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Philadelphia and its Competitors
District Banks Report on Revolving Check Credit:
First Phase A-OK, All Systems Go
B U S IN E S S
R E V I E W is produced in the Department of Research. Bertram W. Zumeta was primarily responsible
for the article “Philadelphia and its Competitors” and D. Russell Connor for “District Banks Report on Revolving Check Credit:
First Phase A-OK, All Systems Go.” The authors will be glad to receive comments on their articles.
Requests for additional copies should be addressed to Bank and Public Relations, Federal Reserve Bank of Philadelphia,
Philadelphia,
Pennsylvania 19101.
Last year in this Review1 we pointed out that Philadelphia’s economy has been lagging behind the
national economy. Here we attempt to get at some of the reasons for Philadelphia’s missing jobs,
by comparing . . .
PHILADELPHIA
AND ITS COMPETITORS
Employment in metropolitan Philadelphia in
declined. During the 1960’s, so far, it has in
creased at only one-twentieth the U. S. rate
creased. The increases have been substantial
between 1953 and 1964. The area needed 240,000
enough to stem some of the precipitous erosion
new jobs just to match the national rate of in
of Philadelphia’s share in the national economy.
crease in nonfarm employment.
The region has turned around. But while it was
The
12,000
actually added amounted to only 5 per cent of
doing so, competition did not wait.
that goal.2
The situation has improved greatly in recent
Com petition am ong m etropolitan regions
years, however. From 1959 to 1964, employment
More and more, as the nation’s population and
in the region increased by 45,000. To reach the
economic activity concentrate near cities, regional
goal of meeting the national rate of increase,
136,000 more jobs were needed. Actual growth
economic competition becomes competition
among metropolitan areas. Philadelphia is
amounted to 33 per cent of that.
deeply involved in this contest, and it is hanging
The area’s economy therefore has come a long
back among the pack. Fairly complete recent
way in five years. During the 1950’s employment
information concerning employment is available
1 “ Philadelphia’s Missing Jobs," September, 1964.
2 Throughout this discussion, “ employment” refers to
nonfarm wage and salary workers. “ Philadelphia” means
the Philadelphia Metropolitan Area: Bucks, Chester, Dela
ware, Montgomery and Philadelphia counties in Pennsyl
vania; Burlington, Camden and Gloucester counties in New
Jersey.
for 16 of the country’s 20 largest metropolitan
areas. Among these 16, Philadelphia ranked
fourteenth in growth of nonfarm employment
between 1959 and 1964.
This investigation of the competitive position of the Philadelphia Metropolitan Area reveals:
1. Between 1959 and 1964, employment in the region increased at only one-third the U. S. rate
while population was growing just as fast as in the nation. New York had a similar pattern of growth,
but some other areas—Boston, for one—achieved a better balance.
2. The area's mix of economic activities inhibited its growth very little between 1959 and 1964.
3. The Philadelphia area has improved competitively in recent years, in the sense that employ
ment in more local industries exceeded national growth rates between 1959 and 1964 than between
1953 and 1964. But by reasonable standards the area could do better.
4. When boosts from favorable mixes of industry, which helped New York and Boston, are dis
regarded, Philadelphia's recent competitive performance equals theirs. But it does not match that of
other northern and eastern metropolitan regions.
5. Four industries turned in outstanding competitive performances: instruments, primary metals,
transportation equipment, and stone, clay and glass manufacturing.
6. Among nonmanufacturing activities, wholesale and retail trade and construction suffered dis
proportionately large competitive losses.
3
business review
This finding, standing alone, goes only part
This chart compares each area's growth in
way in revealing Philadelphia’s performance.
nonfarm employment and population with that
Economic health in a metropolitan region de
of the U. S.
pends on its success in employing its people.
the population and employment scales would
A position opposite 100 on both
Boston ranked thirteenth in employment growth
indicate an area that experienced precisely the
from 1959 to 1964— close to Philadelphia. But
national rates of increase in both employment
the Boston area’s performance in employing its
and population; a position opposite 50 on both
people surpassed Philadelphia’s. W hy? Because
in the Boston area during these years employ
scales would indicate a region that experienced
ment growth and population growth were in
one-half the national rates of increase in each.
The
Philadelphia
Metropolitan
Area
just
much better balance than in greater Philadelphia.
matched the increase in U. S. population. This
Employment grew at 40 per cent of the national
is indicated by its position at 100 per cent on
rate; population grew at 45 per cent of the na
the population scale. But employment in metro
tional rate. In the Philadelphia area, employment
politan Philadelphia grew
grew at 33 per cent of the national rate, but
rapidly as in the U. S. This is indicated by
population increased just as fast as in the United
Philadelphia's position opposite 33 on the em
ployment scale.
States. Employment growth in the Boston area
therefore practically paralleled the national re
lationship between employment and population
increases; in metropolitan Philadelphia it did not.
only one-third as
HOW MAJOR METROPOLITAN AREAS HAVE
GROWN IN EMPLOYMENT AND POPULATION
Employment3 (Per Cent)
The accompanying chart shows the economic
performance of the 16 metropolitan areas in
these terms.
What do these comparisons reveal? First of
all, they reveal the power of the fundamental
forces that work to shift centers of economic
activity in the United States. In today’s complex
world, economic opportunities are constantly
opening up in one place and closing down in
another. Consequently, employment needs expand
more in one region, less in another, and popu
lation follows. The factors that shift the location
of economic opportunity— technological develop
ments, changing size of markets, exhaustion of
resources— are powerful, and they induce power
ful, almost irresistible population flows.3
3
In an approximate way, the relationship shown on the
chart represents the influence of the changing basic bal
ance of regional economic advantages and disadvantages.
The strength of this relationship, over so short a period as
five years, is striking. The linear coefficient of correlation
is .91; the coefficient of determination is .83.
4
a Percentage change in nonfarm employment in region
as per cent of change in U. S., 1959-1964.
b Percentage change in population in region as per cent
of change in U. S., 1960-1964.
This aspect of competitiveness is reflected in
big differences in growth between areas like
business review
Atlanta or Los Angeles and other regions such as
ment, failures in the flow of information con
Buffalo or Pittsburgh. It does not matter whether
cerning where economic opportunity is develop
one considers employment, population, or both
ing or closing down, differences in regional
at once. Fundamental differences in regional
aggressiveness in competing for producers and
economic advantage draw people and economic
employers, differing regional mixes of industry,
activity into the one kind of region and away
the differing regional incidence of innovators
from the other.
and innovations. These often can be considerably
Regions can do little to alter these funda
mental differences. Exhaustion of resources, shifts
influenced by local action.
Boston, Philadelphia, and New York are cases
are
in point. During the period covered, as was noted
practically beyond local control, especially over
earlier, population growth in the Boston area fell
short time spans. Consider the chart again. It is
well short of the national increase. So did em
difficult for a region to help itself to move up
ployment growth. During these years migration
along that diagonal line.
from the Boston area amounted to about two-
in markets,
and changes in technology
But the chart also suggests a second point.
fifths of the number of people added through
This has to do with an area’s position above, on,
natural increase. Apparently this much out
or below the diagonal line. There are many things
migration enabled the area to maintain a balance,
that may influence this, including, for example,
between growth of population and growth of
the age and racial composition of the population.
employment opportunities, that was about the
And, of course, using the United States pattern
same as the balance prevailing nationally.
as a standard does not mean this is the ideal; the
The inference is that people in and out of the
nation itself might not put all its growing popu
Boston area during this period of time were
lation to work. Nevertheless, if we bear all these
reasonably well informed concerning compara
qualifications in mind, the position of an area
tive opportunities there and elsewhere. The mech
above, on, or below the line is one indication of
anism that adjusts regional economic growth to
how well the area succeeded in employing its
a constantly changing regional distribution of
population.
economic advantages apparently was working
Some regions seem to have adjusted better to
their fundamental situation than others. Ap
fairly well.
New York’s case was different. Population
works
grew faster than in the country as a whole, but
through interactions between employment and
employment increased less than half as rapidly
parently,
the
corrective
process
that
population did not operate as well in certain
as it did in the nation. In Philadelphia popula
areas as in others. This was a serious matter for
tion increases just matched those in the country,
those regions where employment grew much less
but
than population, and a windfall for those where
Clearly, in these regions there were disturbances
it grew more.
in the process that adjusts population to the
Communities have a much better chance to
employment
gains
were
much
smaller.
growth of job opportunities. If such disturbances
control factors that in this way disturb the
are indeed amenable to local influence, there
process of economic adjustment. Disturbances
would seem to be plenty of scope for it in these
stem from such influences as time lags in adjust
areas.
5
business re v ie w
TA B LE 1
THE EFFECTS OF SPECIALIZATION ON METROPOLITAN EMPLOYMENT GROWTH
Metropolitan Area
Percentage
Jobs Gained (+)
Mix Effect
Increases in
or Lost (—) Because
Effect of
as Per Cent
Employment
of Difference from
Industry
of Difference
1959-1964
U.S. Growth
Mix
from U.S.
(Thousands)
23.4%
Atlanta
- 1
2%
+ 52
19.3
Houston
+ 43
- 6
14
12.4
Los Angeles
24
+ 70
+17
12.1
Minneapolis-St. Paul
25
+ 16
+ 4
11.6
San Francisco
+ 23
17
+ 4
9.2
UNITED STATES
7.5
- 11
Newark
18
+ 2
7.3
- 12
Baltimore
0
0
Chicago
6.5
- 66
17
+U
5.2
Detroit
- 47
-1 0
21
5.1
- 6
40
Seattle
- 15
St. Louis
4.6
26
- 34
- 9
New York
4.4
-2 02
+49
24
Boston
15
3.7
- 59
+ 9
PHILADELPHIA
3.0
- 91
- 3
3
Pittsburgh
0.5
- 66
- 2
3
Buffalo
- 0.4
- 42
- 4
10
—
—
—
Im balance can reflect an obsolete m ix of
industries
had exactly matched the national growth rate in
What action can be most effective? This depends
that particular industry. The difference between
on the causes of imbalance. Simply examining
the jobs that in total would have been added,
information on recent shifts of economic activity
given this assumption, and the total actually
region would have grown if each industry in it
does not make possible complete separation of
added, measures the number of jobs the region
the causes. But one important factor can be
gained or lost because of its fortunate or un
isolated— differences in regional industrial spe
fortunate kinds of specialization. The measure is
cialization.
approximate, of course. But it is useful. Very
Assume that each regional industry grew at
often, as economic changes come, a region is
the national rate for that industry. Discrepancies
left with an obsolete industry mix that only time
between growth in the region and nation then
can adjust. Although some differences in special
would stem only from differences between the
ization and consequent differences in regional
national and regional concentrations of produc
growth are inevitable, many only reflect the time
tive activities. A region heavily concentrated in
it takes to make the adjustment.
slowly expanding, static or declining industries
Table 1 lists the 16 metropolitan areas in or
would grow more slowly than the nation; a
der of their employment growth. The last three
region specializing in rapidly growing activities
columns of the table show the jobs gained or
would expand more rapidly.
lost because the area exceeded or fell short of
It is quite possible to compute how much each
the nation’s growth, and indicate the contribu
business review
tion of the local mix of industries to this gain
and 1964 the favorable effect of Philadelphia’s
or loss. The contribution can be either to ac
specialization in these growth activities was
centuate or to offset the region’s difference from
almost sufficient to cancel out the drag from
the nation. Buffalo, for example, fell short by
other industries.
42,000 jobs. Of this deficiency, 4,000 can be
What would the chart on page four look like
attributed to specialization in industries having
if each area’s growth rate could be adjusted for
relatively slow rates of expansion during the
mix effects? Eight areas would increase their
period (chiefly metals and transport machinery).
positions on the employment scale. Philadelphia
Boston’s job deficiency, on the other hand, would
would move up slightly toward the diagonal line
have been greater by 9,000 if it were not for the
because it had a slight mix disadvantage, trace
Boston area’s specialization in rapidly growing
able to its specialization in several slow-growing
service industries.
manufacturing
The table indicates that the cases of New York
and
Philadelphia,
superficially
similar,
industries.
New
York,
which
benefited considerably from its above-average
were
concentrations of service and governmental ac
really quite different. New York benefited from
tivities, would drop even with Philadelphia.
unusually heavy specialization in growth activi
Boston’s advantage over Philadelphia was entirely
ties in services, finance and government. This
one of specialization. Because of this Philadel
offset
reduce
phia would displace Boston in rank if only com
significantly the shortfall in employment ex
petitive conditions were considered, taking over
pansion. The shortfall would have been 24 per
cent greater without this offset, as the percentage
thirteenth place and coming very close to a tie
with New York.
other
deficiencies
enough
to
in the last column indicates.
quite negligibly by unfavorable specialization.
Effect of specific industries on P h ila d e l
p h ia ’s com petitive position
Industries chiefly responsible for the adverse
Mix effects were not a severe drag on Phila
mix effects that did occur were food processing,
delphia’s competitiveness in recent years. What
transport, and textiles. Service and state and
was?
local government activities are important in the
growth cannot pinpoint the other factors, ex
Philadelphia area, however, and between 1959
cept to make clear that much more than the
Philadelphia, on the other hand, was affected
This
analysis
of
relative
employment
nature of the region’s industrial specialization
If you would like more detail . . .
The methodology and data underlying the
conclusions in this article are discussed
further in a technical document. Write for
An Analysis of Shifts in Employment Among
16 Large Metropolitan Areas, 1959-1964. Ad
dress Bank and Public Relations, Federal
Reserve Bank of Philadelphia, Philadelphia,
Pennsylvania 19101.
This publication briefly explains analytical
methods and data sources. It also contains
tabulations of growth rates, mix and regionalshare (competitive) effects.
was at work. The analysis can, however, do one
more job. It can identify which of the area’s
manufacturing and nonmanufacturing activities
most hurt its growth, and which helped most,
between 1959 and 1964. They fall into three
groups, shown in Table 2.
Group I is a select group of only four indus
tries which got so much new business between
1959 and 1964 that they added employees more
rapidly than their national counterparts. That
7
business review
TA B LE 2
HOW SPECIFIC INDUSTRIES HELPED OR HELD BACK
PHILADELPHIA’S EMPLOYMENT GROWTH SINCE 1959
Group
Industries in Group
I. Each of these local industries grew faster than its U. S. counter- Instruments
Stone, clay,
part. Consequently, in it Philadelphia's share of the nation's jobs
and glass
increased.
a Primary metals a Transportation
equipment
II. Each of these local industries grew slower than its U. S. counter
part, so Philadelphia's share of employment in it decreased. But
of all industries in which Philadelphia's share decreased, these in
dustries each accounted for a smaller proportion of the area's job
deficiency than of its employment.
III. Each of these local industries grew slower than its U. S.
counterpart, so Philadelphia's share of employment in it decreased.
But of all industries in which Philadelphia's share decreased, these
industries each accounted for a larger proportion of the area's job
deficiency than of its employment.
a Was in lower group before 1959.
b Was in higher group before 1959.
means the Philadelphia area increased its share
of the nation’s employees in those industries.
Groups II and III consist of activities which
increased less rapidly than their national counter
parts. Philadelphia suffered a competitive loss of
jobs in these industries, because when the period
was over it had a smaller share of their total
employment than it possessed at the beginning
of the period. This follows from the fact that
each one of these industries grew faster nationally
than it did in Philadelphia.
Chemicals
Transportation
Food processing and public utilities
Machinery
Services
Paper
All government
Finance, insuractivities
ance, real
estate
Apparel
Construction
Electrical
equipment
Fabricated
metals
b Furniture and
fixtures
Leather
t> Lumber and wood
Ordnance and misc.
b Petroleum refining
b Printing and
publishing
b Rubber and plastics
Textiles
Tobacco
b Trade
These industries that did not attain U. S.
growth rates were in total responsible for many
missing jobs. Thepaper industry
accounted
for a competitive job loss of 500, as follows:
It had 21,700 employees in 1959.
To achieve the U. S. paper industry’s growth of 7.29
per cent between 1959 and 1964, the local paper in
dustry should have increased employment by 1582,
or, rounded off:
The actual increase was:
The difference is the competitive job loss attribut
able to the paper industry:
1,600
1,100
500
These 500 missing jobs accounted for 0.5 per
cent of all those lost to competition in this way.
But some of them fell short of achieving U. S.
The paper industry, however, made up 1.6 per
growth by only a small amount. The paper indus
cent of the employment in all industries experi
try, for example, increased its employment in
encing competitive job losses. Therefore its share
Philadelphia by 5 per cent from 1959 to 1964;
of the area’s competitive job loss was less than
it increased its employment in the U. S. by 7 per
its share of employment in such industries.
cent. Others fell very far short. The apparel
Group II consists of all industries that, as
industry was one of them. Employment in ap
with paper, accounted for a smaller portion of
parel manufacturing grew 7 per cent in the
the area’s total competitive job loss than they
U. S.; in Philadelphia it declined more than
did of its employment in all industries in Groups
one per cent.
II and III.
Digitized for8 FRASER
business review
Group III takes in all the rest. It contains all
Therefore, it is reasonable that regional non
industries that shared more in Philadelphia’s
manufacturing activities should approach fairly
competitive job loss than in employment in
close to national rates of increase.
all industries in Groups II and III. The apparel
But Group III includes two nonmanufacturing
industries: trade and construction. Trade is a
industry is an example:
It had 57,500 employees in 1959
To achieve the U. S. apparel industry’s growth of
6.86 per cent, the local industry should have added:
Actually, its employment decreased:
The difference is the competitive job loss attribut
able to the apparel industry:
It consists of the unachieved growth of 3,900 plus
the actual decline of 800.
basic function of a city. Its presence in this
3,900
—800
4,700
group
suggests that its important wholesale
trade component is in trouble in the Phila
delphia area. Construction includes a large nonresidential component which reflects industrial
These 4,700 missing jobs accounted for 5.1 per
additions to plant. It should not fall in this
cent of all those lost to competition in this way.
group in a region that is planning for expansion.
But the apparel industry made up only 4.1 per
The footnote symbols in Table 2 indicate
cent of the employment in all industries in
which industries changed groupings in recent
Groups II and III. Therefore its share of the
years. Two moved up. Transportation equipment
area’s competitive job loss was greater than its
improved most. Between 1953 and 1964 it fell
share of employment in such industries.
into the group that added disproportionately to
In Group I, only one industry— instruments—
the area’s competitive losses of employment. But
merits being called a growth industry. This term
its days of adversity were in the 1950’s; since
refers to activities that have been expanding
and are expected to expand rapidly during the
1959 this industry has added employees faster
than its national counterpart. Therefore it shifted
next decade or two. The electrical equipment
from Group III to Group I. The primary metals
industry is growing rapidly, and until recently
industry also moved up, from Group II to
it expanded at a good rate in the Philadelphia
Group I.
area. It might have reached Group I but for a
sharp slowdown that began in 1962. Much of
In conclusion
this retardation stemmed from cutbacks in gov
This analysis does not reveal just why the
ernment
contracts,
which
are
an important
Philadelphia Metropolitan Area has not lived up
source of business in this industry, particularly
to its apparent potential for economic growth
in its large electronics component.
in the postwar era. It does, however, help to fix
Most nonmanufacturing activities are in Group
the region’s position among major competitors,
II. These industries include a much higher pro
portion of local services than does manufactur
and to identify which economic activities have
contributed most and least. And it shows that
ing. In a large metropolis, most manufacturing
there seems to be considerable scope for Phila
is for the external market; most other economic
delphia to help itself.
activity serves the local region. The growth of
There was one other finding. Philadelphia has
local demand is closely linked to local popula
turned around. It is helping itself. It is becom
tion growth. In the Philadelphia area during
ing more competitive. That one is worth re
this period, population grew at the national rate.
peating.
9
DISTRICT BANKS
REPORT ON
REVOLVING
CHECK CREDIT:
Ten years ago a Boston bank pioneered a con
total becoming the “ loan,” or line of credit. A
cept unique
in the
contract is signed, and the customer is given
United States. It blended elements of two con
a book of checks, his to use at any time for
in commercial
banking
ventional but unrelated banking functions to
any purpose. As he draws checks he reduces
create a new service for its customers. The
his available line of credit; as he makes his
combination consisted of a loan (in the form
monthly repayment he re-establishes his maxi
of a continuing line of credit) coupled to a
mum line of credit. The bank charges interest
personal checking account. Precisely if some
on that portion of the “ loan” in use, and may
what prosaically, the bank named its inven
charge fees for the “ personal checking account.”
tion “ Check Credit.”
Specific terms are determined by banking stat
Commercial banks elsewhere in the nation
followed the lead of the Boston bank, and more
utes in the several states, and by individual
bank policy.
exotic trade names came into being: standby
credit, cashmatic, money-matic, spot cash, ready
Third District e xp e rien ce
money, credit line account, and many others.
Revolving check credit made its debut in the
Some banks, unwilling to grant unsecured open
Third Federal Reserve District in 1959. The
loans, coined less complimentary names for
Department of Research of this Bank promptly
their competitors’ new practices: funny money,
canvassed bankers in Pennsylvania, New Jersey,
instant debt, perpetual pawn. Generically, the
and Delaware to learn their reactions to the
service is known now as revolving check credit.
plans then newly introduced. Results of the
A typical revolving check credit plan reveals
survey were published in the Business Review,
its twin antecedents: an applicant seeks what
September, 1959. Summarized, they were that
in essence is an unsecured personal loan. His
bankers favoring revolving check credit saw it as
bank assesses his ability to repay a loan, gauged
a profitable new business for banks that cus
in terms of a monthly repayment. This amount
is multiplied by a fixed number of months, the
tomers could, and would, manage without ex
10
cess or difficulty. Bankers opposing it warned
business review
of inordinate risk for practicing banks, high
loans: “ most,” “ best,” “ highest,” were the re
operating
that
sponses. One factor, of course, is the interest
Six years have passed. Those Third District
missible in New Jersey and Delaware; some
banks that offered revolving check credit plans
banks in those states add service charges, some
costs,
and
undisciplined
use
would keep consumers in perpetual debt.
rate itself. Another is a service charge, per
in 1959 have had six years’ experience to con
do not. A proposed revision to Pennsylvania’s
firm or dispute their judgments. We interviewed
banking code, now before the General Assem
24 bankers, both advocates and critics, in Penn
bly, would make it possible for banks in the
sylvania, New Jersey, and Delaware to get their
Commonwealth to impose certain service fees.
opinions today. Here is what we found:
Profitability is also influenced by losses and
CHARACTERISTICS OF REVOLVING CHECK CREDIT PLANS
IN THE THIRD FEDERAL RESERVE DISTRICT— 19 BANKS
Monthly Repayment Terms
1/20 approved line
1/24 approved line
1/25 approved line
1/20 amount in use
1/21 amount in use
1/24 amount in use
No. of Banks
6
5
1
3
1
3
Interest Rate per Month
1% outstanding balance—all banks surveyed in NJ.
and Del., and those in Pa. that include life insurance
Maximum Line
(Statutory maximums: Pa.—-$5,000.;
NJ.—$2,500.; Del.—none)
$2,400.
$2,500.
$3,500.
$5,000.
over $5,000.
No. of Banks
Minimum Size Check
$20
$25
$50
$100
no minimum
Typical Approved Line
Phila.
Pa. (outside Phila.)
N. J.
Del.
Median
$904.
$1,000
$1,000
*
1
8
3
6
1
Range
$700-$l,500
$900-$ 1,200
$787-$l,274.
*
.998% outstanding balance—Pa. banks that do not
include life insurance
Percentage Of Line In Use
Phila.
Pa. (outside Phila.)
N. J.
Del.
No. of Banks
2
9
1
1
6
Median
60.4%
64.5%
66%
*
Range
60%—66%
52%-85%
55%-75%
*
♦O n ly two banks in Delaware offer revolving check credit plans; specifics are omitted to preclude identification. Typi
cal approved line in Delaware tends to be higher than in other sectors of the District; percentage of line in use tends to be
lower.
P ro fita b le business
delinquencies. Only one banker has found losses
As the table shows, there are significant dif
in his bank’s revolving check credit service to
ferences in the characteristics of various plans
be appreciably higher than in other consumer
now operative in the Third District. But bank
loans; a few bankers thought them equal, but
ers are near-unanimous in citing one character
most said they were less. Delinquency experi
istic common to
ence has been similar: two bankers asserted
all— revolving check credit
plans to date have been profitable.
Superlatives were employed by bankers in
terviewed to compare profitability of revolving
check credit plans to other kinds of personal
that they have had higher delinquency rates in
revolving check credit plans, but all others judge
them to be not greater, or less.
Operational costs also affect profitability. The
11
business re v ie w
majority of bankers reported their operating
volving check credit. Nor can they ignore the
costs for revolving check credit plans to be
profitability aspect of this kind of business.
less than, or no more than, costs for other
classes of personal loans.
Interestingly, this
Effect on other b a n k business
seems true whether or not the plan is functioned
Bankers are about equally divided on the ques
by computer. (About half the banks surveyed
tion, “ Does revolving check credit produce, or
have computerized their plans, a fourth intends
usurp, other business for your bank?” Some
to do so, the balance not.) A number of banks
claim to have installed plans without adding
believe that a new customer, attracted by what
ever means, is a prime prospect for all the serv
personnel; some also say that it takes only a
ices offered by the bank. Others find that some
portion of a supervisory officer’s time to keep
customers tend to have different banks for dif
ferent purposes:
the plan running smoothly.
one for
a revolving check
credit account, another for a savings account, a
Prom otional a ctivity
third for a mortgage loan, and so on. Those
Oddly enough, in view of the asserted profita
having
this
experience
admit
that
perhaps
bility of revolving check credit plans, few banks
they’ve been doing a poor customer-relations
currently are using mass media to advertise
job internally.
their plans. Most banks are using controlled
Some banks encourage customers to switch
direct mail, chiefly in the form of statement
from a revolving check credit account to a per
stuffers. One bank that uses newspapers and
sonal loan, or vice versa, depending on the
radio, gears its advertising to income tax dead
customer’s need and practice. A customer who
lines, vacation time, back-to-school periods, and
uses a revolving check credit account but once
the Christmas season.
or twice, then lets it lie dormant, may be chan
A seeming contradiction
may explain the
neled to a personal loan. A customer who tends
dearth of mass advertising— it may have proven
frequently to renew a personal loan may be
too effective. “ Space”
advertising attracts so
many applicants that rejection rates skyrocket.
offered a revolving account as being more suited
to his requirements.
Normal rejection rates in the field of revolving
A number of banks find that revolving check
check credit average 25-35 per cent. Following
credit seems particularly fitted to the needs of
a public promotional campaign, it is not un
doctors, dentists, school teachers, and others
heard of for a bank to reject up to 85 per cent
who have fluctuating incomes, or incomes sub
of the applicants.
ject to interruption. They are considered stable
Promotional rejection rates notwithstanding,
risks by banks;
and revolving check credit
several bankers confided to ambitious future
plans provide flexibility of credit that comple
advertising programs for their revolving check
ments the income cycles of these kinds of bor
credit plans. They feel that, although such plans
rowers.
have been offered locally for six years, the pub
Overall, Third District commercial banks are
lic generally is unaware of this service. They
experiencing little deviation in the ratio of
reason that the state of the economy augurs
moneys outstanding in revolving check credit
well for additional bank participation in re
to personal loans. Both have been growing, but
12 FRASER
Digitized for
business review
the relationship has been relatively constant.
The future
A different kind of check credit plan recently
The critics persist
introduced by a Third District bank may coun
Despite the favorable experience of banks that
ter some of the objections of those who oppose
offer revolving check credit accounts, not all
the typical plan. This modified plan provides
Third
District bankers interviewed are con
the customer with a fixed number of checks,
vinced that such services are desirable. They
each for the same amount— which should reduce
point out that these plans have been successful
the bank’s bookkeeping. The checks are num
in an era when local and national economies
bered and pre-printed with an expiration date
have spiraled
an unprecedented
set at six months after the date of issue. Once
length of time to record heights. They ask, what
the expiration date is passed, all unused checks
will happen should prosperity come to a halt,
are invalid, and thus the open balance of credit
and the economy turn down?
originally advanced is effectively cancelled. To
upward
for
Bankers who have declined to provide re
renew his line of credit, the customer must sub
volving check credit plans claim that they have
mit to a second investigation of his financial
not suffered a loss of lending business by their
position. If he meets the bank’s criteria, the cus
refusal.
tomer is issued a second book of checks on the
(Bankers who offer them assert that
revolving check credit gives them a competitive
same terms as the first.
advantage.) They say that their consumer loan
A few bankers believe that revolving check
commitments are as high as they want them to
be. They argue that they have much better con
credit may be further liberalized, not restricted.
They see this facility as merely one step for
trol over personal loans wherein they can bring
ward in fostering total bank service to all strata
their judgment to bear as to when a customer
of a community. They are of the opinion that
should exercise his credit, and not have to rely
some members of their communities, for what
on the customer’s opinion.
ever reasons, do not now enjoy the advantages
Another objection advanced is that revolving
check credit plans are for big banks only be
of commercial banking; and that this condition
should be remedied.
cause economical operation of these plans de
Most bankers, however, intend to continue
pends on large volume, which entails use of an
their revolving check credit plans much as they
expensive computer. Most bankers who offer re
are now, subject of course to changes permitted
volving check credit agree that this is true, al
or required by law. They are persuaded that
though a few say that their plans are working well
revolving check credit has successfully passed
without computers. Bankers on both sides of the
a six-year trial, has met or exceeded expecta
controversy believe that a further spread of these
tions, and offers much promise for banks and
plans to other Third District banks is unlikely.
consumers in future.
13
F O R THE R E C O R D . . .
INDEX
Factory*
Employment
Payrolls
Department
Store Sale5+
Check
Payments+
Per cent
change
Sept. 1965
from
Per cent
change
Sept. 1965
from
Per cent
change
Sept. 1965
from
Per cent
change
Sept. 1965
from
Per cent change
Per cent change
SUM M ARY
9
mos.
1965
Sept. 1965
from
mo.
ago
year
ago
year
ago
Sept. 1965
from
mo.
ago
year
ago
9
mos.
1965
from
year
ago
LOCAL
CHANGES
mo.
ago
year
ago
Lehigh V a lle y .. .
-
i
+
4
0
+
2
Lancaster............
+
1
+
7
+
0
+
2
+
1
+
3
+
M A NUFACTURING
Electric power consumed. . . .
Man-hours, to t a l* ......................
Employment, to t a l........................
W a g e incom e*.............................
-
i
+
0
0
1
+
+
+
+
8
5
4
7
+
+
+
+
+
2
+
6
+
9
9
7
4
9
C O N S T R U C T IO N **......................
-1 1
+ 10
+ 16
-
3
+10
+
4
COAL PRO DUCTIO N...................
-
-
+
3
-
7
+
2
+
7
TRADE***
Department store sales..............
BA N K IN G
(All member banks)
Deposits..........................................
Loans................................................
Investments.....................................
U.S. G ovt, securities.................
O th e r............................................
Check paym ents***.....................
5
0
+
+
+
+
+
-
+
4
6
+ 4
2
1 + 10
1 - 3
-1 0
1
+10
1
+
14+
2+
+
5
+ 7
+ 11
Philadelphia. . . .
+
+
+ 1
+
- 6
+
+ 13
+
+ 16+
2
2
1
1
1
0
“1" 6
+ 14
0
-1 0
+ 16
+ 8
+ 9
+ 14
+ 2
- 6
+15
+11
PRICES
Consumer.......................................
•Production workers only
• ‘ Value of contracts
•••Adjusted for seasonal variation
ot
+
2{
+
2{
0
0
-f 2
+ 2
mo.
ago
0
year
ago
mo.
ago
+
6
0
+
8
3
+ 15
-
2
+
7
-
1
+
8
i
+
9
3
+
4
0
+
^
Reading...............
+
Scranton.............
+
1
+
4
+
4
+ 12
+
7
Trenton...............
-
4
- 5
-
5
-
+
4
0
W ilkes-B arre. . .
0
8
year
ago
mo.
ago
year
ago
+
2
+ 15
+
5
+ 17
-
2
+
9
0
+ 12
+
7
+27
+ 12
-
1
+
5
+ 10
+ 11
+
9
+
9
+
2
+
7
+
1
+
6
-
W ilm ington. . . .
+
5
+
1
+
2
-
3
+
3
+
8
-1 6
7
+23
Y ork.....................
+
1
+
6
-
1
+ 13
+
2
+ 13
+
+ 14
-f 2
+
+15 Cities
{Philadelphia
2
3
* N o t restricted to corporate limits o f cities but covers areas of one or more
counties.
fAdjusted for seasonal variation.
@FedFRASER