Richard W. FisherPresident and CEOFederal Reserve Bank of Dallas

Dallas, TexasFebruary 11, 2014

Total Nonagricultural Employment Since 1990 in Selected States

SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas.

90

100

110

120

130

140

150

160

170

1990 1995 2000 2005 2010

Texas

U.S.

California

New York

Florida

Index, January 1990 = 100

Illinois

Michigan

+61%

+8%

+26%

Increase since 1990

+19%

+43%

+11%

+5%

80

85

90

95

100

105

110

115

120

125

2000 2005 2010

Index, January 2000 = 100

SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas.

Total Nonagricultural Employment Since 2000 in Selected States

+21%

–12%

+5%

Increase since 2000

+4%

+10%

+5%

–3%

Texas

U.S.

CaliforniaNew York

Florida

Illinois

Michigan

2013 Employment Growth in Texas

NOTES: Categories are North American Industry Classification System supersectors. Data seasonally adjusted.SOURCE: Federal Reserve Bank of Dallas.

67.0

46.743.6

34.9

17.6 15.4 14.710.7 10.4 9.0

0

10

20

30

40

50

60

70

80

Trade, Transp& Utilities(20.1%)

Prof. &BusinessServices(13.1%)

Leisure &Hospitality(10.2%)

Educational &Health

Services(13.4%)

Oil & GasExtraction and

MiningSupport(2.5%)

Construction(5.4%)

FinancialActivities(6.1%)

Government(16.0%)

Manufacturing(7.8%)

Information(1.8%)

Thousands of jobs 2013 total jobs gained in Texas = 266,900

Job Growth by Wage Quartile, 2000-12

NOTES: Calculations include workers over age 15 with positive wages and exclude the self-employed. Wage quartiles constructed based on U.S. 2000 wage distribution. SOURCE: Current Population Survey Merged Outgoing Rotation Groups, 2000, 2012.

18.6

10.4

31.0 30.3

9.7

-6.9

0.9

9.9

-10

-5

0

5

10

15

20

25

30

35

Lowest wage quartile Lower-middle wagequartile

Upper-middle wagequartile

Highest wage quartile

Texas U.S. minus Texas

Percent change

Adios Texas Ratio

• Texas has more banks than any other state yet experienced just 11 of the 489 U.S. bank failures since the Great Recession began– Time to rename the “Texas Ratio,” a measure of

bad assets versus available capital

• The state escaped the brunt of the housing sector fallout and the spike in underwater mortgages

NOTE: Texas ratio defined as the book value of all nonperforming assets plus other real estate owned divided by tangible equity capital plus loan loss reserves.

Share of Unprofitable Banks: U.S. and 11th District

* YTD through third quarter 2013.SOURCE: Federal Reserve Bank of Dallas.

* 0

5

10

15

20

25

30

35

2006 2007 2008 2009 2010 2011 2012 2013

U.S. 11th District

Percent of banks reporting a net loss

80

100

120

140

160

180

200

220

240

260

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

U.S. minus Texas

Texas

Index, Jan. 2000=100*

8%

36%

9%

11%

15% 18%

3%

Other

Mexico

Canada

European Union

Asia, excl. China

Latin America, excl.MexicoChina

2013:Q3

Texas Export Growth

* Real, seasonally adjusted. SOURCES: Census Bureau; World Institute for Strategic Economic Research; Federal Reserve Bank of Dallas.

+26%since peak

+3%

Employment by Metro Area

SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas.

94

96

98

100

102

104

106

108

110

112

T T +10 T +20 T +30 T +40 T +50 T +60 T +70

Index, peak employment = 100

TexasHouston

El Paso

Austin

T = months from peak employment

Dallas-Ft. Worth

San Antonio

43

8011,149

1,073

1,597

1,521

2,558

2,540

0

500

1000

1500

2000

2500

3000

'07 '08 '09 '10 '11 '12 '13 '14

SOURCES: Federal Reserve Board of Governors, H.3 release.

Total Reserves of Depository Institutions

Bank Reserves Have Ballooned

Billions, Reserves ($)QE3

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Total assets

Trillions of dollars

$4.13Jan. 2014

$2.869/26/12

SOURCES: Federal Reserve Board; Federal Reserve Bank of Dallas.

$0.949/10/08

Interest rates cut to the zero bound

Lehman failure QE3

Fed’s Balance Sheet Has Quadrupled in Size …

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Other

Agency MBS + agency debt

Treasury securities

Trillions of dollars

assets

15%0%

85%

11/28/07

54%

8%

38%48%9/10/08

0%51%

Lehman failure

10%32%58%

9/26/12

QE3

SOURCES: Federal Reserve Board; Federal Reserve Bank of Dallas.

Now Has Large Holdings of Agency Debt and MBS …

Agency debt and MBSTreasury securities

Other assets

Share of Total Portfolio

Jan. 2014

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Other

More than 5 years

Over 1 to 5 years

Up to 1 year

Trillions of dollars

79%20%1%

9/26/12

22%30%48%

11/28/07> 5 years

39%9/10/08

34%27%

Lehman failure QE3

21%

79%

0%

SOURCES: Federal Reserve Board; Federal Reserve Bank of Dallas.

assets

1 – 5 years< 1 year

And Has a Portfolio with Longer Terms to Maturity

Share of Total Portfolio

Jan. 2014

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Excess reserves

Required reserves

Non-bank currency

Trillions of dollars

SOURCES: Federal Reserve Board; Federal Reserve Bank of Dallas.

But Newly Created Money Mostly Sitting Fallow as Excess Reserves

54%4%

42%

9/26/12QE3

$2.56T

31%

65%

4%

$3.73T

$2.45T in excess

reserves

Lehman failure

5%Required ReservesNon-bank Currency

Share of Monetary Base 9/10/08

0%

95%

Excess Reserves

$0.85T

Jan. 2014

Monetary Base

U.S. Economic Dashboard

NOTE: Data updated as of February 10, 2014.

9 0 . 0

-1

-0.5

0

0.5

11.5 2 2.5

3

3.5

4

4.5

5

1.4

Trimmed Mean PCE Inflation (%)

-2.5

-2

-1.5

-1

-0.5

0

0.51

1.5 22.5

3

3.5

4

4.5

5

5.5

6

2.7Year-over-year

Real GDP growth

4

4.5

5

5.5

66.5 7 7.5

8

8.5

9

9.5

10

6.6

Unemployment rate (%)

Percent of jobs recovered

3

3.5

4

4.5

55.5

6 6.5 77.5

8

8.5

9

9.5

10

3.68

Junk-bond spread (%)

Warning lights

Unemp.jump

Yieldcurve

Oilshock

Enginestall

5

5.5

6

6.5

77.5 8 8.5

9

9.5

10

10.5

11

5.81

High Yield Corp. Debt (%)

!

Corporate Bond Yields and Spreads Remain LowPercent

SOURCES: Moody’s, Bank of America Merrill Lynch, Federal Reserve Bank of Dallas.

5.815

7

9

11

13

15

17

19

21

23

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

02468

10

'10 '11 '12 '13 '14

Junk bond / 7-year Treasury spread

Historical average spread: 1997-Present

Percent

3.7

5.6

Junk bond yield

Richard W. FisherPresident and CEOFederal Reserve Bank of Dallas

Dallas, TexasFebruary 11, 2014