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Federal Regulation of Bank Holding
Fifth District Ports—South Carolina
The Food Stamp Program
The Credit Card Boom



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
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.


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.


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


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


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


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
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


to do so.
Even before the original act was passed, the Board


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>.
(Jiiarlerly listed 34 banks. with aggregate dept Kids

I avim ir



l t«nn*r- / r u n - a a r t h


! t' ov, i n u



intemions to form one bank holding companies, in-

1 n>iiif

cluding the nation A largest and second largest hanks.


Bank »»f America National



ciation, and First Xational City Hank. \<‘w York,






11 o l d i t m

registered hank holding companies at the end of lA v


st ud>it iii

were only S4!hS billion.


But these new. hank-centered oned>ank holding






t hi . -











cum panie'














. lie





t hat







111 >anl e o n












allow eh
W e





Com m ittee

in o r d e r






fn comparison, as noted ahoxe, total deposits for all

so m any



f ield*.

hov> e v e r ,


m eiely



e l i an, ni nj _‘ t i e c d * .




i,» w i d e




of almost S50 billion, which has e tormed or announced

I rt:st & Savings Asso-










n- a- aki i su h u t







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


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.

w o r ld


in la n d

la r g e s t

f r e ig h t

p o rt


th e



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


fr o m


r a n k in g


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


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 h a rle s to n

C a r o lin a 's


o th e r

d e e p w a te r

tw o

s itu a te d

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

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


re c o rd

am ount


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

A c c o rd in g


th e

U n iv e r s ity



. . 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




... ..................................................... ......................

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


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
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
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.


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« « > 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


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
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 <>
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



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



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


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

Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102