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FEDERAL RE SE RVE BANK OF RICHMOND OCTOBER 1966 kHK$ ' > £s/d : Aa/c / C ' $. FOREIGN LENDING BY BANKS Hut o f >r y <r>f' fir kr 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