Using a new data base, Federal Reserve Board economists measure the effect consolidation, changing neighborhood income, the Community Reinvestment Act, and bank failures have had on the delivery of banking services.

Robert B. Avery, Raphael W. Bostic, Paul S. Calem, and Glenn B. Canner find that from 1975 to 1995 banks primarily opened offices in middle- and upper-income parts of urban areas, but in rural and suburban areas income did not affect branch placement.

For a copy of "Changes in the Distribution of Banking Offices," call 202-452-3244 or visit

Derivatives should be embraced as important risk management tools rather than feared as dangerous financial instruments.

Or so concludes Thomas F. Siems, senior economist at the Federal Reserve Bank of Dallas, who debunks 10 myths about derivatives in a Cato Institute policy paper.

Mr. Siems notes that derivatives are not new; the first was created more than 2,500 years ago in ancient Greece when a philosopher purchased options to use oil presses after the olive harvest. The philosopher then sold the options to farmers, who were scrambling to find presses to handle a bumper crop.

He also dismisses the notion that derivatives are purely speculative. Most banks use the instruments to manage interest rate risk, a task that became significantly more difficult when fixed exchange rates collapsed in the 1970s.

Finally, he disputes the argument that regulators should ban derivatives use by insured institutions on safety-and-soundness grounds. He argues instead for additional disclosure requirements and greater oversight by senior management.

For a copy of "10 Myths About Financial Derivatives," call 202-842-0200 or visit

Thrifts can be highly profitable whether they stick to making mortgages or diversify into other businesses, two economists conclude.

Baylor University banking professor John T. Rose and Federal Deposit Insurance Corp. economist Timothy J. Curry examine 134 thrifts that earned above-average returns in 1993 and 1994.

They find that these thrifts fall into three categories: those that focused on making mortgage loans for their portfolio, those that moved extensively into consumer lending and mortgage banking, and those that adopted a mix of these strategies.

None of the strategies proved more successful, they find. This contradicts past work, which had concluded that the 1989 thrift bailout law made it impossible for traditional thrifts to remain viable.

For a copy of "Thrift Strategies after FIRREA: A Cluster Analysis of High-Performance Institutions," call 254-710-4140.

Rapid economic growth does not necessarily trigger inflation, according to three Federal Reserve Bank of Cleveland economists.

David Altig, Terry Fitzgerald, and Peter Rupert write that inflation occurs when the supply of money exceeds the demand for it. Yet rapid growth does not affect the supply of money, only the demand for it. So inflation should be unaffected by fast growth.

For a copy of "Is Noninflationary Growth an Oxymoron?" call 216-579- 3079 or visit

Research Scan runs on the second and last Fridays of the month. Submissions should be sent to American Banker, 1325 G St. NW, suite 900, Washington, D.C. 20005.

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