Painting a generally bright picture of U.S. bank consolidation, a study shows mergers improve the efficiency of the payments system while allowing banks to earn profits more efficiently and diversify their loan portfolios, according to Allen N. Berger of the Federal Reserve Board and Rebecca S. Demsetz and Philip E. Strahan of the Federal Reserve Bank of New York.

On the downside, the researchers write, consolidation increases the risk that a bank failure could cause systemic problems and that the government would expand the safety net to keep a really large institution from failing.

For a copy of "The Consolidation of the Financial Services Industry: Causes, Consequences, and Implications for the Future," call 212-720-5000 or e-mail philip.strahan ny.frb.org.

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The recent American Bankruptcy Institute study understates the percentage of Chapter 7 filers who would be forced to repay unsecured debt under a leading plan to reform the bankruptcy code, according to Lisa Ryu, a staff economist at the National Association of Federal Credit Unions.

The ABI study concluded that the reform bill would require only 3% of Chapter 7 filers to repay at least some unsecured debt once they were forced into Chapter 13. An earlier study by Ernst & Young, financed by creditors, pegged the number at 12%.

But Ms. Ryu found ABI's sample of 1,050 bankruptcy petitions was not adjusted to account for differences in the volume of filings, income levels, and economic conditions in the seven court districts studied.

For a copy of the NAFCU analysis, call 703-522-4775, ext. 252.

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A national survey finds that U.S. consumers know little about how the economy operates. Of the 404 adults polled, only 30% said the government must decrease spending and the money supply to reduce inflation, and just 28% said making the best use of scarce resources is the most important task of an economy. Consumers had a 25% chance of getting the question right by guessing.

The average grade on the 13-question test was 45%. Two-thirds, however, knew that competition was the most essential characteristic of a market economy and 70% said trade benefits both countries involved.

Accompanying the Federal Reserve Bank of Minneapolis survey results is a series of articles explaining the importance of teaching economics. A breakdown of the results is available on the Internet.

For a copy of "You Can't Always Get What You Want: A Special Issue on Economic Literacy," call 612-204-5260 or visit www.minneapolisfed.org.

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One study finds support for the so-called Taylor rule, which is a formula used to predict central-bank interest rate changes. The formula is based on the gap between recent and target inflation levels, and real and potential gross domestic product.

John P. Judd and Glenn D. Rudebusch of the Federal Reserve Bank of San Francisco found that the formula accurately predicted interest rate policy under Fed Chairman Alan Greenspan, though it was not as precise during Paul Volcker's tenure.

For a copy of "Describing Fed Behavior," call 415-974-2163 or visit www.sf.frb.org.

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