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Issue #16 | June 26, 2018

Recently, from the Cleveland Fed

  • Opioids: How is the current epidemic affecting the region?

    Opioids: How is the current epidemic affecting the region?

    Drug overdoses are now the leading cause of death for Americans under 50. And in Kentucky, Ohio, Pennsylvania, and West Virginia—states that lie wholly or in part within the region served by the Cleveland Fed—opioid-related deaths are outpacing the national average. What is not clear, however, is to what degree the opioid epidemic is connected to the labor market. Is a declining labor force participation rate a result of opioid abuse, or is opioid abuse a result of declining economic conditions? Explore our recent Community Development Brief and working paper, plus coverage of a session on the opioid crisis from the 2017 Policy Summit, to learn more.

  • Central Appalachia looks to leverage its (natural) assets

    Central Appalachia looks to leverage its (natural) assets

    Economic transition is taking hold in the hilly geography of Central Appalachia thanks to a diverse and growing coalition of partners making investments in broadband, retraining coal workers, and developing residents’ technical and leadership skills. These economic development efforts are aimed at addressing a declining coal economy, pervasive health challenges, and prolonged underinvestment in the region. Explore how broadband can be a social equalizer in our new blog post, “Investing in Coal Country,” and post a comment if you like.

Ask the Expert


How has the increased interest and activity in shale oil and gas drilling changed the financial dynamics of the energy industry, and why does the Fed care?


The technological advances of the last three to five years have substantially increased companies’ ability to recover previously known but unrecoverable resources from shale. These advances have dramatically increased the amount of oil and gas that can be derived from this type of rock formation, several huge deposits of which are located in the United States.

Of the four or five big US shale basins, two—the Marcellus and Utica—are in the Cleveland Fed’s region (Ohio, western Pennsylvania, the northern panhandle of West Virginia, and eastern Kentucky).

The big change is that today companies have shifted investment and production to shale deposits because they produce so much faster than other sources of oil and gas. Companies are drilling shale deposits known to have oil and gas within 7 to 10 days’ time. In contrast, offshore targets (or those for which companies drill beneath the seabed) often take 8 to 10 years to develop. With the shift to large shale deposits, companies are producing more oil and gas for the amount of money and time spent.

Why does the Federal Reserve care? This industry is expanding its presence in the United States and that expansion will help grow gross domestic production. Plus, banks are deciding the amounts they will lend to companies doing the drilling based on money the borrowers expect to make from reserves in the ground; essentially, banks must lend on estimates. Bank examiners at the Fed need to make sure banks are lending safely and soundly, and to do that we have to keep up with changes in industries that could affect bank lending. Given the way the shale boom is affecting revenue streams of exploration and development companies, the boom has influenced how we analyze oil- and gas-related reserve-based lending by banks.

There are risks to lending to this industry, but banks can mitigate them. The biggest risk for lenders is that the oil and gas industry is subject to volatile price swings that can affect companies’ ability to repay loans. If oil and gas prices drop below “breakeven,” where the price at which a unit of oil or gas sells is equal to the cost of producing that unit, companies will stop producing, which would mean they have less cash coming in. If that happens, as it did in 2014 and 2015, we could have companies struggling to repay debt, meaning banks could have credit issues and defaults. To protect themselves from the industry’s vulnerability to such price swings, banks are expected to do two things: loan only a conservative amount against estimated levels of production and also to “stress test,” or assess how loan repayments could be affected if commodity prices were to decline.

John Shackelford

John Shackelford

is a principal bank examiner for the Cleveland Fed and works for the Shared National Credit Program, through which regulators including the Federal Reserve review the largest loans ($100 million and more) shared or made by three or more institutions. The Shared National Credit Program in 2017 comprised more than $4.3 trillion in loan commitments, of which oil and gas loans made up 10.9 percent.

Graphic of the Month

Opioid prescription rates higher in Cleveland Fed’s region than in the nation

Seventy-five percent of heroin users seeking treatment relay that their opioid abuse began with a legal prescription. As illustrated to the right, states in the Fourth Federal Reserve District have tended to have higher opioid prescription rates than the nation. Learn how and why this issue is a focus of the Cleveland Fed.

Opioid prescription rates higher in Cleveland Fed's region than in the nation

By the Numbers

On the Calendar

  • Summer, summer, summertime

    Barter, make your own currency, and see our historic lobby at the Cleveland Fed’s Learning Center and Money Museum (Cleveland, OH)

  • July 14–September 30

    FRONT Triennial Art Exhibition (Cleveland, Oberlin, and Akron, OH)
    Contemporary art installation by Philip Vanderhyden on display at the Cleveland Fed Monday through Thursday, 9:30 am to 2:30 pm

  • July 26–27

    The P2P Financial Systems International Workshop (Cleveland, OH)
    Professional papers on digital currencies, blockchain technologies, peer-to-peer lending, and crowdfunding

  • Reinventing Our Communities

    October 1–3

    Reinventing Our Communities: Investing in Opportunity (Baltimore, MD)

  • June 19–21, 2019

    Policy Summit 2019 (Cincinnati, OH)
    Online registration coming soon

From around the Federal Reserve System

Report reveals how US adults are faring financially

A recent report analyzing the fifth annual Survey of Household Economics and Decisionmaking (SHED) found that 74 percent of adults said in 2017 that they were doing okay financially or living comfortably. The Board of Governors’ survey summarizes the economic well-being of US households and touches on topics including credit access, education, retirement, economic fragility, and more.

Report reveals how US adults are faring financially

Immigration in the United States: same conflict, new targets

US concerns surrounding immigration aren’t new, but the targeted immigrant groups have changed, according to economic historian and associate professor Dr. Ran Abramitzky, interviewed during a recent podcast by the Federal Reserve Bank of Atlanta.

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