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Federal
market

share

factors,

including

of thrift
price

can

be attributed
the

relative

institutions

differences
thrifts,

price

differences

NOW

accounts

at

differences

The

efforts

presence

used

to

were

inversely

banks

in the

one-to-one

in the

market

The percentage

deposits

importance

These
related

battle

to

generally

the

success

relationship

did

in Lexington,

not

smallest

percentage

A second
has been
thrift
offer

factor

NOW

Both

accounts

that

with

balance

amount,

charge

pay

balance

falls
that

and

no service
below

the depositor

service

banks

interest

banks

selected

and

the

is assessed

may include
thrifts

of
if a

is maintained.
a monthly
transaction

operating

in the

SMSAs form a basis for price com-

parisons.9
monthly

Pricing
service

elements
charges,

fees, and the minimum
avoid

any charges.

among

institutions,

can
per

balance

While prices

include

transaction
required
often

pected,

among

thrifts

generally

the

markets,

where

they

pricing

pricing advantages.

maintained

the most

attractive

with

competing

Price differentials

were less favorable

in the other

SMSAs.

In fact,

had slightly

lower

the

service

charges than the local savings and loans, but
they set low minimum-balance

requirements

of banks
the

reason

of checking

NOW accounts.
NOW

checking

accounts,
the

checking

their

amounts
have

of these

in-

would

by banks.
earn

Since

interest,

incentive

unless

outweighs

earning advantage.
that maintained

pricing

a financial

accounts

individuals
for

not

to NOW accounts

their

Banks operating

of

balances.

share
these

among

banks

automatic

volumes,

the overall

teller

protection.10

5.5 percentage

Summary
Growth

of

NOW

tions

have utilized

authority

to

accounts.

the

balance'S

January
large

and
portion

from

transaction

of these

acquired

interest-bearing

Over
was

75 percent

generated

of this
funds

checking
accounts.

40

institu-

recently

these

February

in the

depository

their

offer

transaction
NOW

accounts

as most

and

during

year,

and a

appeared
other

Banks

of

have

Much

factors

obviously

to NOW balances
because

of the

of banks
bank-market

importance

ferences

in the battle

in NOW account

such

and automatic
to affect

and thrifts

as

non-price

in generating

no hard

data

variation
in the rela-

institutions,

between

competition

at banks, and the

among institutions.

cap-

10. The Cincinnati savings and loan associations,
along with other institutions,
provide automatic
teller machines on a joint basis.

Competition
tions
when

commercial

authorized
Paul R. Watro is an economist with the Federal
Reserve Bank of Cleveland. The research assistance
of Peggy Petricig is appreciated.
The views stated herein are those of the author
and not necessarily those of the Federal Reserve
Bank of Cleveland or of the Board of Governors
of the Federal Reserve System.

drawal
tory

(NOW) accounts

and

banking

ceivably

BULK RATE
U.S. Postage Paid
Cleveland,OH

Reserve Bank of Cleveland
Department

P.O. Box 6387
Cleveland,OH
44101

Permit No. 385

count)
lessen

an

count

years.2

at banks

and thrifts

Reserve

District

of its share
(or

Through

some

schemes,
impact
banks

of the

conof the

transaction

aggressive

of NOW accounts

ac-

market-

banks

can

of NOW ac-

three
burgh).

and the market

showed

substantial

in the growth
to pricing and
institutions

ac-

examines

balances,

transaction

balances

Federal
1980.3

December
of banks

analyzed
(Cleveland,

and thrift

in six SMSAsCincinnati,

and one each in Pennsylvania
West Virginia

along

balances,

in the Fourth

since

are

in Ohio

Toledo)
tucky

have been available for several

depository

institutions

transaction

ac-

in other

NOW account

even may gain

in the New England states, where

that

at banks and thrifts.

of NOW account

changes

of thrifts

of minimum-

Commentary

a

Much of the variation

extent

Economic

with

of NOWs has been attributed
the

requirements

the growth

share of banks and thrifts

in

balance

of

whole

in the state bankpolicies

and the stringency

accounts

share

NOW accounts

and banks,

Differences

the relative impor-

institutions

orqanizations.l

as

accounts.

the pricing

nonprofit

market.

differences

of thrift

ing structure,

transaction

the competitive

Growth

tance

NOW

share reflected

for

and pricing

additional

Deposi-

offered

in market

compete

payments

indeed,

loan

order of with-

now

industry

market.

and

tually

This

will lose some

ing efforts

counts;

savings

nationwide.

can

interest-bearing

institu-

1, 1981,

savings banks were

to offer negotiable

households

------------------~~~~

Research

banks,

institutions

The

depository

since January

and mutual

third-party

Federal

among

has intensified

associations,

to

types

by Paul R. Watro

dif-

between

and NOW accounts

The Battle for NOWs

(Wheeling).

and
(Pitts-

and Ken-

(Lexington).

Growth
Growth

of NOWs in the Fourth

(40) has been rapid
District

depository

(see table

institutions

District

1). Fourth
accumulated

$3.3 billion in NOW balances as of July 1981,
representi ng al most 15 percent of thei r total
transaction

deposits

(NOW, demand,

auto-

had
1. Banks and savings and loan associations
are
permitted to offer NOW accounts to nonprofit organizations that are granted tax exemptions
by the
Internal Revenue Service and to public institutions,
such as state universities or city hospitals.

varied

efforts

overdraft

the relative

share

pricing

for NOWs, and

teller machines,

NOW

pricing disparities

areas.

presumably

has

of reduced

in gaining

to differences
of thrift

banks and thrifts,
checking

~£QDomicCommentary

bank share fell only by

ex-

have

thrift

varied among the SMSAs examined.

can be attributed
tive

than

1981 the bank

10,1981

August

points.

success

balances

has been rapid,

inflows

significantly;

Simul-

reduction

among the market

services,

While

of net

declined

gain

generally

the six SMSAs. Marketing

be expected
ness.

also

of competition

auxil iary
tection

banks

deposits

this type

NOW

the largest percentage

influence

share

savings and loan

NOW balances,

prices

January

the smallest price differences

in their

some

with

higher

Since

in SMSAs

the greatest

Non-price

charging

of the

interest-

to register

demand

to

the pricing

had a tendency

perienced

to

as substitutes

held
do

relative

that

accounts

accounts

individuals

accounts

Assuming

perceive

has been

despite

institutions.

for the success

in gaining NOW business

price

either

87.5 percent

tured

The

of

important

provide

thrifts.

institutions

competitive

largest

or overdraft

originate

to avoid their charges.
Another

machines

were the

and Pittsburgh,

compared

banks

Among

thrifts

in Cleveland

terms

taneously,

9. Average prices were calculated from the prices
charged by the three or four largest banks and
thrifts during the first five months of this year.
When the pricing terms of one of the three largest
institutions
were not comparable,
the prices of the
fourth largest institution were used.

were the most

as the three

than

thrift

where they estab-

for example,

most successful

As ex-

gained a larger share

of NOWs in those markets

vary

8. While it is recognized that these factors may be
interdependent,
they are treated as independent
variables in the analysis.

the

services

apparently
associations

to

the average pricing terms

pncmq

auxiliary

and Cleveland

SMSAs.

switch

or four

had lower

these

more banks were found to

Cincinnati

banks and thrifts

widely

fluence

stipulated

fees. The average prices of the three
largest

and

thrifts

charges

typically

offer

efforts,

varied

Lexington

share

of banks

for each type of

marketing

terms, the price gap between

at thrifts

had the

are assumed

banks,

a

of NOW

market

policies

or average

If the

While thrifts

banks.

occur.

thrifts

affecting

the pricing

5.25 percent,

in the given SMSA.

of offices and deposits.

institutions.

minimum

where

the going prices

institution

of

for NOWs, although

Banks gained the largest percentage
balances

was

in the

measures

to reflect

lished the greatest

of of-

held by thrifts

their

SMSAs.

such
services.8

on the success of gener-

measure

selected

non-

institutions,

of thrifts

NOW accounts.

fices and total

and

and auxiliary

of the largest banks and thrifts

banks

of checking

banks,

among

had some influence
ating

importance

of NOWs between

and

as marketing

many

in the SMSA market,

and
price

to

Reserve Bank of Cleveland

and
pro-

would

Address

correction
requested
as shown
from mailing list

o Correct
o Remove

success of
NOW busi-

are available

on

Please send mailing label to the Research Department,
Federal Reserve Bank of Cleveland, P.O. Box 6387, Cleveland,

OH 44101.

2. See Ralph C. Kimball, "Variations
in the New
England NOW Account
Experiment,"
New England Economic Review, Federal Reserve Bank of
Boston, November/December
1980, pp. 23-39.

3. The term thrifts incl udes savings and loan
associations
and mutual
savings banks. Credit
unions
are excluded
because they offer share
drafts rather than NOW accounts.
The Fourth Federal Reserve District includes
all of Ohio, the eastern part of Kentucky,
the
western part of Pennsylvania,
and a small portion
of West Virginia. Pennsylvania is the only state in the
Fourth District where mutual savings banks operate.

Table 2 NOW and Transaction Balances and Market Sharea

Table 1 NOW Growth and Other Deposit Changesa
Millions of dollars

Deposit type
NOW
Demand
Automatic transfer
Telephone and
pre-authorized
Total transaction
Savings
Time

__ 1_9_8_0
December January

20,060
1,139
c

996
20,953
765

2,152
17,648
588

736

819

645

2,585
17,702
561
686

3,014
18,221
581

3,013
17,340
561

690

630

3,176
17,311
546
615

December
July
3,314
17 ,730
540
589

July change
3,313
-2,330
- 599
-230

22,019

23,350

21,033

21,506

22,506

21,544

21,648

22,173

154

26,350
63,570

26,245
66,046

24,448

24,717
67,721

24,717
67,721

24,256
68,270

23,846
29,825

23,697
69,443

-2,643
5,873

67,084

a. Deposits include those of banks, savings and loan associations, and mutual savings banks in the Fourth
District. Figures are weekly averages based on daily figures for the first full reporting week (Thursday to
Wednesday) in each month. Figures are slightly understated, because smaller institutions do not report
on a daily basis.
SOURCE:

Report of Transaction

Accounts,

Other Deposits, and Vault Cash, Federal Reserve System.

matic transfer, and telephone and pre-authorized accountsl.f Such rapid growth can be
attributed to the widespread offering of
NOW accounts by most banks and savings
and loan associations and their aggressive
marketing efforts. Over 75 percent of the
NOW' account growth occurred during January and February of this year. While NOW
balances are still increasing, the pace has
slowed substantially since the beginning of
the year. In fact, NOW account balances
failed to grow between April and. May at
40 institutions.
Despite the large buildup of NOW account
balances, total transaction balances at 4D
depository institutions registered only a
$154-million net increase. Apparently many
depositors switched funds from other accounts to open NOW accounts. The depository institutions experienced declines
in demand deposits ($2,330 million). auto4. Figures represent weekly averages based on
daily figures for the first full reporting week
(Thursday to Wednesday) in each month. These
data are derived from the reserve-accounting
report submitted to the Federal Reserve Bank of
Cleveland. Figures are slightly understated,
because smaller institutions
do not report on a
daily basis and all credit unions are excluded.

1981

1980

--------------19-8-1--------~----~--~Decemberto
February
March
April
May
June

matic transfer savings ($599 million), and
telephone and pre-authorized transfers ($230
mill ion). These institutions also reported a
$2,653-million net outflow of savings deposits since December 1980. While some of
the savings deposits were transferred to
NOW accounts, a large portion of these
funds probably were shifted to higheryielding certificates of deposit and moneymarket funds.5

Market Share
Banks had a natural advantage in introducing NOW accounts because of their near
monopoly of the checking account market.
In fact, some banks automatically converted
eligible checking accounts into NOW accounts. Attempting
to compete against
this advantage, thrift institutions generally
began offering NOWs at lower charges and
balance requirements than banks. Wl:1ile
such pricing encourages lower-balance depositors to open NOW accounts at thrift
institutions, it would seem unlikely to in-

5. Time deposits increased by $5,9 billion at 4D
banks and thrift institutions,
and money-market·
funds rose from $76.6 billion to $129.7 billion
between December 1980 and July 1981.

NOW balances, $ mil
Banks
Thrifts

January

February

Cincinnati

March

April

May

June

July

926
70

1,956
196

2,326
259

2,688
326

2,676
337

2,802

2,900

374

414

o

93.0
7.0

90.9
9.1

90,0
10,0

89.2
10.8

88.8
11.2

88.2
11.8

87,5
12,5

21,654
365

22,955
395

20,567
486

20,984
550

21,876

20,915

20,989

21,487

630

629

659

686

98.3
1.7

98.3
1.7

97.8
2.2

97.4

97.2
2.8

97,1
2,9

97,0
3.0

96,9
3,1

o

Market share, percentb
Banks
Thrifts
Total transaction
balances, $ mil
Banks
Thrifts

Table 3 Market Share and Thrift Competition in Selected SMSAs

100

Market share, percentb
Banks
Thrifts

2.6

a.
Figures are weekly averages based on daily figures for the first full reporting week (Thursday to
Wednesday) in each month. Thrifts include savings and loan associations and mutual savings banks, Total
transaction balances include demand deposits, automatic transfer savings, telephone and pre-authorized
transfers, and NOW deposits, Figures are slightly understated, because smaller institutions do not report
on a daily basis,
b. Market share balances of NOW accounts are estimates based on the proportion of total deposits
at offices within the SMSA.
SOURCE:

Report of Transaction

Accounts,

Other Deposits, and Vault Cash, Federal Reserve System.

duce higher-balance customers to switch to
another institution if they already were receiving no-charge NOW accounts at a bank.6
In view of these factors, it is not surprising that banks have competed effectively
for NOW balances (see table 2). By Feb,\uary
1981, banks gained 91 percent of NOW
balances in the 4D. A large portion of these
funds probably originated from deposits
that were switched from other accounts.
Other types of bank deposits-demand,
automatic
transfer, telephone
and preauthorized, and savings-declined over this
two-month period.
Since January 1981, however, thrift
institutions have consistently gained an increasingly larger share of the net inflows of
NOW accounts. After gaining only 7 percent
in January, thrifts increased their share of
6. Lower service charges might make it profitable for high-balance depositors to change institutions, particularly if they prefer to economize
on their transaction balances.

monthly inflows of NOW balances, reaching
a high of 29 percent in July. Although the
volume of NOW growth has decreased
greatly, thrifts have improved their overall
share of NOW balances outstanding by 5.5
percentage points since January, reaching
12.5 percent in July.
Because of the growth in NOW accounts,
thrifts increased their share of total transaction balances from 1.7 percent in December 1980 to 3.1 percent in July 1981. This
was accomplished by a $414-million increase
in NOW balances, offset by a $93-million
decline in other transaction balances, for a
net gain of $321 million. In contrast, banks
experienced a net reduction of $167 million
in transaction balances.

Market Area
Another way to gauge the relative success
of banks and thrifts in attracting NOW accounts is to examine competition in individual market areas. Indeed, the geo-

Cleveland

Lexington

Pittsburgha

Toledo

Wheeling

Market share of NOW balances (May 1981), %b
Banks
Thrifts

87.2
12.8

79.3
20.6

99.0
1.0

86.7
13.3

94.3
5.7

93.1
6.9

Offices operated by thrifts, %
Deposits held by thrifts, %

46.9
48.1

38.3
43.6

16.0
16.2

35.0
28.6

25.7
38.9

20.0
27.7

1,000
383
617

1,417

933
500
433

1,833
500
1,333

833
508
325

667
567
100

5.53
4.67
0.86

7.35
4.42
2.93

4.33
4.50
-0.17

4.67
3.33
1.34

3.83
3.75
0.08

4.67
4.17
0.50

367
1.78

950
2.77

633
1.83

1,000
2.84

400
1.66

400
2.67

15

13

18

10

20

18

Minimum balance
to avoid fees, $c
Banks
Thrifts
Difference
Monthly service charge, $c
Banks
Thrifts
Difference
Average price difference
between NOW and checking
accounts
Minimum balance
to avoid fees, $
Monthly service charge, $
Reduction in demand
deposits (December to
May),%

350
1,067

a. Although all of the largest depository institutions in the selected SMSAs offered NOW accounts,
two of the Pittsburgh banks did not offer them to individuals. These banks, however, continued to provide automatic transfer savings accounts for individuals over the period examined.
b. Market-share balances of NOW accounts are estimates based on the proportion of total deposits
at offices within the SMSA.
c. Prices are averages calculated from prices charged by the three or four largest banks in each of the
SMSAs during the first five months of 1981. Minimum-balance requirements refer to those maintained
in NOW accounts only; in Pittsburgh, however, savings and NOW balances are collectively applied to
the requirement. All NOW and checking accounts refer to the least-cost minimum-balance type, assuming
monthly transaction of three deposits and fifteen checks. An average service charge is used for institutions
offering sliding-scale charges.
SOURCES:
Report of Transaction Accounts, Other Deposits, and Vault Cash, Federal Reserve System;
Summary of Deposit Data, Federal Deposit Insurance Corporation; and an informal telephone survey.

graphical area in which depository institutions compete varies according to the type
of product or service provided. Institutions
compete for large construction loans in
regional and national markets, whereas
competition for such services as individual
savings, checking, and NOW accounts generally is confined to smaller regional or
local areas.
NOW account balances of banks and
thrifts were analyzed in six of the largest
standard
metropolitan
statistical
areas

(SMSAs) in the 4D. NOW balances captured
by banks differed widely among these
SMSAs. After five months, the bank-market
share of NOWs varied between 79.3 percent
in Cleveland to 99.0 percent in Lexington
(see table 3).1 These variations in the bank7. The share of NOWs held by banks and thrift
institutions is estimated, because data are reported
by institution rather than by office. Several large
institutions
operate
offices in more than one
SMSA. Estimates are based on the proportion of
total deposits held by offices within a given SMSA.

Table 2 NOW and Transaction Balances and Market Sharea

Table 1 NOW Growth and Other Deposit Changesa
Millions of dollars

Deposit type
NOW
Demand
Automatic transfer
Telephone and
pre-authorized
Total transaction
Savings
Time

__ 1_9_8_0
December January

20,060
1,139
c

996
20,953
765

2,152
17,648
588

736

819

645

2,585
17,702
561
686

3,014
18,221
581

3,013
17,340
561

690

630

3,176
17,311
546
615

December
July
3,314
17 ,730
540
589

July change
3,313
-2,330
- 599
-230

22,019

23,350

21,033

21,506

22,506

21,544

21,648

22,173

154

26,350
63,570

26,245
66,046

24,448

24,717
67,721

24,717
67,721

24,256
68,270

23,846
29,825

23,697
69,443

-2,643
5,873

67,084

a. Deposits include those of banks, savings and loan associations, and mutual savings banks in the Fourth
District. Figures are weekly averages based on daily figures for the first full reporting week (Thursday to
Wednesday) in each month. Figures are slightly understated, because smaller institutions do not report
on a daily basis.
SOURCE:

Report of Transaction

Accounts,

Other Deposits, and Vault Cash, Federal Reserve System.

matic transfer, and telephone and pre-authorized accountsl.f Such rapid growth can be
attributed to the widespread offering of
NOW accounts by most banks and savings
and loan associations and their aggressive
marketing efforts. Over 75 percent of the
NOW' account growth occurred during January and February of this year. While NOW
balances are still increasing, the pace has
slowed substantially since the beginning of
the year. In fact, NOW account balances
failed to grow between April and. May at
40 institutions.
Despite the large buildup of NOW account
balances, total transaction balances at 4D
depository institutions registered only a
$154-million net increase. Apparently many
depositors switched funds from other accounts to open NOW accounts. The depository institutions experienced declines
in demand deposits ($2,330 million). auto4. Figures represent weekly averages based on
daily figures for the first full reporting week
(Thursday to Wednesday) in each month. These
data are derived from the reserve-accounting
report submitted to the Federal Reserve Bank of
Cleveland. Figures are slightly understated,
because smaller institutions
do not report on a
daily basis and all credit unions are excluded.

1981

1980

--------------19-8-1--------~----~--~Decemberto
February
March
April
May
June

matic transfer savings ($599 million), and
telephone and pre-authorized transfers ($230
mill ion). These institutions also reported a
$2,653-million net outflow of savings deposits since December 1980. While some of
the savings deposits were transferred to
NOW accounts, a large portion of these
funds probably were shifted to higheryielding certificates of deposit and moneymarket funds.5

Market Share
Banks had a natural advantage in introducing NOW accounts because of their near
monopoly of the checking account market.
In fact, some banks automatically converted
eligible checking accounts into NOW accounts. Attempting
to compete against
this advantage, thrift institutions generally
began offering NOWs at lower charges and
balance requirements than banks. Wl:1ile
such pricing encourages lower-balance depositors to open NOW accounts at thrift
institutions, it would seem unlikely to in-

5. Time deposits increased by $5,9 billion at 4D
banks and thrift institutions,
and money-market·
funds rose from $76.6 billion to $129.7 billion
between December 1980 and July 1981.

NOW balances, $ mil
Banks
Thrifts

January

February

Cincinnati

March

April

May

June

July

926
70

1,956
196

2,326
259

2,688
326

2,676
337

2,802

2,900

374

414

o

93.0
7.0

90.9
9.1

90,0
10,0

89.2
10.8

88.8
11.2

88.2
11.8

87,5
12,5

21,654
365

22,955
395

20,567
486

20,984
550

21,876

20,915

20,989

21,487

630

629

659

686

98.3
1.7

98.3
1.7

97.8
2.2

97.4

97.2
2.8

97,1
2,9

97,0
3.0

96,9
3,1

o

Market share, percentb
Banks
Thrifts
Total transaction
balances, $ mil
Banks
Thrifts

Table 3 Market Share and Thrift Competition in Selected SMSAs

100

Market share, percentb
Banks
Thrifts

2.6

a.
Figures are weekly averages based on daily figures for the first full reporting week (Thursday to
Wednesday) in each month. Thrifts include savings and loan associations and mutual savings banks, Total
transaction balances include demand deposits, automatic transfer savings, telephone and pre-authorized
transfers, and NOW deposits, Figures are slightly understated, because smaller institutions do not report
on a daily basis,
b. Market share balances of NOW accounts are estimates based on the proportion of total deposits
at offices within the SMSA.
SOURCE:

Report of Transaction

Accounts,

Other Deposits, and Vault Cash, Federal Reserve System.

duce higher-balance customers to switch to
another institution if they already were receiving no-charge NOW accounts at a bank.6
In view of these factors, it is not surprising that banks have competed effectively
for NOW balances (see table 2). By Feb,\uary
1981, banks gained 91 percent of NOW
balances in the 4D. A large portion of these
funds probably originated from deposits
that were switched from other accounts.
Other types of bank deposits-demand,
automatic
transfer, telephone
and preauthorized, and savings-declined over this
two-month period.
Since January 1981, however, thrift
institutions have consistently gained an increasingly larger share of the net inflows of
NOW accounts. After gaining only 7 percent
in January, thrifts increased their share of
6. Lower service charges might make it profitable for high-balance depositors to change institutions, particularly if they prefer to economize
on their transaction balances.

monthly inflows of NOW balances, reaching
a high of 29 percent in July. Although the
volume of NOW growth has decreased
greatly, thrifts have improved their overall
share of NOW balances outstanding by 5.5
percentage points since January, reaching
12.5 percent in July.
Because of the growth in NOW accounts,
thrifts increased their share of total transaction balances from 1.7 percent in December 1980 to 3.1 percent in July 1981. This
was accomplished by a $414-million increase
in NOW balances, offset by a $93-million
decline in other transaction balances, for a
net gain of $321 million. In contrast, banks
experienced a net reduction of $167 million
in transaction balances.

Market Area
Another way to gauge the relative success
of banks and thrifts in attracting NOW accounts is to examine competition in individual market areas. Indeed, the geo-

Cleveland

Lexington

Pittsburgha

Toledo

Wheeling

Market share of NOW balances (May 1981), %b
Banks
Thrifts

87.2
12.8

79.3
20.6

99.0
1.0

86.7
13.3

94.3
5.7

93.1
6.9

Offices operated by thrifts, %
Deposits held by thrifts, %

46.9
48.1

38.3
43.6

16.0
16.2

35.0
28.6

25.7
38.9

20.0
27.7

1,000
383
617

1,417

933
500
433

1,833
500
1,333

833
508
325

667
567
100

5.53
4.67
0.86

7.35
4.42
2.93

4.33
4.50
-0.17

4.67
3.33
1.34

3.83
3.75
0.08

4.67
4.17
0.50

367
1.78

950
2.77

633
1.83

1,000
2.84

400
1.66

400
2.67

15

13

18

10

20

18

Minimum balance
to avoid fees, $c
Banks
Thrifts
Difference
Monthly service charge, $c
Banks
Thrifts
Difference
Average price difference
between NOW and checking
accounts
Minimum balance
to avoid fees, $
Monthly service charge, $
Reduction in demand
deposits (December to
May),%

350
1,067

a. Although all of the largest depository institutions in the selected SMSAs offered NOW accounts,
two of the Pittsburgh banks did not offer them to individuals. These banks, however, continued to provide automatic transfer savings accounts for individuals over the period examined.
b. Market-share balances of NOW accounts are estimates based on the proportion of total deposits
at offices within the SMSA.
c. Prices are averages calculated from prices charged by the three or four largest banks in each of the
SMSAs during the first five months of 1981. Minimum-balance requirements refer to those maintained
in NOW accounts only; in Pittsburgh, however, savings and NOW balances are collectively applied to
the requirement. All NOW and checking accounts refer to the least-cost minimum-balance type, assuming
monthly transaction of three deposits and fifteen checks. An average service charge is used for institutions
offering sliding-scale charges.
SOURCES:
Report of Transaction Accounts, Other Deposits, and Vault Cash, Federal Reserve System;
Summary of Deposit Data, Federal Deposit Insurance Corporation; and an informal telephone survey.

graphical area in which depository institutions compete varies according to the type
of product or service provided. Institutions
compete for large construction loans in
regional and national markets, whereas
competition for such services as individual
savings, checking, and NOW accounts generally is confined to smaller regional or
local areas.
NOW account balances of banks and
thrifts were analyzed in six of the largest
standard
metropolitan
statistical
areas

(SMSAs) in the 4D. NOW balances captured
by banks differed widely among these
SMSAs. After five months, the bank-market
share of NOWs varied between 79.3 percent
in Cleveland to 99.0 percent in Lexington
(see table 3).1 These variations in the bank7. The share of NOWs held by banks and thrift
institutions is estimated, because data are reported
by institution rather than by office. Several large
institutions
operate
offices in more than one
SMSA. Estimates are based on the proportion of
total deposits held by offices within a given SMSA.

Table 2 NOW and Transaction Balances and Market Sharea

Table 1 NOW Growth and Other Deposit Changesa
Millions of dollars

Deposit type
NOW
Demand
Automatic transfer
Telephone and
pre-authorized
Total transaction
Savings
Time

__ 1_9_8_0
December January

20,060
1,139
c

996
20,953
765

2,152
17,648
588

736

819

645

2,585
17,702
561
686

3,014
18,221
581

3,013
17,340
561

690

630

3,176
17,311
546
615

December
July
3,314
17 ,730
540
589

July change
3,313
-2,330
- 599
-230

22,019

23,350

21,033

21,506

22,506

21,544

21,648

22,173

154

26,350
63,570

26,245
66,046

24,448

24,717
67,721

24,717
67,721

24,256
68,270

23,846
29,825

23,697
69,443

-2,643
5,873

67,084

a. Deposits include those of banks, savings and loan associations, and mutual savings banks in the Fourth
District. Figures are weekly averages based on daily figures for the first full reporting week (Thursday to
Wednesday) in each month. Figures are slightly understated, because smaller institutions do not report
on a daily basis.
SOURCE:

Report of Transaction

Accounts,

Other Deposits, and Vault Cash, Federal Reserve System.

matic transfer, and telephone and pre-authorized accountsl.f Such rapid growth can be
attributed to the widespread offering of
NOW accounts by most banks and savings
and loan associations and their aggressive
marketing efforts. Over 75 percent of the
NOW' account growth occurred during January and February of this year. While NOW
balances are still increasing, the pace has
slowed substantially since the beginning of
the year. In fact, NOW account balances
failed to grow between April and. May at
40 institutions.
Despite the large buildup of NOW account
balances, total transaction balances at 4D
depository institutions registered only a
$154-million net increase. Apparently many
depositors switched funds from other accounts to open NOW accounts. The depository institutions experienced declines
in demand deposits ($2,330 million). auto4. Figures represent weekly averages based on
daily figures for the first full reporting week
(Thursday to Wednesday) in each month. These
data are derived from the reserve-accounting
report submitted to the Federal Reserve Bank of
Cleveland. Figures are slightly understated,
because smaller institutions
do not report on a
daily basis and all credit unions are excluded.

1981

1980

--------------19-8-1--------~----~--~Decemberto
February
March
April
May
June

matic transfer savings ($599 million), and
telephone and pre-authorized transfers ($230
mill ion). These institutions also reported a
$2,653-million net outflow of savings deposits since December 1980. While some of
the savings deposits were transferred to
NOW accounts, a large portion of these
funds probably were shifted to higheryielding certificates of deposit and moneymarket funds.5

Market Share
Banks had a natural advantage in introducing NOW accounts because of their near
monopoly of the checking account market.
In fact, some banks automatically converted
eligible checking accounts into NOW accounts. Attempting
to compete against
this advantage, thrift institutions generally
began offering NOWs at lower charges and
balance requirements than banks. Wl:1ile
such pricing encourages lower-balance depositors to open NOW accounts at thrift
institutions, it would seem unlikely to in-

5. Time deposits increased by $5,9 billion at 4D
banks and thrift institutions,
and money-market·
funds rose from $76.6 billion to $129.7 billion
between December 1980 and July 1981.

NOW balances, $ mil
Banks
Thrifts

January

February

Cincinnati

March

April

May

June

July

926
70

1,956
196

2,326
259

2,688
326

2,676
337

2,802

2,900

374

414

o

93.0
7.0

90.9
9.1

90,0
10,0

89.2
10.8

88.8
11.2

88.2
11.8

87,5
12,5

21,654
365

22,955
395

20,567
486

20,984
550

21,876

20,915

20,989

21,487

630

629

659

686

98.3
1.7

98.3
1.7

97.8
2.2

97.4

97.2
2.8

97,1
2,9

97,0
3.0

96,9
3,1

o

Market share, percentb
Banks
Thrifts
Total transaction
balances, $ mil
Banks
Thrifts

Table 3 Market Share and Thrift Competition in Selected SMSAs

100

Market share, percentb
Banks
Thrifts

2.6

a.
Figures are weekly averages based on daily figures for the first full reporting week (Thursday to
Wednesday) in each month. Thrifts include savings and loan associations and mutual savings banks, Total
transaction balances include demand deposits, automatic transfer savings, telephone and pre-authorized
transfers, and NOW deposits, Figures are slightly understated, because smaller institutions do not report
on a daily basis,
b. Market share balances of NOW accounts are estimates based on the proportion of total deposits
at offices within the SMSA.
SOURCE:

Report of Transaction

Accounts,

Other Deposits, and Vault Cash, Federal Reserve System.

duce higher-balance customers to switch to
another institution if they already were receiving no-charge NOW accounts at a bank.6
In view of these factors, it is not surprising that banks have competed effectively
for NOW balances (see table 2). By Feb,\uary
1981, banks gained 91 percent of NOW
balances in the 4D. A large portion of these
funds probably originated from deposits
that were switched from other accounts.
Other types of bank deposits-demand,
automatic
transfer, telephone
and preauthorized, and savings-declined over this
two-month period.
Since January 1981, however, thrift
institutions have consistently gained an increasingly larger share of the net inflows of
NOW accounts. After gaining only 7 percent
in January, thrifts increased their share of
6. Lower service charges might make it profitable for high-balance depositors to change institutions, particularly if they prefer to economize
on their transaction balances.

monthly inflows of NOW balances, reaching
a high of 29 percent in July. Although the
volume of NOW growth has decreased
greatly, thrifts have improved their overall
share of NOW balances outstanding by 5.5
percentage points since January, reaching
12.5 percent in July.
Because of the growth in NOW accounts,
thrifts increased their share of total transaction balances from 1.7 percent in December 1980 to 3.1 percent in July 1981. This
was accomplished by a $414-million increase
in NOW balances, offset by a $93-million
decline in other transaction balances, for a
net gain of $321 million. In contrast, banks
experienced a net reduction of $167 million
in transaction balances.

Market Area
Another way to gauge the relative success
of banks and thrifts in attracting NOW accounts is to examine competition in individual market areas. Indeed, the geo-

Cleveland

Lexington

Pittsburgha

Toledo

Wheeling

Market share of NOW balances (May 1981), %b
Banks
Thrifts

87.2
12.8

79.3
20.6

99.0
1.0

86.7
13.3

94.3
5.7

93.1
6.9

Offices operated by thrifts, %
Deposits held by thrifts, %

46.9
48.1

38.3
43.6

16.0
16.2

35.0
28.6

25.7
38.9

20.0
27.7

1,000
383
617

1,417

933
500
433

1,833
500
1,333

833
508
325

667
567
100

5.53
4.67
0.86

7.35
4.42
2.93

4.33
4.50
-0.17

4.67
3.33
1.34

3.83
3.75
0.08

4.67
4.17
0.50

367
1.78

950
2.77

633
1.83

1,000
2.84

400
1.66

400
2.67

15

13

18

10

20

18

Minimum balance
to avoid fees, $c
Banks
Thrifts
Difference
Monthly service charge, $c
Banks
Thrifts
Difference
Average price difference
between NOW and checking
accounts
Minimum balance
to avoid fees, $
Monthly service charge, $
Reduction in demand
deposits (December to
May),%

350
1,067

a. Although all of the largest depository institutions in the selected SMSAs offered NOW accounts,
two of the Pittsburgh banks did not offer them to individuals. These banks, however, continued to provide automatic transfer savings accounts for individuals over the period examined.
b. Market-share balances of NOW accounts are estimates based on the proportion of total deposits
at offices within the SMSA.
c. Prices are averages calculated from prices charged by the three or four largest banks in each of the
SMSAs during the first five months of 1981. Minimum-balance requirements refer to those maintained
in NOW accounts only; in Pittsburgh, however, savings and NOW balances are collectively applied to
the requirement. All NOW and checking accounts refer to the least-cost minimum-balance type, assuming
monthly transaction of three deposits and fifteen checks. An average service charge is used for institutions
offering sliding-scale charges.
SOURCES:
Report of Transaction Accounts, Other Deposits, and Vault Cash, Federal Reserve System;
Summary of Deposit Data, Federal Deposit Insurance Corporation; and an informal telephone survey.

graphical area in which depository institutions compete varies according to the type
of product or service provided. Institutions
compete for large construction loans in
regional and national markets, whereas
competition for such services as individual
savings, checking, and NOW accounts generally is confined to smaller regional or
local areas.
NOW account balances of banks and
thrifts were analyzed in six of the largest
standard
metropolitan
statistical
areas

(SMSAs) in the 4D. NOW balances captured
by banks differed widely among these
SMSAs. After five months, the bank-market
share of NOWs varied between 79.3 percent
in Cleveland to 99.0 percent in Lexington
(see table 3).1 These variations in the bank7. The share of NOWs held by banks and thrift
institutions is estimated, because data are reported
by institution rather than by office. Several large
institutions
operate
offices in more than one
SMSA. Estimates are based on the proportion of
total deposits held by offices within a given SMSA.

Federal
market

share

factors,

including

of thrift
price

can

be attributed
the

relative

institutions

differences
thrifts,

price

differences

NOW

accounts

at

differences

The

efforts

presence

used

to

were

inversely

banks

in the

one-to-one

in the

market

The percentage

deposits

importance

These
related

battle

to

generally

the

success

relationship

did

in Lexington,

not

smallest

percentage

A second
has been
thrift
offer

factor

NOW

Both

accounts

that

with

balance

amount,

charge

pay

balance

falls
that

and

no service
below

the depositor

service

banks

interest

banks

selected

and

the

is assessed

may include
thrifts

of
if a

is maintained.
a monthly
transaction

operating

in the

SMSAs form a basis for price com-

parisons.9
monthly

Pricing
service

elements
charges,

fees, and the minimum
avoid

any charges.

among

institutions,

can
per

balance

While prices

include

transaction
required
often

pected,

among

thrifts

generally

the

markets,

where

they

pricing

pricing advantages.

maintained

the most

attractive

with

competing

Price differentials

were less favorable

in the other

SMSAs.

In fact,

had slightly

lower

the

service

charges than the local savings and loans, but
they set low minimum-balance

requirements

of banks
the

reason

of checking

NOW accounts.
NOW

checking

accounts,
the

checking

their

amounts
have

of these

in-

would

by banks.
earn

Since

interest,

incentive

unless

outweighs

earning advantage.
that maintained

pricing

a financial

accounts

individuals
for

not

to NOW accounts

their

Banks operating

of

balances.

share
these

among

banks

automatic

volumes,

the overall

teller

protection.10

5.5 percentage

Summary
Growth

of

NOW

tions

have utilized

authority

to

accounts.

the

balance'S

January
large

and
portion

from

transaction

of these

acquired

interest-bearing

Over
was

75 percent

generated

of this
funds

checking
accounts.

40

institu-

recently

these

February

in the

depository

their

offer

transaction
NOW

accounts

as most

and

during

year,

and a

appeared
other

Banks

of

have

Much

factors

obviously

to NOW balances
because

of the

of banks
bank-market

importance

ferences

in the battle

in NOW account

such

and automatic
to affect

and thrifts

as

non-price

in generating

no hard

data

variation
in the rela-

institutions,

between

competition

at banks, and the

among institutions.

cap-

10. The Cincinnati savings and loan associations,
along with other institutions,
provide automatic
teller machines on a joint basis.

Competition
tions
when

commercial

authorized
Paul R. Watro is an economist with the Federal
Reserve Bank of Cleveland. The research assistance
of Peggy Petricig is appreciated.
The views stated herein are those of the author
and not necessarily those of the Federal Reserve
Bank of Cleveland or of the Board of Governors
of the Federal Reserve System.

drawal
tory

(NOW) accounts

and

banking

ceivably

BULK RATE
U.S. Postage Paid
Cleveland,OH

Reserve Bank of Cleveland
Department

P.O. Box 6387
Cleveland,OH
44101

Permit No. 385

count)
lessen

an

count

years.2

at banks

and thrifts

Reserve

District

of its share
(or

Through

some

schemes,
impact
banks

of the

conof the

transaction

aggressive

of NOW accounts

ac-

market-

banks

can

of NOW ac-

three
burgh).

and the market

showed

substantial

in the growth
to pricing and
institutions

ac-

examines

balances,

transaction

balances

Federal
1980.3

December
of banks

analyzed
(Cleveland,

and thrift

in six SMSAsCincinnati,

and one each in Pennsylvania
West Virginia

along

balances,

in the Fourth

since

are

in Ohio

Toledo)
tucky

have been available for several

depository

institutions

transaction

ac-

in other

NOW account

even may gain

in the New England states, where

that

at banks and thrifts.

of NOW account

changes

of thrifts

of minimum-

Commentary

a

Much of the variation

extent

Economic

with

of NOWs has been attributed
the

requirements

the growth

share of banks and thrifts

in

balance

of

whole

in the state bankpolicies

and the stringency

accounts

share

NOW accounts

and banks,

Differences

the relative impor-

institutions

orqanizations.l

as

accounts.

the pricing

nonprofit

market.

differences

of thrift

ing structure,

transaction

the competitive

Growth

tance

NOW

share reflected

for

and pricing

additional

Deposi-

offered

in market

compete

payments

indeed,

loan

order of with-

now

industry

market.

and

tually

This

will lose some

ing efforts

counts;

savings

nationwide.

can

interest-bearing

institu-

1, 1981,

savings banks were

to offer negotiable

households

------------------~~~~

Research

banks,

institutions

The

depository

since January

and mutual

third-party

Federal

among

has intensified

associations,

to

types

by Paul R. Watro

dif-

between

and NOW accounts

The Battle for NOWs

(Wheeling).

and
(Pitts-

and Ken-

(Lexington).

Growth
Growth

of NOWs in the Fourth

(40) has been rapid
District

depository

(see table

institutions

District

1). Fourth
accumulated

$3.3 billion in NOW balances as of July 1981,
representi ng al most 15 percent of thei r total
transaction

deposits

(NOW, demand,

auto-

had
1. Banks and savings and loan associations
are
permitted to offer NOW accounts to nonprofit organizations that are granted tax exemptions
by the
Internal Revenue Service and to public institutions,
such as state universities or city hospitals.

varied

efforts

overdraft

the relative

share

pricing

for NOWs, and

teller machines,

NOW

pricing disparities

areas.

presumably

has

of reduced

in gaining

to differences
of thrift

banks and thrifts,
checking

~£QDomicCommentary

bank share fell only by

ex-

have

thrift

varied among the SMSAs examined.

can be attributed
tive

than

1981 the bank

10,1981

August

points.

success

balances

has been rapid,

inflows

significantly;

Simul-

reduction

among the market

services,

While

of net

declined

gain

generally

the six SMSAs. Marketing

be expected
ness.

also

of competition

auxil iary
tection

banks

deposits

this type

NOW

the largest percentage

influence

share

savings and loan

NOW balances,

prices

January

the smallest price differences

in their

some

with

higher

Since

in SMSAs

the greatest

Non-price

charging

of the

interest-

to register

demand

to

the pricing

had a tendency

perienced

to

as substitutes

held
do

relative

that

accounts

accounts

individuals

accounts

Assuming

perceive

has been

despite

institutions.

for the success

in gaining NOW business

price

either

87.5 percent

tured

The

of

important

provide

thrifts.

institutions

competitive

largest

or overdraft

originate

to avoid their charges.
Another

machines

were the

and Pittsburgh,

compared

banks

Among

thrifts

in Cleveland

terms

taneously,

9. Average prices were calculated from the prices
charged by the three or four largest banks and
thrifts during the first five months of this year.
When the pricing terms of one of the three largest
institutions
were not comparable,
the prices of the
fourth largest institution were used.

were the most

as the three

than

thrift

where they estab-

for example,

most successful

As ex-

gained a larger share

of NOWs in those markets

vary

8. While it is recognized that these factors may be
interdependent,
they are treated as independent
variables in the analysis.

the

services

apparently
associations

to

the average pricing terms

pncmq

auxiliary

and Cleveland

SMSAs.

switch

or four

had lower

these

more banks were found to

Cincinnati

banks and thrifts

widely

fluence

stipulated

fees. The average prices of the three
largest

and

thrifts

charges

typically

offer

efforts,

varied

Lexington

share

of banks

for each type of

marketing

terms, the price gap between

at thrifts

had the

are assumed

banks,

a

of NOW

market

policies

or average

If the

While thrifts

banks.

occur.

thrifts

affecting

the pricing

5.25 percent,

in the given SMSA.

of offices and deposits.

institutions.

minimum

where

the going prices

institution

of

for NOWs, although

Banks gained the largest percentage
balances

was

in the

measures

to reflect

lished the greatest

of of-

held by thrifts

their

SMSAs.

such
services.8

on the success of gener-

measure

selected

non-

institutions,

of thrifts

NOW accounts.

fices and total

and

and auxiliary

of the largest banks and thrifts

banks

of checking

banks,

among

had some influence
ating

importance

of NOWs between

and

as marketing

many

in the SMSA market,

and
price

to

Reserve Bank of Cleveland

and
pro-

would

Address

correction
requested
as shown
from mailing list

o Correct
o Remove

success of
NOW busi-

are available

on

Please send mailing label to the Research Department,
Federal Reserve Bank of Cleveland, P.O. Box 6387, Cleveland,

OH 44101.

2. See Ralph C. Kimball, "Variations
in the New
England NOW Account
Experiment,"
New England Economic Review, Federal Reserve Bank of
Boston, November/December
1980, pp. 23-39.

3. The term thrifts incl udes savings and loan
associations
and mutual
savings banks. Credit
unions
are excluded
because they offer share
drafts rather than NOW accounts.
The Fourth Federal Reserve District includes
all of Ohio, the eastern part of Kentucky,
the
western part of Pennsylvania,
and a small portion
of West Virginia. Pennsylvania is the only state in the
Fourth District where mutual savings banks operate.

Federal
market

share

factors,

including

of thrift
price

can

be attributed
the

relative

institutions

differences
thrifts,

price

differences

NOW

accounts

at

differences

The

efforts

presence

used

to

were

inversely

banks

in the

one-to-one

in the

market

The percentage

deposits

importance

These
related

battle

to

generally

the

success

relationship

did

in Lexington,

not

smallest

percentage

A second
has been
thrift
offer

factor

NOW

Both

accounts

that

with

balance

amount,

charge

pay

balance

falls
that

and

no service
below

the depositor

service

banks

interest

banks

selected

and

the

is assessed

may include
thrifts

of
if a

is maintained.
a monthly
transaction

operating

in the

SMSAs form a basis for price com-

parisons.9
monthly

Pricing
service

elements
charges,

fees, and the minimum
avoid

any charges.

among

institutions,

can
per

balance

While prices

include

transaction
required
often

pected,

among

thrifts

generally

the

markets,

where

they

pricing

pricing advantages.

maintained

the most

attractive

with

competing

Price differentials

were less favorable

in the other

SMSAs.

In fact,

had slightly

lower

the

service

charges than the local savings and loans, but
they set low minimum-balance

requirements

of banks
the

reason

of checking

NOW accounts.
NOW

checking

accounts,
the

checking

their

amounts
have

of these

in-

would

by banks.
earn

Since

interest,

incentive

unless

outweighs

earning advantage.
that maintained

pricing

a financial

accounts

individuals
for

not

to NOW accounts

their

Banks operating

of

balances.

share
these

among

banks

automatic

volumes,

the overall

teller

protection.10

5.5 percentage

Summary
Growth

of

NOW

tions

have utilized

authority

to

accounts.

the

balance'S

January
large

and
portion

from

transaction

of these

acquired

interest-bearing

Over
was

75 percent

generated

of this
funds

checking
accounts.

40

institu-

recently

these

February

in the

depository

their

offer

transaction
NOW

accounts

as most

and

during

year,

and a

appeared
other

Banks

of

have

Much

factors

obviously

to NOW balances
because

of the

of banks
bank-market

importance

ferences

in the battle

in NOW account

such

and automatic
to affect

and thrifts

as

non-price

in generating

no hard

data

variation
in the rela-

institutions,

between

competition

at banks, and the

among institutions.

cap-

10. The Cincinnati savings and loan associations,
along with other institutions,
provide automatic
teller machines on a joint basis.

Competition
tions
when

commercial

authorized
Paul R. Watro is an economist with the Federal
Reserve Bank of Cleveland. The research assistance
of Peggy Petricig is appreciated.
The views stated herein are those of the author
and not necessarily those of the Federal Reserve
Bank of Cleveland or of the Board of Governors
of the Federal Reserve System.

drawal
tory

(NOW) accounts

and

banking

ceivably

BULK RATE
U.S. Postage Paid
Cleveland,OH

Reserve Bank of Cleveland
Department

P.O. Box 6387
Cleveland,OH
44101

Permit No. 385

count)
lessen

an

count

years.2

at banks

and thrifts

Reserve

District

of its share
(or

Through

some

schemes,
impact
banks

of the

conof the

transaction

aggressive

of NOW accounts

ac-

market-

banks

can

of NOW ac-

three
burgh).

and the market

showed

substantial

in the growth
to pricing and
institutions

ac-

examines

balances,

transaction

balances

Federal
1980.3

December
of banks

analyzed
(Cleveland,

and thrift

in six SMSAsCincinnati,

and one each in Pennsylvania
West Virginia

along

balances,

in the Fourth

since

are

in Ohio

Toledo)
tucky

have been available for several

depository

institutions

transaction

ac-

in other

NOW account

even may gain

in the New England states, where

that

at banks and thrifts.

of NOW account

changes

of thrifts

of minimum-

Commentary

a

Much of the variation

extent

Economic

with

of NOWs has been attributed
the

requirements

the growth

share of banks and thrifts

in

balance

of

whole

in the state bankpolicies

and the stringency

accounts

share

NOW accounts

and banks,

Differences

the relative impor-

institutions

orqanizations.l

as

accounts.

the pricing

nonprofit

market.

differences

of thrift

ing structure,

transaction

the competitive

Growth

tance

NOW

share reflected

for

and pricing

additional

Deposi-

offered

in market

compete

payments

indeed,

loan

order of with-

now

industry

market.

and

tually

This

will lose some

ing efforts

counts;

savings

nationwide.

can

interest-bearing

institu-

1, 1981,

savings banks were

to offer negotiable

households

------------------~~~~

Research

banks,

institutions

The

depository

since January

and mutual

third-party

Federal

among

has intensified

associations,

to

types

by Paul R. Watro

dif-

between

and NOW accounts

The Battle for NOWs

(Wheeling).

and
(Pitts-

and Ken-

(Lexington).

Growth
Growth

of NOWs in the Fourth

(40) has been rapid
District

depository

(see table

institutions

District

1). Fourth
accumulated

$3.3 billion in NOW balances as of July 1981,
representi ng al most 15 percent of thei r total
transaction

deposits

(NOW, demand,

auto-

had
1. Banks and savings and loan associations
are
permitted to offer NOW accounts to nonprofit organizations that are granted tax exemptions
by the
Internal Revenue Service and to public institutions,
such as state universities or city hospitals.

varied

efforts

overdraft

the relative

share

pricing

for NOWs, and

teller machines,

NOW

pricing disparities

areas.

presumably

has

of reduced

in gaining

to differences
of thrift

banks and thrifts,
checking

~£QDomicCommentary

bank share fell only by

ex-

have

thrift

varied among the SMSAs examined.

can be attributed
tive

than

1981 the bank

10,1981

August

points.

success

balances

has been rapid,

inflows

significantly;

Simul-

reduction

among the market

services,

While

of net

declined

gain

generally

the six SMSAs. Marketing

be expected
ness.

also

of competition

auxil iary
tection

banks

deposits

this type

NOW

the largest percentage

influence

share

savings and loan

NOW balances,

prices

January

the smallest price differences

in their

some

with

higher

Since

in SMSAs

the greatest

Non-price

charging

of the

interest-

to register

demand

to

the pricing

had a tendency

perienced

to

as substitutes

held
do

relative

that

accounts

accounts

individuals

accounts

Assuming

perceive

has been

despite

institutions.

for the success

in gaining NOW business

price

either

87.5 percent

tured

The

of

important

provide

thrifts.

institutions

competitive

largest

or overdraft

originate

to avoid their charges.
Another

machines

were the

and Pittsburgh,

compared

banks

Among

thrifts

in Cleveland

terms

taneously,

9. Average prices were calculated from the prices
charged by the three or four largest banks and
thrifts during the first five months of this year.
When the pricing terms of one of the three largest
institutions
were not comparable,
the prices of the
fourth largest institution were used.

were the most

as the three

than

thrift

where they estab-

for example,

most successful

As ex-

gained a larger share

of NOWs in those markets

vary

8. While it is recognized that these factors may be
interdependent,
they are treated as independent
variables in the analysis.

the

services

apparently
associations

to

the average pricing terms

pncmq

auxiliary

and Cleveland

SMSAs.

switch

or four

had lower

these

more banks were found to

Cincinnati

banks and thrifts

widely

fluence

stipulated

fees. The average prices of the three
largest

and

thrifts

charges

typically

offer

efforts,

varied

Lexington

share

of banks

for each type of

marketing

terms, the price gap between

at thrifts

had the

are assumed

banks,

a

of NOW

market

policies

or average

If the

While thrifts

banks.

occur.

thrifts

affecting

the pricing

5.25 percent,

in the given SMSA.

of offices and deposits.

institutions.

minimum

where

the going prices

institution

of

for NOWs, although

Banks gained the largest percentage
balances

was

in the

measures

to reflect

lished the greatest

of of-

held by thrifts

their

SMSAs.

such
services.8

on the success of gener-

measure

selected

non-

institutions,

of thrifts

NOW accounts.

fices and total

and

and auxiliary

of the largest banks and thrifts

banks

of checking

banks,

among

had some influence
ating

importance

of NOWs between

and

as marketing

many

in the SMSA market,

and
price

to

Reserve Bank of Cleveland

and
pro-

would

Address

correction
requested
as shown
from mailing list

o Correct
o Remove

success of
NOW busi-

are available

on

Please send mailing label to the Research Department,
Federal Reserve Bank of Cleveland, P.O. Box 6387, Cleveland,

OH 44101.

2. See Ralph C. Kimball, "Variations
in the New
England NOW Account
Experiment,"
New England Economic Review, Federal Reserve Bank of
Boston, November/December
1980, pp. 23-39.

3. The term thrifts incl udes savings and loan
associations
and mutual
savings banks. Credit
unions
are excluded
because they offer share
drafts rather than NOW accounts.
The Fourth Federal Reserve District includes
all of Ohio, the eastern part of Kentucky,
the
western part of Pennsylvania,
and a small portion
of West Virginia. Pennsylvania is the only state in the
Fourth District where mutual savings banks operate.