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Annual
Statement
for
1965
FEDERAL RESERVE BANK OF DALLAS
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
FEDERAL RESERVE BANK
OF DALLAS
To the Member Banks in the
Eleventh Federal Reserve District:
The Statement of Condition and the earnings and expenses of the
Federal Reserve Bank of Dallas for the year 1965, with comparative
figures for 1964, are shown herein. Lists of the directors and officers of
the Bank and its branches as of January 1, 1966, are also included.
A review of economic and financial developments in the Nation
and the District during 1965 is being presented in the January 1966
Annual Report Issue of the Business Review of this Bank.
Additional copies of these publications may be obtained upon request
to the Research Department, Federal Reserve Bank of Dallas, 400 South
Akard Street (mailing address: Station K, Dallas, Texas 75222).
Sincerely yours,
WATROUS
President
H.
IRONS
Statement of Condition
Dec. 31, 1965
Dec. 31, 1964
$ 367,907,289
ASSETS
Gold certificate accou nt .
.
Redemption fund for Federal Reserve notes
Total gold certificate reserves. . .
Federal Reserve notes of other Banks.
Other cash. . . . .
.
Discounts and advances
U.S. Government securities:
Bills.... . .
.
.
Certificates
Notes
Bonds..
.
.
.
56,691,801
$ 647,555,676
51,174,531
.
.
.
.
424,599,090
47,262,200
6,546,798
22,024,000
698,730,207
31,003,050
4,203,532
21,810,000
374,626,000
225,598,000
1,022,083,000
269,636,000
940,099,000
196,865,000
1,666,345,000
1,362,562,000
1,688,369,000
464,980,479
10,513,931
49,104,064
1,384,372,000
489,178,791
11,202,982
26,403,980
2,691,375,562
2,645,094,542
1,193,940,804
1,088,625,921
1,034,443,622
21,204,504
8,700,000
5,970,581
1,050,702,507
47,510,309
12,540,000
4,922,766
.
1,070,318,707
355,703,182
7,476,769
1,115,675,582
345,011,129
34,610,610
.
2,627,439,462
2,583,923,242
31,968,050
31,968,050
30,585,650
30,585,650
.
.
.
.
.
Total U.S. Government securities.
Total loans and securities.
Cash items in process of collection.
Bank premises .
Other assets
.
TOTAL ASSETS
.
LIABILITIES
Federal Reserve notes in actual circulation
Deposits:
Member bank - reserve accounts.
U.S. Treasurer - general account
Foreign. .
............
.
Other
..
.
.
.
.
.
Total deposits
Deferred availability cash items
Other liabilities
.
.
TOTAL LIABILITIES
CAPITAL ACCOUNTS
Capital paid in.
Surplus ..
TOTAL CAPITAL ACCOUNTS
...... ....... ..
TOTAL LIABILITIES AND CAPITAL ACCOUNTS
63,936,100
61,171,300
$2,691,375,562
$2,645,094,542
Earnings and Expenses
1964
1965
CURRENT EARNINGS
Discounts and advances ...
$ 1,062,969
U.S. Government securities.
62,144,870
51,185,796
809,956
363,107
Foreign currencies
.
All other
.
$
965,397
31,407
24,917
64,049,202
52,539,217
.
9,991,494
9,569,964
.
501,096
498,300
1,153,992
758,624
TOTAL CURRENT EARNINGS
.
CURRENT EXPENSES
Current operating expenses. . . . . . . . .
.
Assessment for expenses of Board of Governors.
.
Federal Reserve currency:
Original cost, including shipping charges .....
Cost of redemption, including shipping charges.
Total. . .
.
.
Less reimbursement for certain fiscal agency
.
.
and other expenses.
48,538
43,806
11,695,120
10,870,694
840,387
828,499
10,854,733
10,042,195
. 53,194,469
42,497,022
NET EXPENSES
PROFIT AND LOSS
Current net earnings
Additions to current net earnings:
Profit on sales of U.S. Government securities (net)
.
24,030
All other
Total additions . . . . . . . . . . . . . . . .
.
.
71,537
16,458
.
71,537
40,488
Deductions from current net earnings:
Loss on sales of U.S. Government securities (net).
.
All other
Total deductions
.
329
.
49,113
.
10,588
22,095
29,900
. 53,216,564
42,526,922
Net additions
Net earnings before payments to U.S. Treasury.
Dividends paid
..... ............... ...
Payments to U.S. Treasury (interest on F.R. notes).
Transferred to surplus.
Surplus, January 1.
Surplus, December 31 .
.
.
.
. . . . . . . ..
.
. .. ..
.
.
.
.
10,588
49,442
.
.
.
1,891,621
1,797,729
49,942,543
66,913,343
1,382,400
-26,184,150
30,585,650
56,769,800
31,968,050
30,585,650
Directors
FEDERAL RESERVE BANK OF DALLAS
(Chairman and Federal Reserve Agent), Senior Vice President, Texas Instruments
CARL J. THOMSEN
Incorporated, Dallas, Texas
(Deputy Chairman), Chairman of the Board, Foley's, Houston, Texas
MAX LEVINE
D. A. HULCY
MURRAY KYGER
J. EDD McLAUGHLIN
J. B. PERRY, JR.
KENNETH S. PITZER
RALPH A. PORTER
H. B. ZACHRY
Chairman of the Board, Lone Star Gas Company, Dallas, Texas
Chairman of the Board, The First National Bank of Fort Worth, Fort Worth, Texas
President, Security State Bank & Trust Company, Ralls, Texas
President and General Manager, Perry Brothers, Inc., Lufkin, Texas
President and Professor of Chemistry, Rice University, Houston, Texas
President, The State National Bank of Denison, Denison, Texas
Chairman of the Board, H. B. Zachry Company, San Antonio, Texas
EL PASO BRANCH
GoRDON W. FOSTER
ROBERT W. HEYER
ROBERT F. LOCKHART
C. ROBERT McNALLY, JR.
JOSEPH M. RAy
DICK ROGERS
JOE B. SISLER
Chairman of the Board, Shop Rite Foods, Inc., EI Paso, Texas
President, Southern Arizona Bank & Trust Company, Tucson, Arizona
Vice President, The State National Bank of EI Paso, El Paso, Texas
Rancher, Roswell, New Mexico
President, Texas Western College, EI Paso, Texas
President, First National Bank in Alpine, Alpine, Texas
President, The Clovis National Bank, Clovis, New Mexico
HOUSTON BRANCH
DONALD B. CAMPBELL
HENRY B. CLAY
J. A. ELKINS, JR.
JOHN E. GRAY
EDGAR H. HUDGINS
A. G. McNEESE, JR.
GEO. T. MORSE, JR.
Works Manager, Sabine River Works, E. I. du Pont de Nemours & Company, Orange, Texas
President, First Bank & Trust, Bryan, Texas
Chairman of the Board, First City National Bank of Houston, Houston, Texas
President, First Security National Bank of Beaumont, Beaumont, Texas
Ranching - Partner in Hudgins Division of 1. D. Hudgins, Hungerford, Texas
President, Bank of the Southwest National Association, Houston, Houston, Texas
President and General Manager, Peden Iron & Steel Company, Houston, Texas
SAN ANTONIO BRANCH
President, Corpus Christi Bank and Trust, Corpus Christi, Texas
President and General Manager, Union Stock Yards San Antonio, San Antonio, Texas
Independent Oil Operator, San Antonio, Texas
President, The Laredo National Bank, Laredo, Texas
Chairman of Department of General Business and Professor of Business Administration,
The University of Texas, Austin, Texas
President, National Bank of Commerce of San Antonio, San Antonio, Texas
Chairman of the Board and President, State Bank and Trust Company, San Marcos, Texas
JAMES T. DENTON, JR.
G. C. HAGELSTEIN
HAROLD D. HERNDON
MAX A. MANDEL
FRANCIS B. MAY
FORREST M. SMITH
J. R. THORNTON
FEDERAL ADVISORY COUNCIL MEMBER
ROBERT H. STEWART, ill
I
Chairman of the Board, First National Bank in Dallas, Dallas, Texas
Officers
FEDERAL RESERVE BANK OF DALLAS
WATROUS
E.
P.
Roy
E.
JAMES
BOHNE,
H.
COLDWELL,
IRONS,
President
First Vice President
Vice President
ROBERT
L. CAUTHEN, Vice President
H. BOYKIN, Assistant Vice President
and Assistant Secretary of the Board
J. Z.
1. L. CoOK, Vice President
CARL
H.
MOORE,
JAMES
Vice President
RALPH T. GREEN,
JAMES
A.
PARKER,
T. W. PLANT,
FREDRIC W. REED,
Vice President
THOMAS
R.
SULLIVAN,
ARTHUR
H.
LANG,
TONY J. SALVAGGIO,
Assistant Vice President
THAXTON, JR.,
Assistant Vice President
W. VORLOP, JR.,
Assistant Vice President
E.
SIDNEY J. ALEXANDER, JR.,
Assistant Cashier
ROBERT A. BROWN,
Assistant Cashier
RICHARD D. INGRAM,
Vice President
lfARRy
General Auditor
GEORGE F. RUDY,
Chief Examiner
E. A.
Vice President and Cashier
Vice President
RUSSELL,
Assistant Vice President
Vice President
W. M. PRITCHETT,
O.
Director of Research
LEON W. COWAN,
Vice President
G. R. MURFF, Vice President and
Secretary of the Board
ROWE,
E.
ROBINSON, JR.,
JESSE
General Counsel
D.
SANDERS,
GEORGE C. COCHRAN,
Assistant Cashier
Assistant Cashier
Assistant Cashier
III, Assistant Counsel
EL PASO BRANCH
FREDRIC W. REED,
T. C. ARNOLD,
Vice President in Charge
Cashier
COLEMAN,
Assistant Cashier
RASCO R. STORY,
Assistant Cashier
FREDERICK J. SCHMID,
Assistant Cashier
FORREST
E.
HOUSTON BRANCH
J.
L. COOK, Vice President in Charge
B. J. TRoy, Cashier
Roy
E.
MALEY,
Assistant Cashier
SAN ANTONIO BRANCH
CARL
H.
MOORE,
A. E.
ALVIN
E.
RUSSELL,
Assistant Cashier
Vice President in Charge
MUNDT,
Cashier
business
•
revIew
january 1966
FEDERAL RESERVE
BANK OF DALLAS
Annual Report Issue
contents
strong expansion in 1965
economic developments
4
financial developments
7
balance of payments
12
district situation . . . . . . . . . . . . . . . . . . . . . . . . . . .. 14
strong expansion
in 1965
The Nation's economy maintained a
strong expansionary stance in 1965, propelled to successive new highs by increased
demands in most major markets. The character of the expansion changed somewhat
as the year progressed. While the upward
climb was rather uneven in the first half of
the year, the pace of the advance became
more uniform in the last 6 months since
the effects of work stoppages - actual and
threatened - in a number of key industries
began to wane.
In addition, the early-season concern
over a possible slowing of the business upturn in the second half was replaced by a
threat of inflation late in the year. A number of basic industries operated at or near
capacity, skilled labor became harder to
find, delivery schedules lengthened, and
order backlogs rose. The closer approach
to capacity usage of resources, both human
and material, brought a new set of challenges to the economic scene and cast in a
new light some long-standing problems
associated with the underutilization of
resources.
• Changes in the gross national product
reflected economic developments last year.
The value of final goods and services produced in the Nation during 1965 totaled
approximately $675 billion, or 7.5 percent
higher than a year earlier - a gain that
somewhat exceeded the performance of the
economy in 1964. The private sectors of
the economy provided the main upward
thrust of demand, with personal consump-
tion outlays and private domestic investment accounting for almost nine-tentps of
the increase. State and local government
spending remained on an uptrend, while
Federal expenditures began to move ahead
at an accelerating rate in the last half of the
year, reflecting the growing U.S. commitment in Viet-Nam. Although the volume
of U.S. foreign trade increased, the surplus
on goods and services account declined
from the exceptionally high 1964 level.
• The strength of the domestic economy
was also reflected in financial developments
during 1965. There was a strong demand
for credit at the Nation's commercial
banks, the money supply expanded materially, and the public made further substantial additions to its already large holdings of financial savings. Moreover, after
advancing moderately during the JulyNovember period, interest rates rose rather
sharply in early December in response to
the upward adjustment from 4 percent to
4% percent in the discount rate of the Federal Reserve banks.
Monetary policy became less stimulative
in March, and the reduced level of reserve
availability which prevailed thereafter was
reflected in net borrowed reserves in most
weeks. Although the U.S. balance-of-payments position showed notable improvement after the January-March quarter,
international financial developments continued to be an important factor in domestic
financial markets and in national economic
policy considerations.
business review! january 1966
3
economic developments
Among the four major markets for final
products - investment, consumer, government, and foreign - gross private domestic
investment exhibited the greatest relative
strength last year by advancing almost 13 percent to approximately $105 billion. Business
investment in plant and equipment and in
larger inventories accounted for nearly all of
the increase, since the value of residential
construction was little changed from 1964.
Business capital spending approached boom
proportions in 1965, with every major line of
commercial enterprise adding to the heavy
demands for structures and equipment. Contributing to the continued uptrend of fixed investment were such factors as record profits,
increased depreciation allowances, higher operating rates, and the expectation of further strong
sales gains. In the last quarter of the year, the
rising calls for defense goods were a factor in
boosting investment outlays in some industries
above the levels anticipated earlier in the year.
Whereas the transportation industries paced
the strong expansion in investment spending in
1964, the manufacturing sector reported the
largest relative and absolute gains last year.
The fabricators of durable goods and the proPLANT AND EQUIPMENT OUTLAYS
United States
(Dollar amounts in billions)
I ndustry group
Manufacturing
..
Durable goods .'
Nondurable goods
Mining
, . . . .. ..
Transportation
Public utilities
Commercial and other' .
All industries
1965
1964
Percent
increase
'
$22.5
$18.6
21
11.3
11.2
9.4
9.2
20
22
1.3
1.2
9
4.5
3.8
19
6.8
6.2
10
16.7
15.1
10
$51.8
$44.9
15
Based upon anticipated expenditures as reported by
business in late October and on November 1965..
2 Includes trade, service, finance, communications, and
construction.
. .
SOURCES: Securities and Exchange Commission.
U.S. Department of Commerce.
1
4
ducers of nondurables each raised capital outlays by close to $2 billion. Over half of the
increase in the durable goods industries came
from stepped-up outlays by the makers of
nonelectrical machinery and of motor vehicles
and parts, while about the same proportion of
the enlarged investment in the nondurable
goods industries was provided by the producers
of chemicals and of petroleum products.
Business investment in inventories advanced
approximately $7.4 billion in 1965, compared
with a gain of $4.8 billion in the previous year.
Although the accumulation of stocks during
1965 was the largest for any year since 1951,
inventories - except in the case of steelgenerally remained in a favorable relation to
sales, with the overall stock-sales ratio for
manufacturing and trade holding close to the
level of 1964 and remaining fractionally lower
than in 1963. The threatened steel strikes, first
on May 1 and then on September 1, caused
durable goods producers to inventory sizable
tonnages of the metal during the first 8 months
of the year. After the labor agreement in the
steel industry was reached in early September,
the liquidation of excess steel holdings began,
thereby sharply reducing the rate of business
inventory accumulation in the fourth quarter.
Spending for residential structures in 1965
was little changed from the previous year,
despite a reduction in the number of new
private houses started. The decline in housing
starts was concentrated in multifamily units and
was offset by higher unit values, which partly
reflected increased construction costs.
Personal consumption expenditures, another
major market for final goods and services which
offered a pacesetting lift to the economic expansion in 1965, rose slightly over 7 percent to
about $429 billion. This increase represented
the largest part of the overall gain in GNP.
Consumers sharply increased their spending for
a broad range of durables, nondurables, and
services.
Consumer outlays for durable goods spurted
close to 11 percent over the record level of
1964, with higher automobile sales accounting
for a significant proportion of the gain. Automobile sales in 1965 totaled approximately 9.3
million units, or about 15 percent more than a
year earlier. Part of this marked advance,
however, reflects the effects of strikes in the
automobile industry in the fall of 1964, which
forced thousands of consumers to defer their
new-car purchases until early 1965. The carryover in sales may have been on the order of
250,000 units.
Although not a pacesetter in 1965, government purchases of goods and services provided
strong support to the overall advance by climbing 5 percent to approximately $135 billion.
Not surprisingly, state and local government
expenditures continued a long-standing uptrend
and rose slightly over 8 percent. This relative
gain was in line with the advance in 1964, despite a moderate reduction in the rate of expansion in outlays for new public facilities.
While Federal purchases recorded the largest
increases - both relative and absolute - since
1962, the advances were fairly modest as such
purchases edged upward a little over $1 billion in 1965, or about 2 percent. During the
first half of the year, defense spending, on
an adjusted annual-rate basis, was below the
1964 total. The pace of defense outlays about
matched the 1964 level in the July-September
period and, then, moved ahead strongly in the
final months of 1965, reflecting both a military
pay raise and larger outlays for defense goods.
Despite added spending for the Great Society
programs and a pay increase for civilian employees late in the year, Federal outlays for
nondefense purposes climbed only about 8
percent, the smallest relative gain since 1959.
The U.S. balance of trade with foreigners
was a negative factor in the economic expansion last year, since net exports totaled about
$1 billion below 1964. The continued strong
The larger output of durables in the
Nation last year contributed markedly to
the growth of industrial production • .•
1957·59 -100 (Seasonally adjusted)
160
150
140
130
as a number of durable goods industries
experienced significant gains.
170
160
150
140
130
120
/
\\ II
\
I
\ I+-----
V
110
TRANSPORTATION
EQUIPMENT
p-Preliminary.
e - Estimated.
SOURCES: Board of Governors, Federal Reserve System.
Federal Reserve Bank of Dallas.
growth of the domestic economy kept imports
in a rising phase during 1965. Moreover, the
threatened steel strike led to a significant increase in imports of the metal during the year.
While exports of goods and services also rose,
they increased less than imports. This development partly reflected a slowing in the rates of
industrial expansion in a number of foreign
countries, particularly Great Britain, France,
and Japan - all of which are important trading
partners of the United States.
To provide the primary energy, materials,
and products needed for the economic expan-
business review/january 1966
5
sion last year, the Nation's mines, factories, and
utilities boosted the volume of industrial output
approximately 7.8 percent. While all major
industry groups experienced output gains in
1965, manufacturers of durable goods were the
hardest pressed to meet market demands. In
fact, the 10-percent increase in durable manufactures last year accounted for nearly twothirds of the overall advance in industrial
output in the Nation. The machinery, transportation equipment, primary metal, and fabricated metal products industries all made significant contributions to the larger outturn of hard
goods during the year.
The sharp increase in the output of machinery, both electrical and nonelectrical, reflected
the greater demand by business firms for producers' durable equipment and by consumers
for household appliances, especially color television sets. In addition, machinery production
was stimulated in the second half by the
growing demand for defense goods, a growth
which stemmed from the escalation of the war
CONSUMER INCOME AND SPENDING
UNITED STATES
(Se~sonln)'
INCOME: ANNUAL RATE
BILLIONS Of DOllARS
560
adjusted)
SAliS
BilliONS OF DOLLARS
26
2S
24
23
22
21
p _ Preliminary.
• - Estimlled.
SOURCES: U.S. Department 01 Commerce.
Federal Reserve Bank 01 Dallas.
6
in Viet-Nam. Larger calls for transportation
equipment came from the Nation's airlines and
railroads. Both truck and automobile production last year established records. U.S. car
makers assembled approximately 9.3 million
units, which represents an increase of about 19
percent over 1964 and is well above the
previous high of 7.9 million cars turned out in
1955.
Many of the primary metal industries operated at or near capacity during much of 1965.
The producers of the big-volume nonferrous
metals - aluminum, lead, copper, and zincwere under pressure throughout the year to
provide the industrial sector with its needs for
these metals. In the case of copper, demand
tended to outrun supply; as a result, the production of some types of wire and brass mill
products was constrained near the end of the
year. Steel production in 1965 totaled approximately 180 ·million tons, up slightly from the
previous high set in 1964. Of course, part of
the output in 1965 was inventoried.
The robust expansion of the economy last
year was reflected in significant gains in employment and income. Although the civilian
labor'force increased about 1.3 million persons,
the number of civilians employed rose even
more. Consequently, the average rate of joblessness for the year was reduced to 4.6 percent
of the work force, down from 5.2 percent in
1964. Much of the reduction in the unemployment rate occurred in the last half of 1965an improvement that was evident from declines
in the jobless rates for all major classes of
workers. The total number of persons added
to payrolls increased about 2.3 million over
1964, with sizable gains reported for manufacturing (especially durables), trade, and state
and local government.
Buoyed by increased employment, higher
wage rates, and significant amounts of overtime
in some industries, personal income in the
Nation advanced about 7.2 percent last year, or
Wholesale prices in the United States
climbed upward in 1965 ...
1957.59 - 100
105
103
boosted in the first half of the year by
hi{!her quotations for agriculturally
related commodities.
110 , - - - - - - - - - - - - - - - - - - - ,
106
102
98
94
p - Preliminary.
e - Estimated.
SOURCES: U.S. Department 01 Labor.
Federal Reserve Bank of Dallas.
approximately $36 billion. Most of the climb
over the 1964 level of income stemmed from
larger receipts for labor services, which rose
about the same relative amount as overall
personal income. Contributing to the higher
total of wages and salaries last year were Federal pay raises for military personnel in September and for civilian employees in October.
Moreover, new union contract settlements provided an upward bias to wage rates.
Other important increases in income were
reported by farmers and recipients of transfer
payments. Whereas farm income declined in
1964 from the prior year, such income spurted
upward in 1965 under the combined impact of
higher prices for meat animals, fruits, and
vegetables and the appreciably larger outturns
of a number of important crops. Transfer
payments were boosted significantly by the
increased social security benefits which were
paid in the last 4 months of the year, including
a lump-sum retroactive disbursement of $885
million in September.
Prices climbed more strongly in 1965 than in
any year since the late fifties. Wholesale prices
rose 1.9 percent; much of the gain was concentrated in the first 6 months, when costs of farm
products and processed foods were trending
sharply upward. Industrial commodity prices
moved ahead somewhat more evenly over the
year and averaged 1.3 percent higher than in
1964. The major impetus to higher costs for
industrial commodities came from such diverse
items as petroleum products, hides and skins,
construction machinery, and nonferrous metals.
Consumer prices advanced 1.7 percent in
1965, an increase that is somewhat greater than
the average gain of 1.2 percent shown for the
preceding 4 years of the business expansion. As
in prior years, the costs of medical care, public
transportation, and homeownership trended upward. The really important difference in 1965,
however, was the strong increase in food prices,
particularly for meats and fresh vegetables.
financial developments
Loans at all commercial banks in the United
States rose close to 15 percent during 1965 and,
according to preliminary estimates, reached a
seasonally adjusted level of approximately $192
billion at the year-end. An especially strong
demand by corporate and other business borrowers paced the advance. Business loans
surged an estimated 19 percent, compared with
the increase of nearly 12 percent in 1964, and
accounted for about 45 percent of the total
dollar expansion in loans.
Business recourse to commercial bank credit
expanded during 1965 as internally generated
business review/january 1966
1
funds became inadequate, in contrast to the
experience of other recent years, to meet working capital and other requirements. Moreover,
greater reliance upon bank credit was fostered
by the continued attractiveness of loan rates
in relation to comparable market rates for
business borrowing.
The advance in business loans was especially
vigorous in the first half of the year, when
borrowing from banks was stimulated by special factors associated with the dock strike, the
threat of a strike in the steel industry, inventory
building in the automobile industry, and anticipation of the extension of the interest equalization tax to bank loans made to foreigners.
Although business loan expansion slowed during the second half of the year, partly as a result
of the constraints of advanced loan ratios and
reduced reserve availability, the July-December
growth continued strong at about the year-earlier pace.
Consumer loans and real estate loans also
contributed importantly to the advance in total
loans last year. Consumer loans rose almost 15
percent, or at a substantially faster pace than in
1964. Consumers increased their borrowing at
banks to finance purchases of durable goods especially automobiles - and to provide for
other personal outlays. Rapidly improving employment opportunities and high and rising
levels of income enhanced both the willingness
and the ability of consumers to add to their
personal indebtedness. Real estate loans increased about 12 percent last year, or slightly
more than in 1964.
the adjustments in investment holdings last year
were considerably sharper than those made in
1964. Bank sales and redemptions of Treasury
issues were especially large during the first
half of 1965, reflecting a rapidly expanding
loan demand within a framework of a less
expansive monetary policy. On the other hand,
bank acquisitions of non-Government securities
accelerated early in 1965 as time and savings
deposits grew more rapidly.
Loans at the Nation's commercial banks
continued to rise sharply in 1965 ...
BILLIONS OF DOLLARS (Seasonally adjusted)
200
190
ISO
170
160
150
with business loans showing the greatest
growth.
80,..--------------------,
70
60
50
Last year, commercial banks reduced their
holdings of U.S. Government securities by an
estimated $4.3 billion, or around 7 percent,
and added to their investments in higher-earning
non-Government securities - mainly state and
local government and Federal agency issues in the amount of about $5.6 billion, or almost
15 percent. Although these changes represent
a continuation of trends that began in 1962,
8
40
CONSUMER LOANS
3OL-_----~
2OL-I---'--'-.l.-L---'---'--'---''-'--'--'-.l.-L-'----'-J-J---'---'-...L-..........
1964
1965
p - Preliminary.
e - Eslimated.
SOURCES;.
Board of Governors. Federal Reserve
Federal Reserve Bank 01 Oallas.
S~tem.
The liquidity positions of commercial banks
receded further last year under the pressure of
a mounting loan demand. By late summer, the
loan-deposit ratio had increased 3.6 percentage
points to a postwar high of 64.1. At the yearend, the ratio remained near this advanced
level.
Commercial banks experienced an accelerated inflow of time and savings deposits during
1965. In December, these deposits (excluding
interbank deposits) averaged, after seasonal
adjustment, nearly 17 percent higher than a
year earlier. In 1964, time deposits expanded
12.8 percent. The rapid inflow of time deposits
last year was associated, in part, with the
higher rates offered by banks after the permissive rate ceilings were raised, effective late in
1964, to 4 percent on all savings deposits
and 4lh percent on time deposits held 90 days
or more. Inflows in January and February were
at near-record rates. Although a slackening
occurred after this initial surge, banks continued to bid aggressively for and to attract
these funds in subsequent months.
Reserve positions of member banks became
less easy in 1965. During the first half of the
year, reserve availability receded rather sharply
under the influence of a strong loan demand
and a less expansive monetary policy. The
shrinkage in excess reserves and expansion in
member bank borrowing at the Federal Reserve
banks during January-June were reflected in
average net borrowed reserves of $185 million
in June, in contrast to net free reserves of $168
million in December 1964. Net borrowed reserves were slightly less deep during July-October. A sharp, further improvement in reserve
availability occurred, especially during December, as System open market operations provided
large amounts of reserves.
The Nation's money supply (demand deposits adjusted plus currency in the hands of the
public) rose sharply in 1965, expanding almost
5 percent. The growth in the money supply last
Time deposits at all commercial banks
in the United States maintained their
rapid growth •••
BILLIONS OF DOLLARS
150
TIME DEPOSITS ADJUSTED
140
130
120
• _ Estimated.
SOURCES: brcl of GoYemor5. Fed«al R.MrVe System.
Federal Rnervt: Bank 01 Oallu.
year exceeded the rate recorded for any other
year since 1951. The expansion was especially
rapid during the second half of 1965; during
the July-December period, the money supply
advanced almost 7 percent on an annual-rate
basis, compared with an increase of 2.6 percent
in the first half. Growth in the stock of money
was also accompanied by a further rise in the
rate of use of money, as indicated by the turnover of demand deposits at commercial banks.
Liquid assets held by the public continued to
rise sharply during 1965, principally reflecting
increases in the money supply and time deposits of commercial banks. In the first 9
months, liquid asset holdings advanced at an
annual rate that was slightly higher than the
pace of 7.1 percent recorded for all of 1964.
The net inflow of funds to savings and loan
associations during the first 10 months of 1965
totaled $5.9 billion, or markedly less than the
$8.0 billion in the comparable 1964 period.
Savings inflows to mutual savings banks also
slowed and were $2.7 billion in January-October, compared with $3.3 billion during the
first 10 months of 1964. The reduced rate of
business review/january 1966
9
net savings flows to savings and loan associations was associated, in part, with the fact that
maximum interest rates paid by these institutions were not appreciably higher in 1965 than
in the preceding 2 years. On the other hand,
rates offered on time and savings deposits by
commercial banks were higher last year than
in 1964.
The volume of mortgage debt outstanding
continued to expand in 1965, rising slightly
more than $30 billion to a level of approximately $342 billion. On a seasonally adjusted
basis, the rate of expansion through the third
quarter of the year held at a level slightly below
the peak reached in the second half of 1964,
when the net increase in multifamily and commercial mortgage debt was at a high. With little
or no upturn in residential construction during
the year, the growth in debt on 1- to 4-family
properties was virtually unchanged from the
pace of the second quarter of 1964. Although
mortgage funds were in relatively plentiful
supply in 1965, a slightly firmer tone developed
in mortgage markets, especially during the final
months of the year. Acquisitions of mortgages
by savings and loan associations continued to
moderate in line with altered competitive and
regulatory influences.
State and local governments borrowed a total
of about $10.4 billion of new funds in the
capital market during 1965, or about $200
million more than the advanced volume reported for 1964. As in past years, this debt
financing primarily reflected outlays for educational facilities and public improvements, as
well as less than adequate tax revenues. Commercial banks continued to be heavy purchasers
of municipal obligations; however, they tended
to moderate net additions to portfolios after
midyear under the pressures of tightened liquidity positions and other demands for credit.
Corporate borrowing in the capital market
increased substantially last year. New security
offerings for cash totaled about $15.2 billion,
10
up almost $2.2 billion over the 1964 volume.
Corporate debt financing expanded sharplyapproximately 31 percent - as both public
offerings and private placements rose. Stock
issues reaching the market declined about 30
percent from the high level reported for 1964.
Heavy corporate financing requirements in 1965
were related, in part, to the high and rising
level of outlays for plant and equipment.
Net demands by the U.S. Treasury on credit
markets were substantially lighter in 1965 than
in the previous year. Unexpectedly large tax
receipts and small cash payments in the first 6
months permitted both debt repayment and a
large buildup in the Treasury's cash balance.
Debt retirement was accomplished mainly by
the repayment of maturing Tax Anticipation
bills in March and June. In the second half of
the year, the Treasury sold $6.5 billion of tax
bills in October and November to meet seasonal needs for cash. At the year-end, the marketable public debt was $214.6 billion, reflecting
an increase of $2.1 billion over December
31, 1964.
After midyear, interest rates advanced
appreciably . ..
PERCENT PER ANNUM
5.0
Aaa CORPORATE BONDS
(MooOY'S)
4.5
L..---------MUNICIPAL BONOS
(MooDY'S)
e - Estimlted.
SOURCES: 80IIrd 01 Governors. Federal Reserve System.
Federal Reserve Bank of Dallas.
In early January 1965, the Treasury again
employed the advance refunding technique to
achieve a more even distribution of the Federal
debt and to lengthen its average maturity.
Holders of eight outstanding issues of notes and
bonds maturing from February 15, 1965, to
November 15, 1967, were offered in exchange
two issues of new bonds maturing in 1970 and
1974 and an additional amount of the 4JA-percent bonds maturing on August 15, 1992. Issues eligible for the exchange were outstanding
in the amount of about $33.1 billion, with
public holdings totaling $22.1 billion. Investors
holding $9.7 billion of the eligible issues elected
to make the exchange. Other refunding operations during 1965 involved Treasury notes
maturing on May 15, August 13, and November 15, which were refinanced by offerings of
notes and bonds maturing in 15 months to
9 years.
Interest rates in money and capital markets
rose appreciably during 1965. Although rates
in some sectors of these markets began to
firm in the first 6 months of the year, the
increases accelerated in the second half and
became general by early December. The upward movement in interest rates during the year
was in response to a number of factors - including the broadly based and continuing expansion of the domestic economy, heavy borrowing demands from both the private and the
public sectors, uncertainties associated with
international developments, and official policy
actions in the field of money and credit. At the
year-end, most short- and long-term interest
rates were close to the advanced levels reached
in late 1959.
In the first 2 months of 1965, market rates
on 3- and 6-month Treasury bills rose modestly
- by 9 and 6 basis points, respectively; but by
June, yields had receded to levels slightly below those prevailing in December 1964. In
the case of Federal funds, however, the rate
continued upward through May but receded
slightly in June to a level that was 19 basis
points above the average for the last month
of 1964. Most other money market rates
climbed during the first quarter and generally
held at these higher levels until early December.
In the second half of the year, rates on Treasury
bills and Federal funds rose, on balance, through
November. Yields in that month averaged 4.08
percent for the 3-month bill, 4.24 percent for
the 6-month bill, and 4.10 percent for Federal
funds, with all being substantially above their
December 1964 levels.
In capital markets, rates on corporate and
municipal bonds began to rise in March; in
November, yields on high-grade issues
(Moody's Aaa bonds) reflected increases of 19
and 37 basis points, respectively, over the
average levels prevailing during February.
Yields on long-term Treasury bonds were virtually unchanged during January-July but advanced 19 basis points by November to 4.34
percent.
During December, interest rates in money
and capital markets advanced sharply and generally, in response to the upward adjustment to
4;..2 percent in the discount rate of the Federal
Reserve banks (effective on December 6 for
two of the Reserve banks). Although reaction
to the discount rate increase was immediate and
sharp, the adjustments in prices and yields
which occurred throughout the financial markets proceeded in an orderly manner.
By mid-December, yields on money market
instruments reflected increases of % to slightly
more than % of a percentage point over the
rates prevailing immediately before the increase
in the discount rate. Market rates on Treasury
issues maturing in 3 to 5 years advanced 29
basis points to 4.81 percent. In the capital
markets, yields on high-grade corporate bonds
advanced 11 basis points, while rates on longterm Government bonds and high-grade municipals gained 8 and 5 basis points, respectively.
The prime rate charged by commercial banks
to customers with the highest credit rating was
business review/january 1966
11
also advanced promptly by a number of banking institutions, with the rate rising from 4th
percent to 5 percent. Similar increases were
announced subsequently by other major banks.
Federal Reserve operations during 1965
were conducted with a view to meeting the
seasonal and sustainable growth requirements
of the domestic economy, under conditions
approaching full employment of human and
physical resources, and to providing a monetary
climate conducive to improvement in the Nation's persistently adverse balance-of-payments
position. Although monetary policy became
firmer after February and the discount rates of
the Reserve banks were raised in December,
the System was a net supplier of reserves in
each quarter of the year. Reserves were supplied in amounts sufficient not only to offset the
reserve-absorbing effects of a greatly enlarged
outflow of monetary gold but also to support
the bank credit and money requirements of an
expanding economy.
Member bank borrowing at the Federal
Reserve banks rose as pressures on
reserve positions intensified • .•
MILLIONS Of DOLLARS
+600
+500
+400
+300
+200
+100
o
-100
NET BORROWEO RESERVES -
-200
p - Preliminary.
e - Estimated.
SOURCES: Board of
Effective December 6, the Board of Governors of the Federal Reserve System announced
that it had approved actions taken by the
Federal Reserve Banks of New York and
Chicago increasing the discount rates of those
banks from 4 percent to 4th percent. (Subsequently, the Board approved similar actions
taken by each of the other Reserve banks.)
Simultaneously, the Board increased, to 5th
percent, the maximum rates that member banks
are permitted to pay their depositors on all time
deposits, including certificates of deposit, having
a maturity of 30 days or more. Previously, the
maximum rates payable were 4 percent for time
deposits and certificates with maturities of 30 to
89 days and 4th percent for those having
maturities of 90 days or more. No change was
made in the maximum rate payable on savings
deposits (4 percent).
In announcing its actions, the Board visualized that these steps should have the threepronged impact of backing up the Govern-
12
__
Govemof5.
Federal Reserve System.
Fedf'l'al Re5erve Bank of Dllias.
ment's efforts to prevent inflationary excesses
from damaging an economy already carrying
the added burden of military operations in
Viet-Nam; bolstering the Government's programs to overcome persistent deficits in the
U.S. balance of payments; and demonstrating
anew the Nation's determination to maintain
the international strength of the dollar.
balance of payments
The continuing adverse balance-of-payments
position of the United States weighed heavily in
the Nation's economic policy decisions in 1965.
On February 10, the President of the United
States announced a broad program of actions
and proposed measures to improve the persistent deficits which have prevailed since 1958.
The immediate objective and central focus of
the President's program was to reduce net
outflows of U.S. private capital from the extraordinarily high rates of 1964 to rates more in
line with previous experience and, in this way,
bring about a substantial improvement in the
Nation's payments position.
The program included a call on the Federal
Reserve System - in cooperation with the
Treasury - to work with all banks to limit
lending to foreigners and a call on the U.S.
Department of Commerce to work with corporations having business interests abroad to
effectuate a reduction in their capital outflows.
Other major features of the program included
immediate action to impose the interest equalization tax on bank loans to foreigners (with
maturities of 1 year or more) ; proposed legislation to continue the interest equalization tax
through December 31, 1967, and to apply the
tax, retroactive to February 10, 1965, to nonbank credits to foreigners (with maturities of 1
year or more); an intensified effort to reduce
military expenditures abroad; continued action to minimize adverse balance-of-payments
effects of foreign aid programs; and a more
vigorous export promotion drive.
Under guidelines prepared by the Board of
Governors to implement the President's Voluntary Foreign Credit Restraint Program, commercial banks were requested to limit the
growth in their credits to foreigners during
1965 to 105 percent of the amount outstanding
on December 31, 1964. It was visualized also
that, within this limit, banks would give absolute priority to credits for financing exports
from the United States. High but secondary
priority was also recognized for nonexport
loans to certain less-developed countries. Lenders were requested to avoid restrictive policies
that would place an undue burden on Canada,
Japan, and the United Kingdom. Similar guidelines were established for nonbank financial
institutions.
Response to the credit restraint program was
immediate and supported the more optimistic
expectations. Largely as a result of this favorable response by U.S. banks and other lenders
and investors, there were net reflows from
abroad, beginning in March and continuing
through August, of both U.S. bank credits and
liquid money market investments. In the first
half of the year, the deficit on regular transactions was at a seasonally adjusted annual rate
of $1.3 billion, compared with a deficit of more
than $3 billion in each of the preceding 7
calendar years.
Although data with respect to the U.S.
payments position are not available for all of
1965, the deficit on regular transactions may be
about one-half as large as a year earlier. The
substantial reduction in the deficit last year
occurred, despite a narrowing in the trade
surplus from the high level of 1964, mainly
because of the improvement in capital outflow.
On December 6, the Board of Governors of
the Federal Reserve System issued new guidelines for financial institutions to follow during
1966 in cooperating with the President's program to improve the Nation's balance of payments. Under the 1966 program, commercial
banks are requested to restrain any expansion
in foreign credits to such an extent that the
amount outstanding does not exceed 109 percent of the amount outstanding on December
31, 1964. In order to spread throughout the
year any outflow necessary to meet priority
credit requirements, the Board has requested
that the expansion be utilized at a rate of not
more than 1 percent per calendar quarter. That
is, the target is 106 percent of the 1964 base
during the first quarter, 107 percent during the
second quarter, 108 percent during the third
quarter, and 109 percent for the remainder of
the year. Special consideration for banks with
small bases is expected to add about 1 percent
to the total, bringing the possible expansion for
1966 for the banking system as a whole to
about the same amount as that provided for
1965.
With respect to nonbank financial institutions, the 1966 guidelines have been made
business review/january 1966
13
broadly comparable with those for commercial
banks. The priorities established by the 1965
guidelines remain in effect. The Department of
Commerce has also issued new guidelines for
U.S. commercial and industrial firms making
direct investments abroad during 1966.
International financial developments during
1965 included a continued high level of cooperation among the central banks and treasuries of
major industrial countries in matters of mutual
interest. Currency swap agreements between
the Federal Reserve System and foreign central
banks - arrangements which have contributed
significantly to international financial stability
in recent years - were continued and refined.
The United States, as the major reserve-currency country of the world, demonstrated its
continued willingness last year to assist other
important currency countries in countering
speculative attacks or other seriously destabilizing movements affecting normal international
financial transactions.
Developments in foreign exchange markets
during 1965 were dominated, in the main, by
speculative pressures focusing on the British
pound. By mid-January, sterling began to show
signs of recovery from the speculative onslaught of late 1964. In March, however, the
market once again was beset by doubts as to
whether the British Government's pledge to
defend the sterling parity would be matched by
effective measures. New complications arose as
the U.S. Voluntary Foreign Credit Restraint
Program led to some withdrawal of funds from
London. New restraint measures contained in
the Chancellor's budget message of April 6 and
steps announced by the Bank of England, in
late April and early May, to restrain bank
credit expansion resulted in a strong upward
movement in sterling; but publication of disappointing trade figures for April subjected the
pound once again to downward pressures.
Against the background of market sentiment
that a new sterling crisis would develop in the
14
autumn months, the British Government took
further corrective action on July 27, announcing cutbacks and deferments in public spending
programs and a further tightening of instalment
credit. Favorable market reaction to these
measures was quickly swamped, however, by
the report, in early August, of larger than
expected reserve losses; as a result, sterling was
heavily offered in both spot and forward markets. On September 2, the British Government
announced its intention to seek statutory authority to require notification and, if deemed
appropriate, temporary deferment of wage and
price increases. This basic policy went a long
way toward relieving the market's apprehension
regarding a progressive undermining of the
sterling parity by wage and price inflation and
tended to strengthen the pound.
On September 10, the Bank of England
announced that new facilities for support of
sterling had been provided by the U.S. monetary authorities, together with nearly all of the
other central banks that had joined in the 1964
rescue operation. Immediately following this
announcement, concerted market action was
initiated, and the rate for spot sterling moved
up. As short covering developed, further improvement in the rate occurred. These actionscoupled with earlier measures and improving market sentiment that the pound would be
defended - imparted strength to sterling,
which held during the remainder of the year.
district situation
The exuberance evident in the national economy in 1965 also was characteristic of economic developments in the southwestern states of
Arizona, Louisiana, New Mexico, Oklahoma,
and Texas. After reaching record levels in
1964, the broad indicators of economic activity
in the Southwest in 1965 advanced significantly
further. The region's factories, mines, oil fields,
and farms all experienced production gains.
Nonagricultural employment rose from the advanced 1964 level, farm and nonfarm incomes
both increased, and consumer purchases rose
sharply. The strength in southwestern economic
sectors extended into the banking and financial
area, as bank credit demands increased vigorously.
A feature of industrial activity in the Southwest last year was the continuation of a rather
broadly based increase in the physical volume
of output. Overall industrial production, as
reflected in data for Texas, showed a gain of
about 5 percent, a little less than the advance of
almost 7 percent in the State in 1964. Output in
each of the three broad categories - durable
manufactures, nondurable manufactures, and
mining - rose over the 1964 levels. Among
the 21 industrial subcategories, only the petroleum refining and metal, stone, and earth
minerals groups failed to exceed their 1964
production levels.
The major impetus to the expanding southwestern output of goods stemmed from increased activity in the manufacturing sector,
since mining production advanced only slightly.
As was the case in 1964, the most vigorous
gains in manufacturing output last year were
centered in durable goods manufacturing. Output of durables rose about 9 percent, a rate
somewhat smaller than the nearly 12-percent
rise in 1964. Industries producing machinery
(particularly electrical components), primary
metals, fabricated metal products, and transportation equipment experienced the largest
relative gains in output last year. These same
industries also had registered the strongest
relative increases in 1964.
The production of nondurable goods by
southwestern manufacturers in 1965 increased
almost 6 percent, a rate likewise below the
year-earlier gain (7 percent). As in the previous year, the 1965 increase in nondurable
goods output was paced by increased production from the Southwest's growing textile and
apparel industries and by further expansion in
the manufacture of chemicals and allied prod-
Manufacturing continued to pace the rise
in industrial production in Texas • ••
1957-59-100 (Seasonally adjusted)
160
150
140
130
as the advance in mining output remained
relatively modest.
110
100
9O'--'--'--'-.L......L----'---'-.L-J'--'--'--'-L.......L----'---'-J..-J----'---'---'---L-I
1964
1965
p - Preliminary.
e-Estimated.
In manufacturing, production of durable
goods showed the greatest expansion • ••
NONDURABLES
DURABLES
TOTAL
MANUFACTURING
10
PERCENT INCREASE, 19650 OVER 1954
II! -
Partly estimated.
ucts. Moderating the growth in nondurable
goods manufacturing in 1965 was the slight
decline in output of refined petroleum products.
Refining activity through August of last year
remained below the levels in the comparable
months in 1964 as refiners drew on stocks to
business review/january 1966
15
meet increasing consumption. In the fall of
1965, however, refining activity began to pick
up in response to the rising needs for fuel oil in
eastern and midwestern markets.
Somewhat paralleling the trend in refining,
crude petroleum output was weak during the
early months of the year but began to increase
in mid-1965 to push total production for the
year slightly above the year-earlier level. The
weakness in southwestern drilling activity persisted, and, for the year, both the number of
well completions and the footage drilled were
below their 1964 totals. Gains in the production of both natural gas and natural gas liquids
were major contributors to the rise in overall
mining output last year. The use of thesl~ two
products in space heating and other energy
markets has continued to expand.
Although the number of southwesterners
entering the labor market in 1965 rose significantly, job openings increased at a faster rate,
and the number of unemployed workers and
the unemployment rate declined. Nonagricultural employment rose about 3.8 percent as
hirings in both the manufacturing and the
nonmanufacturing sectors increased over their
1964 levels. On the other hand, the work force
in agriculture continued its longtime downtrend
as a result of mechanization and improved
output per worker. In the manufacturing sector,
hiring by durable goods makers was particularly strong last year; in nonmanufacturing, all
of the categories of employment contributed to
the year-to-year advance, with construction,
services, government, and trade showing the
largest relative gains.
The improvement in the Southwest's job
picture and the concomitant reduction in unemployment have resulted in a tightening labor
situation for skilled and experienced workers.
The unemployment rate in the Southwest each
month last year remained below the rate for the
comparable month in 1964. The unemployment rate in the five southwestern states aver-
16
aged a little under 4.0 percent in 1965, compared with 4.4 percent in the previous year. In
a few of the major southwestern metropolitan
labor markets, the unemployment rate dipped
to less than 3 percent of the civilian labor force
in the latter months of 1965.
The stronger employment picture, together
with the increasing level of output, resulted in a
stretch-out in the length of the workweek,
especially in manufacturing. In addition, average weekly earnings were higher in most major
employment categories.
Residential building remained weak in the
five southwestern states in 1965 ...
RESIDENTIAL BUILDING
TOTAL
NONBUILDING
CONSTRUCTION
NONRESIDENTIAL
BUILDING
-10
+5
-5
PERCENT CHANGE. 1965e FROM 1964
• - Partly estimated.
SOURCES: F. W. Dodge Corporation.
Federal Reserve Bank 01 Dallas..
Construction activity in the five southwestern
states reached a record during 1965, with the
value of construction contracts totaling approximately $5.3 billion - an amount exceeding the
previous year's contracts by almost 5 percent.
Despite the overall rise in the value of contracts, the performance of the various types of
construction showed considerable differences.
The downtrend in residential building that
began in the latter part of 1964 continued last
year, marking two successive years of decline.
The weakness in the residential sector remained
largely centered in apartment constructi0n.
Contracts for single-family residences were well
maintained, partly because of the higher average value for each unit.
The stellar performer last year was nonresidential building. Contracts for office buildings,
educational structures, recreational facilities,
and various kinds of commercial and industrial
buildings were let at a brisk pace in 1965; as a
result, the estimated total value of contracts for
these types of structures was lifted nearly 19
percent over the 1964 total. This expansion
reflects not only the continuing growth in the
economy of the Southwest but also the participation of the region in the sharp upswing in
capital spending that is under way in the
Nation.
Nonbuilding construction (engineering and
public works) also increased over the high
1964 level. The further expansion of sewerage
and waterworks systems and public utilities
facilities contributed to the climb. Contracts for
additional segments of the interstate highway
network and for urban streets also provided
major support to nonbuilding construction.
Along with the other broad sectors, agriculture contributed strongly to the rise in southwestern economic activity. Crop and livestock
production increased about one-tenth last
year - the largest gain experienced in several
years. Coupled with this larger output was a
stronger price situation, especially for livestock;
and overall prices received by southwestern
farmers and ranchers averaged above those in
1964. As a consequence, gross income from
marketings and Government payments advanced. Net farm income also increased last
year, as production expenses rose only modestly.
In 1965, more southwesterners were working
than ever before and receiving higher average
pay, and the flow of personal income advanced
over 1964. This higher income, together with
lower Federal income tax rates and the mid1965 reduction in some excise taxes, provided
the basis for a step-up in consumer purchasing.
The southwesterner was an eager buyer, indeed, in 1965, and retail sales are estimated to
have risen perhaps 9 percent over the high
1964 total.
When individuals are optimistic concerning
the future course of economic events and find
their discretionary incomes higher, they often
boost their purchases of durables. Automobiles,
in particular, continued to capture the fancy of
the buying public in 1965. Total registrations of
new automobiles in four major markets in
Texas - Dallas, Fort Worth, Houston, and
San Antonio -last year rose about 12 percent
above the previous record set in 1964. Although durable goods sales were the pacesetters,
purchases of nondurable goods also increased.
Banking developments in the Southwest last
year reflected many of the same influences at
work nationally. Loans at all member banks in
the Eleventh District at year-end, amounting to
an estimated $8.6 billion, advanced more than
10 percent over the high level a year earlier.
The strength in loan demand was rather general
among all the major categories of loans. In
relative terms, real estate loans - a category
which also turned in a strong performance
during the previous year - showed the greatest
expansion in 1965. Consumer-type loans rose
modestly, but the gain failed to match the
exceptional advance in 1964. Of all the loan
categories, commercial and industrial loans,
which account for almost one-half of total bank
loans outstanding in the District, registered the
largest dollar advance last year and increased
considerably more than in 1964.
Member banks continued to rely heavily
upon time and savings deposits to acquire
earning assets, as demand deposits showed little
growth. The inflow of time and savings deposits
increased at a more rapid rate last year than in
business review/january 1966
17
MEMBER BANK LOANS AND INVESTMENTS
ELEVENTH FEDERAL RESERVE DISTRICT
BILLIONS OF DOLLARS
9.0
8.S
8.0
7.S
7.0
6.S
1965
e - Estimated.
1964, since banks sought to attract these deposits with new savings plans of various kinds
tailored to fit the needs of savers. The supply of
loanable funds did not advance rapidly enough,
however, to prevent a further decline in bank
liquidity. The loan-deposit ratio at District
member banks rose from 55.4 at the end of
1964 to perhaps 57.5 at the end of last year.
Loan-deposit ratios at both reserve city and
country banks increased.
Investment decisions at member banks in
1965 were influenced by the desire to meet
rising loan demands; realize higher earnings in
order to offset rising costs, including interest
payments on time and savings deposits; and
provide secondary reserves and the collateral
18
needed for certain types of deposit accounts.
Total investments expanded slightly last year.
As in 1964, however, member banks reduced
their holdings of U.S. Government securities
and increased their acquisitions of non-Government obligations.
Participation of District banks in the Federal
funds market increased further last year, with
both purchases and sales of Federal funds rising
over their 1964 totals. Although the differential
between purchases and sales narrowed last
year, Federal funds purchases exceeded sales
by a substantial margin. Eleventh District member banks continued to utilize Reserve bank
credit in 1965, but daily average borrowings for
the year were little changed from the 1964
level.
Bank issuance of negotiable time certificates
of deposit continued to grow in importance in
1965. Although somewhat below the level
reached last summer, the amount of time certificates of deposit outstanding, in denominations of $100,000 or more, at weekly reporting
member banks in the District totaled $979.3
million in mid-December 1965. This total is
about 4 percent above the year-end 1964
figure. Survey data on the maturity distribution
of CD's show that, last November, 63.4 percent
of the dollar volume of outstanding CD's had
maturities of 3 months or less, compared with
55.1 percent 9 months earlier. However, the
proportion maturing within 6 months was
smaller than in early 1965.
@FedFRASER