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FEDERAL

RE SE RVE




BANK

OF

RICHMOND

OCTOBER

1966

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FOREIGN LENDING BY BANKS
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THE IMPACT OF RECENT POLICIES
Foreign lending operations of United States com ­
mercial banks expanded greatly in the last ten years,
following a long period of relative inactivity during
the depressed 1930’s and the war-torn 1940’s.
Between 1955 and 1965, total claims on foreigners
reported by these banks increased fivefold, reaching
a total of more than $12 billion in the latter year.
This growth in the international activities of U. S.
commercial banks was greatly influenced by a number
of developments in the postwar period. One of
these, of course, was the emergence of the dollar
as the keystone of the international financial system.
Even more important was the freeing of international
trade and payments from the numerous controls and
restraints of the 1930’s and the 1940’s, a movement
that culminated in the return to currency converti­
bility by the major trading countries in the late
1950’s. Other important changes included the crea­
tion of the Common Market in Europe and the
emergence and drive toward economic development
of many new nations in Asia and Africa. Indicative
of the rapid growth in international transactions was
the threefold expansion in world trade between 1950
and 1965.
The growth in the volume of international trans­
actions of U. S. commercial banks was accompanied
by a growth in the number of banks participating
in such operations. A t one time a handful of banks
located in a few cities accounted for almost all inter­
national banking in the United States, with the New
Y ork City banks playing a dominant role. Inter­
national operations of U. S. banks are still highly
concentrated, and New Y ork banks still account for
a large part of total credit to foreigners, particularly
of term loans. Seven banks hold two-thirds of the
foreign credits covered by the Voluntary Foreign
Credit Restraint Program, and 16 banks hold over
80% of the total. Nevertheless, banks throughout
the country are assuming an increasingly important
role in this growing area of banking. A number of
Digitized for 2
FRASER


banks have established international departments in
recent years and the number of subsidiary corpora­
tions formed to engage in international banking or
finance (E dge A ct or Agreement corporations) has
more than doubled in the last five years.
Fifth District banks, although accounting for a
very small part of total foreign lending by U. S.
banks, nevertheless have shown considerable interest
in this type of lending in recent years. But the ex­
pansion of foreign activity of District banks, like
that of banks throughout the country, has been slowed
in the last two years, first, by policies designed to
improve our balance of payments position, and
second, by the increasingly tight monetary con­
ditions in this country.
Balance of Payments Policy T h e deficit in our
international balance of payments has constituted a
serious problem since 1958. In the first three years
of this period, the deficit measured on a liquidity
basis averaged about $3.7 billion per year. From
1961 through 1964 it ranged between $2.2 and $2.8
billion, and would have been larger each year but
for special government transactions, such as pre­
payment of debt by foreign governments. From
1958 through 1963 the United States gold stock de­
clined more than $7 billion.
A s it became increasingly apparent that action
was required to reduce the size of these deficits and
to curtail our gold losses, an attempt was made to
reduce overseas military expenditures and govern­
ment grants and loans to foreigners. But the size
of these items was dictated primarily by military and
political considerations, and significant reductions
proved difficult to achieve.

Military expenditures

remained almost unchanged from 1959 through 1963,
while U. S. Government grants and capital outflows
rose from $3.1 billion in 1958 to $4.5 billion in 1963.
Consequently, the program to eliminate the deficit
was aimed at reducing the outflow of private capital.

The initial phase of this program involved the
imposition of what was called an “ interest equaliza­
tion tax” on the sale of securities to Americans by
foreigners. The quarterly outflow of private capital
exceeded $1 billion in the fourth quarter of 1962
and the first quarter of 1963, and it jumped to $1.7
billion in the second quarter of the latter year. A l­
though direct investment was the most important
single item in this flow, new issues of foreign se­
curities in this country totaled around $500 million
in each of the three quarters. In an effort to halt
this large and apparently growing outflow of capital,
President Kennedy proposed a tax on purchases of
foreign securities by residents of the United States,
to be effective July 19, 1963.
Although more than a year passed before the pro­
posal became law, the fact that the provisions of the
law were to be retroactive to July 19, 1963, com ­
bined with uncertainity as to the final provisions of
the legislation caused it to have an immediate impact
on capital flows. The net outflow of private capital
was sharply reduced in the third quarter of 1963,
and the volume of foreign securities newly issued in
the United States fell by two-thirds. Sales of
foreign securities declined still further in the fourth
quarter, but outflows of other forms of private capital
rose sharply, with bank claims on foreigners increas­
ing by more than $1 billion. Part of the increase
in bank credit was seasonal, but there is reason to
believe that a substantial portion of it represented
a substitution of bank credit for bond financing.
The effect of the proposed tax in reducing sales
of foreign securities in the United States continued
throughout the first three quarters of 1964, and the
apparent substitution of bank credit for other types
of financing also continued. The bill which finally
became law in early September, 1964, required
Americans buying securities from foreigners to pay
a tax equal to 15% of the purchase price of stocks
and a tax ranging up to 15% of the price of debt
securities with maturities in excess of three years.
Securities of underdeveloped countries were not
subject to the tax and those of countries heavily
dependent upon United States capital could be ex­
empted by the President. Bank loans were also
exempt, but the President was given the authority
to make the tax applicable to bank loans with ma­
turities in excess of one year if in his judgment
bank credit was being substituted for security issues
that would have been subject to the tax.
W ith passage of the legislation, most of the un­
certainties surrounding it were removed and further
changes in capital flows resulted. In the fourth
quarter of 1964, there were almost no new issues



of securities subject to the tax, but issues exempt
from the tax rose sharply, reflecting the backlog
that had built up during the period Congress was
considering the legislation. Bank loans and ac­
ceptance credits also rose sharply, especially to Japan
and the industrialized countries of western Europe.
The outflow of capital abated somewhat in the
early months of 1965, but it was still high in com ­
parison with comparable periods of earlier years.
The build-up in long-term bank loans to countries
whose securities were subject to the interest equali­
zation tax was especially rapid. On February 10,
President Johnson sent a special message to Congress
in which he outlined a program to deal with the in­
creasingly serious balance of payments problem.
Am ong other things, this program extended the in­
terest equalization tax to bank loans having ma­
turities in excess of one year, but bank loans to
borrowers in less developed countries as well as
loans to finance exports were exempted from the
tax. The tax on securities was broadened to include
those with maturities of more than one year. In
addition to these measures, the President proposed
the inauguration of the voluntary foreign credit
restraint program.
Voluntary Foreign Credit Restraint Program
This program was aimed at reducing the outflow of
capital by enlisting the voluntary cooperation of com ­
mercial banks, nonbank financial institutions, and
nonfinancial business concerns. The Federal Reserve
System was assigned responsibility for supervising
that part of the program relating to banks and other
financial institutions, while the Department of Com­
merce was given responsibility for the program for
non-financial businesses.
Under guidelines issued by the Federal Reserve
System, each bank was requested to keep its out­
standing credits to foreigners in 1965 below 105%
of the amount outstanding at the end of 1964 (the
ceiling figure for 1966 was arrived at by adding
1% each quarter to the 1965 target). Within these
overall limits a system of priorities was established.
Export credits were given absolute priority, while
among nonexport credits banks were requested to
give priority to less developed countries.
Finally,
banks were advised to use caution in cutting back
credit to developed countries that were highly de­
pendent upon United States capital or that were
themselves experiencing acute balance of payments
problems.
Monetary Restraint T h rou gh ou t m uch o f the
expansion that began in 1961, the development of
monetary policy was influenced by conflicting ob­

3

jectives. The relatively high levels of unemploy­
ment and unused capacity that characterized the first
several years of this period called for monetary ease
with credit readily available at low interest rates,
while the traditional prescription for a persistent
balance of payments deficit called for tight money
and high interest rates. A n effort was made to
reconcile these conflicting goals by keeping short
term interest rates up for balance of payments pur­
poses and keeping long term rates down to avoid
harmful effects on the domestic economy.
Although the importance of the international pay­
ments deficit was clearly recognized, throughout the
period of expansion the domestic economy was ac­
corded top priority by monetary policymakers. The
discount rate was raised in July 1963 as a part of
President Kennedy’s balance of payments program,
and again in November 1964 in response to a 2%
boost in the British bank rate. Although these
moves resulted in higher money market rates and
reduced marginal reserve availability, there was little
indication of reduced willingness or ability to lend
on the part of banks. Throughout 1963 and 1964,
member banks’ excess reserves exceeded their bor­
rowings from Federal Reserve Banks and they e x ­
panded their total loans at a rapid rate.
Following the announcement of President John­
son’s balance of payments program in early 1965,
the Federal Reserve moved to support this program
through reducing further the availability of loanable
funds to the banking system. Loan demand re­
mained strong, however, and in the second half of

D ec.
1964

4



M a r.

Ju n e

1965 the intensified war effort in Viet Nam together
with a very high level of business investment put
increased pressures on the banking system. The ac­
companying chart showing selected interest rate
series suggests that the economy first began to feel
the pinch of tight money in the third quarter of 1965,
although the liquidity of the banking system had
been declining for some time prior to that.
T o dampen inflationary pressures and correct dis­
tortions in the structure of interest rates, the Federal
Reserve raised the discount rate by one-half per­
centage point in early December 1965, and at the
same time the rate ceiling on time deposits was
raised to 5^2%. Total reserves of the banking
system have continued to grow since that time, but
the continued strong loan demand has steadily re­
duced the liquidity of the banking system. This has
been reflected in sharply rising interest rates and re­
duced availability of credit. The bank prime rate
has been raised four times in the last year, for ex­
ample, with the present 6 % rate being the highest
since this rate came into use in the 1930’s. Rates
on money market instruments have risen corres­
pondingly, with the three month Treasury bill yield
at more than 5% .
Effects on Foreign Lending

pronounced

reduced availability of loanable funds on the foreign
lending of commercial banks is clearly shown in the
accompanying chart which is based on data supplied
by Fifth District banks reporting under the voluntary

Sept.
1965

T he

impact of the balance of payments program and the

Dec.

June

M ar.
1966

foreign credit restraint program. Foreign credits
of these 17 banks fell by more than 30% in the first
three quarters of 1965, and although there was an
increase in the final quarter, the decline in the first
half of 1966 was even sharper than that of the year
before. A s a result, at the end of June 1966, foreign
credits falling under the voluntary credit restraint
program totaled less than a third of the amount out­
standing at the end of December 1964. Most of the
decline in the first three quarters of 1965 may be
attributed to the voluntary credit restraint program.
But although the even sharper drop in the first half
of 1966 reflects the continued efforts of banks to
comply with the spirit of this program, the increas­
ingly large gap between the guideline ceiling and
actual credits outstanding suggests that the growing
scarcity of loanable funds was the dominant factor.
Banks that are most likely to be interested in ex­
panding their foreign operations are those that have
felt the credit pinch most severely. In performing
the necessary rationing of bank credit, these banks
have in some instances turned down foreign bor­
rowers in favor of domestic clients and perhaps in
many instances they have failed to pursue overseas
opportunities as aggressively as they would in a
period of easy money.
Foreign lending constitutes only a small part of
the total lending of Fifth District banks and the
foreign loans of these banks account for only a small
fraction of the national total. It is not surprising,
therefore, to find that the decline in this type of lend­
ing for Fifth District banks was much more dra­

matic than for the banking system as a whole. Never­
theless, foreign loans for all U. S. commercial banks
have declined significantly since December 1964, and
total credits subject to the voluntary restraint pro­
gram are approximately $1 billion below the target
ceiling.
O utlook for the Future Foreign operations of
Fifth District banks are likely to continue to be
dominated in the near future by the balance of pay­
ments program and by the continuing need to meet
credit demands of domestic customers. No one can
foresee how long these factors will be dominant. The
voluntary credit restraint program was designed as
a temporary measure to provide time for more basic
adjustments to be made, but the payments problem
is still far from being solved. Conditions in do­
mestic money and capital markets reflect the high
level of economic activity and the existing monetaryfiscal policy mix. It must be assumed, however,
that we will eventually balance our external accounts
without the aid of measures such as the voluntary
credit restraint program and that the intense demand
for loanable funds will abate.

When these things

occur, the outlook for the renewed development of
foreign operations by Fifth District banks appears
very favorable.

The rapid industrial development

of the area and the growing resources of District
banks, combined with an expanding flow of foreign
commerce through excellent port facilities, provide
the basis for a sound expansion of foreign lend­
ing by District banks.

SELECTED INTEREST RATES

S t a t e a n d L o ca l A a a

1961
Source:

1962

1963

Board of Governors, Federal Reserve System.




.5

SELECTED STATISTICS WITH RECENT A V E R A G E A N N U A L GRO W TH RATES




Annual G row th Rate
in the Period Indicated

Charleston SM SA

Charleston

(Most Recent Year)

larlesto n , the c a p ita l <
is situ a te d on the Kan<
jst-ce n tra l p a rt o f the
\e tro p o lita n

S ta tistic a l

K a n a w h a C o u n ty , in
The a re a 's a b u n d a n t
irces, its p o tential laboi
p o rtatio n b y both wa1
om e of the co un try's
lie s .
T o d a y , the C h ari
a p id ly d e v e lo p in g ind
a n u fa c tu rin g accounts
sa's n o n farm jobs an d
Som e 160 d iffe re n t e:
:ture o f ch e m ica ls, pr
s p rod ucts.

The a r e a '

such a s v a lu e a d d e d fc
>ments less fa c to ry pui
jn tra cte d w o rk ), w h ic l
a in of o n ly 35 % nation
1 a re am o n g the highe

lg to the late;
the national <
u ne m ploym e
88,200, a ri
150. D uring
July insured une, ent rate w as
w ith assets to talin g <ij 190 m illion.
lib e ra l arts schools w ith « ,000 students
ors d u rin g th

PERSONAL INCOME
FIFTH DISTRICT
19 6 5
Personal income continued its rise to new record
highs in 1965, reaching $42.7 billion in the Fifth Dis­
trict and $532 billion in the nation as a whole. These
represented annual gains of 8.2% for the District
and 7.9% for the nation. Per capita income also
reached new highs, but due to population growth the
percentage gains were somewhat smaller. In the
Fifth District, per capita income rose from $2,354
to $2,507, an increase of 6.5% . The increase at the
national level was also 6.5% , from $2,579 to $2,746.

higher than in areas including rural populations,
however. South Carolina had the lowest per capita
income in the District at $1,846, but it showed the
most rapid rate of increase, rising 8.8% over the pre­
ceding year. Increases in 1965 brought the average
in Virginia to $2,419, and to $2,041 in North Caro­

F ifth D istrict D evelopm ents W ith the exception
of the District of Columbia and W est Virginia, the
growth rate of personal income exceeded the na­
tional rate in all District states. South Carolina was
the leader with a rate of 9.8% . Other states showing
greater relative increases than the average for the
nation were Maryland with 8.9% , and North Caro­
lina and Virginia, both of which showed gains of
8.0% . The rate of increase was 6.7% in W est V ir­
ginia, only slightly below the rate for the nation as
a whole, and 6.1% for the District of Columbia. In
absolute terms Maryland led the Fifth District with
a growth in total personal income of $870 million.
The increases in Virginia and North Carolina were
only slightly lower at $796 million and $749 million
respectively. Personal income in South Carolina
rose $421 million, in West Virginia $232 million, and
in the District of Columbia $170 million.
Although the Fifth District population increased
substantially in 1965, per capita income reached a
record level of $2,507, compared to $2,354 in 1964.
Income per person exceeded $2,000 in all states

come by major sources shows that in most areas,

lina.

In W est Virginia it rose to $2,027; however,

this growth exceeded the rate of increase in total in­
come because population declined 0.7% .
Sources of D istrict In com e

A n analysis o f in­

the Fifth District compares very favorably with the
nation as a whole.

The wage and salary statistics

CHANGES IN INCOME AND POPULATION
1964-1965

United States

Fifth District
District
of Colum bia

M aryland

except South Carolina, and reached $3,708 in the
District of Columbia and $3,001 in Maryland, well
above the national average of $2,746.

The figure of

2

$3,708 in the District of Columbia was $307 above

8



Income in urban areas is generally

6

□ Population
BJ Per C ap ita Personal Income
■ Total Personal Income

that of Connecticut, which had the highest of any of
the fifty states.

4
Per Cent

Source:

U. S. Departm ent of Commerce.

FIFTH DISTRICT INCOME BY MAJOR SOURCES 1964-1965

Am ount

1964

Source

$ Million

P E R S O N A L IN C O M E

1965
$ Million

Change, 1964-1965
$ Million Per Cent

Distribution O f
Total W ages
Personal and
Income Salaries
Per Cent Per Cent

39,488

42,726

3,238

8.2

27,770

30,191

2,421

8.7

70.7

207
393
1,558
7,533
3,945

200
426
1,767
8,200
4,298

3.4
8.4
13.4
8.9
8.9

0.5
1.0
4.1
19.2
10.1

0.7
1.4
5.9
27.2
14.2

1,068
1,230

1,157
1,304

89
74

8.3
6.0

2.7
3.1

3.8
4.3

741
3,021
8,014
3,567
1,811
2,637
59
1,231

792
3,271
8,717
3,897
1,890
2,929
62

51
250
703
330
79
292
3

6.9
8.3
8.8
9.3
4.4
11.1
5.1

1.9
7.7
20.4
9.1
4.4
6.9
0.1

2.6
10.8
28.9
12.9
6.3
9.7
0.2

156

12.7

18
35
52
440

0.5
3.0
1.9

3.3
9.1

P R O P E R T Y IN C O M E

3,887
1,171
2,717
4,734

1,387
3,905
1,136
2,769
5,174

TRANSFER

2,919

3,182

263

9.3
9.0

12.1
7.4

1,055

1,114

59

5.6

2.6

W AGES AND

S A L A R IE S

F arm s
M in in g
C ontract C onstruction
M an u fa c tu r in g
T rade
F in a n c e , I n s u r a n c e ,
an d R eal E state
T ransportation
C o m m u n ic a t io n and
P ublic U t ility
S ervices
G over nm ent

F ederal, civilian
Federal, military

State and local
O ther I nd ustry
O T H E R L A B O R IN C O M E
P R O P R IE T O R S ’ IN C O M E
F arm
N onfarm
PAYM ENTS

LESS:
C O N T R IB U T IO N S
FO R S O C IA L IN S U R A N C E

-

-

7
33
209
667
353

-

-

100
100

Details may not add to totals due to rounding.
Source: U . S. Department of Commerce.

for the 1964-1965 period, shown in the table above,
indicate that the importance of the various sources
is shifting. A growing proportion of income is
coming from government, construction, manufactur­
ing, and trade. Income arising in the government
sector showed the greatest dollar gain, with an in­
crease of $703 million. Much of the increase was
due to expanded employment, but some of it was due
to pay raises.

W ages and salaries in manufacturing

for the nation, on a percentage basis, as most states
within the District increased employment in this
sector. Earnings from these sources increased 8.3%
in the District as compared with 6.1% nationally.
In the growth of proprietors’ income, the variation
between the District and the nation became more
pronounced in 1965. The District’s 0.5% increase
lagged far behind the nation’s 7.4% gain. Much of
the difference was due to a 3.0% drop in the income

increased $667 million, as sales of manufactured

of farm proprietors, defined as the difference between

goods reached record levels.

gross farm income and farm production costs.

For 1965 manufactur­

For

ing income totaled $8,200 million and was 19.4% of

the District this 3.0% loss in proprietors’ income was

aggregate personal income in the District.

accompanied by a 3.4% loss experienced in personal

The District experienced a decline in farm income,

income derived from farm wages and salaries.

In

with a loss of 3.4% as opposed to a national gain of

the nonfarm area, proprietors’ income from business

1.6%.

ownership and professional services, increased 1.9%

This is attributable in part to decreased farm

acreage as well as to lower receipts from sales of
livestock.

in both the District and the nation.
Contributions for social insurance, which are de­

Income earned in finance, insurance and real

ducted from the income statistics in calculating per­

estate showed gains in the District in excess of those

sonal income, were up 5.6% in the District and 5.4%




9

in the country as a whole, reflecting the increased
cost due to added benefits of these programs.
Sources of Income by State C ontract con stru c­
tion accounted for sizable gains in income in all states
in the District except the District of Columbia where
income from this source declined 2.7% . The Carolinas showed the largest percentage increase, with
20.6% for North Carolina and 26.4% for South
Carolina. Elsewhere in the District, W est Virginia
showed a gain of 16.2%, and increases in Virginia
and Maryland were 10.5% and 9.6% respectively.
Government activity resulted in large income gains
in all areas of the District, especially in Maryland,
Virginia, and the District of Columbia.

sonal income, raising the total 11.5%. W est V ir­
ginia had an increase of 4.6% ; Virginia, 8.2% ; and
Maryland, 6.4% .
Income derived from mining was up in the Dis­
trict with all states exceeding the national growth
rate.

W est Virginia, the most important mining

region in 1,he Fifth District, led with a gain of $24
million, up 8.4% over 1964.

This growth stemmed

from a 7% increase in coal production and increased
wages even though employment remained stationary.
CHANGES IN WAGE AND SALARY INCOME
1964-1965

Govern­

ment wage and salary disbursements rose $247 mil­
lion in Maryland and $192 million in Virginia.

In

the District of Columbia, they increased by $61 mil­
lion to a total of $1,070 million, or 36% of total
personal income.

Mining
Contract
Construction
M anufacturing

Farm wage and salary income decreased in all
Fifth District states except West Virginia, where
it remained stationary.

Declines in the Carolinas

of over 3% reflected reduced tobacco acreage and
a corresponding drop in receipts from sale of crops.
Maryland and Virginia experienced greater per­

Trade
Finance, Insurance
and Real Estate
Transportation
Com m unication and
Public Utility
Services

centage decreases of 4.0% and 3.9% respectively.
Income gains from manufacturing were significant
in all states in the District.

Governm ent

In North Carolina,

larger factory payrolls due to increased wages, new
jobs, and more man-hours provided an increase of
$262 million, a gain of 11.2%. In South Carolina

O ther Industry

-------------1
-------1
--------------I
____ I
____ I
____ I
____ I
____ I
____
-4

-2

0

2

4

6

8

10

12

Per Cent

these factors injected $136 million more into per-

jj
Source:

United States

|

5th District

U. S. Departm ent of Commerce.

CHANGES IN INCOME BY MAJOR SOURCES
1964-1965

This growth
the nation.

Total Personal Income

compares

to

a 4.8%

increase for

Income from property also rose substantially in
the Fifth District.

W ages and Salaries

Gains for the individual states

were 10.7% in the District of Columbia, 8.9% in
Maryland, 9.6% in North Carolina, 9.7% in South

Proprietors' Income

Carolina, 9.0% in Virginia, and 8.5% in W est V ir ­
ginia, compared with the national rise of 9.1% .

Property Income

Summary

Transfer Paym ents

T otal and per capita personal incom e

were at record highs in the Fifth District in 1965.
Several of the states recorded notable gains. A s can

O ther Labor Income

be seen in the charts, the pattern of growth in the
District was about the same as in the country as a

________ I
____ I
___
-4

-2

0

2

4

6

8

Per Cent
§§ United States
Source:

|

5th District

U. S. Departm ent of Commerce.

10


i

10

12

whole with the District doing better in some areas.
Although growth was not even, all states recorded
significant gains.

THE FIFTH DISTRICT
TIME AND SAVINGS DEPOSITS
Never before have time and savings deposits and
nonbank savings been as important in the financial
structure of the nation as in the past two years. As
demands for credit have surged ahead, the competi­
tion for savings to help meet those demands has be­
come more intense. Interest rates have risen and
new types of deposit instruments have been created.
Total personal and corporate savings have increased
substantially in the past few years, but they have
risen at a slower pace in 1966 than in 1965. A t
member banks, total time and savings deposits rose
8.8% in the first six months of 1965, but only 6 %
in the first half of this year. A t savings and loan
associations, the rate of growth of savings shares
has fallen considerably more.
As part of a national survey to learn more about
recent rapid changes in interest rates and flows of
savings, the Federal Reserve Bank of Richmond re­
cently sent questionnaires to all member banks in the
Fifth District. The banks were asked to provide in­
formation on their time and savings deposits as of De­
cember 3, 1965, March 2, 1966, and May 11, 1966.
Reports were received from 406 of the 435 member
banks, and this article briefly summarizes the infor­
mation received.
Deposit Changes T h e m ost notable change in
the composition of deposits between December 3,
1965 and May 11, 1966, was a marked increase in
consumer-type time deposits— savings certificates and
bonds, and certificates of deposit of less than $100,000.
During that period, they rose 38% , while savings
deposits rose only 3% and all other time deposits,
including certificates of deposit in denominations
over $100,000, fell 9 % . Am ong consumer-type time
deposits, the greatest dollar increase occurred in
savings certificates, which rose from $278 million to
$417 million, a gain of 50% . Small denomination
nonnegotiable certificates of deposit also rose sharply,
from $176 million to $266 million.
Savings Deposits On December 6, 1965, the Board
of Governors amended Regulation Q raising the
maximum interest rate payable on time deposits to
51/ 2% . In the next five and a half months, the gen­
eral structure of interest rates on time and savings
deposits rose substantially. Most of the increase in
the Fifth District occurred between the survey dates
of December 3 and March 2.



Although the maximum legal rate was not raised
for savings deposits, the number of banks paying the
maximum of 4 % rose from 242 in December to 290
the following May. The number paying a maximum
of 3.5% fell from 74 to 53, and those paying 3% or
less dropped from 87 to 62. Most of the larger
banks, holding the largest amounts of deposits, had
already been paying 4 % , but the amount of deposits
on which 4 % was paid rose from $2,777 million
to $3,479 million.

Per Cent
Paid
3.00 or
less
3.50
4.00
T otal

SAVIN GS DEPOSITS
Maximum Interest Rate Paid by
Fifth District Member Banks on Survey Dates
Dec. 3, 1965
Mar. 2, 1966
M ay 11, 1966
N umber Am ounts Number Am ounts
Number Amounts
of Banks ($ M il.) of Banks ($ M il.)
of Banks ($ M il.)
87
74
242
403

275
689
2,777
3,741

68
71
266
405

228
670
2,927
3,825

62
53
290
405

163
198
3,479
3,840

Consumer-Type Time Deposits Rates were raised
more on consumer-type time deposits than on savings
deposits, and the pace of increase in the volume of
these deposits was far greater. O f course, higher
interest rates were not the only reason for the sharp
increase. Faced with rapidly growing loan demand,
banks stepped up their advertising and marketed consumer-type savings certificates, bonds, and cer­
tificates of deposit very aggressively. The sub­
stantial upward shift in the rate structure, however,
was no doubt the most important factor in the de­
posit expansion.
Savings Certificates B etween D ecem ber 3 and
May 11, the number of banks paying 4 % or less on
savings certificates fell from 130 to 81, and the
amount of deposits at those rates dropped from $123
million to $56 million. In the same period, the
number of banks paying 4.5% or more rose from
69 to 138, with seven of those paying 5% and two
paying as much as 5.5% . The volume of certificates

Per Cent
Paid

SAVINGS C ER TIFICA TE S
Maximum Interest Rate Paid by
Fifth District Member Banks on Survey Dates
Dec. 3, 1965
Mar. 2, 1966
M ay 11, 1966
Number Amounts Number Amounts
Num ber Amounts
of Banks ($ M il.) of Banks ($ M il.)
of Banks ($ M il.)

3.50 or
9
2
18
6
less
82
73
112
117
4.00
155
114
265
69
4.50
— .
— .
6
19
4.75
—
7
—
—
5.00
—
—
—
— ■
5.25
—
——
*
5.50
216
367
199
278
Total
‘ Omitted to avoid individual bank disclosure.

8
73
122
7
7

1
55
276
35
32

2
219

*
417

— -

------

11

yielding 4.5% or more rose from $155 million on De­
cember 3 to over $343 million on May 11.
Savings Bonds Bank savings bonds are issued
by few District member banks and account for only
a small fraction of the District’s time deposits. A l­
though they have been very popular in some parts
of the country, only ten District member banks had
such bonds outstanding on May 11. The dollar
volume fell from $31 million in December to $19
million in May, although three of the ten issuing
banks were paying a maximum of 5% on bonds.
SAVINGS BONDS
M aximum Interest Rate Paid by
Fifth District Member Banks on Survey Dates
Per Cent
Paid

Dec. 3, 1965
Number Amounts
of Banks ($ M il.)

3.50 or
less
4.00
3
4.50
3
4.75
5.00
5.25
5.50
Total
6
*Less than $500,000.

Mar. 2, 1966
Number Amounts
o f Banks ($ M il.)

M ay 11, 1966
Number Amounts
of Banks ($ M il.)

*
30

3
4

*
22

3
4

*
18

—

3

*

3

10

22

10

19

OTH E R N O N N E G O T IA B L E CERTIFICATES OF DE POSIT
Maximum Interest Rate Paid by
Fifth District Member Banks on Survey Dates
Dec. 3. 1965
Number Amounts
of Banks ($ M il.)

N E G O T IA B L E CD’ S IN D E N O M IN A T IO N S
O F $100,000 O R M O R E
Maximum Interest Rate Paid by
Fifth District Member Banks on Survey Dates
Dec. 3, 1965

Nonnegotiable Certificates The volum e of other
nonnegotiable certificates of deposit outstanding rose
51 % during the period covered by the survey from
$176 million to $266 million. The gain probably

Per Cent
Paid

Negotiable Certificates Over $100,000 By March 2,
ten banks had raised maximum rates on large ne­
gotiable C D ’s above the 4.5% ceiling prevailing before
December 6. By May 11, the number had grown
to 13, while the number of banks paying 4.5% or less
fell from 47 in December to 34 in May. The dollar
volume of these certificates fell, however, from a
total of $224 million in December to $222 million
on March 2 and $203 million May 11.

1

31

and interest rate changes on these certificates were
similar to those on nonnegotiable C D ’s. The in­
crease in volume was much smaller, however. The
number of banks paying a maximum of 4 % or less
fell from 66 to 39, while those paying 4.5% or more
rose from 40 to 69, but the total dollar volume out­
standing rose only about 10%, from $124 million
to $137 million.

Mar. 2, 1966
Number Amounts
of Banks ($ M il.)

3.50 or
less
12
2
41
4.00
38
4.50
32
137
—
—
4.75
—
—
5.00
—
—
5.25
—
—
5.50
176
Total
85
*Om itted to avoid individual bank

9
27
41
4
4

1
20
62
63
91

—

—

—

—

237
85
disclosure.

May 11. 1966
Number Amounts
of Banks ($ M il.)
7
28
42
3
6
2

1
19
65
13
80

89

266

*
*

1

was stimulated considerably by interest rate increases.
The number of banks paying a maximum of 4 % or
lower fell from 53 in December to 35 in May, while
the number paying a maximum of 4.5% or higher rose
from 32 to 54, with nine banks paying 5% or more.

Per Cent
Paid

Per Cent
Paid

Dec. 3. 1965
Number Amounts
of Banks ($ M il.)

Mar. 2, 1966
Number Amounts
of Banks ($ M il.)

3.50 or
4
8
4
11
less
33
26
54
55
4.00
84
62
65
40
4.50
2
—
— *
4.75
—
.—
*
2
5.00
— -.
—
— •
—
5.25
—
—
—
— ■
5.50
134
107
124
106
Total
‘ Om itted to avoid individual bank disclosure.

12



6
10
24
6
3
1

4
6
30
137
42
*

— .

—

50
222
disclosure.

M ay 11, 1966
Number Amounts
of Banks ($ M il.)
5
9
20
4
5
4
.—

47

3
8
20
86
53
34
.—

203

Time Deposits, Open Account Th e num ber of
Fifth District banks increasing rates on time deposits,
open account, excluding Christmas savings and other
special funds, was smaller than for any other type.
Nineteen banks were paying 3.5% or less on D e­
cember 3 and on March 2. The number dropped to
15 by May 11. In December, all of the 93 banks
reporting such deposits were paying 4.5% , the legal
maximum, or less, but on March 2, only four banks
had gone above that level, and on May 11, only
seven. The amount of deposits on which the higher
rates were paid was substantial, however, and stood
at $50 million on May 11.
T IM E DEPOSITS, OPEN ACCOUNT
M aximum Interest Rate Paid by
Fifth District Mem ber Banks on Survey Dates
Dec. 3, 1965
Per Cent
Paid

May 11, 1966
Number Amounts
of Banks ($ M il.)
7
32
56
7
5
1

Number Amounts
of Banks ($ M il.)

3.50 or
less
4
7
4.00
17
16
4.50
23
204
—
—
4.75
—
— .
5.00
—
_
5.25
—
— .
5.50
Total
47
224
*Om itted to avoid individual bank

Negotiable Certificates Under $100,000
Small
C D ’s are considered consumer-type debt instruments,
N E G O T IA B L E C D ’ S IN D E N O M IN A T IO N S
O F L E S S T H A N $100,000
M aximum Interest Rate Paid by
Fifth District Member Banks on Survey Dates

Mar. 2, 1966

Number Amounts
of Banks ($ M il.)

1
25
81
4
25

*

—-

—

108

Mar. 2, 1966

M ay 11, 1966

Num ber Amounts
of Banks ($ M il.)

Num ber Am ounts
of Banks ($ M il.)

N um ber Am ounts
of Banks ($ M il.)

3.50 or
19
5
19
4
less
41
53
28
20
4.00
21
80
30
40
4.50
•
—.
—
3
53
4.75
——
*
1
5 00
■
—
—
—
—
5.25
—
—
—•
■■
—
5.50
94
113
118
93
Total
‘ Less than $500,000.
'O m itted to avoid individual bank disclosure.

15
46
27
3
3

1
20
30
16
34

j
—

**
—-

95

103

137
Cover Photo Courtesy State Planters Bank o f Commerce and Trusts

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