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Inthis issueLiability Its M a n a g e m e n t P r a c t i c e A l a b a m a : District I n d e x t h e O u t o f B a n k i n g f o r District in t h e t h e District D o l d r u m s ? N o t e s Y e a r B u s i n e s s B a n k i n g : S i x t h 1 9 7 1 C o n d i t i o n s Liab ility M anagem ent Banking I ts P r a c t i c e in t h e S ix th D i s t r i c t by Arnold Dill T h e b a n k in g p r a c t ic e o f b u y i n g r e s e rv e s t h r o u g h t h e m a r k e t in g o f lia b ilit ie s in t h e m o n e y m a r k e t is c a lle d l ia b il i t y m a n a g e m e n t b a n k in g (L M B ). T h i s p r a c t ic e h as c o m m o n l y b e e n a s s o c ia te d w i t h g ia n t m o n e y m a r k e t b a n k s in N e w Y o r k a n d a f e w o t h e r m a j o r c itie s . S t r o n g c r e d it d e m a n d ^ d u r i n g t h e la st t w o d e c a d e s c o u l d h a v e a f f o r d e d th e s e b a n k s w i t h p r o f i t o p p o r t u n i t i e s if o n l y th e b a n k s h a d b e e n a b le t o in c re a s e t h e ir d e p o s it s r a p i d l y a n d , th u s , e x p a n d le n d i n g c a p a c it y . B u t d e p o s i t g r o w t h w a s p a r t i c u l a r l y s l o w a t m o n e y m a r k e t b a n k s in t h e 1 950's b e c a u s e s o p h is t ic a t e d in v e s t o r s w e r e t r i m m i n g t e m p o r a r i l y id le d e m a n d d e p o s it s a t th e s e b a n k s t o b u y in c r e a s in g ly l u c r a t iv e in t e r e s t -b e a r in g m o n e y m a r k e t in s t r u m e n t s . M o n e y m a r k e t b a n k s r e s p o n d e d t o th is s it u a t io n w i t h c r e a t iv e l ia b ilit y i n n o v a t i o n . F irst, t h e F e d f u n d s m a r k e t w a s d e v e l o p e d t o ta p t h e id le l e n d i n g c a p a c it y o f s m a lle r b a n k s . T h e n , t h e n e g o t ia b le c e r t if ic a t e o f d e p o s i t (C D ) w a s u s e d w i t h g re a t s u c c e s s t o c o m p e t e f o r f u n d s th a t w e r e f l o w i n g in t o T r e a s u r y b ills , c o m m e r c i a l p a p e r , a n d o t h e r m o n e y m a r k e t in s t r u m e n t s . T h i s le d t o s o m e s h if t in g o f c r e d it f l o w s f r o m n o n b a n k t o b a n k c h a n n e ls , b u t it p r o b a b l y in c r e a s e d to ta l c r e d it a v a i la b i l i t y o n l y s l i g h t l y . 1 B y s u b je c t in g C D ' s t o h ig h e r re s e r v e r e q u ir e m e n t s a n d e f f e c t iv e in t e r e s t ra te c e ilin g s d u r i n g th e p e r io d s o f re s tra in t in 1 9 6 6 a n d 1 9 6 9 , t h e F e d a d d e d t o p r e s s u r e s o n m o n e y m a r k e t b a n k s . A n d th is , in t u r n , le d t o t h e f u r t h e r d e v e l o p m e n t o f E u r o d o ll a r b o r r o w i n g a n d t o t h e c r e a t io n o f C D s u b s titu te s , s u c h as c o m m e r c i a l p a p e r is s u e d b y b a n k h o l d i n g c o m p a n ie s o r a ffilia te s . In t im e , th e s e in s t r u m e n t s w e r e s u b je c t e d t o r e s t r ic t iv e r e g u la t io n b y t h e F e d . D u r i n g t h e 196 0 's, m a n y la rg e r e g io n a l b a n k s , lik e m o n e y m a r k e t b a n k s , w e r e fa c e d w i t h h e a v y c r e d it d e m a n d s th a t c o u l d n o t b e m e t b y o r d i n a r y ‘ See Arnold Dill, "Liability Management Banking: Its Growth and Impact," this Review, February 1971, pp. 22-33. M o n th ly R e v ie w , V o l. LV I, No. 12. Free su b scrip tion and a d d itio n al co p ie s availab le upon request to the R esearch D ep artm en t, Federal Reserve Bank of Atlanta, Atlanta, G eorgia 30303. 218 MONTHLY REVIEW d e p o s i t in f lo w s . In a t t e m p t in g t o m e e t th e s e c r e d it d e m a n d s , m a n y la rg e r e g io n a l b a n k s a ls o t u r n e d in c r e a s in g ly t o F e d f u n d s , C D ' s , a n d n o n d e p o s it s o u r c e s o f f u n d s ; in o t h e r w o r d s , t h e y b e c a m e p r a c t it io n e r s o f L M B . T h i s s t u d y d e s c r ib e s t h e w a y L M B f u n c t io n s in t h e S ix th F e d e ra l R e s e r v e D is t r ic t a n d e s tim a te s t h e e x t e n t t o w h i c h la rg e r e g io n a l b a n k s in th e D is t r ic t h a v e e n g a g e d in L M B . W h a t w a s a s s u m e d t o d is t in g u is h b a n k s th a t p r a c t ic e d L M B f r o m t h o s e th a t d id n o t w a s e v id e n c e o f m a rk e tin g a v a riety o f lia b ilities in the m o n e y m a rk e t in re s p o n s e to im p e n d in g re se rv e d e fic ie n c ie s a n d c re d it d e m a n d s in e x ce ss o f le n d in g capacity. T h e c o n c lu s io n s a re b a s e d u p o n p e r s o n a l in t e r v i e w s w i t h o f f ic e r s o f 1 7 b a n k s a n d u p o n a n a n a ly s is o f w e e k l y b a la n c e s h e e t r e p o r t s o f 27 m a j o r b a n k s f o r t h e 1 9 6 6 -1 9 7 0 p e r io d . T h e s e b a n k s , w i t h d e p o s it s r a n g in g f r o m a p p r o x i m a t e l y $ 1 3 0 m il l i o n t o o v e r $1 b il l i o n a re lo c a t e d in 14 o f t h e la rg e s t c itie s o f t h e S ix th D is t r ic t . O f th e s e b a n k s , f i v e w e r e t h o u g h t t o h a v e d e f i n i t e l y e n g a g e d in L M B . E a c h o f th e s e b a n k s h a d b e e n n e t p u rc h a s e rs o f Fed fu n d s a n d is s u e rs o f s u b s ta n tia l v o l u m e s o f n e g o t ia b le C D ' s a n d n o n d e p o s it lia b ilitie s . N i n e b a n k s w e r e j u d g e d t o b e less a g g r e s s iv e p r a c t it io n e r s o f L M B . A l t h o u g h th e s e b a n k s as a g r o u p w e r e u s u a lly n e t p u r c h a s e r s o f F e d fu n d s , t h e y d id n o t is s u e n e g o t ia b le C D ' s in s u b s ta n tia l v o l u m e , a n d t h e y is s u e d n o n o n d e p o s it lia b ilitie s . T h e r e w a s n o e v id e n c e th a t t h e 13 r e m a in in g b a n k s e n g a g e d in L M B ; b u t ra th e r, t h e y f o l l o w e d o n l y t r a d it io n a l a sse t m a n a g e m e n t b a n k in g , t a k in g i m p e n d i n g r e s e r v e d e f ic ie n c ie s as a s ig n a l t o re s tric t le n d i n g a n d in v e s t m e n t a c t i v i t y a n d t o d is p o s e o f s e c o n d a r y re s e rv e s . A s a g r o u p , th e s e b a n k s w e r e n e t s e lle rs o f F e d f u n d s a n d is s u e d o n l y s m a ll a m o u n t s o f C D ' s a n d n o n o n d e p o s it lia b ilitie s . The F e d F u n d s M a rk e t T h e n u m b e r o f D is t r ic t b a n k s p a r t ic ip a t in g in t h e F e d f u n d s m a r k e t a n d t h e v o l u m e o f t h e ir t r a d in g , h a v e ris e n s h a r p ly in r e c e n t y e a rs . G e n e r a lly , s m a lle r b a n k s a re s e lle rs o f F e d f u n d s (h e re a fte r F u n d s), b u t m o s t d o b u y F u n d s o c c a s io n a lly . L a rg e b a n k s in m e t r o p o l i t a n a re a s o f t e n b o t h b u y a n d se ll F u n d s d a ily , a lt h o u g h t h e y a re u s u a lly n e t p u r c h a s e r s o f F u n d s . T h u s , th e m a r k e t s h ifts F u n d s f r o m s m a lle r t o la rg e r b a n k s . M o s t la rg e b a n k s , h o w e v e r , d o n o t fe e l th is h a s c a u s e d a s e r io u s d iv e r s i o n o f F u n d s a w a y f r o m lo c a l lo a n s . R a th e r, t h e y c o n t e n d , it h a s a ttra c te d F u n d s th a t, o t h e r w i s e , w o u l d h a v e g o n e in t o T r e a s u r y b ills o r o t h e r m o n e y m a r k e t in s t r u m e n t s . T h e m a n a g e m e n t s o f m o s t la rg e b a n k s l o o k a t F u n d s p u rc h a s e s as a m o r e o r less p e r m a n e n t s o u r c e o f fu n d s . M o s t fe e l, t o o , th a t t h e y h a v e FEDERAL RESERVE BANK OF ATLANTA T h e A n a lys is o f Balance S heet a n d In c o m e D ata In order to observe the relative behavior of banks practicing different liability techniques, 27 District banks that have been weekly reporting m em ber banks since January 7966 w e re divided into three groups on the basis of liability practices. Quarterly averages of weekly data for selected asset and liability categories w ere derived for each bank for the 1966-1970 period. Data on individual banks w ere grouped, indexed, and charted. Selected incom e and expense data for the 1966-1970 period w ere also grouped, indexed, and charted. Net Fed funds positions of the three groups w ere charted for 1969 and 1970. [Copies of these charts are available on request from the Research Department of this Bank.] The examination of balance sheet and incom e data indicated that in most asset-U ability and in com e expense categories, each of the three groups of banks m entioned in the text displayed som ewhat similar trends and cyclical patterns, except during the 1969 credit squeeze. W hen adjusted for loan safes to affiliates, loans rose m ore sharply at banks practicing LMB in late 1969 than they did at the other two categories of banks. Subsequently, loans declined slightly at banks practicing LMB in 1970 but rose steadily at the other banks. The increase in nondeposit liabili ties in 1969 at banks prcaticing LMB was almost equivalent to the coincident drop in CD's at these banks. When adjusted for nondeposit lia bilities, total deposits held up equally well at all three categories of banks in 1969. O ver the 19661970 period, net incom e before taxes rose the most at banks practicing LMB, and these banks had the greatest increase in net incom e in 1966 and the least decline in 1969. \ j s j j j \ j j c o n s id e r a b le d is c r e t io n o v e r t h e ir n e t F u n d s p o s i t io n . T h e y g e n e r a l l y p r e f e r t o b e in a n e t p u r c h a s e p o s it io n , t h in k i n g t h e y c a n in v e s t F u n d s a t a p r o f it . A f e w s iz a b le b a n k s , h o w e v e r , a v o i d th e M a rk e t. S till o t h e r s u s e t h e M a r k e t o n l y o c c a s io n a lly to m e e t e x t ra o rd in a ry re s e rve n e e d s o r to a c c o m m o d a te c o rre s p o n d e n t b an k s. In a g g re g a te , b a n k s in t h e D is t r ic t h a v e u s u a lly b e e n n e t s e lle rs o f F u n d s t o t h e re s t o f t h e n a t io n (see C h a rt) . D u r i n g t h e t ig h t m o n e y p e r io d o f 1 9 6 9 , h o w e v e r , D is t r ic t b a n k s w e r e a n e t i m p o r t e r o f F u n d s . A s s o o n as m o n e y m a rk e ts e a s e d in 1 9 7 0 , t h e D is t r ic t q u i c k l y r e t u r n e d t o a n e t sa le s p o s it io n . T h i s m a y in d ic a t e th a t F u n d s w e r e m o r e s c a rc e in t h e D is t r ic t th a n in s o m e o t h e r p a rts o f t h e n a t io n d u r i n g 1 9 6 9 a n d m o r e a v a ila b le th a n e l s e w h e r e d u r i n g 1 9 7 0 a n d o t h e r p e r io d s o f e a s y m o n e y c o n d it io n s . M e c h a n ic s o f T r a d i n g . M o s t s iz a b le b a n k s in th e te n o r s o la rg e s t c itie s t h r o u g h o u t t h e D is t r ic t 219 A n In tro d u c to ry N o te o n L ia b ility M a n a g e m e n t S tra te g y a n d th e M o n e y D e s k Banks that are m em bers of the Federal Reserve System m ust maintain reserves (deposits at the Federal Reserve and vault cash) equal to a speci fied p ercen t o f reserve-subject liabilities (mainly deposits). A bank's required reserves are calculated on the w eekly average o f its reserve-subject liabili ties outstanding two w eeks earlier. O v e r a Thursday-to-W ednesday w eek, a bank is required to maintain, on average, reserves equal to its required reserves. Every large bank has a person, called the man ager o f the "m oney desk/' to m onitor its reserve position and to manage its liquid assets. Early each weekday m orning, the manager is inform ed o f his bank's reserve balance at the en d of the previous day. The manager, on the basis o f his known reserve requirem ent, his average reserve balance so far this w eek, and his anticipated reserve gains o r losses for the rest of the w eek, can figure w hether he is headed for a surplus o r d e ficit in his reserve position. If the manager thinks that a deficiency is shaping up in his bank's reserve balance, h e will— depending on bank policy and relative interest rates and transaction costs— buy Fed funds, reduce overnight loans to b o n d dealers and brokers, sell short-term securi ties, o r if necessary, borrow from the Federal Reserve. Conversely, if the manager foresees a surplus in his bank's reserve balance, he will sell Fed funds, pay off borrowings, etc. In planning liability strategy, m ost large banks p ro ject sources and uses o f bank funds. Shortrun projections are based on the local and na tional eco n om ic outlook and estimates o f loan dem and, deposit flows, etc. Longer-run p ro je c tions are based on the same variables, but they may reflect a bank's desired target balance sheet position. A bank often starts by projecting the items o ver which it has the least control— dem and deposits o r business loans, for example. Dem and deposit volum es d ep en d on spending and deposit ing decisions of custom ers, factors largely out of a bank's control. In the case o f business loans, a bank may feel obliged to m eet the loan demands o f at least a portion o f its business custom ers be cause of existing com mitm ents and established custom er relationships. The bank continues to p ro ject various asset and liability items, leaving to the last those items over w hich it has the m ost discretion, such as holdings o f short-term securities, negotiable C D 's outstanding, loans to b o n d dealers and brokers, and its net Fed funds position. Banks that practice LM B view these items as balancing o r residual items. D epending on pro jections o f interest rates and the cost and avail ability o f C D 's, Fed funds, and other sources of funds, these banks will either revise projections of asset items o ver w hich they have som e control o r d ecid e h ow to m inim ize the cost o f obtaining the reserves n eed ed to finance asset positions. 220 r e g u la r l y t r a d e F u n d s w i t h t h e i r s m a lle r c o r r e s p o n d e n t b a n k s . A s a s e r v ic e , t h e s e la rg e , u r b a n b a n k s ( c a lle d le a d b a n k s ) a c c o m m o d a t e t h e n e e d s o f c o rre s p o n d e n ts , e it h e r a b s o r b in g o r p r o v id in g F u n d s . T h e m o n e y d e s k m a n a g e r o f a le a d b a n k b e g in s e a c h d a y w i t h a r o u g h e s t im a t e o f h is d e s i r e d n e t F u n d s p o s i t io n . H e a ls o h a s a f e e l f o r t h e n e t a m o u n t o f F u n d s h is s m a ll e r c o r r e s p o n d e n t s w i l l s u p p l y o r a b s o r b . T h i s le a v e s h im w i t h a re s id u a l a m o u n t o f F u n d s t o b u y f r o m o r s e ll t o o t h e r le a d b a n k s e l s e w h e r e in t h e r e g i o n o r n a t io n . H e lo c a te s b u y e r s o r s e lle r s o f F u n d s e i t h e r b y p h o n i n g la r g e c o r r e s p o n d e n t s — w h o m a y s ta n d re a d y to a b s o rb o r s u p p ly re se rve s to th e D is t r ic t le a d b a n k — o r b y p h o n i n g a F u n d s b r o k e r in N e w Y o r k . In t h e la t t e r c a s e , t h e b a n k i n f o r m s t h e b r o k e r o f its d e s ir e d p u r c h a s e o r s e ll p o s i t io n . A s t h e d a y p ro g r e s s e s , t h e b r o k e r m a t c h e s b u y e r s a n d s e lle rs . A F u n d s t r a n s a c t io n b e t w e e n a D i s t r ic t le a d b a n k a n d o n e o f its s m a ll e r c o r r e s p o n d e n t s is u s u a l ly in it ia t e d b y a m o r n i n g t e l e p h o n e c a ll f r o m t h e c o r r e s p o n d e n t t o its le a d b a n k . T h e c o r r e s p o n d e n t a d v is e s its le a d b a n k o f t h e q u a n t i t y o f F u n d s it w i s h e s t o b u y o r s e ll. In m a n y c a s e s , a F u n d s p o s i t io n is o n a " r o l l - o v e r " b a s is , m e a n i n g a le a d b a n k c o n t i n u e s t h e p o s i t i o n u n t il a d v is e d o t h e r w is e b y th e c o r r e s p o n d e n t . A le a d b a n k u s u a l ly e x e c u t e s a p u r c h a s e o f F u n d s f r o m a c o r r e s p o n d e n t b y d e b i t i n g t h e s e lle r's d e p o s i t a c c o u n t (B a la n c e S h e e t 1 ). T h e le a d b a n k s e n d s t h e c o r r e s p o n d e n t a n " a d v i c e o f d e b it " f o r m o n w h i c h t h e t y p e o f t r a n s a c t io n ( F e d fu n d s ) a n d in t e r e s t ra te p a y a b l e a r e n o t e d . A s a r e s u lt o f t h e t r a n s a c t io n , t h e le a d b a n k ' s r e q u i r e d re s e rve s a re re d u c e d a n d , m o r e im p o r t a n t ly , a p r o b a b l e r e s e r v e d r a i n is p r e v e n t e d . If, i n s te a d o f s e llin g F u n d s t o its le a d b a n k , t h e B a la n c e S h e e t 1 Lead Bank A ssets L iabilities C orrespondent Bank A ssets D eposits owed D eposits corresa t lead p o n d en t b an k bank — Fed fu n d s Fed fu n d s p u rch ased + sold L iabilities — + c o r r e s p o n d e n t h a d u s e d its b a la n c e a t t h e le a d b a n k t o p u r c h a s e a T r e a s u r y b il l , t h e le a d b a n k w o u l d h a v e lo s t re s e r v e s . A le a d b a n k s e lls F u n d s t o a c o r r e s p o n d e n t b y c r e d i t in g t h e b u y e r ' s a c c o u n t . I n t e r e s t o n t r a n s a c t io n s is a ls o u s u a l ly h a n d l e d b y e n t r ie s t o c o r r e s p o n d e n t a c c o u n ts . T h e r e is n o s e t f o r m u l a t h a t a ll le a d b a n k s u s e in a r r i v i n g a t w h a t in t e r e s t ra te t o p a y o r MONTHLY REVIEW t o c h a r g e c o r r e s p o n d e n t s in F u n d s tra n s a c tio n s . W h e n b u y i n g F u n d s , m o s t le a d b a n k s o f f e r s m a lle r r e g io n a l c o r r e s p o n d e n t s 1/8 p e r c e n t t o 1/4 p e r c e n t le ss t h a n t h e ra te t h e y w o u l d h a v e t o p a y t o b u y F u n d s in t h e n a t io n a l m a r k e t . ( T h e a c tu a l ra te p a i d d e p e n d s o n h o w a g g r e s s iv e ly t h e le a d b a n k s e e k s r e s e r v e s a n d o n t h e s i z e o f t h e t r a n s a c tio n . G e n e r a l l y , t h e s m a lle r t h e t r a n s a c t io n , t h e l o w e r t h e ra te p a id t h e c o r r e s p o n d e n t . T h i s is b e c a u s e o f in c r e a s e d t r a n s a c t io n c o s ts in c u r r e d b y t h e le a d b a n k in p a c k a g in g s m a ll a m o u n t s o f F u n d s .) L ik e w is e , le a d b a n k s g e n e r a l l y c h a r g e s m a lle r c o r r e s p o n d e n t s s l i g h t l y m o r e t h a n t h e ra te t h e y w o u l d c h a r g e t o l e n d F u n d s in t h e n a t io n a l m a r k e t . B e s id e s c o v e r i n g tra n s a c t io n c o s ts , t h e s p r e a d b e t w e e n ra te s p a id a n d c h a r g e d c o r r e s p o n d e n t s c o m p e n s a t e s le a d b a n k s f o r risk s i n c u r r e d in t a k in g a n a c c o m m o d a t i v e s ta n c e to w a rd th e n e e d s o f c o rre s p o n d e n ts . A l t h o u g h m o s t F u n d s t r a n s a c t io n s a re h a n d le d t h r o u g h e n t r ie s t o c o r r e s p o n d e n t b a la n c e s , F u n d s t r a n s a c t io n s b e t w e e n F e d e ra l R e s e r v e m e m b e r b a n k s c a n a lt e r n a t i v e l y b e e x e c u t e d b y e n t r ie s t o re s e rve a c c o u n ts at F e d e ra l R e s e rve B anks. T h e t r a n s f e r o f F u n d s b e t w e e n m e m b e r b a n k s is fa c ilit a t e d b y t h e d ir e c t t e le g r a p h lin e s b e t w e e n F e d e r a l R e s e r v e B a n k s a n d t e le g r a p h lin e s b e t w e e n R e s e r v e B a n k s a n d m e m b e r b a n k s . A D is t r ic t m e m b e r b a n k 's r e s e r v e a c c o u n t is k e p t e i t h e r a t t h e h e a d o f f i c e o f t h e F e d e ra l R e s e r v e B a n k o f A t la n t a o r a t o n e o f t h e f o u r R e s e r v e B a n k B ra n c h o f f ic e s in t h e D is t r ic t . W h e n u s in g r e s e r v e a c c o u n t s t o e x e c u t e a F u n d s t r a n s a c t io n , t h e b a n k w i s h i n g t o s e ll F u n d s o r d e r s t h e A c c o u n t i n g D e p a r t m e n t a t its F e d e ra l R e s e r v e o f f i c e t o d e b i t its r e s e r v e a c c o u n t a n d c r e d i t t h e a c c o u n t o f t h e m e m b e r b a n k t h a t is b u y in g th e F u n d s . T h e b u ye r's a c c o u n t c o u ld b e k e p t a t t h e s a m e o f f i c e o r a n y o f t h e o t h e r 35 F e d e ra l R e s e r v e o f f ic e s in t h e n a t io n . F o r e x a m p l e , i f o n e A la b a m a m e m b e r b a n k w is h e s t o s e ll F u n d s t o a n o t h e r A la b a m a m e m b e r , t h e s e llin g b a n k n o t if ie s t h e b u y i n g b a n k a n d t h e n o r d e r s t h e A c c o u n t i n g D e p a r t m e n t o f t h e B ir m in g h a m B ra n c h t o d e b i t its a c c o u n t a n d c r e d it t h e b u y i n g b a n k 's a c c o u n t (B a la n c e S h e e t 2). A s e v i d e n c e o f t h e t r a n s a c t io n , t h e A c c o u n t i n g D e p a r t m e n t t h e n s e n d s e a c h b a n k a c o p y o f a tra n s fe r o f F u n d s fo rm . T h e n e x t d a y , t h e tra n s a c t io n is u s u a lly r e v e r s e d . B a la n c e S h e e t 2 Buying Bank O iM ti UaM Htias D eposit a t Fad fu n d s Federal p u rch ased + Reserve (Birming ham ) + Selling Bank A ssets L iaM itiM D eposit a t Federal R eserve (Birming ham ) — Fed fu n d s sold + FEDERAL RESERVE BANK OF ATLANTA R e p u r c h a s e A g r e e m e n t s . D is t r ic t b a n k s s e ll U . S. T r e a s u r y a n d A g e n c y s e c u r it ie s u n d e r r e p u r c h a s e a g r e e m e n t s (RP's) t o b a n k s , s a v in g s a n d lo a n a s s o c ia tio n s , s ta te a n d c o r p o r a t e T r e a s u r e r s , a n d o t h e r s . A b a n k e n t e r in g i n t o a R P s e lls a s e c u r it y u n d e r a g r e e m e n t t o b u y it b a c k o n a g i v e n d a t e a t a h ig h e r p r ic e . I f t h e R P is p u r c h a s e d b y a c u s t o m e r o f t h e b a n k , t h e b a n k d e b it s t h e b u y e r ' s a c c o u n t , in c re a s e s its lia b ilit ie s f o r " F e d f u n d s p u r c h a s e d a n d s e c u r i tie s s o l d u n d e r R P ," a n d e a r m a r k s s e c u r it ie s as c o lla t e r a l a g a in s t t h e R P lia b ilit y . In t u r n , s o m e R P b u y e r s u s e t h e s e s e c u r it ie s as c o lla t e r a l f o r s e c u r e d d e p o s it s . If t h e R P p u r c h a s e r is n o t a d e p o s i t o r o f t h e b a n k , h e u s u a lly p a y s f o r t h e R P b y h a v i n g h is b a n k w i r e F u n d s t o t h e b a n k s e llin g t h e R P . B a n k s e n t e r i n t o R P's e i t h e r b e c a u s e t h e y w i s h t o s e e k F u n d s a g g r e s s iv e ly o r b e c a u s e t h e y w i s h t o a c c o m m o d a t e c u s t o m e r s w a n t i n g t o in v e s t F u n d s f o r a b r ie f p e r io d . A b a n k s e e k in g F u n d s lo c a te s R P b u y e r s e i t h e r b y p h o n i n g k n o w n p r o s p e c t iv e c u s t o m e r s o r b y c o n t a c t in g G o v e r n m e n t b o n d d e a le r s — w h o a re in c lo s e t o u c h w i t h s o u r c e s o f RP m on ey. U s in g R P's, a b a n k c a n u s u a lly b u y r e s e rv e s a t ra te s 1/8 p e r c e n t t o 1/4 p e r c e n t b e l o w t h e F e d f u n d s ra te . H o w e v e r , R P's h a v e t h e s a m e d r a w b a c k as a " s e c u re d " t r a n s a c t io n , n a m e l y , t y i n g u p U . S. T r e a s u r y o r A g e n c y s e c u r it ie s as c o lla t e r a l a g a in s t R P lia b ilitie s . N e g o t ia b le C D ' s A C D is a r e c e ip t f o r m o n e y d e p o s i t e d in a b a n k f o r a s p e c if ie d t im e . N e g o t i a b l e (tra n s fe ra b le ) C D ' s a re u s u a lly is s u e d in d e n o m i n a t io n s o f $ 1 0 0 ,0 0 0 o r m o r e . D is t r ic t b a n k s is s u e n e g o t i a b le C D ' s e i t h e r t o a c c o m m o d a t e c u s t o m e r s w i s h in g t o in v e s t i d l e f u n d s o r t o a g g r e s s iv e ly s e e k f u n d s t o f in a n c e lo a n s a n d in v e s t m e n t s . M o s t b a n k s m a in t a in p o s t e d C D ra te s th a t c a n b e a d ju s t e d u p o r d o w n , d e p e n d i n g o n t h e b a n k 's g e n e r a l d e s ir e fo r C D 's. M a n y la rg e D is t r ic t b a n k s d o , o n o c c a s io n , a g g r e s s iv e ly s o lic it C D m o n e y f r o m lo c a l a n d n a t io n a l a c c o u n t s . In th is c a s e , a b a n k in f o r m s c u s t o m e r s t h a t it is a c t i v e l y s e e k in g C D ' s a n d w o u l d lik e t o b id o n a v a ila b le fu n d s . S e v e r a l la rg e D is t r ic t b a n k s a ls o is s u e C D ' s d ir e c t ly t o i n v e s t m e n t b a n k in g f i r m s in N e w Y o r k . In th is c a s e , a D is t r ic t b a n k t e l e p h o n e s o n e o r t w o f ir m s a n d a sk s f o r b id s o n a g i v e n a m o u n t o f C D ' s o f a g i v e n m a t u r it y . A f t e r a n a ly z i n g t h e ir C D in v e n t o r ie s , th e s e f ir m s t h e n o f f e r t o b u y t h e C D ' s a t a c e r t a in p r ic e . T h e D is t r ic t b a n k s e lls t h e C D ' s t o t h e f i r m o f f e r i n g t h e h ig h e s t b id ( lo w e s t in t e r e s t c o s t). T h e f i r m e i t h e r h o ld s t h e C D ' s f o r its o w n a c c o u n t o r d is t r ib u t e s t h e m t o in v e s t o r s . S in c e o u t - o f - t o w n C D b u y e r s s o m e - 221 t im e r e q u ir e p o s s e s s io n o f C D ' s , s o m e D is t r ic t b a n k s a rr a n g e f o r c o r r e s p o n d e n t s t o c o - s ig n a n d d e l i v e r C D ' s is s u e d b y D is t r ic t b a n k s . M o s t c u s t o m e r s , h o w e v e r , r e q u ir e o n l y a s a f e k e e p in g r e c e ip t f o r C D ' s . B y a d ju s t in g p o s t e d ra te s a n d b y a g g r e s s iv e ly s o lic it in g C D ' s , m o n e y d e s k m a n a g e r s in t h e D i s t ric t fe e l t h e y h a v e c o n s id e r a b le d is c r e t io n o v e r th e v o l u m e o f n e g o t ia b le C D ' s o u t s t a n d in g a t t h e ir b a n k s . T h e y c a n n o t , h o w e v e r , a lw a y s g e t t h e v o l u m e t h e y w a n t , e s p e c ia lly a t ra te s t h e y m a y b e w i l l i n g t o p a y a n d in t h e m a t u r it ie s t h e y d e s ire . T h e r e f o r e , C D ' s a re a c o n s i d e r a b ly less d is c r e t io n a r y s o u r c e o f f u n d s t h a n F e d f u n d s p u rc h a s e s . F o r o n e t h in g , a b a n k th a t s e e k s C D f u n d s t o o a g g r e s s i v e l y o r th a t o ff e r s ra te s c l e a r ly o u t o f lin e w i t h p r e v a i li n g m a r k e t ra te s m a y c a u s e p r o s p e c t i v e b u y e r s t o s u s p e c t t h e b a n k is in fin a n c ia l d if f i c u l t y . In a d d it io n , s o m e b a n k s i n t e n t i o n a ll y lim it r e lia n c e o n C D ' s in o r d e r t o p r o t e c t t h e m s e lv e s a g a in s t p o t e n t ia l C D ru n o f fs . C o r p o r a t i o n s a re t h e m o s t i m p o r t a n t h o ld e r s o f C D ' s is s u e d b y D is t r ic t b a n k s , p r o b a b l y f o l l o w e d in o r d e r o f i m p o r t a n c e b y sta te a n d m u n ic ip a l g o v e r n m e n t s , s a v in g s a n d lo a n a s s o c ia tio n s , i n d i v i d u a ls , a n d c o r r e s p o n d e n t b a n k s . S in c e m o s t s ta te a n d m u n ic ip a l C D ' s m u s t b e s e c u r e d b y U . S. T r e a s u r y o r o t h e r s p e c if ie d s e c u ritie s , th e s e C D ' s a re u s u a lly less a t t r a c t iv e t o b a n k s th a n o th e r C D 's. A b o u t 4 0 p e r c e n t o f D is t r ic t m e m b e r b a n k s h a d n e g o t ia b le C D ' s o u t s t a n d in g in O c t o b e r 1 9 7 1 , w i t h th e g re a t b u l k o f D is t r ic t C D ' s b e in g is s u e d b y a b o u t 1 0 la rg e b a n k s . T h e to ta l v o l u m e o f n e g o t i a b le C D ' s is s u e d b y D is t r ic t b a n k s a m o u n t s t o less th a n 5 p e r c e n t o f t h e n a t io n a l t o t a l; b u t D is t r ic t b a n k s is s u e a c o n s id e r a b le a m o u n t o f n o n n e g o t i- 222 a b le C D ' s in d e n o m i n a t io n s o f $ 1 0 0 ,0 0 0 o r m o r e . In J u l y 1 9 7 1 , n o n n e g o t ia b le C D ' s a n d o t h e r t im e d e p o s it s in d e n o m i n a t io n s o f $ 1 0 0 ,0 0 0 o r m o r e ( h e ld b y i n d i v i d u a ls , p a r t n e r s h ip s , a n d c o r p o r a tio n s ) w e r e 4 2 p e r c e n t o f a ll D is t r ic t t im e d e p o s it s o v e r $ 1 0 0 ,0 0 0 . T h e c o m p a r a b l e n a t io n a l f ig u r e w a s 3 0 p e r c e n t . M o s t o f t h e D is tric t' s n o n n e g o t ia b le la r g e d e n o m i n a t io n C D ' s a re is s u e d b y la rg e F lo r id a b a n k s , a n u m b e r o f w h o m d o n o t is s u e n e g o t ia b le C D ' s . F lo r id a b a n k e r s m e n t i o n s e v e r a l re a s o n s f o r n o t is s u in g n e g o t ia b l e C D ' s . S o m e a ttra c t a ll t h e m o n e y t h e y w a n t w i t h o u t is s u in g n e g o t ia b le C D ' s . O t h e r s t h in k th a t s a le s o f C D ' s w o u l d n o t b e in c r e a s e d b y is s u in g C D ' s in n e g o t ia b le f o r m . S till o t h e r s d o n o t w a n t t h e ir C D ' s s o ld t o p a rtie s u n k n o w n t o t h e b a n k in w h i c h c a se th e b a n k m a y n o t k n o w if t h e C D ' s w o u l d b e r e n e w e d a t m a t u r it y . T h e n , t o o , b a n k s fe e l t h e r e is less ris k o f C D r u n o f f w h e n C D ' s a re h e ld b y lo c a l in te re s ts . T h e ris k o f r u n o f f o f n e g o t ia b le C D ' s is g r e a t e r t h a n f o r n o n n e g o t ia b le C D ' s w h i c h a re a u t o m a t i c a l l y r e n e w e d u n le s s p r e s e n t e d f o r r e d e m p t i o n . C o n v e r s e l y , n e g o t ia b l e C D ' s m u s t b e p a id o f f a t m a t u r i t y a n d t h e n re is s u e d . S in c e 1 9 6 4 , n e g o t ia b l e C D ' s is s u e d b y D is t r ic t b a n k s h a v e t r e n d e d u p w a r d e v e n m o r e r a p i d l y th a n in t h e n a t io n . C D r u n o f f s in t h e la s t h a lf o f 1 9 6 6 a n d d u r i n g 1 9 6 9 w e r e s l i g h t l y less s e v e r e in th e D is t r ic t t h a n in m a n y o t h e r p a rts o f th e n a t io n , e s p e c ia lly d u r i n g t h e firs t t h r e e q u a r t e r s o f 1 9 6 9 , p a r t l y b e c a u s e o n e o f t h e s ta te tre a s u rie s in th e D is t r ic t w a s s h a r p l y in c r e a s in g its h o ld i n g s o f n e g o t ia b le C D ' s d u r i n g th a t t im e . T o a v e r y m i n o r d e g r e e in t h e D is t r ic t , c o m p e n s a t i n g b a la n c e s a re h e ld in t h e f o r m o f C D ' s (ra th e r t h a n d e m a n d d e p o s it s ) , in w h i c h c a se t h e C D ' s u s u a lly y i e l d w e l l b e l o w t h e p r e v a i li n g m a r k e t ra te s o r h a v e n o y i e l d a t a ll. T h i s p r a c t ic e m a y b e a d v a n t a g e o u s b o t h t o t h e b a n k , s in c e C D 's h a v e a lo w e r re s e rv e re q u ir e m e n t th a n d e m a n d d e p o s it s , a n d t o t h e b o r r o w e r , s in c e h is c o m p e n s a t i n g b a la n c e s m a y b e m o r e l iq u id (i.e., c a n in s o m e c a se s b e s o ld in t h e C D s e c o n d a r y m a rk e t) . T h e S e c o n d a ry M a rk e t. N e w Y o rk -b a s e d G o v e r n m e n t b o n d d e a le r s m a in t a in a s e c o n d a r y m a r k e t in n e g o t ia b le C D ' s is s u e d b y m o n e y m a r k e t b a n k s — i.e ., t h e y b u y C D ' s f r o m t h o s e w a n t i n g t o s e ll p r i o r t o m a t u r i t y a n d se ll e x is t in g C D ' s t o in v e s t o r s . In p r a c t ic e , f e w n e g o t ia b l e C D ' s o r i g in a t in g in t h e D is t r ic t h a v e b e e n t r a d e d in t h e s e c o n d a r y m a rk e t. D e a le r s u s u a lly w i l l b id o n l y o n C D ' s in m i n i m u m d e n o m i n a t io n s o f $ 1 ,0 0 0 ,0 0 0 a n d is s u e d b y a f e w o f th e la rg e s t b a n k s in t h e D is t r ic t . If a d e p o s i t o r w is h e s t o s e ll a s m a l l e r - d e n o m i n a t io n n e g o t ia b l e C D , h e u s u a l ly a sk s h is b a n k t o lo c a t e a b u y e r . M o s t b a n k s c a n f i n d a b u y e r , MONTHLY REVIEW b u t n o t n e c e s s a r ily a t a n a t t r a c t iv e p r ic e . If a C D h o l d e r is in a p in c h , s o m e b a n k s w i l l le n d h im m o n e y a t 2 p e r c e n t a b o v e t h e in t e r e s t ra te y i e l d e d b y t h e C D . In a d d it io n , s o m e D is t r ic t le a d b a n k s h a v e a r r a n g e d f o r t h e ir la rg e c o r r e s p o n d e n t s to b u y o n d e m a n d C D ' s is s u e d b y t h e D is t r ic t le a d b a n k t o its s m a lle r c o r r e s p o n d e n t s . B e c a u s e s u c h C D ' s c o u l d n o t o r d i n a r i l y b e s o ld r e a d ily in t h e s e c o n d a r y m a r k e t , th is a r r a n g e m e n t in c re a s e s th e liq u id it y o f su c h C D 's. N o n d e p o s i t L ia b ilit ie s M o s t D is t r ic t b a n k s th a t e x p e r i e n c e d a r u n o f f o f C D ' s in 1 9 6 9 r e s p o n d e d t o th is s it u a t io n b y in c r e a s in g p u r c h a s e s o f F e d f u n d s . S e v e r a l b a n k s a d d it i o n a l l y m a r k e t e d a s u b s ta n tia l v o l u m e o f n o n d e p o s it lia b ilit ie s , i n c lu d in g r e p u r c h a s e a g r e e m e n t s o n lo a n s (lo a n R P's), c o m m e r c ia l p a p e r is s u e d b y t h e ir h o l d i n g c o m p a n ie s o r s u b s id ia r ie s , a n d E u r o d o ll a r b o r r o w i n g s . S e llin g L o a n R P's t o N o n b a n k s . F o r s o m e t im e , D is t r ic t b a n k s h a v e s o ld lo a n s o r p a r t ic ip a t io n s in lo a n s t o o t h e r b a n k s . T h i s is o n e w a y le a d b a n k s c a n p r o v i d e a n i n v e s t m e n t o u t le t f o r s m a lle r c o r r e s p o n d e n t s a n d a m e t h o d in w h i c h le a d b a n k s p a r t ic ip a t e in lo a n s th a t a re t o o la rg e f o r a c o r r e s p o n d e n t t o h a n d le a lo n e . H o w e v e r , t h e p r a c t ic e o f s e llin g lo a n RP's t o th e n o n b a n k p u b li c is n e w . A lo a n R P is id e n t ic a l t o a U . S. T r e a s u r y R P ( d e s c r ib e d e a rlie r) e x c e p t th a t t h e a s s e t s o ld is a p a r t ic ip a t io n c e r t if ic a t e in a lo a n o r p o o l o f lo a n s . T h e p a r t ic ip a t io n c e r t if ic a t e d e s c r ib e s th e lo a n s o ld a n d s tip u la te s t h e b u y - b a c k a g r e e m e n t a n d t h e in t e r e s t ra te p a y a b le o n t h e R P . O f t e n , a b a n k w i l l n o t p a ss a lo n g t h e fu ll in te re s t i n c o m e o n a lo a n s o ld , r e t a in in g p a r t as a c h a r g e f o r s e r v ic in g t h e lo a n . In t h e c a se o f p a r t ic ip a t io n s in p o o ls o f lo a n s , th e d o ll a r a m o u n t o f t h e lo a n s in t h e p o o l e x c e e d s t h e d o ll a r a m o u n t o f p a r t ic ip a t io n s s o ld . T h i s g iv e s t h e p a r t ic ip a n t a c u s h io n o f p r o t e c t io n a g a in s t c a p ita l lo s s s h o u l d s o m e lo a n s in th e p o o l d e fa u lt . A f e w D is t r ic t b a n k s b e g a n t o se ll lo a n RP's t o o t h e r th a n b a n k s in e a r ly 1 9 6 9 ; t h e v o l u m e o f th e s e lo a n RP's h a d a lr e a d y p e a k e d o u t b y A u g u s t 1 9 6 9 . T h e v o l u m e d e c l in e d r a p i d l y t h e r e a f t e r b e c a u s e t h e B o a rd o f G o v e r n o r s r u le d th a t s u c h lia b ilit ie s w e r e d e p o s it s a n d , t h e r e f o r e , s u b je c t t o in te re s t ra te c e ilin g s a n d re s e r v e r e q u ir e m e n t s . T h i s r e n d e r e d lo a n RP's n o n c o m p e t i tiv e . S o m e in v e s t o r s , h o w e v e r , m e r e l y e x c h a n g e d t h e ir lo a n RP's f o r lo a n p a r t ic ip a t io n s w i t h o u t t h e r e p u r c h a s e a g r e e m e n t c la u s e . L o a n RP's is s u e d b y a b a n k w e r e o f t e n p u r c h a s e d w i t h t h e p r o c e e d s o f C D ' s m a t u r in g a t t h e s a m e b a n k . H o w e v e r , t h e d o ll a r d e c lin e in C D ' s o u t s t a n d in g w a s less th a n lo a n R P in c re a s e s a t FEDERAL RESERVE BANK OF ATLANTA t h o s e D is t r ic t b a n k s is s u in g lo a n R P's, in d ic a t in g th a t th e s e b a n k s a ttra c te d lo a n R P f u n d s f r o m o t h e r s o u r c e s b e s id e s t h e ir o w n C D ' s — p r o b a b l y m o s t l y f r o m C D ' s m a t u r in g a t o t h e r b a n k s . B o r r o w i n g E u r o d o lla r s . W h e n a n o w n e r o f a d e m a n d d e p o s i t in a d o m e s t ic b a n k tra n s fe rs t h e d e p o s i t t o a d o ll a r - d e n o m i n a t e d d e p o s i t in a f o r e ig n b a n k ( p o s s ib ly a f o r e i g n b r a n c h o r o t h e r a ffilia te o f a d o m e s t ic b a n k ) , a E u r o d o ll a r (E$) d e p o s i t is c re a te d . T h e f o r e i g n b a n k r e c e iv e s a c la im o n re s e rv e s o f a d o m e s t ic b a n k th a t it e it h e r d e p o s it s in a d o m e s t ic c o r r e s p o n d e n t o r p a r e n t b a n k o r le n d s t o a d o m e s t ic b a n k o r o t h e r p a r t y . A s a re s u lt o f t h e c r e a t io n a n d l e n d i n g o f E$ d e p o s it s , r e s e rv e s a re u s u a lly tr a n s f e r r e d f r o m o n e d o m e s t ic b a n k t o a n o t h e r . D is t r ic t b a n k s b o r r o w E$'s b o t h d ir e c t ly a n d t h r o u g h f o r e ig n (N a s s a u ) b r a n c h e s . U s u a lly , a D is t r ic t b a n k w a n t i n g t o b o r r o w E$'s e it h e r c a lls a N e w Y o r k - b a s e d E$ b r o k e r o r w i r e s a f o r e i g n b a n k a n d a sks f o r a n o f f e r o n E$'s. O n c e a E$ l e n d e r h as b e e n lo c a t e d a n d a D is t r ic t b a n k a g re e s t o b o r r o w t h e E$'s, t h e l e n d e r o r d e r s h is f o r e i g n b a n k t o p a y E$'s t o t h e D is t r ic t b a n k . T h e f o r e ig n b a n k t h e n o r d e r s its N e w Y o r k c o r r e s p o n d e n t b a n k t o p a y t h e D is t r ic t b a n k . A s a r e s u lt o f t h e tra n s a c t io n , t h e D is t r ic t b a n k r e c e iv e s re s e rv e s f r o m t h e N e w Y o r k b a n k a n d in c u r s a l ia b ilit y f o r b o r r o w e d m o n e y . T h e l e n d e r re c e iv e s a p r o m i s s o r y n o t e o r c o n f i r m i n g le t t e r s ig n e d b y t h e D is t r ic t b a n k . If t h e l e n d e r d e p o s it s E$'s in a N a s s a u b r a n c h o f a D is t r ic t b a n k , h e o r d e r s h is f o r e i g n b a n k t o p a y E$'s t o a D is t r ic t b a n k f o r t h e c r e d it o f t h e N a s s a u b r a n c h . T h e D is t r ic t b a n k re c e iv e s r e s e rv e s a n d in c u r s a l ia b ilit y t o its N a s s a u b r a n c h . C o n c e r n e d t h a t E$ b o r r o w i n g w a s e n a b lin g la rg e b a n k s t o p a r t l y o f f s e t m o n e t a r y re s tra in t, th e F e d e ra l R e s e r v e — in A u g u s t 1 9 6 9 — s u b je c t e d s u c h b o r r o w i n g s a b o v e a s p e c if ie d b a s e t o a 1 0 - p e r c e n t r e s e r v e r e q u ir e m e n t . T h i s in c re a s e d t h e c o s t o f a d d it io n a l lo a n a b le f u n d s f r o m th is s o u r c e , s in c e 10 p e r c e n t o f t h e b o r r o w i n g p r o c e e d s w o u l d b e r e q u ir e d re s e rv e s . E$ b o r r o w i n g n a t i o n a l ly b e g a n t o s u b s id e s h o r t l y a ft e r th is , b u t b o r r o w i n g d id n ' t p e a k in t h e D is t r ic t u n til t h e e n d o f 1 9 6 9 . A t its p e a k le v e l, E$ b o r r o w i n g in th e D is t r ic t a m o u n t e d t o o n l y a b o u t o n e - t h i r d th e p e a k v o l u m e o f D is t r ic t lo a n RP's a n d o n e - e i g h t h t h e p e a k v o l u m e o f D is t r ic t b a n k re la te d c o m m e r c ia l p a p e r. S e llin g B a n k - R e la t e d C o m m e r c ia l P a p e r. C o m m e r c ia l p a p e r is a s h o r t - t e r m p r o m i s s o r y n o t e th a t is s o ld in t h e m o n e y m a r k e t a t a d is c o u n t . M o s t p a p e r is is s u e d d ir e c t ly t o m o n e y m a r k e t in v e s t o r s b y f in a n c e c o m p a n ie s . N o n f in a n c ia l c o r p o r a t io n s a ls o is s u e a s u b s ta n tia l v o l u m e o f p a p e r , n o r m a l l y p la c in g it w i t h d e a le rs w h o d is t r ib u t e t h e p a p e r. 223 In 1 9 6 9 , D i s t r ic t b a n k h o l d i n g c o m p a n i e s a n d t h e ir n o n b a n k s u b s id ia r ie s b e g a n is s u in g p a p e r (c a lle d b a n k - r e la t e d p a p e r ) , u s in g m o s t o f t h e p r o c e e d s t o p u r c h a s e lo a n s f r o m a ffilia t e b a n k s . S o m e o f t h e b a n k - r e la t e d p a p e r o r i g in a t in g in t h e D is t r ic t w a s p la c e d d i r e c t l y w i t h N e w Y o r k - b a s e d d e a le r s in t h e s a m e m a n n e r t h a t C D ' s h a v e s o m e t i m e s b e e n is s u e d d i r e c t l y t o i n v e s t m e n t b a n k e r s (se e s e c t io n o n C D ' s ) . M o s t o f t e n , h o w e v e r , b a n k - r e la t e d p a p e r w a s is s u e d d ir e c t ly t o h o ld e r s o f m a t u r i n g C D ' s . In e f f e c t , b a n k - r e la t e d p a p e r w a s a m e a n s t h r o u g h w h i c h b a n k s f in a n c e d lo a n s (a n d o f f s e t C D ru n o f fs ) . B a n k - r e la t e d p a p e r ro s e v e r y r a p i d l y in t h e D is t r ic t in 1 9 6 9 , p e a k in g o u t a b o u t t h e e n d o f th a t y e a r. T h is p a p e r p r o v e d a n im p o r t a n t s o u rc e o f f u n d s t o s e v e r a l s u c h b a n k s . B y la te 1 9 6 9 , t h e v o l u m e o f b a n k - r e la t e d p a p e r is s u e d b y D is t r ic t h o l d i n g c o m p a n i e s g r e a t ly e x c e e d e d t h e C D ' s o u t s t a n d in g a t t h e ir r e la t e d b a n k s . R e s t r ic t iv e r e g u la t o r y a c t io n s a g a in s t b a n k - r e la t e d p a p e r w e r e p r o p o s e d b y t h e B o a r d o f G o v e r n o r s in O c t o b e r 1 9 6 9 . It w a s n o t u n t il S e p t e m b e r 1 9 7 0 , h o w e v e r , t h a t t h e d e f i n i t i o n o f d e p o s it s w a s e x p a n d e d t o in c lu d e b a n k - r e la t e d p a p e r w h e n t h e p r o c e e d s w e r e u s e d t o b u y a sse ts f r o m a n a ff ilia t e d b a n k . A c t u a l l y , t h e v o l u m e o f b a n k - r e la t e d p a p e r o r i g in a t in g in t h e D i s t r ic t b e g a n a s l o w d e c l in e in e a r ly 1 9 7 0 , p a r t l y b e c a u s e o f t h e u n c e r t a in t y a b o u t t h e f u t u r e r e g u la t io n o f b a n k - r e la t e d p a p e r . B u t it w a s n o t u n t il la te in t h e s u m m e r o f 1 9 7 0 , a ft e r ra te c e ilin g s o n s h o r t - t e r m C D ' s h a d b e e n r e m o v e d , t h a t b a n k - r e la t e d p a p e r b e g a n t o d e c l in e r a p id ly . A f e w D i s t r ic t b a n k s h a v e is s u e d le tte rs o f c r e d i t g u a r a n t e e in g c o m m e r c i a l p a p e r th a t c u s t o m e r s h a v e s o l d t o d e a le r s . T h e s e le tte rs o f c r e d i t e n a b le f ir m s t o is s u e c o m m e r c i a l p a p e r w h o , o t h e r w i s e , c o u l d n o t . U s i n g t h is t e c h n iq u e , b a n k s a rra n g e fin a n c in g f o r c u s to m e rs w it h o u t t y i n g u p t h e ir l e n d i n g c a p a c it y . T h e g u a r a n t e e in g o f p a p e r , h o w e v e r , in c re a s e s t h e c o n t i n g e n t lia b ilit ie s o f b a n k s . Working Capital Acceptances During the 7969 credit squeeze, som e major m oney market banks began to use an instrument called the working capital acceptance in arranging financing for their customers. W orking capital acceptances have not yet been issued by District banks, but are under study. In acceptance financing, a bank agrees, for a fee, to accept time drafts (orders to pay at a future date) drawn on the bank either by a custom er or another party. After the draft is drawn, it is pre sented to the bank for acceptance. The beneficiary of the draft can either h old an accepted draft (banker's acceptance) until maturity o r ask the accepting bank to discount the draft, paying the beneficiary an am ount less than the draft's face value. The bank can either h old the draft until 224 W h a t N e xt? A s D is t r ic t b a n k e r s t r y t o e x p a n d t h e ir p a r t ic ip a t io n in m o n e y m a r k e t in t e r m e d ia t i o n , t h e y c a n b e e x p e c t e d t o b e c o m e i n c r e a s in g l y s o p h is t ic a t e d p a r t ic ip a n t s in t h e m a r k e t s f o r F e d f u n d s , C D ' s , a n d n o n d e p o s i t lia b ilit ie s . A n e x a m p l e o f t h is is t h e p a r t ic ip a t io n b y a f e w D i s t r ic t b a n k s in a f u t u r e s m a r k e t in F e d f u n d s . In t h is c a s e , D is t r ic t b a n k s p u r c h a s e a n d s e ll c o n t r a c t s t h r o u g h N e w Y o r k b ro k e rs f o r th e fu tu re d e liv e r y — m a in ly o v e r w e e k e n d s a n d o n e w e e k in a d v a n c e — o f F u n d s . T h e n e g o t ia b l e C D w i l l p r o b a b l y d o m i n a t e m o n e y m a r k e t b a n k lia b ilit ie s in t h e n e x t f e w y e a r s , in t e r e s t ra te c e ilin g s p e r m i t t i n g . A n d , if e f f e c t i v e in t e r e s t ra te c e ilin g s a r e i m p o s e d o n C D ' s , it is p o s s ib le t h a t t h e y m i g h t b e e x t e n d e d t o C D s u b s t it u t e s as w e l l ; o t h e r w i s e , t h e c e i l i n g o n C D ra te s w o u l d d e f l e c t f u n d s f r o m C D ' s t o s u b s t it u t e b a n k lia b ilit ie s , w i t h lit t le e f f e c t o n t o t a l b a n k c r e d it . T h e r e f o r e , it m a y n o t b e s i g n if i c a n t l y a d v a n t a g e o u s f o r b a n k e r s t o d e v e l o p lia b ilit ie s o n l y as b a c k s to p s f o r C D 's d u r in g tig h t m o n e y . N o n e t h e le s s , e v e n i f t h e y d o n o t a n t ic ip a t e e f f e c t iv e in t e r e s t ra te c e ilin g s o n C D ' s , b a n k e r s h a v e a n i n c e n t i v e t o d e v e l o p n e w lia b ilit ie s t o s u p p l e m e n t C D ' s . T h e re a s o n is t h a t C D ' s a r e p r e s e n t l y s u b je c t t o a 5 - p e r c e n t r e s e r v e r e q u i r e m e n t (3 p e r c e n t le g a l m in i m u m ) . W h e n b a n k s a re i n t e r m e d ia t in g b il l i o n s o f d o lla r s t h r o u g h C D ' s a n d w h e n t h e y a re u p a g a in s t a h i g h l y c o m p e t i t i v e n o n b a n k m o n e y m a rk e t se c to r, th e re s e rv e re q u ire m e n t is a s ig n if ic a n t c o s t t o t h e m . W h a t s p e c if ic t e c h n iq u e s b a n k s m i g h t g i v e in c r e a s in g a t t e n t io n t o is o b v i o u s l y n o t a s u r e t h in g . H o w e v e r , b a n k e r s a r e t h i n k i n g a b o u t t h e g u a r a n t e e in g o f c u s t o m e r - i s s u e d , c o m m e r c i a l p a p e r , t h e c r e a t io n o f w o r k i n g c a p ita l a c c e p t a n c e s , a n d t h e s a le o f p a r t ic ip a t io n s in lo a n p o o l s t o t h e n o n b a n k p u b li c . In a ll o f t h e s e t e c h n iq u e s , t h e b a n k a c ts as a m o n e y b r o k e r w h o a r r a n g e s o u t s i d e s o u r c e s t o f in a n c e b a n k c u s t o m e r s . In t h e fin a l a n a ly s is , t h o u g h , t h e g r o w t h o f t h e s e t e c h n iq u e s a n d o t h e r in n o v a t io n s , w ill d e p e n d la r g e ly o n h o w th e s e t e c h n iq u e s — a n d C D ' s — a r e r e g u la t e d b y th e Fe d . ■ maturity and earn interest or, because the banker's acceptance is a negotiable instrument, sell it in the m oney market. In th e latter case, as in the case of guaranteeing com m ercial paper issued by a cus tom er, the bank arranges financing for a custom er without making a conventional loan, which w ould tie up the bank's resources. A working capital acceptance is created in con junction with general working capital needs rather than with the shipm ent o r storage of goods. Trade acceptances maturing in 180 days or less are eligible for discount at the Fed. H ow ever, working capital acceptances are not eligible. MONTHLY REVIEW A la b a m a : O u t o f t h e D o ld r u m s ? by Brian D itten h afer W h e n A la b a m a ' s e c o n o m y w a s la s t r e v ie w e d , t h e a u t h o r e n d e d h is a n a ly s is w i t h a p r e d i c t i o n t h a t A la b a m a ' s g r o w t h p a t t e r n w o u l d f o l l o w t h e p a t t e r n s e t b y t h e n a t io n .1 T h a t p r e d i c t i o n c a m e t r u e , w i t h A la b a m a a n d t h e n a t io n s h o w i n g a d e c l in e in e c o n o m i c a c t iv it y , a lt h o u g h A la b a m a d id p o s t a s l i g h t l y b e t t e r p e r f o r m a n c e th a n t h e n a t io n d u r i n g 1 9 7 0 a n d d u r i n g t h e firs t t h r e e q u a r t e r s o f 1 9 7 1 . F o r e x a m p le , t h e S tate's u n e m p l o y m e n t ra te h a s b e e n c o n s is t e n t ly l o w e r th a n t h e n a t io n a l ra te s in c e J u n e 1 9 7 0 . M o r e o v e r , A la b a m a h a s a n o r ie n t a t io n t o w a r d p r o d u c t i o n o f g o o d s f o r c iv ilia n c o n s u m p t i o n . T h e r e f o r e , w i t h n a t io n a l s a le s o f c o n s u m e r g o o d s u p s h a r p ly d u r i n g 1971 a n d w i t h f u r t h e r e x p a n s io n e x p e c t e d , t h e s ta g e s e e m s s e t f o r A la b a m a t o m o v e o u t o f t h e d o ld r u m s a n d e x p e r i e n c e a fa s te r p a c e o f a c t iv it y . E m p lo y m e n t H o ld s A S te a d y C o u rs e T o t a l e m p l o y m e n t h a s r e m a in e d r e l a t i v e ly s t e a d y d u r i n g t h e 1 9 7 0 -1 9 7 1 p e r io d , w i t h in c re a s e s in s o m e s e c to rs o f f s e t t in g d e c re a s e s in o t h e r s . N o n m a n u f a c t u r in g e m p l o y m e n t , w h i c h a c c o u n t s f o r a b o u t t w o - t h i r d s o f A la b a m a ' s n o n f a r m j o b s , h a s s h o w n a s m a ll b u t s t e a d y in c re a s e in 1 9 7 1 , a fte r th e s t a g n a t io n o f la st y e a r . R e b o u n d i n g f r o m a s trik e in B ir m in g h a m , c o n t r a c t c o n s t r u c t io n e m p l o y m e n t in c r e a s e d s t r o n g l y d u r i n g 1 9 7 1 . A s t e a d y in c re a s e in t h e v a l u e o f c o n s t r u c t io n c o n t r a c t s a w a r d e d in A la b a m a h a s r e in f o r c e d t h e in c re a s e in e m p l o y m e n t in th a t i n d u s t r y a n d p r o m is e s m o r e o f t h e s a m e f o r t h e f u t u r e . G o v e r n m e n t r e m a in s a p r im a r y g r o w t h s e c t o r in n o n m a n u f a c t u r in g , s h o w i n g a n in c re a s e o f m o r e t h a n 3 ,0 0 0 w o r k e r s d u r i n g 1 9 7 1 . T w o - t h i r d s o f t h e in c re a s e r e fle c t e d e x p a n s io n in s ta te a n d lo c a l g o v e r n m e n t j o b s , w h e r e b o t h s c h o o l a n d n o n s c h o o l p o s it io n s e x p a n d e d s u b s t a n t ia lly . T h e b u s in e s s a n d fin a n c ia l s e r v ic e s in d u s t r y , w h i c h h a d b e e n a g r o w t h s e c t o r d u r i n g t h e la st h a lf o f t h e S ix tie s , l e v e le d o f f d u r i n g t h e firs t h a lf o f 1 9 7 1 , a fte r a d d in g 2 ,0 0 0 w o r k e r s d u r i n g 1 9 7 0 . 1Boyd F. King, "Alabama's Economy Moves in Step with the Nation's," this Review, July 1970, pp. 100-103. FEDERAL RESERVE BANK OF ATLANTA 225 5 a c c o u n t s in la rg e p a r t f o r t h e S ta te's r e l a t i v e ly g o o d e c o n o m ic p e r fo r m a n c e d u r in g th e p a st y e a r . N a t i o n a ll y a n d l o c a ll y , t h o s e a re a s th a t w e r e d e p e n d e n t u p o n d e f e n s e a n d s p a c e - r e la t e d a c t i v i t y s u f f e r e d h ig h u n e m p l o y m e n t , r e f le c t in g s h a rp c u t b a c k s in s p e n d i n g a t t h e n a t io n a l le v e l. N o n d u r a b le g o o d s m a n u fa c tu rin g e x p e rie n c e d e m p l o y m e n t lo s s e s f r o m its 1 9 6 9 p e a k , a lt h o u g h th is s e c t o r h a s d e c l in e d le ss in A la b a m a th a n n a t i o n a l ly f o r t h e 1 9 7 0 -1 9 7 1 p e r io d . A f t e r v e r y r a p id e x p a n s io n d u r i n g t h e 1 9 6 0 's, p a p e r a n d a llie d p ro d u c ts e m p lo y m e n t le v e le d o ff d u r in g 1970 a n d 1 9 7 1 . D e s p it e t h e e m p l o y m e n t s t a g n a t io n , s m a ll m o n t h - t o - m o n t h in c re a s e s in p r o d u c t i o n c o n tin u e d , h o ld in g th e p ro s p e c t o f jo b g r o w t h in t h e fu t u r e . E m p l o y m e n t in t h e t e x t ile a n d a p p a r e l in d u s t r ie s w a s r e l a t i v e ly s t a b le t h r o u g h o u t 1 9 7 0 a n d t h e firs t t h r e e q u a r t e r s o f 1 9 7 1 . T h i s w a s m u c h b e t t e r t h a n t h e n a t io n a l p e r f o r m a n c e , w h e r e e m p l o y m e n t in te x t ile s a n d a p p a r e l w a s d o w n 3V 2 p e r c e n t f r o m e a r ly 1 9 7 0 le v e ls . 4 P r o d u c t io n C a tc h e s A L ig h t B re e z e L a b o r fo rc e g ro w th o u ts trip s jo b g ro w th . . . ions 1.35 1.3 1.05 1 .0 b u t u n e m p lo y m e n t ra te rise s less th a n n a tio n a lly % of labor force 6 1970 1971 R e d u c t io n s in d u r a b l e g o o d s e m p l o y m e n t le d th e t r e n d d o w n w a r d in t h e m a n u f a c t u r in g s e c to r. M a n u f a c t u r in g , w h i c h a c c o u n t s f o r a p p r o x i m a t e l y o n e - f o u r t h o f to ta l e m p l o y m e n t in th e S ta te , w a s d o w n 2 p e rc e n t b e tw e e n Ja n u a ry a nd O c t o b e r 1 9 7 1 . P r im a r y m e ta ls , t h e la rg e s t e m p l o y e r in th is g r o u p , d id n o t m a tc h 1 9 6 9 le v e ls o f e m p l o y m e n t d u r i n g t h e firs t h a lf o f 1 9 7 1 , in s p ite o f t h e s t r o n g d e m a n d f o r s te e l o u t p u t b r o u g h t a b o u t b y f e a r o f a s trik e . A f t e r t h e s trik e th r e a t p a s s e d , b u y e r s w e r e r e lu c t a n t t o m a in t a in h ig h in v e n t o r ie s , r e s u lt in g in a b n o r m a l ly l o w e m p l o y m e n t in th is s e c to r. T h e t r a n s p o r t a t io n e q u i p m e n t i n d u s t r y h as s h o w n t h e e f f e c t o f d e f e n s e c u tb a c k s , lo s in g a s u b s ta n tia l n u m b e r o f j o b s in a irc ra f t m a in t e n a n c e a t F o r t R u c k e r . S h ip r e p a ir e m p l o y m e n t h a s a ls o d is p la y e d s u b s ta n tia l d e c lin e , w i t h f e w e r s h ip s b e in g r e p a ir e d a t M o b i le . D e f e n s e c u t b a c k s h a v e n o t h it A la b a m a as h a rd as t h e n a t io n . It h a s b e e n e s t im a t e d th a t o n l y 1 4 .3 p e r c e n t o f v a l u e a d d e d in m a n u f a c t u r in g in A la b a m a is d e f e n s e o r s p a c e o r ie n t e d . B y w a y o f c o n tra s t, th e a v e r a g e f ig u r e f o r t h e o t h e r S ix th D is t r ic t sta te s is 1 7 .5 p e r c e n t , a n d th e c o m p a r a b l e n a t io n a l f ig u r e is 2 5 .5 p e r c e n t .2 T h i s 2B a se d o n 1967 data. S e e F re d e ric k R. S t ro b e l, " D e f e n s e R e la te d C u t b a c k s : T h e ir Im p a c t o n the S o u t h e a s t " , th is Review, S e p te m b e r 1971, p. 196. T h e fig u r e fo r A la b a m a is p r o b a b ly lo w e r at th is tim e , o w i n g to th e se ve re c u ts th at h a v e ta k e n p la c e in the H u n t s v ille are a s in c e 1967. 226 In d u s t r ia l p r o d u c t i o n in t h e S ta te e c o n o m y i n c re a s e d d u r i n g t h e fir s t t h r e e q u a r t e r s o f 1 9 7 1 . S e v e n o f t h e te n p r o d u c t i o n i n d e x e s m a in t a in e d b y t h e U n i v e r s i t y o f A la b a m a C e n t e r f o r B u s in e s s a n d E c o n o m i c R e s e a rc h s h o w e d in c re a s e s f o r th e firs t e i g h t m o n t h s o f th is y e a r . E le c tric p o w e r c o n s u m p t i o n f o r in d u s t r ia l p u r p o s e s , w h e n c o r r e c t e d f o r a b e r r a t io n s in p r i m a r y m e ta ls a n d p a p e r p r o d u c t s p r o d u c t i o n , in c r e a s e d d u r i n g t h e t h ir d q u a r t e r . T h i s is a g o o d in d ic a t io n o f in d u s t r ia l o u t p u t f o r t h e S ta te a n d c o n f i r m s th e s lig h t u p w a r d t r e n d e s t a b lis h e d d u r i n g t h e firs t h a lf o f 1 9 7 1 . A n in c re a s e in t h e a v e r a g e w e e k l y h o u r s w o r k e d in m a n u f a c t u r i n g d u r i n g t h e firs t te n m o n t h s o f th is y e a r is a f a v o r a b l e s ig n in m a n u f a c t u r in g . If e m p l o y e r s f o l l o w p a s t p a tte rn s , a n in c re a s e in a v e r a g e w e e k l y h o u r s w o r k e d w i l l b e f o l l o w e d b y a n in c re a s e in e m p l o y m e n t . T h e s e in d ic a t o r s a re c le a r ly e n c o u r a g i n g ; h o w e v e r , fa s te r g r o w t h is n e c e s s a r y t o p r o v i d e j o b s f o r an e x p a n d in g la b o r fo rc e . In c o m e C o n tin u e s to E x p a n d P e rs o n a l in c o m e f o r A la b a m a c o n s u m e r s c o n t i n u e d t o e x p a n d d u r i n g t h e firs t h a lf o f 197 1 . T h e s t r o n g e s t a d v a n c e s o c c u r r e d in c o n s t r u c t io n a n d s e rv ic e s . I n c o m e f r o m m a n u f a c t u r i n g j o b s c o n t i n u e d w e a k , w i t h t h e s m a ll in c re a s e s th a t o c c u r r e d b e in g b r o u g h t o n b y h ig h e r w a g e s a n d s a la rie s . I n c o m e o f n o n f a r m p r o p r i e t o r s a p p e a r e d t o m o v e u p b r i e f l y d u r i n g 1 9 7 0 b u t fe ll b a c k t o 1 9 6 9 le v e ls b y th e e n d o f t h e s e c o n d q u a r t e r o f th is y e a r . In th e a g r ic u lt u r a l s e c t o r , c a s h r e c e ip t s f r o m fa r m m a r k e t in g s f o r t h e firs t t h r e e q u a r t e r s o f th e MONTHLY REVIEW y e a r w e r e u p m o r e t h a n 2 p e r c e n t o v e r th e c o m p a r a b l e p e r io d in 1 9 7 0 . T h e in c re a s e re f le c t e d s t r o n g u p w a r d m o v e m e n t s in c a sh re c e ip ts f r o m c r o p s , s in c e r e c e ip t s f r o m liv e s t o c k m a r k e t in g s d e c lin e d . P ric e s p a id b y f a r m e r s w e r e u p s h a r p ly , ra is in g t h e p r o s p e c t o f l o w e r n e t f a r m in c o m e f o r 1 9 7 1 . A l t h o u g h fin a l re t u r n s a re n o t y e t in , 1971 s h o u l d p r o v e t o h a v e b e e n a g o o d , b u t n o t o u t s t a n d in g , y e a r f o r A la b a m a ' s fa rm e rs . K e y e c o n o m ic in d ic a to rs : U p s lig h t ly 1957-59= 100 Seas. adj. l\/ B a n k in g A c t i v i t y S a ils S m a r t ly A h e a d C o n f i r m i n g t h e p ic k u p in c o n s u m e r a n d b u s in e s s a c t iv it y , b a n k d e b it s t o d e m a n d d e p o s i t a c c o u n t s t r e n d e d m u c h h ig h e r d u r i n g 1 9 7 1 . M o r e o v e r , to ta l d e p o s it s a t m e m b e r b a n k s in c r e a s e d , ju s t as t h e y d id in 1 9 7 0 . T h e b u l k o f th is y e a r's d e p o s i t in c re a s e o c c u r r e d in t im e d e p o s it s , w i t h A la b a m a ' s g r o w t h in t im e d e p o s it s o u t d is t a n c in g t h e S ix th D is tric t's g r o w t h in t h e s a m e c a t e g o r y . L ik e w is e , lo a n s o u t s t a n d in g in c re a s e d s h a r p ly . In O c t o b e r , lo a n s w e r e 12 p e r c e n t a b o v e y e a r - a g o to ta ls . M e t r o p o l it a n A r e a s P re s e n t A V a r i e d P a tte rn A c c o r d i n g t o th e 1 9 7 0 C e n s u s o f P o p u l a t i o n a n d H o u s in g , t h e m e t r o p o l i t a n a re a s o f A la b a m a in c re a s e d t h e ir p o p u la t i o n b y 1 1 1 ,0 0 0 d u r i n g t h e S ix tie s . T h e g r o w t h ra te s o f t h e n o n m e t r o p o l i t a n a n d m e t r o p o l i t a n a re a s , h o w e v e r , w e r e a b o u t t h e s a m e a n d , t h e r e f o r e , t h e p r o p o r t i o n o f th e to ta l p o p u la t i o n l i v i n g in m e t r o p o l i t a n a re a s r e m a in e d a t t h e 1 9 6 0 le v e l o f 52 p e r c e n t . M o s t o f t h e p o p u la t i o n g r o w t h in m e t r o p o l i t a n FEDERAL RESERVE BANK OF ATLANTA 280 B a n k D e b its / - 260 \jv R e ta il A c t i v i t y M o v e s A h e a d W i t h i n c o m e u p , c o n s u m e r s s p e n t m o r e f r e e ly , p r o v i d i n g a g o o d firs t t h r e e q u a r t e r s f o r A la b a m a re ta ile rs . A c c o r d i n g t o t h e U n i v e r s i t y o f A la b a m a , re ta il sa le s w e r e u p a p p r o x i m a t e l y 1 6 p e r c e n t o v e r t h e s a m e p e r io d d u r i n g 1 9 7 0 , w h i c h w a s a s l o w y e a r f o r sa le s. M o s t o f la st y e a r' s s l o w d o w n c a m e in t h e s a le s o f d u r a b le g o o d s , w h e r e d e c lin e s o c c u r r e d in a u t o m o t i v e s a le s , l u m b e r a n d b u i l d i n g m a te ria ls , a n d h a r d w a r e a n d f a r m im p le m e n t s . F u r n it u r e , f u r n is h in g s , a n d a p p lia n c e sa le s in c r e a s e d o n l y o n e p e r c e n t in d o l l a r v o l u m e , n o t a d ju s t e d f o r p r ic e in c re a s e s . W h e n p r ic e in c re a s e s a re ta k e n in t o a c c o u n t , th e s e sa le s a ls o s h o w a s lig h t d r o p . In c o n t r a s t , d u r i n g t h e firs t t h r e e q u a r t e r s o f 1 9 7 1 , sa le s o f d u r a b l e g o o d s s h o w e d t h e s t r o n g e s t in c re a s e , w i t h la rg e in c re a s e s in sa le s o f l u m b e r a n d b u i l d i n g m a te ria ls . A u t o s a le s w e r e 20 p e r c e n t a b o v e t h e c o m p a r a b l e p e r io d o f 1 9 7 0 , s h o w i n g in c r e a s e d c o n f i d e n c e o n t h e p a rt o f A la b a m a c o n s u m e r s . . _ 240 A. 1967 = 100 - 140 M fg. P a y ro lls __ y 130 A' N o n m fg . E m p . 106 - 102 I 1970 1971 a re a s t o o k p la c e in t h e H u n t s v i ll e S M S A , w h i c h in c re a s e d its p o p u la t i o n d u r i n g t h e d e c a d e b y 4 8 p e r c e n t b e c a u s e o f t h e b o o m in s p a c e - o r ie n t e d in d u s t r ie s . T h i s in c re a s e in p o p u la t i o n a ll o w e d H u n t s v i ll e t o s u rp a s s M o n t g o m e r y as t h e t h ir d la rg e s t m e t r o p o l i t a n a re a in t h e S ta te . G a d s d e n e x p e r i e n c e d a p o p u la t i o n d e c lin e o f 2.9 p e r c e n t d u r i n g t h e d e c a d e . T h e r e m a in in g S M S A 's in A la b a m a e x p e r i e n c e d v e r y s l o w g r o w t h d u r i n g th e t e n - y e a r p e r io d , w i t h B ir m in g h a m a n d M o b i l e h a v i n g t h e l o w e s t g r o w t h ra tes a m o n g th e 25 la rg e s t S M S A ' s in t h e S o u t h e r n r e g io n o f th e U . S. D e s p it e lo s in g its ra n k as th e S tate's t h ir d - la r g e s t m e t r o p o l i t a n a re a , M o n t g o m e r y c o n t i n u e d t o s h o w a n im p r e s s iv e l y l o w u n e m p l o y m e n t ra te. U n e m p l o y e d j o b s e e k e rs c o m p r is e d less th a n 4 p e r c e n t o f t h e l a b o r f o r c e d u r i n g 1 8 o f th e la st 21 m o n t h s . D u r i n g th is t im e s p a n , r a p id e x p a n s io n in b a n k d e b it s t o d e m a n d d e p o s it a c c o u n t s a n d re ta il s a le s in d ic a t e d t h e c o n t i n u e d s tre n g th o f a c t i v i t y in t h e M o n t g o m e r y S M S A . T u s c a lo o s a s h o w e d m u c h t h e s a m e p a t t e r n : less u n e m p l o y m e n t a n d s u b s t a n t ia lly h ig h e r re ta il sa le s a n d b a n k d e b it s . M a j o r in c re a s e s o c c u r r e d in n o n d u r a b l e g o o d s e m p l o y m e n t a n d in n o n m a n u fa c tu rin g e m p lo y m e n t . G a d s d e n ' s p e r f o r m a n c e m u s t b e v i e w e d in lig h t o f th e 9 .8 - p e r c e n t u n e m p l o y m e n t ra te th a t p r e v a ile d in N o v e m b e r 1 9 7 0 a n d t h e 8 .0 - p e r c e n t a v e r a g e f o r t h e s a m e y e a r . T h e ra te w a s r e d u c e d t o 6.5 p e r c e n t in J u l y 1 9 7 1 , w i t h th e r e d u c t io n c o m i n g f r o m b o t h in c re a s e d e m p l o y m e n t 227 P a t t e r n s V a r y Birm ingham A m o n g S t a n d a r d M e t r o p o l i t a n Gadsden A r e a s Mobile Tho usan ds - 32.0 -3 0 6 Nonfarm Em ploym ent - 31.4 Nonfarm Em ploym ent Nonfarm Em ploym entr 123 - 30.8 - 30.2 /V Percent - 10 - 8 - 6 Percent -8 U nem ploym ent Rate _g U nem ploym ent Rate -4 - 4 2 1970 1 1971 2 - 1970 1 1970* 1971** 14 Retail Sales 7.7 1970 1 Percent change Percent change Bank Debits 1971 8 Bank Debits 14.1 Retail Sales Huntsville 1970* 1971** 1970* 1971** 3 13.2 Bank Debits 7 24.4 19.2 Retail Sales 2.1 17.9 10.6 Tuscaloosa M ontgomery Nonfarm Em ploym ent -9 0 .6 1971 Percent change - 45.7 -8 8 .8 - 44.8 - 87.1 - 43.9 -8 5 .4 - 43.0 Nonfarm Em ploym ent Nonfarm Em ploym ent Percent Percent - - 8 U nem ploym ent Rate U nem ploym ent Rate Percent 8 -8 _ ■ - 6 U nem ploym ent Rate - 4 - 4 2 1970 \ 1971 2 1970 Percent change 1970* 1971** Bank Debits 6 Retail Sales 7.7 ^ e c . ’70 from Dec. ’69 2 28 1 1971 1970 Percent change 1970* 1971** 9.4 Bank Debits 23.6 Retail Sales 8 15.5 i1 1971 Percent change 1970* 1971** 11.8 B ank Debits 12 26.9 Retail Sale s 18.5 6.9 19.1 **Latest m onth ’71 from sam e m onth '70 Latest m onth for bank debits: Oct. Latest m onth for retail sales: Aug. MONTHLY REVIEW a n d c u t b a c k s in t h e c i v ilia n l a b o r f o r c e . J o b c u t b a c k s in p r i m a r y a n d f a b r ic a t e d m e t a ls c a u s e d t e m p o r a r y in c re a s e s in u n e m p l o y m e n t d u r i n g A u g u s t a n d S e p t e m b e r . A s s te e l u s e rs w o r k d o w n b lo a t e d i n v e n t o r ie s , h o w e v e r , t h e l e v e l o f • u n e m p lo y m e n t s h o u ld b e re d u c e d . G a d s d e n has s u f f e r e d f r o m t h e n a t io n a l m a la is e in t h e d u r a b l e g o o d s s e c t o r . D u r a b l e g o o d s in d u s t r ie s n o r m a l l y p r o v i d e j o b s f o r a la r g e s h a r e o f to ta l e m p l o y m e n t in t h e a r e a ; t h e n a t io n a l s o f tn e s s in t h is s e c t o r h it G a d s d e n p a r t i c u l a r l y h a r d . T h e s l o w p o p u l a t i o n g r o w t h o f t h e B ir m in g h a m S M S A d i d n o t k e e p t h e c i v i li a n l a b o r f o r c e f r o m o u t s t r i p p in g e m p l o y m e n t . B ir m i n g h a m , t h e r e f o r e , c o n t i n u e d t o s h o w a n e r r a t ic in c re a s e in its u n e m p l o y m e n t ra te . M a n u f a c t u r in g , w h i c h a c c o u n t s f o r 3 5 p e r c e n t o f to ta l e m p l o y m e n t in B ir m in g h a m h a s c o n t i n u e d w e a k ; a ll o f t h e e m p l o y m e n t e x p a n s i o n t o o k p la c e in n o n m a n u f a c t u r i n g in d u s t r ie s . L ik e G a d s d e n , B i r m in g h a m h a s s u f f e r e d f r o m t h e n a t io n a l d e c l in e in s te e l p r o d u c t i o n , a n d t h e e m p l o y m e n t p ic t u r e t h e r e c a n n o t b r ig h t e n s i g n if ic a n t ly u n t il s te e l p r o d u c t i o n r e a c h e s m o r e n o r m a l le v e ls . A s in B i r m i n g h a m , t h e u n e m p l o y m e n t ra te h a s in c r e a s e d in b o t h M o b i l e a n d H u n t s v i ll e . In c re a s e s in t h e n u m b e r o f p e o p l e s e e k in g j o b s w e r e n o t m a t c h e d b y g r o w t h in t h e n u m b e r o f j o b s a v a ila b le , p a r t i c u l a r l y d u r i n g t h e s u m m e r m o n t h s . D e s p it e l o w e r le v e ls o f e m p l o y m e n t , th e m o s t r e c e n t f ig u r e s s h o w u n e m p l o y m e n t ra te s i m p r o v i n g . T h i s s e e m in g p a r a d o x c a n b e s i m p l y e x p la in e d : T h e n u m b e r o f p e o p le lo o k in g f o r jo b s d e c lin e d , p o s s i b l y b e c a u s e w o r k e r s w h o c o u l d n o t f i n d j o b s d r o p p e d o u t o f t h e l a b o r fo r c e . Alabama Prepares for 1972 With Sails Set A la b a m a p r e p a r e s f o r 1 9 7 2 r e a d y t o ta k e a d v a n t a g e o f a n y in c re a s e s in d e m a n d a n d p r o d u c t i o n o n th e n a t io n a l l e v e l. If t h e n a t io n a l e c o n o m i c p r o g r a m is s u c c e s s f u l, A la b a m a w i l l b e a b le t o ta k e f u ll a d v a n t a g e o f n a t io n a l g r o w t h . A n y in c re a s e s in t h e n a t io n a l d e m a n d f o r c o n s u m e r d u r a b le s a n d a p p a r e l — i m p o r t a n t s e c to rs t o A la b a m a ' s e c o n o m y — a r e s u r e t o h a v e a f a v o r a b l e im p a c t u p o n t h e S ta te . T h e w o r s t o f t h e d e f e n s e - a n d s p a c e - r e la t e d c u t b a c k s s e e m t o h a v e p a s s e d , le a v in g t h e S ta te's e c o n o m y r e a d y a n d w i l l i n g t o a d v a n c e s m a r t ly i n t o 1 9 7 2 . ■ N O V E M B E R 5, 1971 Bank A n n o u n cem en ts HOME SOUND NATIONAL BANK H obe Sound, Florida O p e n e d fo r busin ess. O ffic e rs : Jo se p h C . M u e lle r, p re s id e n t; A b ra m V . H o n a n , e xe c u tiv e v ic e p re si d e n t; a n d H e rb e rt R. N o w a c k , Jr., v ic e p re sid e n t a n d cashier. C a p ita l, $500,000; su rp lu s a n d o th e r capital fu n d s, $500,000. N O V E M B E R 1, 1971 BANK OF THORSBY Thorsby, Alabama N O V E M B E R 10, 1971 DEERFIELD BEACH STATE BANK Deerfield Beach, Florida C o n v e rte d to p a r N O V E M B E R 2, 1971 THE SUN CITY CENTER BANK Sun City Center, Florida O p e n e d fo r busin ess as a n o n m e m b e r. O ffic e rs : C ly d e C . S ha rpe, c h a irm a n ; W illia m P. Battel I, p re s id e n t; E lls w o rth G . S im m o n s , v ic e p re sid e n t; G e o rg e G . L a m b e rso n , e x e c u tiv e v ic e p re sid e n t; a n d W illia m T . W ills , cashier. C a p ita l, $300,000; su rp lu s a n d o th e r capital fu n d s, $225,000. FEDERAL RESERVE BANK OF ATLANTA O p e n e d fo r busin ess as a n o n m e m b e r. O ffic e rs : E dgar G . H a m ilto n , c h a irm a n ; R icha rd B. W ig g in s , p re sid e n t; G e o rg e W . H e n ry , e xe c u tiv e v ic e p re si d e n t; a n d Jam es M . L o rd , cashier. C a p ita l, $600,000; su rp lu s a n d u n d iv id e d p ro fits, $400,000. N O V E M B E R 26, 1971 FOXWORTH BANK Foxworth, Mississippi C o n v e rte d to par. 229 B A N K IN G S T A T IS T IC S Billion $ D E P O S IT S — 27 T o ta l D e p o s its — 11 — 10 Net D em and’ — 24 At /!/ — 15 L o a n s (net) — 14 n, — 6 .5 A. —9 — 5 .0 In v e s tm e n ts — 4.6 — 7 — 4.2 i I i D J 1970 LATEST M O NTH PLOTTED: OCTOBER J D J j 1970 1971 DJ 1971 N o t e : A ll fig u r e s are s e a s o n a lly a d ju ste d a n d c o v e r all Six th D is t r ic t m e m b e r b a n k s. ’ D a il y a v e r a g e fig u r e s ‘ ’ F ig u r e s are fo r the last W e d n e s d a y o f e a ch m o n th . S I X B T H A D I S T N R I C _________________ T K I N G N O T E S M O B IL E H O M E L O A N S T O IN D IV ID U A L S A T A L L C O M M E R C IA L B A N K S M illio n $ 268 Mote: Data are based on midyear Call Reports 230 MONTHLY REVIEW DISTRICT BANKS: AN IMPORTANT SOURCE OF FINANCING FOR MOBILE HOMES S o u t h e a s t e r n b a n k s p r o v i d e a s u b s ta n tia l a n d r a p id ly g r o w in g v o lu m e o f fin a n c in g f o r p e rs o n s p u r c h a s in g m o b i l e h o m e s . A s o f m i d y e a r 1 9 7 1 , c o n s u m e r in s t a lm e n t lo a n s f o r m o b i l e h o m e s t o t a le d $ 6 4 0 m i l l i o n a t a ll c o m m e r c i a l b a n k s in t h e s ix D i s t r ic t sta te s. M o r e o v e r , th is to ta l m a r k e d a 3 3 - p e r c e n t in c re a s e in t h e d o l l a r v o l u m e o f m o b i l e h o m e lo a n s o v e r t h e p r e v i o u s y e a r . B a n k s in t h e D is t r ic t sta te s m a k e a r e la t i v e ly la r g e r a m o u n t o f m o b i l e h o m e lo a n s th a n d o b a n k s n a t i o n a l ly — o n e in d ic a t io n o f t h e i m p o r t a n c e o f m o b i l e h o m e s in t h e S o u th e a s t. W h i l e t h e D is t r ic t b a n k s a c c o u n t f o r o n l y 8 .2 p e r c e n t o f t h e to ta l d o l l a r lo a n v o l u m e in t h e U n i t e d S ta te s , t h e y m a k e 1 6 .5 p e r c e n t o f t h e m o b i l e h o m e lo a n s . In a d d it i o n , t h e ir d o l l a r v o l u m e o f m o b i l e h o m e lo a n s is e q u iv a le n t to 25 p e rc e n t o f th e v o lu m e o f b a n k m o r t g a g e f i n a n c in g f o r o n e - t o f o u r - f a m i l y re s i d e n c e s . In c o n t r a s t , t h e p r o p o r t i o n a t b a n k s n a t io n a ll y is le ss t h a n 1 0 p e r c e n t . T h e i m p a c t o f b a n k m o b i l e h o m e f i n a n c in g is e v e n m o r e s ig n if ic a n t w h e n t h e n u m b e r o f m o b i l e h o m e s D i s t r ic t b a n k s a re f in a n c in g is c o n s id e r e d . E s tim a te s in d ic a t e t h a t t h e a v e r a g e original m o b i l e h o m e lo a n b a la n c e a t b a n k s is le ss t h a n $ 6 ,0 0 0 a n d t h e a v e r a g e existing lo a n b a la n c e is p r o b a b l y a b o u t $ 4 ,0 0 0 . T h e r e f o r e , D is t r ic t b a n k s a re c u r r e n t ly f i n a n c in g n e a r l y 1 6 0 ,0 0 0 m o b i l e h o m e s — 40 p e r c e n t o f t h e m o r e th a n 4 0 0 ,0 0 0 m o b i l e h o m e s in th e D is t r ic t . T h i s in c r e a s e d a v a i la b l i l it y o f b a n k f i n a n c in g h e lp e d m a k e p o s s ib le t h e 2 2 4 - p e r c e n t in c re a s e in m o b i l e h o m e s in t h e D is t r ic t d u r i n g th e la st te n y e a r s . N o w m o b i l e h o m e s a c c o u n t f o r o v e r 4 p e r c e n t o f a ll r e s id e n t ia l u n its in t h e s ix sta te s a n d v i r t u a l l y a ll t h o s e n e w h o u s i n g u n its c o s t in g le ss t h a n $ 1 5 ,0 0 0 . T h e in c r e a s e d d e m a n d f o r m o b i l e h o m e s a ls o s t im u la t e d t h e g r o w t h o f a n i m p o r t a n t n e w i n d u s t r y in t h e S o u t h e a s t . L a s t y e a r , a p p r o x i m a t e l y 2 8 p e r c e n t o f t h e n a tio n ' s 4 0 8 ,0 0 0 u n it s w e r e p r o d u c e d in s o m e 2 3 5 f ir m s in t h e s ix D is t r ic t s ta te s a n d p r o v i d e d e m p l o y m e n t f o r m o r e t h a n 1 7 ,0 0 0 p e r s o n s . A d d i t i o n a l e m p l o y m e n t o p p o r t u n i t i e s a ls o d e v e l o p e d a t t h o s e f ir m s e n g a g e d in s u p p l y i n g r a w m a te ria ls a n d c o m p o n e n t s t o t h e m o b i l e h o m e m a n u fa c tu re rs . B a n k s a n d f in a n c e c o m p a n ie s s till e x t e n d t h e b u l k o f t h e m o b i l e h o m e c r e d it f o r h o m e o w n e r s b e c a u s e , u n t il N o v e m b e r 1 9 6 9 , F e d e r a l s a v in g s a n d lo a n a s s o c ia tio n s w e r e n o t a u t h o r iz e d t o m a k e s u c h lo a n s . N o w s a v in g s a n d lo a n a s s o c ia tio n s a re p e r m it t e d t o h a v e u p t o 5 p e r c e n t o f t h e ir a ssets as m o b i l e h o m e lo a n s . M o b i l e h o m e lo a n s m a k e u p a la r g e p a r t o f to ta l b a n k c o n s u m e r in s t a lm e n t d e b t in t h e S o u th e a s t. FEDERAL RESERVE BANK OF ATLANTA MOBILE HOME LOANS IN SIXTH DISTRICT STATES (June 30, 1971) Am ount (thousands) D istribution (Percent) $125,582 303,828 19.6 47.5 M em ber Banks 429,410 67.1 N onm em ber Banks 210,702 32.9 $640,112 100.0 Reserve City Banks Country Banks All Com m ercial Banks E le v e n p e r c e n t o f to ta l c o n s u m e r in s t a lm e n t d e b t is f o r m o b i l e h o m e s , a n d m a n y b a n k e r s w i s h t o in c re a s e th e s e lo a n s b e c a u s e o f t h e ir f a v o r a b l e e x p e r ie n c e . M o b i l e h o m e lo a n s h a v e g r o w n t o t h e p o i n t w h e r e t h e y a re a lm o s t o n e - f o u r t h as la r g e as t h e to ta l a m o u n t o f a u t o in s t a lm e n t lo a n s a t b a n k s . S in c e m o b i l e h o m e s a re g e n e r a l l y lo c a t e d a w a y f r o m t h e la r g e r c itie s a n d m e t r o p o l i t a n a re a s , s m a ll e r b a n k s s it u a t e d o u t s i d e t h e m a j o r D is t r ic t c itie s t e n d t o m a k e t h e m o s t m o b i l e h o m e lo a n s . C o u n t r y m e m b e r b a n k s a n d n o n m e m b e r b a n k s h o ld 4 7 p e r c e n t a n d 33 p e r c e n t , r e s p e c t iv e ly , o f t h e v o l u m e o f m o b i l e h o m e lo a n s in t h e D is t r ic t s ta te s, w h i l e re s e r v e c i t y m e m b e r b a n k s a c c o u n t f o r 2 0 p e r c e n t o f th e to ta l. F lo r id a b a n k s m a k e a b o u t 4 0 p e r c e n t o f m o b i l e h o m e lo a n s , r o u g h l y t h e s a m e p r o p o r t io n as th e S tate's s h a re o f t h e D is tric t' s m o b i l e hom es. B a n k s g e n e r a l l y m a k e m o b i l e h o m e lo a n s t o h o m e o w n e r s o n a n in s t a lm e n t b a s is (s u c h as a u t o m o b i l e lo a n s ) a n d n o t as a re a l e s ta te lo a n (s u c h as a c o n v e n t i o n a l h o m e m o r t g a g e ) . T h e ra te s t y p i c a l l y ru n b e t w e e n 5 1/2 p e r c e n t a n d 8 1/2 p e r c e n t " a d d - o n " in te re s t— r e s u lt in g in a n e f f e c t iv e ra te th a t ra n g e s b e t w e e n 11 p e r c e n t a n d 1 7 p e r c e n t, d e p e n d i n g o n t h e m a t u r it y . T h e m a t u r i t y o f t h e b a n k lo a n s a re u s u a lly n o m o r e t h a n s e v e n y e a r s , a lt h o u g h s o m e b a n k s m a y e x t e n d t h e m a t u r it y u p t o te n y e a r s f o r s o m e o f t h e la rg e r, m o r e e x p e n s iv e u n its . O n e r e a s o n m o b i l e h o m e lo a n s h a v e s h o r t e r m a t u r it ie s t h a n c o n v e n t i o n a l h o m e m o r t g a g e s is b e c a u s e m o b i l e h o m e s in c lu d e , as s ta n d a r d e q u i p m e n t , m a n y a p p lia n c e s a n d f ix t u r e s w h i c h d e p r e c ia t e r a p id ly . D o w n p a ym e n ts o n m o b i l e h o m e lo a n s ra n g e b e t w e e n 1 0 p e r c e n t a n d 25 p e r c e n t o f t h e re ta il m o b i l e h o m e p r ic e . M a n y b a n k s u s e c r e d it s e r v ic e c o m p a n ie s f o r a id in th e d e a le r s o lic it a t io n , d e f a u lt c o ll e c t i o n , r e p o s s e s s io n , a n d c r e d it in s u r a n c e i n v o l v e d in t h e ir m o b i l e h o m e le n d i n g p r o g r a m s . JOHN M. GODFREY 231 IN D E X FOf? Y E A R M O N T H January 2 -2 0 P A G E S July 1 22 -1 40 February 2 2-40 A u g u s t 1 42 -1 60 M a r c h 4 2- 60 S e p t e m b e r 1 6 2 -1 8 0 April 6 2-76 O c t o b e r 1 82 -1 96 M a y 7 8-96 N o v e m b e r 1 98 -2 16 9 8- 12 0 D e c e m b e r 2 18 -2 36 J un e A M O N T H P A G E S G R I C U L T U R 1971 L e n d i n g R a te s t o B u s in e s s e s B y Jo h n M . G o d fre y , 136 L o a n s a n d In v e s tm e n ts B y J o s e p h E. R o s s m a n , J r., 1 5 6 M o b ile H o m e L o a n s B y Jo h n M . G o d fre y , 230 N e t In c o m e B y Jo h n M . G o d fre y, 116 " O t h e r S e c u ritie s " B y J o s e p h E. R o s s m a n , Jr., 3 4 R e a l E s ta te L o a n s B y J o s e p h E. R o s s m a n , J r., 2 1 2 T e r m L e n d in g B y J o h n M . G o d f r e y , 56 E A g r ic u ltu r e : A Y e a r o f B o u n tifu l P ro d u c tio n B A N K I N G S T R U C T U R E B y G e n e D . S u lliv a n , 1 5 A D e c a d e o f Sixth D istric t B a n k M e r g e r A c tiv ity T h e M o v e to G r e e n e r Pastu res B y E m e rs o n B y G e n e D . S u lliv a n , 1 0 7 B A N K A N N O U N C E M E N T A t k in s o n , 62 1 9 7 0 B a n k H o ld in g C o m p a n y A m e n d m e n t s : W h a t Is " C lo s e l y R e la te d to B a n k in g " ? S B y C h a r le s D . S a lle y , 9 8 17, 29, 55, 70, 8 6 ,1 1 5 ,1 2 8 ,1 7 5 ,1 9 1 , 204, 229 S o u th e rn B ank s T a k e C u e fro m E c o n o m ic G r o w t h B A N K H O L D I N G C O M P A N I E S B y J o s e p h E. R o s s m a n , Jr., 151 197 0 B a n k H o ld in g C o m p a n y A m e n d m e n ts : W h a t B Is " C lo s e l y R e la te d to B a n k in g " ? B y C h a r le s D . S a lle y , 9 8 A N K M E R G E R S A D e c a d e o f Sixth D istric t B a n k M e r g e r A c tiv ity B y E m e r s o n A t k in s o n , 62 B A N K I N G B a n k in g : A R e ru n in R e v e rs e B B y Jo h n M . G o d fre y, 7 T h e M o v e t o G r e e n e r P a stu res Lia b ility M a n a g e m e n t Im p a c t B a n k in g : Its G ro w t h and Lia b ility M a n a g e m e n t B a n k in g : Its P ra ctice in th e Sixth D istric t E F C A T T L E I N D U S T R Y B y G e n e D . S u lliv a n , 1 0 7 B B y A r n o l d D i l l , 22 E O A R D O F D I R E C T O R S F e d e ra l R e s e rv e B a n k o f A tla n ta E ffe c tiv e Ja n u a ry 1 , 1 9 7 1 , 3 6 B y A r n o ld D ill, 218 C S o u th e rn B a nks T a k e C u e fro m E c o n o m ic G ro w th C o n s t r u c t io n : S t u n t e d G r o w t h B y J o s e p h E. R o s s m a n , J r., 151 B y B o y d F. K in g , 1 2 O N S T R U C T I O N I N D U B ra n c h e s , and S T R Y T h e S p r e a d o f In te rn a tio n a l B a n k in g : C A R e g io n a l V ie w O N S U M E R A C T I V I T Y C o n s u m e r C r e d it C ra n k s U p B y J o h n E. L e i m o n e , 1 4 2 B y E m e r s o n A t k in s o n , 1 8 6 B A N K I N G N O T E S , S ix t h D is t r ic t T h e C o n s u m e r : A R e lu c ta n t S p e n d e r B a n k L e n d in g B y J o h n M . G o d f r e y , 176 B y E m e r s o n A t k in s o n , 1 0 F e d e ra l F u n d s B y J o s e p h E. R o s s m a n , Jr., 9 2 C F lo w o f Fu n d s B y J o h n M . G o d f r e y , 192 232 R E D I T Lia b ility P O L I C M anagem ent Y B a n k in g : Its G ro w th and Im p a c t B y A r n o ld D ill, 22 MONTHLY REVIEW S e le c tiv e C r e d it C o n t r o ls : R e c e n t In te re s t T h e E x p e rie n c e a n d H o w D o T h e y S ta ck U p ? B y R o b e r t H . F l o y d , 2 05 B y A r n o ld D ill, 78 H D E B I T A C C O S T O U N T D E M A N D D E P O S I T E F E N S E A D e fe n s e -R e la te d S o u th e a s t C T I V I T I S T R I C T C O D I T I O S I N G C u tb a c k s : B U S I N M o b ile H o m e M a n u fa c tu rin g : C ro w s U p T h e ir Im p a c t o n the I N D U S T R I A L A C T I V D e fe n s e -R e la te d C u tb a c k s : S o u th e a s t E In fa n t In d u stry B y W illia m D . T o a l, 129 Y B y F r e d e r ic k R . S t r o b e l, 1 62 D U B y B o y d F. K in g , 171 S 1 9 , 3 9 , 5 9 , 7 5 , 9 5 , 1 1 9 , 1 3 9 , 1 5 9 , 1 7 9 , 1 9 5 , 2 1 5 , 2 35 D O A D e c a d e o f P ro g ress fo r S o u th e a s te rn H o u s in g S I T Y T h e ir Im p a c t o n the B y F r e d e r ic k R . S t r o b e l, 1 6 2 S In d u stria l G r o w t h : W h a t H a p p e n e d ! N N S B y W illia m D . T o a l, 4 20, 40, 60, 76, 96, 120, 140, 160, 180, 196, 216, 236 I N E C O N O M E T R I C M E c o n o m e t r ic M o d e l s : T h e y Sa y fo r 1971 O D E L S W hat T h ey A re and W hat T E R N A T I O N A L F I N A N C E T h e S p re a d o f In te rn a tio n a l B a n k in g : A R e g io n a l V ie w B y J o h n E. L e i m o n e , 1 4 2 B y F r e d e r ic k R . S t r o b e l a n d W i l l i a m D . T o a l , 42 E C O S ix t h N O M I C D is t r ic t C O N D I T I O N S , S ta te s L I A B A B I L N K I T I N Y M A N A G E M E N T G Liability M a n a g e m e n t B a n k in g : Its G ro w th Im p a c t A la b a m a : O u t o f th e D o ld r u m s ? and B y B ria n D it t e n h a f e r , 2 2 5 B y A r n o l d D i l l , 22 F lo rid a : S u n n y S k ie s A h e a d ? Liability M a n a g e m e n t B a n k in g : Its P ra ctice in th e Sixth D istric t B y A r n o l d D i l l , 71 B y A r n o ld D ill, 218 M is sissip p i in 1 9 7 0 : P a d d lin g A g a in st th e C u rre n t B y W i l l i a m N . C o x , III, 52 M P e lica n Sta te B u ffe te d b y A d v e rs e E c o n o m ic H e a d w in d s B y J o s e p h E. R o s s m a n , J r., 1 8 8 O B I L E H O M E I N D U S T R Y M o b ile H o m e M a n u fa c tu rin g : In fa n t In d u stry G ro w s U p B y W illia m D . T o a l, 129 T e n n e s s e e 's E c o n o m ic H o riz o n B rig h te n s P B y J o h n M . G o d f r e y , 87 T h e G e o rg ia E c o n o m y : B u ild in g M o m e n t u m fo r a Q u ic k e r P a c e ? B y E m e r s o n A t k in s o n , 1 1 2 O B y H a r r y B ra n d t, 2 U L A T I O N P e o p le a n d P la c e s : A D e c a d e o f S o u th e rn C h a n g e B y W illia m D . T o a l, 198 S E T h e S o u th e a s t in 1 9 7 0 : O f f — B u t A h e a d o f U . S P L E C T I V E C R E D I T C O N T R O L S S e le c tiv e C r e d it C o n t r o ls : T h e E x p e rie n c e a n d R e c e n t In te re s t B y A r n o l d D i l l , 78 E C O N O M I C D E V E L O P M E N T S P e o p le a n d P la ce s : A D e c a d e o f S o u th e rn C h a n g e S I X B y W illia m D . T o a l, 198 18, 38, 58, 74, 94, 118, 138, 158, 178, 194, 214, 234 F E D E R A L E X P E N D I T U R E S T S E C h a n g in g P rio rities in F e d e ra l E x p e n d itu re s X T H D A T E P E N I S T A D N D I T U R I C T L O R E S T C A A T I S T I C S L S S o u th e a ste rn Sta te a n d L o c a l E x p e n d itu re s: H o w D o T h e y S ta ck U p ? B y R o b e rt H . F lo y d , 122 B y R o b e rt H . F lo y d , 205 G O V E R N M E N T E X P E N D I T U R E C h a n g in g P rio ritie s in F e d e ra l E x p e n d itu re s B y R o b e rt H . F lo y d , 122 S o u th e a s te rn Sta te and T R E A S U R Y D E B T T h e T re a su ry D e b t : S o m e o n e Else's A sse ts L o c a l E x p e n d itu re s: FEDERAL RESERVE BANK OF ATLANTA S B y W illia m N . C o x , III, 1 8 2 2 33 Sixth District Statistics Seasonally Adjusted (All data are indexes, unless indicated otherwise.) Latest Month 1971 O n* Month Ago TWO Months Ago One Year Ago SIXTH D IST R IC T - Unemployment Rate (Percent of Work Force)t . . . . . Oct. Avg. Weekly Hrs. in Mfg. (H r s.). . . . Oct. IN C O M E A N D SP E N D IN G C r o p s .................................... Livestock .............................. Instalment Credit at Banks* (Mil. $) . Oct. Sept. . Sept. Sept. . Oct. Oct. 137 104 96 123 137 127 144 121 137 110 56 131 411 347 404 361 411 370 113 106 107 106 106 104 105 107 115 106 105 103 104 107 • 116 105 104 105 104 113 160 104 103 113 161 115 108 115 108 113 114 119 117 113 160 104 114 107 113 114 119 116 82 87 129 96 80 122 338 329 EM PLO YM ENT ANO PRODUCTION Oct. Nonfarm Employmentt ............. ' M a n u f a c t u r i n g ....................... Oct. Oct. Nondurable Goods ............. Oct. Food .............................. Oct. Textiles ........................... Oct. Apparel ........................... Oct. Paper ........................... Oct. Printing and Publishing . . Oct. C h e m i c a l s ....................... Oct. Durable G o o d s .................... Lbr., Wood prods., Furn. & Fix. Oct. Oct. Stone, Clay, and Glass . . . Oct. Primary M e t a l s ................. Oct. Fabricated M e t a l s ............. Oct. Machinery, Elec. & Nonelec. . Oct. Transportation Equipment Oct. N o n m a n u factu rin g............. Oct. Construction Transp., Comm., & Pub. Utilities O c t T r a d e ................................. Oct. Fin., ins., and real est............. Oct. S e r v i c e s ..............................O c t Federal G o v e rn m e n t............. Oct. State and Local Governm ent. . Oct. Farm Em ploym ent.......................... O ct Unemployment Rate (Percent of Work F o r c e J t............. Oct. Insured Unemployment (Percent of Cov. E m p . ) ............. O ct Avg. Weekly Hrs. in Mfg. (Hrs.) . . . Oct. Construction C o n t r a c t s * .................Oct. R e s id e n t ia l................................. Oct. All O t h e r ................................. Oct. Electric Power Production** . . . . Sept. Cotton C o n s u m p t io n * *.................... Se p t Petrol. Prod, in Coastal La. and M iss.** Nov. Manufacturing Production.................Aug. Nondurable Goods .................... Aug. Food .................................... Aug. Textiles ................................. Aug. Apparel ................................. Aug. P a p e r .................................... Aug. Printing and Publishing . . . . Aug. Chem icals ...........................Aug. Durable G o o d s ....................... ... Aug. Lumber and W o o d .................... Aug. Furniture and F ix t u r e s ............. Aug. Stone, Clay and G l a s s ............. Aug. Primary M e t a l s ....................... Aug. Fabricated M e t a l s ....................Aug. Nonelectrical Machinery . . . . Aug. Electrical M achinery.................Aug. Transportation Equipment . . . Aug. Member Bank L o a n s ................. Member Bank D e p o sits............. Bank D e b i t s * * ....................... 102 101 101 111 114 120 118 102 122 86 102 100 100 102 121 112 105 106 102 104 103 104 115 106 104 100 103 101 101 120 111 106 107 104 105 103 107 115 107 105 100 107 107 113 163 101 113 104 Manufacturing P a y ro lls............. Farm Cash R e c e i p t s ................. 5.3 40.6 5.4 40.7 5.1 40.4 . . Oct. 157 145 285 152 143 279 153 143 290 138 124 246 Oct. Nonfarm Em ploym entt............. Manufacturing .................... Oct. Nonmanufacturing .............. Oct C o n s t r u c t io n .................... Oct. . Oct. Farm E m p lo y m e n t ................. Unemployment Rate Oct. (Percent of Work ForceJt . . . Avg. Weekly Hrs. in Mfg. (Hrs.) . . . O c t 137 133 144 135 141 105 133 136 122 122 121 120 110 122 Member Bank L o a n s ................. Member Bank D e p o sits............. Bank D e b its* *........................... GEORGIA 118 116 IN CO M E 118 89 109 124 128 91 109 124 127 99 109 124 129 103 4.1 40.4 - 4.0 40.6 3.9 40.8 3.9 41.2 172 170 374 170 168 368 168 1£7 367 152 145 309 137 126 135 113 137 123 117 129 104 FIN AN CE AND B A N KIN 6 112 112 100 . . Oct. EMPLOYM ENT . . Oct. Manufacturing P a y ro lls.............. Farm Cash R e c e i p t s ................. 88 EMPLO YM ENT 4.9 4.8 4.8 4.8 2.8 3.0 40.3 225 226 225 165 89 128 256 3.0 40.7 133 181 85 167 90 123 257 3.1 40.1 126 132 40.5 168 187 149 168 89 120 Nonfarm Em ploym entt.............. Manufacturing .................... Nonmanufacturing ............. C o n s t r u c t io n .................... Farm E m p lo y m e n t.................... Unemployment Rate (Percent of Work Forceit • ■ • Avg. Weekly Hrs. in Mfg. (Hrs.) . 160 146 158 146 156 144 142 132 151 135 342 149 133 338 148 132 339 129 118 286 Member Bank L o a n s * ............. Member Bank Deposits* . . . . Bank D e b its* /** ....................... ALABAMA M IS S IS S IP P I IN C O M E Manufacturing P a y r o l l s .................O ct Farm Cash R e c e ip t s ....................... Sept. IN CO M E Manufacturing P a y ro lls............. Farm Cash R e c e ip t s ................. 234 5.3 40.9 IN CO M E 112 246 430 612 391r Om Year Ago FLORIDA 167 261 295 179 180 169 208 244 400 630 392 E M PLO YM EN T Nonfarm E m p lo y m e n tt.................... O ct Manufacturing ...........................O ct Nonmanufacturing .................... Oct. C o n s t r u c t io n ...........................Oct. Farm Em ploym ent...........................Oct. TWO Months Acs FIN A N CE A N D B A N KIN G 168 90 132 244 207 166 236 262 194 165 262 288 168 182 167 199 238 361 605 382 FIN A N CE A N D BAN KIN G Loans* All Member B a n k s ....................... Oct. Large B a n k s ..............................Oct. Deposits* All Member B a n k s ....................... Oct. Large B a n k s ..............................Oct. Bank D e b its* /**..............................Oct. O n* Month Ago Latest Month 1971 120 254 218 175 252 261 199 161 262 298 188 179 170 197 248 414 626 383 220 176 250 274r 198 164r 261 299 184 180r 164 201 222 180 247 283 200 139 112 136 136 134 162 134 107 106 106 106 104 78 106 106 106 106 74 106 105 106 106 83 105 109 104 83 77 . . Oct. . . O ct . . O ct 112 112 111 111 104 116 107 83 103 115 106 83 104 115 105 93 103 114 . . O ct . . Oct. 4.0 40.0 4.4 40.0 3.9 40.4 4.1 39.0 . . O ct 152. 134 395 152 132 392 152 134 397 137 118 331 129 89 130 167 134 147 124 72 102 86 FIN A N C E A N D B A N KIN G Member Bank L o a n s ................. Member Bank D e p o sits............. Bank Debits** . ................. LOUISIANA IN CO M E Manufacturing Payrolls . . . . Farm Cash R e c e ip t s ................. . . Oc t . . Sept. EMPLO YM ENT Nonfarm Employmentt . . . . .................... Manufacturing Nonmanufacturing . . . : . . C o n s t r u c t io n .................... Farm Em ploym ent.................... Unemployment Rate (Percent of Work Force)t . . . Avg. Weekly Hrs. in Mfg. (Hrs.) . . . . . . . . . Oc t O ct O ct Oct. 104 104 104 104 105 81 78 105 82 71 105 80 80 105 82 71 . . O ct . . O ct 7.8 41.9 6.9 40.9 6.7 42.7 41.9 . . Oct. . . Oct. . . Oct. 144 145 258 142 144 255 139 138 257 213 143 75 140 143 142 153 132 57 112 112 111 101 110 110 110 110 112 109 109 109 107 87 100 100 100 100 &6 FIN A N CE A N D BAN KIN G 130 121 EMPLO YM ENT Nonfarm Em ploym entt.............. . . O c t M a n u f a c t u r in g .................... Nonmanufacturing .............. . . O c t C o n s t r u c t io n .................... Farm Em ploym ent.................... . . O c t 90 103 81 109 103 78 MONTHLY REVIEW Latest Month 1971 One Two Month Months Ago Ago One Year Ago One Latest Month Month 1*71_______ Ago Two Months Ago One Year Ago EM PLO YM EN T Unemployment Rate (Percent of Work Force)t • • • Avg. Weekly Hrs. in Mfg. (Hrs.) . . Oct. . Oct. 4.7 40.1 5.1 40.£ 5.3 40.5 5.1 40.0 , Oct. . Oct. . Oct. 165 145 331 161 144 327 163 145 342 147 132 283 FIN AN CE AND B AN KIN G T E N N E S SE E Nonfarm E m ploym entt................. ....................... Manufacturing N onm anufacturing.................... C o n s t r u c t io n ....................... Farm E m p loy m e n t....................... Unemployment Rate (Percent of Work Forcelt . . . . Avg. Weekly Hours in Mfg. (Hrs.) . . Oct. 112 107 114 113 86 111 106 114 109 91 110 105 113 108 90 109 107 111 101 90 4.6 40.5 4.6 39.9 4.7 40.3 5.2 39.7 160 142 338 161 141 338 154 139 316 145 125 284 FIN AN CE AN D BAN KIN G IN CO M E . Oct. , Sept. Manufacturing Payrolls 131 95 138 55 137 116 139 98 •For Sixth District area only; other totals for entire six states " D a i l y average basis Member Bank L o a n s * ................. Member Bank D e p o s it s * ............. . Oct. Bank D e b its* /**.......................... tPreliminary data r-Revised N.A. Not available Note: Indexes for co n stru ctio n co n tracts, cotton consum ption, em ploym ent, farm c a s h receipts, loans, deposits, petroleum production, an d payrolls: 1 9 6 7= 100. All o th er indexes: 1957-59=100. Sources: Manufacturing production estimated by this Bank; nonfarm, mfg. and nonmfg. emp., mfg. payrolls and hours, and unemp., U.S. Dept, of Labor and cooperating state agencies; cotton consumption, U.S. Bureau of Census; construction contracts, F. W. Dodge Div., McGraw-Hill Information System s Co.; petrol, prod., U.S. Bureau of Mines; industrial use of elec. power, Fed. Power Comm.; farm cash receipts and farm emp., U.S.D.A. Other indexes based on data collected by this Bank. All indexes calculated by this Bank. Debits to Demand Deposit Accounts Insured Commercial Banks in the Sixth District (In T h o u s a n d s of D o lla rs) Percent Change Year to date Sept. 1971 Oct. 1971 Oct. 1971 Oct. 1971 10 mos. from 1971 Sept. Oct. from 1971 1970 1970 STANARD METROPOLITAN STATISTICAL AREA S Birmingham . . . 2,254,465 83,997 Gadsden . . . . 247,261 Huntsville . . . 760,533 M o b i l e ............. 470,387 Montgomery . . 136,820 Tuscaloosa . . . 2,368,856 82,562 235,136 774,917 457,515 150,344 2,087,052 74,207 226,012 611,177 440,125 122,355 - 5 + 2 + 5 — 2 + 3 - 9 + 8 +13 + 9 +24 + 7 +12 +14 +12 + 8 + 7 +17 +13 Ft. Lauderdale— Hollywood . . . 1,164,322 Jacksonville . . . 2,488,391 ............. 4,291,435 Miami Orlando . . . . 1,015,909 Pensacola . . . 328,869 394,054 Tallahassee . . . Tam pa— St. Pete. . 2,454,810 W. Palm Beach 727,846 1,149,509 2,856,196 4,149,616 999,924 332,223 412,959 2,510,458 698,317 1,149,324 1,952,513 3,715,605 796,234 280,841 216,047 2,279,058 679,663 + 1 -1 3 + 3 + 2 — 1 — 5 — 2 + 4 + 1 +27 + 15 +28 + 17 +82 + 8 + 7 + 12 +19 +22 +18 +22 +56 +15 +11 A l b a n y ............. A t l a n t a ............. Augusta . . . . Columbus . . . . Macon ............. Savannah . . . . 145,785 9,020,447 399,338 376,767 407,397 422,746 148,413 9,310,682 380,108 356,387 402,998 382,397 132,611 8,043,263 319,094 304,515 349,204 343,080 _ 2 — 3 + 5 + 6 + 1 +11 + 10 +12 +25 +24 +17 +23 + 9 +14 + 18 +16 +14 +18 Baton Rouge . . 1,030,040 Lafayette . . . . 205,645 Lake Charles . 191,404 . 3,142,932 New Orleans 1,016,313 203,934 192,365 3,344,605 754,250 174,986 175,034 2,812,745 + 1 + 0 — 0 - 6 +36 +18 + 9 +12 +21 + 11 +10 + 15 Biloxi— Gulfport Jackson ............. 188,186 960,763 171,974r _ 6 838,765 + 3 + 3 +18 +10 +15 1,004,214 702,783 2,247,395 _ 6 + 5 + 0 + 5 +12 + 18 + 12 +15 + 10 177,756 988,904 Chattanooga . . 946,956 Knoxville . . . . 738,809 Nashville . . . . . 2,258,436 900,506 657,840 1,907,281 OTHER CEN TERS Anniston . . . . Dothan ............. Selma ............. 96,176 120,618 56,784 90,575 122,623 54,165 82,316 100,733 56,609 + 6 — 2 + 5 +17 +20 + 0 + 8 +21 + 4 B a r t o w ............. Bradenton . . Brevard County Daytona Beach Ft. Myers— N. Ft. Myers 37,726 123,077 214,892 117,008 32,957 115,564 231,881 100,888 35,034 100,033 208,515 104,736 + 14 + 7 — 7 +16 + 8 +23 + 3 +12 + + + 149,741 144,888 137,595 + 3 + 9 +20 *lncludes only banks in the Sixth District portion of the state FEDERAL RESERVE BANK OF ATLANTA 0 13 0 9 tPartially est Oct. 1971 Sept. 1971 Oct. 1971 Percent Chance Year to date O ct 1971 10 mos. from 1971 Se p t Oct. from 1971 1970 1970 1 1 4 2 5 2 6 6 2 +20 +18 + 4 +20 +15 +17 +13 + 1 +15 + 24 +18 +13 +16 + 5 +21 + 7 + 9 +15 132,709 59,296 124,307 18,075 97,874 47,378 25,181 33,905 96,488 71,630 -1 2 - 9 + 1 + 4 + 1 - 3 - 5 + 4 + 2 - 2 +13 +16 +17 - 8 + 3 +10 + 19 +13 + 15 + 8 +40 +20 +14 -1 4 + 5 +14 +36 +12 + 12 + 8 15,564 164,693 7,306 53,653 45,607 12,223 28,245 13,385 173,419 8,030 51,576 43,737 13,784 24,644 - 3 + 5 +22 + 3 + 5 + 8 + 4 +13 - 0 +11 + 7 + 10 - 5 +19 + 6 + 6 + 7 + 12 +12 - 2 +13 91,622 54,770 90,422 44,313 92,611 48,439 82,524 46,058 86,204 55,744 81,126 41,587 - 1 +13 +10 - 4 + 6 - 2 +11 + 7 +35r + 2 + 6 + 6 . . 93,966 66,537 31,803 88,416 58,576 38,168 88,856 58,975 32,488 + 6 +14 -1 7 + 6 +13 - 2 +12 +12 + 9 Johnson City Kingsport . . . 117,171 121,493 190,503 118,443 121,896 188,272 99,049 101,939 179,514 - 1 - 0 + 1 +18 +19 + 6 +13r +14 + 5 . . . 49,402,504 49,994,182 43,320,161r - 1 +14 +15 . . . . 5,793,550 16,091,740 13,526,487 . 5,728,732 2,175,262 . 6,086,733 5,879,819 16,294,002 13,738,725 5,854,603 2,136,054 6,090,979 5,254,981 13,919,596 11,889,743 4,955,187 l,946,441r 5,354,213 + - 1 1 2 2 2 0 +10 +16 +14 +16 +12 +14 +11 +18 +15 +15 + 14 +12 148,757 187,774 44,327 120,826 24,476 604,621 190,743 1,237,194 93,487 150,019 186,731 46,366 122,687 25,833 614,255 180,357 1,311,109 95,479 124,405 158,831 42,685 100,875 21,366 518,947 168,987 1,229,203 81,487 . . . 149,337 68,984 145,122 16,636 100,938 52,118 30,043 38,477 110,901 77,448 170,248 75,514 143,135 16,034 99,727 53,476 31,656 37,083 108,816 79,192 Abbeville . . . Alexandria . . Bunkie . . . . Hammond . . . New Iberia . . Plaquemine . . Thibodaux . . . 15,170 173,070 8,943 55,409 48,006 13,141 29,265 . . Gainesville . . Lakeland . . . Monroe County Ocala . . . . St. Augustine St. Petersburg . Sarasota . . . Tampa . . . . Winter Haven Athens . . Brunswick Dalton . . Elberton . Gainesville . . . . . . . . . . LaGrange . . . Newnan . . . . Valdosta Hattiesburg . Laurel . . . . Meridian . . Natchez . . P ascagoulaM oss Point Vicksburg . Yazoo City . District Total Alabama} . Florida} . Georgia} . Louisiana}* M ississippi}* Tennesseet* . . . . . ■ • • • + + - t Esti mated 235 District Business Conditions 220 ■ i i i i i i i 1969 i i i i i i i i i i i I i i i i i i i i i i i 1970 1971 *Seas. adj. figure; not an index Latest plotting: October— except mfg. production, August, and farm receipts, Septem ber A t t h e b e g in n i n g o f P h a s e II, t h e D is t r ic t e c o n o m y is s h o w i n g s o m e e n c o u r a g i n g s ig n s o f i m p r o v e m e n t . A c c o r d i n g t o la te s t a v a ila b le d a t a , n o n f a r m e m p l o y m e n t g r e w s t r i k i n g l y , d e s p it e t h e p a r a ly s is o f m o s t S o u t h e r n p o r t s b y a d o c k s trik e . M a n u f a c t u r in g e m p l o y m e n t p o s t e d its s h a r p e s t g a in in m o r e t h a n t w o y e a r s . S p u r r e d b y s t r o n g a u t o sa le s , c o n s u m e r b o r r o w i n g a ls o r o s e s h a r p ly . B a n k l e n d i n g a ls o c o n t i n u e d t o a d v a n c e , a lt h o u g h t h is g r o w t h w a s m o r e m o d e s t t h a n r o b u s t . C o n s t r u c t io n a c t i v i t y h e ld t o its e a r lie r p a t t e r n o f p o w e r f u l g r o w t h . M e a n w h i le , f a r m e r s r e p o r t e d f i n e w e a t h e r a n d s t r o n g c a s h re c e ip t s . N o n f a r m e m p l o y m e n t c o n t i n u e d t o e x p a n d in O c t o b e r , w h e n b o t h n o n m a n u fa c tu rin g a n d m a n u f a c t u r in g e m p l o y m e n t n o t c h e d s iz a b le in c re a s e s . T h e g r o w t h o f n o n m a n u fa c tu rin g e m p lo y m e n t w a s k e p t f r o m r is in g e v e n m o r e b y t h e d o c k s trik e a t A t la n t ic a n d G u l f p o rts . T h e m a n u f a c t u r in g s e c t o r r e c o r d e d its la rg e s t e m p l o y m e n t g a in in o v e r t w o y e a rs ; b o th d u ra b le a n d n o n d u r a b le g o o d s in d u s t r ie s s h a re d in t h e e m p l o y m e n t g r o w t h . C o r r e s p o n d i n g l y , t h e in s u r e d u n e m p l o y m e n t ra te (o f w o r k e r s c o v e r e d b y s ta te u n e m p l o y m e n t in s u r a n c e p r o g r a m s ) d e c lin e d . C o n s u m e r in s t a lm e n t d e b t o u t s t a n d in g a t c o m m e r c ia l b a n k s c o n t i n u e d its r o b u s t e x p a n s io n in O c t o b e r . A ll t y p e s o f c r e d it s h o w e d g o o d g a in s , b u t a u t o lo a n s s h o w e d m o s t o f t h e s t r e n g t h . E n c o u r a g e d b y t h e p r ic e f r e e z e a n d t h e p r o s p e c t o f e x c is e ta x r e m o v a l , c o n s u m e r s b o u g h t a n e x c e p t i o n a l ly la rg e n u m b e r o f A m e r i c a n - m a d e ca rs. P r e li m i n a r y in f o r m a t i o n f o r N o v e m b e r s h o w s th a t b a n k l e n d i n g c o n t i n u e d t o a d v a n c e m o d e r a t e l y . L o a n s b y t h e la r g e r b a n k s t o n o n b a n k fin a n c ia l in s t it u t io n s , c o m m e r c ia l a n d in d u s t r ia l fir m s , a n d c o n s u m e rs a c c o u n te d f o r m o s t o f th e le n d in g in c re a s e . T i m e d e p o s i t g a in s c o n t i n u e d weak t h r o u g h e a r ly N o v e m b e r , b u t i n f lo w s o f d e m a n d d e p o s it s a t t h e s m a lle r b a n k s w e r e q u it e s tro n g . A s i d e f r o m t h e ris e in G o v e r n m e n t s e c u r it y h o l d in g s f o l l o w i n g th e m i d - N o v e m b e r T r e a s u r y r e f u n d in g , b a n k s m a d e o n l y m i n o r a d ju s t m e n t s in t h e ir i n v e s t m e n t p o r t f o l io s . E f f e c t iv e N o v e m b e r 1 5 , th e A t la n t a F e d j o i n e d o t h e r R e s e r v e B a n k s in r e d u c in g its d is c o u n t ra te f r o m 5 p e r c e n t t o 4 3/4 p e r c e n t . C o n s t r u c t io n a c t iv it y c o n t in u e d s tro n g , b o th r e la t iv e t o 1 9 7 0 a n d r e la t iv e t o t h e n a t io n a l p e r f o r m a n c e . T h e r e c o v e r y o f n o n r e s id e n t ia l c o n t r a c t a w a r d s in m e t ro p o lita n a re a s w a s p a r t i c u l a r l y n o t a b le . T h e r e w e r e s o m e e x c e p t i o n s , h o w e v e r , m a i n ly in T e n n e s s e e a n d L o u is ia n a . In r e t r o s p e c t , r e s id e n t ia l c o n s t r u c t io n has s h o w n e x c e p t io n a l v i g o r s in c e t h e firs t q u a r t e r o f 1 9 7 1 ; m o r e o v e r , th is s tre n g t h h a s b e e n w e l l b a la n c e d b e t w e e n m e t r o p o l i t a n a n d ru ra l a re a s . T h r o u g h o u t t h e D is t r ic t , f a r m c a s h r e c e ip t s th r o u g h S e p te m b e r w e r e r u n n in g w e ll a h e a d o f t h e p e r io d a y e a r a g o , le d b y p a r t i c u l a r l y s t r o n g g a in s in F lo r id a a n d L o u is ia n a . In t h o s e sta te s , b o t h c r o p a n d l iv e s t o c k r e c e ip t s e x c e e d e d 1 9 7 0 le v e ls e v e n t h o u g h l iv e s t o c k re c e ip ts w e r e d o w n f o r th e D is t r ic t as a w h o l e . P ric e s r e c e iv e d b y fa r m e r s in O c t o b e r w e r e h ig h e r th a n a m o n t h e a r lie r , r e fle c t in g g a in s f o r o r a n g e s , c o t t o n , v e g e t a b le s , m ilk , a n d h o g s . P ric e s f o r g ra in a n d p o u l t r y p r o d u c t s d r o p p e d , h o w e v e r , a n d p a r t ia lly o f f s e t th e s e in c re a s e s . E x t e n d e d w a r m , s u n n y w e a t h e r a n d d e la y e d fro s ts a id e d la te -s e a s o n c o t t o n p ro d u c tio n and con t r ib u t e d t o a r a p id h a r v e s t o f a ll c r o p s . N O TE : Data on w hich statem ents are based have been adjusted w henever possible to elim inate seasonal influences. 236 M O NTH LY REVIEW December 1971
@FedFRASER