discipline, according to three economists writing for the Federal Reserve Bank of Chicago. Julapa Jagtiani, George Kaufman, and Catharine Lemieux look at pricing patterns on debt issued by large U.S. banks and their holding companies between 1992 and 1997.

They write that despite any implicit promise of government backing above and beyond insured deposits, investors weigh an issuer's credit risk when deciding what they will pay for it - particularly if the bank is undercapitalized.

These findings, the authors say, affirm the value of the FDIC Improvement Act of 1991, which set strict capital standards for banks and depositor preference rules regarding the pecking order for creditors if a bank fails. The economists also find that investors give roughly equal treatment to debt issued by banks or their holding companies.

For a copy of Do Markets Discipline Banks and Bank Holding Companies? Evidence from Debt Pricing, call 312-322-5111 or visit www.frbchi.org/regulation/jagtiani lemieux s&r-99-3r.pdf.

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Artificially high supervisory fees paid by national banks may be pushing smaller institutions to adopt state charters, a bank consultant says. In a paper for the Support Group for Modern National Banking, Gregory C. Golembe writes that states can charge lower supervisory fees because the Federal Deposit Insurance Corp. and the Federal Reserve Board provide them with uncompensated examination help, performing every other exam.

The Office of the Comptroller of the Currency, by contrast, is the sole examiner of national banks, which tend to be larger and more complex.

To increase fee parity, Mr. Golembe says, the FDIC and the Fed should compensate the OCC at some mutually agreeable rate. That revenue should be passed along to national banks in the form of lower OCC supervisory fees, he writes.

For a copy of Supervisory Fee Structures for National and State Banks: A Question of Parity, call 202-463-4224.

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Many outsiders pore over the Federal Reserve Board's Beige Book in an effort to divine the Federal Open Market Committee's next move on interest rates. But a report by the Federal Reserve Bank of Minnesota says Fed watchers might be better off studying private-sector forecasts.

According to David Fettig, Arthur J. Rolnick, and David E. Runkle, history shows that the Beige Book --- a review of regional economic conditions compiled roughly every six weeks by the 12 Federal Reserve banks -- is just one of many indicators the central bankers use to set monetary policy. (Is) faith in the prophetic powers of the Beige Book justified?'' No, the authors argue.

Nevertheless, they say the Beige Book's anecdotal nature is a useful complement to the dry statistical models the Open Market Committee reviews. There may be some merit in asking your uncle how the local economy is doing, they write.

For a copy of The Federal Reserve's Beige Book: A Better Mirror Than Crystal Ball, call 612-204-5261 or visit www.minneapolisfed.org/pubs/region/99-03/beige.html.

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

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