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For immediate release: November 30, 2011

State Finances, Dodd–Frank Act, Private Equity Subject of Dallas Fed Report

DALLAS—The latest issue of the Federal Reserve Bank of Dallas’ Southwest Economy features articles on state finances, the Dodd–Frank Act, the private equity industry and Texas wages.

State finances—including those of Texas—eroded considerably after 2008. Still, Texas’ overall borrowing levels and pension liability funding lie well within national norms, according to Jason Saving, senior research economist, in “States Still Feel Recession’s Effects Two Years After Downturn’s End.”

To address the state’s eroding finances, Texas lawmakers enacted budget cuts of at least $15 billion for the upcoming two-year budget cycle, including cuts to health and education programs and the state government workforce, Saving states.

 “Provided the nation does not fall back into recession, state shortfalls are expected to gradually recede toward more usual levels by about 2013,” Saving writes. “But sizeable fiscal challenges will remain in the areas of infrastructure, education and health as states struggle to catch up in the aftermath of the recession and slow recovery.”

In an “On The Record” conversation, Robert D. Hankins, executive vice president responsible for the Dallas Fed’s banking supervision activities, says that while the Dodd–Frank Act passed by Congress in July 2010 has generated debate about its ultimate success, it makes some important changes to banking supervision.

Hankins says “instituting a more macroprudential approach to the supervisory process, along with a new resolution regime for failing firms, and extending regulatory oversight to important players within the financial system that aren’t banks are important steps that hopefully will result in a safer and more sound financial system.”

Hankins also notes concerns of community bankers, including those in the Dallas district, who are concerned that Dodd–Frank regulations and policies will be written and applied as “one-size-fits-all.”

“The bankers I talk to are worried about how they will absorb increased compliance costs and remain profitable and viable, meeting the credit needs of their communities,” Hankins says.

Hankins says the Federal Reserve is taking steps to allay these concerns, including more guidance to bankers and examiners about what applies to community banks and what doesn’t, and the creation of a Federal Reserve subcommittee to focus on the effects of proposed rules on community banks.

In “The Private Equity Industry: Southwest Firms Draw on Regional Expertise,” alternative investments specialist Alex Musatov and research officer Kenneth J. Robinson say private equity firms in the Southwest region—Texas, Louisiana, New Mexico and Oklahoma—hold $31 billion in ready-to-invest capital.

Private equity firms based in the region focus more on energy industry transactions than their counterparts across the U.S., according to the authors. Of all private equity transactions in the Southwest since 2004, 11 percent target the energy sector, almost triple the national rate of 4 percent.

Although Texas wages trail those of the U.S., the state’s job creation does not appear to be disproportionately low wage, according to this issue’s “Spotlight” article. High-paying jobs grew faster than low-paying jobs over the last decade.

While real wages in Texas increased from $14.87 in 2001 to $15.14 in 2010, they remain below U.S. levels. The numbers reflect a lower cost of living in Texas, as well as demographic differences—Texas workers are younger and less educated than workers nationally, and more likely to be foreign born.


Media contact:
Alexander Johnson
Phone: (214) 922-5288