Full text of Business Trends : Bank Credit Developments in 1962

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

FRIDAY, FEBRUARY 8, 1963

Prepared

1n

the

Research

Department

of

the

FEUEHJ\L HESEH\/E HANK OF CLEVElf.\ND
Serving

the

Fourth

Federal

Reserve

District

BANK CREDIT DEVELOPMENTS IN 1962
The nation's banks did a large volume of
business last year. The volume of credit extended by commercial banks climbed by a
record amount in 1962--nearly $19 billion-which brought the total of bank credit outstanding by year end to $229 billion. The 1962
advance was about $3 billion more than the
previous record increase that had taken place
in 1961. In percentage terms, the expansion in
total bank credit in 1962 amounted to virtually
the same rate of growth as that which had occurred in 1958 and 1961--earlier years of
all-time high relative gains. Unlike those two
years, however, the bulk of the increase in
bank credit in 1962 was registered in loan
portfolios ($14.1 billion), with the gain in bank
loans, in dollar terms, being the largest on
record.
At the same time that bank loan portfolios
were being expanded considerably, investment
holdings of commercial banks were being en larged on balance by nearly $5 billion. The
handling of bank investment portfolios, however, revealed mixed patterns. For example,
commercial bank investments in other than
Federal government securmes (including
mainly issues of state and local governments)
were expanded by more than $5 billion in
1962--an all-time high. In contrast, holdings of
U. S. government securities were reduced
slightly, and the maturity composition of these
assets was restructured materially.

The substantial expansion in bank credit in
1962 took place within an economic panorama
which included: (1) a moderate expansion in
the domestic economy; (2) sizable flows of
savings into financial institutions; and (3) the
maintenance of monetary ease by the Federal
Reserve System. The maintenance of monetary
ease during a period when savings flows were
sizable made it possible for the total supply of
credit (savings plus bank credit) to be made
available in amounts adequate to satisfy the
demands for credit imposed by an economy
which continued to grow, albeit at a moderate
pace. One indication of the reasonably close
matching of supply-demand credit relationships in 1962 was the fact that, on balance, interest rates were not under any undue upward
pressures during the year. (Short-term interest rates rose moderately, while long-term
rates declined slightly.)
With this as general background, let us take
a look at some of the bank credit developments
in the Fourth Federal Reserve District. The
figures which we will use first are those reported weekly by 26 large banks located in the
major cities of the District. (These banks account for over half of the total banking resources in the Fourth District.)
Earning Assets. As was the case in the national figures, total credit extended by weekly
reporting member banks in the Fourth District

Broadcast by Maurice Mann, Senior Monetary Economist, Federal Reserve Bank of Cleveland, over WGAR,
Cleveland, with Charles Day, News Editor, WGAR, Friday, February 8, at 7:45 p. m.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

increased by a record amount in 1962. On the
last Wednesday of the year, total earning assets of reporting banks stood at $10.1 billion,
which represented an increase of nearly 9 per cent· from the year -earlier figure. That increase compared with gains of 5 percent in
1960 and 6 percent in 1961. The growth in
earning assets at reporting banks in the Dis trict, however, was not dominated by loan
portfolios as much as that in banks in the nation at large. The $.8-billion gain in earning
assets in the District in 1962 was distributed
roughly as follows: three-fifths in loans and
two-fifths in investments.
Within investment portfolios, patterns in the
District generally were akin to those nationally,
as reporting banks liquidated holdings of U. S.
Government securities, but added a much
larger volume, a record amount, of "other
securities'' to investment holdings . . In addition
to the net takedown of ' 'governments'', re porting banks in the District made some important adjustments in the maturity composi tion of such holdings. The banks tended on
average to sell or run off substantial amounts
of short-dated government securities, and to
acquire longer-term issues. In this way, reporting banks attempted to increase the returns on holdings of government obligations at
. the expense of giving up some investment
liquidity.
One final item on the total earning asset
picture of District reporting banks is of interest, namely, that about three-fifths of the
credit expansion at these banks in 1962 took
place in the fourth quarter of the year. It is
true that a considerable part of the fourthquarter showing was seasonal in nature; but it
is also true that a sizable share of the increase
in bank credit reflected the quickening pace of
business activity in the latter stages of the
year, thus supplementing the seasonal increase.
Loan Portfolios. The $518-million expansion
in the loan portfolios of reporting banks in the
District in 1962 compared with advances of
$41 million in 1961 and $122 million in 1960.
Within the total loan structure in 1962, available figures highlight the fact that reporting
banks moved strongly in the direction of
making additional real estate and consumer
loans. This is not surprising in that it mirrors

the attempt by banks in general to bolster their
earnings records in the face of increased
operating expenses. The fact that real estate
loans r ose by $129 million in 1962, whereas
they had advanced only by $33 million and $16
million in 1961 and 1960, r espectively, indicates the relative success of District reporting banks last year in making such loans.
In consumer lending, it was essentially the
s ame situation, with a $148-million gain in
1962 contrasting to a $49-million rise in 1961
and to a $91-million increase in 1960. In the
case of both real estate and consumer loans in
1962, the gains were spread fairly evenly
throughout the year.
Business Loans. Commercial and industrial
loans did not expand sharply at reporting banks
in 1962, moving up only $89 million. This increase was less in amount, for example, than
that which had occurred in 1960, a year marked
largely by recession conditions. An important
aspect of the business-loan situation at reporting banks in 1962, however, was that all of
the net increase in such loans occurred in the
fourth quarter of the year, with only a part of
the gain accounted for by seasonal factors.
Anatomy of Business Loans. Since the fourth
quarter was marked by vigor in business loan
activity in the District, it may be instructive to
consider some of the highlights in slightly more
detail. The information that follows is obtained
from 21 of the 26 weekly reporting member
banks in the Fourth District. The figures from
these banks, taken together, show that larger
increases than usual were posted in loans made
to: (1) manufacturers of food, liquor, and tobacco products; (2) trade firms; and (3) a miscellaneous grouping of business borrowers,
which includes mainly services. A significant
point emerging from this is that the large loan
increases occurred in those categories of business borrowers which tend to rely relatively
less on term loans, i.e., loans carrying an
original maturity of more than one year. As a
result, at year end, term loans as a percent of
total business loans outstanding at the 21 reporting banks was at the lowest end-of-quarter
level of the year. This development indicates
that reporting banks increased, to a limited
extent, the liquidity of their loan portfolios,
thereby improving their ability to service
short-term loan demands.

Additional copies of "Business Trends" are available upon request.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis