The impact of the New England regulatory environment on the economy
Despite the belief that the New England regulatory environment is bad for the regional economy, New England GDP has held up relatively well over the past few years. Has this benefited any particular sector?
- In the early 1990s, New England states experienced many bank failures, including the bankruptcy of the Bank of New England, when state incomes and real estate prices declined. In contrast, between January 1, 2007, and March 31, 2010, 206 federally insured banks failed. Of that total, 0 were located in New England (Butler Bank of Lowell, MA failed in April of 2010)i. New England banks held up well because regional real estate price appreciations from 2003-07 were not fueled by subprime mortgages, significant problems in several states, including California, Arizona, and Nevada.
- The real GDP of New England grew by 1.8 percent in 2011 compared to a 1.5 percent increase nationwideii. This was helped by an increase in consumer spending. With some of the most well renowned universities in the world, it was not surprising that these higher education opportunities translated into higher incomes for the region’s residents: the median income for the six states was $58,414, higher than the national average of $49,445iii. While high pockets of unemployment remain, along with high taxes and government regulation, New England’s economy and banks have been bright spots for the country.
- The three highlighted stocks demonstrated the resilience of the New England banking system: over the past four years only one of the three had even one quarter of negative earnings. All three of them currently possess Tier One Capital ratios – the ratio of a bank’s core equity to its total risk-weighted assets – well in excess of the FDIC minimum of 6 percent to be considered well-capitalized. On top of that, they presently have dividend yields that range from 3.1-5.2 percent, which are higher than the current yield on the 10-year Treasury of 1.51%iv.
i Aubuchon, Craig P. and David C. Wheelock. The Geographic Distribution and Characteristics of US Bank Failure, 2007-2010. St. Louis Fed. 21 Oct 2011. <http://research.stlouisfed.org/publications/review/10/09/Aubuchon.pdf.>
ii Leary, Mal. Maine Only NE State to Lose Ground in GDP. 1 July 2012. The Portland Daily Sun. 17 July 2012. <http://www.portlanddailysun.me/index.php/newsx/local-news/7047-maine-only-new-england-state-to-loose-ground-in-gdp.>
iii United States Census. 30 Sept 2011. United States. 21 Oct 2011. <http://www.census.gov/hhes/www/income/data/statemedian/index.html.>
iv Finance.yahoo.com. 16 July 2012.
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