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• 156 BOARD OF G O V E R N O R S OF THE FEDERAL RESERVE SYSTEM R-82 WASHINGTON a d d r e s s September 25, 1957. SUBJECT: Monthly Report of Bank and Public Relations Activities. Dear Sir: There is inclosed for your information a summary of the bank relations reports submitted by the Federal Reserve banks for the month of August in response to the Board's letter of August 25, 1936 (X-9680). Very truly yours, L. P. Bethea, Assistant Secretary. Inclosure. TO PRESIDENTS OF ALL F. R. BANKS o f f i c i a l c o r r e s p o n d e n c e t o t h e b o a r d 157 R-82-a September 20, 1937. TO The Board FROM Mr. Van Fossen, Division of Bank Operations. SUBJECT; Summary of Bank Relations Reports. Reports of bank relations as requested, in the Board's letter of August 25, 1936 (X-9680) have been received for the month of August and excerpts therefrom will be found on the following pages. A table showing for all twelve banks the number of visits made, meetings attended, and addresses delivered has also been prepared and follows the quotations. The attitude toward the Federal Reserve System The attitude of banks toward the Federal Reserve System continues to be cordial but there is little interest in membership by non-members for reasons that have long been familiar, but there also appears to be a tendency to await developments along legislative lines. Banking conditions Demand for accommodation in general appears to be light. In a number of instances mention is made of a decline in the demand for loans under the provisions of the National Housing Act, although the-experience of banks with such loans seems to have been favorable. In the case of some banks that sold preferred stock or secured waivers of deposits in connection with reorganization during the depression, it is said that there is little prospect that earnings will be sufficient to eliminate such liabilities in the near future if at all. The investment problem continues to be the cause of considerable concern. General economic conditions Industrial activity is commonly reported as being at a higher rate than in 1936, although a seasonal falling off is now in evidence. The market for real estate appears to have improved generally, but building operations are said tc be restricted because of increased labor and material costs. Crops in general appear to compare very favorably with those of recent years, but prices of some farm products show a tendency toward lower levels. Excerpts from the reports follows attached to the original hereof). (The reports themselves are -2 R-82-a 158 Boston Thirty-seven member banks, two nonmember banks and several branch banks, all located in the State of Maine, were visited during August. Bankers and others interviewed reported business throughout the State generally as being good, except in the extreme northeastern section (Aroostook County) which is devoted almost entirely to the growing of potatoes. It is estimated that the potato crop will be an exceptionally large one, which must be marketed in competition with the large crops grown in other sections of the country. Early August shipments to market were bringing around $1 a barrel but it was more or less the general belief that the price for the crop would settle around 60 cents. Good crops and prices are expected in sections devoted to the growing of the so-called canning crops. > The lumber industry is said to be thriving and in the manufacturing sections various mills making shoes, paper, and textiles are all operating full time and in many cases with two and three shifts. Employment and payrolls are said to be at or above the level of a year ago. The seasonal tourist business has been exceptionally good, particularly along the seaboard, many estimating that it has been the best the State has enjoyed in ten years, in spite of the fact that this trade continues a demand for the cheaper grades of merchandise and accommodations. With few exceptions, loans have increased at most of the banks and their earning position is stronger than it was a year ago. Many of the smaller banks are obtaining a Q% rate on all loans. At the larger banks the regular rates are from to 6% with lower rates obtainable according to the type of loan and collateral. Bond portfolios are said to be yielding between 5% and 4%. No criticism of the administration and policies of the System was heard at any of the banks visited - in several instances bank officials expressed the high regard in which they held membership in the System. The mechanics incident to the use of our various routine services are well understood at the member banks and the benefits derived from these services are frequently mentioned. „ New York Hunterdon County. New Jersey The trend of deposits in the majority of cases during the past six months has been moderately upward, although two banks report decreases. One of the latter pays 1% percent on savings deposits while its competitor in the same village pays 2 percent. The executive officer, however, does not attribute the loss of deposits to this lower rate, -3- R-82-a 159 Hew York continued and his opinion appears to be confirmed 1yj the fact that deposits of the competitor bank remain practically unchanged. Savings accounts make up approximately 75 percent of the total bank deposits of all banks in the county. Total investment in bonds is generally higher or unchanged as compared to the figures of six months ago and almost all banks have increased their holdings of United States government bonds to some extent. The latter now comprise approximately 58 percent of total portfolios of all banks in the county, as compared with 53 percent last February. In general, the demand for accommodation continues light but three banks report a fair to good demand, and loan and discount lists in the majority of cases are increasing or at least holding their own. A rate of 6 percent generally applies, although one bank cuts this to 5 percent on loans made to its depositors, and other banks make 5 porccnt loans if secured by prime collateral. One bank, however, has a maximum rate of 5 percent for all borrowers. Passaic County (northeastern part of Mew Jersey) All banks in the county pay a flat rate of 2 percent on savings or thrift deposits. Officers of some institutions visited emphasized that there has been practically a complete falling off in the demand for Federal Housing Administration mortgages during the- last three months, and stated that builders having houses on hand are unable to dispose of them. It is said that this lack of demand for mortgage money is probably due to some extent to the usual summer lull in the demand for houses but more particularly to the increasing costs of materials and labor which is acting as an obstacle to new building. Bankers generally believe, however, that there will be considerable pick-up in the demand for new houses after Labor Day. Dutchess County (New York State) Total investment in bonds shows no material change, approximately one-half of the banks reporting larger portfolios and one-half, smaller. Holdings of United States government obligations, however, have increased quite generally throughout all of the banks of the county, and now average almost 50 percent of the total. Demand for accommodation on the whole continues light although eight institutions report it as being fairly good or improving, and only five banks show a material decrease in loan and discount totals since the first of the year. A rate of 6 percent is generally maintained and very few banks make any exception to this except in the case of loans to municipalities or school districts. 160 —4— R—82—a New York continued Herkimer and Oneida Counties (central New York State) Loans Jiave continued to decline in a majority of the banks and only three report any appreciable increase during the past year. The latter institutions have obtained part of their new loans through opening personal loan departments and two have accepted substantial amounts of loans insured under the National Housing Act. In most of the banks, interestrates on loans and mortgages have been maintained at 6 percent excepting on municipal obligations. Jefferson. Lewis, and St. Lawrence Counties (northern New York State) On January 1 last, a state member bank reduced its rate from 2 to 1 percent, resulting in a loss of about $550,000 in time deposits. Some consideration is now being given by a commercial bank to a reduction in the interest rate paid on large balances but no definite decision has been reached. Since 1955, many of the banks have endeavored to improve their security portfolios through purchase of United States government issues and other high grade bonds. In several banks government bonds compose nearly 50 percent of the total portfolio. In most of the small banks, however, pressure for earnings has resulted in security accounts composed chiefly of long term maturities, and, in some banks it is evident that the desire for security profits plays a too important role in their investment policies, particularly in institutions which can least afford to risk any of their principal. Suffolk County (New York State) Only three officers of member banks offered any criticisms of the Federal Reserve System, all referring to the fact that our safekeeping department will not handle their escrow accounts established for the county and local municipalities. They point out that their correspondent banks are complaining because of the unsatisfactory balances maintained, and they think the Federal Reserve bank, which now holds most of their cash funds, should offer every service rendered by correspondent banks including the handling of escrow accounts of this type. Philadelphia Industrial activities reflect little more than the seasonal decline and there has not been any great amount of labor trouble. There have been some strikes but in most instances they have not been in the very large industries located in this section. The condition of the banks in general continues to improve but the investment problem is still acute. It is probably due to the low earnings obtainable through security investments that some of the banks have started —5— 161 R-82-a Philadelphia continued to extend consumers' Credit and it would appear that this type of credit will in the future assume a fairly important position in the loan portfolios of these institutions. The real estate situation is improving but in many communities there is little opportunity to dispose of any but i>ew properties, even though in many localities the housing supply is not sufficient to meet the demand, and rents are increasing. Interest rates on time and savings deposits vary, with some institutions, particularly those in rural sections paying the maximum allowable rate. One bank has a maximum rate of 1 percent and among the larger institutions lj percent seems to be the preferred rate on the lower balances with graduated rates for larger balances. The loaning rate varies from 5 percent on collateral loans to 6 percent on unsecured loans. The President of a National bank, which had about 60 percent of its investment portfolio in government obligations, stated that he was changing his policy of investing as he was dissatisfied with the fact that the Government was going further and further into the "red". This same bank reduced the rate on savings accounts, to 1 percent. It is this officer's contention that these accounts are for specific purposes and as the owners are not interested in yields, the funds may be withdrawn at any time. This is the only bank in the Third Federal Reserve District, to our knowledge, which pays so low a rate. The officers of National banks in rural sections frequently comment upon the difficulty of compliance with the Comptroller's insistence upon statements in support of lines of credit exceeding $500. The President of one bank said that he gets many unfavorable reactions from customers who have loans affected by this policy. He quoted one customer whose note, he says, is safe and who is the Borough Treasurer, as having stated that he did not understand why the Comptroller left this President in charge of the bank, if he felt he could not grant a $1,500 loan to people with whose affairs he was well acquainted. This officer stated that before they will give statements many of the customers having loans of one, two or three thousand dollars will pay off the loans, often with funds borrowed elsewhere. This, he says, loses a customer for the bank and reduces its income. Cleveland The primary interest of bankers in this district, based on conversations with them in this bank and elsewhere, appears to be in the status of their bond accounts. Some bankers, in anticipation of higher money rates, are selling long term issues and investing in comparatively short maturities of Governments and other obligations. R—8 2—8. 162 Cleveland continued We continue to receive complaints from member banks based upon differences in regulations issued by the Board of Governors and those of other supervising agencies. This is particularly true of Regulation Q of the Board of Governors of the Federal Reserve System and Regulation IV of the Federal Deposit Insurance Corporation in so far as it relates to the payment of time deposits before maturity. Richmond One of the reasons most frequently advanced by the officers of small nonmember banks concerning their objections to membership is the fact that the loss of exchange derived from an exchange charge for paying their own customers' checks would be most substantial. One of our representatives reports a nonpar nonmember bank in North Carolina which, through its cashier, said that in considering membership the question of exchange was not taken into account, since this officer felt that the services offered through membership and the prestige which membership would entail would be more desirable in the long run than the revenue now derived from exchange. One of our representatives reports that in the State of Maryland there arc a number of small State banks which were subjected to drastic plans of reorganization following the moratorium in 1953. Many of these plans include a substantial waiver by depositors. Some of these plans provide further that the waiving depositors are to be reimbursed in full before dividends can be paid to the stockholders of the banks. Cases have arisen in which the trusteed assets will be insufficient to pay the waiving depositors in full. Therefore, in days when earnings are small, the process of finally paying out these waiving depositors in full is likely to be a long-drawn-out affair. The officers of one nonmember bank which is going through a process of reorganization similar to that described told our representative that, barring extraordinary losses, twenty-five years of normal operations would be required to restore the amount due the waiving depositors. Atlanta (Atlanta submitted only statistical information as to the number of banks visited.) Chicago Most of the activity in the Bank Relations Department during the month of August centered around the distribution of a booklet describing the operations of the Federal Reserve Bank of Chicago, copies of which were sent to the members of the Board of Governors of the Federal Reserve System and to each Federal Reserve bank. R-8 2—a 163 -7Chicago continued The booklet was distributed largely through our member banks. On August 4 we addressed each of the 759 member banks in the district, enclosing a copy of the booklet and stating that a specified number, ranging from 100 to 500 booklets, had been allotted to each bank for distribution to its customers; that in case the bank wished to participate in the program, the booklet would bear an imprint showing that the bank was a member of the Federal Reserve System; that if it would provide us with a list of its customers we would mail the booklets direct from this office with no cost to the member bank, and that additional copies over the original allotment could be obtained at a cost of five cents each plus cost of mailing or transportation charges. To date we have received requests from 685 banks (approximately 90% of membership) for 172,500 booklets. Of these banks, 155 ordered more than their quota. On the whole, the response has been gratifying. Some of the banks simply indicated a wish to participate, but many others took occasion to express complimentary views on the idea, or the booklet, or both. When the booklets were mailed to the customers, the member bank was advised to that effect and a statement for newspapers was enclosed with the suggestion that it be handed to the local newspaper in the thought that it might bring some favorable comment on the bank's membership in the System. The results from this were also satisfactory. In addition to the distribution through member banks, booklets were sent to all non-member banks, banking associations, banking departments, bank examiners, in the district, as well as to some trade and financial, journals, special lists which our Statistical Department maintains, newspapers in larger cities, etc. Numerous individual requests for the booklets have been received both by letter and in person. A number of our member banks have asked for additional copies for counter distribution, stating that they have had inquiries as a result of the general distribution or of newspaper publicity. We expect to distribute from 180,000 to 200,000 copies. St. Louis Throughout the portion of Illinois and Missouri visited in August, conditions continue to improve as compared with the same period in 1936. Though in some sections the condition of growing corn became less satisfactory, owing to the lack of rainfall during the first twenty days of the month, the outlook for large corn yields is considered excellent. In both States the average yield from oats was above normal and there is every indication that hay, soy beans, and other roughage crops will also be satisfactory. Wheat harvest was fairly successful in the Illinois territory visited, but the crop was below normal in northwestern Missouri, where rust caused heavy damage. 164 R-8 2—& -8- St, Louis continued Industrial activities show no appreciable change in the smaller communities visited as compared with last summer. With a few exceptions where temporary labor disputes prevail, industrial employment maintains approximately the same satisfactory levels which existed a year ago. As the result of generally satisfactory employment conditions and increased purchasing power of persons engaged in agricultural pursuits, especially in Illinois, retail trade maintains the increase shown in July and indications point to a continuance of this trend. Almost without exception the bankers visited report increased deposits resulting from sales of various farm commodities, especially wheat. This has caused renewed study to be given the perplexing problem of investments, with a trend toward securities having an early maturity, owing to the possibility of a change in money rates. Few country banks can find sufficient local outlet for their surplus funds, and the ratio of cash and exchange remains abnormally high. The attitude of bankers toward the System was generally friendly, practically no adverse comment being made except in connection with increased reserve requirements. One bank complained that it had to sell a block of securities to meet the increase, and another said it was compelled to terminate its account with its St. Louis correspondent in order to obtain the necessary funds. Several bankers commented on the benefits of membership, specially in connection with the use of custody and currency facilities, and the willingness of Reserve Bank officers to be of assistance. One or two remarked that they are well pleased with the arrangement by which a member bank can authorize the Reserve Bank to accept and pay for bonds delivered for its account by brokerage houses. In connection with the petition of certain banks in western Missouri to be transferred to the Tenth Federal Reserve District, three national banks and one nonmember in that section commented on improvement in the service to and from St. Louis. Three of them stated that currency shipments are received as quickly from St. Louis as they could be from Kansas City. All indicated that no benefit can be achieved by the proposed change, in spite of the fact that they are closer to Kansas City. One made the statement that the movement is inadvisable and inopportune. On the other hand, another nonmember in the area is definitely in favor of the transfer, and will await developments before giving further consideration to membership in the System. 165 R-82-a -9Minneapolis Most country bankers have had only a limited amount of experience with bonds. Realizing their "inexpertness", many of them subscribe to one of the recognized bond advisory services and/or the University of Minnesota's Financial and Investment Review. From the position in which some of these bankers found themselves during a recent week, during which second-grade bonds were steadily declining, it was evident that while they are quite willing to purchase recommended bonds, they are not so ready to dispose of them. One banker definitely stated that he did not believe bond services were "worth the price" to country bankers because they won't follow their advice! A nonmember banker boasted that the average yield on his bond account was 5 percent. (His chief rorry at the moment was that the market price of his bonds was declining but was consoling himself with the hope that the market would rise again as soon as funds realized from the 1957 crop were deposited.) One member banker was "playing with good second-grade bonds" in order to step up his earnings. He too thought the decline in those issues was only temporary. . "The collateral behind them is just as good now as when I bought them two months ago, so why should I sell them and take a loss" expresses his viewpoint. About one-third of the bankers confine their purchases to the shorter term direct and Indirect government obligations and local municipal and state issues (a few of these accounts showed an appreciation); about one-third had had sufficient local loan demand to utilize most of their available funds and consequently their bend accounts were very small (U. S. Savings Bonds and a few others) but nearly one-third of the bankers were buying bonds for "profit" instead of "investment", i.e., were buying bonds that they did not expect to hold to maturity. A few of the bankers in the larger towns, especially those in the larger institutions, had quite definite opinions regarding the Patman Bill. Generally, they did not see that the passage of the bill would make any fundamental change in the operations of the Federal Reserve banks. However, they all expressed concern regarding what might happen. The presidents of the two largest banks both said they would hate to see the present executives of the Minneapolis bank, who have had commercial banking and business experience, replaced by "idealistic bureaucrats " or by men imbued with the government's present "anti-private industry attitude", but if such changes were not made, they did not see that it would make much difference. In general, the bankers were inclined to look beyond the actual bill for its real purpose. If the ultimate objective was to convert the Federal Reserve banks into "political plum trees", they were definitely opposed to it, but if not, they saw no reason for objecting to it. None of them mentioned "stockholders rights" although one or two said they would like to "retain the last good 6 percent investment" they had. —10— R-8 2—a Minneapolis continued Montana The increase in reserve requirements was not a hardship at any member bank except in the wool country. At a few banks it was stated that the reserve increase came at tax paying time and before the marketing cf wool so that loans were at their seasonal peak and cash reserves were low. Even these banks appeared to have suffered no serious discomfort from this action. One nonmember banker stated that he was not interested in Federal Reserve membership because of the unsettled state of Federal banking and monetary legislation. On the other hand, he stated that a number of disturbing bills had been presented to the Montana legislature at the last session, and that if any legislation of this sort was enacted he would liquidate his bank rather then join the System or nationalize his institution. Another nonmember banker stated that he would not join the Federal Reserve Ejystem because in .1917 his membership was solicited with the argument that by joining the System he could borrow at a low rate of interest and lend the funds at home at fi high rate. He did not think that this was a sound principle for a central bank to state. While our representative feels sure that his recollection is faulty in this matter, he was very firm in his conviction. Red River Valley and northeastern North Dakota Interest paid on time deposits reported to be 1-1/2 percent in the larger towns and 2 to 2-1/2 percent in the smaller and more remote villages . None of the State banks appear to be interested in membership. Many of them said thtgr could not exist without the revenue from exchange charges on items received in cash letters. Some of the bankers deplored the excessive exchange charges being made by certain banks. A "grievance committee" of the North Dakota-Bankers Association is working on the problem of excessive exchange rates with a view of establishing uniform and reasonable charges . Demand deposits predominate and most bankers said their banks were in very liquid condition, with large cash reserves. Kansas City Since the raising of reserve requirements and the flurry in the government bond market last spring, the recent reductions in the rediscount rate in several reserve districts is probably attracting more attention R-82-a —11— 167 Kansas City continued among bankers than any other strictly banking question. The event is too recent and reports too fragmentary for anything more than a preliminary report, but a variety of opinion has already been expressed. For some time there has been widespread dissatisfaction with the return on earning assets and some bankers have expressed the opinion that the rate reductions are evidence of the desire of the Treasury to prolong favorable borrowing conditions. The tendency appears to be to associate the rate reductions with the government bond market and with the Treasury's and the Reserve banks' responsibility for the price of these securities. The question is raised what the attitude would be of these same agencies in the event of a radical drop in the price of government issues. Banks are interested in the question how supervising authorities would look upon losses in government bond accounts and what base lending agencies would use in making advances on depreciated securities. Dallas Central Texas Increase in reserve requirements was not a matter of concern to the member banks visited, since they had adequate available cash to meet the increased requirements without borrowing or in any manner hampering their operations. There is no noticeable increase in demand for credit at any of the banks visited and no prospect for need of our rediscount facilities. The principal complaint was lack of demand for credit. The one nonmember visited was of the opinion membership would not be of any value and that too many regulations and restrictions are imposed upon state members. Banking, business and agricultural conditions are favorable, with prospects for cotton production better than for several years. San Francisco Yakima Valley, Washington The Yakima Valley is looking forward to low prices for apples and hops. The prospective apple crop in the United States is so much larger than last year's that there appears to be no possibility of prices as high as were received for the 1956 crop. The hop prospects are so poor that bankers are making no loans to pick hops unless the borrower has ample other assets from which he can pay. R-82~a 168 — San Francisco continued The price for lambs and cattle continues to be good end, due to the demand for dairy stock from California, it appears that dairy cows will move at pretty good prices all winter. The diversity of production in the Yakima Valley is such that the banks expect business conditions to continue on about the present base even though some of the crops will not be sold at a profit. Eastern Washington The wheat yield per acre is much larger than normal as the season has been very favorable for wheat growing in this particular section of the Big Bend near Spokane. While the total bushels for the district may not be much more than last year, bankers are pleased with the acreage production. The only wheat moving is that which was contracted for early in the season. The price having dropped, the farmers who had not contracted their wheat are holding. Bankers look for more loans on warehouse tickets this year than for several years past. The Palouse wheat crop is thought by most bankers to be a very good one and the early season estimate by the County Agent of 12 million bushels is still expected. Harvesting will be very late this year and, in the higher sections, may run beyond the middle of September. There is some indication of rust in wheat which is being cut now, which, if it persists throughout the later cutting, will materially affect the growers' crops. Peas have been a very good crop this year, but the price, while nominally 1-1/2 cents a pound, is usually 1 or 1-1/4 cents if anyone is forced to sell. The peas contracted for early were 1-1/2 and 1-3/4 cents. There are some other peas moving, but the larger bulk of the peas sold thus far have been the contracted crops. > PUBLIC RELATIONS ACTIVITIES OF FEDERAL RESERVE E k M S AUGUST, 1937 Federal Reserve Bank Boston New York Philadelphia Cleveland Visit,s to banks rion.lumber Total member 37 124 73 2 46 16 Meetings attended dumber 39 170 89 12*'* hone ivone 1 Bono Richmond Atlanta Chicago St. Louis 25 S 13 57 75 3 20 7 100 11 33 44 None Hono Bone None Minneapolis Kansas City Dallas San Francisco 3 16 3 29 11 9 1 10 19 25 4 39 1 2 None 4 * Attendance bit 1 not reported '~ Courtesy calls ;H Attendance — Addresses made Number None None None 1 None None None None , 100 •30 — — 15^ None #one rione None Attendance — — — — 40 — — — —
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