Full text of E.2 Survey of Terms of Business Lending : May 1967

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REVISION

FEDERAL

RESERVE

!'ii'Ann i K
'

s t a t i s t i c a l

r e l e a s e

F TILK-.J-KDKKA
ORT-TKKM I'.RS
I'I'.IIRI'ARV R-R>, I U

All s i x e s '
Feb 1 :

Interest rate
( p e r c e n t p e r ' annum)
l ess than
5 1 '27
Over 5
Over 5
Over 6
61/2.
Over b

1/2
3 1U
and
..!
1/2

Total
Total
Total

5 V2"
- 5 3/4" i n c l u s i v e . .
- 6"' i n c l u s i v e
less than b 1 / 2 ' . . .
and

less

than

7,1
5.0
b.
100.0

per c e n t

- Dollar

amount

- Nu-mBer of

loans

>•)

$'i()0 ,QOO-$V9'-'
Fell. 1^67

1 . 2
27. b

!•'>. b

b. b
b. 2
b. 1

ion.0

100.0

8.2

15. 61
12. 1
2b. o

I 5.45%

Dinar

thm-and,.

•

1 : 5

85S/;26

54V,21%

I n
. '

1
'

...

1.891,845

897

6.13
b. 3 3
6, 7
b. 13
35 c e n t e r s
5.89
6.08
6.5
5.86
New York C i t v
b. 3 V 6.57
7 other Northeast
.6.17
h. I I
8 North Central
^.">3
.
^ ..08
7 Southeast
A. 1 3
6. 27
I b. 1 8
8 Southwest.
b^49
4 West C o a s t
.1 t o i n c o r p o r a t e etian
s been rev
\/
B e g i n n i n g w i t h t h i s r e l e a s e , t h e Q u a r t e r 1 v S u r v o v of I n t e r e s t : R a t e s on l.o.i
of r e p o r t i n g p e r i oris
t h e schediT
n .ulcl i t i
ifi t h e s a m p l e of r e p o r t i n g h a n k s , and in t h e - f o r m a t f o r p u b l i c a t i o n o | t o e <1,it
on of t h e r e v i s e d s e r i e s
d
e
s
c
r
i
p
t
i
s h i f t e d f r o m t h e l a s t month of e a c h c a l e n d a r q u a r t e r t o t h e m i d d l e mop to ot tV
7
W
forthcoming April Federal Reserve B u l l e t i n .
C~G>
€ C '/* ^ ° ^
M
! 1 & 7
1/ C (-0 f~'
A * . 7 . ^ - 7 ^
,

...

100.0
5b,20A

,i.%

in..

3.790,782^
35,900

I'eh.

Ftlb^_l^bi
0.

2.(1
3.1

O.I

7'....

$ 1 00;, O O P - $ . / l l

/ / #

/ $ S" C FC

5. 90
5.77
6.09

5'. 95
6.03

fejexat

l?.ese/t

1/c

&vlt<T>r

M A y

J967*

Revision in Quarterly Survey of Interest
Rates on Business Loans
»

;

•

The Federal Reserve Quarterly Survey
of Interest Rates Charged by^Banks on Bysiness Loans has been revised beginning with
the first Survey in 1967. While the changes
are numerous, they do not alter the basic
character of the Survey. Rather, they are
generally in the nature of adjustments or
refinements, designed to improve the quality
of the information collected and published
and to take account of shifts in the structure
* of bank lending to businesses since the last
revision of the Survey in 1948. Nevertheless,
, in the aggregate, they do have a small
effect on the averages, and they preclude
precise comparability between the old and
the revised series. The new data will appear regularly in the BULLETIN beginning
with this issue (see page 814) and also
in the Board's E.2 press release.

borrow at lower, rates than small firms—in
the first or final months of each quarter of
the calendar year.
f„
Exclusions. To provide for increased | ?
homogeneity in the character of the loans
reported, two types of loans are being exeluded from the Survey—namely, loans to
foreign businesses and business instalment
loans. It has been found that these two
types of loans were not reported by a substaritial number of banks in the old Survey.
Moreover, the rates charged on both types
Of loans are generally higher than those
charged on regular business loans to domestic customers, and they are Subject to
different influences. Thus, the exclusions ^
should result in rate averages that are somewhat lower but more representative of normal business loans than those previously
available.
u
NATURE AND PURPOSE OF CHANGES "
Business instalment loans are mgre simir
' .
lar to consumer instalment loans than to
The most apparent change is in.the schedother commercial and industrial loans made
ule of reporting periods, which his been
by banks—including regular term loans,
shifted from the last m o n t h # each calendar
which often are repayable in instalments.
quarter to the middle month of the quarter.
The typical instalment loan is an iritprThus, the first survey on the revised basis
mediate-term credit for financing specific
covers new loans and renewals of outstanditems of machinery or equipment, and it is . i
ing loans made during the first 15 calendar
usually secured by a chattel mortgage on
*
days of February, and subsequent surveys
that asset. The effective interest rate is
will cover loans made in the first half
generally almost twice the stated rate, beof May, August, and November. The prin- -. cause the stated rate is applied to the original
cipal reason for this change in schedule is
amount of the loan rather than to the deto avoid distortions in the interest rate e clining balance, as in the case of regular
averages stemming from the large and varibusiness term Ipans. In large banks, business
able amounts of borrowing for income tax
instalment loans often are administered in a
payments by large firms—which are able to
separate (instalment loan department along
^

721

,
-

. .

lj
1
_:
• • -j\

;

722

with automobile and other consumer loans,
and the rates and other terms applicable to
such loans tend to be influenced by developments in consumer lending.
It is recognized that banks extend a subsiantial volume of credit to businesses,
particularly smaller businesses, through instalment loans. Thus, rate information on
these loans is needed in order to obtain a
complete picture on the structure and
level of rates charged on business loans.
_But in view of the small average size of busi9
ness instalment loans;" their special rate
characteristics, and their separate administration at respondent banks, the present Sur-vey does not provide! an optimum arrangemerit for collecting rate information on this
type of credit.
The exclusion of foreign loans alsO^wHl
help to improve the usefulness of the series
« as a measure of rates charged on loans to
domestic businesses. Because of the greater
difficulty in credit review and the,frequently
larger risk in extending credit to foreign than :
to domestic customers," the^e loans tend to
have higher rates than domestic loans. Their
exclusion will ease the reporting burden
on respondent banks because foreign loans
often are administered in a separate department of the bank.
Reporting. Modifications have also been
made in the reporting of Foan ; maturities/
The major change |has been to substitute a
three-way for a twio-way maturity classification. Previously, respondents were asked
I to indicate for each loan whether it had a*
.maturity of 1 year or less (short-term loan)
lor more than 1 year (term loan); in the
revised Survey, a new category has been
added to cover revolving credits. In the past,
published rates were .based . only on the
short-term ioans, because the term loans
reported in each Survey'werp'not sufficiently

F E D E R A L ; R E S E R V E BULLETIN • MAY 1 9 6 7

numerous or. homogeneous to yield analytically useful rate averages.
A separate category for revolving credits
will increase the homogeneity of the rate
information reported and make the resulting;averages more meaningful. These credits,1
while generally governed by a contract of 1
to 2 years maturity, often are disbursed
through short-term notes of, say, 90 days
maturity. Thus, the rates charged on these
are more similar to those on term loans
than to short-term loans. Also, the rates on
the individual notes made under revolving
credits ntay not necessarily reflect the current level of rates on hew loans. Since re, volving credit loans in the previous Survey
. were reported as short-term loans by some
respondents and a§ term loans by others, the
rate information for both categories Will be
improved by the separation.
In addition, for each ordinary term loan
reported, respondents are now^being asked
to state the maturity date. This information
will provide the basis for some analysis
not only of the maturity structure of term
loans but also of the relationship between
interest rates and loan maturity. A decision
regarding possible publication of information on term loan rates is being deferred
until the results of several Surveys have
been analyzed.
To obtain a somewhat more precise measure than formerly of the interest cost on
business loans, the revised Survey requires
respondents to indicate whether- the interest
charge is calculated on a discount basis or
accrued on the unpaid balance. Where a
discount basis is used, the actual interest cost
to the borrower is slightly higher than the
stated rate. With the additional information
on the method of calculating interest, all
rates can;be converted to a uniform effectiverate basis. In addition, this information can

INTEREST RATES ON

BUSINESS LOANS

723

be used for observing and analyzing any.
in the Appendix, page 727) instead of three
shifts that might occur, either cyclically or
(New York City, other northern and eastern
secularly, in the methods banks use in comcities, and southern and western cities),
puting interest charges.
>
Weighting procedure! In the revised SurExpanded coverage. In keeping with the
vey the reported information on interest
traditional orientation of the Survey to prorates will be converted into averages by
vide information on interest rates charged
using weighting procedures similar to those
by large banks in financial centers, the panel
employed in the old Survey.1 However, beof respondents has been enlarged to reflect
cause of significant shifts oyer the years in
changes in the structure of business lending
the size and area distribution of bank loans
since the previous panel was selected. The
to business, "the weights derived from the
number of financial centers covered by the
1946 Survey were no longer appropriate.
Survey has been raised from 19 to 35 and
Moreover, the extensive changes in coverthe number of respondent banks from
age incorporated in the current revision
66 to 126. In general, financial centers
meant that even if weights derived from reare being included in the Survey if
cent interest rate Surveys on the old basis
the banking offices in that center had
were used, they would not be representative,
roughly $150 million or more of business
Accordingly, a new set of fixed weights
loans outstanding in December 1964. As
is to be derived from the revised Survey,
a ;rule individual banks i|i each center were
Weights to be used in the first three Surveys
included if their business loans totaled $40
will be based on the size of loan and area
million or more; there were some excepdistribution of the amounts of loans rations where the volume of loans in the reported in the first quarterly Survey. After
porting center covered by large respondents
the fourth Survey is completed,'new weights
was unusually jjiigh and the additional small
will be derived from the combined data of
banks would not appreciably influence the
the first four Surveys, and th^se will be used
averages. About five banks in the old reto revise data for those Surveys and in ,
porting panel fell below the cutoff, and they
compiling the series for the next 4 years. At
were dropped from the Survey. Respondents
the end of this 5-year period, it is planned
in the revised Survey, as in the previous one,
th'at the weighting system will be reviewed
will continue to report information on each
and any necessary revisions will be made.
loan above prescribed size cutoffs made in
(Size categories. Since the last revision of
the 15-day reporting period except for
the Survey, the size distribution of bank
large branch systems, where sampling is
loans to businesses has shifted substantially
permitted.
upward, particularly, toward loans of $1
This expansion in coverage suggested the
million and over. This shift has suggested the
desirability of refining the geographic groupdesirability of creating additional loan-size
ings of reporting centers that are used
categories'for publishing information on
for calculating and publishing the rate
rates and volume of loans reported. The
averages. Beginning with the February Suravailability of additional size-of-loan detail
vey, average rates will be published for six
also should help to pinpoint the rate effects
geographic areas (the areas and the reporting centers in the revised Survey are listed

- T i ^ > e d e I a l R c s e r v e BULLETIN, March 1949,
234 and 235.
,
,

PP .

724

FEDERAL R E S E R V E BULLETIN • MAY 1 9 6 7

of fluctuations from quarter to quarter in the
volume of loans reported, which often are
substantial in the larger loan categories.
Accordingly, instead of the two major
groupings above $100^00 used in the old
Survey ($100,000-199,999 and $200,000
and over), the revised Survey has three
($100,000-499,999, $500,000-999,999,
, and $ 1,000^000 and over).
The BULLETIN table will show not only
the interest! fate averages in each loan-siz^
category, as previously, but also the percentage distribution of the dollar amount
of loans reported at each rate or in each
rate range. This information previously has
been avarlable_only in the E.2 press release.

per cent larger than the volume reported by
the 66 respondents in the old Survey; this
smaller increase reflects the fact that the
new respondents generally are Smaller.
Because the new Survey incorporates
changes in both concept and sample, with
no provision for complete one-time reporting
oi\ both the old and the new basis, it is not
possible to isolate all of the effects of the .revisions on the amount of change in shortterm rates between the Surveys in December
and in February. However, it has been possible to segregate the data reported in February by the 66 banks in the old Survey that
are retained for the new Survey and to tabulate data for these banks separately. These
tabulations provide the basis for determining
EFFECT OF CHANGES
the rate effects for the three revisions in
which such effects can be measured—
Expansion of the sample has increased both
namely, changes in the sample of reporting
the number and the volume of loans m
banks in the method of calculating fhe efwhich rate information is reported; for the
fective rate for discounted loans, and in the
number the increase was substantial. In Febweights for size of loan and geographic
ruary the 126 respondents in the new Surarea used in calculating the rate averages.
vey reported information on nearly 36,000
individual short-term loans. This was 74
The net effects on the short-term rate aver
ages of the remaining changes—exclusion of
per Cent more than the number reported by
foreign, business instalment, and revolving
the 66 hanks in the old Survey that were
credit loans and change in timing of the Surretained in the new sample, as shown
in f able 1. The increase in dollar amount of . vey—cannot be ascertained. The exclusion
of foreign and business instalment loans
loans reported by all respondents was 28

C O M P A R I S O N OF" SHORT-TERM B U S I N E S S L O A N S R E P O R T E D BY OLD A N D NEW S A M P L E S OF
R E S P O N D E N T BANKS, FEBRUARY 1 - 1 5 , 1 9 6 7
( A m o u n t s arc s h o w n in t h o u s a n d s of d o l l a r s )
Amount

sample
A|l centers

...

New York City.'.
Other N o r t h e a s t . . . . . . . .
North centra!
Southeast
Southwest. ;

Number

,S„ |

-sample

12,969,100 $3,7'X),782j $821,682

841,109
398,001
1,058,717
143,812
299,759
227.702

907,419'
616,143,

237,560]

20,594 .

66,310
218.142

' 545,5741
• » 245,815
18:18
9,858

sample
35,900

15.306

II I] 1
^

it:}"

Increase

2,760"

212

. 1

15.0

I N T E R E S T

TABLE

R A T E S

O N

B U S I N E S S

L O A N S

7 2 5

RATES ON SHORT-TERM BUSINESS
BANKS, FEBRUARY 1-15, 1967

LOANS

REPORTED BY O L D A N D

NEW
%

SAMPLES OF

RESPONDENT

(Weighted averages; per cent per a n n u m )

Size of loan (in t h o u s a n d s of dollars)
Area

10-99

•

100-499

-999

sample

'6.73
New York City
Other N o r t h e a s t . . North central
Southeast

6 ! 08
6.' 29

1.000 and over

Old

5.85
6.41
6.06
6.14
6.17
6.27

6.55
6.75
6.80
6.58
6.65
7.26

6.68
6.55
6.75
6.72
6.75
6.93
7.29

6.32
6.50
6.90

6-45
6.71
6.91

6.33

6.32

6.57
6.39
6.06
6.27
6.49

6 .'52
6.35
6.08
6.29
6.49

Ig.O,

5,90" ,
V . 7*7

6.17
6.03
6.13
6.27

6.14
6.06
6.11
6.26

5.92
5.84
5.95
6.03

5.91
5.82
5.95
6.03

NOTE.—All rates are derived in accordance with reporting and processing procedures established for the new Survey. T h u s , they exclude foreign
and business instalment foans and revolving credits and are based on weights derived f r o m the size a n d area distribution of loans reported in
the February Survey.
•

would tend to lower the averages while the
confined to the old sample of banks arid the
exclusion of revolving credit loans and the
averages calculated on the basis of the old
shift of the reporting "peribd away from
procedures. These adjusted rates are comquarterly tax-borrowing months probably
parable with the datafoi'-rhjbSurveys in Dewould tend to raise them. The net effect of* cember and earlier on the (fid basis—except
all these" changes on the rate averages is
for the revisions mentioned above for which
likely to be slightly downward.
the rate effects cannot be* ascertained.
The net effect of the expansion of the
in all geographic areas except southern >
sample of reporting banks was to raise the
and western cities^ tjiie net effects of all meas- .
average rate 5 basis points above the level
urable changes on the over-all rate averages
that would have been obtained from data
were small. In other words, the upward
reported by the old sample of respondents,
rate effects from expansion of the sample
as shown in Table 2. In the small loan cateand the new method for calculating interest
. gories, rates reported by the new respondon discounted loans were about offset by
ents generally tended to be lower than those
the downward effects stemming from the revisions in weights, which reflected mainly
reported by respondents in the old Survey;
the increased influence on the averages of
for larger loans, the new respondents charged
the larger loans carrying relatively low insomewhat higher rates than did the old.;
terest rates. Within individual loan-size cateTable 3 summarizes all the measurable
gories, however, the revisions in some cases
effects of the revisions on short-term interest
were substantial. The effects of the change
rates, including the effects of expansion qf
in the method used for calculating the inthe sample. In this table the algebraic signs
terest charge on discounted loans was much
of these effects are the opposite of their
greater in New York City and in other
actual effect on the level of rates. This makes
northern and eastern cities than in southern
it possible to derive from the rate averages
and western cities—reflecting "differences in
shown by the new Survey, through subtracthe volume of discounted loans reported,
tion, the rate averages that would have been
obtained in February had the Survey been . Discounted loans accounted for almost half

726

F E D E R A L R E S E R V E BULLETIN - MAY 1 9 6 7

the number and one-third the dollar -volume
other northern and eastern cities compared
of all short-term loans reported by old-Sur- * with less than one-sixth the number and
vey respondents in New York City and in
dollar amount in southern and western cities.
TABLE 3
EFFECTS O F S U R V E Y R E V I S I O N S O N S H O R T - T E R M
(Per c e n t per a n n u m )

I N T E R E S T RATES,

FEBRUARY

1-15,

1967

Size of loan (in thousands of dollars)
Rate, and type of adjustment
100-199

Adjustments to eliminate measurable effects of revisions—Total,
Expansion of sample
Change in rate calculation for discounted loans i
Changes in weights '

200 and over

Average rate, adjusted :
New York City:
Average rate, new Purvey
Adjustments to eliminate measurable effects c
Expansion of sample
Change in rate calculation for discounted It
Changes'in weights j
Average rate, adjusted : . . . .
.Other northern and eastern "cities:
Average rate, new Survey
Adjustments to eliminate measurable effects of revisions—Total.
Expansion Of sample
I
Change in rate calculation for discounted loans i
n weights i
Average rate, adjusted 2 . . .

Southern and western cities:
Average rate, new Survey..

6.531

6.34

. Adjustments to eliminate measurable effects of revisions—Total.
Expansion of sample
Change in rate calculation for discounted loans >
Changes in weights 1
:
Average rate, adjusted 2
1 CalculatedJrom data reported by 66 banks in the old Survey.
' The adjusted rates are those that would be obtained by processing
the February Survey data from the 66 respondents in the old Survey
according to the procedures used in the old Survey. These averages

are not entirely comparable with those published for December'end
earlier periods because of the exchision of foreign, business instalment, and revolving credit loans and the shift in reporting period for
which the rate effects cannot be ascertained.

-j,

INTEREST RATES ON BUSINESS: I HANS

'
727

APPENDIX
Geographic area

Reporting center

Geographic area

Reporting center

New York City

Southeast

Other Northeast

Boston
Hartford and Providence
Buffalo
Nassau County, N.Y.
Rochester
Newark
Philadelphia

Baltimore ,
Richmond j1 *"
Washingon, 0.C.
Charlotte
Atlanta
New Orleans
Nashville

•

North central

ClevelandPittsburgh
Cincinnati
Chicago
Detroit
Indianapolis
Milwaukee
Minneapdfos-hand St. Paul

St. Louis
Louisville
™1
Memphis
Kansas City
, '
Oklahoma City and Tulsa
Denver
Dallas and Fort Worth ^
Houston .
|
West coast

San Francisco
Los Angeles
Seattle
Portland

Full text of E.2 Survey of Terms of Business Lending : May 1967

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