Out-of-market lenders provide significant credit to rural markets, writes Lynn Woosely, a senior economic analyst at the Federal Reserve Bank of Atlanta.

To see whether consolidation has hurt competition for credit in rural markets, Ms. Woosely examines Community Reinvestment Act small-business lending data from 1996.

She finds that the average rural county in the Southeast is served by four deposit-taking institutions. But, she says, an average of 11 banks had at least one small-business loan in the county.

"The number of competitors in rural markets will likely increase further as credit scoring of small-business loans becomes more prevalent," she writes.

For a copy of "Bank Consolidation Affects Lending in Southeastern Markets," call 404-521-8020 or visit www.frbatlanta.org.

A new study warns against blindly relying on the new-and innovative- formulas increasingly used by banks to judge their financial performance.

Known as metrics, systems such as risk-adjusted return on capital and economic value added require banks to isolate earnings and capital by business line.

However, many business lines are intertwined, making it difficult to correctly allocate capital costs. "In such situations, estimates of economic profit may be biased and lead to poor decision-making," writes Richard C. Kimball, an economist at the Federal Reserve Bank of Boston.

The solution is to use multiple performance models and base decisions on an analysis of the combined results, he writes. "While the concept of economic profit may ultimately result in better measurement of bank performance, it is unlikely to simplify the measurement process," he concludes.

For a copy of "Economic Profit and Performance Measures," call 617-973- 3396 or visit www.frbbos.org.

Researchers at the Cato Institute charge that many Western economists failed to predict Asia's economic woes because they do not fully appreciate the importance of a free market.

Brink Lindsey and Aaron Lukas write that policymakers who praised the Japanese growth of the 1980s erred in believing that bureaucrats could outthink business owners and decide which industries deserved funding.

"Like so many others before them, they prided themselves as sophisticated realists, yet in fact their faith in bureaucratic miracles was hopelessly naive," they write. "Only a few short years were needed to burst their bubble."

For a copy of "Revisiting the Revisionists: The Rise and Fall of the Japanese Economic Model," call 202-842-0200 or visit www.cato.org.

A country's currency may come under attack simply because a neighboring trade partner is suffering from an exchange rate crisis, according to Reuven Glick of the Federal Reserve Bank of San Francisco and Andrew K. Rose of the University of California, Berkeley.

The researchers review the three major currency crises of the 1990s. They find that currency crises often spread to neighboring countries, even if they are not suffering from similar economic troubles. They attribute this finding to strong trade ties, which link regional economies.

For a copy of "How Do Currency Crises Spread?" call 415-974-3341 or visit www.sf.frb.org.

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