Full text of Economic Policy Review (Federal Reserve Bank of New York) : January 1969, Vol. 51, No. 1

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FEDERAL RESERVE BANK OF NEW YORK

T h e B u sin e ss Situ atio n
As 1968 drew to a dose, the economy continued to
expand at an excessive rate. In November, almost every
indicator of business activity was strong. Industrial pro
duction rose a full 1 percent to a new peak. The backlog
of unfilled orders for durable goods increased again, as
the volume of new orders remained at a high level. Em
ployment registered a sharp advance, and the December
increase was even more marked. The unemployment rate
in these two months was down to 3.3 percent, the lowest
since 1953. Retail sales advanced approximately V2 per
cent in November, following two months of slight easing.
Price developments continued to be disturbing, with sig
nificant increases occurring at both wholesale and retail
levels. When the Board of Governors of the Federal
Reserve System announced its mid-December approval of
an increase in the discount rate from 514 percent to 5Vi
percent, it cited 4'the resurgence in inflationary expecta
tions that is impeding the restoration of economic stability”
as one reason for its action.1

production turned up in October. In November, the
index of iron and steel output advanced again, account-

INDUSTRIAL PRODUCTION
Seasonally adjusted; 1957-59=100

O U T P U T , IN V E N T O R IE S, A N D
C O N S T R U C T IO N A C T IV IT Y

In November, industrial output registered its largest
and most broadly based rise since last spring. The Federal
Reserve Board’s index of industrial production rose by
1.7 percentage points (seasonally adjusted) to 167.4
percent of the 1957-59 average (see Chart I ). This
advance brought the index to a new high, surpassing the
peak set last July when the steel industry was working
at a feverish pace to meet the demands of users who
were building up inventory as a hedge against a possible
steel strike. The sharp cutback in steel production that
followed the August 1 contract settlement had caused
the total production index to fall substantially that month.
After a further moderate decline in September, steel
Note: indexes for defense equipment and nonautomofive consumer goods
were calculated at the Federal Reserve Bank of New York from data
published by the Board of G overnors of the Federal Reserve System.
Indexes are not plotted in rank order.

1 For a fuller reference, see page 7.

Source: Board of G overnors of the Federal Reserve System.

MONTHLY REVIEW, JANUARY 1969

ing for about a quarter of the month’s total production gain.
In December, output of steel ingots rose by 12 percent,
pushing the level of activity closer to normal.
The materials component of the total index recorded a
sharp rise in November, due partly to the increase in
steel. However, advances in the output of other industrial
materials, as well as the settlement of a strike in the coal
industry, contributed to the gain. Output of both business
and defense equipment advanced substantially. Begin
ning with September, the production of business equipment
has moved up sharply, suggesting that the considerable
increase in outlays indicated by recent surveys of busi
ness capital spending plans is indeed taking place. Pro
duction of consumer goods also rose in November. The
gain in the automotive index, however, was limited by the
stability of auto assemblies, which held at a seasonally
adjusted annual rate of 9.2 million units. In December,
automobile output slipped about 3 percent.
The recent behavior of new orders for durable goods
underscores the strong outlook for industrial production.
Although the volume of new orders edged off in Novem
ber by $0.6 billion, this easing followed two very large
monthly increases. The decline in new orders was con
centrated in the machinery and defense-oriented indus
tries; these were the groups in which the October increases
had been particularly large. New orders for construction
materials rose for the fourth consecutive month, and orders
received by blast furnaces and steel mills advanced for the
third month in a row. Since the volume of new orders
continued to outstrip the volume of shipments, the back
log of unfilled orders expanded further to reach $82.6
billion.
The relationship between total business inventories and
total sales remained relatively stable in October, with
strong increases occurring in both sales and inventories.
For the trade sector, however, the inventory-sales ratio
moved up from a very low level as stocks rose and sales
declined. A substantial part of the increase was at auto
motive outlets, reflecting continued high motor vehicle
production in a month when sales moved down. The rise
in the trade ratio was offset by a decline in the manufac
turing ratio, which stemmed from a sizable advance in
durables shipments. In November, the inventory-sales
ratio for manufacturing recovered a bit.
Residential construction activity was vigorous again
in November. The volume of building permits issued by
local authorities increased 1 percent from October, season
ally adjusted, while private nonfarm housing starts climbed
IV 2 percent to a seasonally adjusted annual rate of 1.65 mil
lion units. The starts figure was the highest since early 1964.
This November surge was centered entirely in multi-unit

structures, where there was a jump of over 30 percent in the
number of units begun. In the first year following the sharp
1966 slump in residential construction, both single-home
and multi-unit starts had increased rapidly (see Chart
II). The rise in multi-unit home building was particularly
strong, and similar strength was exhibited again in 1968.
Consequently, in the first eleven months of 1968, the
rate of multi-unit starts averaged a full 20 percent above
the number of such starts in 1965, prior to the slump.
In contrast, the slower recovery of nonfarm single-unit
starts in 1967, and the leveling-out that occurred in
1968, produced a 1968 average that was just under the
1965 rate. This change in the composition of new housing
construction is not surprising in view of population trends.
The shift may, however, also reflect the reluctance of some
institutional investors to add to holdings of single-family
mortgages and their growing preference for apartment
mortgages, particularly when financing arrangements pro
vide equity participation for the mortgage lender.

Chart II

PRIVATE NONFARM HOUSING STARTS
S e a so n ally adjusted an n u a l rates
Thousand of units

Thousand of units

Source: United States Department of Commerce, Buieau of the Census

FEDERAL RESERVE BANK OF NEW YORK

Chartlll

E M P L O Y M E N T , IN CO M E,
AND CONSUM ER DEM AND

CONSUMER INSTALMENT CREDIT
Billions of dollars

The labor market tightened appreciably in Novem
ber. There was a relatively large increase in the labor
force, but an even sharper rise in employment. On a
seasonally adjusted basis, the number of unemployed
persons declined and the unemployment rate dropped
0.3 percentage point to 3.3 percent, the lowest since
1953. Moreover, in contrast to developments in other
months when there was a large change, the unemploy
ment rate decreased in virtually all categories. The rates
for adult women and adult men both fell to post-Korean
war lows.
The number of persons on nonfarm payrolls increased
by 219,000, seasonally adjusted, bringing the total to a
record 68.9 million. Manufacturing employment moved
up, chiefly reflecting the settlement of labor disputes in
the ordnance and machinery industries. Similarly, the
settlement of the strike in the coal industry boosted mining
employment by 44,000, but this rise was offset by the
effect of the New York City teachers’ strike. A major part
of the large increase in total employment occurred in the
relatively low-paying service industries. In addition, a de
cline in the average workweek of manufacturing produc
tion workers partially offset the effect on incomes of the
gains in manufacturing employment and hourly pay. Re
flecting these developments, the wage and salary component
of personal income rose in November by a relatively
modest $2.5 billion. In the first two months of the fourth
quarter, wage and salary growth averaged $2.3 billion,
compared with an average of $3.2 billion in the first three
quarters of the year.
In December, payroll employment made a further sharp
gain of 266,000, seasonally adjusted. Both service and
manufacturing employment again showed particular
strength. Settlement of the New York City teachers’ strike,
which had lasted five weeks, contributed to a large rise in
the number of persons on government payrolls. Construc
tion employment also advanced strongly, following virtual
stability in November, when unusually bad weather held
down employment gains. The civilian labor force, sea
sonally adjusted, advanced markedly again in December,
with the rise about matching the increase in total employ
ment. The unemployment rate thus remained at 3.3 per
cent. The rate for adult men, however, dropped further,
reaching the lowest level since the series began in 1948.
Retail sales rose 0.6 percent in November to $28.9 bil
lion, seasonally adjusted. However, this rise, which fol
lowed two months of moderate decline, was entirely in sales
at nondurables outlets. Durables sales were off 1 percent,

1000 1

M onthly a v e rage in each quarter
Seasonally adjusted

C h a n g e s in o u ts ta n d in g c re d tt

Billions of dollars

11000

Note: Figures shown for the fourth quarter of 1968 are the average s of
October and November data.
Source: Board of Governors of the Federal Reserve System.

mainly reflecting a decrease in the automotive group, which
in addition to new cars includes used cars, auto parts, and
repairs.
Sales of new domestic automobiles declined in Novem
ber by almost 3 percent to a seasonally adjusted annual
rate of just under 9 million units. In December, sales vol
ume fell again to a pace of about
million units. For
1968 as a whole, sales of domestically produced automo
biles will probably be about 8.6 million units. This com
pares very favorably with the 7.6 million units sold in 1967
and is only slightly below the 1965 high of 8.8 million units.
However, sales of imported cars, which have claimed an
increasingly large share of the American market, reached
a record in 1968 of about 1 million units. Thus, total new
car sales for the year may wind up at about 9.6 million
units. This would be an all-time high.
Considering the increase in the income tax withholding

MONTHLY REVIEW, JANUARY 1969

rates that became effective in mid-July as a result of the
tax surcharge, consumer demand over the July-November
period has shown surprising strength. Consumers have
financed this high level of spending in part by greater use
of instalment credit (see Chart III). Indeed, the increase
in outstanding credit reached a record $947 million (sea
sonally adjusted) in October. In November, the rise was
somewhat smaller, largely reflecting a decline in extensions
of automobile credit and personal loans. However, this re
cent sharp uptrend in consumer credit outstanding was in
line with the rapid advance that started in mid-1967.

the total wholesale price index advanced 0.2 percentage
point to 109.8 percent of the 1957-59 average. Prices
rose for farm products as well as for industrial commodi
ties. The December increase in prices of industrial com
modities brought that index to a level 2.6 percent above
the year-ago figure. This advance was not only consider
ably larger than the 1967 rise of 1.8 percent, but was the
steepest since 1956.

PR IC E D E V E L O P M E N T S
P E R S P E C T I V E ’6 8

Prices at the consumer level climbed steeply again in
November, although the rise was not so great as the ex
traordinarily large gain in the previous month. At an an
nual rate, the November increase was 4.9 percent. This
brought the advance for the first eleven months of 1968
to a yearly rate of 4.8 percent. The November rise would
have been even larger but for some seasonal declines in
retail food prices. All other components advanced, with
particularly sharp increases occurring in housing and
service costs. Wholesale prices also rose in November, with
the wholesale price index showing an increase of 0.5 per
centage point. Preliminary data for December indicate that

Each January this Bank publishes Perspective, a
brief review of the performance of the economy dur
ing the preceding year. This booklet is a layman’s
guide to the economic highlights of the year. A more
comprehensive treatment is presented in our Annual
Report, available in March.
Perspective 968 is available without charge from
the Public Information Department, Federal Reserve
Bank of New York, 33 Liberty Stieet, New York,
N.Y. 10045. A Spanish version will be available soon.

T h e M o n ey and Bond M a rk e ts in D ecem b er
An atmosphere of deepening pessimism and caution per
vaded the money and capital markets in December. Yields
on a wide range of obligations— including Treasury, cor
porate, and tax-exempt securities— soared to levels un
matched in modern history.
The first of two successive V* percentage point in
creases in the prime lending rate of commercial banks
was initiated on the first business day of the month. The
new 6 V2 percent rate was largely unexpected by the
market and triggered apprehension that upward adjust
ments in other key interest rates would soon follow.
Steadily mounting indications that inflationary pressures
were persisting, despite the imposition of fiscal restraint,

led many market participants to predict that monetary
policy would soon be tightened, possibly through an in
crease in the discount rate of the Federal Reserve Banks.
In this setting, yields on Treasury obligations and most
other debt instruments throughout the maturity range
moved sharply higher on balance during the first half of
the month.
After the close of business on December 17, the
Board of Governors of the Federal Reserve System an
nounced that it had approved an increase from 5Va per
cent to 5 V2 percent in the discount rate of the Federal
Reserve Banks of Boston, New York, Philadelphia,
Cleveland, Richmond, Atlanta, Chicago, Minneapolis, and

FEDERAL RESERVE BANK OF NEW YORK

Dallas, effective December 18.1 The Board stated that:
This discount rate increase was approved in rec
ognition of the advances that have taken place in
other market interest rates in recent months and
also in light of the resurgence in inflationary ex
pectations that is impeding the restoration of eco
nomic stability. The objective of Federal Reserve
policy is to foster financial conditions conducive to
the reduction of inflationary pressures, with a view
toward encouraging a more sustainable rate of
economic expansion and attaining reasonable
equilibrium in the country’s balance of payments.
The present action is being taken in furtherance of
a policy of restraint. . . . The increase restores the
rate to the level prevailing between April 19 and
August 15, 1968. This level is the highest in nearly
four decades.
No changes were made in the ceiling rates which member
banks may pay on time deposits under the provisions of
Federal Reserve Regulation Q. This omission tended to
confirm the belief that the central bank had decided to
act more forcefully to limit credit expansion.
The money and bond markets responded to the Fed
eral Reserve action in an orderly fashion on December
18. Initially yields even receded slightly, reflecting mo
mentary relief in some quarters that the discount rate
increase had not been larger. Later that same day, how
ever, the market atmosphere weakened again after the
major commercial banks throughout the nation swiftly
announced a second round of increases in the prime rate,
boosting this key interest rate to a record level of 6%
percent. Subsequently, prices fell precipitously and
market yields rose to unprecedented levels. With the firm
intent of monetary policy clearly evident and with dis
cussion in some quarters of the possibility of a new credit
“crunch”, market participants remained pessimistic during
the remainder of the month, although there was some
improvement in the tone of the Government securities
market toward the year-end.
A rather sharp expansion of reserve availability due
to seasonal factors contributed to relatively comfortable
money market conditions during the first half of Decem
ber. When reserve availability contracted thereafter,
however, the money market tightened markedly. Federal

^ h e Board later approved an increase in the discount rate of
the other three Federal Reserve Banks—those of San Francisco,
St. Louis, and Kansas City—effective December 20.

funds traded predominantly at 5% percent on most days
through December 18, and thereafter mainly in a 6 Va to
6 V2 percent range. The high rates were particularly dis
couraging to money and bond market participants, while
member bank borrowings at the Reserve Banks rose near
the year-end statement date to levels that had not been
exceeded for many years.
THE G O V ER N M EN T SE C U R IT IE S M ARKET

A very cautious tone prevailed in the market for
Treasury notes and bonds in December, and prices ad
justed sharply lower during the period. (Associated yield
increases are illustrated in the right-hand panel of the
chart.) In initial reaction to the prime rate increase to
6 V2 percent, prices of intermediate-term coupon issues
declined on December 2 by as much as *%2 point. Longer
term Treasury issues, which were also adversely af
fected by sharply rising yields for corporate and taxexempt obligations, recorded price losses of as much as
1*%6 points that day. As the month progressed, an atmo
sphere of nervousness predominated in the Government
securities market. Indications of continued buoyancy in the
domestic economy, accompanied by the persistence of in
flationary pressures, gave rise to a feeling on the part of
many in the market that monetary policy would soon be
tightened. Against this background, prices of intermediateterm coupon issues declined fairly steadily during the first
half of December, and yields on some issues climbed to
historic highs (see chart). To be sure, demand sporadically
improved when some market participants were attracted to
the high prevailing yields. In the longer term maturity
area, where very sharp price losses had boosted yields to
record levels during the first few days of December, de
mand also improved modestly at times and scattered price
gains partially offset the losses suffered at the very begin
ning of the month. However, trading in the coupon sector
remained fairly light during the first half of December,
chiefly involving year-end tax switching and professional
activity. Despite the bearish undertone of the market and
the persisting uncertainty over the near-term outlook for
interest rates, excessive selling pressures did not develop.
The coupon sector initially took in stride the Federal
Reserve discount rate rise which was announced shortly
after midmonth. Market participants had considered the
possibility of more severe action by the monetary author
ities, and some modest price improvement actually oc
curred in early trading on December 18. Later that day,
however, many of the nation’s large commercial banks
announced another X
A percentage point increase in the
prime rate, boosting it to a record 6% percent. This

MONTHLY REVIEW, JANUARY 1969

SELECTED INTEREST RATES
Percent

M O N E Y M A R KET RA TES

O cto b e r

Novem ber

O ctober-D e cem b er 1968

D e ce m b e r

B O N D M ARKET Y IE LD S

O cto b e r

N ovem ber

Percent

D e ce m b e r

N ote: D ata are shown for business d a y s only.
M O N E Y MARKET RA TES Q UO TED: D a ily ran ge of rates posted by m ajor New York C ity b anks
on new call lo a n s lin Fed eral funds) secured by United States G overnm ent securities (a p oint
ind icates the ab sen ce o f any ran ge); o fferin g rates for d irectly p la ce d fin an ce com pany paper.the effective rate on Fed eral funds (the rate most representative of the transactions executed);
clo sin g b id rates (quoted in terms of rate of discount) on newest outstanding three- ond six-month
Treasury bills.

A , and Baa).

B O N D MARKET YIELD S QUO TED: Y ie ld s on new A a a - and A a-rated p ublic utility bonds (arrows point
from underwriting syn d icate reo fferin g y ie ld on a given issue to m arket yield on the sam e issue

move triggered an immediate and fairly sharp decline in
prices of Treasury notes and bonds amid predominantly
professional activity. The tone of the coupon sector con
tinued to deteriorate over the next week, and prices
dropped sharply throughout the maturity spectrum in
response to greatly expanded offerings from professional
and investor sources. Market participants became in
creasingly convinced that, in view of the rapid pace of
domestic economic expansion and the current posture of
monetary restraint, interest rates would continue to rise
in the short run. Nevertheless, despite the persistence of a
cautious undertone, prices rallied at times toward the end of
the year in response to some investor demand and profes
sional short covering. Over the month as a whole, prices of
most issues maturing within five years declined by from Va

im m ediately after it has been released from syndicate restrictions); d a ily av e ra ge s of yield s on
seasoned A aa -ra te d co rp o rate b o n d s; d a ily a v e ra g e s of yield s on lo n g-term G o v ern m en t
securities (bonds due or c a lla b le in ten years or morel and on G overnm ent securities due in
three to five ye a rs , computed on the b asis o f c lo sing bid prices; Thu rsd ay a v e ra g e s of yields
on twenty seasoned twenty-y e a r tax-exem pt bonds (carrying M oody's ratin gs of A a a , A a,

Sources: Fed eral Reserve Bank of New York, Board of G overnors of the F e d eral Reserve System ,
M oody’s Investors Service, and The W e e k ly Bond Buyer.

point to as much as 2%2 points, while prices of longer term
issues were 1% points to as much as 4% points lower.
Treasury bill rates rose steeply during December in
response to pressures emanating from several sources.
The prime rate increase that was initiated on December
2 induced a rapid rise in bill rates in the early days of
the month, as professional participants cautiously marked
prices lower in an attempt to lighten their inventories.
Moreover, offerings of June tax anticipation bills by
commercial banks expanded. These bank offerings reflected
both underlying concern that bill rates might rise still
further and portfolio adjustments linked to large calls on
Treasury Tax and Loan Accounts immediately following
the December 2 payment date for the tax bills.
Basically, however, the primary factor responsible for

FEDERAL RESERVE BANK OF NEW YORK

the heavy undertone in the bill sector during the first
half of December was the widespread conviction that
current domestic economic conditions would necessitate
some new action by the monetary authorities, probably
involving a discount rate increase. The upward trend in
bill rates during this period pushed bond-equivalent yields
on many key issues, including six-month bill maturities,
well above 6 percent. Nevertheless, a strong investment
demand for bills occasionally emerged during the interval.
The Federal Reserve discount rate announcement re
moved an element of market uncertainty, and bill rates
initially declined slightly on December 18. A weaker tone
soon reappeared, however, when market participants re
acted to the prompt increase in the commercial bank prime
rate that followed the discount rate action. Over most of the
remainder of the month, bill rates moved sharply higher,
on balance, mainly in response to selling pressures from
professional sources and commercial banks. In the closing
days of the month, the unusually high yield levels stimu
lated improved demand, including bank buying for yearend statement purposes, and bill rates receded somewhat.
At the last monthly auction of the year, held on Decem
ber 23, average issuing rates on the new nine- and
twelve-month bills were set at record levels of 6.483
percent and 6.412 percent, respectively, 79 and 84 basis
points higher than average rates at the comparable N o
vember auction (see Table III). The bond-equivalent yield
in both cases was 6.84 percent. At the final regular
weekly auction of the month, held on December 27,
average issuing rates for the new three- and six-month
bills were set at 6.199 percent and 6.332 percent, re
spectively, 75 and 76 basis points above average rates
established a month earlier but 8 and 7 basis points,
respectively, below the record rates set at the December
20 weekly auction.
OTHER SE C U R IT IE S M A R K E T S

A heavy tone persisted in the markets for corporate
and tax-exempt bonds in December and, as in other
market sectors, a steady price decline boosted yields to
record levels. Market sentiment grew quite bearish fol
lowing the rise early in the month in the commercial bank
prime rate. The weakness of both sectors was reflected in
the upward trend in yields on new offerings, the price
adjustments on slow-moving recent issues following the
removal of syndicate price restrictions, and the postpone
ment of several scheduled flotations because of adverse
market conditions. Investment interest improved somewhat
around midmonth in response to the unusually high yield
levels, and several new corporate and tax-exempt offer

ings were accorded fairly good receptions. Subsequently,
however, prices of tax-exempt and corporate bonds de
clined further in the wake of the increase in the Federal
Reserve discount rate that was announced on December
17 and the rise in the prime rate that followed soon after.
The end-of-year lull in activity, however, limited the price
reaction in these sectors to moderate proportions.
At the close of the year, The Weekly Bond Buyer’s
yield index of twenty seasoned tax-exempt issues was
quoted at 4.85 percent, 21 basis points higher than a
month earlier and 78 basis points higher than the year’s
low reached in August. Moody’s index for seasoned
Aaa-rated corporate bonds closed the year at 6.55 per
cent, 26 basis points higher than a month earlier. The Blue
List of advertised dealer inventories of tax-exempt securi
ties contracted steadily, as underwriting activity declined,
and totaled $547 million at the end of the month as
against its November 29 level of $858 million.
BANK RESERVES AND THE M ONEY MARKET

A fairly firm tone prevailed in the money market
at the beginning of the month, and Federal funds traded
predominantly in a 5% to 6 Vs percent range on December
2 and 3. The basic reserve position of the eight major New
York City banks improved, as the rise in private deposits
that had begun at these institutions in mid-November con
tinued. This gain was offset elsewhere, however, for the
average basic reserve deficit of thirty-eight large banks in
money centers outside New York increased, partly reflect
ing a contraction in Government deposits. Nevertheless,
excess reserves were accumulated by the major New York
City banks, and reserve availability was enhanced by a
rise in Federal Reserve float. Consequently, money market
conditions eased as the week progressed, and the effective
rate on Federal funds dropped to AVa percent on the final
day of the December 4 statement period.
A relatively comfortable tone prevailed in the money
market over the December 11 statement week. Member
banks carried a substantial amount of excess reserves into
the period. More significantly, however, “market” fac
tors— notably Treasury deposits at the Reserve Banks
which were depleted preceding the midmonth tax date
and Federal Reserve float— released a considerable vol
ume of reserves to member banks throughout the na
tion (see Table I). Reserve distribution generally favored
smaller banks, while forty-six large banks in the major
money centers experienced a $1.4 billion deterioration in
their average basic reserve position, principally as a
result of a contraction in demand deposits and an expan
sion in loans to Government securities dealers. However,

MONTHLY REVIEW, JANUARY 1969
Table I

Table H

FACTORS TENDING TO INCREASE OR DECREASE
MEMBER BANK RESERVES, DECEMBER 1968

RESERVE POSITIONS OF MAJOR RESERVE CITY BANKS
DECEMBER 1968

in millions of dollars; ( + ) denotes increase
(—) decrease in excess reserves

In millions of dollars
Daily averages—week ended on

I
Changes in daily averages—
week ended on

Dec.
4
“ Market” factors
j
Member bank required reserves ............... j 4- 23
Operating transactions (subtotal) ........... ! + 30
+ 30
: + 68
Gold and foreign account .......................j __ 8
Currency outside banks .......................... — 215
Other Federal Reserve account* (net j t . •| + 1 5 1
+

Total ••market" factors ........... .........

Dec.
11

Dec.
18

— 34
+ 510
4 346
4- 415
— 8
— 194
— 48

— 306
+ 871
+ 747
+ 125
— 282
+ 281

— 308
+ 347
— 391
+ 17
— 185
— 95

+ 476

+ 566

— 394

—

Dec.
25

Dec.
18

Dec.
25

Averages of
four weeks
ended on
Dec. 25

Eight banks in New York City

— 86

— 402
+1,103
+1,470
+ 217
+
2
— 876
+ 289
+

701

165 - 107
100
91 |
Reserve excess or deficiency
62
Less borrowings from
275
134
Reserve Banks .....................................
69
86
104
Less net interbank Federal funds
938
1,154
969
purchases or sales(—) .......................
395
1,389
1,997
1,966
1,851
Gross purchases ............................. 1,524 1,918
843
883
1,129
981
Gross sales .....................................
578
Equals net basic reserve surplus
—1,131
-1,15
8
-1
,5
7
2
-1
,0
40
or deficit(—) ...................................... - 299
Net loans to Government
776
1,151
848
854
641
securities d ealers.................................
77 i— 31
57
20
Net carry-over, excess or deficit(—)|.. — 25
1

Direct Federal Reserve credit
transactions

Thirty-eight banks outside New York City

Open market instruments
Outright, holdings:
Government securities ........................
Bankers' acceptances ............. ............

- f 307
„
2
—

— 797
—
+ 13

4 - 28

— 28
—
— 1
— 97

—

+ 139

4- 285
| 4 - 338

Repurchase agreements:
Government securities .........................
Bankers' acceptances ........... .............

—

+
1
— 50
Other loans, discounts, and advances........ |
Total .....................................................

Dec.
11

Dee.
4

Net
changes

Factors
1

Factors affecting
basic reserve positions

— 722
— 1
+ 326

+ 435
— 2
— 33S

— 777
—
5
—

—

+ 60
+
7
+
4
+ 285
—

+
+
+
+

— 909

— 258

+ 449

— 433

+ 308

_
__
—

60
7
4
277
—

268

i
Reserve excess or deficiency(—)*....
20
43 — 24 1
Less borrowings from
256
114
Reserve Banks .....................................
152
Less net interbank Federal funds
2,003
purchases or sales (—) .......................
1,896 2,417
3,324
3,149 3,495
Gross purchases .............................
1,322
1,253 1,078
Gross sales ......................................
Equals net basic reserve surplus
or deficit (—) ...................................... —2,004 -2,555 —2,239
Net loans to Government
590
securities dealers .................................
362
486
38 !
12
Net carry-over, excess or deficit(—)t..
19
i

1—
5
I
!
368

223

I 1,831 l 2,037
I 3,0881 3,264
\ 1,257 1 1,228
\
—2,204 j —2,251
345 i
25 j
!

446
24

Note: Because of rounding, figures do not necessarily add to totals.
* Reserves held after all adjustments applicable to the reporting period less
required reserves and carry-over reserve deficiencies,
t Not reflected in data above.

T able III

Daily average levels

Member bank:
Total reserves, including vault c a s h ........

Free, or net borrowed (—), reserves.........
Net carry-over, excess or deficit (—

AVERAGE ISSUING RATES*
AT REGULAR TREASURY BILL AUCTIONS
In per cent

16.840
26,383
457
532
— 75
26,308
56

26,441
26,417
24
436
— 411
26,006
200

27.054
26.722
332
574
— 242
26,480
25

27.195
26,808
387
859
— 472
26,336
162

26,883+
26,5831
300*
600+
— 3001
26,283+
111*

1
Changes in Wednesday levels

Weekly auction dates—December 1968

Maturities
Dec.
16

Dec.
20

Dec.
27

5.788

5.966

6.278

6.199

5.906

6.017

6.401

6.332

Dec.
2

Dec.
9

Three-month..

5.633

Six-month......

5.730

j
Monthly auction dates—October-December 1968

System Account holdings of Government
securities maturing in:
Less than one year .....................................

— 568 --1,233

—

— 568 —1,233

— 413 +1,606

Note: Because of rounding, figures do not necessarily add to totals.
* Includes changes in Treasury currency and cash,
t Includes assets denominated in foreign currencies.
t Average for four weeks ended on December 25, 1968.
§ Not reflected in data above.

— 608

Dec.
23

Oct
24

Nov.
22

Nine-month

5.446

5.693

6.483

One-year......

5.401

5.568

6.412

— 55 +1,606 | — 250
— 358
— ! — 358

* Interest rates on bills are quoted in terms of a 360-day year, with the dis
counts from par as the return on the face amount of the bills payable at
maturity. Bond yield equivalents, related to the amount actually invested,
would be slightly higher.

FEDERAL RESERVE BANK OF NEW YORK

Federal funds were readily available during most of the
period from banks outside the large money centers, and
in this setting Federal funds traded predominantly at a
fairly comfortable 5% percent.
The tone of the money market grew slightly firmer as
midmonth approached. The leading New York City banks
transferred a reserve deficiency into the December 18
statement period, while major banks outside the central
money market carried only a relatively small amount of
eligible excess reserves into the period (see Table II). Al
though the basic reserve deficit of the eight major New
York City banks was little changed during the week on a
daily average basis, caution was engendered by a rise in
loan demand over the December 16 corporate tax payment
date and by the possibility of a rapid loss of tax payments
credited to Government deposit accounts. Moreover, Sys
tem open market operations during the week absorbed a
portion of the continued high level of reserves released
through changes in “market” factors. Against this back
ground, a fairly good demand for Federal funds developed
over the statement period and most trading took place in
a 5 Y& to 6 Vs percent range.
The money market grew substantially firmer in the latter
part of December. As time passed, float fell from the
abnormally high levels of prior weeks, and reserves were
absorbed in volume by the replenishment of the Treasury’s
low balances at the Reserve Banks. In addition, reserve re
quirements increased sharply, as the earlier deposit growth
was reflected with a two-week lag under the new account
ing method. Reserve management by the major money
market banks became especially cautious in the face of
the usual year-end pressures, apprehension over further
loss of time deposits, and a tighter monetary policy. Fed
eral funds traded predominantly in a 6Vq to 6% percent
range during the statement week ended on December 25
and mainly in a 6 Vi to 6 Va percent range from December
26 through December 30, with some trading at rates as
high as IVs percent on Friday, December 27. (The effec
tive rate fell to 4 percent on December 31 under the
weight of a massive accumulation of excess reserves.) In
this atmosphere, the nation’s banks resorted to borrowing

at the “discount window” in dramatic volume. Member
bank borrowings from the Federal Reserve averaged $859
million over the December 25 statement period. For the
four statement weeks ended on December 25, borrowings
averaged $600 million, and in the statement period ended
on January 1, borrowings soared to a $1.3 billion average.
Mainly reflecting cautious reserve management in the un
certain climate which prevailed during much of Decem
ber, excess reserves of all member banks averaged $300
million during the four weeks ended on December 25,
$58 million more than during the four statement weeks
ended on November 27. In the January 1 statement period,
excess reserves rose to an average level of $862 million.
In the wake of the two Va percent increases in the
prime lending rate of commercial banks, which raised
this key rate to 6 3A percent, and the upward adjustment
in the Federal Reserve discount rate from 5V a percent to
5 V i percent, rates for a wide spectrum of money market
instruments moved higher in December. Rates quoted by
dealers in bankers’ acceptances on ninety-day instruments
rose by V2 percent to 6 5/s percent bid-6 Vi percent offered,
rates on dealer-placed prime four- to six-month commer
cial paper rose generally by rA percent to 6 V4 percent
offered, while offering rates on directly placed commercial
paper moved 3/s percent higher to 6 V4 percent. Offering
rates posted in December by the major New York City
banks on time certificates of deposit (C /D ’s) were pre
dominantly at the Regulation Q ceiling levels throughout
the maturity range. As rates on virtually all competing
money market instruments, including Treasury bills, rose
progressively during the month, C /D ’s were at a widening
yield disadvantage and commercial banks were unable to
replace all the heavy volume that matured over the quart
erly corporate dividend and tax payment period. The vol
ume of C /D ’s outstanding at the weekly reporting banks in
New York City declined by $1 billion between November
27 and December 31 (including a $554 million loss during
the December 18 statement week) as against a $523 million
rise in November. Liabilities of United States banks to their
foreign branches declined by $1.2 billion, compared with
an increase of $193 million in November.

MONTHLY REVIEW, JANUARY 1969

B an k C red it C ard and C h e ck C red it P la n s in th e S e co n d D istrict*
Bank credit card and check credit plans have become
an important feature of commercial banking over the past
few years. These two new forms of consumer credit,
which have been introduced all over the country, are
beginning to have a significant impact in the consumer
and personal finance areas. Second District banks have
participated in the growth and development of these new
programs, and currently more than ninety Second Dis
trict banks with total deposits of $67 billion have some
type of credit card or check credit plan in full operation.
This article focuses on the growth and development of
bank credit card and check credit programs, with par
ticular emphasis on the Second District.
The material used in the article derives largely from
information developed by a Task Group that was estab
lished by the Federal Reserve System in March 1967
to make a thorough examination of bank credit card and
check credit plans and to provide for the collection of
statistical data.1 As part of the study, the Federal Reserve
System conducted late in 1967 a survey of bank credit card
and check credit plans. All commercial banks with any
such plan were requested to provide information on the
basic features. The survey contains the most comprehen
sive data available on bank credit card and check credit
plans.

chases. Participating merchants maintain an account with
the bank and receive credit immediately for all deposited
sales slips which originate via the credit card. The bank
then bills its cardholders for all purchases made with the
card. For its service the bank charges the merchant a
fee in the form of a discount on each sales slip.
Affiliation with a bank credit card program helps a
merchant reduce his accounting and record-keeping costs.
It also reduces his credit losses and collection expenses.
Furthermore, since affiliation lessens the amount of credit
the merchant has to extend to customers, it tends to
reduce his own need for bank credit. Finally, member
ship in a bank credit card program permits the merchant
to offer credit facilities that are competitive with depart
ment stores and other large retail outlets, and may help to
enlarge the merchant’s sales volume.
For a credit card plan to be profitable, a large number
of merchants in a given market area must be enrolled and
many cardholders are needed. For this reason, most banks
initiating a new credit card program resort to mass mail
ings to insure widespread initial ownership of their card.
While banks often prepare their first mailing on an un
solicited basis, some customer screening is usually under
taken. Cards are ordinarily sent only to past customers or
other individuals who meet specified credit standards.
Most bank credit card plans permit the cardholder to
get cash advances at his bank as well as to charge pur
C H A R A C T E R IS T IC S OF B A N K C R ED IT
chases at all participating retail outlets. Cardholders are
C A R D A N D CH ECK C R ED IT P L A N S
billed once a month, and if the bill is paid soon after
In many respects, bank credit card plans are similar to receipt there is no charge. An interest charge, usually be
the credit card plans developed by major nonbank cor tween 1 percent and 1.5 percent monthly, is typically
porations. The card-issuing bank establishes relationships made on any outstanding balances.
with merchants who agree to honor its card for retail pur
Banks that desire a credit card plan but do not wish
to devote the requisite resources to the initiation and oper
ation of such a program may become licensees of another
bank offering a credit card. Under such a correspondent
* Patrick Page Kildoyle, Economist, Financial Statistics Division, arrangement, the licensee bank agrees to offer the card to
had primary responsibility for the preparation of this article.
its customers and typically enlists local merchants in the
1 The group’s findings were published in July 1968 under the
title “Bank Credit-Card and Check-Credit Plans”. The report may plan. These licensing arrangements give the licensee banks
be obtained for $1.00 a copy (85 cents each for ten or more) by the competitive advantages of a credit card program while
writing Publications Services, Division of Administrative Services,
reducing the costs and operational difficulties of such a
Board of Governors of the Federal Reserve System. Washington,
D. C., 20551.
program.

FEDERAL RESERVE BANK OF NEW YORK

Until very recently, bank credit cards for the most part
have been of a local or regional nature, primarily because
of the legal restrictions on branch banking and the com
paratively limited market for consumer lending that this
has implied for any given bank. In order to permit indi
vidual bank credit cards to be used over wider geo
graphical areas, thereby making them more attractive,
interchange systems have been developed. A cardholder
of any bank in the interchange system may use his card
for purchases at merchants signed up by other banks par
ticipating in the system. While these interchange systems
are still evolving, some consolidation is becoming evident,
and they appear to be laying the foundation for nation
wide bank credit card systems.
Check credit programs were designed to meet some of
the same needs as bank credit cards. While there are
differences in the operation of the various plans in use
throughout the country, the basic format of these pro
grams, which usually are offered under trade names such
as “Advance Credit” or “Instant Credit”, is quite similar.
In general, check credit programs resemble the credit
lines granted to business borrowers, although there are
no compensating balance requirements. Under these
programs, applicants deemed sufficiently creditworthy are
granted a stated line of credit, all or a portion of which
may be borrowed simply by writing a check. The majority
of banks issue special checks for their check credit
accounts, although some attach the credit line to the
customer’s checking account and allow the customer to
overdraw his checking account up to the credit line.
Commercial banks typically impose tighter credit re
quirements for check credit than they do for instal
ment loans of equivalent size. This is largely because
check credit involves a continuous granting of credit. Check
credit accounts are constantly scrutinized and examined
for overuse or even “line riding” (i.e., continuous bor
rowing of the maximum permitted) as well as for late
payments. In addition, each account is usually given a
reasonably thorough periodic credit examination, in
which changes in income, employment, and other bor
rower characteristics considered indicative of the borrow
er’s ability to handle debt are evaluated to determine
whether the borrower continues to merit his line of credit.
Some banks also require a financial statement from those
customers requesting large credit lines.
Many banks, according to the 1967 survey, have estab
lished relationships with American Express and Carte
Blanche, two major transportation and entertainment
(T & E ) credit card companies that enable the banks
to offer T & E cardholders a hybrid form of check credit.
For the most part, T & E companies do not provide financ

ing for charges made on their cards, and they require
full payment for purchases, with certain exceptions, soon
after receipt of the billing statement. However, T & E card
holders who have established check credit accounts with
banks that have set up special relationships with T & E
companies may have their T & E card charges financed
by these banks.
H IST O R Y O F TH E P L A N S

The development of bank credit card plans has been
erratic. The first bank credit card plan was launched in
1951 by the Franklin National Bank, Mineola, New
York. Other banks soon followed, and by 1953 it was
estimated that almost 100 commercial banks throughout
the country had announced plans to enter the field. Many
of the bankers initiating programs during those years
overestimated the potential rewards to be gained from the
operation of a credit card plan. When the vast require
ments of a fully comprehensive credit card operation
became apparent, many of the early participants decided
to cut their losses and discontinue these operations.
Very little new activity took place on the bank credit
card front until 1958-59, when the Bank of America
in California initiated its Bank Americard and the Chase
Manhattan Bank in New York City launched its Chase
Manhattan Charge Plan. Again there was a brief burst of
renewed enthusiasm, with many new entrants, but activity
soon tapered off a second time. It was not until two
or three years ago that the latest— but certainly not
the last— phase of the history of bank credit cards began.
Since about 1965, the development of bank credit cards
has once more been gaining momentum, with many banks
initiating credit card programs. As of June 1968, 416
banks throughout the country had credit card plans in
full operation, with outstanding consumer credit under
these plans totaling $953 million.
Check credit plans have had an even briefer history
than bank credit cards, having originated only in the
mid-1950’s. There have been two spurts of activity: in
the late 1950’s and in the second half of the present dec
ade. The plans have proved quite popular with both
bankers and the general public. The public has reacted
favorably to the one-time credit review aspect of the
plans and to the convenience of a line of credit. At the
same time, many bankers tend to prefer them to credit
cards because of their comparatively lower start-up and
operating costs, and because many consumer credit of
ficers feel they are better equipped to handle the prob
lems of check credit plans than of credit cards. As of
June 1968, 844 banks in the nation had check credit

MONTHLY REVIEW, JANUARY 1969

plans, with $646 million of outstanding check credit
balances.

As of June 30, 1968, by Federal Reserve District
In millions of dollars

DEVELOPM ENT OF THE PL A N S
AT SE C O N D DISTRICT B A N K S

Federal Reserve District

The development of credit card and check credit plans
in the Second District appears to have followed the na
tional pattern fairly closely, but there have been some
significant differences. While no data are available either
nationally or for this District on the number of banks
that have begun and subsequently terminated credit card
or check credit plans, an indication of the pattern of
development in this District may be derived from infor
mation on existing plans. The figures in Table I show the
number of credit card and check credit plans in operation
at the end of September 1967 at Second District banks, in
stituted each year between 1951 and September 1967.
Some banks offer both credit card and check credit plans,
and a number have more than one type of check credit plan.
Most commercial banks in this District, mindful of the
costly experiences of some banks in past years in operat
ing credit card programs, have chosen the check credit

Table I
NUMBER OF CREDIT CARD AND CHECK CREDIT PLANS
INITIATED EACH YEAR AT SECOND DISTRICT BANKS
In operation September 30, 1967*
Year

Credit card plans

Check credit plans

1951.......................................................

1952........................... ............................

1953.................................................. .....

1954........................................................

0
1

1955.............................. .........................

1956................... ....................................

1957............................. ..........................

1958........................................................

1959........................................................

26
2

1960.......................................................

1961........................................................

1962........................................................

1963.......................................................

1964........................................................

1965........................................................

1966........................................................
1967 (through September)..................

Note: These figures represent the number of plans initiated each year by Sec
ond District banks, not the number of banks with plans.
* Plans initiated and terminated prior to September 1967 are excluded.

Credit card plans

Check credit plans

Total

Boston...............................

101

New York........................

120

142

262
97

Philadelphia.....................

Cleveland..........................

A tlanta..............................

Chicago.............................

153

215

St. Louis............................

M inneapolis......................

Kansas City......................

Dallas................................

San Francisco...................

435

142

577

Grand total...................

953

646

1,599

Note: Because of rounding, figures may not add to totals.
Source: Board of Governors of the Federal Reserve System.

route instead. The latest year for which data are available,
1967, was by far the most active period of development
of check credit plans, with forty-seven new check credit
plans coming into existence in this District during the first
nine months. (Thirty-three of these were affiliated with
American Express or Carte Blanche.) As of June 1968,
the Second District ranked third, behind the San Francisco
and Chicago Federal Reserve Districts, in terms of credit
outstanding under bank credit card plans, but in terms of
credit outstanding under check credit plans they were tied
for first place with the San Francisco District (see Table II).2
A credit card program is an expensive undertaking, re
quiring sophisticated electronic data-processing equipment
and specialized personnel. Not many banks have been will
ing or able to undertake the expense of a credit card pro
gram. As Table III indicates, in June 1968 there were only
twenty-seven banks with credit card programs in the Sec
ond District, but eighty-one with check credit plans. These

3
13

Table II
CREDIT OUTSTANDING ON
BANK CREDIT CARD AND CHECK CREDIT PLANS

2 These Second District rankings suggest a comparatively favor
able degree of penetration of the potential consumer credit market,
when the latter is measured by the total amount of consumer credit
outstanding at commercial banks. The Second District was third in
the volume of such outstandings, behind the San Francisco and
Chicago Districts.

FEDERAL RESERVE BANK OF NEW YORK

latter plans were offered by all size-groups of banks, while
credit cards were offered by only the five largest sizegroups. No Second District bank with total deposits of
less than $25 million reported having outstandings under
credit card programs, while five banks of this size reported
check credit outstandings. A total of fourteen banks offered
both credit cards and check credit; the smallest of these
banks had deposits of $100 million or more. Banks
with deposits in the $100 million to $499.9 million range
had the largest number of plans of each type. Seventeen
banks, or approximately two thirds of the District banks
with credit card programs, were in this size-class, as were
thirty-three of the eighty-one District banks with check
credit plans.
In October 1968, Second District banks held only about
13 percent of the total credit outstanding nationally under
bank credit card plans, but they held about 23 percent
of the national total of check credit outstandings. This
difference is due, for the most part, to the fact that only
a few of the major banks in the New York metropolitan
area have introduced credit cards, while almost all have
some type of check credit plan in operation. A number
of the large New York City banks, however, have re
cently indicated that they plan to enter into credit card
operations in the near future.
Between January and October 1968, check credit out
standings in the Second District grew considerably faster
than the national average, while credit card outstandings
at Second District banks rose at the same rate as the na
tional average. The growth in outstandings under both
types of plans was rapid, however, at both Second District
banks and nationwide. Second District credit outstanding

Table H I
NUMBER OF SECOND DISTRICT BANKS W ITH CREDIT CARD
A ND/OR CHECK CREDIT PLANS, BY SIZE OF BANK
June 30, 1968
Size of bank
(total deposits in
millions of dollars)

Number of
Second District
banks

Under 10..............................

144

10-24.9.................................

121

25-49.9.................................

50-99.9.................................

100-499.9.............................

Banks with
credit card plans

2
3
17

Banks with
check credit plans

;

14
33

500-999.9...............................

1,000 and over.....................

All size-groups....................

468

Source: Call Report for June 30, 1968.

C h a rt!

GROWTH OF OUTSTANDING BANK
CREDIT CARD BALANCES
Percent

Ja n u ary 31,1968=100

Percent

under bank credit card and check credit plans expanded
by 29 percent and 40 percent, respectively (see Charts I
and II). Nationally, both series grew 29 percent. The
figures for both the Second District and the nation reflect
the entry of new banks into the field as well as the growth
of outstandings under existing plans.
The 1967 survey of bank credit card and check credit
plans indicated that about 35,500 merchants were honor
ing a total of 1.4 million credit cards issued by banks in
the Second District. About 40 percent of these card ac
counts (or 550,000) were considered active accounts.
Check credit accounts numbered 210,000, of which 70
percent was active. The average active credit card
account in the Second District had an outstanding balance
due of $117, while the average active check credit
account had a balance due of $662.
Commercial bank income from credit card programs
is derived from two major sources: merchant discounts
and cardholder charges. Merchant discounts, which are
calculated as a percentage charge on each sales slip, vary
according to industry, with airlines typically charged the
lowest discount. The discounts charged the merchants are

MONTHLY REVIEW, JANUARY 1969

sometimes, in effect, reduced through rebates, the amount
of rebate depending on the volume of sales generated by
the credit cards. At least one bank has established a sched
ule that gears the rebate also to the average size of sale,
with merchants having higher dollar charges per sale being
given higher rebates.
Banks in this District charge merchants (excluding
airlines) discounts ranging from as low as 1 percent to
as high as 8 percent, with 5 percent the most typical dis
count rate. Airlines generally are charged 2 percent.
Insofar as the service charge to the cardholder is con
cerned, almost all banks in this District make a uniform
monthly charge of 1 percent of the unpaid balance for
cash advances to credit cardholders and IVi percent of
the unpaid balance on retail purchases. The rates are in
some cases held at these levels because they are at state
legal maximums. There is some evidence that increased
competition between credit card programs has resulted in
lower merchant discounts, and that over the long run the
cardholder charges have become the more important rev
enue source for the credit card banks.
Lines of credit under check credit plans offered by

Chart !i

GROWTH OF OUTSTANDING CHECK
CREDIT BALANCES
Ja n u a r y 3 1 ,1 9 6 8 -1 0 0
Percent

♦ Source:
-

Percent

1 968
Board of Governors of the Federal Reserve System.

Second District banks typically range from about $1,000
to $2,000, but some are as small as $100 and some as
large as $5,000. The use of special checks for these plans
remains more common than allowing overdrafts on regular
checking accounts, although this latter arrangement is now
offered by about 40 percent of all plans. Monthly service
charges on check credit accounts usually run about 1 per
cent per month on the unpaid balance, including insurance
charges.
D E L IN Q U E N C IE S A N D C H A R G E -O F FS

Ever since the launching of the first bank credit card
plan and the first check credit plan, there has been
considerable concern regarding the quality of the credit
extended under these programs. Credit of this sort appears
to have a higher potential for default or fraud than stan
dard consumer credit, and greater vigilance is required.
It is, therefore, encouraging to note that estimates of
delinquency rates for both credit card and check credit
plans in this District seem to be fairly well in line with
delinquencies on other kinds of consumer credit. For
September 1967, the New York State Bankers Association
indicated that 2.0 percent of all standard consumer credit
loans was delinquent thirty days or more. Figures from
the September 1967 System survey of bank credit card
and check credit plans indicate that delinquencies for
Second District bank credit cards at that time were 2.2
percent of active accounts and delinquencies on check
credit were 2.0 percent.3
Actual dollar losses, or charge-offs, at Second District
banks for both credit card and check credit plans also do
not seem excessive when compared with banks in other
Districts. In the first six months of 1967, Second District
banks wrote off a total of $332,000 of credit card out
standings, amounting to 0.51 percent of the total credit
card outstandings in September 1967. Nationally, how
ever, the charge-off rate amounted to a much larger 1.97
percent. This latter, comparatively high, charge-off rate
reflects to some extent the recent proliferation of new
bank credit card programs. When banks initiate a
credit card program, they anticipate that charge-offs will
be fairly high for the first year or two, until the program
gets off the ground. Once the program has become fully
operational, there is usually a sharp decline in charge-offs.

3 These delinquency rates on credit card and check credit plans
may not be fully comparable to the delinquency rates published by
the New York State Bankers Association, due to slight differences
in the method of computation.

FEDERAL RESERVE BANK OF NEW YORK

When, for example, charge-off rates are calculated only
for the commercial banks that began their credit card
programs prior to 1966, the national rate declines from
1.97 percent to 1.18 percent.
Charge-offs under check credit plans at Second District
banks were also below the national average. During the
six months ended June 1967, Second District banks wrote
off $135,000 of check credit outstandings. This amounted
to 0.14 percent of the September 1967 outstandings. Na
tionally, the comparable check credit charge-off rate was
0.23 percent.
R ELA TIV E IM P O R T A N C E O F B A N K C R E D IT
C A R D A N D CHECK C R E D IT P L A N S

While bank credit card and check credit plans are
rapidly growing segments of the banking industry, it must
nevertheless be kept in mind that at present they still are
relatively insignificant when compared with other types
of consumer credit. For example, bank credit card and
check credit outstandings on October 31, 1968 amounted
to only 3.0 percent and 3.4 percent, respectively, of the
total $4.6 billion of consumer instalment credit outstand
ings at Second District banks. Nevertheless, should these
forms of credit extension continue to grow at anywhere
near their recent rates, they will become in a relatively short
time a far more significant factor in Second District banking
— as well as in the entire banking industry— than they are
now.

While it is true that these new credit techniques have
not as yet garnered a large share of the consumer credit
market, their impact on the individual banks operating
the programs has been more consequential. When the con
sumer loan portfolios of only those banks with credit card
and check credit plans are examined, it is found that credit
card banks in the Second District currently have about 9
percent of their consumer credit in the form of credit card
outstandings, and check credit banks have about 5 percent
of their consumer credit in the form of check credit out
standings. Some banks rely far more heavily than others
on these instruments for consumer loans. A few, for ex
ample, have more than 15 percent of their consumer instal
ment credit in the form of credit card outstandings, and at
least one bank has more than 20 percent in the form of
check credit outstandings.
C O NC LU D IN G C O M M E N T

Bank credit card and check credit programs, although
only fairly recent banking innovations, are becoming of
greater importance both to Second District banks and the
entire banking industry. While the programs have caused
some problems, commercial banks on the whole have
come to grips with these problems and are solving them.
Although the future of these new credit techniques cannot
be foreseen in detail, there is ample evidence that the pro
grams will continue to expand and thus have a greater
impact on the banking system in the future.

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MONTHLY REVIEW', JANUARY 1969

P u b licatio n s of th e F ed eral R e s e rv e B an k o f N ew Y o rk
The following is a selected list of publications available from the Public Information Department,
Federal Reserve Bank of New York, 33 Liberty Street, New York, N. Y. 10045. Copies of charge pub
lications are available at half price to educational institutions, unless otherwise noted.
1. c e n t r a l b a n k c o o p e h a t i o n : 1924-31 (1967) by Stephen V. O. Clarke. 234 pages. Dis
cusses the efforts of American, British, French, and German central bankers to reestablish and maintain
international financial stability between 1924 and 1931. ($2 per copy)
2. e s s a y s i n m o n e y a n d c r e d i t (1964) 76 pages. Contains articles on select subjects in bank
ing and the money market. (40 cents per copy)
3. k e e p i n g o u r m o n e y h e a l t h y (1966) 16 pages. An illustrated primer on how the Federal Re
serve works to promote price stability, full employment, and economic growth. Designed mainly for sec
ondary schools, but useful as an elementary introduction to the Federal Reserve. ($6 per 100 for copies in
excess of 100*)
4. m o n e y a n d e c o n o m i c b a l a n c e (1968) 27 pages. A teacher’s supplement to Keeping Our
Money Healthy. Written for secondary school teachers and students of economics and banking. ($8 per
100 for copies in excess of 100*)
5. m o n e y , b a n k i n g , a n d c r e d i t i n e a s t e r n e u r o p e (1966) by George Garvy. 167 pages.
Reviews recent changes in the monetary systems of the seven communist countries in Eastern Europe and
the steps taken toward greater reliance on financial incentives. ($1.25 per copy; 65 cents per copy to edu
cational institutions)
6. m o n e y s m a s t e r o r s e r v a n t ? (1966) by Thomas O. Waage. 48 pages. Explains the role of
money and the Federal Reserve in the economy. Intended for students of economics and banking. ($13
per 100 for copies in excess of 100*)
7. p e r s p e c t i v e (January 1969) 9 pages. A layman’s guide to the economic and financial
highlights of the previous year. ($6 per 100 for copies in excess of 100*)
8. t h e n e w y o r k f o r e i g n e x c h a n g e m a r k e t (1965) by Alan R. Holmes and Francis H.
Schott. 64 pages. Describes the organization and instruments of the foreign exchange market, the techniques
of exchange trading, and the relationship between spot and forward rates. (50 cents per copy)
9. t h e s t o r y o f c h e c k s (1966) 20 pages. An illustrated description of the origin and develop
ment of checks and the growth and automation of check collection. Primarily for secondary schools but
useful as a primer on check collection. ($4 per 100 for copies in excess of 100*)
10. t h e b a l a n c e o f p a y m e n t s (1968) 6 pages. Discusses the dominant role of the dollar
in world trade and investments and the ABC’s of the United States balance of payments in nontechnical
language. ($3 per 100 for copies in excess of 100*)
* Unlimited number of copies available to educational institutions without charge.

Full text of Economic Policy Review (Federal Reserve Bank of New York) : January 1969, Vol. 51, No. 1

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