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September 24,1975 n o ? As Maine Goes? A political slogan of years gone by was, "'As Maine goes, so goes the nation/' In those days, independ ent Mainers held their Presidential election earlier than the rest of the states, providing a sample of voter preference. Maine lost some of its reputation as a political weathervane in 1936, when Alf Landon showed that "As Maine goes, so goes Vermont/' But the state may still have some standing as a fore caster of financial trends, because legislation which Maine enacted last fall gives a foretaste of what would happen to the U.S. financial structure if the recommendations of various government study groups were implemented on the national level. Maine's new legislation brought about sweeping changes in the powers (or, as a practical matter, the products and services) of vari ous types of depository financial institutions within the state. As many of these changes have been hotly debated elsewhere, the Maine legislation should provide some evidence on which to evalu ate their appropriateness at the national level. institutions in determining their policies with regard to lending, investing, and acquisition of funds. More specifically, it recommended that specialized financial institu tions, such as mutual-savings banks and savings-and-loan associations, be given broader powers so that they could provide the public with a more comprehensive package of financial services. The recommendations were de signed to make these institutions less vulnerable to periodic swings in interest rates, so that they could provide the housing market with a more stable flow of funds. Also, ceilings on interest paid to deposi tors would be eliminated gradually over a period of years. The Commission made a strong plea that its recommendations be viewed as an integrated, compre hensive package—a plea that has been generally ignored in the ensu ing years. However, a unique fea ture of the system of financial regu lation in this country is the degree of autonomy left to the individual states. Enter the State of Maine. Maine’s initiative National studies In mid-1970, the President appoint ed the Commission on Financial Structure and Regulation (the Hunt Commission) to review "the structure, operation, and regula tion" of the nation’s private finan cial institutions, and in December 1971 it delivered a far-ranging re port on this subject. The general thrust of the report was toward a greater freedom for all financial In late 1970 the Androscoggin County Savings Bank unilaterally changed its by-laws and began of fering demand deposits to its cus tomers. Maine’s Superintendent of Banking issued a cease-and-desist order, and his order was upheld by the courts. Then, in the following year, the legislature considered— but rejected—a bill calling for the conversion of mutual-savings banks to state-chartered commercial (continued on page 2) Digitized for F R A S E R Opinions expressed in this newsletter do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco, nor of the Board of Governors of the Federal Reserve System. banks or trust companies, if they wished to issue checking accounts or engage in any other commercialbank activity. Following the release of the Hunt Commission report, leading Mainers decided that the creation of a broad-based panel comprised of bankers, businessmen, consumer advocates, and legislators would be the best way to reach a consensus on the reform of the state's finan cial statutes. This approach worked, because the general provisions of the Report of the Governor's Bank ing Study Advisory Committee re mained intact in the bill which passed the legislature last year. This legislation thus implemented a ma jor share of the Hunt Commission recommendations. Important features Branching. Under the new legisla tion, all depository financial institu tions are permitted to establish branches on a statewide basis. Pre viously, branching had been limited to contiguous counties on a de novo basis, or else statewide by merger—a situation beneficial to the banks. Commercial banks had more incentive to engage in merger activities than mutual institutions, where there is no opportunity for capital gain. In addition, banks through their holding companies could expand through both acqui sition and establishment of de novo affiliates. Consequently, unlike the thrift institutions, they had already achieved effective statewide branching capability. The new leg islation redressed this situation by Digitized for F R A S E R granting statewide branching pow ers to the thrifts as well as to the banks. Deposit powers. In perhaps its most controversial section, the new law granted demand-deposit powers to all state-chartered thrift institutions, although under the limited form of “ personal checking accounts.” This power had been actively sought by thrift institutions, especially mutual savings banks, but had been viewed with substantial concern by com mercial bankers, who saw their competitors receiving additional benefits without assuming addi tional burdens. The new law also gave explicit permission to all insti tutions to issue negotiable orders of withdrawal (N.O.W. accounts) should Federal law permit. The leg islation consequently was activated when Congress altered the Federal law to permit the use of these demand-type time accounts throughout New England, effective last February. Reserve requirements. The new law specified reserve requirements for various types of deposits, with some discretion left to the State Superin tendent of Banking. The law stated that the requirements for each de posit category must be identical for all depository financial institutions. Lending powers. Here again, the thrust of the new law provided for greater flexibility for thrift institu tions in managing their asset port folios. Thrift institutions hence forth may participate in consumer loans, commercial loans (with Maine commercial banks), and “ prudent loans” including com mercial loans—in each case up to 10 percent of total deposits. In addi tion, thrifts are explicitly permitted to issue credit cards. Reflection of Hunt report In summary, Maine's legislation im plements much of what the Hunt Commission recommended in the area of liberalized powers for thrift institutions. As a practical matter, Maine has retained no important distinctions between the powers of commercial banks and those of thrift institutions. However, there is one important distinction remain ing on the Federal level—the V a ~ percentage point differential which thrift institutions can pay on various types of deposits. Maine’s legisla ture asked Federal regulatory au thorities to abolish the differential for Maine, since there was no long er any justifiable reason for thrift institutions to have this competitive advantage. However, no action has yet been taken at the Federal level. Against this background, we can understand the proposalof Massa chusetts Bank Commissioner Carol Greenwald—to raise deposit interest-rate ceilings step-by-step, until Regulation Q ceilings become a dead letter. While Maine has gone the farthest, thrift institutions in Northeastern states have been more successful than those else where in expanding their consumer powers. Hence, it may be argued that one of the traditional supports for the 14-point differential is no longer operative in the Northeast. It used to be thought that thrift insti tutions would have to be able to offer higher interest payments to attract depositors away from the “ one stop shopping” commercial banks, since they themselves were precluded from offering the public a broad range of services. Clearly, this is no longer the case in Maine. Neil Murphy Copies are now available of the summer issue of the Federal Reserve Bank of San Francisco's E c o n o m i c R e v ie w . Under the theme of “ Financial Markets and Uncer tainty/' the issue contains analyses of variable-rate home mortgages, the impact of inflation on capital-market efficiency, debt-equity ratios in financial markets, and the shifting relationship of money demand and GNP. This publication is designed for financial analysts, college students and teachers. For those not on the mailing list, copies may be obtained from the Public Information Section, Federal Reserve Bank of San Francisco, P.O. Box 7702, San Francisco 94120. 3 uoiSinqseM • q ejn • MEM EH . uo S o jo E jU J O p |E 3 . • e p e a o n • °MEP1 E U O Z IJ V • B>|S E|V •Jj|e3 'osspuey ue§ ZSL ON ilWH3d ’c S © p ® J aivd 3DV1SOJ s n HVW SSV1D 1SMIJ p n s m p m lf o Q BANKING DATA—TWELFTH FEDERAL RESERVE DISTRICT (Dollar amounts in millions) Selected Assets and Liabilities Large Commercial Banks * Amount Outstanding 9/08/76 Loans (gross, adjusted) and investments* Loans (gross, adjusted)—total Security loans Commercial and industrial Real estate Consumer instalment U.S. Treasury securities O ther securities Deposits (less cash items)—total* Demand deposits (adjusted) U.S. Governm ent deposits Time deposits—total* States and political subdivisions Savings deposits O ther time deposits^ Large negotiable C D ’s 89,389 67,746 1,615 21,701 20,607 11,448 9,020 12,623 88,792 25,485 388 61,394 5,372 27,035 26,541 10,818 Weekly Averages of Daily Figures W eek ended 9/08/76 Member Bank Reserve Position Excess Reserves Borrowings Net free(+)/Net borrowed (-) Federal Funds—Seven Large Banks Interbank Federal fund transactions Net purchases (+)/Net sales (-) Transactions of U.S. security dealers Net loans (+)/Net borrowings (-) - Change from 9/01/76 Change from year ago Dollar Percent + + + + + + + + + + + + + + + + - - + + + + + - + + + 721 598 99 209 31 28 148 271 474 285 146 186 97 92 70 162 + + + + + + + + + + - 3,009 2,270 672 889 956 1,282 858 119 2,159 1,107 29 1,273 494 6,206 3,097 4,918 W eek ended 9/01/76 3.48 3.47 29.38 3.94 4.86 12.61 10.51 0.93 2.49 4.54 8.08 2.12 8.42 29.79 10.45 31.25 Comparable year-ago period - 17 4 21 + 53 0 53 - 730 - 920 + 1,487 + 337 + 122 + - 8 29 21 916 *lncludes items not shown separately. ^Individuals, partnerships and corporations. Editorial comments may be addressed to the editor (William Burke) or to the author. . . . Information on this and other publications can be obtained by calling or writing the Public Information Section, Federal Reserve Bank of San Francisco, P.O. Box 7702, San Francisco 94120. Phone (415) 544-2184.
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