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Banking & Finance AN EIGHTH DISTRICT PERSPECTIVE Winter 1984 1983: A Year Of Recovery And Deregulation For banks in the Eighth Federal Reserve District, 1983 was a year of economic recovery and financial deregula tion. The economic recovery that began in December 1982 spurred faster growth of loans. The introduction of money market deposit accounts (MMDAs) in December 1982 and Super NOW accounts the following month enabled banks to compete with unregulated financial intermediaries, which led to important shifts in bank deposits. Although the forces of recovery and deregula tion have affected all Eighth District banks, their impacts have varied across the District and in banks of different sizes. Loan Growth Somewhat Faster but More Disparate in 1983 Total loans at Eighth District banks increased 8 percent in 1983, compared with 7 percent in 1982. Loan growth in the three regions of the Eighth District also became more disparate. Total loan growth actually declined in Region 1 (eastern Missouri and southern Illinois), from 4.3 percent to 2.0 percent, while increasing from 10 percent to 12.6 percent in Region 2 (Arkansas, northern Mississippi and western Tennessee) and from 7 percent to about 11 percent in Region 3 (western Kentucky and southern Indiana). Thus, the slower growth in Region 1 partially offset the rapid growth in loan portfolios in the other two regions. Region 1's slower growth was due primarily to a decline of over 7 percent in the loan portfolios of large banks (assets ex ceeding $750 million) in that region. Small banks in the Eighth District (assets under $750 million) increased their total loans faster them large banks in 1983. As shown in the table, small District banks in creased total loans 9.7 percent, compared with 6.3 percent for large District banks. This same pattern, which was followed throughout the nation as a whole, is explain ed primarily by a more rapid increase in com mercial and industrial loans at small banks. Nationally, these loans increased 9.2 percent at small banks in 1983, compared with 1.5 percent at large banks. Loan Growth 1982 1983 Total loans (all banks) U.S. District 8.3% U.S. District 8.1% 7.9% 6.9% Small banks 11.2 9.7 8.4 6.8 Large banks 5.1 6.3 7.4 7.1 Loan categories (large banks) Commercial and industrial loans 1.5% 2.7 % 12.0% 11.6% Consumer loans 13.2 22.7 0.7 -3 .5 Real estate loans 6.6 8.3 6.0 3.3 Although loan growth at large Eighth District banks was slower than at small banks, it was faster than the average for large U.S. banks. In contrast, the loans of large District banks grew slightly below the average rate of large U.S. banks in 1982. The table on this page indicates that the better performance of the Eighth District banks was spread across all three THE major loan categories (commercial and in FEDERAL RESERVE dustrial loans, consumer loans, and real RANK of estate loans). This difference in perfor ST. LOLLS mance was most pronounced in the case of consumer loans, which increased about 10 WINTER 1984 FEDERAL RESERVE BANK OF ST. LOUIS Commercial and Industrial Loan Growth During Recoveries (large banks nationwide) Business Cycle Trough 2/1961 11/1970 3/1975 7/1980 11/1982 Subsequent 12-month growth rate 2.5% 3.0 -11.4 14.7 1.5 percentage points faster than the national average. The current economic recovery has been described as “ con sumer led.” The strength of consumer spending during this recovery is reflected in the rapid growth of consumer loans at large banks. In contrast, consumer loans rose a scant 0.7 percent nationwide during the recession year 1982 and actually declined 3.5 percent in the Eighth District. In the case of large banks, the contribution of consumer loans to the growth of total loans in 1983 was more than offset by the sharp slowing in the growth of commercial and industrial loans. Consequently, total loans at large banks grew more slowly in 1983 than in 1982, both na tionwide and in the Eighth District. Just the reverse was true of small banks, at which commercial and industrial loans grew at approximately the same rates in both years. The sharp drop in the growth rates of commmercial and industrial loans at large banks does not necessarily mean that business borrowing slowed in 1983. Business bor rows both short- and long-term. Commercial and in dustrial loans are short-term borrowing; consequently, changes in the growth of these loans maybe due to changes in the mix between short- and long-term business borrowing. As shown in the table above, the growth of commercial and industrial loans at large banks nation wide has varied considerably over the last five economic recoveries. Research by this Bank attributed the sharp, unusual decline in commercial and industrial loans during the recovery beginning in 1975 to increased long-term business financing. This occurred again during the first three quarters of 1983, as business raised a much higher portion of funds with equity and long-term debt than it did in 1982. Deregulation Brings Deposit Shifts Banks and thrift institutions began offering M M DAs in December 1982 and Super NOW accounts in the following month. Free of interest rate ceilings, the new deposits allowed banks and thrifts to compete for funds on an equal basis with unregulated financial institutions, such as money market mutual funds (MMMFs). These ac counts were popular both nationwide and in the Eighth District. At the end of 1983, MMDAs nationwide stood at about $372 billion and Super NOWs at about $37 billion. Some of the new deposits apparently were transferred from MMMFs, which declined by more than $40 billion during 1983; however, the majority came from other types of deposits at banks and thrift institutions. The result was a shift in deposit composition at these institutions. The table below shows how the deposit composition of Eighth District banks changed in 1983. In December 1982, M M DAs accounted for 2 percent of large bank deposits and about 1 percent of small bank deposits. By December 1983, the shares of MMDAs and Super NOW accounts combined had risen to 14 percent at large banks Deposit Composition at Eighth District Banks Large banks 12/83 MMDAs Super NOWs Savings deposits (other than MMDAs) Transaction deposits (other than Super NOWs) Time deposits TOTAL DEPOSITS 11.4% 2.5 12/82 2.0% — Small banks 12/83 12.4% 3.6 1.1% — 5.6 6.6 8.1 10.8 38.5 42.1 41.0 50.5 24.4 51.4 28.5 59.7 100% 100% 100% 100% and 16 percent at small banks. At both large and small banks, the proportions of total deposits in savings deposits (other than MMDAs), transaction deposits (other than Super NOW accounts), and time deposits declined in 1983. The total deposits of large Eighth District banks grew only 5.6 percent in 1983, while the total deposits of small Eighth District banks grew 13.5 percent. Total deposit growth in both groups of banks was less than the increase in the percentage shares of M M DAs and Super NOW accounts. Consequently, the actual dollar balances of these other deposits, as well as their percentage shares, declined in 1983. —Donald M. Brown Banking & Finance—An Eighth District Perspective is a quarterly summary of banking and finance conditions in the area served by the Federal Reserve Bank of St. Louis. Single subscriptions are available free of charge by writing: Research and Public Information Depart ment, Federal Reserve Bank of St. Louis, P.O. Box 442, St. Louis, Missouri 63166. Views ex pressed are not necessarily official positions of the Federal Reserve System. 12/82 WINTER 1984 FEDERAL RESERVE BANK OF ST. LOUIS EIGHTH DISTRICT BANKING DATA DISTRICT Selected Assets (billions of dollars) Total Loans1 Commercial and Industrial2 Consumer2 Real Estate2 Total Investments1 Selected Liabilities1 (billions of dollars) Total Deposits Transaction Accounts Savings Deposits MMDAs Time Deposits Selected Interest Rates3 Super NOW Accounts St. Louis Little Rock Memphis Louisville MMDAs St. Louis Little Rock Memphis Louisville Percent Change Same Period 1983 Nov. 1983 Dec. 1983 Jan .1984* Year-to-Date 1984 $21.87 4.26 2.04 2.13 11.44 $22.13 4.23 2.11 2.17 11.61 $23.44 4.11 2.22 2.24 11.27 5.9% -2.8 5.2 3.2 -3.0 0.4% 1.5 1.7 1.0 2.5 $33.40 10.94 6.49 4.05 15.97 $34.15 11.31 6.51 4.11 16.33 $35.21 12.06 6.55 4.14 16.60 3.1% 6.7 0.6 0.7 1.6 3.2% 3.5 40.7 291.0 -4.0 Nov. 1983 Dec. 1983 Jan .1984 7.21% 7.32 7.37 7.39 7.20% 7.35 7.31 7.45 7.12% 7.38 7.47 7.35 8.27 8.50 8.18 8.31 8.21 8.56 8.21 8.39 8.09 8.56 8.38 8.34 REGION I (eastern Missouri and southern Illinois) Selected Assets1 (billions of dollars) Total Loans Total Investments Selected Liabilities1 (billions of dollars) Total Deposits Transaction Accounts Savings Deposits MMDAs Time Deposits Percent Change Same Period Year-to-Date 1984 1983 Nov. 1983 Dec. 1983 Jan .1984* $ 7.97 4.71 $ 8.10 4.80 $ 8.39 4.63 3.6% -3.6 -0.9% 2.1 $12.86 4.13 2.18 1.14 6.55 $13.12 4.24 2.20 1.17 6.67 $13.66 4.55 2.24 1.20 6.86 4.1% 7.3 1.8 2.6 2.8 1.6% 2.2 26.0 262.8 -3 .3 3 EIGHTH DISTRICT BANKING DATA REGION II Selected Assets1 (billions of dollars) Total Loans Total Investments Selected Liabilities1 (billions of dollars) Total Deposits Transaction Accounts Savings Deposits MMDAs Time Deposits (Arkansas, northern Mississippi, western Tennessee) ______Percent Change Year-to-Date Same Period Nov. 1983 J an .1984* 1984 Dec. 1983 1983 $ 7.59 3.86 $ 7.66 3.90 $ 7.92 3.76 3.4% -3.6 1.5% 2.5 $11.75 4.01 2.65 1.87 5.08 $11.90 4.15 2.63 1.87 5.12 $12.24 4.42 2.63 1.87 5.19 2.9% 6.5 4.1% 5.2 57.0 313.5 -7.3 0.0 0.0 1.4 REGION III (western Kentucky and southern Indiana) Selected Assets1 (billions of dollars) Total Loans Total Investments $ 6.31 2.87 $ 6.37 2.91 $ 7.12 2.88 11.7% -1.2 0.9% 3.1 Selected Liabilities1 (billions of dollars) Total Deposits Transaction Accounts Savings Deposits MMDAs Time Deposits $ 8.79 2.79 1.66 1.04 4.34 $ 9.13 2.91 1.68 1.07 4.53 $ 9.31 3.09 1.68 1.07 4.55 2.0% 6.2 4.6% 2.9 42.0 282.7 -1.0 NOTE: Data are not seasonally adjusted. * Three-week estimates ' A sample of weekly reporting member banks 2 Large weekly reporting member banks 3 Most common interest rate paid by a sample of banks as of the last week of each month 0.0 0.0 0.3
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