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federal

Reserve Bank of Dallas

DALLAS, T E X A S

75222

Circular No. 80-80
April 18, 1980
TEMPORARY SEASONAL CREDIT PROGRAM AND APPLICABILITY
OF SPECIAL CREDIT RESTRAINT PROGRAM TO SMALL BANKS
TO THE CHIEF EXECUTIVE
OFFICER OF ALL BANKS IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
Enclosed is a le tte r from Paul A. Volcker, Chairman of the Board
of Governors of the Federal Reserve System, which clarifies the applicability of
the Board's Special Credit Restraint Program to smaller banks and explains the
Temporary Seasonal Credit Program recently adopted to help small banks under
liquidity pressure meet the credit needs of their communities.
The following are also enclosed: a press release issued by the
Board of Governors; an attachm ent explaining the Temporary Seasonal Credit
Program; and a form for determining eligibility and calculating the amount of
the seasonal credit line available to a particular bank.
The Temporary Seasonal Credit Program is available to member
and nonmember banks with total deposits of less than $100 million if certain
additional criteria are met. These additional criteria are set out in more detail
in the enclosures.
If your bank appears to qualify for the program and you are
interested in obtaining such a line of credit, please contact the individuals listed
below at the appropriate office of the Federal Reserve Bank of Dallas:
Dallas

Jesse D. Sanders, Assistant Vice President, Ext. 6240
Billy J. Hayden, Manager, Loan Dept., Ext. 6241

El Paso

Robert W. Schultz, Assistant Vice President, Ext. 201
William L. Wilson, Manager, Accounting and Loan Dept., Ext. 210
(915) 544-4730

Houston

C. O. Holt, Jr., Assistant Vice President, Ext. 44
John R. Franklin, Manager, Accounting and Loan Dept., Ext. 50
(713) 659-4433

San Antonio Thomas C. Cole, Assistant Vice President, Ext. 13
LeBlanc McWilliams, Manager, Loan and Service Dept., Ext. 30
(512) 224-2141 (WATS 800-292-5810)
Sincerely yours,
Ernest T. Baughman
President
Enclosures
Banks and others are encouraged to use the follow ing incom ing WATS numbers in con ta ctin g this Bank:
1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For calls placed locally, please use 651 plus the
extensio n referred to above.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

FEDERAL RESERVE press release
For immediate release

April 17, 1980

The Federal Reserve Board today announced a temporary seasonal credit
program that is designed to help small banks under liquidity pressures meet
the credit needs of their communities.
The practical effect of the program is to extend immediately the
coverage of the seasonal borrowing privilege, heretofore limited to smaller
member banks, to all small banks under simplified guidelines.

This action is

taken in further implementation of the provisions of the "Monetary Control Act
of 1980" regarding the availability of the discount window to institutions
holding transactions accounts or nonpersonal time deposits.

As previously

announced, by July 1, the Board expects to have more permanent guidelines
in place.
The seasonal program is aimed generally at banks--both member and nonmember--with less than $100 million in deposits.

Seasonal credit will be granted

mainly to finance increases in loans by banks operating within the qualitative
guidelines of the Board's Special

Credit Restraint Program and thus giving

special attention to the normal financing needs of farmers and small business.
Details of the seasonal program are included in the attached letter to
all banks.

The letter also clarifies the application of the Special

Credit

Restraint Program to smaller banks lending primarily to agriculture, small
business, or other priority uses.
The letter explains that the intent of the guidelines under the Program
is to encourage banks to meet the ordinary continuing or seasonal needs of their
established local customers, taking account of the special needs of small business,
farmers and others.

Should a bank's total lending appear to be proceeding at a

pace that would exceed the 9 percent guideline on loan growth, small banks, like

-2other banks, would be expected to cut back on less urgent forms of lending.

In

those instances where a bank is essentially confining loan expansion to priority
areas,

which may particularly be the case with community banks serving agricultural

areas and small business, that bank is justified in exceeding the quantitative
guidelines of the Special Credit Restraint Program.

-

Attachment

0-

BOARD OF GOVERNORS
OFTHE

FEDERAL RESERVE SYSTEM
WASHINGTON, □ . C. a O S S I
PAUL

A. V O L C K E R

C H A I R M AN

April 17, 1980

TO THE CHIEF EXECUTIVE OFFICER OF COMMERCIAL BANKS:

A number of questions have risen concerning:
(1) The application of the Special Credit Restraint Program
to smaller banks, p a rtic u la rly those in rural and agricultural areas,
with loan portfolios principally consisting of a g r i c u lt u r a l , small
business, and housing paper.
(2) The possible a v a i l a b i l i t y to nonmember banks of seasonal
borrowing privileges a t the discount window, comparable to the established
provisions for member banks, under authority of newly enacted H.R. 4986.
This communication is designed to c l a r i f y these issues.
Special Credit Restraint Program
All conmercial banks have received, and been requested to respect,
the general guidelines for bank lending set forth in the Special Credit
Restraint Program. Those guidelines indicate that a primary purpose is
to "meet the basic needs of established customers for normal operations,
pa rtic u la rly smaller businesses, farmers, t h r i f t i n s t i t u t i o n bank customers
and a g ri c u lt u ra l ly oriented correspondent banks and homebuyers with limited
alte rn a tiv e sources of funds." Certain types of loans—financing speculative
a c t i v i t y , takeovers, or other reasonably postponable a c t i v i t i e s or a c t i v i t i e s
that do not contribute to economic effic iency—are to be discouraged. The
guidelines go on to indicate t h a t , taking into account such factors as
l iq u i d it y and capital positions, growth in bank loans should not generally
exceed a range of 6-9 percent.
The question has arisen, p a rtic u la rly among smaller banks and
t h e i r customers, as to whether the quantitative guideline is designed to
discourage lending to farmers or others looking to t h e i r local commercial
bank for financing t h e i r ordinary production needs. The answer is no.
The clear intent of the guideline is to encourage banks to meet
the ordinary continuing operating or seasonal needs of t h e i r established

-2-

local customers, taking due account of normal standards of liq u i d it y and
capital requirements within the lending bank and of the creditworthiness
of the borrower. To that end, banks, as appropriate and possible, are
expected to take account of the special needs of small businesses, including
farmers and others.
The Board is conscious that the predominant customers of many
smaller banks f a l l into categories where i t is expected th a t reasonable
a v a i l a b i l i t y of funds will be maintained, and no special reports under
the Special Credit Restraint Program have been requested from smaller
banks.
Banks in that size group, lik e other banks, are expected to
maintain normal lending a c t iv i ty to small businesses, farmers, and others
without access to other forms of financing insofar as that lending is
consistent with prudent liq u i d it y positions and capital r a t i o s . Should
th at lending, looking a t 1980 as a whole, appear to be proceeding at a
pace th at would press against or exceed the 6-9 percent guidelines for
total lending, the bank would be expected to cut back less urgent forms
of lending. These might include, for instance, unsecured personal financing,
loans to finance land or other postponable capital acquisitions, p a r t i c i ­
pations in larger business loans of correspondent banks, sales of Federal
funds, and the lik e . In other words, every care should be taken to conserve
available funds fo r p r i o r i ty uses, and the necessary r e s t r a i n t should fa ll
on other areas. In those instances where a bank is e s s e n ti a ll y confining
loan expansion to p r i o r i ty areas, which may p a rtic u la rly be the case with
community banks serving agricultural areas and small businesses, that bank
is j u s t i f i e d in exceeding the quantitative guidelines.
Discount Window Accommodation
We are aware that stringent c re d i t conditions in many areas of
the country, and p a rt ic u l a rl y among community banks with limited access
to central money markets, have given r i s e to concern over the seasonal
a v a i l a b i l i t y of funds to agriculture or small businesses for ordinary
production purposes. Contacts with bankers and others make i t evident
that the a v a i l a b i l i t y of c re d i t to individual farmers or others is affected
by many factors other than the liq u i d it y of individual lending i n s t i t u t i o n s .
However, to the extent that a bank--member or nonmember--is unable to
obtain funds for p r i o r i t y lending through ordinary funding sources, use
of the discount window may be considered.
To f a c i l i t a t e th is process, pending full development of more
permanent guidelines fo r discount window access under the provisions of
the recently passed "Monetary Control Act of 1980," a seasonal borrowing
program will be made available to nonmember banks, supplementing f a c i l i t i e s
already available to member banks. This program will be conducted under
certain simplified c r i t e r i a providing readily calculated guidelines for

-3-

the use of the borrowing banks and the discount o fficers of the Federal
Reserve Banks. Member banks may, a t t h e ir i n i t i a t i v e , also apply for
discount window accommodation according to the same guidelines in lieu of
the existing seasonal c re d i t program should they find i t more advantageous.
The specifics of the program are described in the enclosure.
Sincerely,

Enclosure

April 17, 1980
Temporary Seasonal Credit Program
for Small Banks
The following temporary program for seasonal lending through
Reserve Bank discount windows has been established effective immediately.
It is available to nonmember banks.

Member banks may also choose to

participate in this program instead of their established seasonal credit
arrangements.

By July 1, the Board expects to have adopted a more

permanent set of guidelines governing all aspects of discount window
administration under provisions of the new Monetary Control Act of 1980.
That Act provides that depository institutions having transactions accounts
or nonpersonal time deposits shall have access to the discount window
on the same basis as member banks.

Seasonal lending has been available

to member banks for some years.
Access to seasonal credit under the temporary program will be
generally limited to banks with deposits of less than $100 million,
though in special circumstances applications by somewhat larger banks
without access to national money markets may also be considered.

To

participate in the program, a bank must provide evidence of liquidity
pressures that make it difficult to accommodate the normal seasonal credit
needs of its community.

Such banks would typically have loan-deposit

ratios above the average ratio for banks of similar size in the nation.
The minimum gross loan-gross deposit ratio for banks to qualify for this
program would normally be 68 percent.
Seasonal credit will be granted to help finance increases in
loans by such banks that are operating within the qualitative guidelines
of the Board's Special Credit Restraint Program, and thereby giving
special attention to the seasonal financing of such borrowers as farmers

-2 and small businesses in the ordinary course of local business.

The amount

of credit available from the Federal Reserve to finance a bank's increase
in loans will normally be limited to a maximum of 5 percent of its total
loans outstanding at the time when the bank applies for a credit line and
can show that it meets the minimum qualifications.
The amount of total loans and the loan-deposit ratio should be
computed as the average for the two statement weeks preceding the state­
ment week in which the bank applies.

Thus, for example, the eligibility

for seasonal credit of banks applying in the present statement week ending
April 23 would be based on average loan-deposit ratios in the two statement
weeks ending April 16.

The total loans relevant to calculation of its

maximum seasonal credit line would be the average amount of loans
(excluding any sales of federal funds) in those two weeks.

For banks

applying in later weeks, loan totals and loan-deposit ratios would be
computed from the two statement weeks preceding the later week of applica­
tion.
A bank may draw on its seasonal line to finance no more than 70
percent of the increase in total loans from the level prevailing at the
time of application.

To the extent that loans subsequently fall back

toward the starting level ("the base level") banks will be required to
repay a proportionate share of System credit.

Also, to the extent that

deposits subsequently increase more than loans, a substantial portion of
the excess will be expected to be used for repayment of the borrowing from
the Federal Reserve.

The borrowing should be entirely repaid once the loan

to-deposit ratio returns to the starting figure determined at the time of
application.

-3-

In any event, individual loans arranged under this program may
be outstanding for no more than six months, but the term of the borrowing
may be extended another three months under special circumstances.

The

surcharge above the basic discount rate does not apply to borrowing under
this program.

Calculation for Temporary Seasonal
Credit Line with Federal Reserve Bank of Dallas
(Two-week base period ending ________ , 1980)

The base period for demonstrating eligibility and for cal­
culating the seasonal credit line is the two full state­
ment weeks just preceding the statement week in which the
application is made. For example, for applications made
in the statement week ending April 23, the base period is
the two weeks ending April 16.
SECTION I

Date
Day of
Week

Month

Thur.
Fri.
Sat.
Sun.
Mon.
1Tues.
Wed.
Thur.
Fri.
Sat.
Sun.
Mon.
Tues.
Wed.
TOTAL
DAILY AVERAGE

Day

Year

Total Loans,
Gross
Col. 1
Thous.
Mils.

Total
Deposits
Col. 2
Mils.
Thous.

1980
1980
1980
1980
1980
1980
1980
1980
1980
1980
1980
1980
1980
1980

(Instructions to nonmember banks for completing the above table are
provided on page 2 of this form and those for member banks are
provided on page 3.)

SECTION II
1.

Ratio of daily average of total loans, gross, to total deposits (daily
average of Col. 1 divided by daily average of Col. 2; report to two
decimal places).... ..............

- 2 -

INSTRUCTIONS
Item Definitions for Nonmember Banks
The definitions of items on this report correspond directly to
the definitions of items on the Consolidated Report of Condition as shown
in the table below.

For definitions and instructions for these items (as

well as for the consolidation procedure), refer to the referenced items
in the instruction pamphlet for the Consolidated Report of Condition.

Report of Condition Items

Col. 1:
gross

For banks that submit
the Standard Version
of the Consolidated
Report of Condition for
a Bank and Its Domestic
Subsidiaries

Schedule A, Item 8

Schedule A, Item 8

Asset Item 19

Asset Item 24a

Total loans,

Col. 2: Total
deposits

Note:

For banks that submit
the Simplified Version
of the Consolidated
Report of Condition for
a Bank and Its Domestic
Subsidiaries

If data are not readily available on a daily basis that exactly
meet the definitions described above, estimates are acceptable.
Please be certain that gross loans exclude Federal funds sold
and that total deposits exclude Federal funds purchased and other
borrowings.

- 3 -

INSTRUCTIONS
Item Definitions for Member Banks
The item definition for "Total loans, gross" (Col. 1) on
this report corresponds directly to the definition of "Total loans, gross"
from Schedule A, Item 8 of the Consolidated Report of Condition.

For the

definition and instructions (as well as the consolidation procedure) per­
taining to this item, refer to the instruction pamphlet for the Consolidated
Report of Condition.
The item definition for "Total deposits" (Col. 2) on this
report corresponds directly to the sum of the following items from the
Report of Deposits and Vault Cash (FR 414):
1)

demand deposits due to banks;

2) U.S. government demand deposits;
3) other demand deposits;
4)

savings deposits authorized for automatic transfer (ATS
accounts) and negotiable order of withdrawal (NOW) accounts;

5) other savings deposits (including club accounts);
6) time deposits (including the three original maturity
classifications of 30 to 179 days, 180 days to less than
4 years, and 4 years or more).
Refer to the instructions for the Report of Deposits and Vault Cash for
the definition of these items as well as the consolidation procedure.

Note:

If loan data are not readily available on a daily basis that exactly
meet the definitions described above, estimates are acceptable.
Please be certain that gross loans exclude Federal funds sold.