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P H ILA D E LPH IA
OF
Glass-Steagll: Resurrection
for Interment?
What Happened to Truth in
Lending?
Balance of Payments
The Fed in Print

JUNE 1070

BUSINESS REVIEW

is produced in the Department of Research. Ronald B. Williams is Art Director. The authors will
be glad to receive comments on their articles.
Requests for additional copies should be addressed to Public Information, Federal Reserve Bank of Philadelphia, Philadelphia,
Pennsylvania 19101.

“ SOON AS THE GREAT TREE FALLS, THE
RABBLE RUN TO STRIP HIM OF HIS BRANCHES
ONE BY ONE.”

Tales of stock market practices prior to the
Great Depression describe a variety of devices*
'T h e provisions of the Act discussed here are 12
U .S.C . 24, 78, 92, 377, and 378. For a more detailed
discussion of the relevant provisions of the GlassSteagall Act (Banking Act of 1933) as they affect com
mercial banks and one-bank holding companies, see
William E. Whitesell and Janet F. Kelly, “Is the
Glass-Steagall Act Obsolete?” Banking Law Journal,
May, 1970.

J U N E 1970
B U S I N E S S R E V IE W

by William E. Whitesell

F E D E R A L R E S E R V E B A N K OF P H IL A D E L P H IA

Glass-Steagall:
Resurrection for
Interment?

Born out of the chaos of the Great Depression,
the Glass-Steagall Act is one of the many laws
enacted to protect bank depositors from loss.
It was designed, in part, to sever ties between
banking and the securities industries.1
Since the passage of the Act in 1933, whether
commercial banks could underwrite or deal in
securities for their own account has been pretty
much a dead issue. Recently, however, it has
again become a topic for lively debate. Mutual
funds and others are attracting billions of dollars
of savings and are investing them in common
stocks. As incomes rise, except perhaps for
brief periods, public interest in holding shares
in American business is likely to continue to
mushroom. And since many people don’t have
the time or expertise to manage their own port
folios, they have been channeling their funds
through “ intermediaries” like mutual funds.
Many banks want a piece of this action and
are exploring what they can do within the law.
The Glass-Steagall Act is a major obstacle in
their path. Examination of factors prompting
passage of the Act and a look at how they fit
into the current setting indicate that certain
parts of the Glass-Steagall Act may be a lot
older and more out of step with the times than
its age of 37 years would suggest.

to beat the market and reap quick profits. Even
some bankers succumbed to the fantasy of rich
returns as they employed depositors’ funds to
enhance personal and corporate profits, throw
ing prudence to the wind. The device used by the
miscreants was investment affiliates which were
under the control of the parent bank. These
affiliates began by financing and issuing preferred
stock, but they later turned to accumulating
stocks which either appeared to be low in price
or susceptible to price manipulation. In pursuing
their speculative schemes, investment affiliates
siphoned off depositors’ funds from the parent
bank— all unknown to trusting depositors.2
The result of such excesses in the stock mar
ket was predictable. The historic market crash
wiped out countless fortunes, and the ensuing
depression set the stage for strong public reac
tion to forces believed by some to be responsi
ble for so much economic misery. One outcome
of the public desire to seek out and expose the
alleged villains of the economic disaster was
the Pecora Investigation.3 The Pecora Report
assigned to investment affiliates of banks much
of the onus for the financial chaos of the depres
sion, but, interestingly, the investigation itself
dealt with very few of the 750 bank-controlled
affiliates believed to exist in 1933.
The primary cases of abuse by investment
affiliates involved three large New York City
banks and several Detroit- and Cleveland-based
chain and group banks. These few sensational
cases were used to condemn the whole system
2 See, for example, John Chapman and W . Parker
Willis, The Banking Situation (New York: Columbia
University Press, 1934), pp. 67 and passim; And De
partment of the Treasury, Annual Report of the Comp
troller of the Currency: 1920 (W ashington: U .S.
Government Printing Office), pp. 55 and passim.
3 U .S. Congress, Senate Committee on Banking and
Currency, Report on Stock Exchange Practices, Report
No. 1455, 73rd Congress, 2nd Session, 1934.

Digitized for 4
FRASER

of bank-controlled affiliates. Moreover, other
investigations to determine the extent of un
sound practices found that activities prevalent
among banks with affiliates were also practiced
by banks without affiliates. Since the investiga
tion of investment affiliates is somewhat more
sketchy than is popularly believed, we should
not merely assume that most bank-controlled
investment affiliates ( or that only bankcontrolled affiliates) were engaged in unethical,
if not illegal, practices.
In recognition of the paucity of evidence that
a substantial majority of bank-controlled affili
ates were engaged in unsound practices, the
Senate Committee on Banking and Currency
had planned initially to prescribe a rigid system
of controls for banks and their affiliates. But
public outcry— letters to the Committee and
complaints against the alleged injustices of the
affiliate system— prompted dismemberment in
stead of minor surgery. The public wanted a
lynching, and Congress responded with the
Banking Act of 1933, which severed parent
banks from their affiliated investment enter
prises.
“THE EVIL LIVES AFTER. . . ”

Bankers, for many years, reflected in their oper
ations the traumatic impact of the lessons of
the 1930’s. Witness, for example, their tardy
entry into the field of consumer credit and often
unimaginative selling of banking services. But
the declining importance of commercial banks
in relation to all other financial institutions
ultimately jarred bankers out of this introspec
tive stance. Many have now embarked on
aggressive innovation and vigorous expansion of
services. But when a New York bank— the First
National City Bank— tried to move into still
another area by applying to operate a com-

4 Investment Company Institute vs. Camp, 274 F.
Supp. 624 (1 9 6 7 ) and National Association of Securi
ties Dealers, Inc. vs. Securities Exchange Commission,
420 F.2d 83 (1 9 6 9 ).

J U N E 1970

raised by the National Association of Securities
Dealers, which claimed that the SEC could not
grant banks the exemptions required for bank
control of mutual funds.4
In mid-1968, the Senate passed a bill which
would allow banks to operate commingled in
vestment accounts, but a House sub-committee
later shelved it. The Senate tried again in May,
1969, to assure banks the right to operate com
mingled investment accounts, but the Senate
and House still seem to be at odds on the sub
ject. The one-bank holding company bill passed

B U S I N E S S R E V IE W

mingled investment account (see box), visions
of the old investment affiliates and the proscrip
tions of the Glass-Steagall Act were resurrected.
Bankers again slammed up against the kind of
constraint which they interpret as a threat to
the viability of the banking industry itself.
No sooner had the Comptroller of the Cur
rency given a green light to the First National
City plan and the SEC granted the necessary
exemption regarding mutual fund control, than
two suits were filed to stop the banking in
vasion. One case, brought by the Investment
Company Institute, raised the question of
whether the Comptroller could authorize a
commingled account which seemed to violate
the Glass-Steagall Act. A second issue was

A commingled investment ac
count is essentially a bank-oper
ated mutual fund. The bank sells
units of participation; its trust
and investment advisors make in
vestments for participants’ ac
counts; and the bank receives a
percentage of the current asset
value of the fund as its fee.
Agents of the bank are given a
majority position on a directing
committee elected by the partici
pating membership.
The legal and legislative pyro
technics involving bank operation
of “ mutual funds” were set off
by the Comptroller’s approval in
1965 of a commingled investment
fund to be operated by First
National City Bank. In Septem
ber, 1962, the Comptroller of the
Currency received the authority
to grant fiduciary powers to na
tional banks; formerly, this au
thority lay with the Federal
Reserve Board. The Comptroller

revised the relevant regulations
in February, 1964, to allow na
tional banks to operate commin
gled accounts.
When First National City Bank
filed its application to operate
such a fund, the Comptroller ap
proved, and the Securities and
Exchange Commission granted
the exemptions regarding con
trol of mutual funds. The Secu
rities and Exchange Commission
registration became effective June
14, 1966, a little more than a
year after the Comptroller had
approved the application. The ac
count became operational after
June 14, 1966, as an open-end
management investment com
pany and was immediately chal
lenged in the courts.
The right of banks to operate
commingled investment accounts
is presently snarled in a judiciallegislative quagmire of uncertain
outcome.

F E D E R A L R E S E R V E B A N K OF P H IL A D E L P H IA

WHAT IS A COMMINGLED INVESTMENT ACCOUNT?

by the House would deny bank holding com
panies the right to operate mutual funds, but
this limitation is now under debate in the
Senate.
Supporters of bank-operated investment ac
counts see some reason for optimism in
the latest court decision. In July, 1969, an
appeals court reversed the lower court decision
and ruled that banking laws do not bar collec
tive investment funds sponsored by banks. The
court said that commingled investment accounts,
like trust and individual managing agency ac
counts, were essentially trust in nature and fall
within the traditional framework of the author
ity of banks to operate in such a fiduciary capac
ity.5 The Appeals Court opinion is not the final
word on the matter, however, since the
Supreme Court has agreed to hear the case. A
review of previous court decisions will help to
put the issues into perspective.
"A ROSE BY ANY OTHER NAME . .

Does the operation of a commingled invest
ment account constitute involvement in the
“ securities business” as forbidden by the GlassSteagall Act? The two court decisions so far
have taken divergent views. Why? The answer
is bogged down in a question of semantics. A
strict semantic interpretation of the wording of
the Act gives rise to one position; a broader
interpretation produces a second position which
relates to the intent and purpose of the Act.
One argument, advanced by the lower Court,
employed a strict semantic approach and em
phasized that the same Congress wrote the
5 The Appeals Court handled both the National
Association of Securities Dealers, Inc. vs. Securities
Exchange Commission and Investment Company Insti
tute vs. Camp together. See National Association of
Securities Dealers, Inc. vs. Securities Exchange Com
mission, 420 F.2d 83 (1 9 6 9 ).

Banking Act of 1933 and the Securities Act
of 1933. The word “ security” then should be
identical in the two acts. If a unit of participa
tion in a commingled account is a security, com
mingled investment accounts are illegal. GlassSteagall is quite specific in separating banks
from selling publicly, issuing as underwriters,
or distributing securities.
The Appeals Court, however, did not agree
with the lower Court on the meaning of “ secu
rity.” The Appeals Court asserted that the term
is really one of “ high gloss.” The Glass-Steagall
Act involves a different context of risk to the
public than the Securities Act, according to the
Court. The Act was meant primarily to protect
depositors, and, therefore, only underwriting
and sales of securities which could jeopardize
deposits should be within the meaning of that
law. When the Court had decided upon this
fundamental difference, it found that the GlassSteagall Act was not designed to, nor does it
prohibit commingled investment accounts.6
"OUT OF THIS NETTLE, DANGER,
WE PLUCK THIS FLOWER, SAFETY.”

Could the operation of a mutual fund endanger
banks and the public? Commingled investment
funds today differ from investment affiliates of
the 1920’s in such a way that the danger to
banks is substantially reduced even if not en
tirely eliminated. First, in the 1920’s, in
vestment affiliates used depositors’ funds for
speculative activities in the stock market. Pur
chases and sales were made for the account of
the bank— not the accounts of subscribers to a
fund, as in the case of commingled accounts.
Investment affiliates in the 1920’s could, and
in some cases did make liberal use of the dee N A SD vs. S E C 420 F.2d 83 (1 9 6 9 ).

s See Irving Fisher’s description of the baneful effects
of inadequate regulation in his The Stock Market
Crash— and After (N ew York: The Macmillan Com
pany, 1930), pp. 34 and passim.

B U S I N E S S R E V IE W

J U N E 1970
7 See W illiam McChesney Martin’s statement before
the Senate Committee on Banking and Currency in
which he states his belief that current laws provide
safeguards against bank misuse of deposits and the
problems of the 1920’s. U .S. Congress, Senate Commit
tee on Banking and Currency, Hearings on Mutual
Fund Legislation of 1967, Part 3, 90th Congress, 1st
Session, 1967, p. 1224.

troller of the Currency. These guidelines provide
for periodic valuation of assets, audits, protec
tion against self-dealing, and protection against
excessive management fees. Furthermore, ac
counts would be regulated by the SEC. One of
the most important SEC stipulations is that
quarterly, semi-annual, and annual reports be
made to stockholders in addition to the require
ment for audits. All these requirements insure
closer scrutiny of the operation of commingled
investment funds and their activities than was
possible during the 1920’s. Bank-controlled in
vestment affiliates of the 1920’s sailed along
almost completely without public disclosure of
transactions and were not held accountable to
any public agency.8
State banking regulations and controls on the
operations of fiduciaries provide additional safe
guards for the public. Most of the body of

F E D E R A L R E S E R V E B A N K OF P H IL A D E L P H IA

posits held by the parent bank. Speculative
losses wiped out funds which depositors had
entrusted to banks for safekeeping, and the use
of this money in the stock market took place
without the knowledge or consent of depositors.
This is quite different from operating a com
mingled account where investors know that
their money will be used in purchasing stocks
and bonds and where depositors know that their
funds will not be so employed. Besides, the reg
ulatory milieu in which both investors and
depositors operate is vastly different today
from the ’20 ’s when banking was more “ selfpoliced.” 7
Existing legislation suggests that all com
mingled investment accounts have to operate
under the guidelines established by the Comp

federal and state regulations which would gov
ern the operation of commingled investment
accounts was either nonexistent or untried in
1933 when the Glass-Steagall Act was passed.
The draconian actions of Congress in passing
the Act were probably justified in 1933, but a
greatly changed regulatory environment in 1970
calls for reassessment of its usefulness.
“ O, HOW FULL OF BRIERS IS THIS
WORKING-DAY WORLD!”

But what happens if the fund falters and under
goes a relatively large decrease in market value?
It is quite unlikely that poor fund performance
could jeopardize the operations of the parent
bank. Just as trust assets must be handled
separately, operations of the fund and operations
of the bank must be independently managed.
Performance of commingled investment accounts
is likely to parallel performance of mutual
funds as a group. General declines in stock
prices, rather than management of the parent
bank, are likely to get the blame for poor per
formance of commingled investment accounts.
And depositors are unlikely to be greatly con
cerned with the performance of a bank-operated
commingled investment account. Many will not
even be aware of it. Practically all banks are
insured by the FDIC, which protects depositors
up to a limit of $20,000, and depositors of
larger amounts are presumably sophisticated
enough to recognize the separation of most
banking operations from the operation of the
commingled investment account. Banks have
successfully handled trusts and individual man
aging agency accounts for years without detri
ment to their depositors.
If bank safety is not jeopardized by fund
operations, are there no dangers? The Invest
ment Company Institute argued that banks
would be under pressure to expand sales of par

ticipation because management fees are tied
to the size of the fund. But the Appeals Court
countered by noting that banks are under a
similar pressure to expand sales of all services
offered by the trust department. Also, fee earn
ings based on size of the fund are fundamentally
different from the speculative profits some
banks sought in the underwriting which GlassSteagall forbids.9
But would a bank use its position as a source
of funds to pressure a borrower to purchase ad
ditional services of the bank in exchange for a
desired loan? There is always this possibility, of
course, but the same problem potentially exists
within the current banking system or with any
multi-product firm.10 It is difficult to imagine
that the situation would change significantly if
bank-operated commingled accounts were al
lowed.
“ LET US HEAR THE CONCLUSION OF THE
WHOLE MATTER____ ”

This examination of the Glass-Steagall Act sug
gests that the Act appears to be archaic in its
application to commingled investment accounts,
if the Act does, in fact, apply. Fundamental
changes in banking, public regulation, and
method of operation of the accounts make it un
likely that practices of the 1920’s will be
repeated unless both bankers’ integrity and
supervisors’ vigilance break down.
Repeal of parts of the Glass-Steagall Act or a
Supreme Court ruling that commingled funds do
not violate the Act could provide public benefits.
" N A SD vs. SE C , 420 F.2d 83 (1 9 6 9 ).
1 In Fortner Enterprises, Inc., vs. United States Steel
0
Corp., 89 S.Ct. 1252 (1 9 6 9 ), tying arrangements
which connected product sales to credit extension were
found to be illegal. Thus, consumers are not defenseless
against tying agreements— a problem which some have
envisioned in connection with commingled investment
accounts.

JU NE 1970

the whole matter is tied up in a legislativejudicial log jam. Hopefully, the scope of banks’
participation in the investment business will be
determined on the basis of a careful assessment
of regulatory and financial changes of almost
four decades.

B U S I N E S S R E V IE W

Bank operation of commingled accounts would
furnish investors a wider range of alternatives.
Besides, investment and management costs to
the public might well be slashed because of the
competition introduced by commercial bank en
try into the business of fund management. Now

You may secure additional copies of the arti
cle, “ Introduction to the Federal Reserve Sys
tem” by Karl R. Bopp which was published in
the January, 1970 Business Review. Please send
your request to Public Services, Federal Reserve
Bank of Philadelphia, Philadelphia, Pennsyl
vania 19101.

F E D E R A L R E S E R V E B A N K OF P H IL A D E L P H IA

N O W A V A IL A B L E

What Ever Happened
to Truth in Lending?
by Hugh Chairnoff

On July 1, 1969, Truth in Lending became the
law of the land. Requiring uniform and mean
ingful disclosure of the cost of consumer credit,1
the law has been hailed by some as a major
breakthrough in consumer protection and con
demned by others as an ineffective addition to
the mountain of paperwork already burdening
consumer credit transactions. Despite the publi
city just prior to Truth in Lending’s debut, few
consumers had any real idea of what Truth in
Lending was or how it was supposed to im
prove credit decisions, according to a survey
made at that time. Consequently, the goal of
more informed use of credit by all consumers
still seems distant. However, awareness of
Truth in Lending and the cost of credit by a
significant minority of consumers is encouraging
for the goal of a more competitive market for
consumer credit.
WHY TRUTH IN LENDING?

The average American now devotes more than
17 per cent of his disposable income to periodic
payments of principal and interest. Because
credit affects him directly, his knowledge of
credit costs and terms is crucial to how he allo
cates his present and future income.
Truth in Lending was intended as a major
step towards helping the consumer adapt
to his credit-oriented world. It was designed to
help him compare terms offered by competing
lenders and make judgments concerning borrow
ing versus using alternative sources to finance
spending. Thus, the goal of Truth in Lending is
more informed use of credit through uniform1
*
1Other important components of Title 1 of the Con
sumer Credit Protection Act of 1969 are meaningful
disclosure of other terms and conditions; rules for ad
vertising credit terms; and the right to rescind credit
transactions under certain circumstances.

Last June, when publicity surrounding the
launching of Truth in Lending probably was at
its apex, only one out of every ten consumers
knew that Truth in Lending was a federal law
which would provide consumers with certain
credit information when borrowing or buying
on credit. Another one-third of those inter
viewed recognized Truth in Lending at the spe
cific suggestion of the interviewer. In all, 43
per cent of those contacted registered some
awareness of Truth in Lending.
Lack of awareness that Truth in Lending even
2 One of the motivations for Truth in Lending is
the belief that acquiring this information through indi
vidual eflFort is costly, perhaps exceeding the value of
making better credit decisions. That is why some con
sumers may cling to the monthly payment so much—
it serves as an inexpensive, though crude, indicator of
the cost of credit. Thus, by providing the information
at a lower cost, Truth in Lending offers consumers an
opportunity to realize savings by more shopping for
credit and more careful consideration of the decision
to use credit.
3Truth in Lending provides for liability up to $1,000
for any creditor who, in a civil action initiated by a
consumer, has been shown to have failed to disclose
any information the law requires.

4 The tables referred to in the article can be found
in the Appendix.
5 For more detailed discussions of the information
Truth in Lending requires see Hugh Chairnoff, “ What
Truth in Lending is All About,” Business Review, Fed
eral Reserve Bank of Philadelphia, June, 1969, and
What You Ought To Know About Truth in Lending,
Board of Governors of the Federal Reserve System.

J U N E 1970
B U S I N E S S R E V IE W

A LACK OF AWARENESS

existed permeated all segments of our society,
but certain groups were less aware than others
(Table l ) . 4 Respondents who earned less than
$8,000 annually, lacked education beyond high
school, were the youngest or oldest adults,
or nonwhite were significantly less aware of
Truth in Lending than were other respondents.
As one might expect, even fewer people
knew about the substance of Truth in Lending
than were able to identify it. The most impor
tant provisions of the law require that bor
rowers must be told the Finance Charge and
Annual Percentage Rate.5 These two concepts
differ substantially from the manner in which
financial information is provided under most
state laws. In addition, these concepts overcome
the confusion caused by a plethora of consumer
credit laws within each state by requiring all
creditors to disclose this information in an iden
tical fashion.
The Finance Charge concept is borroweroriented. It includes all costs that must be paid
by the borrower to acquire credit. Truth in
Lending does not permit any distinction among
such items as interest, discount, or the timeprice differential, and other fees or charges made
or required by the creditor.
The Annual Percentage Rate relates the
Finance Charge to the amount of credit avail
able to the borrower and the amount of time for
which credit is available. It is a percentage rate
determined by the same principles (compound
interest) which govern the calculation of inter
est on a mortgage or savings account. With

F E D E R A L R E S E R V E B A N K OF P H IL A D E L P H IA

and meaningful disclosure of credit terms,
particularly the cost of credit.2
But the benefits of Truth in Lending cannot
be passively enjoyed. Unlike many consumer
protection laws, this one does not require pro
ducers to change the quality, safety, or pack
aging of their product. Instead, the impact of
Truth in Lending depends on the willingness of
consumers to upgrade their understanding of
the dimensions of credit. Moreover, enforce
ment of the law primarily depends on consumer
awareness; less emphasis is placed on public
enforcement.3 So it is important that consumers
know about the major elements of Truth in
Lending.

this information, borrowers can compare, with
confidence, financial terms offered by competing
creditors regardless of differences in state laws,
terms of loan, or amounts of credit offered.
Finance Charge and Annual Percentage Rate
provide consumers with better information on
the extent of their sacrifice when borrowing to
acquire goods or services.
Many people who were aware of Truth in
Lending, independently or when prompted,
were unable to describe its provisions. Replies
ran the gamut, from the vague— “ protect con
sumers”— to the incorrect— “ protection against
excessive rates, interest, and charges.”
But three-fifths of those who could identify
Truth in Lending unaided were able to cite
either the Finance Charge or Annual Percentage
Rate or both as the main provisions of the law.
Of those who recognized Truth in Lending only
with the aid of the interviewer, only about onethird cited the Finance Charge or Annual Per
centage Rate or both. In fact, many who needed
prompting by the interviewer were unable or
unwilling to cite any of the key features of
Truth in Lending.
Two other very important features of the law
were barely recognized. Only twelve of more
than 2,000 cited the consumer’s right to rescind
certain credit transactions within three business
days. And only one consumer was aware that
creditors can be sued for not obeying the law.
Awareness of the key features increases with
educational experience (Table 2 ). Still, even
among the most highly educated, only about
one-half were able to cite at least one of the
law’s key features. For the less-educated, the
small proportion acquainted with Truth in
Lending and its features spells negligible famil
iarity with the tools Congress wants them to
have.

A LACK OF UNDERSTANDING

Since appreciation of modern credit markets is
critical to successful management of a family’s
income and standard of living, one might as
sume that full knowledge of credit cost and
what it means are second nature to borrowers.
Most people familiar with the consumer credit
market would regard such an assumption as
utopian. Ignorance of the “ true” cost of credit
means that the goals of Truth in Lending will be
frustrated. And, if consumers do not apply the
information properly when they borrow or buy
on credit, the goal of more informed use of
credit may be particularly frustrated.0
To test the consumer’s knowledge of credit
cost, each person was told that two terms are
used in talking about interest, the time charge
for credit— the stated or contract rate and the
“ true” annual percentage rate. Each consumer
then was asked to estimate the “ true” annual
rate of interest when the contract rate or stated
rate was six per cent. For most consumer install
ment credit transactions (credit card transac
tions are a major exception), the stated or
contract rate is an add-on or discount rate.7
This means that the dollar interest charge is
based on the original amount of credit extended,
though the borrower only will have use on the
average of roughly one-h?lf the original amount
because he is repaying in regular installments
(more credit during the earlier stages of the
repayment period, less credit in the later
0 For example, when buying on credit, the annual
percentage rate can be lower and the selling price of the
merchandise higher for one credit seller than for
another. Yet, the total payments of the borrower can be
as much or more in one case than in the other. Thus,
the annual percentage rate will not inform the bor
rower which of the alternatives is cheaper.
' Installment credit outstanding accounted for 80 per
cent of total consumer credit outstanding in 1969.

Perhaps no segment of the consumer credit
market has been as competitive as that for auto
loans. Unlike most other types of consumer
credit, competition for auto loans had been
characterized by widespread advertisement of
the contract rate until Truth in Lending came
along. The contract rate can be a useful indi
cator of comparative costs of financing an auto
purchase as long as all competitors state the

TRUTH IN LENDING: A BEGINNING

Consumer awareness of Truth in Lending and
the cost of credit immediately prior to the law’s
effective date reveal widespread deficiences in
consumer ability to make better credit decisions.
Only about one-fifth of more than 5,000 people

J U N E 1970
B U S I N E S S R E V IE W

contract rate in the same way (for example, as
an add-on rate), and the creditor assesses no
other charges or fees. But this latter condition
generally does not exist in the market for auto
loans. Consequently, reliance on the contract
rate may be misleading in many instances. Al
most half of those who financed an auto pur
chase in the twelve months prior to July, 1969,
thought the annual percentage rate they were
paying was less than 8 per cent. Less than onefifth cited a rate exceeding this level. Yet, it is
highly unlikely that most were paying a “ true”
rate that low (Table 4 ). For example, half the
cars financed were used ones and contract rates
on used auto loans commonly exceed 8 per cent,
an implied annual percentage rate of at least
14.5 per cent.
The story is similar for furniture and appli
ance loans. Barely one-fourth of the borrowers
cited an annual percentage rate in excess of 8
per cent. Because of more widespread advertise
ment of auto loan contract rates and less uni
formity in expressing furniture and appliance
loan rates, fewer borrowers cited the contract
rate, and more were aware that the annual per
centage rate exceeded 8 per cent than was the
case for auto loans (Table 5).
Economic status did not seem to have much
relation to the correct identification of the an
nual percentage rate for auto and furniture and
appliance loans. However, the higher the in
come, the greater the tendency for borrowers to
cite the contract rate rather than admit ignor
ance or hazard a guess.

F E D E R A L R E S E R V E B A N K OF P H IL A D E L P H IA

stages). For an add-on rate of 6 per cent, the
“ true” rate would be 11 per cent. For a dis
count rate of 6 per cent per year, the “ true”
rate would be at least 11.5 per cent. We re
garded any estimate between 10 and 12 per cent
to be correct.
Over half the people interviewed admitted
they did not know what the answer might be or
refused even to hazard a guess, while more than
one-fourth either were too high or, more often,
too low in their estimate. So, only 15 per cent
of the more than 5,000 consumers interviewed
estimated correctly.
Again, consumer knowledge of the “ true”
cost of credit was related to educational attain
ment: those with less than a high school degree
knew substantially less than those who at least
had some college experience (Table 3). Those
with a high school degree or beyond tended to
underestimate the annual percentage rate more
often than their less-educated counterparts, who
preferred to admit ignorance rather than hazard
a guess. In both cases, consumers had little
knowledge of the “ true” cost of credit as Truth
in Lending entered their lives.
This conclusion is supported by the response
of consumers who had entered into credit trans
actions around the time of the survey in June,
1969. We shall discuss two examples— auto
loans and household furniture and appliance
loans.

interviewed could identify the law and its key
features. What is more, less-educated or lower
income consumers were significantly less aware
than their better-educated, higher income neigh
bors at a time when publicity surrounding the
law probably was at its peak. Plus, most con
sumers were ignorant of the “ true” cost of the
credit they had contracted shortly before the
survey was made. Instead, many identified with
the contract rate rather than the annual percen
tage rate of cost.
Do these results imply that the goals of Truth
in Lending are far from being attained? The
answer depends on the particular goal in mind.
The goal of more informed use of credit requires
that all consumers be aware of the “ true” cost of
credit and how to use it in their credit decisions.
The survey results showed that the proportion
of knowledgeable consumers was very far short
of 100 per cent. Hopefully, this gap is closing as
more consumers are exposed to the information
the law requires. This may take some time,
however, because of the low frequency of bor
rowing by individual consumers.

The survey results may be more encouraging
for the goal of increased competition in the
market for consumer credit. It is not necessary
that each and every potential borrower have
complete command of credit information in
order to assure a competitive market for con
sumer credit. Rather, it is the behavior of a
relatively small group of borrowers (as well as
lenders) that makes the market work. To the
extent that this group is now better-armed and
possibly increasing in size because of the infor
mation provided under Truth in Lending, an
even more competitive marketplace could
develop.8
8 The difficulty in actually measuring the impact of
Truth in Lending cannot be overlooked. The real test
would be what happens to the volume and price of
consumer credit. However, there are a number of
obstacles. The relatively low frequency of borrowing
by an individual consumer implies that it may take
some time for the knowledgeable minority to exert an
influence. In addition, cost is not the sole criterion in
choosing among sources of credit or even in deciding
whether borrowing to finance an expenditure is desir
able. Finally, not all consumers have the same flexibil
ity in shopping for credit. How much flexibility a
consumer has depends on his existing debt relative to
a number of factors.

A P P E N D IX :
A SURVEY OF CONSUMER AW ARENESS
Title I of the Consumer Credit Protection Act of 1968, popularly known as
Truth in Lending, directed the Federal Reserve System to promulgate imple
menting regulations and to report annually on the impact of this legislation.
To aid in this latter duty, the Board of Governors commissioned a full-scale
survey of consumer awareness of Truth in Lending and consumer knowledge
of credit costs. This survey, made just prior to the effective date of Truth in
Lending, will serve as a benchmark against which the effectiveness of the
law can be measured from time to time.
There are many facets to the survey. The three facets on which this article
focused were:
(1) consumer awareness of Truth in Lending’s existence;
(2) consumer awareness of the information Truth in Lending is to provide;
(3) consumer awareness of the “ true” cost of credit.

J U N E 1970

Interviews with heads of households took place during June and the first
week of July in 1969. Eighteen per cent of those randomly selected refused
to cooperate. In all, 5,149 usable interviews were obtained.

TABLE 1
Awareness of Truth in Lending By Income, Education, Age, and Race
June, 1969
Proportion of Group

Income*
Less than $8,000 ....................
$8,000 or m o r e ........................
Education*
Through high school ................
Some college or m o r e .............
Age*
18-24 and 65 and o v e r ...........
25-64 ..........................................
Race*
Nonwhite ....................................
White ...........................................
Average

..........................................

Aided
Awareness

Total
Awareness

4.0%
16.5

24.2%
39.1

28.2%
55.6

5.0
23.0

27.6
41.8

32.6
64.8

4.8
11.9

25.0
33.7

29.8
45.6

4.1
10.9

20.2
33.1

24.3
44.0

10.6

31.7

42.3

B U S I N E S S R E V IE W

Unaided
Awareness

^Differences are significant at 1% level.

TABLE 2
Awareness of Truth in Lending's Key Features by Education
June, 1969
Education

As a Proportion of Those
Aware of Truth in Lending*

As a Proportion of
All Those Interviewed

Grade school or less . . .
Some high sch oo l.........
High school graduate . .
Some college ................
College graduate .........
Post-college graduate .

17.2%
31.9
38.0
50.1
46.0
52.0

0.5%
2.6
6.6
14.7
13.9
20.2

Total ...............................

40.3

16.7

* Differences are significant at 1% level.
Based on 2,145 responses.

F E D E R A L R ES E R V E B A N K OF P H IL A D E L P H IA

Based on 5 ,1 4 7 interviews.

TABLE 3
Distribution of Estimates of Annual Percentage Rate By Education
June, 1969
Less than
10%

10-12%

More than
12%

Don’t
know

Grade school or le s s .............
Some high s ch oo l..................
High school g ra d u a te ...........
Some college .........................
College graduate ..................
Post-college g ra d u a te...........

11.3%
16.2
20.2
22.4
22.0
16.2

4.1%
11.1
14.9
23.3
27.4
32.6

4.1 %
6.6
11.2
13.7
11.1
15.8

80.5%
66.2
53.7
40.5
39.6
35.4

Total

17.8

15.3

Education

......................................

9.6

57.3

Shaded column denotes correct answers.
Based on 5,142.
TABLE 4
Percentage Distribution of Annual Percentage Rate on Auto Loans
By Income of Respondent
June, 1969
Respondents’ Income
Annual Percentage
Rate

Linder
$3,000

$3,000- $5,0004,999
7,999

$8,000- $10,GOO- Over
14,999 $15,000
9,999

Less than 8 % .........
8 % or m o r e .............
Don’t k n o w ................

24.6%
19.7
55.7

25.6%
18.0
56.4

50.2%
18.5
31.3

42.2%
16.7
41.2

57.8%
17.5
24.6

60.6%
23.0
16.4

Total
48.4%
18.5
33.0

Total ...........................

100.0

Per Cent of Income
Class Purchasing
Auto with Credit . . . .

4.4

13.0

20.7

25.3

21.4

22.6

18.2

Columns may not add due to rounding.

TABLE 5
Percentage Distribution of Annual Percentage Rate on Furniture and Appliance Loans
By Income of Respondent
June, 1969
Respondents' Income
Annual Percentage
Rate

Linder
$3,000

$3,000- $5,0004,999
7,999

Less than 8 % .........
8 % or m o r e .............
Don’t k n o w ................

13.4%
5.0
81.7

16.0%
9.4
74.6

Total

17.4%
27.8
54.8

$8,000- $10,GOO- Over
9,999
14,999 $15,000
31.6%
19.0
49.4

34.0%
26.6
39.4

34.9%
27.3
37.7

Total
27.2%
24.0
48.8

.........................

100.0

Per cent of Income
Class Purchasing
Furniture or Appliance
With C re d it................

10.1

13.9

20.8

17.2

16.4

9.8

15.1

Columns may not add due to rounding

H ave you ever w ondered why the United
States has had a persisten t deficit in its
balance of paym ents? W hat the m echanism
is for m aking paym ents in international
tran sactio n s? Or how we go about d efen d
ing the dollar? D esigned for the general
reader rather than the expert in interna
tional econom ics, this is the first of 3
articles which attem pt to provide an sw ers
to these questions.

Balance of Payments
by Clay J. Anderson

A nation’s balance of payments is a statement of
its receipts from, and payments to other coun
tries during a given period of time.
Spending, borrowing, lending, and investing
are not confined within national boundary lines.
Consumers and business firms in the United
States buy goods and services from all over the
world. Firms in the United States sell goods and
services in other countries. We lend and invest
in foreign countries; foreigners lend and invest
here. We pay interest and dividends on foreign
investments in this country and, in turn, receive
income on funds loaned and invested abroad.
We are spending large amounts for foreign
travel— much more than foreign visitors spend
here. Our Government makes large payments
abroad; foreign governments make payments
here. These illustrations are only a few of the
multitude of transactions that crisscross national*
1
boundaries. Some transactions result in receipts
from, others in payments to foreign countries.
In this article, we shall discuss three main
topics:
1. Composition of the balance of pay
ments;
2. Recent trends in the balance of pay
ments of the United States;
3. Implications of the balance of
payments for economic policy.
STRUCTURE AND COMPOSITION

There are millions of separate transactions be
tween citizens, business firms, and government
in the United States and their counterparts
abroad during a year. A statement of the bal
ance of payments of the United States classifies
and summarizes the transactions in a way which
shows the major sources of receipts and the
principal types of payments. Each classification
of receipts and payments represents the total of
a large number of individual transactions.

It would be rare, indeed, if having totaled all
receipts and all payments, the two totals should
be equal. Typically, one is larger than the other.
If receipts are larger than payments, the balance
of payments shows a surplus; if payments ex
ceed receipts, it shows a deficit. Total receipts

and total payments balance only if settlement
items, such as transfers of gold and net changes
in foreign assets and liabilities, are included.
The following simplified statement illustrates
a common form and principal components of
the United States balance of payments.

UNITED STATES BALANCE OF PAYMENTS*
(Billions of dollars)
Receipts
Merchandise exports ...................................................................................... $33.6
Military s a le s ...................................................................................................
1.4
Transportation, travel, and other services ...............................................
7.9
Income from investments abroad** ..........................................................
7.7
Inflow of foreign capital, n e t ........................................................................
8.6
Total recepits ..........................................................................

$59.2

Payments
Merchandise im p o rts .................................
Military expenditures a b ro a d ........................................................................
Transportation, travel, and other services..................................................
Income payments on foreign investments in the U.S................................
Remittances and pensions ..........................................................................
Outflow of private capital, n e t ......................................................................
U.S. Government grants and capital outflow, n e t ....................................
Errors and unrecorded transactions...........................................................

33.0
4.5
7.6
2.9
1.2
5.2
4.0
0.6

Total payments ........................................................................

$59.0

Surplus ( + ) or deficit ( - )
Liquidity basis .................................................................
Official settlements basis .............................................

+ 0 .2
+ 1 .6

Note: Detail may not add to totals because of rounding.
*Data are for 1968.
**Mostlyfrom private investments.

Receipts. Our primary source of foreign re
ceipts is sale of United States goods abroad,
which contributes roughly three-fifths of the
total. Industrial supplies and materials, manu
factured goods, and agricultural products
account for a substantial part of our exports.
Transportation and other services rendered for
eigners, including foreign travel in the United
States, contribute about one-seventh of total
foreign earnings. Another source of receipts of
about equal importance is income from foreign
investments, mostly private, such as interest,
dividends, and profits. New foreign investments

in the United States also produce an inflow of
funds. This source of foreign receipts is more
volatile than the others, but usually contributes
less than either services or investment income.
Payments. Payments abroad as well as re
ceipts arise from a multitude of individual trans
actions. The largest category of payments is for
merchandise imported from abroad. Interest and
dividend payments on foreign investments in
this country, transportation and other services
supplied by foreigners, and expenditures of
Americans traveling abroad are other sizable

classes of payments.
United States Government operations are a
much more important source of payments than
receipts. Military expenditures abroad and
Government grants and aid to foreign countries
have been substantial through most of the post
war period. A net outflow of private invest
ments, direct and portfolio, has been another
significant source of payments, especially in the
past decade.
Surplus or deficit. The difference between to
tal receipts and total payments is the surplus
or deficit: a surplus when receipts exceed pay
ments; a deficit when receipts fall short of
payments.
In the statement illustrated, there is a surplus
of $200 million on the liquidity basis and $1.6
billion on the “ official settlements” basis. The
difference in the amount of surplus reflects
divergent views on how certain items should be
shown.
PROBLEMS OF MEASUREMENT

Several problems arise in presenting the balance
of payments. For one thing, complete data are
not available. Some transactions must be esti
mated on the basis of fragmentary information.
Many small transactions are not recorded be
cause of lack of data. Consequently, an item
such as “ errors and unrecorded transactions” is
necessary in order that total receipts and total
payments will balance. In the statement illus
trated above, “ errors and unrecorded transac
tions” amounted to $600 million. The
consensus of students of balance-of-payments
statistics seems to be that a large part of un
recorded transactions consists of capital flows,
especially short-term movements.
Significant conceptual problems arise in for
mulating a statement of the balance of pay

ments. One which has received considerable
attention recently concerns which items should
be segregated “ below the line” as balancing or
settlement items.
A truly neutral concept would dictate listing
all receipts and all payments during a given
period, without any segregation of settlement
items. In a statement of this type, there would
be no surplus or deficit in the usual sense. Total
receipts and total payments would be equal
( except for errors and omissions), and no items
or categories would be segregated as to unusual
significance.
The common practice, however, is to segre
gate some items, “ dropping them below the
line” as settlement or balancing transactions.
The size of the surplus or deficit from ordinary
“ above the line” receipts and payments depends
on what is included as financing or settlement
items. The statement illustrated above shows
the surplus derived from the two concepts most
commonly used in the United States: the
“ liquidity” and the “ official settlements” basis.
The liquidity concept, developed and used by
the Department of Commerce, centers on the
role of the United States as financial leader in
the free world and its unique commitment to
buy or sell gold from or to foreign official insti
tutions at a price of $35 an ounce. The impact
of international transactions on the liquidity
position of the United States and its ability to
honor its commitment is considered of unusual
significance. More specifically, the effect on
liquidity position is determined by net changes
in total liquid liabilities (public and private) to
foreigners and net changes in official holdings
of international monetary reserves.1 Hence,
these changes are regarded as “ below the line”
1Liquid liabilities are defined as liabilities with a
maturity of one year or less.

or balancing items. The surplus so derived is
$200 million.
The “ official settlements” basis of measuring
the surplus or deficit focuses on the position of
the monetary authority— its ability to meet its
foreign liabilities and to maintain a stable rate
for its currency in foreign-exchange markets.
Thus, the significant aspect of a nation’s balance
of payments is the impact on the monetary au
thority’s liabilities to foreign official institutions
and its holdings of reserve assets to meet those
liabilities. For the United States, this means
changes in liabilities of the Treasury and Federal
Reserve to foreign “ official” institutions and in
Federal Reserve-Treasury holdings of interna
tional reserve assets (gold, convertible foreign
currencies, United States unused gold tranche in
the IMF and SD R’s). Using this concept, the

statement given above would show a surplus of
$1.6 billion.
Where the line is drawn between ordinary
and balancing items has an important bearing on
the size of the surplus or deficit. Items listed
above the line produce the imbalance; those
listed below are visualized as settling the surplus
or deficit thereby created. The principal differ
ences between the liquidity and official settle
ments methods are twofold: (1 ) the liquidity
basis excludes long-term liabilities to foreigners
as a balancing item and includes all short-term
liabilities, both public and private; (2 ) the
official settlements method excludes all private
liabilities to foreigners but includes all liabili
ties— short- and long-term— to foreign official
institutions. These differences for the balance of
payments given above are tabulated below.

Surplus accounted for on:
(Billions of dollars)
Liquidity b a s is ................................................................................................... $0.2
Change in liquid liabilities to foreigners
Private ........................................................................
+ 3 .8
Official agencies ......................................................
—3.1
Net increase in liquid liabilities.........................
+ 0 .7
Increase in official reserve a s s e ts.............................
Surplus .................................................................

+ 0 .9
$0.2*

*Net increase in official reserve assets of $0.9 billion, less net increase in
liquid liabilities of $0.7 billion.
Official settlements basis ...............................................................................$1.6
Change in liabilities to foreign official agencies
Liquid liabilities ......................................................
-3 .1
Nonliquid liabilities .................................................
+ 2 .4
Net change ...........................................................
-0 .7
Increase in official reserves ......................................
Surplus .................................................................

+ 0 .9
$1.6*

*Net increase in official reserve assets of $0.9 billion, plus net decrease in
official liabilities of $0.7 billion.

This summary table shows why the surplus
was $1.4 billion larger in 1968 on the official
settlements basis than on the liquidity basis. The

primary reason was the large borrowings of
United States commercial banks in the Euro
dollar market. Short-term liabilities of commer

1These operations are explained more fully in the
two articles to follow.

Declining trade surplus. Historically, the
United States has sold more goods abroad than
it has purchased from foreign countries. Mer
chandise exports have exceeded imports every
year in the present century except for a very
small deficit in 1935.1

J U N E 1970

" Gold, convertible foreign currencies, unused gold
tranche in the IM F, and SD R ’s.

RECENT TRENDS

Current and prospective developments in our
balance of payments may be better understood
if viewed in the perspective of major trends in
the postwar period. Some of the highlights are
summarized below.

B U S I N E S S R E V IE W

the ceiling as private holders of dollars offer
them for sale. To keep their currencies from
breaking through the ceiling, foreign central
banks sell their currencies for dollars— i.e., pur
chase dollars.3 As foreign central banks acquire
dollars from private holders, they may use them
to buy gold from the U.S. Treasury. Private
short-term liabilities to foreigners are, via their
central bank, a potential claim on our gold and
other reserve assets. Hence, advocates of the
liquidity view contend these liabilities should
be included in measuring the international
liquidity position of the United States.
Advocates of the official settlements concept,
however, counter that a large part of these pri
vate foreign-owned dollars and short-term dollar
assets represent working balances of commercial
banks and other private participants in foreignexchange markets. Widespread use of the dollar
in international payments requires such partici
pants to hold dollar balances for their day-to-day
operations. It is highly unlikely, therefore, that
the bulk of private short-term liabilities to for
eigners will ever become a drain on United
States international monetary reserves.

FE D E R A L R E S E R V E B A N K OF P H IL A D E L P H IA

cial banks to foreigners rose $3.4 billion and
other private short-term liabilities, over $400
million for a total of $3.8 billion. Intermediate
and long-term liabilities to foreign official insti
tutions increased $2.3 billion. The $3.8 billion
increase in private short-term liabilities abroad,
omitted from the official settlements basis, more
than offset the $2.4 billion rise in nonliquid
liabilities omitted in the liquidity method. Pri
vate short-term liabilities rose $1.4 billion more
than nonliquid liabilities to foreigners, thereby
reducing the $1.6 billion official settlements
surplus to $0.2 billion on the liquidity basis.
There are sound reasons for both of these
concepts of measuring a balance-of-payments
surplus or deficit. In the present international
monetary system, the United States permits
only foreign official institutions to use their dol
lars to buy gold from the Treasury; private
foreign holders cannot do so. From this point
of view, it is logical to regard the international
liquidity position of the United States as being
determined by its holdings of international
monetary reserves2 in relation to its liabilities to
foreign official institutions. The potential drain
that private foreign owners of dollars may exert
indirectly is disregarded.
The liquidity view regards all short-term
liabilities to foreigners as potential claims,
directly and indirectly, on United States inter
national monetary reserves. The United States
dollar is widely used as a means of international
payment. In complying with the IMF agree
ment, most foreign free-world countries main
tain their currencies within the agreed limits of
par in terms of the United States dollar. If the
dollar becomes too plentiful in foreign-exchange
markets, foreign currencies will tend to rise to

The trade surplus was especially large in the
early postwar years, reaching a peak of $10 bil
lion in 1947. Wartime destruction seriously
impaired productive capacity in major foreign
industrial countries. Foreign demand, inflated
by reconstruction needs, was directed mainly at
the United States, the principal source of supply.
Large United States grants for reconstruction

and recovery enlarged the purchasing power of
foreign countries and underwrote the demand
for United States exports. Meanwhile, United
States imports were relatively small: intense do
mestic demand abroad and scant supplies of goods
in foreign industrial countries held down exports
by foreign countries. These conditions gave rise
to the much-discussed “ dollar shortage.”

B A L A N C E O F M E R C H A N D IS E
Billions Of Dollars

Source: U.S. Department of Commerce.

Our trade surplus declined as reconstruction
and recovery in the major industrial countries
enabled them to supply more of their own
demands. United States exports declined and

remained at a relatively low level until the mid1950’s, and imports showed a general upward
trend. The trade surplus remained at a relatively
low level in the 1950’s except for the sharp rise

B A L A N C E O N S E R V IC E S *
Billions Of Dollars

’ Consists mainly of transportation, travel, and receipts or payments on investments.
Source: U.S. Department of Commerce.

Surplus on services grows. Transportation,
travel, investments, and other services produce a
flow of foreign receipts and payments. The
United States has maintained a surplus in this
category every year in the postwar period. The
surplus on services remained fairly stable until
the 1960’s, ranging from a low of $1.4 billion to
a high of $2.5 billion. In the 1960’s, the surplus

more than doubled, rising from $2 billion in
1960 to $5 billion in 1968.
The major contributor to the growing surplus
was income from private investments abroad.
The excess of receipts from investments abroad
over payments on foreign investments in the
United States soared to almost $5 billion in
1968. Service payments to foreigners have risen

JU N E 1970
B U S I N E S S R E V IE W

goods. Exports rose more rapidly than imports
until 1965. Then the situation began to shift.
Soaring demand, approximately full employ
ment, and rising prices in the United States
induced a strong rise in imports, and the trade
surplus dwindled. It hit a postwar low in 1968,
and there was a small deficit in the first half of
1969.

F E D E R A L R E S E R V E B A N K OF P H IL A D E L P H IA

in 1956 and 1957. This increase reflected in
part the export stimulus arising from the Middle
East crisis and closing of the Suez Canal.
The decade of the 1960’s ushered in several
years of relatively large export surpluses. Rapid
rates of economic growth in major foreign coun
tries and relative price stability in the United
States created a strong demand for United States

Balance on Capital Flows*
(Billions of dollars)
Year

1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968

Net outflow
U.S. capital
Private
Govt.
5.3
6.1
4.9
5.6
3.6
3.2
2.4
2.1
1.6
2.2
2.4
2.6
2.6
2.0
2.8
2.8
3.0
3.6
3.6
3.4
3.4
4.2
4.0

0.4
1.0
0.9
0.6
1.3
1.0
1.2
0.4
1.6
1.3
3.1
3.6
2.9
2.4
3.9
4.2
3.4
4.5
6.6
3.8
4.3
5.7
5.2

Surplus ( + ) or
Net inflow
deficit ( —)
foreign capital**
-0 .6
-0 .4
- 0 .4
0.0
0.2
0.5
0.1
0.1
0.2
0.3
0.6
0.5
0.2
0.7
0.4
0.7
1.0
0.7
0.7
0.3
2.5
3.4
8.6

- 6 .3
-7 .5
-6 .2
-6 .2
- 4 .7
-3 .7
- 3 .5
-2 .4
-3 .0
-3 .2
-4 .9
- 5 .7
- 5 .3
-3 .7
- 6 .3
- 6 .3
-5 .4
-7 .4
- 9 .5
-6 .9
-5 .2
-6 .5
-0 .6

* Includes short-term capital.
*lncludes certain special Government transactions.
Source: Survey of Current Business, June 1969, pp. 26-27.

steadily, but at a slower pace than receipts.
Travel is our main deficit item in the service
category. In the past three years, United States
tourists spent on the average $1.3 billion more
annually in foreign countries than foreign
travelers spent in the United States.
Military expenditures abroad. As leader of the
free world, the United States has incurred large
expenditures in maintaining troops and military
bases in foreign countries. Military expenditures
abroad have been a substantial deficit item for
the past 15 years. These outlays reached $2
billion in 1952, passed $3 billion in 1957 and,
because of the hostilities in South Vietnam,
soared to over $4 billion annually in 1967 and
1968.

Deficit on capital account. Private firms, in
dividuals, and the Government have loaned and
invested more in foreign countries every year
since World War II than foreigners have loaned
and invested in the United States. The deficit on
capital account ranged from a high of $9.5 bil
lion in 1964 to a low of less than $1 billion in
1968.
In the early postwar years, Government
grants and loans for reconstruction in wardevastated countries dominated our capital
flows. The net outflow on Government account
averaged over $5 billion annually from 1946 to
1949. There was a substantial decline in the
early 1950’s.
The outflow of private capital was at a very
low level until the mid-1950’s. Restoration of

J U N E 1970

Basic structural shifts? A substantial surplus
on goods and services and a relatively large
deficit in capital flows (Government and pri
vate) have characterized the United States bal
ance of payments during most of the postwar
period. The trade surplus largely financed Gov
ernment grants and loans and net private invest
ments abroad. The modest deficits in most of
the early 1950’s helped redistribute the large
volume of international monetary reserves ac
cumulated by the United States in the war and
early postwar years.
The relatively large deficits which began in
the late 1950’s reflected mainly a rising net out
flow of capital and since the mid-1960’s, a
dwindling trade surplus. An important question
is whether the shifts which have been occurring
in the United States balance of payments reflect
only temporary forces or the emergence of more
basic structural changes.
Gross capital flows have been increasing rela
tive to the total volume of merchandise trade.
The large net outflow of private capital in the
1960’s was stimulated in part by rapid economic
growth and improved market opportunities in
major industrial countries of Western Europe.
In the United States, a slow rate of economic
growth in the first part of the sixties, low
interest rates, and an ample supply of credit also
stimulated loans and investments abroad. Gov
ernment controls and voluntary restraint pro
grams have restricted the outflow in recent
years.
The recent decline in the deficit in capital
flows reflects important temporary forces. Gov
ernment controls and voluntary credit restraint
programs have limited private loans and invest-

B U S I N E S S R E V IE W

enhances the liquidity of portfolio securities
held abroad.

F E D E R A L R E S E R V E B A N K O F P H IL A D E L P H IA

convertibility of the major currencies in the late
1950’s and relaxation of Government restraints
on capital movements set the stage for enlarged
flows of private capital abroad. The net outflow
began to rise in the mid-1950’s and averaged
nearly $5 billion yearly during the period 1960
to 1967.
The net outflow of Government capital re
mained at a relatively low level in the latter part
of the 1950’s, but military and economic aid to
developing countries boosted the figure to $4
billion in 1967 and 1968.
There was a net outflow of foreign capital in
the latter part of the 1940’s, as foreigners
liquidated investments to pay for United States
goods. A net inflow, which emerged in 1950,
remained at a low level until 1966. The sharp
rise beginning in that year, which approached
$9 billion in 1968, reflected both temporary and
more permanent forces. Periodic doubts about
some major foreign currencies, such as the
French franc and the pound sterling, induced an
outflow of funds into safer currencies, including
the United States dollar. Inflationary pressures,
exceptionally high interest rates, and the tightmoney policy in the United States, especially in
the latter part of 1968, sucked in a large flow of
funds from abroad. Large commercial banks
turned to the Euro-dollar market to replace
their loss of time certificates of deposit and to
augment funds available to meet strong cus
tomer loan demand. A buoyant stock market
probably also attracted some foreign funds.
More permanent factors in the rise in foreign
portfolio investments in the United States are
the increase abroad in United States-controlled
or -oriented mutual funds, a rising volume of
foreign savings being invested in securities in
stead of being hoarded as money, and a broad
securities market in the United States which

ments abroad. A rapid rate of economic growth,
high interest rates, and a strong demand for
credit in the second part of the decade produced
attractive investment opportunities at home.
These conditions tended to reduce the outflow
of private capital and, in turn, offered a strong
inducement for foreigners to make loans and
investments in the United States. The large
increase in the inflow of foreign capital was the
principal reason for the drastic drop in our
deficit on capital account in 1968.
But more enduring forces also appear to be
reducing our net capital outflow. The large
volume of private investment abroad produced
a return flow of interest and profits. Income
from foreign investments almost trebled in the
past decade and totaled nearly $7 billion in
1968. Income, saving, and the supply of funds
seeking investment have been rising at a rapid
pace in some major industrial countries abroad.
Our highly developed and broad securities
markets together with growing solicitation by
mutual funds and other financial institutions
are contributing to an enlarged flow of foreign
funds into our securities. Also, the rapid growth
rates in several Western European countries
relative to the United States which induced a
large volume of direct investments by United
States corporations seem to be subsiding some
what. Apparently, there are underlying forces
tending to swell the inflow of foreign capital and
diminish the volume of direct investments
abroad. If so, our persistently large deficit on
capital account until 1968 may show a down
ward trend.
Longer run forces also may underlie the
recent deterioration in our trade surplus. The
marked decline in our export surplus since 1965
was undoubtedly the result mainly of temporary
conditions in the United States— strong infla

tionary pressures which lifted United States
prices relative to those in major foreign coun
tries and work stoppages in some of our main
industries which encouraged imports. From
1965 to 1968, imports rose over 50 per cent,
compared with an increase of less than 30
per cent for exports.
There are indications, however, that longer
run forces may be altering our trade position
vis-a-vis industrial countries abroad. Since 1948,
the total volume of free-world trade has about
quadrupled. The United States proportion of the
total has declined slightly while that of the
industrial countries of Europe has risen substan
tially. Reconstruction following the war mod
ernized the industrial facilities of several West
European countries, thereby improving their
competitive position. Large direct investments
by United States corporations in order to better
penetrate the Common Market in Europe have
shifted some production abroad, thus tending to
reduce exports. It may be that forces such as
these will diminish the relative importance of
merchandise trade in our balance of payments
and reduce our customary trade surplus.
IMPLICATIONS FOR POLICY

International transactions are relatively less im
portant to the United States economy than to
the economies of most other major countries.
For example, the United States exports only
about one-eighteenth of its total output of
goods and services as compared to over onefifth for the United Kingdom, one-fourth for
West Germany, and almost one-half for the
Netherlands. The impact of the balance of
payments on the economy of the United States,
however, is often much greater than such data
might indicate.
Domestic effects of international transactions

4 T o illustrate, exports increase output, employment,
and profits of many domestic producers. Imports pro
vide some goods, such as certain tropical products, that
we cannot produce; they supply some materials and
finished goods more cheaply than can be produced
here. Cheaper raw materials may enhance the profits of
some manufacturers; lower-priced finished goods may
restrict the profits of others. Both exports and imports
tend to stimulate innovation— by domestic exporters in
order better to penetrate foreign markets and by domes
tic producers threatened by an inflow of foreign prod
ucts. In general, a free flow of goods and capital among
countries encourages specialization, more efficient pro
duction, and a higher standard of living.

J U N E 1970
B U S I N E S S R E V IE W

official institutions— central banks and govern
ments— and to international institutions such as
the International Monetary Fund. Widespread
use of the dollar as a medium of international
payments, ability of foreign official institutions
to convert dollars into gold for legitimate mone
tary purposes, and confidence that the United
States will maintain the value of the dollar are
important reasons why foreigners are willing to
hold dollars. Many foreign central banks hold a
part or all of their monetary reserves in dollars;
others hold practically all their reserves in
gold. When the latter acquire dollars, a loss of
gold is almost automatic.
Private institutions, which hold the major
part of foreign-owned, short-term dollar assets,
need dollar working balances in conducting
international transactions. Willingness to hold
an excess above a minimum working balance
depends on their confidence in the future value
of the dollar and on the interest rate they can
earn on short-term investments compared with
rates available on similar investments in other
countries with stable currencies. With converti
bility of the major currencies, interest-rate dif
ferentials tend to generate a flow of short-term
funds from international money centers with
lower to those with higher short-term rates.
Ordinarily, official institutions and international
organizations do not shift balances from one
center to another to take advantage of interestrate differentials.
One might well ask, why so much fuss over
the balance of payments— it is just a collection
of statistics. What difference does it make
whether receipts and payments balance? The
answer: a persistent deficit or surplus has farreaching economic effects.
The persistent deficit in the United States
balance of payments resulted in a substantial

F E D E R A L R E S E R V E B A N K OF P H IL A D E L P H IA

have many ramifications.1 Our concern here is
with a much more limited aspect— the impact
on our reserve position and implications for
monetary and economic policies.
In international transactions, as in domestic,
we can spend more than we receive only by
going into debt, or by giving up something, such
as gold, that foreign creditors are willing to
accept in payment. The initial effect of our
deficit mainly is to increase bank deposits in the
United States owned by foreigners. Deposits in
excess of minimum working-balance needs are
frequently invested in highly liquid earning
assets, such as U.S. Treasury bills, other short
term securities, and commercial paper. Thus,
when foreigners accept dollars in payment of
deficits, our liabilities to foreigners increase, and
they accumulate deposits and other short-term
dollar assets in the United States.
In 1969, foreign holdings of short-term dollar
assets rose above $40 billion. The sharp rise in
1969 reflected in part borrowing by United
States banks from their foreign branches, but
the principal cause of the increase over the
years has been the deficits in the United States
balance of payments.
What determines whether our deficits are
settled in dollars or in gold? The choice rests
with our foreign creditors. A substantial part of
our short-term liabilities to foreigners is to

G O L D S T O C K A N D S H O R T -T E R M L IA B IL IT IE S
T O F O R E IG N E R S *
Billions Of Dollars

^Reported by banks in the United States.
**October for liabilities and November for government.
Source: Board of Governors of the Federal Reserve System

drain on our gold stock, absorbed member-bank
reserves, and caused much of the growing ac
cumulation of short-term dollar assets owned by
foreigners. Excessive holdings of dollars tend to

undermine confidence in the dollar and create a
further strain on our monetary reserves. Only
our large gold stock and the willingness of for
eigners to hold large quantities of dollars en-

5The latter will be dealt with in a later article.

JU N E 1970
B U S I N E S S R E V IE W

most effective use of monetary policy to achieve
domestic economic goals.
Occasional deficits are not serious; however,
persistent, large deficits are cause for consid
erable concern. Large deficits put a substantial
flow of dollars at the disposal of foreigners,
weaken the dollar in foreign-exchange markets,
and result in a drain on our international mone
tary reserves. The tendency is to undermine the
dominant position of the dollar in international
finance and the role of the United States as
leader of the free world. Adverse effects of our
persistent and substantial deficits are an impor
tant reason why it is essential that inflation be
brought under control. Halting the rise in U.S.
prices relative to prices in major foreign coun
tries is a prerequisite to restoring our normal
trade surplus and improving our balance-ofpayments position.

F E D E R A L R E S E R V E B A N K OF P H IL A D E L P H IA

abled the deficit to continue for such a long
period without disastrous results. Even so, the
deficit had a significant influence on monetary
policy and led the Government to take actions
to reduce the deficit and defend the dollar in
foreign-exchange markets.5
Large balance-of-payments deficits compli
cated pursuance of effective monetary policies in
the early 1960’s. Economic slack and a slow rate
of growth called for easy money and other
economic policies designed to stimulate recovery
and economic growth. But the easy-money
policy and low interest rates needed to stimulate
recovery and growth also encouraged an outflow
of capital, especially short-term funds. This capi
tal outflow tended to enlarge the balance-ofpayments deficit. The deficit interfered with the

BANK CREDIT PROXY
Bank Credit Proxy— Rich March 70 p 12

BANK LIQUIDITY
An Alternative Approach to Liquidity:
Part II— Kans Feb 70 p 11
Disintermediating Year— San Fran
Feb 70 p 44

BANK LOANS
Banking Responds to Monetary Restraint—
Atlanta Jan 70 p 7

BANK LOANS—FARM
Farm Finance in a Period of High Interest
Rates— Chic March 70 p 12

BOPP, KARL R.
Central Banker ( Eastburn)—
Phila March 70 p 3

BUSINESS CYCLES

THE FED IN PRINT
Continuing our project of current information
begun in the March issue, we are publishing a
list of subjects covered by articles in the Federal
Reserve Bank monthly Reviews during the first
quarter of 1970. The March bibliography was
selective for the year 1969. This one is more
comprehensive, including titles of all analytical
studies and summaries of banking and business
conditions for the period of a year or more.
Your comments on the scope and form of this
index are invited and your use of the library
facilities is welcomed. Individual Reviews may
be obtained by writing to the Public Informa
tion Department of the issuing bank. Addresses
of the Federal Reserve Banks appear on page 34.
Doris Zimmermann, Librarian

The Trend of Business (1969 vs 1966)—
Chic Feb 70 p 2
Real Economic Expansion Pauses
St. Louis Feb 70 p 2
Extent of the Slowdown— St. Louis
March 70 p 2

BUSINESS FORECASTS & REVIEWS
Annual Review Issue— San Fran Feb 70 p 27
Forecasts 1970: A Cooling Economy?—
Rich Feb 70 p 2
Economic Review of 1969— Rich Jan 70 p 2
Regional Economy Loses Some Zip in ’69—
Phila Jan 70 p 36
Outlook ’70— the Pause that Refreshes?—
Kansas Jan 70 p 3
The 1969 Economy— Waiting for a
Slowdown— Dallas Jan 70 p 3
The 1960s— Lessons for the 1970s—
Chic Jan 70 p 2
The Southeast: At the Turn of the Decade—
Atlanta Jan 70 p 2

EEC: Effects of a Policy— San Fran
March 70 p 74

CONSTRUCTION
Construction Continues Strong— Atlanta
Jan 70 p 15
Construction Costs— Rich Feb 70 p 6
Built to the H ilt?— San Fran Jan 70 p 15

COPPER
Red Metal in Flux Available— San Fran
Jan 70 p 23

CREDIT
Impairment in Credit Flows: Fact or
Fiction?— Atlanta Feb 70 p 22

DEBT, PUBLIC
State and Local Government Debt—
Rich Jan 70 p 6

ECONOMIC STABILIZATION
The Human Lag— Phila Jan 70 p 30
Some Issues in Monetary Economics—
St. Louis Jan 70 p 10

EDUCATION
The Need for Change in State Public School
Finance Systems— Bost Jan 70 p 3

EURODOLLAR
The Eurodollar Market: The Anatomy of a
Deposit and Loan Market—
Cleve March 70 p 3
Money Creation in the Euro-Dollar Market—
A Note on Professor Friedman’s Views—
N.Y. Jan 70 p 12

FARM CREDIT
Farm Financial & Credit Conditions—
Rich Feb 70 p 8

FARM EXPORTS
The EEC and U.S. Agriculture—
Chic Feb 70 p 6

JU N E 1970

COMMON MARKET

Agriculture Shows Mixed Behavior
Atlanta Jan 70 p 12
Farm Fare in 1970— San Fran March 70 p 76

FARM MORTGAGES
The Impact of Tight Credit—
Chic Feb 70 p 11

FARM OUTLOOK
Agriculture— Strong in 1969, Excess
Capacity Continued— Chic Jan 70 p 10
Agricultural Outlook for 1970— Rich
March 70 p 9

FARM POLICY
A New Farm Policy?— San Fran
March 70 p 67

FEDERAL FUNDS MARKET
Market Revisited— Cleve Feb 70 p 3

FEDERAL RESERVE BANKS—EARNINGS

B U S I N E S S R E V IE W

In Major Areas of the Fourth District—
Cleve Jan 70 p 17

FARM INCOME

$3,019,000,000 Paid the U.S. Treasury—
Atlanta Jan 70 p 17

FEDERAL RESERVE BANKS OPERATIONS
1969 St. Louis— St. Louis Feb 70 p 8

FEDERAL RESERVE—CREDIT CONTROL
Monetary Actions, Total Spending and
Prices— St. Louis Jan 70 p 2
Current Banking Developments
(Coldwell)— Dallas March 70 p 3

FEDERAL RESERVE—FOREIGN
EXCHANGE
Treasury and Federal Reserve Foreign
Exchange Operations— N.Y.
March 70 p 50

FEDERAL RESERVE SYSTEM
Introduction to the System (B opp)— Phila
Jan 70 p 3
As A Living Institution (Eastburn)— Phila
March 70 p 7

FEDERAL RESERVE SY ST E M PUBLICATIONS
Fed in Print— Phila March 70 p 17

F E D E R A L R E S E R V E B A N K O F P H IL A D E L P H IA

CAPITAL EXPENDITURES

FINANCE, INTERNATIONAL
The 1969 Economy— Waiting for a
Slowdown— Dallas Jan 70 p 3
International Lending Agencies: Instruments
for Economic Development— Atlanta
March 70 p 38

FISCAL POLICY
Inflation: A Test of Stabilization Policy
(H ayes)— N.Y. Feb 70 p 19

FLORIDA
Florida’s Torrid Growth Cools a Bit—
Atlanta Feb 70 p 27

FOREIGN EXCHANGE RATES
More Flexibility in Exchange Rates— And in
Methods— St. Louis March 70 p 11

HEADQUARTERS
Have Human Problems— Phila Feb 70 p 3

HOUSING
Production and Finance (Burns)— Chic
March 70 p 5

INFLATION
Contending Forces— San Fran Feb 70 p 27
Gainers and Losers— Phila Feb 70 p 23
A Test of Stabilization Policy (H ayes)—
N.Y. Feb 70 p 19
Problems of the 1960’s and Implications for
the 1970’s— Cleve Feb 70 p 14

INDUSTRIAL DEVELOPMENT
Industrial Development on the Mexican
Border— Dallas Feb 70 p 3

INTEREST RATES
Tight Money Revisited— San Fran
Feb 70 p 39

JACOBSSON PER
Foundation Lecture — available— N.Y.
March 70 p 65

LOCAL TRANSIT
BA RT: Dig We Must— San Fran Jan 70 p 3

LIVESTOCK INDUSTRY
Economic Growth and the Beef Industry—
Kansas Feb 70 p 3

LOUISIANA
Area Diversity in Louisiana’s Growth—
Atlanta March 70 p 42

MONETARY POLICY
Monetary and Fiscal Influences on Economic
Activity: The Foreign Experience—
St. Louis Feb 70 p 16
New New Economies and Monetary Policy
(Francis)— St. Louis Jan 70 p 5
Perspective (D aane)— Rich March 70 p 2

MONETARY STABILIZATION
Gold and the International Monetary
System— Kansas March 70 p 11

MONEY MARKET
Appears every month in N.Y.

MONEY SUPPLY
And Time Deposits 1914-69— St. Louis
March 70 p 6

MORTGAGES
Federal Housing Agencies and the
Residential Mortgage Market— Rich
Jan 70 p 9

NEGROES
How Businessmen Can Assist the Black
Capitalism Movement— Boston
Jan 70 p 23

OPEN MARKET OPERATIONS
Minutes 1962-1965. Available for
Reference— Atlanta Feb 70 p 31

Change in Par Status— Atlanta Jan 70 p 11

REGULATION Q
The Administration of Regulation Q—
St. Louis Feb 70 p 29

REGULATION Z

Activation of SDR Facility in I M F— N.Y.
Feb 70 p 40

TREASURY BILLS

J U N E 1970

SPECIAL DRAWING RIGHTS

PAR COLLECTIONS

Trends and New Developments—
1939-1969— Cleveland Jan 70 p 3

Film Strip Now Available— Phila Feb 70 p 3

SERVICE INDUSTRIES

B U S I N E S S R E V IE W

Where the Action Is— Kansas March 70 p 3

NOW AVAILABLE

One of the liveliest debates among economists in recent years is the
relative importance of fiscal vs. monetary policy in determining the
level of national income. Economist Ira Kaminow outlines both sides
of this controversy in the pamphlet, “ The Myth of Fiscal Policy: The
Monetarist View,” which has been reprinted from the December, 1969
Business Review.
Copies of the pamphlet are available upon request to the Public
Services Department, Federal Reserve Bank of Philadelphia, Philadelphia,
Pennsylvania 19101.

F E D E R A L R E S E R V E B A N K OF P H IL A D E L P H IA

THE MYTH OF FISCAL POLICY:
THE MONETARIST VIEW

FEDERAL RESERVE BANKS
(A lp h a b e tic a lly b y C itie s)
Federal Reserve Bank of Atlanta
Federal Reserve Station
Atlanta, Georgia 30303
Federal Reserve Bank of Boston
30 Pearl Street
Boston, Massachusetts 02106
Federal Reserve Bank of Chicago
Box 834
Chicago, Illinois 60690
Federal Reserve Bank of Cleveland
P.O. Box 6387
Cleveland, Ohio 44101
Federal Reserve Bank of Dallas
Station K
Dallas, Texas 75222
Federal Reserve Bank of Kansas City
Federal Reserve P. O. Station
Kansas City, Missouri 64106

Federal Reserve Bank of Minneapolis
Minneapolis, Minnesota 55440
Federal Reserve Bank of New York
Federal Reserve P. O. Station
New York, New York 10045
Federal Reserve Bank of Philadelphia
925 Chestnut Street
Philadelphia, Pennsylvania 19101
Federal Reserve Bank of Richmond
Richmond, Virginia 23213
Federal Reserve Bank of St. Louis
P.O. Box 442
St. Louis, Missouri 63166
Federal Reserve Bank of San Francisco
San Francisco, California 94120
Mail will be expedited by use of these addresses.

FOR THE R E C O R D . . .
INDEX

BUSINESS

"A C T O R Y

PAYROLLS,

D IS T .

1 9 5 7 1 9 5 9 = 100)

________________

C O N S U M E R P R IC E S ,
(1 9 5 7 -1 9 5 9 = 1 00 )

F \C T O R Y

EM PLO YM ENT,

P f lIL A .

D IS T .

<1 )5 7 -19 5 9 = 1 0 0 )

----------------------- ----------------------YEAR
APR

2 YEARS
AGO

AGO

1970

Third Federal
Reserve District
Per cent change
SU M M ARY

United States
Per cent change

April 1970
from
mo.
ago

year
ago

4
mos.
1970
from
year
ago

April 1970
.from
year
ago

mo.
ago

Manufacturing
Employ
ment

4
mos.
1970
from
year
ago

Standard
Metropolitan
Statistical
Areas*

+
3
2
2
+
3
+206
8

+
+
+
-

4
2
1
4
77
3

+
+
+

2 1 +
0 1 0 4+ +

Per cent
change
April 1970
from

year
ago

mo.
ago

year
ago

mo.
ago

year
ago

+ 6

+ 9

Wilmington . .

+ 15
+ 2

+ 12
+ 4

Altoona ......

+ 2

+
+
+
+
+
+

1
1
2
2
2
3

- 3
+ 6
- 4
-1 0
+ 1
+ 14

- 2
+ 7
- 7
-1 4
- 1
+ 12

'Production workers only
"V a lu e of contracts
"'A d ju ste d for seasonal variation

6+ +

0
+ 1

+ 4
+ 6

+ 5
+ 6

+15 SM SA ’s
^Philadelphia

+ 13

+ 12

+ 10

-1 6

+ 21

+ 6

+ 4

+ 2

+21

+ 10

+ 4

+ 7

+ 6

+ 22

+39

+ 2

+ 6

+ 13

+ 2

+ 6

. ..

+ 6

+ 18

Lehigh Valley.

+ 8

+ 2

9
7

Harrisburg . . .

Lancaster

Philadelphia

Reading ......

Scranton . . . .
Wilkes-Barre .

0+ +

year
ago

mo.
ago

+ 14

Trenton ......
+ 10
+ 1

PRICES
Wholesale ................
Consumer ................

Total
Deposits'”

mo.
ago

Johnstown ...
5 - 3
4
+ 6
9 -1 0
-1 5
13
7 - 6
16+ + 13+

Check
Paym ents"

Atlantic City. .

BANKING
(All member banks)
Deposits .................
Loans .....................
Investments .............
U.S. Govt, securities..
Other ...................
Check p a y m e n ts'" ...

Payrolls

Per cent
change
April 1970
from

LO CAL
CHANGES

MANUFACTURING
Production ..............
Electric power consumed i
Man-hours, total' .. . . i
Employment, total .... i
Wage income* .........
i
CO NST RU C T IO N " ......
+ 182
COAL PRODUCTION .... 6

Banking

Y o r k ...........

+ 7

+ 18

+ 2

+ 5

+ 3

+ 11

+ 4

+ 1

+ 2

+ 6

+ 7

+ 6

-2 7

+ 3

+ 2

+ 12

'N ot restricted to corporate limits of cities but covers areas of one or
more counties.
" A l l commercial banks. Adjusted for seasonal variation.
'"M e m b e r banks only. Last Wednesday of the month.