Full text of Economic Policy Review (Federal Reserve Bank of New York) : July 1956, Vol. 38, No. 7

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MONTHLY REVIEW
O

f C r e d it a n d B u s in e s s

F E D E R A L
V o lu m e

38

R E S E R V E

B A N K

C o n d itio n s

O F

J U L Y 1956

N E W

Y O R K
No. 7

MONEY MARKET IN JUNE

P ressu re s o n m em b er b a n k reserv e positio n s eased
so m ew h at d u rin g Ju n e, helping to offset th e ten sio n asso­
ciated w ith th e J u n e 15 ta x d ate, an d as a resu lt co n d itio n s
in th e m o n ey m a rk e t rem a in ed relativ ely stead y th ro u g h o u t
the m o n th . A lth o u g h business lo a n d em an d s ro se sharply
a ro u n d th e m id d le o f th e m o n th , av erage m e m b er b a n k
b o rrow in gs fro m th e F e d e ra l R eserv e B an k s an d av erage
n e t b o rro w ed reserves w ere b o th su b stan tially low er th a n
m M ay . E v e n th o u g h th e effective ra te fo r F e d e ra l fu n d s
in N ew Y o rk C ity rem a in ed alm o st steadily a t 2 % p e r
cent, fu n d s w ere m o re read ily av ailab le th a n in th e p re ­
cedin g m o n th . T h e p rices o f m o st in te rm e d iate an d lo n g erterm G o v ern m e n t b o n d s declined m o d erately ov er th e
m o n th as a w h ole b u t sh o rter-term issues generally ad ­
v an ced in p rice. T re a su ry bill yields w ere relativ ely stead y
d u rin g m o st o f J u n e b u t declined to w ard th e en d o f th e
m o n th .
T h e decline in av erage n e t b o rro w ed reserves fro m 528
m illion do llars in th e five w eeks en d ed M ay 30 to 2 1 2 m il­
lio n do llars in th e fo u r w eeks en d ed Ju n e 27 reflected in
p a rt th e easing o f b a n k reserv e p o sitio n s th a t h a d alread y
ta k e n p lace to w ard th e en d o f M ay. In ad d itio n , how ever,
a n u nexp ectedly larg e rise in float in th e m idd le o f th e
m o n th , w h ich m o re th a n offset su b stan tia l increases in
req u ire d reserves asso ciated w ith ta x p e rio d b o rro w in g by
business, b ro u g h t ab o u t a d ro p in n e t b o rro w ed reserves
in th e w eek en d ed Ju n e 2 0 . T o w a rd th e en d o f th e m on th,
as float reced ed , av erage n e t b o rro w ed reserves ro se
slightly, b u t rem a in ed w ell below th e levels th a t p rev ailed
in M ay.
F e d e ra l R eserv e System o p en m a rk e t o p e ra tio n s d u r­
ing Ju n e su p p lied reserves to m eet seaso n al reserv e needs
an d to p re v e n t th e d evelop m ent o f strain s d u rin g an d after
th e Ju n e ta x p erio d . System holdings o f T re a su ry securi­
ties in c re ased b y 126 m illion dollars d u rin g th e fo u r w eeks
en d ed J u n e 2 7 , as n e t o u trig h t p u rch ases to talin g 131
m illion ex ceed ed a n e t decline of 5 m illion in o u tsta n d ­
ing re p u rc h ase ag reem en ts.




N ew c o rp o ra te a n d m u n icip al issues m e t w ith a m ixed
rece p tio n th ro u g h o u t th e m o n th , as u n d erw riters atte m p ted
to av oid p rice co ncessions. T h e volu m e o f new m u n icipal
offerings w as larg e w hile bu y in g in te re st w as sp o rad ic,
lead in g to a b u ild -u p o f d ealers’ inventories d u rin g th e
m o n th . Y ields o n o u tstan d in g m u n icip al issues declin ed
o v er th e p e rio d as a w hole, w hile yields o n c o rp o ra te
issues rem a in ed steady .
R a te s o n b a n k e rs’ accep tan ces w ere m a rk e d d ow n by
Vs p e r cen t after th e close o f business o n J u n e 18. T h is
w as th e first ch an g e since A p ril w h en a n ad vance of th e
sam e m ag n itu d e h a d ta k e n p lace, an d b ro u g h t th e d ealers’
offering ra te o n u n in d o rse d 9 0 -d a y accep tan ces dow n to
2 % p e r cent.
M e m b e r B a n k R e s e r v e P o s it io n s
N e t b o rro w ed reserv es av erag ed 2 1 2 m illion d o llars d u r­
ing th e fo u r statem e n t w eeks en d ed Ju n e 27 , d o w n ab o u t
3 0 0 m illion fro m th e av erage d u rin g M ay. M em b er b a n k
borrow ings fro m F e d e ra l R eserv e B an k s also declined su b ­
stantially, av eraging 7 8 9 m illion d o llars as c o m p ared w ith
alm o st 1 billion d o llars in th e p rev io u s m o n th . T h e
changes in b o th av erag e n e t b o rro w ed reserv es an d m em ­
b er b a n k borro w in g s b etw een M ay a n d Ju n e b ro u g h t b o th
b a ck to th e levels th a t h a d p rev a iled a t th e beg inning of
CONTENTS
M oney M a rk e t in J u n e ................................................... 89
I n te rn a tio n a l M o n e ta ry D e v e lo p m e n ts ................ 92
S avings a n d L o a n A sso ciatio n s in th e
M o rtg ag e M a rk e t ........................................................ 94
R e c e n t T re n d s in U n ite d S tates I m p o r ts ........... 97
B u sin ess L o an s a t S eco n d D is tric t M e m b e r
B a n k s: In te re s t R a te s a n d Size o f B o rro w e r 100
E a rn in g s a n d E x p e n se s of C o m m e rc ial B a n k
T ru s t D e p a rtm e n ts in N ew Y o rk a n d N ew
Je rse y .................................................................................. 104
S ele cted E co n o m ic I n d ic a to r s .................................... 104

90

MONTHLY REVIEW, JULY 1956

th e y ear an d close to th o se of A u g u st 1955 (see c h a rt).
In th e final Ju n e statem e n t w eek av erage n e t b o rro w ed
reserves, a t 171 m illion d ollars, w ere m o re th a n 5 0 0 m il­
lio n low er th a n in th e w eek en d ed M ay 2 w h ich h a d b een
th e high p o in t fo r 195 6.
E a rly in th e m o n th th e co m b in ed effect o f a red u c tio n
in T re asu ry b alan ces at F e d e ra l R eserv e B an k s an d a
m o d erate rise in float ap p ro x im ately offset a large outflow
of cu rren cy in to circu latio n . T h u s, th e decline in average
n et b o rro w ed reserves stem m ed alm o st w holly fro m th e
in crease in F e d e ra l R eserv e System holdings of G o v ern ­
m en t securities, th e resu lt o f b o th o u trig h t p u rch ases an d
the ex ten sio n o f re p u rc h ase ag reem en ts to dealers in G o v­
e rn m e n t securities.
S ub sequently , th e u su al m id m o n th ex p an sio n o f float,
a ttrib u tab le in g rea t p a rt to th e co m m o n business p rac tice
of p ay in g bills o n th e te n th o f th e m o n th , w as m agnified by
th e c o n cen tra tio n of div id en d an d ta x p ay m en ts in m idJu n e, w ith resu ltin g delays in F ed eral R eserv e collections
as clearing facilities b ecam e o v erb u rd en ed . R eserv e p res­
sures eased co n sid erab ly , an d av erage n e t b o rro w ed re ­
serves fo r th e w eek en d ed Ju n e 2 0 fell to th e low est level
since m id -F e b ru a ry 195 6, desp ite a rise in req u ire d re ­
serves th a t stem m ed fro m business borro w in g d u rin g th e
tax p e rio d , an d a rise in T re a su ry b alan ces a t F ed eral
R eserv e B an k s a t th a t tim e.
T o w a rd th e en d of th e m o n th , as th e back lo g of u n co l­
lected ch ecks w as g rad u ally being w o rk ed off, float d e­
clined, a n d th e av erage level o f T re asu ry balances at
F e d e ra l R eserv e B an k s ro se still fu rth e r as ta x collections
co n tin u ed to be large. T h e offsetting effects of declines in
req u ire d reserves an d in cu rren cy in circu latio n w ere such,
how ever, as to p rev e n t m o re th a n a sm all in crease in av er­
age n et b o rro w ed reserves in th e final statem en t w eek.




Table I
Changes

in
( In

F a c t o r s T e n d in g to In c r e a s e o r D e c r e a s e
B a n k R e se rve s, Ju n e 195 6

M em ber

m illio n s o f d o lla r s ; ( + ) d e n o te s in c re a se ,
(— ) d e c re a s e in e x c e s s r e s e r v e s )

D a ily ave ra ge s— w eek ended
Net
changes

Factor
June
6

June
13

June
20

June
27

-f 80
+
71
-1 7 8
+
3
+
19

+
+
+

36
64
37
13
12

-1 3 2
+537
+
1
+
3
34

-1
+
+
+

-

4

+

63

+376

+
+

47
44

+
-

86
73

-

24

+160
+
2

-1 5 0
+
2

+
-

22
4

+

-

Operating transactions
T r e a s u r y o p e r a t i o n s * ...........................
F e d e r a l R e s e r v e f l o a t ...........................
C u r r e n c y i n c i r c u l a t i o n .......................
G o l d a n d f o r e i g n a c c o u n t ....................
O t h e r d e p o s i t s , e t c ................................
T o t a l ........................................

42
3 8
56
35
25

58
+534
-1 5 8
+
28
+
22

-

66

+369

+

40
26

+
-

93
27

-

8

+

24

+

1

+

1

92

Direct Federal Reserve credit transactions
G o v e r n m e n t s e c u r it ie s :
D i r e c t m a r k e t p u r c h a s e s o r s a l e s ..
H e ld u n d e r re p u rc h a se a g re e m e n ts.
L o a n s , d is c o u n t s , a n d a d v a n c e s :
M e m b e r b a n k b o r r o w i n g s ...............
O t h e r ....................................................
B a n k e r s ’ a c ce p ta n ce s:
B o u g h t o u t r i g h t .................................
U n d e r r e p u r c h a s e a g r e e m e n t s ........

1

1

T o t a l ........................................

+254

-1 3 3

-

9

-

20

+

Total reserves ...............................................
Effect of change in required reservesf ____

+250
+
7

-

70
23

+367
-2 7 2

+

86
65

+461
-2 2 3

Excess reservesf ..........................................

+257

-

93

+

-

21

+238

D a i l y a v e ra g e le v e l o f m e m b e r b a n k :
B o r r o w in g s fro m R e s e rv e B a n k s . . . .
E x c e s s r e s e r v e s t ....................................

892
804

N o te :
*
t
j

742
511

95

764
606

756
585

7891
5771

B e c a u s e o f r o u n d in g , f ig u r e s d o n o t n e c e s s a r i ly a d d t o t o t a ls .

In c lu d e s c h a n g e s in T r e a s u r y c u r r e n c y a n d c a sh ,
T h e s e fig u r e s a r e e s tim a t e d ,
A v e ra g e fo r fo u r w e e k s e n d e d J u n e 27.

G o v e r n m e n t S e c u r it ie s M a r k e t
F ollo w ing th e su stain ed p rice ad vances d u rin g M ay,
prices o f m o st G o v ern m e n t n o tes an d b o n d s ten d ed to
d rift low er in early Ju n e . M o st m a rk e t ob serv ers seem ed
to feel th a t th e ea rlie r ad vances h a d alread y reflected in
full th e possibility th a t m o n etary policy w o u ld b eco m e no
m o re restrictive an d th a t som e easing m igh t o c cu r. M o re ­
over, investo rs w ere g enerally u n c ertain ov er th e a p p ro a c h
of th e Ju n e 15 ta x d a te an d th e p ossible p ressu res o n
reserves th a t m igh t arise a t th a t tim e. In th is setting,
prices ad v an ced only m o d erately w h en th e P re sid e n t’s ill­
ness w as an n o u n ced o n J u n e 8. H o w ev er, b y J u n e 15
m o st issues h a d reg ain ed earlier losses an d h a d exceed ed
the levels reac h ed at th e en d o f M ay . A fte r th e ta x date
prices m ov ed irreg u larly , an d to w a rd th e en d o f th e m o n th
in term ed iate an d lo n g er-te rm issues m ov ed do w n w ard ,
p artly u n d er th e influence o f ex p ectatio n s th a t som e p res­
sures m igh t bu ild u p w ith th e a p p ro a c h of th e q u arterly
statem en t date. O v er th e m o n th as a w hole, m ost issues
m atu rin g fro m 1961 o n o u t d e clin ed by % 2 to 1% 2 of a
p o in t, alth ough th e tw o long est b o n d s show ed sm all gains.
S h o rter issues generally ro se b y b etw een % 2 an d 1% 2 T ra d in g w as largely c o n cen tra ted at th e sh o rter en d of
the list th ro u g h o u t th e m o n th . P re p a ra tio n s fo r th e ta x
d ate gave rise to a sizable supply of no tes an d certificates
early in th e m o n th . In ad d itio n , th e ta x an ticip atio n ce r­
tificates due Ju n e 22 an d th e 2 p e r cen t T re a su ry no tes

FEDERAL RESERVE BANK OF NEWYORK

d u e A u g u st 15 w ere av ailable fro m investo rs seeking to
sw itch o u t of th ese issues b efo re m a tu rity . D e m an d fo r
sh o rte r notes an d b o n d s w as strong, how ever, an d d esp ite
ta x selling early in th e m o n th p rices ad v an ced su b stan ­
tially. T ra d in g in in term ed iate an d lo n g er-term issues w as
light th ro u g h o u t th e m o n th an d , alth o u g h som e sw itching
fo r ta x loss p u rp o ses o ccu rred , this ten d ed to b e restra in ed
by th e relativ ely high level o f prices as co m p ared w ith
rece n t m on ths.
T re asu ry bill yields rem a in ed rem a rk ab ly steady
th ro u g h o u t th e first h alf of Ju n e, d esp ite p e rsisten t m a rk e t
ex p ectatio n s th a t sales of bills to m eet th e ta x an d divi­
d e n d p ay m en ts w o uld drive yields u p w ard . T h e b eh av io r
of th e av erage issuing ra te in th e first tw o T re asu ry bill
au ctio n s of th e m o n th w as sym p to m atic; fro m 2 .5 7 3 p e r
ce n t in th e la st M ay au ction, th e ra te m ov ed d ow n to
2 .5 6 2 p e r cen t o n Ju n e 4 an d u p to 2.581 p e r cen t o n
Ju n e 11. O n each occasion, b idd ing w as initially cautious,
b u t th e a p p earan ce of stro n g cu sto m er in te re st in each
case led to re-ev alu atio n s w h ich k e p t th e av erage issuing
rate stable fro m w eek to w eek. T h e m a rk e t ra te o n th e
lo ng est o u tstan d in g issues closed w ith in 3 b asis-points
o f 2 .5 2 p e r ce n t (b id ) o n ea ch d a y th ro u g h Ju n e 15. In
general, th e m a rk e t w as su rp rised at th e sm all size o f bill
liq u id atio n s an d by th e stren g th of n o n b a n k d em and .
Im m ed iately after th e ta x d ate, bill yields tu rn e d dow n
a n d th e m a rk e t w as increasingly d o m in ate d by th e ex pec­
tatio n th a t th e re d e m p tio n o f ta x an ticip atio n certificates
o n Ju n e 2 2 w o u ld resu lt in a fu rth e r u p su rg e of d em an d .
T h e Ju n e 18 au ctio n resu lted in an av erage issuing ra te
o f 2 .4 3 0 p e r cen t fo r th e bills d a ted Ju n e 21. A lth o u g h
th e issuing ra te re b o u n d ed to 2 .5 3 5 p e r cen t in th e Ju n e 25
a u ctio n , m a rk e t yields declined a t th e close of th e m o n th .
B y Ju n e 29, th e long est bill w as b id a t 2 .4 2 p e r cent, dow n
15 b asis-points fro m th e en d of M ay. M o st sh o rter issues
declined by 3 to 10 basis-p o in ts d u rin g th e m o n th .
O t h e r S e c u r it ie s M a r k e t s
T h e m ark ets fo r c o rp o ra te a n d m u n icip al b o n d s p re ­
sen ted a som ew hat m ixed p ic tu re in Ju n e , follow ing th e
im p ro v ed to n e th a t h a d ch aracte riz ed M ay . In v esto r in te r­
est in new issues p ro v e d to b e highly selective th ro u g h o u t
m o st of th e m o n th , as u n d erw riters a tte m p te d to d istrib u te
new issues w ith o u t m ak in g p rice co ncessions. A v erage
yields o n o u tstan d in g co rp o ra te issues, as reflected in
M o o d y ’s A a a -ra te d co rp o ra te b o n d index, m ov ed sidew ise
d u rin g Ju n e . Y ields o n sim ilarly ra te d lo n g -term m un icipal
b o n d s show ed a n e t decline over th e m o n th of 8 basisp o in ts d esp ite a rise in th e final w eek. B y th e en d o f th e
m o n th th e av erag e yield on A a a co rp o ra te b o n d s a t 3.27
p e r cen t w as 4 basis-points, an d th a t o n A a a m un icip al
b o n d s a t 2 .3 4 p e r cen t w as 17 basis-points, below th e
1956 highs reac h ed in late A p ril,




91

T h e estim ated volu m e o f pub licly offered tax -ex em p t
b o n d s in Ju n e a m o u n te d to 615 m illion d ollars, ab o u t 170
m illion h ig h er th a n in M ay , bringin g th e to ta l o f new issues
so far this y e ar to alm o st 2 .6 billion d ollars, o r a b o u t 10
p e r cen t ab ove th e to ta l offerings in th e first six m o n th s
o f 195 5. T h e larg est flo tatio n d u rin g th e m o n th w as a 166
m illion d o llar rev en u e b o n d issue w h ich w as w ell received
w h en reoffered a t a yield of 3 .9 2 p e r cen t. D esp ite th e
en larg ed volu m e of offerings in Ju n e an d h ig h er d ealer
inventories, yields o n new issues show ed little ch ange fro m
M ay. T o w a rd th e en d o f th e m on th, th e P u b lic H o u sin g
A d m in istra tio n p la ced a 9 0 m illion d o llar issue o f A a a ra te d lo cal h o u sin g a u th o rity b o n d s at a n e t in te re st co st
of 2 .4 8 2 p e r cent, c o m p ared w ith 2 .3 5 4 7 p e r ce n t o n a
sim ilar issue offered early in F eb ru ary .
In c o n tra st to th e in crease in new m un icipal issues, p u b ­
lic offerings o f c o rp o ra te b o n d s fo r new c a p ital d eclin ed
to an estim ated 2 6 0 m illion dollars fro m an u n u su ally h igh
6 70 m illion in M ay . F o r th e first six m o n th s of th e year,
such offerings am o u n te d to ab o u t 1.9 b illio n d o llars,
27 p e r cen t h ig h er th a n in th e first h alf of 1955. A t th e
beginning o f Ju n e in v esto rs ten d ed to h o ld off, b u t
u n d erw riters co n tin u e d to b id aggressively o n new issues
in th e ex p ecta tio n th a t d e m an d w ould revive. S everal b o r­
row ers, ap p aren tly influenced by th e ex p ectatio n th a t m a r­
ket co nditions w o u ld b eco m e m o re fav o rab le, decid ed to
p o stp o n e offerings. Som e issues, how ever, n o ta b ly a 5 0
m illion d o llar issue offered to yield 4 p e r cent, m e t w ith
fav o rab le in v esto r resp o n se. L a te r in th e m o n th , alth o u g h
supply ta p e re d off an d th e u n certain ties co n n ected w ith
th e J u n e ta x d a te d isap p eared , resp o n se co n tin u ed to b e
m ixed, p a rtly b e cau se investo rs ten d ed to resist c u rren t
ra te levels.
In ad d itio n to issues o f dom estic co rp o ra te an d m un ici­
p a l b o n d s, a n u n u su ally larg e volu m e of foreig n gov­
ern m e n t flotatio ns sw elled th e supply o f b o n d offerings
du rin g Ju n e . P u b licly offered foreign g o v ern m en t issues
am o u n te d to over 80 m illio n dollars, exceed ing flotatio ns
in an y prev io u s m o n th this year. T h e larg est single offer­
ing w as a 25 m illio n d o lla r issue of C o m m o n w ealth of
A u stra lia b o n d s w h ich m e t w ith a good resp o n se w h en
reoffered to yield 4 .6 4 p e r cent.
M e m b e r B a n k C r e d it
T o ta l lo an s an d investm ents of w eekly re p o rtin g m em ­
b e r b a n k s in c re ased 1.2 billion dollars d u rin g th e fo u r
w'eeks en d ed Ju n e 2 0 , as to ta l loans ro se b y 1.1 billion.
T h e b u lk of th e lo a n ex p an sio n w as acco u n ted fo r by an
838 m illion d o llar in crease in co m m ercial a n d in d u strial
loans.
T h e ex p an sio n in co m m ercial an d in d u strial lo an s w as
co n cen tra ted in th e tw o w eeks en d ed J u n e 2 0 an d p re ­
sum ab ly reflected, in p a rt, b o rro w in g to m eet th e J u n e 15

92

MONTHLY REVIEW, JULY 1956
Table II
W e e k ly

C h a n g e s in P r in c ip a l A s s e t s a n d L ia b ilit ie s o f t h e
W e e k ly R e p o r t in g M e m b e r B a n k s
( In m illio n s o f d o lla r s )

State m e n t w eeks ended
It e m
M a y
30

June
6

June
13

June
20

Change
fro m D e c .
28, 195 5
to J u n e
20, 1956

A sse ss
L o a n s a n d in v e s t m e n t s :
Loan s:
C o m m e r c ia l a n d in d u s t r ia l
l o a n s ....................................
A g r i c u l t u r a l l o a n s .................
S e c u r i t y l o a n s ........................
R e a l e s t a t e l o a n s ...................
A ll o th e r lo a n s (la rg e ly
c o n s u m e r ) ...........................

-3 0 8
1
60
+
9

+
+

+
+

+

89

+

29

+

423

+

871

+ 2 ,9 6 4

50
104

+
+

22
4

+
+

145
165

739
-2 ,3 2 8

154
4

+
+

26
61

+

310
81

-3 ,0 6 7
297

158

+

87

+

229

-3 ,3 6 4

+

+
+

24

-3 4 3

+

160

In v e s t m e n t s :
U . S . G o v e r n m e n t s e c u r it ie s :
T r e a s u r y b i l l s ....................
O t h e r ...................................

+
-

45
49

-

T o t a l ................................
O t h e r s e c u r i t i e s .....................

-

4
44

-

T o t a l i n v e s t m e n t s ............

-

T o t a l lo a n s a d j u s t e d * . .

+

13

48

-

T o t a l lo a n s a n d in v e s t m e n t s
a d j u s t e d * ....................................

-3 9 1

+

2

+

510

L o a n s t o b a n k s ..............................

+

+

126

-

93

Loans
a d ju ste d * a n d
“ o th e r”
s e c u r i t i e s ......................................

-3 8 7

23

+

+

277
10
8
39

191
4
9
5

+

—

156

+

484

678
20
156
31

+ 1 ,1 0 0

+

81

}+ 2 ,2 0 9
+

256
431

+

691

-

400

+

154

790

+ 2 ,6 6 7

69

-1 ,9 7 7

Liabilities
D e m a n d d e p o s i t s a d j u s t e d .........
T im e d e p o s it s e x c e p t
G o v e r n m e n t ...............................
U . S . G o v e r n m e n t d e p o s i t s .........
In t e r b a n k d e m a n d d e p o sits :
D o m e s t i c .....................................
F o r e i g n ........................................

+

77

3
-1 3 1
-

97
24

+
+
+

120

122
-1 ,0 5 6
777
5

4 -1 ,3 3 3

+
+

45
425
122
11

_

++
—

83
927

+
+

273
850

28
19

-

722
28

* Exclusive of loans to banks and after deduction of valuation reserves; figures
for the individual loan classifications are shown gross and may not, therefore,
add to the total shown.

c o rp o ra te tax p ay m en ts. T h e to ta l in c re ase in th ese tw o
w eeks am o u n te d to 9 5 5 m illion do llars, c o m p ared w ith
1,263 m illion d o llars in th e M a rc h ta x p e rio d . A s in
M arch , th e ex p an sio n in b o rro w in g d u rin g th e ta x p erio d
w as p a rtic u larly m a rk e d fo r lo a n s to m e tals an d m etal
p ro d u cts co m p an ies a n d to p u b lic utilities, alth o u g h in
each in stan c e sm aller th a n in th e e a rlie r p e rio d . T h e
Ju n e ta x p e rio d also show ed a rise in lo a n s to sales
finance co m p an ies, larg e r th a n th e rise d u rin g th e M arch
ta x p e rio d an d a p p aren tly rela te d to th e n e ed to p a y off
sh o rt-term n o tes m a tu rin g o n J u n e 15 w h ich h a d b een
sold to c o rp o ra tio n s seeking a te m p o ra ry in v estm en t o f
fu n d s to b e u sed fo r tax es.
In ad d itio n to th e rise in co m m ercial a n d in d u strial
lo an s o v er th e fo u r w eeks en d ed Ju n e 2 0 , co n su m er lo an s,
real estate loans, an d secu rity lo a n s c o n tin u e d to in crease.
C o n su m er lo a n s ro se b y 107 m illio n d o lla rs, so m ew h at
less ra p id ly th a n in rece n t m o n th s, a n d re a l e state lo an s
in creased b y 84 m illio n d o llars, a t a b o u t th e sam e ra te
as ea rlie r in th e y ear. S ecurity lo an s ad v an c ed b y 95 m il­
lion do llars, c o m p ared w ith a 130 m illio n in crease in th e
fo u r w eeks en d ed M ay 23 a n d n e t declines in th e p rec ed ­
ing fo u r m o n th s.
T h e in v estm en t p o rtfo lio s o f w eekly rep o rtin g b a n k s
ro se b y 110 m illion do llars o v er th e fo u r w eeks en d ed
J u n e 2 0 . T h e rise w as p rim arily a ttrib u tab le to a 162 m il­
lion in crease in holdings o f T re a su ry bills, w h ich in co m ­
b in atio n w ith a sm all rise in hold ings o f o th e r G o v ern m e n t
securities m o re th a n offset a 68 m illion d ecline in o th e r
security holdings.

INTERNATIONAL MONETARY DEVELOPMENTS
M o n e t a r y T r e n d s a n d P o lic ie s

T h e C en tral B a n k o f T u rk e y o n Ju n e 6 raised its dis­
co u n t ra te fro m A V i to 6 p e r cent, th u s b ringin g to eight
th e n u m b er o f fo reig n co u n tries th a t h av e raised th e ir dis­
co u n t rates since th e beg in n in g o f this y e ar (se e ta b le ).
T h e p revio us ra te h a d b e en in effect since Ju n e 1955 w h en
it w as in creased fro m 3 p e r cent. T h e late st in crease,
w hich raised th e T u rk ish d isco u n t ra te to th e h igh est level
since 193 3, suggests, in co n n ectio n w ith o th e r m easu res
ta k e n d u rin g th e p a s t y ear, th a t th e au th o rities are m o d i­
fying th e ex p an sio n a ry policies o f rece n t y ears. L arg escale p u b lic inv estm en t, hig h ag ric u ltu ral p rice su p p o rts
(fin an ced largely b y c e n tral b a n k c re d it), a n d easy b a n k
cred it to th e p riv ate secto r h av e successfully stim u lated
p hy sical o u tp u t, b u t m o u n tin g in flatio n ary p ressu res, in ­
creasin g econo m ic disto rtio n s, a n d a serious ex tern al p a y ­
m ents crisis h av e b e en a p ro b le m fo r som e tim e.




In C an ad a, Ju n e m a rk e d th e first full m o n th o f o p e ra ­
tio n o f th e 15 p e r ce n t liq u id -asset ra tio (cash , T re asu ry
bills, an d d ay -to -d ay lo a n s) ag ainst dep o sits, info rm ally
ag reed u p o n betw een th e B a n k o f C a n a d a a n d th e c h a r­
te re d b an k s. A lth o u g h this ratio , as w ell as th e existing
sta tu to ry 8 p e r cen t cash reserv e w h ich it in c o rp o rates,
In c r e a s e s

in

F o r e ig n

C e n tral B a n k

D is c o u n t

R a te s

in

1956

In per cent
C o u n try

D a te of change
N e w ra te

U n i t e d K i n g d o m .............
W e s t G e r m a n y .................

W e s t G e r m a n y .................

*
t

Feb.
Feb.
M a r.
A p r.
A p r.
M a y
M a y
M a y
June

7
16
8
4
19
1
19
26
6

M in im u m ra te o f range,
R a t e c h a rg e d t o p r iv a t e n o n b a n k b o rro w e rs.

3
5 H
4 H
3
6 M *
10
5 H
5
6

P r e v io u s ra te
2 H
4
3 H
2 34
5*
9

4y2
4
4 ^

FEDERAL RESERVE BANK OF NEW YORK

w as ex ceed ed th ro u g h o u t th e m o n th , th e c h artered an d
savings b an k s b eg an again to b o rro w fro m th e B an k of
C a n a d a durin g th e last statem e n t w eek in M ay an d re ­
m ain ed in d eb ted to it th ro u g h o u t m o st o f Ju n e. Security
yields w ere generally low er in Ju n e, w ith th e th re e m o n th s’
T re asu ry bill te n d e r ra te declining o n J u n e 28 to 2 .5 2 p e r
cent, th e low est level since F e b ru a ry . A t th e sam e tim e,
business lo an s b y th e c h a rtered b a n k s have co n tin u ed th e ir
u p w ard m o v em ent, an d o n Ju n e 13 w ere 29 p e r cen t
above a y ear earlier.
In th e U n ited K ingdom , th e C h an cello r o f th e E x ch e q u e r
d eclared th a t som e “m o d est b u t u n m ista k ab le gains” h a d
b een w o n in th e b a ttle ag ainst inflatio n. T h e am o u n t o f
h ire-p u rch ase d e b t o u tstan d in g w ith retaile rs is estim ated
to h av e d eclined b y 8 p e r cen t since th e en d of last year.
O n th e o th e r h a n d , th e late st q u a rte rly analysis of ad vances
by m em b ers o f th e B ritish B a n k e rs’ A sso ciatio n show s
th a t, in th e q u a rte r en d ed in m id-M ay , ad vances rose
slightly, since in creased b o rro w in g by th e n atio n alized in ­
du stries m o re th a n offset a n e t decline in b o rro w in g b y
all o th ers. T h is m a rk s th e first q u a rte rly in crease since
th e b an k s w ere req u e ste d la st Ju ly to red u c e th e ir len ding;
how ever, to ta l ad vances o u tstan d in g in M ay still w ere
alm o st 10 p e r cen t below a y e ar earlier. Y ields o f gilted ged securities ro se sub stan tially early in Ju n e ; th e yield
of 2 V i p e r cen t C onsols reac h ed 4 .8 4 p e r cen t o n Ju n e 4—
th e h ig h est level since th e early th irties— b u t clo sed at
4.7 8 o n Ju n e 2 9 . T h e av erage ra te fo r th re e m o n th s’
T re asu ry bills, w hich h a d sto o d a t 4 .9 5 p e r cen t th ro u g h ­
o u t M ay, h a d risen to 5.08 a t th e fo u rth Ju n e ten d er.
T h e R eserv e B a n k of N ew Z ealan d , im plem en ting re c ­
o m m en d atio n s of th e R o y al C om m ission o n M o n e tary ,
B anking, an d C re d it System s, am en d ed th e trad in g b a n k s’
cash reserve ratio s to p e rm it in clu sio n of th e b a n k s’ v a u lt
cash. A t th e sam e tim e, how ever, th e ratio s w ere raised
to 32 p e r cent of d em an d an d 10 p e r cen t of tim e liab ili­
ties so th a t th e b an k s are being fo rced to in crease th e ir
borro w ing fro m th e R eserv e B a n k a t th e prevailing 7 p e r
cen t disco u n t ra te . A V i p e r ce n t in crease in th e ra te s
p aid by th e b a n k s o n d eposits also w as an n o u n ced , th e
new rates rangin g fro m 2 to 3 p e r cen t; th is follow s an
earlier increase in F e b ru a ry an d th e ab o litio n a t th a t tim e
of th e fixed m in im um an d m ax im u m ra te s ch arg eab le by
the bank s o n o v erd rafts.
In F in la n d , th e cash reserv e ag reem en t co n clu d ed in
1955 betw een th e ce n tral b a n k a n d co m m ercial ban k s,
u n d er w h ich th e la tte r h a d h eld w ith th e fo rm er a specified
p ro p o rtio n o f increases in th e ir d eposits, w as n o t ren ew ed
last m o n th . (S im ultaneou sly, th e cash -d ep o sit re q u ire ­
m en t fo r im p o rte rs w as lo w ered fro m 2 0 p e r cen t to
th e fo rm er 10 p e r cent.) T h e B an k of F in la n d , how ever,
has w arn ed th e b an k s th a t th e fu n d s relea se d th ro u g h
term in atio n o f th e cash -reserv e ag reem en t should b e u sed




93

to red u ce th e b a n k s’ red isco u n ts w ith th e ce n tral b an k ,
w hich in creased by o v er 35 p e r cen t d u rin g A p ril-M ay ,
an d n o t to in crease th e ir len ding. In fact, th e B an k of
F in la n d h as em p h asized th a t, failing such red u ctio n s, it
m ay raise in O c to b er th e p e n alty ra te o n discou nts in
excess o f a c e rta in stip u late d ceiling to 5 p e r cen t above
th e b a n k s’ ow n lo a n rates fro m th e p re se n t 3 p e r cent.
E xchange R ates
T h e w eakening o f sterling th a t h a d b eg u n in late M ay
co n tin u ed early in Ju n e, w ith A m erican -a cco u n t sterling
d ro p p in g as low as $ 2 .8 0 % 2 o n J u n e 5. T h e an n o u n ce­
m en t th a t B rita in ’s gold a n d d o llar reserves h a d risen 41
m illion d o llars in M ay — w ith som e th re e q u a rte rs o f th e
rise resu ltin g fro m B rita in ’s receip ts in settlem en t o f its
A p ril E P U su rp lu s— w as som ew hat d isap p o in tin g to th e
m a rk e t an d ad d ed to th e ea rlie r w eakness w h ich stem m ed
in p a rt fro m th e u n settle d la b o r situ atio n . B etw een J u n e
6 a n d 13, how ever, sterling stren g th en ed , reflecting goo d
co m m ercial d em an d , p a rtic u larly o n th e p a rt o f oil
co m pan ies; th e p u b licatio n o f B rita in ’s tra d e figures fo r
M ay , alo ng w ith th e an n o u n c em e n t of th e p ro p o se d sale of
th e T rin id a d O il C o m p a n y to th e T ex as C o m p an y , len t
som e fu rth e r en co u rag em en t to th e m a rk e t. A m erican ac co u n t sterling acco rd in g ly ro se as hig h as $ 2 .8 0 2% 2 on
J u n e 13. A fte r th e m id m o n th , how ever, seasonal p ressu res
o n sterling b ecam e increasingly n o ticeab le, an d w ith a
risin g co m m ercial d e m an d fo r dollars in L o n d o n (p a rtic u ­
larly o n th e p a rt o f oil an d to b acco b u y e rs), th e ra te ag ain
w eakened, falling as low as $ 2 .7 9 % 6 o n Ju n e 27 an d clos­
ing o n J u n e 2 9 a t $ 2 .7 9 2% 2 .
S terling fo r th re e an d six m o n th s’ delivery m o v ed to
larg e r discou nts a ro u n d th e m idd le o f th e m o n th , b u t g en­
erally w as q u o ted a t a b o u t l 15/32 an d 2 2% 2 cents below
th e ra te fo r sp o t sterling. T ra n sfe ra b le sterling fo r th e
m o st p a rt follow ed m o v em en ts in th e ra te fo r A m erican
acco u n t; how ever, it w as som ew hat firm er early in th e
m o n th o n stren g th o rig in atin g in foreig n m a rk e ts, an d th e n
w eak en ed to close a t $ 2 .7 7 3 5 o n Ju n e 2 9 . S ecurities ster­
ling, reflecting a g en eral lac k o f in te re st in L o n d o n stocks,
fell d u rin g th e m o n th fro m $ 2 .7 6 to $2.71 V2 .
T h e C a n a d ia n d o lla r gen erally ap p re ciate d th ro u g h o u t
th e m o n th , g rad u ally risin g fro m $1.01 % 2 to $ 1 .0 2 % 2 ,
th u s co ntin u in g to reflect in v estm en t d em an d , p a rtic u larly
o n th e p a rt o f B ritish a n d C o n tin e n tal interests, as w ell
as su stain ed co m m ercial d em an d .
T h e “ c a p ital” m a rk , u sed b y n o n resid en ts fo r investing
in G erm an y , co n tin u e d in lim ited su p p ly a n d go o d d e­
m a n d ; as a resu lt, th e q u o ta tio n ro se as h igh as 24 .3 5
cents. A t this level, th e cap ital m a rk w as being q u o ted at
a ra te w ell ab ove th e u p p e r su p p o rt lim it o f th e official
D eu tsch e m a rk ; th e G e rm an au th o rities, h ow ever, do n o t
in terv en e in th e m a rk e t fo r cap ital m a rk s.

MONTHLY REVIEW, JULY 1956

94

SAVINGS AND LOAN ASSOCIATIONS IN THE MORTGAGE MARKET

B ecau se o f th e ir specialized ro le as hom e-fin ancing
in stitu tio n s, savings an d lo a n associatio ns have b e en in a
fav o rab le p o sitio n to benefit fro m th e stro n g d e m an d fo r
m ortgage fu n d s in th e p o stw a r p erio d . T h e ex isten ce of
am ple an d relativ ely p ro fitab le inv estm en t o p p o rtu n ities in
m ortg ages has p e rm itted th e associatio ns to in crease th e
re tu rn p a id o n m e m b ers’ shares an d has en co u rag ed th em
to tak e o th e r steps to a ttra c t a larg er p ro p o rtio n of th e
p u b lic’s savings. A s a resu lt, th e p a st d ecad e h as b e en a
p e rio d o f exceedingly ra p id g row th fo r th e associatio ns.
S tarting fro m 7 b illion d o llars a t th e en d of 194 5, th e
savings ca p ital of th e associatio ns rose to 32 billio n dollars
a t th e en d of 195 5. D u rin g this sam e p e rio d th e associa­
tio n s’ sh are of to ta l in stitu tio n al savings (d efin ed h e re as
th e sum of shares in savings an d lo a n associations, o f tim e
an d savings d eposits w ith co m m ercial an d m u tu al savings
b an k s, an d of reserves o f life in su ran ce co m p an ies) in ­
creased fro m 8 p e r cen t to 18 p e r cent.
T h e g ro w th in th e savings cap ital of th e associatio ns
h as b e en acco m p an ied b y an alm ost p a rallel rise in th eir
m o rtg ag e len ding (see C h a rt I ) . A t th e en d of 1955 th e
associatio n s acco u n ted fo r ab o u t o n e fo u rth of th e to ta l
n o n fa rm m ortgage d e b t an d fo r ab o u t o n e th ird of th e
p o rtio n of th a t d e b t h eld by th e fo u r m a jo r types of invest­
ing in stitu tio n s. T h ese p ro p o rtio n s are th e h igh est in th e
asso ciatio n s’ history.
Sources

of

F unds

Savings
associatio ns (k n o w n in vario u s p a rts
o f th e co u n try as “co o p erativ e b a n k s” , “build ing an d lo an
asso ciatio n s” , an d “h o m estead associatio ns” ) are m u tu al
th rift associatio ns c h artered by th e F e d e ra l o r a S tate G o v ­
ern m en t. T h e savings of th e ir m em bers, w h ich co m prise
th e asso ciatio n s’ “ savings ca p ita l” , co n stitu te th e associa­
tio n s’ p rin cip al source of funds. L egally, th e savings c a p i­
ta l of the associatio ns consists of sh are interests ra th e r th a n
d eposits, an d shareh o ld ers a re co n sid ered p a rt ow ners of
th e associatio ns ra th e r th a n p re fe rre d cred ito rs. S trictly
speak ing, a “w ith d raw al” is a rep u rc h ase of th e m e m b ers’
sh ares w h ich th e associatio ns are u n d e r no legal oblig atio n
to m ak e if reaso n ab le n o tice is n o t given o r if th e w ith­
d raw al w o u ld im p air th e ir financial p o sition . A t th e p re s­
en t tim e, how ever, w ith d raw al req u ests generally are m et
o n d em an d , a featu re w h ich im prov es th e asso ciatio n s’
ab ility to co m p ete successfully w ith o th e r in stitu tio n s fo r
savings. M o st sh are accoun ts are in associatio ns afforded
in su ran ce p ro tec tio n (u p to a m ax im u m am o u n t of
$ 1 0 ,0 0 0 p e r ac co u n t) by th e F e d e ra l Savings an d L o an
In su ran ce C o rp o ratio n (F S L IC ).
a n d




A ll F ed erally ch a rte re d associatio ns an d a b o u t th ree
fifths of th o se w ith S tate ch arters are m em b ers o f th e
F e d e ra l H o m e L o a n B an k System (F H L B S ). A t th e en d
of 195 4 m em b er associatio ns acco u n ted fo r 95 p e r cen t o f
th e assets o f all savings a n d lo a n associatio ns an d fo r 70
p e r cen t o f th e to ta l n u m b er o f associatio ns. T h e F H L B S ,
w hich consists of eleven region al H o m e L o a n B an k s an d a
ce n tral gov erning au th o rity , th e F e d e ra l H o m e L o a n B an k
B o ard , w as organ ized in 193 2 in o rd e r to p ro v id e a source
of cred it fo r hom e-fin ancing in stitu tio n s. T o a su b stan tial
ex tent, such cred it is u sed by th e associations to su p p le­
m en t th e ir savings c a p ita l.1 In th e p o stw a r p e rio d th e
n u m b er o f associatio ns in d e b t to th e F e d e ra l H o m e L o a n
B an k s a t an y o n e tim e h as v a rie d fro m a b o u t o n e th ird
to th re e fifths of to ta l m e m b ersh ip . F H L B lo an s m ay be
u sed to e x p an d m e m b ers’ p e rm a n e n t len d in g p o w er as
w ell as to m eet seasonal an d em ergency needs. A sso cia­
tions are lim ited in th e am o u n ts th ey can b o rro w by sta t­
ute, rules an d reg u latio n s o f th e F e d e ra l H o m e L o a n B an k
B o ard an d F S L IC , an d by lines o f cred it set b y th e F ed eral
H o m e L o a n B anks. T h ese B an k s o b ta in fu n d s fro m th e ir
m em bers th ro u g h sto ck sub scrip tio n s an d deposits an d
also sell securities in th e cap ital m a rk et.
B ecau se of th e steady in crease in th e ir savings
associatio ns h av e en co u n tered few em ergency n eed s fo r
c a p it a l,

1 The associations also borrow small amounts from commercial
banks. Such loans amounted to 146 million dollars at the end of
1955, compared with FHLB advances of 1,412 million dollars.

lo a n

Billions
of dollars

Chart I
SAVINGS CAPITAL AND MORTGAGE LOANS
OF SAVINGS AND LOAN ASSOCIATIONS

Biilions
of doUars

Sources: Federal Home Loan Bank Board; Board of Governors of the Federal
Reserve System; Morton, J. E., Urban Mortgage lending: Comparative
Markets and Experience, Princeton University Press, 1956.

95

FEDERAL RESERVE BANK OF NEW YORK
S o u rc e s a n d U s e s o f F u n d s o f S a v in g s
L o a n A s s o c ia t io n s , S e le c te d Y e a r s

and

(Amounts in billions of dollars)
1946

1950

1955

S o u r c e s o f f u n d s — t o t a l .....................................................

l.S

2 .1

6 .0

N e t i n f l o w o f s a v i n g s c a p i t a l ........................................
R e s e r v e s a n d u n d i v i d e d p r o f i t s ...................................
F H L B a d v a n c e s a n d o t h e r b o r r o w i n g s .....................
L i q u i d a t i o n o f U . S . G o v e r n m e n t o b l i g a t i o n s .........

1 .2
0 .1
0 .1
0 .4
t

1 .5
0 .2
0 .4
—
0 .1

5 .0
0 .4
0 .6
—
0 .1

1 .8

2 .1

6 .0

1 .7
—

1 .9

S o u rc e or use

N e t i n c r e a s e i n m o r t g a g e s t ..........................................
I n c r e a s e i n U . S . G o v e r n m e n t o b l i g a t i o n s ...............
I n c r e a s e i n c a s h ...............................................................
I n c r e a s e i n o t h e r a s s e t s .................................................

M e m o ra n d u m

0 .2

2 4 .9

1 4 .3

1 1 .8

3 .9

5 .3

4 .1

0 .1

(e n d o f y e a r)

C a s h a n d U . S . G o v e r n m e n t o b lig a t io n s a s p e r c e n t
o f t o t a l a s s e t s ...............................................................
F H L B a d v a n c e s a n d o t h e r b o r r o w in g s a s p e r c e n t of

N o te :

t

5 .3
0 .4
0 .1
0 .3

t
t

B e c a u s e o f r o u n d in g , d e t a ils m a y n o t a d d t o t o t a ls .

*

In c lu d e s r e sid u a l e rro rs,

t

L e s s t h a n 5 0 m illio n d o lla r s.

t A d j u s t e d fo r m o r t g a g e - p le d g e d s h a r e s a n d fo r lo a n s in p ro c e ss .
So u rce :

C o m p ile d fr o m

d a t a p u b lis h e d b y

th e F e d e ra l H o m e

Loan

Bank

B o a rd

fu n d s d u rin g th e p o stw a r p erio d . A t vario u s tim es, h o w ­
ever, th e associatio ns hav e b een u n d er p ressu re to ex p an d
th e ir loans b ey o n d th e lim its im po sed by th e ir n e t inflow
of savings cap ital. T h e declining liqu id ity p o sitio n of the
associatio ns in re c e n t years has co m pelled th em to reso rt
increasin gly to F H L B S fu n d s in o rd e r to m eet such d e­
m an d s. In 1 94 6, fo r ex am ple, th e associatio ns satisfied
a d e m an d fo r m o rtg ag e fu n d s th a t su b stan tially ex ceed ed
th eir n e t inflow of savings ca p ital m ainly by liqu id atin g
U n ited S tates G o v ern m en t securities (see ta b le ). B etw een
1946 an d 1950, th e co n tin u ed liq u id atio n of G o v ern m en ts
acco m p an ied by th e acq u isitio n of a su b stan tial volum e
of m ortgages red u c ed th e asso ciatio n s’ liquid ity ratio
(h o ld in g s of cash an d U n ited S tates G o v ern m e n t oblig a­
tions as a p ro p o rtio n of to ta l assets) fro m 2 4 .9 p e r cen t
to 14.3 p e r cent. A s a resu lt, w h en th e d e m an d fo r m o rt­
gage funds rose to an u n u su ally high level in 195 0, th e
associatio ns b o rro w ed heavily fro m th e F e d e ra l H o m e
L o a n B an k s w hile th eir holdings of G o v ern m en ts w ere v ir­
tually u n ch an g ed . In su b seq u en t y ears, th e liq u id atio n of
G o v ern m en ts ceased b u t th e asso ciatio n s’ liquid ity ratio
co n tin u e d to decline, reach in g 11.8 p e r cen t in 1955.
D u rin g th a t year, th e volum e o f m ortgage len ding reac h ed
a reco rd -b re ak in g level, an d th e associatio ns ag ain fo u n d
it n ecessary to b o rro w fro m th e F e d e ra l H o m e L o a n
B an k s. H o w ev er, th e associations also ad d ed su b stantially
to th e ir hold ings of U n ited S tates G o v ern m en t oblig ations
in 19 5 5 .2
T h e in creased re so rt to th e facilities o f th e F e d e ra l
H o m e L o a n B an k s h as stren g th en ed th e p o sitio n o f th e

F H L B S in influencing th e to ta l volu m e of lo an ab le fu nds
m ad e available by th e associatio ns. A t th e sam e tim e, th e
policies of th e F H L B S w ith resp ect to co ntro lling th e vol­
um e of such fu n d s h av e b eco m e m o re flexible an d m o re
responsive to gen eral econom ic an d cred it co nditions. T his
ch ange in th e focus o f policy w as p a rtic u larly ev ident in
th e second h alf of 1 95 5, w h en special restra in ts w ere im ­
p o sed o n b o rro w in g b y th e associatio ns b ecau se of th e
inflatio nary co n d itio n s th e n prevailing.
U ses

of

F unds

B y law an d tra d itio n savings an d lo a n associatio ns are
relativ ely specialized in stitu tio n s. T h e in vestm ents of
F ed erally c h a rtered associatio ns, fo r ex am ple, are lim ited
to first m ortgage lo an s, p ro p e rty im p ro v em en t loan s,
U n ited States G o v ern m en t securities, an d th e sto ck of
F e d e ra l H o m e L o a n B a n k s.3 T h e geog rap h ical scope of
th e ir o p eratio n s also is q u ite lim ited. F o r th e m o st p a rt,
th e ir m ortgage lo an s are o n p ro p e rtie s lo c ated in th e local
a rea w h ere m o st o f th e ir m em b ers reside. O n ly a sm all
n u m b er of associatio ns h av e b ran ch es.
A t th e en d o f 1955 m ortgages o n n o n fa rm p ro p e rty
co m p rised 83 p e r cen t o f th e asso ciatio n s’ to ta l assets.4 In
co n tra st, fo r m u tu a l savings b an k s, life in su ran c e co m ­
p anies, an d co m m ercial b an k s, n o n fa rm m ortgages co n sti­
tu te d , respectively, 56 p e r cent, 3 0 p e r cent, an d 9 p e r
cen t of to ta l assets.
C o n v en tio n al as o p p o sed to F ed erally u n d erw ritten
m ortgages are relativ ely m o re im p o rta n t in th e m o rtgag e
p o rtfo lio s o f th e associatio ns th a n in th e p o rtfo lio s o f th e
o th e r m a jo r financial in stitu tio n s. A b o u t 77 p e r cen t of all
n o n fa rm m ortgages h eld b y th e associatio ns a re o f this
type, co m p ared w ith 43 p e r cent, 5 4 p e r cent, an d 58 p e r
cen t fo r m u tu al savings b an k s, life in su ran c e co m pan ies,
an d co m m ercial b an k s, resp ectiv ely .5 T h is co n cen tra tio n
o n co n v en tio n al-ty p e m o rtg ag es ca n b e attrib u te d to th e
different p u rp o ses fo r w h ich th e se m ortgages are u sed as
w ell as to legal an d p o rtfo lio co n sid eratio n s. In th e first
place, such m ortgages gen erally involve a d irect relatio n ­
ship b etw een len d er an d b o rro w er, since th e len d er m u st
be in a p o sitio n to ex am in e th e in d iv id u al cred it ra tin g of
each ap p lican t as w ell as th e in d iv id u al p a rc el o f p ro p e rty
securing th e m o rtg ag e.6 C o n v en tio n al lending, th erefo re,
is m o st feasible w h ere it is relativ ely easy to establish
direct, p e rso n a l co n tact w ith p o te n tia l m ortgage b o rro w ers.

3 The investment activities of State-chartered associations generally
are subject to comparable restrictions, although the scope and severity
of these restrictions vary from State to State.
4 The historical high was 91 per cent reached in 1925.
5 The balance of the associations’ holdings are mostly VA-guaranteed
2 The rise in United States Government bond yields during 1955 mortgages.
probably was responsible in part for the associations’ decision to
6 In the cas of Federally underwritten loans, this function is to a
great extent performed by the underwriting agencies.
acquire more Governments.




96

MONTHLY REVIEW, JULY 1956

T h e 6 ,0 0 0 indiv idual savings an d lo a n associatio ns, w ell
d isp ersed th ro u g h o u t th e co u n try , are in a fav o rab le p o si­
tio n to develo p such co n tacts. L ife in su ran ce co m pan ies
an d th e larg er m u tu al savings b an k s som etim es find it diffi­
cu lt to estab lish th e co n tacts n e ed ed to invest in co n ­
ven tio n al m ortgages unless th e y m a in tain b ra n c h offices
o u tsid e th e ir local co m m u n ities.7 O n th e o th e r h an d , such
in stitu tio n s are relativ ely m o re active th a n are th e associa­
tion s in th e p e rm a n e n t financing o f new co n stru ctio n , p a r­
ticu larly of large tra c t o p e ra tio n s w hich are o ften in areas
co n sid erab ly d istan t fro m th e in stitu tio n s’ h o m e offices.
F e d e ra l in su ran ce o r g u a ra n ty generally is co n sid ered
im p o rta n t in such u n d ertak in g s because of th e ir m o re
im p erso n al n a tu re an d th e len d ers’ in ab ility to exercise
close surv eillan ce o v er th e p ro p e rty an d th e in d iv idual
b o rro w ers.
In ad d itio n to co n sid eratio n s of size an d stru ctu re, th e
asso ciatio ns also a re less a ttra c te d th a n are m o st o th e r
len ders to th e g rea ter liq u id ity attach in g to F ed erally
u n d erw ritten as o p p o sed to co n v en tio n al m ortgages.
M o reo v er, th e m ax im u m len d in g term s set by F e d e ra l an d
S tate statu tes o n co n v en tio n al lo an s are generally m o re
lib eral fo r th e associatio ns th a n fo r o th e r len d ers. F inally,
co m m ercial b an k s, life in su ran c e co m pan ies, an d m u tu al
savings b a n k s generally h av e legal lim itatio n s o n th e
p ro p o rtio n of th e ir assets w h ich ca n b e h eld in th e fo rm
o f co n v en tio n al m ortgages, alth o u g h in m o st cases th e
now -existing p ro p o rtio n s a re still w ell below th e legal
m axim um s.

Chart II
INDEXES OF RELATIVE IMPORTANCE OF SAVINGS AND
LOANS ASSOCIATIONS
p

Sources: Same as Chart I.

co m m ercial b an k s w ere ex trem ely active d u rin g 1 9 4 6 -4 8 ,8
w hile in su ran ce co m p an ies w ere th e m o st im p o rta n t m o rt­
gage len d ers d u rin g 19 4 8 -5 0 .
T h e extensive p a rtic ip a tio n by life in su ran ce co m p an ies
an d co m m ercial b an k s d u rin g 1 9 4 6 -5 0 reflected a n u m b e r
o f special facto rs, in clu d in g th e ex ten d ed co v erag e an d
lib eralizatio n o f th e F H A p ro g ram o f m o rtg ag e in su ran c e
an d th e d ev elo p m en t an d gro w th o f a new p ro g ra m of
h om e lo a n g u aran ties fo r v eteran s. M ain ly b y stan d a rd iz­
ing th e m ortgage in stru m en t an d m ak in g it m o re liquid ,
C h a n g in g I m p o r t a n c e in t h e M o r t g a g e M a r k e t
these p ro g ram s en co u rag ed in creased p a rtic ip a tio n in th e
m ortgage m a rk e t o n th e p a rt o f all in stitu tio n al in v esto rs,
A s show n in C h a rt II, th e asso ciatio n s’ sh are of in stitu ­ b u t th e im p a ct o n th e associatio ns w as less th a n o n o th e r
tio n al savings an d th e ir sh are of b o th to ta l an d investors. M o reo v er, th e yields on in stru m e n ts co m p eti­
in stitu tio n ally h eld n o n fa rm m ortgage d e b t w ere hig h er a t tive w ith m ortgages w ere relativ ely low d u rin g th ese years,
th e en d of 1955 th a n at an y tim e su b seq u en t to 1 92 0. In a co n sid eratio n of im p o rta n ce to o th e r in stitu tio n s b u t of
gen eral, th ese indexes of th e relativ e im p o rta n ce of th e lesser significance to th e associatio ns.
asso ciatio ns h av e in creased an d d e creased to g e th er since
D u rin g th e p e rio d 1951 to 1955, savings an d lo an
192 0 b ecau se of the ten d en cy of th e asso ciatio n s to place
associatio
ns in creased th e ir sh are o f in stitu tio n a l savings
th e b u lk of th e ir assets in m ortgages w h enev er th a t has
even
m
o
re
rap id ly th a n in p rev io u s y ears. T h e associa­
b een possible. T h is h as n o t alw ays b e en th e case, how ever.
tions
acco
u
n ted fo r 32 p e r ce n t of th e n e t in crease in
T h u s, d u rin g th e first h alf of th e p o st-W o rld W ar II p erio d ,
in
stitu
tio
n
al
savings in 1 9 5 1 -5 5 , c o m p ared w ith 2 0 p e r
th e asso ciatio n s’ sh are of to ta l in stitu tio n al savings in ­
cent
in
1
94
6-50.
M ain ly as a resu lt o f this dev elo p m en t
creased w hile th e ir sh are of in stitu tio n ally h e ld n o n fa rm
m ortgage d e b t d eclin ed slightly. T h is reflected th e te n ­ th e ir sh are of in stitu tio n ally h e ld n o n fa rm m o rtg ag e d eb t
d ency of o th e r in stitu tio n al in v esto rs to p lace a larg er rose steadily. O th e r d ev elo p m en ts d u rin g this p e rio d also
p ro p o rtio n of th e ir assets in m ortgages. In p a rtic u la r, ten d ed a t ce rta in tim es to disco u rag e o r re ta rd th e acq uisi­
tio n of m ortgages b y o th e r in stitu tio n s. W ith th e rise in
7 The commercial banking system also has many individual institu­ in te re st rates follow ing th e en d o f th e policy o f “pegging”
tions dispersed throughout the country, and the banks hold a larger th e p rices of U n ited S tates G o v ern m e n t securities in
proportion of conventional loans *han do the mutual savings banks
and life insurance companies; however, the banks are more attracted
to the greater liquidity of Federally underwritten mortgages than
8 See ‘'Commercial Banks in the Mortgage Market”, Monthly
Review, April 1956.
are the associations.




FEDERAL RESERVE BANK OF NEWYORK

97

M a rc h 1951, F ed erally u n d erw ritten m ortgages (o n w hich
th e in te re st ra te w as fixed) b e cam e less a ttrac tiv e to m o st
investo rs. Savings an d lo a n associatio ns w ere little
affected by this dev elo p m en t, ho w ev er, b o th b ecau se th e ir
a lte rn ativ e in v estm en t o p p o rtu n ities a re lim ited an d b e­
ca u se m o st o f th e ir m o rtg ag e lo an s a re o f th e co n v en tio n al
ty p e o n w h ich in te re st rates c a n b e a d ju ste d m o re easily.
T h e asso ciatio n s’ c o n cen tra tio n o n co n v en tio n al m o rt­
gages also m a d e th e m less sensitive th a n o th e r len d ers to
th e effects of R eg u la tio n X , w h ich w as in fo rce fro m
O c to b e r 1 9 5 0 to J u n e 1 9 5 2 .9 T h e ch anges in d o w n p ay ­
m en ts an d m a tu rities effected b y R eg u la tio n X w ere m o re
severe in th e case o f F ed erally u n d erw ritten th a n in th e
ca se o f co n v en tio n al m ortgages.

h av e also au g m en ted th e ir reso u rces by b o rro w in g fro m
th e F H L B S ; a t th e en d of 1955 such b o rro w in g , to g eth er
w ith a sm all am o u n t o f lo an s fro m co m m ercial ban k s,
rep resen te d 4.1 p e r ce n t o f th e to ta l assets of th e
associatio ns.
T h e associatio ns ten d to specialize in first m ortgage
lo an s on sm all h om es lo c ated in th e im m e d iate local
co m m unity . F o r th e m o st p a rt, th e asso ciatio n s invest in
co n v en tio n al as o p p o sed to F ed erally u n d erw ritten m o rt­
gages. T h ese in v estm en t preferen ces ca n b e ex p lain ed
largely in term s o f th e relativ ely sm all size o f th e av erage
asso ciatio n an d th e success w h ich th e associatio ns have
h a d in developing d irec t p e rso n a l co n tacts w ith b o rro w ers.
D esp ite th e ir p red o m in an tly lo cal c h a ra c te r an d the
specialized n a tu re of th e ir activities, th e asso ciatio n s are
C o n c l u sio n
an in teg ral p a rt o f th e n a tio n ’s savings an d in v estm en t
A lth o u g h th e to ta l reso u rces of savings an d lo a n asso­ m ark ets. It is a p p a re n t, fo r ex am ple, th a t th e associatio ns
ciatio n s are m u ch sm aller th a n th o se o f o th e r financial a re in close co m p etitio n w ith o th e r financial in stitu tio n s
in stitu tio n s, such as co m m ercial b a n k s o r in su ran c e co m ­ fo r m ortgages an d fo r savings. Som e asso ciatio n s in th e
p an ies, th e associatio ns n evertheless o ccu p y an im p o rta n t faster grow ing sections of th e co u n try actively solicit
p o sitio n in th e resid en tial m o rtg ag e m a rk e t. B ecause o f th e fu n d s in o th e r areas. M o reo v er, th e asso ciatio n s are
co n cen tra tio n of th e ir in v estm en t activities in m ortgages, affected b y in te re st rates p rev ailin g in n a tio n a l security
th e asso ciatio ns te n d to grow in relativ e im p o rta n ce d u rin g m a rk e ts b o th b e cau se th e y h o ld U n ited S tates G o v ern ­
p e rio d s w h en m o rtg ag e funds a re in h eav y d em an d . T h is m e n t securities as a liq u id ity reserv e an d b e cau se th e cost
has b een especially tru e d u rin g th e p o stw a r d e cad e w hen o f th e ir b o rro w in g fro m th e F e d e ra l H o m e L o a n B an ks
th e associatio n s succeeded in a ttrac tin g a steadily in c re as­ hinges on th e ra te s w h ich th e la tte r p a y in th e cap ital
ing sh are o f to ta l in stitu tio n al savings. T h e associatio ns m a rk e t. F in ally , th e reg u la to ry activities of th e F H L B S
9 Terms on Federally underwritten mortgages were not restored an d th e F S L IC a re a so u rce o f over-all po licy co n tro l over
the asso ciatio n s’ o p eratio n s.
to their pre-Regulation X levels until April 1953.
RECENT TRENDS IN UNITED STATES IMPORTS

U n ited S tates im p o rts ro se to a re c o rd high o f over 11.3 fo reign co untries finance th e ir p u rch ases fro m this co u n try .
billion d o llars in 19 5 5 , a rise of m o re th a n 10 p e r cen t O ften in th e p a st, fears h av e b e en ex p ressed th a t th e rest
ab o v e th e recessio n y ear o f 1 95 4 an d a b o u t 5 p e r cen t o f th e w o rld w o uld n o t b e ab le to benefit fully fro m th e
ab ove 1953. T his sizable in crease gains fu rth e r signifi­ g ro w th o f th e A m erican econom y b e cau se o u r im p o rts, to
cance in th e lig ht of th e sh arp u p w ard tre n d th a t h as c h a r­ m an y an alysts, seem ed to grow a t a slow er ra te th a n o u r
acterized A m erican im p o rts since th e en d of th e w ar. In n a tio n al econom y. I t is th e re fo re relev an t to n o te th a t
the last te n y ears, U n ited S tates im p o rts h av e risen 177 since 1 94 8— th e b eginning o f th e M arsh all P la n — th e
p er cent fro m th e 1945 level o f 4.1 billion dollars; an d in value of U n ited S tates im p o rts h a s in creased 6 0 p e r cent,
the last five years since 1 95 0— a y e ar alread y affected by co m p ared w ith a 5 0 p e r ce n t rise in gross n a tio n al p ro d u ct.
em ergency im p o rts after th e o u tb re a k o f hostilities in
O v er th e last six y ears im p o rts hav e b een su b jected to
K o rea— im p o rts h av e in creased n e arly 30 p e r cen t in som e d ram a tic ch anges as a resu lt o f d o m estic an d in te r­
value.
n a tio n al events. T h e K o re a n em ergency b ro u g h t ab o u t a
T his risin g tre n d of im p o rts b y th e larg est b u y er in steep rise in im p o rt volu m e an d p rices. T h e recessio n of
w o rld m a rk e ts is o f g rea t im p o rta n ce to th e rest of th e 1 9 5 3 -5 4 cau sed a d ro p in v olu m e b u t, in c o n tra st to earlier
w orld, first of all, b ecau se o u r p u rch ases influence signifi­ recessions, p rices o f im p o rte d goods h e ld u p w ell u n d er
cantly th e level of econom ic activity in m an y foreig n co u n ­ th e sustaining influence of stro n g E u ro p e a n d em an d . W hile
tries, especially raw -m a terial-p ro d u c in g co u n tries w hich in th e reco very fro m th e 1 9 5 3 -5 4 recessio n im p o rts seem ed
are heavily d e p en d en t o n ex p o rts. Secondly, an d p e rh a p s to lag som ew hat b eh in d th e g row th o f n a tio n a l incom e, a
eq ually im p o rta n t, d o llar p ro ceed s deriv ed fro m U n ited ren ew ed sp u rt in 1955 ca rrie d im p o rts u p again, an d in
S tates im p o rts a re th e p rin cip al source o f fu n d s w ith w hich th e six m o n th s N o v em b er 1 9 5 5 -A p ril 195 6 th e y w ere ru n ­




MONTHLY REVIEW, JULY 1956

98

n in g a t an an n u al ra te of som e 12.4 billion d ollars. T h ese
dev elo p m en ts an d th eir b a ck g ro u n d w ill b e ex p lo red in
g rea ter d etail in th e follow ing sections.
T h e

O v e r - A l l

P a t t e r n

o f

I m p o r t s

A t th e o u tb re a k of th e K o re an conflict in 195 0, th e
U n ited S tates econom y w as reco vering fro m th e 1949 re ­
cession, an d p ro d u c tio n an d co n su m p tio n w ere ex pand ing
rap id ly . T h is ex p an sio n w as reflected in a su b stan tial
in crease in U n ited S tates d e m an d fo r im p o rts, p artic u larly
in d u strial raw m aterials an d sem im an u factu res. A fte r th e
o u tb re a k of hostilities in K o rea, th e rising tre n d in im p o rt
volu m e an d prices w as accelerated co n sid erab ly as co n ­
sum ers, business, an d th e G o v ern m en t sough t to accu m u ­
late inven tories as a h edge ag ainst possible shortages. A s
a result, th e value o f U n ited States im p o rts so ared to 8.7
billion dollars in 1950, co m p ared w ith 6.6 billion in 1949.
In 1951, u n d e r th e p ressu re of g rea ter m ilitary an d civilian
dem an d , co n tin u ed G o v ern m en t stockpiling, an d a ce rta in
am o u n t of speculative buying, U n ited States im p o rts in ­
creased ev en fu rth e r to a th e n -re co rd level of 10.8 billion
im p o rts rem ain ed v irtually u n ch an g ed
d ollars.
of m a terial shortages h a d p assed. W ith
the
in d e m an d h ere an d ab ro ad , th e w o rld p rice
to
slow ly at first, b u t
rap id ly as th e y e ar p ro g ressed . H o w ev er, th e im ­
th a t h a d o rig in ated in th e K o re an em er­
an d g eneral ex p an sio n of business activity carried
the
im p o rts u p w ard .
1953 this ex p an sio n co ntinued, an d in th e earlier
th e y ear stim u lated p u rch ases of alm ost all
co m m odities. L a te r, th e dow nsw ing in in d u strial
p ro d u ctio n th a t b eg an in A u g u st w as resp o n sib le fo r a
d ro p in pu rch ases raw m aterials th a t co n tin u ed into th e
early m o n th s of th e follow ing year. A s a resu lt of th ese
div erg en t m ov em ents, im p o rts in 1953 to ta led 10.8 billion
do llars— v irtually th e sam e as in th e preced in g year.
A s th e recession ca rried o ver into th e n ex t year, its
im p a ct o n im p o rts cau sed th e to ta l fo r 1 95 4 to decline
to 10.2 billion dollars alth ough a tre n d of reco very already
b ecam e n o ticeab le in th e latte r m o n th s of th a t y ear. W hile
th e rise of im p o rts gained m o m en tu m , th e re w as som e evi­
d ence of a lag relativ e to th e in crease in th e ra te of in d u s­
tria l p ro d u c tio n — in c o n tra st to th e 1 9 4 9 -5 0 reco very
w h en im p o rts resp o n d ed ra th e r quicldy to th e p ic k u p in
business activity an d o u tp u t. L a te r in 1955, how ever, the
ra te of im p o rts accelerated , an d this tre n d h as th u s far
co n tin u ed in to 1956. W hile in 1955 im p o rts to ta led 11.3
billio n d ollars, th e an n u al ra te d u rin g th e first fo u r m o n th s
of 195 6 w as 1.1 billion high er.
T h e over-all p ic tu re of U n ited S tates im p o rts over th e
last several years, as illu strated by T ab le I, is o ne of a
In

a lt h o u g h

1 9 5 2

th e

m a n y

T a b le
U n it e d

Sta te s

V a lu e of
im p o r t s
(in m il li o n s
o f d o lla rs)

Year

I

Im p o r t s ,

1 9 4 8 -5 5 *

In d e x e s o f v a lu e , v o lu m e , a n d u n it v a lu e o f
im p o rts ( 1 9 3 6 - 3 8 = 100 )

V a lu e
1 9 4 8 ...................
1 9 4 9 ...................
1 9 5 0 ...................
1 9 5 1 ...................
1 9 5 2 ...................
1 9 5 3 ...................
1 9 5 4 ...................

V o lu m e

288
268
355
440
437
438
416
461

7 ,0 9 5
6 ,5 9 4
8 ,7 4 3
1 0 ,8 1 7
1 0 ,7 4 7
1 0 ,7 7 9
1 0 ,2 4 0
1 1 ,3 3 4

U n it v a lu e

123
120
146
144
151
158
147
163p

235
224
243
305
289
276
283
282p

fe a r

le v e iin g - o f f

o f

b ro a d ad vance in te rru p te d by a p e rio d of co n so lid atio n
fro m th e u n u su ally ra p id sp u rt follow ing th e K o re a n em er­
gency. P rice an d v olu m e w ere b o th resp o n sib le fo r th e
rise in im p o rt values, b u t to a different ex tent. P rices ro se
sh arp ly th ro u g h 1951 b u t th e n declined as th e p ressu re o f
u n u su al d e m an d subsided. T h e increase in v olu m e w as
ev en m o re significant. In th e last seven years th e v olu m e
of im p o rts h as risen n e arly o n e th ird , a g rea ter in crease
th a n th a t ex p erien ced th ro u g h o u t th e en tire d ecad e of th e
forties. O n th e w hole, th e re fo re , U n ited States im p o rts in
th e p o stw ar p e rio d h av e b een ch aracte riz ed by su b stan tial
grow th, n o tw ith stan d in g co n sid erab le divergencies in th e ir
co m m odity an d reg io n al co m position.

c o m m o d it ie s

b e g a n

fa ll,

*

Im p o r t s fo r c o n s u m p t io n .

p P r e lim in a r y .
So u rce :

U.

S.

D e p a rtm e n t

Total Export and Import Trade of the

of C o m m e rce ,

United States, January-December 1955.

m o r e

p e t u s

o f

d e m a n d

g e n c y ,

a

v o lu m e

o f

D u r in g

m o n t h s

c la s s e s

o f

o f




o f

T h e

C o m

m

o d it y

C o m

p o s it io n

o f

I m

p o r t s

T his over-all im p ressio n of d yn am ic ad v an ce raises th e
q u estio n of w h at cau sed U n ited States im p o rts to rise so
dram atically . A b rea k d o w n b y co m m odity g ro u p s in
T ab le
indicates th a t raw m a terials h av e acco u n ted fo r
ab o u t one half of th e sizable in crease in im p o rts th a t h a s
tak en p lace since 194 9, th e y e ar p reced in g th e p e rio d o f
m ost rap id ad vance. T h is d ev elo p m en t is in lin e w ith a
fu n d a m en ta l shift in th is c o u n try ’s tra d e stru ctu re fro m
a p o sitio n of an e x p o rter to th a t of a n e t im p o rte r o f ce r­
tain types of m aterials.
T h u s, for instance, im p o rts of p etro leu m an d p ro d u c ts
in creased fro m 4 78 m illion d o llars in 1949 to m o re th a n
I I

T a b le
U n it e d S t a t e s

Im p o r t s b y

II

M a jo r

C o m m o d ity

G ro u p s

( In m illio n s o f d o lla r s )

Im p o r t s fo r c o n s u m p t io n

1949

1955

P e rc e n ta g e
in c r e a s e

R a w m a t e r i a l s ............................................
C r u d e m a t e r i a l s ......................................
S e m i m a n u f a c t u r e s .................................

3 ,2 7 4
1 ,8 5 6
1 ,4 1 8

5 ,6 2 4
2 ,8 5 0
2 ,7 7 4

72
54
96

C r u d e f o o d s t u f f s ....................................
M a n u f a c t u r e d f o o d s t u f f s .....................

2 ,0 7 4
1 ,3 3 3
741

3 ,1 1 3
1 ,9 9 7
1 ,1 1 6

£0
50
51

F i n i s h e d m a n u f a c t u r e s .............................

1 ,2 4 6

2 ,5 9 7

108

T o t a l ........................................

6 ,5 9 4

1 1 ,3 3 4

72

So u rce :

U.

S.

D e p a rtm e n t

of C o m m e rce ,

United States, January-December 1955.

Total Export and Import Trade of the

99

FEDERAL RESERVE BANK OF NEWYORK

a billion in 1955, a rise of w ell o ver 100 p e r cent. Im p o rts
o f iro n o re display ed a n ev en m o re ra p id ra te of g row th
since th ey m o re th a n q u a d ru p led in six years; th e d yn am ic
im p o rt tre n d fo r this p a rtic u la r co m m o d ity is illu strated
by th e fact th a t th e g reatest in crease by fa r to o k p lace d u r­
ing 1955, an d fu rth e r larg e rises are clearly in store.
Im p o rts of co p p er d o u b led in th e six-year p e rio d u n d er
discussion; th o se o f n ickel an d alu m in u m n early treb led ,
w hile th e gro u p of n o n fe rro u s o res an d m etals as a w hole
grew by ab o u t 7 0 p e r c e n t in value. L e d b y g rea ter co n ­
su m p tio n of lu m b er an d n ew sprint, im p o rts of w o od an d
p a p er p ro d u cts in creased n early 80 p e r cent. In som e in ­
stances, n o tab ly ru b b e r an d co p p er, v irtu ally th e en tire
in crease in th e value of im p o rts w as attrib u ta b le to sh arp
p rice in creases. In general, how ever, volu m e ro se m o re
th a n prices. A m erican ca p ital p lay ed a p ro m in en t role in
d evelop ing a b ro a d ad d itio n al sources o f v ital raw m a terial
im p o rts.
W ith reg a rd to foodstuffs a ra th e r d ifferent p a tte rn of
d e v elo p m en t can b e observed. A c co rd in g to T ab le II,
c ru d e an d m a n u factu re d foods w ere resp o n sib le fo r 2 2 p e r
cen t o f th e in crease in im p o rt value b etw een 1949 an d
195 5, ab o u t tw o th ird s being co n trib u ted b y cru d e foods.
T h ere is, ho w ever, a m a jo r stru ctu ral difference w ithin
th e fo o d g ro u p : by fa r th e larg est p a rt o f th e increase in
th e im p o rt v alu e of cru d e foods is ac co u n ted fo r by ju st
tw o p ro d u cts, coffee a n d co co a; o n th e o th e r h an d , th e
grow th of m a n u factu re d fo ods ap p ears to b e sp read over
a w ide ran g e o f different item s.
Significantly, th e im p o rt volu m e of cru d e foods h as n o t
risen since 1949 b u t declined slightly. T h is is in sh arp
c o n tra st to all o th e r im p o rt categories; hence, p rice a d ­
v ances alone w ere resp o n sib le fo r th e in crease o f 5 0 p e r
cen t in th e im p o rt value of cru d e foods. Since coffee an d
co co a acco u n t fo r such a larg e p o rtio n of o u r fo o d im ­
p o rts, th e ex p lan atio n fo r th e diverg ent b eh av io r of volum e
an d prices m ay be sough t in th e m a rk e t develop m ents of
these tw o co m m odities. In fact, as o n e w o u ld suspect,
the in crease in p rice an d th e shrinkag e in volu m e w ere
closely related .
C offee, o u r larg est single im p o rt, h as a long h isto ry of
so m ew h at e rratic p rice m ov em ents. B etw een 195 2 an d
1 9 5 4, fo r ex am ple, as a resu lt o f steep p rice increases, th e
value of coffee im p o rts w en t u p by 8 p e r cen t desp ite a
16 p e r cen t fall in volum e. In 1 95 5, after coffee p rices
co llap sed , th e rev erse h ap p en ed , w ith th e v alu e of im p o rts
dow n 9 p e r cen t fro m th e prev io u s y e ar alth o u g h volum e
h a d rise n b y 15 p e r cent. In th e case o f co co a im po rts,
volum e h as d eclin ed steadily since 1 95 0 b u t a sh arp p rice
rise in 1 9 5 4 p u sh e d th e ir value to 2 5 2 m illio n dollars.
W hen th e p rice d eclin ed th e follow ing y ear, im p o rts d e­
creased to 185 m illion dollars.




T h e tre n d of volu m e an d p rices of m a n u factu re d fo o d ­
stuffs w as very d ifferent fro m th a t o f th e cru d e foo ds just
discussed. T h eir u n it p rices in creased fro m 1949 to 1955
o nly very little, less th a n 10 p e r cen t, w hile th e ir volu m e
in creased ab o u t 4 0 p e r cen t. I t does n o t a p p e a r feasible
to attrib u te this d e v elo p m en t to an y o n e co m m odity , an d
a tre n d to g rea ter co n su m p tio n o f im p o rte d fo o d specialties
o f m an y k ind s a p p ears largely resp o n sib le. A d v an ces in
freezing tech n iq u es a n d facilities w ere p e rh a p s also a m ajo r
co n trib u tin g facto r, an d o u r im p o rts of fish, inclu d in g shell­
fish, grew significantly, especially in th e la st tw o y ears.
F inally, finished m a n u factu re s ac co u n ted fo r m o re th a n
o n e fo u rth of th e in crease in im p o rts fro m 194 9 to 195 5,
an d th e ir value m o re th a n d o u b led in this tim e p erio d .
M o st of this rise is d u e to an in crease in volu m e since u n it
values ro se less th a n 10 p e r cent. In p a rt, this steeply
rising tre n d reflects th e reco v ery o f E u ro p e ’s an d J a p a n ’s
cap acity to p ro d u c e fro m a ra th e r low p o stw a r level; to
a c e rta in ex tent, it m ay fo rm p a rt of a lo n g -term tren d
relate d to high er incom es in th e U n ited S tates an d to th e
effects o f low er tariffs. In an y ev ent, to g e th er w ith th e ris­
ing tre n d o f raw m a terial im p o rts, th is in crease o f im p o rts
of m a n u factu re s co n stitu tes a significant d ev elo p m en t in
th e stru ctu re of o u r im p o rts in th e p o stw a r p erio d .
T h e

G

e o

g

D

r a p h i c

i s t r i b u

t i o

n

I m p o r t s

o f

T h e 1 9 5 0 ’s have w itn essed a re m a rk a b le shift in th e geo­
g rap h ical d istrib u tio n o f U n ited S tates im p o rts (T a b le I I I ) .
W estern E u ro p e, som etim es co n sid ered a seco n d ary su p ­
p lier as co m p ared w ith C a n a d a an d L a tin A m erica, has
been th e m ain beneficiary o f th e sizable ex p an sio n in o u r
p u rch ases ab ro a d . O f th e 4.8 b illion d o llar in crease in
to ta l im p o rts th a t h as o c cu rred in th e last six y ears, 1.5
billion dollars, alm ost o n e th ird of th e ov er-all rise, h as
accru ed to th e co u n tries of W estern E u ro p e , especially
such in d u strialized co u n tries as th e B en elu x natio n s,
F ra n c e , W est G erm an y , an d th e U n ited K in g dom . T h e
rap id ly grow ing im p o rta n ce o f W estern E u ro p e as a fo re­
m o st su p p lier to th e U n ited S tates m a rk e t reflects th e subU n it e d

Sta te s

T a b le

III

Im p o r t s

by

S e le c te d

A re a s*

( I n m illio n s o f d o lla r s )

A re a

1949

1955

G ro w th
(p e r c e n t)

S h a r e in t o t a l
in c re a se
(p e r c e n t)

O t h e r a r e a s + .....................

1 ,5 5 1
2 ,3 0 1
909
1 ,3 0 9
338
214

2 ,6 5 2
3 ,3 3 4
2 ,3 9 2
2 ,0 4 5
619
340

71
45
163
56
83
59

23
22
31
15
6
3

T o t a l .............

6 ,6 2 2

1 1 ,3 8 2

72

100

L a t in A m e r ic a n R e p u b lic s
W e s t e r n E u r o p e t .............
A s i a a n d O c e a n i a .............

*
f

G e n e r a l im p o r t s ,
In c lu d in g Y u g o s la v ia .

t E u r o p e a n d e p e n d e n c ie s in t h e W e s t e r n H e m is p h e r e a n d t h e S o v ie t - b l o c c o u n t r ie s .
S o u r c e : U . S . D e p a r t m e n t o f C o m m e r c e , Total Export and Import Trade of the
United States, January-December 1955.

MONTHLY REVIEW, JULY 1956

100

Stantial rise in our imports of finished goods and processed
foodstuffs, the principal export products of the area.

this period. Fluctuations in United States demand for
rubber, tin, and wool, our principal imports from this

Latin Am erica, while in value terms still this country’s

area, tended to limit that area’s participation in the import
rise.

largest source of supply, did not participate in the expan­
sion of our imports to the same extent as W estern Europe,
prim arily because of the special factors affecting crude
foodstuffs, mostly coffee.

Latin Am erican sales in this

market in the last six years rose slightly more than a bil­
lion dollars, approxim ately 2 2 per cent of the aggregate
increase in United States imports. Th e aftermath of the
sharp price rise in the coffee market in 1 9 5 4 adversely
affected our imports from this area, particularly from
Brazil, as Am erican importers curtailed their purchases.
T h is development tended to obscure the favorable effects
on imports from Latin A m erica of the growing demand
here for petroleum, iron ore, nonferrous metals, and other
industrial raw materials. In any event, during the last half
year most imports from Latin Am erica displayed a rising
trend.
The share of C an ad a in the increase in total United
States imports was only slightly greater than that of Latin
Am erica. Since 19 4 9 , our imports from C anada have risen
1 . 1 billion dollars, equivalent to 2 3 per cent of the total
increase in our imports. E v e n during the 1 9 5 3 - 5 4 reces­
sion some compensating tendencies prevented any pro­
nounced decline in Canadian sales to the Am erican
market; as our imports of Canadian mineral products fell,
our purchases of Canadian wood products were well
maintained.
The countries of A sia and O ceania accounted for about
1 5 per cent of the expansion in United States imports in

C o n c l u d in g R

em arks

The rise in United States imports since the immediate
postwar years has approximated, if not surpassed, expec­
tations. W hile setbacks have not been altogether absent,
the over-all development m ay to some extent allay doubts
abroad about the long-run benefits to the rest of the world
of an expansion of the A m erican econom y. It points up
the increasing reliance of this country on foreign suppliers
for m any commodities essential to our economic growth;
this is clearly reflected in a change of the commodity
structure and geographic distribution of our import trade.
Imports of petroleum, iron ore, nonferrous metals, and
other raw materials have risen substantially as the rise in
domestic production failed to keep up with demand.
Higher incomes and changing consumption patterns have
stimulated larger imports of finished goods and m anufac­
tured foodstuffs. Crude foods have not fared quite so well,
primarily because of special developments affecting the
price and quantity of coffee and cocoa imports. Western
Europe has been the largest beneficiary of the import rise,
but C anada has well maintained its position as a supplier
of the United States throughout the postwar period, and
the countries of Latin Am erica and other areas also have
shared substantially in the growth of this country’s import
trade.

BUSINESS LOANS A T SECOND DISTRICT MEMBER BANKS:
INTEREST RATES AND SIZE OF BORROW ER
The survey of commercial and industrial loans of mem­
ber banks of the Federal Reserve System, conducted last

The number and dollar amount of loans made by Second
District member banks to all size-groups of business enter­

autumn, obtained information on various characteristics of

prises increased between 19 4 6 and 1 9 5 5 .

business loans outstanding on October 5, 1 9 5 5 . Th e M ay

relatively larger increase in loans to businesses with assets

There was a

and June issues of this Review included articles which

of $ 5 0 ,0 0 0 to 5 million dollars but a relative decline in

described the purpose and methodology of the survey and

importance of loans to those with assets of under $ 50 ,0 0 0 .

the postwar trends in business loans at Second District

These shifts probably reflect in part an increase in the

member banks.

acteristics of the loans outstanding on October 5 , 1 9 5 5

number of intermediate-sized businesses as m any smaller
firms have grown in size over the decade.

and analyzed the changes since Novem ber 2 0 , 19 4 6 , the
previous survey date, in the number and dollar amount

in this District increased between 19 4 6 and 1 9 5 5 , along

T h e y also discussed some of the char­

Rates charged on all types of business loans at banks

of loans classified by business of borrower, by size of

with interest rates in general, although average rates in

bank, and by maturity of loan. Th e present article sum­

the Second District continued to be somewhat lower than

marizes the findings of the survey with respect to the

those in the country as a whole for each industry group.

changes in loans outstanding classified by assets of bor­

F o r the Second District the average rate on loans out­

rower and changes in interest rates charged.

standing on the survey date in 1 9 4 6 was 2 .3 per cent;




FEDERAL RESERVE BANK OF NEW YORK

in 1 9 5 5 it was 3.8 per cent. Th e survey also indicated
that between Novem ber 1 9 4 6 and October 1 9 5 5 there
was a narrowing of the spread between rates for short­
term and long-term loans,1 prim arily as a result of a
marked increase in rates charged large businesses for
short-term loans. T h e survey further indicated a continu­
ing inverse correlation between interest rates and the size
of borrower and the size of bank.2

C hanges

in

L oans

by

A

sset

S iz e

of

B orrow er

Loans made by Second District member banks to busi­
nesses of all size-groups increased both in number of loans
and in dollar amount between 1 9 4 6 and 1 9 5 5 . However,
as shown in the accom panying chart, the largest relative
increases occurred in loans to businesses with assets of
$ 2 5 0 ,0 0 0 to 5 million dollars. In 1 9 4 6 loans to businesses
of this size accounted for 1 8 per cent o f the total dollar
amount of loans outstanding and for 8 per cent of the total
number of loans; in 1 9 5 5 they accounted for 2 4 per cent
of the dollar amount and 1 2 per cent of the number. Th e
proportion of total loans made to businesses in the largersized group showed little change in either dollar amount
or number.
Th e smallest asset size-group

(under $ 5 0 ,0 0 0 )

ac­

counted for almost two thirds of the total number of loans
outstanding in 19 4 6 , but in 1 9 5 5 it accounted for not
much more than half the total number. Dollarwise, loans
to these companies accounted for 5 per cent of the total
in 1 9 4 6 and 3 per cent in 1 9 5 5 . Th e decline in importance
of bank loans to this size-group reflects in part the prob­
able decline in the relative number of businesses with assets
of less than $ 5 0 ,0 0 0 . This decline in turn reflects not only
the merger movement but the price rise in the interval
between surveys and the resulting upward evaluation of
business assets as depreciated equipment and other assets
were replaced or newly acquired at higher prices. Some of
the business borrowers classified in this group in 1 9 4 6 have
most likely shifted to the next higher asset size-group. The
percentage of total outstanding loans to the latter group
increased from 2 2 per cent in 1 9 4 6 to 3 2 per cent in

C

101

hanges

in

total dollar volume. Th e businesses with assets of 5 mil­
lion dollars or more continued to account for almost two
thirds of the total dollar volume of funds loaned by mem­

terest

R

ates

The trend of interest rates between 1 9 4 6 and 1 9 5 5
generally was upward, and the spread between yields on
short-term open market paper and long-term securities
narrowed. Th e upward trend was interrupted briefly dur­
ing the recession period of 1 9 4 9 - 5 0 and to a more impor­
tant degree in 1 9 5 3 - 5 4 , but toward the end of 1 9 5 4
interest rates began to rise again and by the fall of 1 9 5 5
were in most cases approaching the highs reached in the
first half of 1 9 5 3 .
Interest rates charged b y Second District banks on busi­
ness loans apparently underwent similar changes between
the two loan surveys. T h e average interest rate on all
business loans outstanding on N ovem ber 2 0 , 1 9 4 6 was
2 .3 per cent, with short-term loans carrying an average
charge of 2 .1 per cent and long-term loans, 2 .5 per cent.
B y October 5 , 1 9 5 5 the average rates for long and short­
term business loans outstanding at Second District mem­
ber banks both had risen to 3.8 per cent.
Since the survey covered outstanding loans, rather than
new loans extended, the average interest rate figures de­
rived from the survey do not reflect precisely the prevail­
ing interest rate structure and the differentials among rates
for various types of loans as of October 5 , 1 9 5 5 . If inter­
est rates had been stable for a relatively long period o f
time, the current rate structure and the average rates on
outstanding loans would be almost identical; but, when
rates rise, average long-term rates are slower than short-

PERCENTAGE INCREASES IN BUSINESS LOANS BETWEEN
1946 A N D 1955 AT SECOND DISTRICT MEMBER BA NK S
Asse ts of borrower
In thousands

Dollar amount of loans

U n de r$50

W////A

$50 to $250

W/////M/////M

$250 to $5,000
$5,000 and over

WM//////////M,%

All borrowers*

%
Number of loans

1 9 5 5 , although on both survey dates the amount of loans
to these businesses represented about 8 per cent of the

In

Under $50
$50 t o $250
$250 to $5,000

ber banks in the District to industry, and for approximately
3 per cent of the total number of such loans.
1 Long-term loans are defined as loans with an original maturity of
more than one year.
2 Collateral is undoubtedly also a factor in determining interest
rates, but the information derived from the survey on collateral has
not yet been tabulated. It will be discussed in a future article.




$5,000 and over
All borrowers *
50

100
150
Percentage increase

200

250

* Includes a small amount of loans not classified by asset size of borrower.

MONTHLY REVIEW, JULY 1956

102

Table I
Average Interest Rates Charged on Business Loans Outstanding
on November 20, 1946 and October 5, 1955 at
Member Banks in the Second Federal Reserve District
by Size of Borrower and Maturity of Loan
(Per cent per annum)

term rates to reflect the higher current levels. F o r almost
a decade before the 1 9 4 6 loan survey, the banks’ prime
loan rate had been steady, but in August 1 9 5 5 , just two
months prior to the survey date, the prime rate was raised
from 3 to 3 ^ per cent.

All loans

Although there probably was some lag in the increase
shown in the average long-term rate as indicated by the
survey, there is little doubt that the differential between
long and short-term bank rates narrowed between the sur­
vey dates. Changes in yields on commercial paper and
corporate bonds for the same period reflect a similar
trend.

Short-term loans

Long-term loans

Assets of borrower
(in thousands)
1946

1955

1946

1955

1946

1955

Less than $50...................
$50 to $250.......................
$250 to $5 ,0 0 0 .................
$5,000 and over..............

4 .5
3 .9
2 .8
1 .8

5 .8
4 .9
4 .2
3 .4

4 .3
3 .6
2 .6
1 .6

5 .4
4 .8
4 .1
3 .4

4 .7
4 .1
3 .1
2 .0

6 .2
5 .2
4 .4
3 .4

Total, all borrowers*.

2 .3

3 .8

2 .1

3 .8

2 .5

3 .8

Note: Short-term loans are demand loans and those with an original maturity
of one year or less. Long-term loans are those with an original maturity of
more than one year.
* Includes a small number of loans not classified by asset size of borrower.

The prime 4-to -6 months’ commercial paper rate

was 1 .4 percentage points higher on the average in 1 9 5 5
than in 19 4 6 , but M o o d y’s corporate bond yields rose by

hold in all cases.

only 0 .5 percentage points.

In fact, for the smaller size-groups of

borrowers, those with assets of less than $ 5 0 ,0 0 0 and
In terest R ates

by

A

sse ts o f

B orrow er

from $ 5 0 ,0 0 0 to $ 2 5 0 ,0 0 0 long-term rates showed an
opposite tendency and were usually higher at the largest
banks than at the smaller banks. This anom aly probably

A verage interest rates by assets of borrower and term
of loan for the 19 4 6 and 1 9 5 5 survey dates are shown in
Table I. A n inverse correlation between size of borrower

arises from the fact that at the very large banks loans to
small businesses are frequently instalment credits which
are carried in consumer loan departments or treated like

and rate is evident in both years. The table also indicates,
however, that the relative increase in the average rate for
both long and short-term loans was greater for loans to

consumer loans. A somewhat higher rate usually prevails
on this type of long-term accommodation than on regular
business loans. Furthermore, of all long-term loans made
by Second District member banks to businesses with assets
of less than $ 5 0 ,0 0 0 , over half, averaging $ 2 ,0 0 0 each,
were made by banks with deposits of 1 billion dollars
or more.

the larger borrowers. In fact, for the group of businesses
with assets of 5 million dollars or more, the average rate
for all loans nearly doubled, rising from 1.8 to 3 .4 per
cent. M oreover, the narrowing in the difference in rates
charged on long and short-term loans, mentioned previ­
ously, also is evident in a greater rise in short-term rates
than in long-term rates for all borrowers except those with
assets of less than $ 50 ,0 0 0 .

In ter e st R ates

In Table II the structure of rates on October 5, 1 9 5 5
by size of bank as well as by assets of borrower is shown.
It indicates that in general there is an inverse correlation
between size of bank and interest rate as well as between
size of borrower and interest rate. This correlation be­
tween interest rates and size of bank does not, however,

and

by

M

a t u r it y o f

B u s in e s s

of

L oan

and by

S iz e

B orrow er

A verage interest rates on outstanding loans to each of
the m ajor business categories in the Second District and
the country as a whole are compared in T able H I. T h e
average rates for each type of business on both long-term

Table II
Average Interest Rates Charged on Business Loans at Member Banks in the Second Federal Reserve District
by Maturity of Loan, Size of Borrower, and Size of Bank, October 5, 1955
(Per cent per annum )
Banks 'with total deposits, in millions, as of June 30, 1955
Assets of borrower
(in thousands)

All member
banks
Under $10
Short­
term

Long­
term

Short­
term

Long­
term

$10 to $50
Short­
term

$50 to $100

$100 to $500

Long­
term

Short­
term

Long­
term

Short­
term

Long­
term

$500 to $1,000
Short­
term

Long­
term

$1,000 and over
Short­
term

Long­
term

Less than $50...................................
$50 to $ 2 5 0 .......................................
$250 to $1,000..................................
$1,000 to $5,000..............................
$5,000 to $25,000............................
$25,000 to $100,000.......................
$100,000 and over..........................

5 .4
4 .8
4 .4
3 .9
3 .6
3 .4
3 .2

6 .2
5 .2
4 .7
4 .2
3 .9
3 .5
3 .1

5 .7
5 .3
5 .1
4 .0
*
*
*

5 .7
5 .2
5 .0
>i<
*
—
3 .7

5 .5
4 .9
4 .7
4 .3
3 .7
3 .5
3 .3

5 .5
5 .0
5 .0
4 .7
4 .0
—
*

5 .2
4 .9
4 7
4^3
3 .9
3 .7
3 .3

6 .8
5 .3
4 .7
4 .6
4 .0
*
4 .1

5 .5
4 .9
4 .5
4 .1
3 .8
3 .4
3 .2

7 .1
5 .5
4 .8
4 .8
4 .1
2 .9
3 .1

5 .5
5 .1
4 .8
4 .1
3 .6
3 .2
3 .2

5 .7
4 .8
4 .5
4 .1
3 .8
3 .4
3 .1

5 .1
4 .6
4 .2
3 .8
3 .6
3 .4
3 .2

6 .2
5 .3
4 .6
4 .1
3 .9
3 .5
3 .1

Total, all borrowersf.....................

3 .8

3 .8

5 .3

5 .4

4 .8

5 .1

4 .6

5 .2

4 .2

4 .6

3 .6

3 .6

3 .6

3 .6

N ote: Short-term loans are demand loans and those with an original maturity of one year or less. Long-term loans are those with an original maturity of more than
one year.
* Too few loans reported to yield a representative interest rate for the group; these are included in the relevant group averages, however,
f Includes a small number of loans not classified by asset size of borrower.




103

FEDERAL RESERVE BANK OF NEW YORK

Table III
Average Interest Rates Charged on Member Bank Business Loans in the
United States and in the Second District by Business of Borrower
and Maturity of Loan, October 5, 1955
(Per cent per annum)

and short-term credits were lower in the Second District
than in the country as a whole, but the rate differential
between the averages was in most cases 0 .5 percentage
points or less. A significant portion of the loans of Second
District banks are made to large, national corporations

All loans

Short-term loans

Long-term loans

Business of borrower

who are usually prime risks and borrow relatively large

United
States

amounts. This is an important factor in bringing this
District’s average loan rate below that for the country as
a whole. F o r all member banks, the average rate on

Manufacturing and mining— total..
Food, liquor, and tobacco..............
Textiles, apparel, and leather........
Metal and metal products*...........
Petroleum, coal, chemicals, and
rubber.......................................
All other manufacturing and

both long-term and short-term business loans outstanding
on October 5 , 1 9 5 5 was 4 .2 per cent, compared with
3 .8 per cent in the Second District.
The range of variation among average interest rates for

Wholesale trade...............................
Retail trade......................................

the various business categories was somewhat wider on
long-term loans than on short-term credits.3 Th e lowest
average interest charge on short-term loans at Second
District banks was the 3 .3 per cent charged to sales finance

Commodity dealers.........................
Sales finance companies t ................
Transportation, communication,
and other public utilities..........
Construction (including operative
builders).......................................
Real estate § .....................................
Service firms#..................................
All other borrowers.........................

companies and the highest was 4 .6 per cent paid by con­
struction companies, a difference of 1 . 3 percentage points.
F o r long-term loans the lowest average was 3 .5 per cent
(fo r food, liquor, and tobacco, and petroleum, coal, chemi­

Total, all borrowers...........................

cal, and rubber companies, and for commodity dealers
and transportation, communication, and other public utili­
ties firms) and the highest was 5 .3 per cent for construc­
tion firms, a difference of 1.8 percentage points.
3 These rates do not take into account the effect of any compensat­
ing balance requirements on actual interest costs.

Second
District

United
States

Second
District

United
States

Second
District

4.0

3.7

4.1

3.8

4.0

3.6

3.8
4.0
4.1

3.5
3.8
3.7

3.8
3.9
4.1

3.5
3.8
3.8

3.9
4.0
4-1

3.5
3.8
3.7

3.9

3.5

4.2

3.6

3.8

3.5

4.3

3.9

4.4

4.1

4.1

3.6

4.6

4.3

4.6

4.3

4.8

4 3

4.5
4.7

4.3
4.3

4.5
4.7

4.2
4.3

4.8
4.8

4.4.
4.3

4.2

3.8

4.2

3.8

4.3

3.9

3.7
3.6

3.5
3.4

3.7
3.5

3.5

4.3
3.9

3.5
3.7

3.6

3.4

3.6

3.4

3.7

3.5

5.0
4.5
5.1
4.3

4.8
4.2
4.6
4.0

4.8
4.5
4.8
4.2

4.6
4.1
4.4
3.9

5.7
4.5
5.3
4.6

5.3
4.4
4.8
4.2

4.2

3.8

4.2

3.8

4.2

3.8

Note: Short-term loans are demand loans and those with an original maturity of one year or
less. Long-term loans are those with an original maturity of more than one year.
* Includes iron, steel, and nonferrous metals and their products; electrical and other machinery;
and automobiles and other transportation equipment and parts,
t Includes lumber, furniture, paper, printing and publishing, and stone, clay, and glass,
j Firms primarily engaged in financing retail sales made on the instalment plan.
§ Includes real estate operators, owners, agents, brokers, and subdividers and developers of
real property.
§ Includes hotels, repair services, amusements, personal and domestic services, and medical,
legal, and other professional services.

Table IV
Average Interest Rates Charged on Business Loans at Member Banks in the Second Federal Reserve District
by Business of Borrower, Assets of Borrower, and Maturity of Loan, October 5, 1955
(Per cent per annum)
Assets of borrower, in thousands
All borrowers
Less than
$50

Business of borrower
Short­
term

Long­
term

Short­
term

$50 to $250

Long­
term

Short­
term

$250 to $1,000

Long­
term

Short­
term

Long­
term

$1,000 to
$5,000

$5,000 to
$25,000

Short­
term

Long­
term

Short­
term

Long­
term

$25,000 to
$100,000
Short­
term

Long­
term

$100,000
and over
Short­
term

Long­
term

Manufacturing and mining— total.

3 .8

3 .6

5 .3

6 .1

4 .8

5 .3

4 .4

4 .9

3 .9

4 .2

3 .6

3 .9

3 .4

3 .5

3 .2

3 .2

Food, liquor, and tob acco..
Textiles, apparel, and
leather.....................................
Metal and metal products*.
Petroleum, coal, chemicals,
and rubber............................
All other manufacturing and
mining f ...................................

3 .5

3 .5

5 .5

6 .2

4 .8

5 .1

4 .6

4 .6

4 .0

4 .4

3 .5

3 .6

3 .3

3 .7

3 .2

3 .0

3 .8
3 .8

3 .8
3 .7

5 .1
5 .5

6 .1
6 .2

4 .7
5 .1

5 .2
5 .4

4 .2
4 .7

4 .9
5 .0

3 .7
4 .1

4 .2
4 .4

3 .4
3 .6

3 .9
3 .7

3 .4
3 .6

3 .6
3 .2

3 .3
3 .2

3 .3
3 .6

3 .6

3 .5

5 .7

4 .9

5 .2

5 .1

4 .3

4 .4

4 .0

4 .1

3 .8

4 .0

3 .3

3 .6

3 .2

2 .9

4 .1 * *

3 .6

5 .5

6 .2

5 .0

5 .3

4 .5

5 .2

3 .9

4 .0

3 .7

3 .6

3 .3

3 .3

3 .3

3 .0

Trade—total.....................................

4 .3

4 .3

5 .5

6 .3

4 .9

5 .2

4 .5

4 .9

4 .0

3 .8

3 .6

3 .7

3 .3

3 .1

3 .2

2 .9

Wholesale trade.......................
Retail trade...............................

4 .2
4 .3

4 .4
4 .3

5 .3
5 .5

6 .7
6 .2

4 .8
4 .9

5 .6
5 .1

4 .4
4 .5

5 .0
4 .8

4 .0
3 .9

3 .8
3 .9

3 .5
3 .6

4 .0
3 .7

3 .3
3 .3

3 .7
2 .6

3 .1
3 .2

3 .6
2 .9

Other— total.....................................

3 .8

3 .9

5 .4

6 .2

4 .8

5 .2

4 .4

4 .6

3 .9

4 .4

3 .6

4 .0

3 .4

3 .5

3 .2

3 .1

3 .5
3 .3

3 .5
3 .7

5 .1
4 .7

tt
tt

4 .6
4 .4

tt
4 .9

3 .7
4 .5

tt
tt

3 .5
4 .1

__

3 .4
3 .6

__
3 .6

3 .4
3 .2

tt
tt

3 .4
3 .2

tt
3 .3

Commodity dealers................
Sales finance companies^. . .
Transportation, communica­
tion, and other public
utilities..................................
Construction (including op­
erative builders)..................
Real estate § ..............................
Service firms#...........................
All other borrowers................
Total, all borrowers........................

3 .4

3 .5

5 .8

6 .6

4 .8

5 .1

4 .8

4 .3

3 .7

4 .1

3 .5

4 .0

3 .3

3 .4

3 .2

3 .0

4 .6
4 .1
4 .4
3 .9

5 .3
4 .4
4 .8
4 .2

5 .6
4 .9
5 .5
5 .3

8 .1
5 .6
6 .1
5 .7

5 .1
4 .5
4 .9
4 .5

5 .8
4 .9
5 .3
5 .2

4 .7
4 .3
4 .4
4 .4

5 .6
4 .6
5 .2
4 .0

4 .4
3 .9
3 .7
3 .9

5 .1
4 .4
4 .9
4 .0

4 .0
4 .0
3 .4
3 .3

4 .4
3 .9
4 .0
4 .0

tt
4 .2
3 .4
3 .2

4 .3
tt
3 .7
3 .8

3 .9
tt
3 .3
tt

—
4 .2
3 .5
tt

3 .8 * *

3 .8

5 .4

6 .2

4 .8

5 .2

4 .4

4 .7

3 .9

4 .2

3 .6

3 .9

3 .4

3 .5

3 .2

3 .1

Note: For other footnotes, see Table III.
** Includes a small number of loans not classified by asset size of borrower.
f t Too few loans reported to yield a representative interest rate for the category; these are included in the relevant group averages, however.




104

MONTHLY REVIEW, JULY 1956

Within each industry category (T ab le I V ) , the inverse

however, average rates on long-term loans were slightly

relationship between asset size and rate was evident, but

below those on short-term loans because of the greater

the difference between rates charged small and large busi­
nesses was less on short-term loans than on long-term

weight in the average of long-term, low-interest loans to
large borrowers.

loans. The smallest spread between rates for short-term
loans, 1 percentage point, occurred in real estate, and the
widest spread, 2 .6 percentage points, was in the transporta­
On long-term loans, the narrowest spread in borrowing

EARNINGS AND EXPENSES OF COMMERCIAL BANK
TRUST DEPARTMENTS IN NEW YORK
AND NEW JERSEY

rates among asset size-groups w as for the sales finance
companies and was 1 .6 percentage points. Construction

A survey of trust department earnings and expenses
of commercial banks in N ew Y o r k and N ew Jersey

firms were subject to the widest variation in rate between

in 1 9 5 5 has been prepared b y the Federal Reserve

small and large enterprises, 3 .8 percentage points.

Ban k of N e w Y o rk . T h e results of the survey are
available on request from the B ank Exam inations

tion, communication, and other public utilities category.

Within each assets group, manufacturing and mining
firms were charged the same or higher rates for long-term

Department of this Bank.

as for short-term loans. F o r these borrowers as a group,

SELECTED ECONOMIC INDICATORS
United States and Second Federal Reserve District
Percentage change
1956
Item

1955

Unit
M ay

April

March

M ay

Latest month Latest month
from previous
from year
month
earlier

U N IT E D STAT ES

Production and trade _
Industrial production*..............................................................................
Electric power output*.............................................................................
Ton-miles of railway freight*................................................................
Manufacturers' sales*...............................................................................
Manufacturers’ inventories*..................................................................
Manufacturers’ new orders, to ta l*......................................................
Manufacturers’ new orders, durable goods*...................................
Retail sales*..................................................................................................
Residential construction contracts*...................................................
Nonresidential construction contracts*............................................
Prices, wages, and employment
Basic commodity pricesf.........................................................................
Wholesale pricest........................................................................................
Consumer pricesf........................................................................................
Personal income (annual rate)*............................................................
Composite index of wages and salaries*...........................................
Nonagricultural em ploym ent*!............................................................
Manufacturing employment*J..............................................................
Average hours worked per week, manufacturingf.......................
Unemployment............................................................................................

100
100
100
$
$
$
$
$
100
100

142p
217
—
2 7 .7 v
4 8 .6p
2 8 .7 p
14 .7 p
—
301p
234p

143
215
113p
2 7 .2
4 8 .0
2 7 .8
14.1
1 5 .5p
315
252

141
215
106
2 7 .1
4 7 .4
2 6 .9
13 .3
15 .7
317
267

138
194
106
2 6 .7
4 3 .5
2 7 .7
1 4 .3
1 5 .4
280
221

+
+
+
+
+
+
-

1
1
7
2
1
3
4
1
4
7

+ 3
+ 12
+ 13
+ 4
+ 12
+ 4
+ 3
+ 1
+ 8
+ 0

1947-49 = 100
1947 -49 = 100
1 9 47 -49 = 100
billions of $
1 9 47 -49 = 100
thousands
thousands
hours
thousands

9 0 .4
1 1 4 . 3p
1 15.4
—
—
5 1 ,256p
1 6 ,834p
40. Op
2 ,6 0 8

9 1 .8
113.6
1 14.9
3 1 7 .Ip
147p
51,281p
1 6 ,906p
4 0 .3
2 ,5 6 4

8 9 .7
1 1 2 .8
1 14.7
3 1 5 .2
146
5 1,057
1 6,804
4 0 .4
2 ,8 3 4

8 9 .2
109.9
1 14.2
3 0 1 .4
141
4 9 ,7 4 8
16,527
4 0 .8
2 ,4 8 9

+
+
+

2
1
#
1
1

+

#
1
2

+
+
+
+
+
+
+
+

7 5 , 180p
8 4,730p
1 0 4 ,360p
3 0,531
73,5 1 7
130.6
2 7 ,9 6 4

8 1 ,7 2 0
7 3 ,8 5 0
103,330
30,1 6 3
71,065r
13 1 .3
2 4,149

+
~

2
1
2
#
6
1
1

-3 0
+ 16
+ 1
+ 2
+ 12
+ 5
+20

+57
+14
+ 14

+ 24
- 1
+ 6

- 3
+ 3
— 22
+ 1
#

+ 6
+26
+21
+ 1
+ 2
+ 1
+ 12
+ 12
+ 8
+ 6
+ 9

1947-49 1947-49 =
1947-49 =
billions of
billions of
billions of
billions of
billions of
1947-49 =
1947-49 =*

Banking and finance
Total investments of all commercial banks.....................................
Total loans of all commercial banks...................................................
Total demand deposits adjusted..........................................................
Currency outside the Treasury and Federal Reserve B anks*§.
Bank debits (337 centers)*.....................................................................
Velocity of demand deposits (337 centers)*....................................
Consumer instalment credit outstandingf.......................................
United States Government finance (other than borrowing)
Cash income..................................................................................................
Cash outgo....................................................................................................
National defense expenditures..............................................................

millions of S
millions of $
millions of $
millions of $
millions of $
1 947 -49 = 100
millions of $
millions of $
millions of $
millions of $

73,570p
8 6 ,030p
1 0 4 ,190p
3 0 ,6 2 8 p
79,756
138.1

74,700p
8 5 ,340p
1 0 6 ,llO p
30,551
7 5 ,5 4 8
1 38.8
28,2 6 0

6 ,8 7 9
6 ,2 0 0
3 ,4 4 4

4 ,3 6 8
5 ,4 2 8
3 ,0 0 9

—

12,351
6 ,1 4 9
3 ,3 9 6

5 ,5 4 7
6 ,2 7 8
3 , 245r

§

+
+

1
4
1
6
5
3
2
2
5

S E C O N D F E D E R A L R E S E R V E D IS T R IC T
Electric power output (New York and New Jersey)*.....................
Residential construction contracts*........................................................
Nonresidential construction contracts*.................................................
Consumer prices (New York C it y ) f ........................................................
Nonagricultural employment*...................................................................
Manufacturing employment*.....................................................................
Bank debits (New York C ity )* .................................................................
Bank debits (Second District excluding New York C it y )* ............
Velocity of demand deposits (New York C ity )* ...............................
Department store stocks*............................................................................

19 47 -49 = 100
19 47 -49 = 100
19 47 -49 = 100
1 9 47 -49 = 100
thousands
thousands
millions of $
millions of $
1 947 -49 = 100
1 947 -49 = 100
1947-49 = 100

153
—
—
113.0
7 ,7 0 5 .6 p
2 ,6 7 9 .5 p
7 0,869
5 ,1 7 0
180.2
110
123

157
284
270
112.3
7 ,6 7 8 .2
2 ,6 7 0 .0
65,7 1 5
5,0 7 2
1 76.0
104
124

156
275
34S
112.2
7 ,6 4 9 .5
2 ,6 4 9 .2
6 9 ,0 7 0
4 ,7 9 5
175.6
107
122

144
212
249
1 11.8
7 ,5 8 9 . 5r
2 ,6 5 9 .6r
63,481
4 ,6 0 6
16 7 .2
104
113r

#
+
+
+
+
-

8
2
2
6
1

N ote: Latest data available as of noon, June 29, 1956.
r Revised.
t Revised series. Back data available from U . S. Bureau cf Labor Statistics.
* Adjusted for seasonal variation.
# Change of less than 0.5 per cent,
t Seasonal variations believed to be minor; no adjustment made.
§ Seasonal factors revised back through 1938.
Source: A description of these series and their sources is available from the Domestic Research Division, Federal Reserve Bank of New York, on request.

p Preliminary.