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FEDERAL RESERVE BANK OF RICHMOND MONTHLY R E V I E W Federal Regulation of Bank Holding Companies—II Fifth District Ports—South Carolina The Food Stamp Program The Credit Card Boom NOVEMBER 1968 Federal Regulation of Bank Holding In last month’s issue, Part I of this article reviewed the provisions of the Banking Act of 1933 which were applicable to bank holding companies and traced the subsequent several decades of controversy over bank holding company expansion and operations which culminated in the Bank Holding Company A ct of 1956. In this concluding part the principal provisions of the A ct and some of the more important recent trends in bank holding company growth are discussed. The Bank Holding Company Act of 1956 F o llo w ing hearings extending over several years into the need for further Federal regulation of bank holding companies, the Senate Banking and Currency Com mittee concluded in 1955 that “ legislation in the bank holding company field will be adequate if it applies to any company controlling two or more banks.” This was contrary to the long standing position of the Board of Governors of the Federal Reserve System that such legislation should cover companies controlling only a single bank as well. In the course of hearings earlier that year the Board had stated: In one respect we believe that the definition in this bill would not be adequate to effectuate 1 of the 2 main objectives of the legislation. It would not ap ply to a company which controls only one bank and would not, therefore, require such a company to divest itself of its nonbanking interests. Yet, it seems clear that the potential abuses resulting from combination under single control of both banking and nonbanking interests could easily exist in a case in which only one bank is involved. In fact, if the one controlled bank were a large bank, the holding company’s interests in extensive nonbanking busi nesses m ight very well lead to abuses even more serious than if the company controlled two or more very small banks. For these reasons, the Board would continue to urge that, whatever the percentage test may be, the definition should be related to con trol of a single bank. 2 Nevertheless, as finally enacted the Bank H old ing Company Act of 1956 excluded one-bank holding companies from regulation. The Senate report com mented : Your committee did not deem it necessary to in clude within the scope of this bill any company which manages or controls no more than a single bank. It is possible to conjure up visions of m onopo listic control of banking in a given area through ownership of a single bank with many and wide spread branches. However, in the opinion of your committee, no present danger of such control through the bank holding company device threatens to a degree sufficient to warrant inclusion of such a com pany within the scope of this bill. Should legisla tion of that nature prove desirable in the future, the Congress is free to act upon a showing of need for such a law. Accordingly, the coverage of the statute was limited to corporations, business trusts, associations, or similar organizations owning or controlling 25% or more of the voting shares of each of two or more banks, or controlling in any manner the election of a majority of the directors of each of two or more banks, or acting as trustee for shareholders or mem bers who control 25% or more of the voting shares of each of two or more banks. Excluded under the definition were cases where two or more banks are owned by individuals, by partnerships, or by the trustees of a testamentary trust. Later, however, in 1966, the definition was broadened to include long term trusts exercising the specified degree of con trol over two or more banks. All companies meeting the statutory definition at the time the statute was enacted and all new bank holding companies formed thereafter were required to register with the Board of Governors and disclose various types of information as prescribed by the Board. Companies—II Three principal types of activities were regulated: (1 ) the formation and registration of holding com panies, and acquisitions of banks by registered com panies; (2 ) the types of permissible nonbanking businesses authorized for registered companies, with the requirement of divestiture for unauthorized ac tivities; and (3 ) financial and other relationships between registered companies and their subsidiaries. New Companies and Bank Acquisitions Identical factors must be considered by the Board of Gov ernors in every application to form a new holding company and, in the case of existing companies, to acquire the stock or substantially all of the assets of an additional bank. From 1956 until the extensive 1966 amendments, these factors were: (1 ) the finan cial history and condition of the company or com panies and the banks concerned; (2 ) their prospects; (3 ) the character of their management; (4 ) the con venience, needs, and welfare of the communities and the areas concerned; and (5 ) whether or not the effect of the acquisition or merger or consolidation would be to expand the size or extent of the bank holding company system involved beyond limits con sistent with adequate and sound banking, the public interest, and the preservation of competition in the "Held of banking. public utility-type standards relating to “ the con venience, needs, and welfare” of the affected com munities with antitrust-type factors involving com petition and banking concentration, and it grew more intense with enactment of the Bank Merger A ct of 1960, pursuant to which approval of proposed bank mergers or consolidations was made dependent upon factors similar to those embodied in the Holding Company Act. After a lengthy and abrasive legislative battle, both the Bank Merger A ct and the Bank Holding Com pany Act were amended in 1966 to provide uniform standards for judging both proposed mergers or con solidations on the one hand, and proposed holding company formations and acquisitions on the other. The former criteria were replaced with substantially identical language in the amended Bank Merger and Bank Holding Company Acts. The latter Act, as amended, now provides that: The Board shall not approve— (1) Any acquisition or merger or consolidation under [the Bank H olding Company Act] which would result in a monopoly, or which would be in furtherance of any combination or conspiracy to m o nopolize or attempt to monopolize the business of banking in any part of the United States, or (2) Any other proposed acquisition or merger or consolidation under [the Bank H olding Company Act] whose effect in any section of the country may be substantially to lessen competition, or to tend to create a monopoly, or which in any other manner would be in restraint of trade, unless it finds that the anti-competitive effects of the proposed transac tion are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served. The amended statute also provides that “ in every case, the Board shall take into consideration the fi nancial and managerial resources and future pros pects of the company or companies and banks con cerned, and the convenience and needs of the com munity to be served.” Divestiture of Unrelated Businesses A m ajor premise of bank holding company regulation is that For the most part, no problems arose in applying registered companies should not be permitted to en the first three. Increasingly, however, the Board en gage in businesses other than banking, bank-related countered difficulty with the fourth and fifth factors. activities, and the management of banks. A s it pointed out to the Senate Banking and Cur fore, Section 4 (a ) provides that, except as authorized There rency Committee in 1958, “ the major problem has by the Act, no registered holding company shall been the difficulty of balancing considerations affect “ acquire direct or indirect ownership or control of ing competition and the public interest under the any voting shares of any company which is not a fifth factor and those affecting convenience and needs bank,” or, after two years from the date it becomes under the fourth.” a bank holding company, retain direct or indirect Fundamentally, the problem was one of reconciling ownership or control of any voting shares of any 3 company which is not a bank or a bank holding company. It also provides that no registered com pany shall engage in any business other than that of banking, or of managing or controlling banks, or of furnishing services to or performing services for any bank of which it owns 25% or more of the voting shares. There are, however, exceptions to this general principle. Section 4 ( c ) (1 ) of the statute specifically authorizes bank holding companies to acquire and own voting shares of any company engaged solely in : (1 ) holding or operating properties used wholly or substantially by any banking subsidiary of a bank holding company in the operations of the banking subsidiary, or acquired for its future use; (2 ) con ducting a safe-deposit business; (3 ) furnishing services to or performing services for the parent bank holding company and its other subsidiaries ; and (4 ) liquidating assets acquired from the parent bank holding company and its banking subsidiaries. Nine additional exemptions from Section 4 ( c ) per mit registered companies to own shares in companies engaged in certain other types of nonbanking ac tivities under specified conditions, including shares which are of the kinds and amounts eligible for in vestment by national banks, shares of any company which do not include more than 5% of the outstand ing voting shares of such company, and shares of any company if all of its activities are of a financial, fiduciary, or insurance nature, provided the Board of Governors determines such activities to be so closely related to the business of banking as to be a proper incident thereto and as to make it unneces sary for the prohibitions of the A ct to apply in order to carry out the A ct’s purposes. of Governors opposed these absolute prohibitions and instead advocated flexible safeguards limiting loans and investments by bank subsidiaries in the parent company and its other subsidiaries to specified per centages of the capital and surplus of the lending or investing bank, along the lines of the restrictions on lending to or investing in affiliates which had been imposed on member banks of the Federal Reserve System by the Banking A ct of 1933. T o this end, the Board subsequently recommended to Congress the repeal of Section 6 and its replacement with pro visions applying Section 23A of the Federal Reserve Act, relating to loans and other dealings between member banks and their affiliates, to every nonmem ber bank insured by the Federal Deposit Insurance Corporation in the same manner and to the same extent as if it were a member bank. The Board’s proposed amendments were adopted verbatim by Congress in 1966, and at that time it repealed Section 6. All or substantially all banks owned by bank holding companies are insured by the Federal Deposit Insurance Corporation. A s a consequence, under present law no insured bank sub sidiary of a holding company may lend to or invest in the parent holding company or any other single affiliate an amount in excess of 10% of the capital and surplus of the lending or investing bank, or in the case of all such affiliates taken together, in an amount in excess of 20% of the bank’s capital and surplus. Again, however, these limitations do not apply to certain specified types of affiliates or to certain specified types of stocks, bonds, debentures, and other obligations. Registered Companies and Their Subsidiaries Section 6 of the Bank Holding Company A ct as en acted in 1956 entirely prohibited any subsidiary bank from investing any of its funds in, or from making any loan, discount, or extension of credit to, its parent bank holding company or any other subsidiary of the holding company, with certain limited excep tions. Other limitations and prohibitions were also placed on dealings among the holding company, its bank subsidiaries, and other subsidiaries. The net effect was to make it difficult for registered holding companies to perform one of their principal functions, Acquisitions Across State Lines In addition to the three types of regulation described above, the Act contains one absolute prohibition. Section 3 (d ) forbids approval by the Board of Governors of any application which would permit any bank holding company or any subsidiary to acquire any voting shares of, or interest in, or substantially all of the assets of, any additional bank located outside of the state in which the operations of the holding com=_ pany’s banking subsidiaries were principally engaged as of July 1, 1966 (o r the date on which the com pany became a bank holding company, whichever is later) unless the acquisition of shares or assets of a state bank by an out-of-state holding company is, in the facilitation of loan participations and other joint the words of the Act, “ specifically authorized by the credit transactions. 1956 it was statute laws of the State in which such bank is lo easier for correspondent banks to take joint action A t times after cated, by language to that effect and not merely by than for bank subsidiaries of a holding company implication.” to do so. Even before the original act was passed, the Board 4 The effect of this provision is to confine further bank acquisitions by holding companies in existence at the time tin* Act became effective t<* tin* states in which the total depo>h> of their banking subsidiarie> are large>t, and t<‘ limit ac<|ui>.ition> asi<i operation^ bv holding e<intpanie-, approxe.l after that date to a single >tate. R egistered Bank H olding C om pany G rowth, 1958-1968 A - •dtuwn by the accom panying table, during tin* nine-year period from i )ecenther , BbS through 1kvember 31. !*'<>". the number <>f registered holding c< >mpanies increased from 4l? to 1 4. the utn 11 her nf banks owned J*\- >nch companies p'tnv from 4 IS fn (>03, and aggregate deposits controlled In them more than tripled, from jn>t tinder Sb*,0 billion t>> S4AH billion. Ifowexer, the fastest growth has **e- curred since P I n d e e d , in the first -ix months of the current \ear nine new la dding companies with 22 hanks having .aggregate1 deposits of almost $1., billion were approved h\ the i »<>ard <if Go\enn»rs. O ne-Bank H olding Com panies A ccording t>> a re cent edition of the futnk Sloiic ijmirUiiy, “ no devel ounpanies are only a fraction of the total number of unregulated Com panies owniny the stock of a single hank. ( )n September 23, l^oS. 77/e American Ranker reported that “ ahout 650” onedsank holding companies had been in\ ited to m eet in Chicago "to discuss some of their problems.” A week later the same pub lication reported that “ representatives of about 20(» one-hank holding companie> voted Saturday to set up their own trade association and to resist any attempt to restrict their nouhanking activities." ft was .also reported that the new organization, to be known as the ".Association of Corporate Owners of Cine Bank," is considering establishment of its own lobbying operation in Washington, The dramatically swift spread of the one-bank holding company idea has not gone unnoticed by the hank super\i> o ry agencies or hv Congress. Testb tying before the ! fottse Banking and Currency C om mittee on September 25, Chairman William McC. Martin of the Board of Governors of the Federal Re s e n <• S w e m >tated ; opment in recent years ha-' >->tirted hanks and their .-'toekholder,'' as has the . , . ‘<>ned>ank’ holding com pany. This \ehicle enables banks to expand iheir tinancial services and to enter new tield>. I h< (Jiiarlerly listed 34 banks. with aggregate dept Kids I avim ir -txtuld he that l t«nn*r- / r u n - a a r t h tinues to !4 t' ov, i n u limits, character of to intemions to form one bank holding companies, in- 1 n>iiif cluding the nation A largest and second largest hanks. companies Bank »»f America National other it ciation, and First Xational City Hank. \<‘w York, out hank" ward are the 11 o l d i t m registered hank holding companies at the end of lA v rently st ud>it iii were only S4!hS billion. the But these new. hank-centered oned>ank holding I to to establish believe need of for C<>mpan\ t hi . - -trm'tiife of Hot our movement, it- reasonable >erviee< than this otie-hank and iveent cum panie' l i t <1>iin trend in re-examination onh The Board ijnvstiosi tor to happen further Mich a t<* therefore, .‘ l i e Act. are principal could t hat important raimncatioio. this ha- further cus- 111 >anl e o n obliged, that hanks tluir The rather feel move establishment bank basic incidental allow eh W e da}', that meet titianeial Com m ittee in o r d e r underscore- to that eacti banking- fn comparison, as noted ahoxe, total deposits for all so m any the >our f ield*. die hov> e v e r , appropriate m eiely agreement latitude e l i an, ni nj _‘ t i e c d * . auuarent unless heeimie i,» w i d e -ome believe, more of almost S50 billion, which has e tormed or announced I rt:st & Savings Asso- there allowed into to hank.' or the i^ cur which has n- a- aki i su h u t for econonn. William I'pshiriK' 5 □ v it a l it y o f S o u th C a ro lin a 's e c o n o m y h in g e s to a n e v e r-in c re a s in g d e g re e o n th e S ta te 's th re e m o d e rn , w e ll- e q u ip p e d p o rts . A m a jo r a ttr a c tio n f o r n e w in d u s try , th e s e a p o rts s a v e th e 1 ,2 2 4 lo c a l fir m s u s in g s h ip p in g f a c ilitie s a t le a s t $5 m illio n r a te s . a n n u a lly □ The C h a rle s to n , lo c a te d C o o p e r R iv e r B a y. of w o r ld in in la n d la r g e s t f r e ig h t p o rt on th e is at A s h le y - S e rv in g as a c e n te r c o m m e rc e fo r n e a r ly th re e c e n tu rie s . C h a rle s to n in th e p a s t 2 6 y e a rs ha s advanced fr o m a r a n k in g of 6 5 th a m o n g U. S. p o rts to 1 3 th b a s e d o n v a lu e o f f o r e ig n tr a d e h a n d le d . O v e r 1 0 0 s h ip p in g lin e s c a ll a t th e p o rt, 5 0 o n a r e g u la r b a sis. C h a rle s to n re c e n tly has m o v e d fr o m p r im a r ily " b u lk c a r g o " (c o a l, lu m b e r, etc.) in to h ig h v a lu e " g e n e r a l c a r g o " (te x tile s , m a c h in e r y , m a n u fa c tu r e d p ro d u c ts , etc.), w h ic h p o rt. is th e b re a d and b u tte r c f a n y In re c e n t y e a rs C h a rle s to n ha s e m e rg e d as th e n u m b e r o n e w o o l a n d c o tto n im p o r t c e n te r in th e n a tio n . Its m a r g in a l, ra th e r th a n f in g e r , p ie rs a n d its p r o x im it y to th e o p e n sea m a k e it id e a lly s u ite d a p p r o x im a t e ly fo r c o n ta in e riz e d h a lf w a y te rm in a ls , G e o rg e to w n a n d b e tw e e n s h ip p in g . S o u th P o rt R o y a l. □ C a r o lin a 's C h a rle s to n is o th e r d e e p w a te r tw o B oth o p e n e d in th e la te 1 9 5 0 's a f t e r d r e d g in g o p e ra tio n s a n d o th e r h a r b o r im p ro v e m e n ts w e re c o m p le te d . G e o rg e to w n is 6 0 m ile s n o rth o f C h a rle s to n a n d is th e P a lm e tto S ta te 's seco nd la rg e s t p o rt. a n d o il a re its m a jo r e x p o r t c o m m o d itie s . C h a rle s to n . B e a u fo rt s itu a te d Since M a y 1 9 6 8 a ll o f P o rt R o y a l's d o c k f a c ilitie s h a v e b e e n le a s e d to th e P ort R o yal C la y C o m p a n y . in S ou th C a ro lin a . Lum ber P o rt R o y a l, a t B e a u fo rt, is 5 0 m ile s s o u th o f □ In th e fis c a l y e a r e n d e d J u n e 30 , 1 9 6 8 , m a n y p o r t re c o rd s w e r e set C a rg o to n n a g e h a n d le d rose to 2 ,2 5 8 ,0 4 7 to n s w it h 1 ,3 9 3 sh ip s c a llin g . to n a c c o u n te d f o r th e g re a te s t p a r t w ith 1 ,7 7 8 ,2 1 2 to n s a n d C h a rle s 1 ,2 9 4 s h ip s ; G e o rg e to w n h a n d le d 4 3 1 ,6 2 1 to n s a n d 81 sh ip s ; a n d P o rt R o ya l, in t w o m o n th s o f o p e r a tio n s u n d e r th e P o rt R o ya l C la y C o m p a n y , m o v e c 1 ,3 8 4 to n s o f c la y w it h tw o ships c a llin g . The C h a rle s to n C u sto m s $ 3 7 ,4 0 6 ,6 8 1 , a n d g r a in e x p o rts a t C h a rle s to n a d v a n c e d to 4 9 1 ,6 4 7 to n s . m e rce a t a ll S o u th C a r o lin a p o rts re a c h e d a n e w h ig h o f $ 4 7 8 .5 C a ro lin a 's B u re a u o f B usiness a n d E con om ic R esearch: m illio n . D is tric t c o lle c te d a re c o rd am ount oi In th e 1 9 6 7 c a le n d a r y e a r, f o r e ig n com Q A c c o rd in g to th e U n iv e r s ity of South . . th e m a r k e t p o te n tia l f o r S o u th C a r o lin a 's p o rts is $ 4 b illio r in f o reig n tr a d e a y e a r , te n tim e s t h e ir p re s e n t a c tu a l b u sin e ss o f a b o u t $ 4 0 0 m illio n a y e a r ." Photograph Courtesy South Carolina State Ports Authorit V .. . ... ..................................................... ...................... The Food S t a m p P r o g r a m The Food Stamp Program was instituted as a means of supplementing the food budgets of low in come families who might otherwise suffer from inadequate diets. The program was never intended as a general income supplement; rather it was based on the idea that qualifying families would spend their normal food budget to buy stamps of a greater value. Use of the stamps is limited by law to purchases of food items. H o w the P rogram W o rk s T h e am ount of food stamps received by a qualifying family is equal to that assumed necessary to purchase, in the family’s locale, a nutritionally adequate low-cost diet. For example, in Baltimore, Maryland, a family of six with an in come per month of $120-129.99 could spend $56 on $102 worth of food stamps, thus receiving $46 in bonus purchasing power. In general, the higher the income, the more the family pays for the stamps and the smaller the bonus purchasing power. The guide lines for eligibility are family size and income. The Consumer and Marketing Service of the U. S. Department of Agriculture administers the program, but state and local authorities are closely involved in its implementation. Local offices decide what families are eligible to participate and handle the dayto-day operations. Many of these offices provide educational services to teach recipients how to use the coupons wisely. Some hold consumer food economics classes that cover such topics as budgeting, nutrition, and meal planning. Other offices may provide shopping guides, suggested menus, or even simple recipes. The edu cational effort is geared to teaching the shopper how to provide the best diet with a minimum outlay. When the Food Stamp Program comes to an area, it is usually preceded by an extensive advertising campaign to explain it to prospective users. While the ordinary advertising media are frequently em ployed, the program may also be discussed in schools in the hope that children will pass the information on to their parents. In addition, signs may be displayed in public areas. Poster-making contests for children have become a popular method of advertisement. In addition to the broad public educational pro 8 FRASER Digitized for gram, instructional sessions are held with local retail grocers who wish to be authorized by the U S D A to participate. Similarly, since the stamps are cleared through the banking system, local commercial banks are advised of the program’s characteristics. H istory of the P rogram Proposals for the estab lishment of food stamp plans were not uncommon in the depression-ridden 1930’s. In fact, there was a food stamp program in operation between 1939 and 1943, but it was subsequently suspended when war time conditions sharply reduced unemployment. Then in 1961 under Congressional authorization the U S D A launched a pilot program in eight areas scattered across the country. Encouraged with its success, the U SD A in 1962 extended the program to cover a total of 33 areas. In the following year, it extended it to embrace a total of 40 counties and three cities. The Food Stamp Act of August 1964 placed the pilot programs on a permanent basis and added 47 localities. A t that time the program covered 90 areas in 40 states and the District of Columbia. Since 1964 the program has been expanded until it now includes over 1,200 localities in all but seven states. The Food Stamp A ct of 1964 authorizes expansion to any area or locality which desires to participate. Today some 2.6 million individuals receive food stamp as sistance. Since 1964, numerous changes have been made in the details of the program, all tending to liberalize and broaden its coverage. Persons in the lowest income category now need only 50 cents per month to purchase stamps sufficient to provide adequate nu trition, with a maximum cost of $3 per family re gardless of the number of members. Families that cannot afford even this token amount, are often pro vided the stamps by the county free of charge. Then, too, in order to make the initial purchase easier, the price charged for the first month’s supply of stamps has been cut in half. This measure is directed partly at helping recipients switch from a credit to a cash basis of expenditures, and partly at helping them to start using food stamps. Moreover, “ pro gram aides” are now being hired from the poor com munities the}- are to serve. These aides art- trained in the operations of the program and then sent out to instruct qualifying families. F ood Stamps vs. D irect C om m odity D istribution hi s<)ine measure, the present Food Stamp Program grew out of, and was designed to remedv deficiencies in. the C S D A ’s District Commodity Distribution Program. The latter program is an earlier food assistance plan dating from the 1930’s and centering around surplus a m im odities acquired by the Com modity Credit Corporation under the agricultural price support program. Ctider the P S D A ’s Direct Commodity Distribution arrangements, food assistanee is provided direct!)’ to needy families out of these agricultural surpluses. Critics of direct distribution noted that as a device for insuring minimum dietary standards among needy families, the program suffered from important .shortcomtsi” s. It was pointed out, for example, that the kinds of food that were distributed were neces sarily limited. Moreover, it was noted that the pro gram failed to take advantage of the highly efficient distributive machinery of the marketplace, but rather required a cumbersome and expensive administrative apparatus. Since fond stamps are used to purchase most food items at ordinary retail food stores, they avoid the disadvantage of limited variety and ako make full use of commercial markets. P ro ponents of the Food Stamp Program also argue that, by comparison with d m ct distribution, the food stamp approach is less grating on individual pride .and that it preserves some degree of personal re sponsibility for family food budgets. Rventualiy the LJSDA’s Direct Distribution Pro gram will be phased out and replaced entire!) 1>\ food siamps. At present it is against regulations for both programs to operate simultaneous!) in a given area. Counties participating in the Direct Distribu tion Program must first drop this program before instituting f o o d .stamps. Sometimes the Direct Dis tribution Program is a preface to food stamps, though an area max move directly into the Pood Stamp Program, T h e F ood Stam p C oupon hood stamp coupons are issued in two denominations, 50 cents and $2, The smaller denomination is orange in colur and the larger is blue. They are liabilities of the C. S. Treas ury Department and are protected by the same laws as the nation's currency. They are produced by the Bureau of Kngraving and Printing with the same effort and skill that go into the production of cu r rency. The paper used is similar to that used for p« >stage stamps. R egulations on the U se o f C oupons hood co u pons may be used, in the same way as cash, to pur chase most food items in any licensed loud store. They may not be used to purchase nonfood items, such as paper products, cigarettes, or alcoholic he\ erages, nor can they be exchanged for am item clearly la b e le d as imported or any meats or meat products that the grocer knows are imported. In this connection the burden of compliance lies both with the grocer and the food stamp customer. Moreover, the stamps cannot be used to pay charge accounts. They can, however, be used to cover excise or sales taxes on eligible items. 9 Retailers participating in the program must also follow fairly closely specified rules. The I ' S I) \ issues to each participating" retailer a numbered Authorization Card, which must he kept on the re tailer's premises. The number on the Authorization Card must appear as a part of the retailer’s endorse ment when stamps are presented for redemption. The retailer must also dispkn at all times the I'S D A Official Food Fist, which enumerate-, the kinds of items the stamps may be exchanged for. The grocer cannot give* cash for change in food stamp transactions. He will ordinarily save several 50-cent coupons for change purposes, ff the amount of change due is less than 50 cents, he will is>ue a credit slip for the exact amount. The coupons are issued in books, on the hack of which each recipient is required, at the time and place of receipt, to affix his signature. Participating grocers are cautioned to check for signatures before removing coupons. They are also cautioned not to accept loose $2 coupons in payment of purchases. The coupons may be distributed directly h\ local welfare departments, who also administer the p ro gram, or distribution can be handled through com mercial banks, with local banks bidding competitively on the amount they will charge to handle the dis tribution. Distributing banks, of course, have no control over who receives the stamps. This is .still determined by the welfare or other state organization administering the program. Coupon R edem ption Food stamps must be Used b\ the purchaser to buy f« « >d and cannot be bought and sold as a negotiable instrument. When they arc received in a retail establishment, the retailer may present them for redemption through his commercial bank or he may use them to pay his wholesale grocer Digitized 10for FRASER bill. In the latter case, the wholesale grocer will then deposit the stamps with his commercial bank for re demption. Ordinarily the retailer will deposit his food stamp receipts along with his cash receipts with his banker. Any commercial bank can accept a properly en dorsed coupon. X o further certificate>n is required by the 1 'Si >A. The banking connmmitv treats die stamps as cash except that they cannot count them as vault cash when computing reserves. Commercial banks forward the coupons, hound in bundles of 100 of like denominations, directly to their Federal Reserve Bank. At the Resen e Banks, im mediate credit is given for the face amount although adjustments may later be made as the coupons are counted and checked for genuineness. In the case of member banks, the face amount is credited to the account of the sending bank. With nonmember banks, the amount may be credited to the account of a correspondent bank or, at the option of the send ing bank, pa\ meiit may be made by cashier's check. Canceled f<« *d coupons are not returned to the I A D A . in the Fifth District, the Baltimore and Charlotte Branches incinerate them. At the Rich mond Office, the stamps are destroy ed by maceration. This is done under the supervision of a team not otherwise involved in the functioning of the Food Stamp Program, Destruction generally occurs either on the flay of receipt or no later than the day after. W hen this accomplished, the Reserve Bank, acting as fiscal ain-it t of the Treasury, charge> the F S DA through a U. S. Treasury account kept tor the purpose. For the mouths of April. .May. and June of this year, a monthly average of 3.4/0,032 coupons were redeemed in the Fifth District. The Richmond <>f~ tice handled a monthly average of 2.122,<>t>t>, com pared with 1,052 230 at Baltimore and only 304,127 at Charlotte. T h e P rogram in the Fifth D istrict All Fifth I >is- trict states participate to some extent in the Food Stamp Program. ! \articipation is heaviest in West Virginia and the District of Columbia, both of which ha\e 1 00'e coverage. In terms of the fraction of the population receiving food stamps, both West V ir ginia and the 1)istrict of Columbia run far ahead of other Fifth District states. At the other extreme among Fifth District states, Virginia has coverage in only three comities and four cities. Data on par ticipation by Fifth District states is shown in the two tables. Charlotte l>, Carmichael THE CREDIT Since the inception of hank credit-card and checkcredit plans in the early 1t.|5()V their growth lias been characterized by periods of concentrated expan sion. By far the most rapid growth has occurred in {he period since 1(^ ><>. The first flurry of credit card activity occurred in 1952 and 1**53 when some 100 banks, mostly small ones, instituted plans. Mam* of these banks, however, failed to realize the profit which had been expected, with the result that many plans were discontinued. Nevertheless, by the start of 1<>5b there were 27 banks offering credit-card plans. The next burst of interest came in 1^58 and I95g vdieit some of the large banks in the country entered the field for the first time with the conviction that the)' could overcome the high initial costs of new plans. At the same time, check-credit plans began to emerge in force as a less costly alternative. In the recent burst of activity most of the large hanks have undertaken one or both types of credit. Fur thermore. during the recent period, the local char acter of most earlier plans has been replaced by broader, national coverage. The first experience in the Fifth District with bank credit cards occurred in 1953 when two banks undertook credit-card programs. I hiring the 19581959 period one additional District hank adopted a credit-card plan and ten banks instituted check-credit arrangements. The fullest impact of the most recent expansion has been felt in the District in 196/ and CARD BOOM 1(H>8. During 1967 two more hanks undertook credit-card programs and the number of check-credit plans reached 28. A t the same time a nonhank credit card, American E xpress- - Kxecutive Credit, was started in seven Fifth I)istrict hanks. On December 30, 19<>7 credit outstanding for all bank credit-card and related plans in the Fifth District reached $57,3 million. This is not the full story, however, for the greatest growth has occurred since December of last year. Bank Credit Cards Bank credit cards are a means of charging retail purchases through an agreement among the issuing bank, participating merchants, and individual cardholders. On June 2(K 19( >8 nine Fifth District hanks reported credit-card plans with $47.2 million of outstanding credit, an increase of more than 2(tr/f from December 1^07 to June. From December of last year to the present the number of District banks with credit-card programs has grown from five banks to ten banks and one holding com pany with nine affiliates. Only two of the plans are local bank plans while the rest are associated with nationwide credit-card systems. The nationwide systems, which emerged in the past two years, feature interchange privileges, by which participating merchants across the country honor all cards of banks in the system. From January through October of this year, 51 District banks announced 11 plans for, or put into operation, credit-card programs associated with a national system. One of the nation wide systems, BankAmericard, is honored in 36 states, and has 8.2 million cardholders, and over 200,000 participating merchants. Banks licensed to partici pate in this plan can, in turn, enroll agency banks to distribute cards in their areas. Licensee banks, how ever, are the only banks which carry outstanding credit on their books. The other nationwide system is Interbank Card, Inc. Interbank Card is honored by 185,000 outlets in 26 states, and is held by nearly 9.7 million card holders. Banks belonging to the association may operate local plans under their own name and join Interbank for the interchange privilege. T o identify member banks, the Interbank symbol (i) appears on the credit card. Four District banks use the Inter bank Card. T w o of these have incorporated the card with their local plan. The other two District banks affiliated with Inter bank Card use it in conjunction with Master Charge Card, which was developed by the Western States Bankcard Association. A former private credit-card organization recently acquired by a Fifth District bank is also being converted to this program. A n other bank and an association of 37 banks in Virginia. North Carolina, and South Carolina will begin oper ation of Master Charge in early 1969. Check-Credit A n d Other Plans A check-credit plan requires only a two-party agreement, bank and customer. Credit is extended by permitting over drafts on regular checking accounts or through writ ing checks on a special account. Both plans allow for predetermined amounts of credit and permit the loan to be repaid on a revolving credit basis. A bank can also extend credit to a customer through the use of a nonbank credit card, such as American Express or Carte Blanche. Under this agreement the cardholder can obtain credit on a revolving basis. He can also receive cash advances upon request from the bank. These cards are used for travel and enter tainment expenses as well as for retail purchases, and are honored in this country and abroad. The non bank credit card offered in the Fifth District is Am er ican Express— Executive Credit. Outstandings of check-credit and other plans for 35 Fifth District banks amounted to $19.8 million in December 1967. A s of June 30, 1968, 18 addition al banks were operating these programs. The major portion of this growth can be attributed to the en trance of a holding company and its affiliates into the check-credit field. In June the outstanding credit under these 53 plans reached $27.5 million. Since June two other plans have been announced, a checkcredit and an American Express program. T otal Credit A s the num ber of new credit-card and related plans has mushroomed and existing plans have grown in size, the volume of credit outstanding under such programs has also grown. A s seen in the accompanying table, such credit outstanding at Fifth District banks in June totaled nearly $75 mil lion. This represented a 30.5% increase over the previous six months. Although the percentage growth in that period was larger for check-credit and other plans, the absolute increase in credit-card financing was some $2 million larger. A t the end of June, credit-card financing accounted for 63% of bank credit extended through credit cards and re lated plans. Eunice R. Dougherty