members.

Gary Gillum, a Senior Economist in the Division of Monetary Affairs, retired on October 3 after more than 39 years of service.

NOTE. The charts, tables, and appendixes to this announcement are available at www.federalreserve.gov/boarddocs/press/bcreg/2003/ 20030910.

(1.) The Shared National Credit (SNC) Program was established in 1977 by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, and in 2001 the Office of Thrift Supervision became an assisting agency. The annual program, which seeks to provide an efficient and consistent review and classification of large syndicated loans, generally covers loans or loan commitments of at least $20 million that are shared by three or more financial institutions, with a few exceptions.

(2.) Loan commitments included both drawn and undrawn portions of a loan or loan facility.

(3.) Excerpt from SR Letter 79-556 defining regulatory classifications:

      Classification ratings are defined as "substandard," "doubtful,"
   and "loss." A substandard asset is inadequately protected
   by the current sound worth and paying capacity of the obligor or
   of the collateral pledged, if any. Assets so classified must have a
   well-defined weakness or weaknesses that jeopardize the liquidation
   of the debt. They are characterized by the distinct possibility
   that the bank will sustain some loss if the deficiencies are not
   corrected. An asset classified as doubtful has all the weakness
   inherent in one classified as substandard with the added
   characteristic that the weaknesses make the collection or
   liquidation in full, on the basis of currently existing facts,
   conditions, and values, highly questionable and improbable. Assets
   classified as loss are considered uncollectible and of such little
   value that their continuance as bankable assets is not warranted.
   This classification does not mean that the asset has absolutely no
   recovery or salvage value, but rather it is not practical or
   desirable to defer writing off this basically worthless asset even
   though partial recovery may be effected in the future.

   Excerpt from June 10, 1993, Interagency Statement on the
   Supervisory Definition of Special Mention Assets:

      A special mention asset has potential weaknesses that deserve
   management's close attention. If left uncorrected, these potential
   weaknesses may result in deterioration of the repayment prospects
   for the asset or in the institution's credit position at some
   future date. Special mention assets are not adversely classified
   and do not expose an institution to sufficient risk to warrant
   adverse classification.

(4.) Non-accrual loans are defined for regulatory reporting purposes as "loans and lease financing receivables that are required to be reported on a non-accrual basis because (a) they are maintained on a cash basis because of a deterioration in the financial position of the borrower, (b) payment in full of interest or principal is not expected, or (e) principal or interest has been in default for 90 days or longer, unless the obligation is both well secured and in the process of collection." Non-accrual classifieds are those funded or outstanding portions of loans classified as substandard and doubtful that are not accruing interest. For 2003, this category consisted of $23.6 billion in loans rated substandard and $27.4 billion rated doubtful.

(5.) Nonbanks include independent investment brokerages, investment vehicles, and other institutional investors.

(6.) To better reflect ultimate ownership, U.S. banks are defined to exclude U.S.-chartered subsidiaries of foreign banking organizations for the years 2001 through 2003. These U.S. subsidiaries of FBOs are included in the FBO totals.

(7.) For further guidance, institutions should refer to the July 12, 1999, Joint Interagency Letter to Financial Institutions on the allowance for loan losses, as well as the July 2, 2001, Interagency Policy Statement on Allowance for Loan and Lease Losses (ALLL) Methodologies and Documentation for Banks and Savings Institutions.