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Rlderal Reserve Bank of DalJas

Business Review
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March 1976
District BankingNew Edge Offices Participate
In Expanding International Banking Market
Review 011975
Treasury Cash BalancesNew Policy Prompts Increased
Defensive Operations by Federal Reserve

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

District Banking-

New Edge Offices Participate
In Expanding International Banking Market
Since early 1972, six of the country's eight largest banks-headquartered in New York, Chicago,
or San Francisco-have opened
Edge Act corporation offices in
Houston. And the other two have
plans to do so.
Together with the mounting
presence of foreign banks in Houston and the sharp expansion of
international departments in local
banks there, the Edge movement
attests to the increasing importance in world commerce of the
economy of the Eleventh Federal
Reserve District. And it retlects
the emergence of Houston as a
center for international bank
credit and services.
Legal framework
The origins of Edge Act corporations go back 60 years to when
Congress sought to stimulate U.S.
foreign trade by enabling domestic
banks to playa larger role in international finance. In 1916, Congress amended Section 25 of the
Federal Reserve Act to permit
national banks to fonn corporations principally engaged in international or foreign banking.

Under this amendment, owner
banks are required to have at least
$1 million in capital and surplus,
with no more than 10 percent of
that total invested in the stock of
such corporations. And before
any stock can be purchased, the
organizers have to have an agreement with the Board of Governors
of the Federal Reserve System as
to the conditions under which the
corporation will operate. Corporations organized under Section 25,
therefore, are called Agreement
corporations.
There are no Agreement corporations active in the Eleventh District at this time. But on January
26 this year, the Board of Governors approved an application by
the Bank of Tokyo, a Japanese
bank that is a registered bank
holding company in the United
States, to operate one in Houston.
Because the 1916 amendment
did not provide a means for federal charters to be granted, all
Agreement corporations have
state charters. But in 1919, Congress added Section 25(a), which
empowers the Board of Governors
of the Federal Reserve System

to charter corporations for the
purpose of engaging in international or foreign banking or other
financial operations. These corporations are called Edge corporations after Senator Walter Edge,
sponsor of the legislation.

Section 25(a) of the Federal
Reserve Act permits out~of
state banks to operate Edge
Act subsidiaries in Texas,
provided their activities are
clearly related to international
or foreign business.
Because of their special purpose, Edge corporations operate
under somewhat different restrictions than commercial banks. For
example, existing provisions of
state and federal law prohibit
banks from having branch offices
in Texas. But Section 25(a) permits out-oI-state banks to operate
Edge Act subsidiaries in Texas,
provided their activities are clearly
related to international or foreign
business. Edge Act corporations
can receive demand and time

EDGE ACT CORPORATIONS IN ELEVENTH FEDERAL RESERVE DISTRICT, DECEMBER 31, 1975

Name

Republic International Company' .
FIrst Dallas InternaUonal Banking Corporation' ..
First National CIty Bank (International-Houston)
Bank of America International of Texas ...
First City International Corporation of Texas' ....
Morgan Guaranty International Bank of Houston.
Continental Bank International (Texas) ... . . ..... .
Bankers Trust International (Southwest) Corporation .. .
Chase Bank International-Houston .. . ............ .

Commenced

Loe"lIon

ApproWld
by Board
01 Governors

Dallas
Dallas
Houston
Houston
Houston
Houston
Houston
Houston
Houston

May 29, 1968
January 9. 1969
February 7, 1972
February 3, 1972
January 5, 1973
January 21. 1974
January 21, 1974
June 7,1974
May 10, 1974

May 31,1968
February 3, 1969
March 1, 1972
March 24, 1972
July 27, 1973
April 10, 1974
April 15, 1974
June 10. 1974
September 26. 1974

b~.lnen

1. NOI engaged In banking u defined by Federal R..",,,,,, Regu l.llon K

Business Review I March 1976

deposits, but not passbook savings deposits, so long as the deposits are incidental to international
or foreign transactions. Reserves
against such deposits cannot total
less than 10 percent.
A corporation having aggregate
demand deposits and acceptance
liabilities in excess of its capital and surplu.s-<:alled a banking
Edge-must limit the amount of
credit granted to any customer to
10 percent of its capital and surplus. Otherwise, a corporation is
an investment Edge and can lend
a single customer as much as 50
percent of its capital and surplus.
At mid-1975, 113 corporations
organized under Section 25(a) of
the Federal Reserve Act were
operating in the United States. By
contrast, there were only four
Agreement corporations. The six
non-Texas banks with Edge offices
in Houston had 23 other Edge
subsidiaries in New York, Chicago,
Los Angeles, Miami, San Francisco, and Portland.
Three banks in the Eleventh
District-two in Dallas and one in
Houston-own nonbanking Edge
subsidiaries for holding their overseas investments. Although two
of the three preceded the Edge
banks having out·of-state owners,
the combined assets of 10caUy
owned Edges amount to only 5
percent of total assets held by nil
Edges in the District.

climbed from over 6 percent to
almost 10 percent.
The sharp run·up in global
petroleum prices over the past two
years has put heavy demands on
the Texas Gulf Coast for petrolewn products and oil production
technology and know-how and
has been a particularly important
factor leading to an increase in the
demand for credit and services
integral to international transactions. Recognizing the strong profit
opportunities developing around
Houston, the country's largest
multinational banks have set up
Edge Act offices there. They were
particularly encouraged to do so
because many of their major customers with southwestern subsidiaries had expanded operations
or relocated corporate headquarters in the Houston area.

Scope of Edge activities
Edge corporations found new business from the many small but
rapidly growing companies-especially petroleum-related firmslocated in the booming Houston
area. Thrust into the world of
international trade, many of these
companies did not know how to
collect or transmit funds overseas
or lacked expertise about letters of
credit. Others needed advice on

submitting complex bids for contracts overseas or help in checking
on the creditworthiness of foreign
customers and the stability of
foreign currencies.

By using the parent bank's
extensive network of foreign
branch olfices, an Edge bank
in Houston can collect or
transfer funds around the
world and can provide on-site
representation and information for its client.
The new Edge offices offered the
resources to serve the needs of
companies entering international
markets. By using the parent
bank's extensive network of foreign
branch offices, an Edge bank in
Houston could easily collect or
transfer funds around the world
and could provide on-site representation and information for its
client. And each Edge bank could
also rely on the home office for
financial and economic expertise
in analyzing complex overseas
transactions and for the overline
on any credit that exceeded the
Edge bank's limit.
The Edge banks have also
achieved some success in attract-

GROWTH IN FOREIGN ACTIVITIES OF COMMERCIAL BANKS IN HOUSTON

Establishment of Edge offices
In recent years, the economy of
the Eleventh District has rapidly
expanded into world markets. For
example, from 1969 to 1974, the
value of exports and imports for
the Houston customs region-an
area composed of Texas, New
Mexico, Oklahoma, Colorado, and
a small part of Louisiana-rose
from $4.7 billion to $19.3 billion,
or 311 percent. And the share of
total U.S. foreign trade accounted
for by the Houston customs region
2

l1t1m

Total claims on fore igners ............ • ..•.....
Loans
PrIvate nonbank foreigners ........ • ..• .....
Foreign commerci al banks ... ............. .
Foreign acceptances ....................... .
Collections outstanding . . .. ... ............ . .
Total liabilitles to foreigners .................. .
Time deposits of private nonbank foreigners .. .
Demand deposits
Private nonbank foreigners .. .... .......... .
Foreign commercial banks . .
. .. . .. ..... .

180%

244%

233

185
75

717

NOTE : Calculat&!! 110m data reported 10 Ille U.S. TII.IUry Department

338
48

13
81

137

60
143

233
383

ing the business of older, more
established finns. Collections are
made faster by the small Houston
offices than by the large interna·
tiona! departments at home offices.
Where letters of credit were
previously routed to the main
bank and then cleared (at a fee)
through a Houston correspondent,
they can now be written or cleared
in Houston. Clearing times have
dropped from a week or more to a
day or two, and the incidence of
lost documents has declined.

Some of the Edge banks in
Houston have sizable foreign
deposits. The parent banks of
these offices have strong branch
networks in Mexico and Latin
America, and depositors from those
countries find it is now easier to
go to Houston than to the home
office. But most of the Edge banks
in Houston do not have a large
foreign deposit business.
Foreign exchange trading in
Houston is limited. No Edge
bank-or, for that matter, local

commercial bank-has a foreign
exchange trader or makes a mar·
ket in foreign currencies. Hous·
ton's international bankers trade
in the New York foreign exchange
market for their customers.
Competitive impact of Edges
The est3.blishment of Edge banks
in Houston has increased com·
petitive pressures on local com·
mercia! banks. Parent banks of
Edge Act corporations usually
have more extensive global repre·

Activity of foreign banks in Houston
The presence of many representative offices
of foreign banks in Houston attests to
the area's increasing importance in international banking. At least 13 foreign commercial and merchant banking institutions had
representative offices there in late 1975.
These offices-forbidden by Texas law
from engaging in banking-are in Houston
to oversee the interests of their parent
banks. And many aggressively market ser·
vices and credit that can be booked at their
home offices or at branch affiliates in New
York, Chicago, or San Francisco. While
some make calls only in the Southwest,
others take in the entire United States, or
even North America, as trade territories.
Canadian banks came to Houston as
early as 1958. Beginning with a strong base
in petroleum and allied industries, they now
have customers in all lines of commerce.
Transactions need not be tied to Canada.
The banks will extend loans for profitable
projects in the United States or anywhere
else around the world-consorlium loans for
North Sea oil exploration, for example. A
large percentage of the loans Canadian
banks arrange are participated out to Hous·
ton banks. They have also been somewhat
active in marketing large--denomination cer·
tificates of deposit.
Most other representative offices in Houston were established after 1973. Two Japanese offices followed major Japanese trad-

Business Review I March 1976

ing companies to the Southwest. Although
Japan's economic interests in the Southwest
have traditionally centered around cotton,
its representative offices are most heavily
involved in financing iron and steel imports
from Japan. Heavy manufacturing in Houston and the Southwest is increasingly de·
pendent on Japanese iron and steel, and
about a third of all such U.S. imports from
Japan enter through Houston.
The Japanese representatives are also ac·
tive in financing refinery construction and
other needs of major U.S. oil companies.
not only in the United States and Japan
but also in Iran, the Middle East, and
Southeast Asia. And they have invested in
many other sectors of U.S. industry.
Scottish offices and one Italian office are
primarily service·oriented, helping homebased customers operate in the United
States and encouraging U.S. firms to invest
in their countries. But they also maintain
close relationships with Houston's multinational corporations. And the Scots have a
special interest in developing North Sea
oil reserves.
The other foreign bank offices in Hous·
ton are trying to keep close ties with oil·
related companies in the Southwest, including their domestic financing needs and
their investments abroad. Otherwise, activi·
ties of these offices are too diverse for
generalization.

sentation and more international
expertise than local Houston
banks. At mid-1975, for example,
First National City Bank of New
York had 243 branches in 58
countries, Edge offices in New
York, Chicago, Los Angeles,
Miami, and San Francisco, and
additional international banking
subsidiaries in 16 countries. That
dwarfed the seven branch offices
in three countries that five Houston banks controlled.
The large multinational banks
maintain specialized staffs that
analyze such developments as
movements in foreign exchange
rates, differences in money market rates around the world, and
policy changes by foreign governments. And the Edge subsidiaries
can pass along this valuable information to southwestern companies
dealing overseas. The smaller
Houston conunercial banks do not
have large staffs of foreign specialists and often must buy such
infonnation from correspondent
banks in U.S. money centers.
Also, even the largest Houston
banks sometimes find their legal
lending limits insufficient to handle outsized overseas loan packages. Because of their modest
capitalization, Edge banks have

small lending limits, both for individual customers and in aggregate.
But as subsidiaries, they have
access to the vast resources of
their home offices. Currently, Edge
banks in Houston participate out
about $2 for every $1 of loans
carried on their books, with 80percent participation in some
instances.
Even though some clients
have shifted to the Edge
banks, Houston commercial
banks are handling more inter~
national business than ever.

Even though some clients have
shifted to the Edge banks, Houston conunercial banks are handling more international business
than ever. The six largest Houston banks have experienced rapid
growth in their international
departments (the staff at one
bank has tripled in the past three
years). And growth of both claims
on foreigners and liabilities to
them has actually accelerated at
Houston banks since the arrival of
Edge offices.
Last year, Edge offices had 18
percent of the total claims on

SHARES OF SELECTED FOREIGN CLAIMS AND LIABILITIES
OF COMMERCIAL BANKS AND EDGE CORPORATIONS IN HOUSTON
Pereent 01
Hou ston total.
D&eembor 3t. 1975
Bankt
Edge.

Total claims on foreigners
loans
Private nonbank foreigners ................ .
Foreign commercial banks ...... . ...... • ...
Foreign acceptances . .. .
. .. .... . .
Collections outstanding .. . ....... .
Total liabilities to foreigners ............. .
Time deposits 01 private nonbank foreigners
Demand deposits
Private nonbank foreigners . . .. . .... .
.. ........ .
Foreign commercial banks
. ......... .
Foreign official institutions .. .

82%

18%

80
95
93
72
64
5

60
98
100

28
36
95
40

2
0

NOTE' Catc",l ated from data reported to tile U.S. TrU SYry Departm ent and the Federal Reserve System

foreigners held by all banking
organizations in Houston. And
their share among all District
banks was only 7 percent, although
this probably understates their
share considering participations
with home offices.
Obviously, local conunercial
banks still have something to offer
customers dealing in international
trade. Where Edge banks are
restricted to international and foreign business, conunercial banks
can offer a full line of credit and
services, including domestic loans,
payroll management, stock registration and transfer, and pension
fund and other trust services. As a
typical industry practice, these
are sold as packages partly in
exchange for deposit balances. As
a further return, customers of
long standing receive tacit priority for loanable bank funds during
tight credit conditions.
An Edge bank offers international credit and services on better
teons. But in buying them, a corporate client may forgo the full
value of its conunercial bank bal~
ances. And by splitting its business, it could jeopardize its preferential status with the local bank.
In this light, loyalty of many
southwestern companies to fullservice local banks may amount
to good economic reasoning.
Potential for continued expansion
International banking in Houston
is rapidly undergoing both growth
and change. The Edge movement
has brought an increased amount
and variety of credit and services
to the area. It has injected new
expertise there, tying Houston
into global branch networks of
multinational banks. And even
though they are without banking
powers, representative offices of
foreign banks are drawing foreign
direct investment to the Southwest and arranging for financing of
greater international trade.

As a center for world energy
technology and know-how, Houston has an excellent potential for
also becoming a center for international finance. It already has a
significant concentration of international banking, but future progress will depend, in part, on the
number and variety of new international banking outlets allowed.

As a center for world energy
technology and know-how,
Houston has an excellent
potential for also becoming
a center for international
finance.
The role of foreign banks in
Texas has been limited because
the state's constitution denies
them banking privileges. And during the 1974 Texas Constitutional
Convention, an effort to open the
state to foreign-owned banks
proved unsuccessful. As a longtime
unit-banking state, Texas seemed
unprepared for legal recognition
of branching, even if confined to
foreign banks.
But some Texas bankers now
favor the entry of foreign-owned
banks into the state. They believe
that foreign competitors would
broaden the state's banking industry and bring profitable spillover
business through increased foreign

trade and investment. A constitutional change would also increase
the opportunities for Texas banks
to branch overseas. Frequently, a
foreign government will not pennit
Texas banks to have branches in
its country without a reciprocal
agreement. With extensive branch
networks, Texas banks could
achieve economies of scale in
foreign operations and compete
more effectively against money
market multinationals, both here
and abroad.
At this time, however, questions
about the state's statutory authority over foreign banks may be
moot. Late in 1974, the Board of
Governors sent Congress proposed
legislation for regulating foreign
banking in the United States.
Now called the Foreign Bank Act
of 1975, it would standardize the
status of many foreign banks in
the United States by placing them
under the same basic rules and
procedures that domestic national
banks must observe.
In particular, two provisions of
the Foreign Bank Act would have
direct bearing on the growth of
international banking in Texas.
One would permit foreign banks
to own Edge corporations. The
other would allow some degree
of foreign ownership in national
banks and would empower the
Comptroller of the Currency to
license branches of a foreign bank

in any state. If these provisions
become law, foreign banks could
engage in domestic and international banking in Texas despite
state constitutional prohibition.
In the near tenn, the direction
of international banking in Houston will come from policies of the
Board of Governors as it exercises
its authority under Sections 25
and 25(a) of the Federal Reserve
Act. Early this year, the Board
approved an application by the
Bank of Tokyo to establish an
Agreement corporation in Houston. By forming this corporation,
the Bank of Tokyo had responded
to objections made by the Board
in denying an earlier application,
last May, which proposed creating an international banking subsidiary in Houston under provisions of Section 4(c)(9) of the
Bank Holding Company Act to
avoid some of the restrictions in
Regulation K.
Texas banking authorities may
well challenge whether a foreignowned Agreement corporation can
engage in banlting with a state
charter and still be in compliance
with state law. But if the position
of the Board of Governors that
state law is not violated is upheld,
other foreign banks would likely
enter the Texas market by means
of Agreement corporations.

Naw member bank
First National Bank of West University Place, West University Place, Texas, a
newly organized institution located in the territory served by the Houston Branch
of the Federal Reserve Bank of Dallas, opened for business February 19, 1976, as a
member of the Federal Reserve System. The new member bank opened with capita)
of $400,000, surplus of $400,000, and undivided profits of $200,000. The officers
are: Joseph S. Bracewell, President; W. Otto Frosch, Executive Vice President;
Joan Evans, Cashier; and Mary Lou Farrar, Director of Customer Relations.

BUSU1eM Review I March 1976

REVIEW OF 1975
The nation's economy was marked by recovery from the most severe
recession of the postwar period, significant moderation of inflation
from double-digit levels, and a decline of most interest rates from
record highs.
1,240 BILLIONS OF 1972 O O L L A R S - - - - - - - REAL GROSS NATIONAL
PRODUCT

20 BILLION DOLLARS - - - - - - - - - - -

'0
0 ~L-~~~~~~~e.r--__- --

1,190

-10

-20
1,140 r'---"C'9::7:C.:---T--:-'::9~7:;5---'

Output fellG.6 percent from a peak in 1973 to
the trough in the first quarter of 1975. It then
advanced at somewhat less than the average pace
for postwar recoveries.

,...

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5

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,,~,

CONSUMER PRtCE
INDex

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1914

Fluctuations in economic activity were dominated
by an exceptionally sharp inventory cycle. A large
and mostly involuntary accumulation of inventories
in 1974 gave way to massive liquidation in the
first half 01 1975.

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REAL PER CAPIT A DISPOS ABLE INCOME

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3 ,900

1975

The rate of inflation declined from double-digit
levels to 6.4 percent by the end of the year. But
that was still more than double the average
inflation rate of the 1960's.
10 PERCENT - - - - - - - - - -

•
• r,--'-.~7-.--.----'9-7-5---,
6

-30r-------------~--~~------_,
1974
1975

',000

,-,

4,100 BILLIONS OF 1972 DOLLARS - - - - - - - -

15 PERCENT CHANGE

_v,

INVENTORY
CHANGE

3,800

.,----'-.-7-.---.-----'-.-7-.----,

And large gains were made in real per capita
disposable income, partly because of the Tax
Reduction Act of 1975. Tax rebates contributed to
an especially sharp gain in the second quarter.

But because of continued growth
in the labor force and rising labor
productivity, the recovery translated
into only modest reductions in the
unemployment rate during the year.

230 BILLION DOLLARS - - - - - - - - - - - -

210

190
170

,•

GROSS PRIV ATE
DOMESTIC
INVESTMENT

I.orl--------_r--------,
120 BILLION D O L L A R S - - - - - - - - - - - -

10 PERCENT CHANGE
MONEY STOCK (M, )

"..,

r--

'4PERCENT---------------------------

FEDERAL FUNDS RATE

10
FEDER AL BUDGET
DEFICIT

•
, "-----1"."7"'"'------'------:1"97=.:------,

o ...-~--,=--

1974

As the deficit in the federal government's budget
rose, private spending on investment goods fell
about as much. But since most interest rates were
not rising, it was a case of weakness in private
spending causing the deficit rather than the deficit
crowding out investment spending.

Monetary policy was aimed at slowing inflation
and achieving sustainable economic growth. Ml
expanded at less than 5 percent for the second
consecutive year, compared with advances in excess
of 6 percent in the preceding four years.

10 P E R C E N T - - - - - - - - - - - - - 2.0 MILLION U N I T S - - - - - - - - PERCENT 10

1.5

CONVENTIONAL
MORTGAGE RATE

An CORPORATE BONOS

1.0

•

GOVERNMENT BONOS

HOUSING STARTS

Reduced credit demands and large savings inflows
into thrift institutions helped sustain relatively low
mortgage rates. But a large stock of unsold homes
and sharp increases in new home prices dampened
the housing recovery.

Business Review I March 1976

5r'----I"•.,.7~'----r----1~9.,.7.,..----,
Corporate bond yields remained high, mainly
because inflationary expectations persisted and
businesses lengthened the maturity of their debt.
Yields on state and local government bonds
actually rose as a consequence of the financial
difficulties of New York City.

Treasury Cash Balances-

New Policy Prompts Increased
Defensive Operations by Federal Reserve
In recent years, the amount of
money in circulation has gained
importance as a target and indicator of monetary policy. But even
as more attention has been focused
on the money stock, a recent
change in the U.S. Treasury's
management of its cash balances
has increased the potential of Treasury balances to cause short-term
fluctuations in money.
In response, the Federal Reserve
System has stepped up defensive
open market operations and,
through these operations, has successfully offset the potential
increase in the variability of the
money stock. The Treasury's new
cash management policy has not,
therefore, significantly interfered
with the Federal Reserve's ability
to hit its desired monetary targets.
Treasury cash balances
Almost all the Treasury's cash disbursements, such as Social Security payments and Government
payrolls, are made by drawing
down Treasury checking accounts
at the 12 Federal Reserve banks
and their branches. These transactions inject funds into private
demand deposits at commercial
banks and, at the same time and
by an equal amount, increase the
reserves available to the commercial banking system.
Because banks are required to
hold only a fractional amount of
reserves against deposits and other
liabilities, an injection of new
reserves into the commercial banking system from Treasury cash disbursements can result in a multiple
expansion in the money stock and
bank credit and exert downward
pressure on money market yields.
8

By contrast, Treasury cash receipts
that are paid into accounts at Federal Reserve banks-tax collections
or proceeds from security sales, for
example-can produce the opposite
effects since they drain reserves
from commercial banks.

The Treasury's new cash
management policy has not
significantly interfered with
the Federal Reserve's ability
to hit its desired monetary
targets.
To minimize disruptions in the
money market resulting from
large and irregular flows of funds
between the Government and private sectors of the economy, the
Treasury began using, as early as
1917, a specialized system of
deposits--called tax and loan
accounts-in the management of
its cash balances. Tax and loan
accoWlts are Treasury-owned
demand deposits at about 12,700
commercial banks that qualify as
special depositaries. Banks can
qualify by applying through a Federal Reserve bank and posting collateral, in the form of various
government securities, to cover
funds in the accounts.
Initially, Congress authorized
the use of tax and loan accounts for
the deposit of proceeds from sales
of new Treasury securities, which
helped induce commercial banks
to distribute new issues at no
direct commission costs to the
Government. Later, after World
War II, Congress broadened the
use of these special accounts to
include deposits of payroll taxes,

income taxes, and certain excise
taxes. And today, balances in tax
and loan accounts come mostly
from tax collections.
When payments to the Treasury
are made by crediting tax and loan
accounts at banks, no reserves are
drained from commercial banks.
Instead, ownership of a given quantity of demand deposits is simply
transferred from a private account
to a tax and loan account of the
Treasury. The Treasury can leave
the funds in the commercial banking system until they are needed
for expenditures. At that time,
funds are transferred to deposits
at Federal Reserve banks for disbursement, which returns them to
commercial banks.
Acting in consultation with
officials at the Federal Reserve
Bank of New York, the Treasury
transfers funds from tax and loan
accounts to deposits at Federal
Reserve banks through the use of
calls on commercial banks, or
scheduled withdrawals. Before
1971, the Treasury generally
sought to minimize the impact of
calls on bank reserves by attempting to keep its deposits at Federal
Reserve banks at a minimal level.
Day-to-day experience revealed
the amount of deposits needed to
conduct Treasury operations efficiently. And forecasts of expenditures and receipts enabled Treasury officials to schedule calls so
as to restore deposits at Federal
Reserve banks to efficient operating levels. Receipts in excess
of immediate disbursement needs
were allowed to accumulate in
tax and loan accounts at commercial banks. And the Treasury
quickly redeposited in tax and

Treasury Demand Deposits
12 BILLION DOLLARS
(EN[).()F·MONTH BALANCES)

10-

TAX AND LOAN ACCOUNTS
AT COMMERCIAL BANKS

DEPOSITS AT FEDERAL RESERVE BANKS

O-r---.--~r---~---r---.--~r---~---r---.----r---~
1965

1967

1969

1971

1973

1975

SOURCE: U.S. Tr •••ury Department

loan accounts any surplus funds
in operating balances.

to exceed the value of services rendered by banks handling them.'

New Treasury policy
After 1971, the size of Treasury
deposits at Federal Reserve banks
increased substantially, as did
their fluctuations, because the
Treasury changed its policy and
began keeping minimal balances
in tax and loan accounts.
Because they are demand
deposits, tax and loan accounts
cannot earn interest under present federal legislation. Yet, banks
can realize a return with the funds
obtained from these accounts. In
the past, the Treasury viewed these
returns as fair compensation to
banks for their services in handling
tax and loan accounts. However,
in a 1974 study, the Treasury
reported that, partly because of
higher interest rates, bank earnings on these accounts had come

Congress is considering several bills that would authorize
permanent changes in the
Treasury 's cash management
practices and permit interest
to be earned on idle Government funds.

On the basis of this report, Con-

gress is considering several bills
that would authorize pennanent
changes in the Treasury's cash
management practices and pencit
interest to be earned on idle Government funds. Pending the adoption of one of these bills, the Treasury has reduced its balances in
tax and loan accounts and shifted
funds into deposits at Federal
Reserve banks.

In response to this shift and to
prevent a deficiency in the reserves
of commercial banks, the Federal
Reserve System has purchased an
appropriate amount of Government securities in the open market.
The Treasury's revenues have been
enhanced since the higher net
income from the Federal Reserve's
larger holdings of Government
securities accrues to the Treasury. But the shift of funds to
Federal Reserve banks has also
complicated the task of monetary
management because the minimization of tax and loan accounts
has caused Treasury balances at
Federal Reserve banks to become
more volatile.
Effect on the money stock
Fluctuations in Treasury deposits
at Federal Reserve banks, if not
offset by System open market
operations, can cause variations

1. Report on a Study of Tax and Loan Accounts, Treasury Department, June 1974

Busineu Review

I March 1976

Potential Changes in the Money Stock
Due to Changes in Treasury Deposits at Federal Reserve Banks

6O PERCENT -----------------------------------------------------------40-

20-

0 -········· ..

-20-

-40-

1965

1967

1969

1971

1973

1975

NOTE; E,Umaled .. -m _ 1 I1TOFRIM •• pr....d alan annual ral., "".r.I1TOFR I, Ih. ehang.ln ...rag. monthl, balane., 01
TN..ury depo,l" al Fed.ral A...1"'I'. banb, M I, ttMo narrowl, d.flned mone, ,Iodl, and m_\ I, Its mulllpll.r 101' the
preeeding month.

in the stock of money because
changes in these deposits create
changes in base money. Base
money consists of the net monetary
liabilities of the Federal Reserve
System and the Treasury that are
held by commercial banks and the
nonbank public. It is equal to
member bank deposits at Federal
Reserve banks, vault cash held by
banks, and currency held by the
public. ~ Currently. about $2.5 in

money-defined as currency plus
demand deposits other than those
of domestic banks and the Treasury- is supported by each $1 of
base money.
Since the Treasury adopted the
new policy, changes in its deposits
at Federal Reserve banks have
become a dominant source of
potential short-term fluctuations
in base money. In the four years
ended June 1971, the standard

deviation about the mean for
monthly changes in the Treasury's
deposits was not substantially
larger than for most other sources
of changes in the base. But in the
following four years, the standard
deviation of these changes ranked
second in size only to that of
changes in Federal Reserve securities and was three times larger
than that of the next most volatile
source of change.

2. Base money has several sources. Increases in securities, loans, and other assets held by Federal Reserve banks-aa well
as increases in Federal Reserve fioat-add to the base because these items are paid for with monetary liabilities of the
Federal Reserve. Acquisitions of gold or Special Drawing Rights by the Treasury and increases in the amount of its
currency outstanding over and above its own holdings of currency also add to the base. But increases in deposits at
Federal Reserve banks other than those of member banks reduce the base. These include increases in foreign·owned
deposits and Treasury deposits.
For a more detailed description of the monetary base, see Leonall C. Andersen and Jerry L. Jordan, "The Monetary
Base-Eltplanation and Analytical Use," Review, Federal Reserve Bank of St. Louis, August 1968.

Changes in Federal Reserve Holdings of Securities
And in Treasury Deposits at Federal Reserve Banks
5 BILLION DOLLARS - - - - - - - - - - - - - - - - - - - - - - - - - - , - (FROM MONTHLY AVERAGES)

43FEDERAL RESERVE SECURITIES

21 -

0-··
-1 -2-

TREASURY DEPOSITS

-3-4-

-5-r---r---r---r---r---r---r---r--~--~--~~_,_
1965

SOURCE: Board of

1967

GO'IlIfnOfS.

1969

1971

1973

1975

F.d ..... 1 RIIS."'II SYlillm

The potential effect of changes
in Treasury deposits at Federal
Reserve banks on the stock of
money can be estimated by multi·
plying the current ratio of the
money stock to the base by the
actual changes. Before June 1971,
the Treasury's policy of maintain·
ing low and stable balances at
Federal Reserve banks limited
potential monthly changes in
money arising from their move·
ments to a relatively narrow range
of minus 7.6 percent to plus 8.6
percent, at annual rates. But after
June 1971, the range of potential

changes in money from this source
increased to minus 52.7 percent to
plus 52.6 percent.
Both before and after the Trea·
sury changed its cash management
policy, however, open market
operations of the Federal Reserve
almost completely offset the potential impact of these cbanges on the
money stock. Thus, for the four
years ended June 1971, statistical
regression analysis shows that a
$1 change in Treasury deposits at
Reserve banks induced the Federal
Reserve System to change its holdings of Government securities in

the same direction by $1.18, on
average. And in the next four
years, a $1 change in Treasury
deposits at Federal Reserve banks
caused the System to change its
holdings of Government securities
by only 90 cents. The difference in
measured response between these
two periods, however, is not statistically signi6cant.'
A further indication of how successfully the Federal Reserve
System's defensive open market
operations have offset the effects of
the increased volatility of Treasury
deposits can be obtained from

3. In this analysis. the regression equations wereJuly 1967·June 1971: tJ'RS = 393 + 1.18.6TDFR
July 1971-June 1975: tJ'RS

(4.84) (3.47)
454 + .OOflTDFR

(4.78) (11.6)
where flFRS is the monthly change in Federal Reserve holdings of securities and tlTDFR is tbe monthly change in
Treasury deposits at Federal Reserve banks, with the changes in millions of dollars. The figures in parentheses are
t statistics of the regression coefficients.
The Chow Test failed to detect a statistically significant difference between the coefficients of changes in Treasury
deposits at Federal Reserve banks for the two periods at the 9O-percent confidence level.

Business Review I March 1976

STANDARD DEVIATION OF MONTHLY CHANGES IN BASE MONEY AND ITS COMPONENTS
(Chngu In ner.ge monthly leYela. MitUona of dotta rs)
Pallocl

July 1967-June 1971
July 1971-June 1975

'.N

,,.

$60.

$619
1,278

mon.y

93.

TOFR

>CR

MiSe

$35

$238

1,224

$23
79

$258

'OR

FLOAT

CloSOR

COIN

$170

$447

$233

340

40'

296

NOTE: ease money equals FRS, BOR, FLOAT, G-SOR, and COIN I.... TOFR. FOR, and MiSe,
FRS II Federal Re ..,,.. holdings 01 .. cu. iliu, BOR Is mamba. bank borrowlng l, flOAT 'I Fed era' Reaerve 80at G-SOR 's Treuury gold and
Sp acia l Drawi ng Rlg~ts caM ille ate account! at Fed erll Re..rve ba n!ca, a nd COIN Is Tr"aury currency outsta nding Ius Tr.uury currency holdlngl.
TOFR II Trusury d. poalla . t Federal Reserve banks, FOR I, loraign deposU ••1 Feda,al Rale rve ba nlta, and MiSe Is mlsceUaneous lIabHUilil 01
the Feder,l Reserve len ml scall_MlOUI UUIt.

examining the degree of association between variations in Treasury deposits at Federal Reserve
banks and changes in base money.

Both before and after the Trea ~
sury changed its cash man~
agement policy, open market
operations of the Federal
Reserve almost completely
offset the potential impact of
these changes on the money
stock.
Before the Treasury adopted its
new policy, a $1 change in Treasury deposits at Reserve banks
probably generated a change in
base money of 4 cents in the same
direction, on average. But this estimated effect is not significantly
different from zero, which means

4. The regression equations used wereJuly 1967-JW\e 1971: !J.BM = 392
(4.40)

July 1971-June 1975: !J.BM

that it could have been obtained
purely by chance.
After the policy change, the
Federal Reserve continued to be
successful in using defensive operations to offset movements in
Treasury balances at Reserve
banks despite their greater volatility. From 1971 to 1975, a $1
change in Treasury balances at
Reserve banks probably caused a
change in base money of only B
cents in the opposite direction.
But once again, the estimated
effect is not significantly different
from zero.·
In summary, the continued tight
association between changes in
the Federal Reserve's holdings
of Government securities and
changes in Treasury deposits at
Federal Reserve banks, as well as
the continued lack of a significant
association between changes in

these deposits and changes in base
money, indicates that monthly
changes in the money stock have
not been affected to any substantial degree by movements in these
Treasury balances, either before
or after the Treasury's new policy_
Since the Federal Reserve has
successfully offset the increased
potential for variations in money,
the greater volatility of Treasury
balances at Federal Reserve banks
has not significantly interfered
with its ability to hit desired monetary targets_
- William R. McDonough

.04!J.TDFR
(.11)

= 528 + -.08t:.TDFR
(3.85)

(.SO)

where !J.BM is the monthly change in base money and !J.TDFR is the monthly change in Treasury deposits at Federal
Reserve banks, with the changes in millions of dollars. The figures in parentheses are t statistics of the regression
coefficients.
As indicated by t tests on the coefficients of !J.TDFR, the efJect of changes in Treasury deposits at Federal Reserve
banks on base money was not significantly different from zero at the 9O-percent confidence level in either period.
12

Federal Reserve Bank of Dallas
March 1976

Eleventh District Business Highlights
Total credit at District member
banks in 1975, after slowing considerably in 1974, almost regained its
growth rate of recent years. An
analysis of the ch anges in the major
components of total credit,
however, indicates 1975 was an
unusual year for credit at these
banks.
Perhaps t.he most notable development at member banks in the
District last year was a record
GO-percent increase in holdings of
Government securities. The sizable
net acquisition followed three
consecutive years of net reductions.
Relatively high deposit inflows and
a moderate rate of growth in total
loans allowed District banks to
finance a substantial volume of
investments.
Bankers' decisions to concentrate
their investments in Government
securities last year differed from
their actions of other recent years.
A large volume of these securities
was readily available, as the federal
government financed a very large
budget deficit.
A substantial part of the increase
reflected net acquisitions of inter·
mediate·term U.S. Treasury notes.
Falling short·term interest rates
played a part in the increase in
holdings of Treasury notes. Interest
rates on short·term money market
instruments fell faster than on
intermediate·tenn offerings, mak·
ing Treasury notes a more attrac·
tive investment. Acquisitions of
Treasury bills also rose sharply,
however, as member banks sought
to improve their liquidity .
In past years, member banks in
the District generally increased
their holdings of tax·exempt munic·
ipal securities substantially during
periods of weak loan demand. The
net increase in holdings of these

issues in 1975 was somewhat
smaller than usual, possibly
because of the inability of New
York City to honor some of its
maturing securities. State and local
governments in this District
avoided such fiscal difficulties and
reportedly had little trouble in
marketing their securities. New
marketings by municipal govern·
ments in Texas remained about in
line with other recent years.
However, the uncertainty created
by the situation in New York City
undoubtedly affected bank demand
for other municipal obligationB of
state and local governments outside
the District. Most important,
however, banks had less need for
tax.exempt income from municipal
securities in 1975 as they undertook
to maximize after·tax income,
because of loan charge-offs and
other developments.
Bank loans rose substantially less
than usual during both 1974 and

MEMBER BANK CREDIT
70 PERCENT CHANGE - - - - lEND Of YEAR)

50-

LOANS

u.s. GOVERNMENT

SECUAmES

30-

100
- 10

OTHER
SEClJRrTlIES

••;;

, 1970-73 i
AVERAGE

•

•;;
I
197.

I ;;

1975

1975. In 1974, interest rates reached
record highs, and the economy
entered its deepest recession of
recent years. As a result, loans rose
only 2.2 percent at District member
banks in 1974. In 1975, the rate of
increase in inflation slackened,
short· term interest rates moved
downward, and the economy
resumed its upward climb in the
second quarter. Nevertheless, total
loans rose less than in the years
before the recession.
Chemical production and petro·
leum refining, the two largest com·
ponents of the Texas industrial production index, have led the recovery
in output in the state. Since the
cyclical trough in April 1975, out·
put in these two industries has
advanced about three times faster
than the 4·percent increase in the
total index.
In the early months ofrecovery,
increased chemical production
resulted from a rebuilding of stocks
by users. Since then, however,
improvement in the auto industry
has strengthened final demand for
chemicals. The increase in auto pro·
duction has especially spurred
Texas chemical output, since
producers in the state supply a
large share of the basic ingredients
ofsynthetic rubber used in the
manufacturing of automobile tires.
Also aiding the recovery in chemi·
cal production has been the
stepped·up output of textiles and
the improvement in construction .
In addition, production has been
spurred, as chemical producers have
increased their inventories of fin·
ished goods in order to keep sales·
inventory ratios at normal levels.
Petroleum refining, part of whose
output is processed by t he chemical
(Con tinued on back page)

CONDITION STATISTICS OF WEEKLY REPORTING COMMERCIAL BANKS
Eleventh Federal Reserve District
(Thou..1>11 cIoII.ro)

ASSErS
F _.. fundi ooId and Me"riI* IIU'Ch_
..-.de< aor~\s 10 . _
0 _ _. _ <Mc ......I... g ......

Comm..: ... _

i_
.... - .
Agnculhwu 10.... . .c"",lng CCC
ce<lifi~ . . ol lnl .....
lo .... 10
and ClNlero lo<
pu'ch.llng or cal'<ylng
U.S & . ......-1 Me",,","
Oth.. MeUl_
0ItI.. !of,ns lOt purcn.ting.OI' c"'Ylng
US Go ••• n.... nl...:""""
om.. ...CUl''Lon", 10 nono.,,' N... nci.10l.blullon.
5001.. ~nanc •• _.anI! Nn.ncl. '.eIOt •.
.nd Olhet IIU....... c.ect" eomp.ni"
Oth..
Rul • • tale 10.",
lo.n. 10 do",. ." c COmm.. elll bank.
lo.n.'o loreign ban ••
eo""u",, Hl. lllmen, lOan,
lo .... 'o IOt"'gn gOlllm.,.nl •• ollle,,'
Inllilulion •• cen" .. b.n", . • nd ",I"n,'ionll
In"lilull",,"
OIh"lOan.
Tolal in....,ment.

_ro

Tot.1 U 5 Go-emmenl MeW"'"
T". ....., ";I~
Til""", c,"ific.'" 0 ' ,ndebII<I .....
T...
_US 1lO\Iem ...... t
bonG .....'unng
Will'Iin 1
I \'H'105_.
Aile. 5 \,U' .
~_ ot . la'" .nd politic .. '",bdMtionI
T•• w ....... I1 _ _ ....... not .. _ _

feb 18.
191'

J ... 21.
191'

U102.Osa
10.601 .3S0

10 . 1301 . 9~ 1

10. 3oI~ . 0!I.

5.415.465

5.3911.1140

0.896.601

218,010

223.026

222.339

56.601

1.100
371,209

5.023
368,.35

2,"5
399,3<1

164 .159
58 1.501
1,330 .1119
61.064
1.111.9 ••

178.693
55.2.051
1.347,519
74 .305
62.854
,1211.192

194,7111
569,017
1.509.678
08, II I
66.'00
1.109,806

• .699
I .UU811
5,0 21 .902

0 ,716
1.332.930
5.305.576

1.302,066
0.075.712

U39.125
431 .969

1.826. 159
372.52.

1.09 • •721
175,649

281 .• 69
1,061.829
163 .858

301 .615
1.006.410
1'5.550

152.l29
593,1 83
173 .560

.,-

OIn .. IloO"" ••COfPQ..,.lIIocQ. ar>d ..,;uriliel .
eert.tictotet .."....ming P"'Ic:~ I..

19$.380
2.905.209

217.619
2 .9311.651

110.220
2.962.1).<1

.. agency 10_

All 0Ih.. (one""''"'11 corpOrlle 11OCl<1)
C""ilenlf; in pr.,.,.."'~
1'I _ _ _ .... ln F_at FleMr<e a .... k
C,,"ency_coin

" .037
328.151
2. 116122
910.3112
Ill .ln
&63.161
202 .• 11

130512
309.565
1.64Ul09
1.235.592
132.528
.93.733
116.187

12 .OW
295.SlIS
1.111 .1/19
1 160.055
130. 156

BII.",," _ _ ... in Itw Unil~ 5tt.1eI
Bllances _
bIonks In loI"11n_ ....

ODI. . ."",.(inc'IId"'!! '''''HI_in~'''
no\ conaolidaM<l)

TOTAL ASSETS

1.271 .00.

1.111.316

9&' .690

23.32UII n.603, oH

21 ,310,O:HI

'00

sa.l30

1.929.1S95

Feb 111,

LIABILITIES

rooat

"->",•

11,210 .085

d..... no dec><*"

indMd ....... p.u'tne,I/Iii)I, _ COf1)O(.toon.
~ .ubdMloons

".085

_ .... _ ........ ,1ona1 inll,'ution.
Co"""..cllll>lnka

.,c

Cert<!led"'" ortic...· cneckl •
Total I .... Ind .. ';ng.~t.
IndMd ...... tl\I""ef't\'lis)".M CO'j)()t.hon • .
s. ....
ngo
deposit.
!lmed
__
nd po"Ioel! IoUbdNi.......
U.S. Gov .. n"' .... (1nc1"din9 I>OIl.I ..';nool
8f,nk. in t~. Unit.., Sill..
Fo..;gn
Go ••• nm ...... o ll ~I., l n."IUI' on., centrl l
ban",. Ind 1.... 'nlllontl l n .li1~t i on.
eom"'.. c lll ban ...
F"''''''un<ll pu'e~."" Ind Meu,IUI.lOId
unde, :l!,_nllio "p.... eh ...
OH, •• Ii. lilill'O' l)O'fQW'" money
Olh.. l.. bMiH
R..... "'.. on Io.n,
R........ on ....,".ili..
Totll ClP"" .ecounll

St.,...

TOTAt.LIA8IL1TIES. RESERVES . ANI)
CAPtT AL ACCOOHTS

'""

Augull
s.p,.ml)e,
Oe'ol)er
No-e m".,
Oece"'t>e'

Reserve District

1976: J.n~I'Y

C..,.,.. •...,
~

teH'.

8.o1.nc. . WIth ,.."... In 1M Unit..:! Sill. .
a.lanea _ bank,1n
countrlft.
Cas" "..... in procell 01 col tion
Other" ....,••
TOTALASS£TS'
llA8lUTIES ANO CAPlT ..... ACCOUNTS
O...... d cIe9QIIIs '" _ u
OIhef dem.nd depolitt
Timed_ ..,.

To,. ",,,,,sill
Borrowlr>gs
Ot"" M. bollll.e
Total c . ~,. , ac<:<I\jf\l.1
TOT"lliABILInES ANO CAPITAL
ACCOUNTS'
_Ellim.,ed

J on 28.
1916

Dec 31 .
1915

Jan 29
1975

22M3

23.S33

,.'"

,.,.'"

21.6 12
2. 1"
7,067
1.814

, .~

2.077

1.377

I.NI

,.-

1.1101

,. ~

2 .3<~

2.397

1.625
1.136

02.2"

•••190

37.a::ro

1,8110
13.1 57
18,809

2 .555

1(.139
"' .581

19.112
1 •. 324

18,337
5,600

3.604 .517
2( .052
708.800
195.329
2' .770
I.S09.9111

3.~ 1 .396

2,6 ••• 275

20.207
673,622
209.127
24.061
1.533.831

603.391
200,719
21 ,301
1"" .1180

3.9511
65 . ~5J

".' "

n~.'"!1~ 21 .310.026

..,00

IS. I09

,.'"

12.07'
11.0 13

33.&&6
3 ,8601
1.101
2.181

36,059
3 ,sal
1.768
2.782

30.79'5

.2.2. .

'.,190

31.820

,....
,2.795

DEMANO OEPOSITS

"'dJUS'''''

10.20 7
14,106
14,3.U
14.501
10,5"
,",, 7.8
10, 725
15,072
1$ ,'18
1~ .1 36

11 .436

,""II'

CONDITION STATISTICS OF ALL MEMBER BANKS

3.512

11 2.006
8,620.213
1.:1<l1.106
7. " 9,'117
0,669.292
2,465.331
"' .5 10
2211.031

23.321.111

10.21&
10 .353
10.205
lO.3.g
10.572
10 .3 10
10,535
10.6ge
10,7' 5
10,808
10.752
10.947
11 .217

14,384
,",,180
13,856

"'PlII

Ott.' ...:tII;6es
R _ WI'" F_.. 1 ' 1 _ 8.ank

2.977
61.614
101.31&
9 ,016.7115
1.• 36.7110
7,58(1,005
'.893.7SO
2.160.S83
11.301
.16,931

E leventh Federal Reserve District

Jun.

ASSETS
LOIIn •• nd doscounll. g'OM
U 5 <;o..~1 obIig.hOnt

2.788
82 .208
"'2.781
9. 123 ,381
1.510 .213
1.S09,166
•. 785.881
2 ,265.109
11,"5
.sa.OOl

~.31 .S03

0.,.

,,-

7.519 •• 95
U64,891
.79.9811
82.617
1.410.015

DEMAND AND TIME DEPOSITS OF MEMBER BANKS

197. J an". "
1975; Janu • ..,
Fe bfu.'Y
Mlfeh

E leven th Federal

U03.92e

7.719.'"
5,595.726
'40. 100
143.131
1.368.:;50

14~.868

8f,"';" 1~' UnIt.., SIll"
for.'
G".. .. nmenll. OIl>CIeI inIl~"'5on •. cenU I!

20,S02

16.736.203 16.1:H1.1611

' .001.104
5 .7)11.639
392.'15

51""
_
US ao. .."..,_

Feb 19.
11115

.Mn 21.
1976

1976

Ot~

woy".,...

relf

1.652.S37

Feb 19.
1975

Other lhln I~OM 01 US Go-. 'n .... nl
~_ in Plac . . . 01 COlleCtion

TIME OEPOSITS

G_n",en'

Totll

s.·'''1IS

'"'"
'"
'"
".'"'M

14.533
16,802
11.052
11.\ 11
17.196
17.303
17.270
17.315
17.05.2
17.563
17.115
19.031
16.249
18.55e

'''''

,'N
'"
'"

3.019
3,12'
3.226
3.3.25
3.3411
3 .• 10
3 .• 80
3.093
3.513
3.661

,.""

3.689
3,817

'"' aornHlic co"""..c,aI blinks.

,.,.. elSh

RESERVE POSITIONS OF MEMBER BANKS
Eleventh Federal Reserve D ist rict
( ........ oIlIa;fy

Total

'ese'_

19f'" ThoUIand do....)

held
W j l ~ F _.. I R...... e"""
C"".ncy_eON1

R~I.ed

'eM"""

E.CUI'..."'''

eo'fOW,ng'
F' ... ' ........

5 week."-

..,.._t<I

o ..

FIC> • . 1916

Dec 31.1875

5 ..... ~I.nGe<I
F.b 5. 11115

2. 121,i94
1.737,055
384.939

2.083.203
1.715.211
3n.986
2,072.0.2
20.161
0.8117
15.89.

2.062.531
1.701 ,048
381,"113
2.036,119
26.352
22.578
3 .110

i!.113.~
.~

7,5"
,~

BANK DEBITS, END-Of- MONTH DEPOSITS, AND DEPOSIT TURNOVER
SMSA's in Eleventh Federal Reserve District
(00II., .",ounn in IhouuMi. "_"'!If'~)
DEelTS TO DEMAND DEPOSIT ACCO\..foITS'

...

... RIZON .... Tuc_
LOIJISIANA. M"",...

'"-

AmarillO

a........""I·PorI Ar1I1ut.Or...
B'own .... in...-t.,Unv-n-s...
B'Y...-CoI.SIIII""

n"o

Co'puICh'1$1l

CO, .. c....'
o.n ••
EI P ....
Fori WorI~
G,'VflIOn-h . .. Coiy
I-Io.... ton
KII_Templfl
UI,..:JO

,.,.-

MC"'llen .p~."·Ed Irtbu'g
Midi.""

Son ..... ,onio

5I1.. ",.n~.nl"'''
T........... (T......"'I<.In...)

T",aI-3OcenI••

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-.-"•

-,""
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,,.

-"•

-,
",,
,
-,
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•

$842.022.584

oIlndividu11f;. p_~ . _

.
.•

-,,

2.006.2~

Wlchltil F_

-.,• -.""'""
•

2.511 ._
' .4S5.S34
6.6SS.534
4.8611.742

"~
1915

11.141.!ioII6
5.518.216
8.920.561
5,815.574
4.307,'64
35.&a..384

........... ,.te 01 Unov.

tNI"9' from

'975

V
. &8.678

Lubboc~

-"'

~cenl
~

s.29.124._
7.909.511
16."2.416
1.597.152
5.321.50'
12.ro..l11\
30,599.292
12,446.238
5,319.900
2.223.600
1:\.452.445
838.194
2 42,785.669
14,&36.291
46,284.032
5,345.S04
297 .934 .232
3,360.689

NEW .... E;t.co · AoIw ..,
TOAS Abi_
Auliin

...

"" ,
...........
1916

(

Sl....s.td "*roPOli......

OEMA.NO DEPOSITS'

"~
1916

J ... 31.
11176

m'.4'1

1975

'"
'"
'"
".
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."

14 .2
57.5

'31.110
l!7.593
51.718
151,_
273.327
503.450
371 .0 14
140.0&3
10,1163
348.759
45.487
3.320,10&
352,323
1.078.184
155,783
4.502 ,1 8 1
138.&62
8 1,355
254,413
187,935
248.&94
150.880
109.1 61
954.W4
88.5<11
98,251
UI3.176
171.873
18 1. 146

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31.8

433

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33 .3

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30.5
40.2
17.9

."
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31 .5

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$15.101 .m

corp..-. _ _ oIl1a1es_ POI,b(;.Ol~l

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39 ,3
25.5

1975

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28.2

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§.

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42 ,8

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285

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CONDITION Of THE FEDERAL RESERVE BANK DF DALLAS
(Tho...M "Oll.r.)

BUILDING PERMITS
Feb 25.

1~ 76

T01.1 gOld Cer1~ic.t. ' ........
Lo.n. to ..... mlle< o.nk.
Otn..-loan.
F",,,.I ag ... cy obllOlllont
US ao...ernmem lIC~'It'"
TDlIl ..,nlng • ...,.
M.... t.r bonk ' ... dopoai'F"'eral roM"" not" In .CI....1
cl'c .... " lon

FeO 26,

1016

1915

422.062
10.270

422,062
10,000

46(,1098
12,&00

322.594
4,.59.739
4 ,79UC>3
1.125.204

322.6-63
4.383.904
4.11S.SS7
1.919.265

214,277
3.698,409
3.925.286
1.884.320

2.i33.999

2."'.m

2.615 .229

rv.

Jan 21

V... LU ...TION (Doll., amounl,ln Ihou..ndlj

,
NM

.,, ~~

... tIiI_

.........,
"'Ullin

... ,.. _rypo

AVE SOUTt;WESTERN
STATES'
R"~"""Idi"9
~n" aI

build"""
_ ull""'9 conltrUO;l1Oo1
UN.TEO STATES
Res."n!'" -"'9
Non ... odent"IO"'I"rn~
NonOurld,"9 con,,,ue,,on
I

.
..,,,
"'"

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2.157

''''

2,294

1975

'"
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,.'"
5.431

, .~

""'lO<1'.LOul...... , Ne... "elieo. Olo.l.hom., .nd TulS

,-Rav;M<!

NOTE : Oe"IIs "'.~ nOt ' ''d to 101.,. boc ...... 01 ,,,,,,,ding
SOURCE ' F. W Ood~. McG' ....·Hili. Inc

1915

'"
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m
'"
,,.'"
'"

5.573

,.~

e""""5ViIIfI

-.
.......
.......
w_

Corpout CI1'il~

1915<
,~

'"
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5 .128
~

2.326

191 &
,~

LOUISIANA

........ iIk>

(MilloQn CIDII.,,)

J.".,.'Y

J. n~

.. y

1916

ARIZONA

W"''''_
5I1,_pon
TEX ... S

VALUE OF CONSTRUCnON CONTRACTS

Pe,cl nt c~.noe
January 1916 t,om

NUMBER

E. PIItQ
FonW...",
a_on

"'-,
.......

'"
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,~

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1.812

Midlond

PonArt~

...

Son "no'1o
Son AnIOnio
511 ... ",...

T•• lrk ....

• •ro

Woe"'l. Fit"
Totll-26c~I"

'"
1079

"'"
1.179

'-'"
3.201
,.=
11.213
2 •• 18
3 . 141

'.=

18.903

'"
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,.=

11.1&3
5.2M
50.151
1.318
6 .798

.....,,,""

1.070
11 .038

'"
,1153,613

O&Cemt>e<

J.nu .....

1975

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-52'"

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LABOR FORCE, EMPLOYMENT, AND UNEMPLOYMENT

INDUSTRIAL PRODUCTION AND TEXAS
MANUFACTURING CAPACITY UTIUZATION

Five Southwestern States'

(Seuonalty 8djust.,;lI""..... 1961 _ 100 101 Jl<ocIuction)

(Seasonally adiuslad)
Al" and type 01 I""..

TEXAS
Tote! inclusl1l., Jl<oduc~on
"' .... ulllClu.,"II

""-

Nondu,.1)Ie

UliHtios
Capec ify ulilizatior1
it! fNlnufllC W.itlg (1 972 _ 100)
UNITEO STATES
Toc.I indu.~ production
"'... u' lICturi"ll
OU......
Norni;.aOlf
~ .~

UlilillM
~r ell mlnary

'""

18761>

~
197~

"~
1915

... ,."..... """,,,. .
."

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131t
1338
105 3

1 2~

127 (
13( 0

131 7

133.3
106.6

,1076
~.

1183
1 16 2

13 10
, ~,

, ~,

117(
116 (
1078

116.5
117.

'""
,m
""
'M'

,"",
106.0

. _ ~ I.., d

SOU RCES : 60IIrd of Gov .. nOlI 01 ' ''' F- .. , R........ 5)'$' _
F""'.al Rasa .... Ban ~ 01 0 .11. .

1975

125 I
1281
, ~,

1271
111 2
1675

1137
111 8

,."
117 2
1010
1521

CMlian la1>Ol !orc.
TOIII emplOymen'

T 01I1u""mplO~ """'1

unemplOym...c tate
TO,., nonag"cuttu .... "'89"
and ""ary ernl)lOymerl!
Manulaclu.itIg

Du.a"

Nond",.ble
NOnmanu!ac!unng
Mining
Const. uction
T•• nspOl,.' ..... and
pU blic utili!ie.

,,-

Finance
Service
GOVM..... en'

Pe""",l Ch.ng.
Jln 19761fom

TllOusands of peI' tonl

'""

1975

"'"

19750-

9 .3&0 (
6 .777 3

9.307.8
8.680 4
62 7.4

9.3791
8.8192

1.616.3
1.276.6
713 .1

7.666 0
1.2"90.6
728.1

19761>

7.7S1! (
1.285.5
11(.5
571 0
6.' 70.t
273.0
5\( .2
~,

1.861 I
42 7.7
1.32 77
1.56<1 3

'M'

"'"

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-""

1915

' - .3

'",,
....," ,

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-, 'M'" "
""
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~,

6.399 7

6. 37~

495 8
1.836.5
(24 3
1.327 6
1. ~ !;( 1

1.6156
(205
1.301.
1.523 0

, Aritonl. LOOisi.na. Ne.. "'exico. OO.homa. and Tua.

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,
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1915

.
".

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2 Ac'ual ch."9"
~- P.e!i""' .ry

. _ I\ev;aed

NOTE: 0 e! .11~ m.y no! add 10 totals bec..- 01 rounding
SOURCES ' S !a" . :'ff,lOymen! "IIene..1
F..,.,., ......... BaIlk 01 0.1181 (seaoonll.di ....tmenl)

industry, usually moves with chemical production. And this relationship has been clearly demonstrated
over the past year. Since the upturn
in chemical production last spring,
capacity utilization at refineries on
the Texas Gulf Coast has risen from
88 percent to 94 percent.
Petroleum refineries have also
stepped up operations to meet
increased demand for gasoline.
Gasoline consumption, nationwide,
is running 5 percent ahead of the
pace a year ago. Increased new car
sales and lower prices at the gas
pumps, due in large part to the
suspension of the $2 a barrel import
duty, have fueled demand.
Production from the state's aging
oil fields has not kept pace with
demand for petroleum feedstocks
and domestic fuel requirements. In
fact, crude oil mining in the st ate
has declined 4 percent since April
1975. And this has necessitated
refining more imported oil to meet
growing domestic demand.
Other highlights:
• The labor market in the five
southwestern states continued to
improve in January, as the unemployment rate fell to 6.4 percent
from 6.7 percent in December. The
jobless rate was a full percentage

point below the cyclical peak in
May 1975.
Employment in the manufacturing sector continued to recover
strongly. Much of the latest gain
centered in nondurable goods production. Construction employment,
seasonally adjusted, rose 5 percent
in January.
• The steady decrease in construction spending in T exas during the
last half of 1975 is slowing. The
value of building contracts in the
state in January, seasonally
adjusted, was virtually unchanged
from a month before. That followed
six consecutive months of decline.
The source of last year's construction slump, nonresidentia l and
nonbuilding activity, has shown few
signs of improvement. But residential construction continues to
increase and is now offsetting the
weakness in the other sectors. For
example, the value of residential
contracts in January 1976 was over
50 percent higher than the level a
year before.
• Broiler supplies should be plentiful this spring, as higher prices and
lower feed costs have stimulated
broiler production since mid-1975.
The number of chicks placed on
feed in Texas in February was
ahout a fifth higher than a year ear-

lier. Total placements for the
nation, on the other hand, were up
only 5 percent.
• The recession slowed the rate of
industrial expansion in Texas in
1975. The number of new plants
constructed in the state fell to 192,
down from 293 in 1974. Meanwhile,
the number of plant expansions fell
to 287 from 330 a year earlier.
By area, Dallas-Ft. Worth led the
state in industrial expansion, followed by Houston, Longview, and
San Antonio. By industry, nonelectrical machinery manufacturers
paced the expansion. Manufacturers of fabricated metal products,
chemicals and allied products, and
food and kindred products also
increased capacity.

Full text of Review (Federal Reserve Bank of Dallas) : March 1976

FRASER