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FEDERAL RESERVE BANK OF RICHMOND MONTHLY REVIEW THE CHANGING DISTRICT BANKING STRUCTURE T he evolution of the banking structure of the expansion subject to both Federal and state law. U nited States has been a continuing story through In each state, state law determines the status of branch banking for national as well as state banks. out the history of the nation. T he process of econom ic grow th involves continuous change, and M ost bank m ergers and holding com pany activities, the changes that accom panied the development of on the other hand, fall under the provisions o f F ed the econom y of the United States gave rise to im portant changes in the demands on the banking system. These changing demands were met not only eral law, and Federal supervisory agencies exercise important pow ers in these areas. M oreover, in recent years the Department o f Justice has played an im by changes in the kinds of services provided by portant role in the area of bank merger and holding banks, but also by significant changes in the struc ture of the banking system. com pany activities. Thus, in some states the form ation o f statewide, Although change in the banking structure has been almost continuous, the rate at which change has occurred has been by no means steady. In the first tw o decades of this century, for exam ple, the number of comm ercial banks increased by about two and one-half times, to a total o f about 30,000. The number was reduced substantially by suspensions and mergers in the 1920's and even m ore sharply by the virtual collapse of the banking system in the early 1930’s. F ollow in g these severe shocks, there was little change in banking structure from the m id1930’s through the decade of the 1940’s. F rom 1934 through 1951, for example, the number of banking offices changed very little as the number of banks declined by almost 1,400 while the number of branches and facilities increased by almost 2,150. T he period since 1950, however, has been marked by dramatic changes in the nature of the banking business and in the structure o f the banking system. This was a period of great social and econom ic change, with rapid grow th in population and income, dramatic shifts in the distribution o f population, and the birth and development of important new in dustries. These dynam ic developments not only in creased the demands upon the banking system, but they created demands for new kinds o f services. Because of the underlying shifts that had occurred in dem ographic and industrial patterns, these de mands were focused on areas that often were served inadequately by existing banking offices. M oreover, some banks were poorly equipped to meet some of the demands for new kinds o f services on the part of their customers. Changes in banking structure in particular areas are influenced to a considerable degree by the legal constraints applicable to various kinds of bank e x pansion. Commercial banks in the U nited States operate in a unique legal environment, with Federal and state chartered banking systems operating side by side in each state, and with most types o f bank 2 regional, and local branch organizations has been a prominent feature of bank expansion in recent years. In states where m ulti-office banking is prohibited or severely restricted, change has been reflected mainly in the size and number of banks. Som e states have experienced a rapid grow th in the number and size o f bank holding companies, while others have had both branch and holding com pany activity. branching, and in recent years banks in these states have engaged in widespread merger and branching operations. Between these extremes, V irgin ia since 1962 has been adjusting to a new branch banking The Fifth District T h is article is co n ce rn e d mainly with changes in the structure of banking in the Fifth Federal Reserve District from the be ginning o f 1960 through 1968. A s the chart on page 2 suggests, however, the change in the general structure of Fifth District banking in the past nine years was for the most part a continuation o f trends that began earlier in the postwar period. Since 1950, for example, there has been a continuing decline in law and has experienced extensive holding com pany activity. Finally, banks in the District of Columbia are permitted to branch, but the narrow geographical area within which they operate has limited merger and branching activity. the number of banks in the District and a large in Changes by State crease in the number of branches and facilities. The changes since the beginning of this decade, however, est number of changes occurred in V irginia, partly because of the 1962 changes F or some years prior to 1962 new branches was restricted to town, or county in which the have been larger than those in the decade o f the 1950’s. F rom 1950 through 1959, for exam ple, the number of banks fell by 6 6 ; since the beginning of 1960 the number has fallen by 176. O n the other hand, the number of branches increased by 586 from cated. Branching through merger or absorption of 25 miles o f the parent bank, and provided that each of the banks had been in operation five years or more. recent years, the pace o f change has not been uniform T his is mainly because In 1962, the law was amended to permit branching of differences in the banking laws of the District states. in the banking law. the establishment o f the limits o f the city, parent bank was lo an existing bank was permitted provided the m erged bank was in the same or adjoining county or within 1950 through 1959, and by 1,428 in the 1960’s. A lthough the tempo o f change has increased in am ong Fifth District states. N o t su rp risin g ly , the g r e a t through m erger anywhere in the state, but the fiveyear limitation was retained. T he restriction on de A t one extreme, W est V irginia is a strict unit-banking state that prohibits all form s of multi novo branching was liberalized somewhat to permit office banking organizations. the establishment of new branches in contiguous O n the other extreme, political subdivisions. M aryland and the tw o Carolinas permit statewide CH A N G ES IN NUMBER OF BANKS AND BRANCHES Fifth District 1960-1968 All Com m ercial Banks District of Colum bia M aryland North C aro lin a South C aro lin a V irgin ia W est V irginia Total Num ber of Banks 12 Voluntary Liquidations and Suspensions 145 309 159 6 13 43 12 95 35 77 39 114 2 269 - Mergers and Absorptions 192 17 2 Banks 140 4 (December 31, 1959) N ew - - 1 1 - 2 957 Num ber of Banks (December 31, 14 1968) Net Change + 2 122 - 18 121 - 71 237 118 - 27 - 72 169 + 10 781 - 176 Branches and Facilities Number of Branches and Facilities 64 226 452 134 255 1,131 33 219 435 184 344 1,215* 4 41 77 43 124 289 1 17 34 10 14 76 100 (December 31, 1959) N ew Branches 469 930 351 709 2,559 + 1,428 Conversions, N ew Facilities, and Replacements Branches and Facilities Discontinued Num ber of Branches and Facilities (December 31, 1968) Net Change + 36 + 243 + 478 + 217 + 454 C hang e in Banking Offices + 38 + 225 + 407 + 190 + 382 + 10 + 1,252 * Does not include four drive-in facilities in W est V irgin ia. Source: Federal Deposit Insurance Corporation and Board of Governors of the Federal Reserve System . 3 The accom panying tallies indicate the extent of the changes in V irgin ia’s banking structure in the decade of the 1960’s. T he 43 new banks form ed ac counted for some 4 5 % of all new banks established the establishment of 435 de novo branches. O n the other hand, only six new banks were established in N orth Carolina during this nine-year period. in the District. T he 1962 changes in the banking were quite similar in nature. In both states the num law stimulated a wave of mergers, and the 114 banks eliminated by merger or absorption accounted for ber o f mergers exceeded the number o f new banks established, so there was a moderate decline in the number of banks. Each state had a substantial grow th in banking offices, however, mainly reflecting about 4 2 % of the D istrict total. A ll of these changes, together with one voluntary liquidation, re duced the number of banks in the state by 72. Despite the reduction in the number o f banks, there was a substantial increase in the number of banking offices in V irginia, as the number of branches and facilities rose by 454. In addition to the banks converted to branches through m erger, a large number of de novo branches were established. Finally, the form ation and grow th of bank holding companies has been a prom inent feature of the bank ing picture in V irginia in recent years. T h e N orth Carolina banking structure also under went num erous changes in the period. U nlike V ir ginia, N orth Carolina banks were not responding to a sudden change in the banking law. Rather, the merger and branching activity represented a co n tinuation of trends dating back to the early 1950’s. Nevertheless, the 77 mergers in N orth Carolina e x ceeded by a considerable margin the number in any other D istrict state except Virginia. M oreover, the increase in the number of branches was larger than that of any other District state, mainly because of PERCENTAGE OF TOTAL DEPOSITS HELD BY FIVE LARGEST BANKS Per Cent 100 Developm ents in M aryland and South Carolina the establishment o f de n ovo branches. Changes in the banking structure o f the District of Columbia are limited by the highly urbanized character of the area and by its limited geographical scope. Nevertheless, there were changes in the years 1960 through 1968. F our new banks were organized and tw o became branches o f other banks through merger. In addition, the number of branches and facilities increased by 36. W est V irginia showed the least num ber of changes in banking offices during the period, mainly because of its prohibition of branch banking. T w elve new banks were established and tw o were eliminated through merger. T here were no branches during the period, although several banks established drive-in facilities. Bank Holding Companies The fo rm a tio n and grow th of bank holding companies has been one of the significant developments in Fifth District bank ing in the past decade. A s used in this article, the term bank holding com pany refers to the effective control of the operating policies of tw o or m ore banks through ownership of stock by a separate com pany established fo r that purpose. Thus, this discussion will be concerned with those holding companies that are required to register under the provisions of the Bank H oldin g Com pany A ct, but ■ 80 I960 not with the num erous one-bank holding companies ■ 1968 that have been form ed in recent years. A t the end of 1960, there were tw o bank holding companies in the Fifth District. One, a V irginia corporation with its activities largely confined to 60 - northern V irginia, was registered under the Bank H olding Com pany A ct. A t the end o f 1960, this group included four V irginia banks with eight o f fices, holding $60.8 million o f deposits. 40 T h e other holding com pany was exem pt from the provisions il of the Bank H old in g Com pany A ct in 1960, but this exem ption was subsequently eliminated. 20 In 1960, it owned shares in banks in V irginia, M aryland, and the District of Columbia, as well as in several states outside the Fifth District. D. C. Md. N. C. S. C. Va. W. V a. T he accom panying table indicates the extent of the grow th in bank holding companies since 1960. 4 A t the end of 1960, the tw o holding companies in the Fifth District controlled nine banks with 25 o f fices and $276 million of deposits. Between 1960 and the end of 1968, three new holding companies were form ed, all in V irginia. A t the end of 1968, five holding companies controlled 54 Fifth District banks operating 375 offices and holding over $3 billion in deposits. bank in M aryland also increased substantially, while those in V irginia and South Carolina showed sig nificant percentage gains. Because W est V irginia is a unit-banking state, and because it is the only H oldin g com pany banking has had a particular T he degree o f concentration of banking resources in District states has also been influenced by the District state showing an increase in the number of banks in the past nine years, the grow th in the size of the average W est V irginia bank was rela tively small. impact on the banking picture in Virginia. A t the end of 1968, 48 of the 237 banks in V irginia were members of holding com pany groups. These banks operated more than one-third o f the banking offices many changes described in this article. T he per centage of total deposits in a particular state or area held by the largest banks is one measure of co n in the state and held 3 9 % centration. of the total deposits. Three of the state’s five largest banks were lead banks in holding companies at the end of 1968, and six of the ten largest were included in such groups. Effects of Changes The ch a n g es in b a n k in g structure in the Fifth District in recent years are to a considerable degree a part of the general change in the nature of the banking industry, one feature of which might be called a trend toward “ consum er” or “ retail” banking. A s a result o f rapidly grow in g population and incomes and changes in the nature of the demands on the banking industry, com m ercial banks have been faced with the necessity o f providing more convenient and readily accessible banking fa cilities. In some cases the demands for new services could be met only by larger banking institutions. A ll of these factors are reflected in the banking statistics for Fifth District states. W ith the total volum e of deposits increasing sharply and the number of banks declining, the size of the average bank in the District increased. A side from the District of Columbia (w hich may be co n sidered a special ca se ), the largest increase in average size was in N orth Carolina. T he accom panying chart shows for each of the District states and the District o f Columbia how this measure changed between 1960 and 1968. N ot surprisingly, the highest degree of concentration of resources throughout the period was in the D is trict of Columbia, although there was almost no change between 1960 and 1968 in the percentage of total deposits held by the five largest banks. North Carolina showed the highest degree o f concentration for any District state, and it also recorded a sig nificant increase in concentration during the period. A t the end of 1968, the five largest banks in North Carolina held about tw o-thirds of the state’ s de posits. V irginia showed a significant increase in concentration during the period, but the degree of concentration at the end o f 1968 was relatively low. If bank holding companies are considered single banking organizations, however, concentration in V irginia is substantially increased. L ooked at this way, the five largest banking organizations held about 4 8 % of the state’s deposits, and tw o-thirds of the deposits were held by the ten largest organiza tions. M aryland and W est V irginia each showed a small decline in the degree of concentration. The size o f the average A u b rey N . Snellings BANK HOLDING COM PAN IES Fifth District December 1960 Decem ber 1968 Holding C om p anies* Holding Banks O ffices Deposits C om p an ies* Banks O ffices ($ millions) Deposits ($ millions) District of Colum bia 1 2 7 $156.1 1 2 14 M aryland 1 1 3 27.2 1 4 21 142.0 V irginia 2 6 15 92.7 5 48 340 2,668.0 2 9 25 $276.0 5 54 375 $3,102.0 Total * One holding com pany controlled banks in M aryland, V irg in ia, and the District of Colum bia. registered w ith the Board of G overnors; in 1968 it w as registered. $ 292.0 In 1960 this holding com pany w a s not Monetary And Financial Variables This article is included in the revised 1969 edition of K eys for Business Forecasting. This booklet describes in nontechnical terms key sta tistical series and techniques used in professional appraisal of economic conditions. The publication also includes a listing of reference sources for current and historical data. K eys for Business Forecasting (1969 edition) is available upon request from this Bank. Banks, other Federal R eserve liabilities and capital, and member bank reserves. Increases in the first three items supply reserve funds and decreases in them absorb reserve funds. T he reverse is true of the other factors. In establishing its credit policy, the System takes into consideration the movements o f each o f these factors affecting reserves. T he System, however, T otal spending by consum ers, businesses, and g o v controls directly only tw o com ponents of Federal ernments affects the general level o f econom ic ac R eserve credit— its holdings o f U . S. Government tivity. In turn, decisions to spend depend to a great extent upon the availability and cost of m oney and credit. Thus, there is a strong interdependence securities and between econom ic changes and financial changes. T he business forecaster, therefore, must under bookkeeping item connected with its function in the stand the role of money and credit in a free market has the assets. It is prim arily by purchasing securities in the open responsibility of fostering a flow of credit and money to facilitate orderly econom ic grow th and a stable dollar. T o perform this task the Federal Reserve market that the Federal R eserve is able to supply reserves to member banks. Conversely, open market collects and publishes a mass of statistical data on the country’ s banking and monetary system. Som e o f the key measures used in assessing the financial climate in the nation are discussed below. policy. If reserves are plentiful, the member banks are able to expand their loans and investments. This, Member Bank fore, their required reserves. econom y. T he Federal Reserve Reserves In System fo s te r in g o rd e rly bankers’ acceptances, and b o rro w ings o f member banks. The other com ponents of R eserve Bank credit are Federal R eserve float, a check collection process, and other Federal R eserve sales reduce member bank reserve funds. Open market operations constitute another tool o f m onetary in turn, increases their deposit liabilities and, there If reserves are reduced econom ic grow th, the Federal Reserve System relies prim arily on its ability to increase or decrease the below the required minimum, banks may b orrow tem porarily from the Reserve Banks. Changing volum e and cost of member bank reserves. T he System requires each member bank to hold a fraction the interest rate charged— called the discount rate— is another policy tool. A s m onetary policy be of its deposits as “ reserves” at the Federal R eserve Banks. T he ability of the System to vary the frac tion for “ required reserves” is one tool of monetary policy. In addition to deposits held at Reserve com es m ore restrictive, the ability of the banking system to buy securities and make loans is also restricted. Banks, member banks have been allowed to count vault cash as reserves since 1960. T he difference between total reserves and the required minimum is called “ excess reserves.” W h en member bank Availability of Data on Reserves and Related Items F ig u re s on m e m b e r b an k reserv es, R e serve Bank credit, and related items are published as of W ednesday dates and as weekly and m onthly averages of daily figures, thus sm oothing out the borrow ings from the Federal Reserve are deducted erratic day-to-day movements. from excess reserves, the result is termed “ free re available from 1917 forw ard. H istorical data are In addition, reserves serves” if the figure is positive, and “ net borrow ed and borrow ings of member banks are published by reserves” if negative. class o f bank. Federal Reserve Credit T h e a n alyst, h o w e v er, must look behind the “ reserve measures” factors supplying or absorbing reserves. to the T he Board A m onthly series on aggregate reserves, adjusted for changes in reserve requirements, and deposits subject to reserve requirements is available from 1947 to date. T he com plim entary weekly series on of G overnors publishes a weekly statement showing the credit and currency factors which affect member reserve aggregates is available back to 1959. bank reserves. series are seasonally adjusted and are averages of T he sum of three items— total R e serve Bank credit, gold stock, and Treasury cu r rency— equals the sum of the follow in g ite m s: cu r daily figures. and posits and other deposits at the Federal Reserve published. 6 Current and historical data on the discount rate, reserve requirements of mem ber banks, rency in circulation, Treasury deposits, foreign de Both System open market transactions are also KEY M ON ETARY AND FIN A N CIAL VARIABLES $ Billions___________________________________________________________________ FEDERAL RESERVE CREDIT Commercial Bank Credit T h e in terrela tion b e tween changes in member bank reserves and changes in bank credit has been described above. T he bank credit series, by m ajor com ponents— total loans, U . S. securities, and other securities— is currently pub lished w eekly; prior to February 1969 it was pub lished semimonthly, monthly, or for call dates. The 40 data are for W ednesday dates except for June 30 and Decem ber 31 call dates. 0 60 / ----- 50 A lso available is a seasonally adjusted monthly series, in which the figures are adjusted to exclude interbank loans, which have little direct effect on MEMBER BANK RESERVES 26 the volum e of credit available to the public. The seasonally adjusted series is available from 1948. In addition the System collects from a sample of large com m ercial banks a detailed weekly statement of condition which includes inform ation on types of loans and types of securities. weekly reporting /~ V 22 A subsample o f the banks furnishes inform ation on business loans by type of borrow er. These weekly series are particularly sensitive to short-term d e velopments in financial markets. Money Supply A n o th e r v a ria b le c lo s e ly linked with the fractional reserve mechanism is the stock of m oney held by the public. T he m oney supply is defined a s : ( 1 ) 24 0I 0.5 0 -0 .5 currency and coin outside the Treasury, Federal R eserve Banks, and comm ercial banks; and ( 2 ) demand deposits at com m ercial 400 banks, other than those due to domestic com m ercial banks and the U. S. Government, less cash items in 350 process of collection and Federal Reserve float, and foreign demand balances at Federal Reserve Banks. Because of the high liquidity of time deposits, some analysts include these deposits in the definition of money supply. T he Federal R eserve publications on money supply include related deposits data. The average daily series is seasonally adjusted and extends back to 1947 300 0 200 (m onthly averages for the entire period, semimonthly averages from 1947-1960, and weekly averages beginning in 1959). Data on 150 time deposits at com m ercial banks, other than those 100 due to com m ercial banks and the U . S. Government, are published on the same basis as the tw o com 0 ponents of the money supply. A separate figure for U. S. Governm ent demand deposits, not adjusted for seasonal variation, is also shown. 200 T he average daily series is not strictly comparable with the single-date series on the money supply and 150 related deposits, available for selected dates back to 1892. T he single-date series, currently published as of the last W ednesday of the month, is useful in 100 com paring the money supply with other bank and nonbank asset and liability items. Elisabeth W . A n g le 0 1966 Note: Source: 1967 1968 Data in charts 1, 2, 4, and 5 a re monthly a ve rag es of d a ily figures; in chart 3, a s of last W ednesday of the month. Data for charts 3, 4, and 5 a re seasonally adjusted. Board of G overnors, Federal Reserve System. THE EXPORT-IMPORT BANK T he governm ents of virtually all industrial nations extend some form of aid, or subsidy, to their nation’s exporters. In many o f these countries current p ro duction is heavily geared to export markets. In the Netherlands, for instance, exports total well over tended for relatively short periods of time. lation passed in M arch In legis 1968, the Bank was au thorized to function for five more years and its overall lending limit was increased from $9 billion to $13.5 billion. Insurance and guarantees may be half of G N P , and in the United K ingdom the com charged to this limit at a rate of 2 5 % of the B ank’s parable fraction is about one quarter. States, merchandise exports constitute only about contractual liability up to a total of $3.5 billion. T he same A ct prohibited Bank participation in the 4 % of G N P . T his relatively small fraction is not a good indicator of the significance of foreign trade financing of exports to nations whose governments are engaged in or are assisting any armed conflict In the United to the U . S. econom y, however, since merchandise with U . S. forces. exports represent a $35 billion industry which has grow n extrem ely rapidly in recent years. from aiding or financing exports of military hard T he E xp ort-Im p ort Bank is the only U . S. G ov ernment agency engaged solely in the prom otion of exports. T he Bank was founded in 1934 and re unless directed otherwise by the President. chartered in 1945. Currently, the E xim bank par ticipates in the financing of over 10% o f U . S. e x ports through the granting o f direct loans, insurance, guarantees, and the discounting of export paper. O rg a n iz a tio n ware to any F in a n cin g T he Bank was also prohibited Communist or developing country A s w ith m ost G o v e r n m e n t-s p o n so re d lending agencies, the E xim bank was originally funded by the U . S. Treasury. Its capital stock of $1 billion is held entirely by the Secretary of the T reas ury, and the Bank may b orrow up to $6 billion d i rectly from the Treasury. In recent years, however, In a cco rd a n ce w ith the E x p o r t- the capital market has becom e the Bank’s most im Im port Bank A ct o f 1945, as amended, the Bank is with, portant source of funds, to the extent that no T reas ury borrow in g was necessary from 1963 to 1967. private capital in export financing. E xim bank loans generally must be for specific purposes and offer certificates ( P C ’s) in 1962 when it offered for sub directed to supplement, and not reasonable assurance of repayment. com pete T he E xim bank pioneered the use of participation Finally, the pos scription to com m ercial banks $300 million o f P C ’ s sibility of any adverse effects on the United States econom y arising from Exim bank loans must be care fully considered. T he responsibility for carrying out these C on collateralized by a pool of the Bank’s exp ort paper. These new debt instruments were initially guaranteed by the Exim bank, but in 1966 the A ttorney General ruled that they were backed by the full faith and gressional directives rests with a five-m an, bipartisan Board of Directors appointed by the President, the Chairman and V ice Chairman of which serve also credit of the United States Government. P rior to 1966, P C ’s were offered exclusively to those com mercial banks which had actively participated in the E xim bank’s program s. In that year, how ever, the as the President and V ice President o f the Bank. In addition, the E xim bank’s policies are coordinated squeeze on com m ercial bank credit necessitated a with overall Governm ent objectives through the N a tional A d v isory Council on International M onetary change in policy and P C ’s were offered publicly through a syndicate of underwriters. and Financial Policies, com posed o f the Exim bank Chairman, the Secretaries of State, Com m erce, and for the first time with the sale of short-term p rom is the Treasury, and the Chairman o f the Board o f G o v sory notes which closely resemble com m ercial paper. ernors of the Federal Reserve System. T hey are sold at a discount to institutional investors T he Bank In A pril 1968 the Bank entered the money market also receives advice periodically from a committee through several investment banking houses. of prominent citizens representing the m ajor sectors maturities range between 30 and 360 days and are of the U . S. econom y. Congress maintains broad control over the Bank’s tailored to investors’ wishes. T heir D uring the last three months o f 1968, $487 million of notes were sold. operations by placing ceilings both on the total of T he E xim bank’s net income is added to a reserve loans, guarantees, and insurance which the Bank may for contingencies and defaults follow in g the pay have outstanding at any one time, and the total ment of a 5 % dividend to the Treasury on its capital authorizations permissible within each fiscal year. stock. In addition, the Bank’s authority to function is e x almost double the 8 T his reserve totaled $1.1 billion in June 1968, 1960 level. Export Programs In m ost cou n tries, in su ran ce and guarantees form the m ajor com ponents o f G ov ernment export program s. In the United States, however, these tw o types of export assistance rank below direct Government dollar credits (lo a n s) to foreign importers of A m erican goods and services. In fiscal 1968, over 7 0 % of the E xim bank’s total authorizations of $3.5 billion consisted of direct Export Guarantees and Discount Loans Wrhereas export insurance aids exporters directly by reducing their risks, the guarantee and discount loan p ro grams boost exports more indirectly by increasing the attractiveness of export financing to com m ercial banks. U nder the guarantee program , com m ercial banks for a fee may secure E xim bank guarantees on their medium -term loans to foreign im porters of credits, about 2 0 % was in the form o f short-term and some medium -term insurance, and about 8 % A m erican products, provided the loans are without consisted of guarantees. lation is meant to encourage banks to make this type o f loan. T he Exim bank guarantee covers the Export Insurance In the fa ce o f a w o r s e n in g balance of payments situation, President Kennedy in 1961 m oved to place A m erican exporters on a par with their com petition in regard to export insurance. Hitherto, such insurance was unavailable in this country. W ith the cooperation of about 70 private insurance companies, the F oreign Credit Insurance A ssociation ( F C I A ) was established. T he F C IA , an association of marine, casualty, and property in recourse upon the exporter. T he nonrecourse stipu comm ercial risk on the later maturities, and the p o litical risks on all maturities. Commercial banks which are active in the guarantee program may exercise the same discretionary authority as the F C I A in guaranteeing export loans up to $1 million in sound markets. Guaranteed loans are exem pt from the guidelines of the V oluntary F oreign Credit surance companies, sells short- and medium-term insurance covering political and comm ercial risks. T he E xim bank insures the political risks directly and reinsures the com m ercial risk. Political coverage, which may be purchased either by itself or in co n junction with com m ercial risk coverage, protects against default caused by such occurrences as cu r rency inconvertibility, expropriation, riot, or revolu tion. Comprehensive policies cover 9 0 % to 9 5 % of the political risks plus about 9 0 % of the com m ercial risks of protracted default and insolvency. Insurance premiums reflect the credit terms plus the E x im bank’s judgm ent concerning the soundness o f the foreign buyer’s market. A sid e from counseling, neither the F C I A nor the E xim bank plays an active part in arranging the exp orter’s financing. Proceeds from the insurance policy, however, may be assigned directly to the financing source and this feature may expedite the exp orter’s search for credit or im prove the terms. Short-term insurance, which is the m ore com m on type, covers transactions up to 180 days and the exporter must insure enough eligible export credit transactions during this period so that a reasonable risk spread is obtained. M edium -term covers credit risks ranging from insurance 181 days to five years and is well suited for sales to foreign dealers and distributors on a revolving credit basis. The terms are somewhat stricter than those on short-term policies. T he F C I A may issue short- and medium - term policies at its ow n discretion covering transac tions up to $1 million in sound markets. 9 Restraint program as it applies to com m ercial banks, as are loans which are not guaranteed but which involve some Exim bank participation. T he E xim bank’s discount loan program encourages Bank weighs the foreign exchange position of the buyer’s country. comm ercial banks to finance exports by increasing may be waived in the case of large p roject loans. T he the liquidity of their export paper. U nder this p ro gram, a bank ( 1 ) may borrow from the Exim bank Bank may also invite or even require com m ercial bank participation in financing large transactions. Since 1968, this has been the pattern with regard to against 5 0 % of its portfolio of m edium -term export T he E xim bank generally requires supplier par ticipation in financing exports, but this requirement obligations based 011 shipments after M arch 1, 1966, jet aircraft financing. and ( 2 ) may borrow an amount equal to the annual purchase by net increase in its total holdings of export obligations. method. Recent interest rates on discount loans have ranged from 5^6% to 6 y 2°/o. T he substantial increase in the volum e of discount loans from $71.5 million in fiscal line paid $1.7 million in cash, E xim bank supplied $3.1 million, First National City Bank loaned $3.4 million, and B oeing extended $344,000 of credit. In 1967 to $203.1 million in fiscal 1968 reflected to a large extent the E xim bank’s liberalization o f terms in A pril 1968. fiscal 1968, over 2 0 % of E xim bank’s loan thorizations were for jet aircraft purchases. Direct Credits In 1968 a u th o riza tio n s fo r lo n g term loans totaled $1,719 million of which about half were to im porters in 37 countries for the purchase of Am erican capital equipment and related services. Seventeen countries used Exim bank loans to buy com m ercial jet airplanes and ten bought electric Royal The financing o f a recent jet A ir M o ro c typifies the new O f the total cost of $8.6 million, the air au T h e E xim ban k’s direct credit program has been criticized in some quarters of the com m ercial bank ing comm unity. Bankers have charged that the Exim bank does, in fact, com pete with private export financing contrary to the Bank’s charter instruc tions. T hey note that E xim bank loans bear interest rates well below goin g market rates. generating equipment. Other U . S. exports fre quently financed by the Bank include diesel lo co Export Expansion Facility motives and equipment for satellite comm unications ground stations. E xported services include co n to broaden the E xim bank’s lending authority as a key part of his balance of payments program . T he struction supervision, econom ic and geologic surveys, and architectural and engineering design. resulting law earmarked $500 million o f the B ank’s $13.5 billion lending authority for export transac In the su m m er o f 1968 Congress acted on President Johnson’s request T he other half of 1968 long-term loan authoriza tions carrying a somewhat higher degree o f risk tions were to friendly foreign governm ents for the purchase of defense-related items. A m ajority of than that associated with the “ reasonable assurance of repayment” stipulated in the charter. T he facility these loans were to industrial countries, but about was designed to increase the market penetration of U . S. exports, prim arily in developing countries, and to enable exporters to make sales which might one quarter consisted of obligations purchased from and guaranteed by the Defense Department, repre senting loans to developing nations for the purchase of military equipment. Changes in the flow of Exim bank loans to m ajor geographic areas since 1950 are illustrated in the chart. T h e terms of direct credits are negotiated between have been lost without E xim bank assistance. T he full value of direct credits is applied against the $500 million ceiling, but only 2 5 % o f the principal value o f insurance and guarantees is counted. Separate applications are not needed to tap this fund. Rather, the E xim bank and the foreign buyer, which may be the Exim bank decides whether an application in a corporate or noncorporate business, a governm ent volves extra risk and allocates it to the new fa or a governmental agency, a bank acting as inter cility. mediary, or the foreign branch of a U . S. enterprise. the interest, maturity, and repayment terms are the T he maturity may range from 5 to 15 years. same as those on the Bank’s other loans. The Such loans offer no special concessions since interest rate is tied loosely to U . S. capital market So far the new facility has not been used exten con d ition s; in fiscal 1968 virtually all loans were at 6 % except some loans fo r military hardware which sively, due in part to the reluctance of com m ercial banks to finance higher risk transactions as long as carried the E xim bank will not guarantee the entire co m lo w e r rates. I f the b o r r o w e r ’s cr e d it worthiness is at all suspect the E xim bank requires mercial risk. an unconditional endorsement by a financially re the F C IA which is reluctant to insure higher risk sponsible institution or ventures lacking total E xim bank reinsurance. country. 10 individual in the foreign Because repayment must be in dollars, the A similar problem has occurred with Jane F . N elson The Fifth District BUSINESS REVIEW A lthough a few signs of econom ic slow dow n were evident on the national scene, the District econom y remained relatively buoyant through the first quarter of 1969, as was true in the latter part o f 1968. M anufacturing activity, with the exception of the textile industry, im proved, and retail sales increased steadily. Em ploym ent also increased with ployment declining further. Personal Income unem P erson a l in co m e fo r the first by an estimated 9 .5 % over the first quarter o f 1968, while nationally it increased 8 .9 % . Estimates o f M arch personal income, prepared by B usiness W eek , increase in Fifth District states over M arch of 1968, about the same percentage in crease as for the nation ( 8 .6 % ) for the same period. Em ployment and Unemployment The tracts in M arch increased 4 .2 % . T he M arch d e cline for the District was the largest since September of last y ea r; yet, the M arch index of total construc tion contracts in the District (1 8 3 ) continued to run ahead of that o f the nation (1 7 7 ). T he District figures fo r M arch showed declines in both residential quarter of 1969 in the Fifth District states increased indicate an 8 .7 % after a 4 .3 % increase in January and a 16.1% in crease in February. Nationally, construction con unem ployment rate for the nation has moved from the 15-year low of 3 .3 % of the labor force in both Janu ary and February of this year up to 3 .4 % in M arch and nonresidential construction contracts, with the latter suffering the greater m onth-to-m onth decline ( 3 5 .5 % ) . A s com pared to the same month a year ago, total construction contracts for the District fell 4 .7 % while in contrast nonresidential construction increased slightly. for total, residential, and nonresidential construction. Building permits issued, an indicator o f future construction activity, showed substantial increases in the District for the first quarter over the last and 3 .5 % in A p ril and M ay. T he quarterly unem ployment rate for the nation was 3 .3 % of the labor force, a significant decline from 3 .7 % for the same period a year ago. A s is evident from the chart, T he unadjusted cumulative index of construction contracts for the first three months of the year was well above the same period last year UNEMPLOYMENT RATES United States Fifth District states with quarterly rates below the national figure were M aryland with 3 .1 % , V irginia with 2 .7 % , and N orth Carolina with 2 .8 % . The weighted average for the District for the first quarter of 1969 was the same as the national rate. In all District states, the unemployment rate was low er than the rates reported for the same period a year earlier, with N orth Carolina showing the greatest decline, from 3 .7 % to 2 .8 % . O n a m onth-to-m onth basis, seasonally adjusted Fifth District (Excluding D. C.) — 5 . 1 W est V irginia , 1 South C aro lina — North C aro lin a 1 nonagricultural employm ent for the District and the nation has increased steadily since O ctober with the M arch increase of 0 .1 % being the quarter of smallest 1969, monthly gain. 1968, M aryland for the District F or the District employm ent was first 3 .4 % 1 V irginia 1 ahead of the same 1968 period while national em ployment increased 3 .7 % from the comparable 0 period a year ago. Construction S ea son a lly a d ju sted total c o n s tr u c tion contracts for the D istrict fell 2 7 .4 % in M arch i ■ □ Source: 2 i 4 Per Cent 1st. Qtr. 1969 □ i 6 8 1st. Q tr. 1968 U. S. Departm ent of Labor and various state d e partm ents of em ploym ent security and labor. 11 quarter of 1968 and over the same period a year earlier. A s shown in the accom panying table, permits in all District states registered considerable increases in the first quarter of 1969 com pared with the last brief flurries o f activity have occurred. Buying for future delivery— an im portant indicator o f conditions in the industry— has recently been confined to the short-term future and has been in small lots. Prices, quarter of 1968 with the exception of M aryland and nevertheless, have remained firm. V irginia, both of which showed very slight declines. H ow ever, in com paring the first quarter o f 1969 to according to trade sources, has been print cloths the similar period of 1968, all District states co n tributed to the quarterly increase. F or A pril the seasonally adjusted District building permit index declined for the second consecutive month to its lowest point since last N ovem ber and was 10.0% below the index for A pril of last year. District construction employment in A pril declined for the second consecutive month to 374,900 but was 2 .8 % above that of A pril 1968. A ll states reported employm ent dow n except South Carolina and the District of Columbia, both of which registered slight increases. Textiles F o r the m o st part, the te x tile in d u stry has been somewhat sluggish during 1969, although T he exception, where mills had been sold well ahead, discouraging further buying for future delivery, and causing prices to ease. R educed production has been typical of the gray g ood s area and other significant sectors o f the industry in 1969, beginning with a decline in military procurem ent of textile good s in the fall o f 1968. A ccord in g to trade sources, the wage increase that has recently been announced will affect most mills. T his increase, which will average about one per cent higher than other preceding increases, will take effect in most cases in July, and for some mills an extra paid holiday as a fringe benefit will also occur. Therefore, industry sources do not anticipate any price cuts on textile goods. Secondary effects are expected on apparel prices in forthcom ing seasons. Recent surveys by this Bank also reveal the slump VALU ATIO N OF BUILDING PERMITS ISSUED in activity that has been evident throughout m ost of the year. T his is evidenced by continuing reports Fifth District States ($ millions) o f low volum es o f new orders, backlog o f orders, and % C hang e 1st Qtr. 1969 D. 4th Qtr. 1968 1 st Qtr. 1968 % Change from 4th from 1st Q tr. 1968 Q tr. 1968 N. C. has A lthough also recent reportedly activity in de the textile industry has appeared on the bearish side 61.1 48.4 30.4 + 26.2 + 100.8 46.7 26.5 - 5.5 + 66.4 140.4 94.7 94.8 + 48.3 + 48.1 appear to be somewhat uncertain, trade sources, nevertheless, feel that the demand for cloth, and 38.8 22.8 21.6 + 69.9 + 79.8 V a. 81.8 87.3 77.1 - + 6.1 W. Va. 10.7 6.9 4.4 + 55.0 + 143.1 376.9 306.8 254.8 + 22.8 + C. 5th Dist. 12 Em ploym ent slightly. 44.1 C. Md. S. shipments. clined 6.4 47.9 and prospects fo r business in the second half of 1969 synthetic blends in particular, seems to be on the upswing. Susan S. Jester