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i l

Economic
Mg
Review Us

FEDERAL RESERVE BANK OF ATLANTA

FEBRUARY 1981

BANKING A New Game in Southeast
McFADDEN
S.E. FARMERS Bleak Year
"NOW PRICING Perspectives and Objectives
History of Supply-Side
REVIEW Theory and Practice
WORKING PAPER

The purpose of the Economic Review is to inform the public about Federal Reserve policies and the
economic environment and, in particular, to narrow the gap between specialists and concerned laymen. For
more specialized readers, the Review also summarizes our basic research projects, which are available in
complete form in our Research Paper and Working Paper series.
2

F E B R U A R Y 1981, E C O N O M I C R E V I E W

A Primer on Financial Institutions
in the Sixth District States

Southeastern Farmers Face
Bleak Prospects

T h e a d v e n t of b r o a d n e w p o w e r s for s a v i n g s a n d l o a n s ,

H o w b a d l y d i d last s u m m e r ' s d r o u g h t a f f e c t s o u t h e a s t -

m u t u a l s a v i n g s b a n k s , a n d c r e d i t u n i o n s in 1981 r a i s e s

e r n f a r m e r s ? Will p r i c e i n c r e a s e s b e a b l e to o f f s e t t h e

q u e s t i o n s a b o u t h o w t h e s e institutions c o m p a r e with

l o s s in p r o d u c t i o n ? G e n e D. S u l l i v a n s u m m a r i z e s t h e

c o m m e r c i a l b a n k s . In w h i c h a r e a s a r e t h e y likely to

o u t l o o k for net r e t u r n s a n d c o m p a r e s t h e

c o m p e t e ? H o w d o t h e y c o m p a r e in s i z e a n d s t r u c t u r e ?

p r o s p e c t s w i t h t h o s e of t h e rest of t h e n a t i o n .

District's

F r a n k K i n g s u r v e y s t h e r e l a t i v e p o s i t i o n s of Sixth

District f i n a n c i a l i n s t i t u t i o n s as t h e M o n e t a r y

Control

A c t g e t s into full s w i n g .

Deregulation: The Attack on
Geographic Barriers

NOW Pricing: Perspectives and
Objectives
pricing show a

A l t h o u g h t h e M o n e t a r y C o n t r o l A c t p h a s e s out restric-

Early i n d i c a t i o n s of N O W

t i o n s o n a v a r i e t y of c o n s u m e r s e r v i c e s , it d o e s not

b e t w e e n b a n k s a n d thrift institutions. W h y a r e b a n k s

a d d r e s s the g e o g r a p h i c restrictions o n the b a n k i n g

starting with higher

industry. In a n i n t e r v i e w , J o h n M G o d f r e y r e v i e w s t h e

W i l l i a m N. C o x e x a m i n e s t h e d i f f e r e n c e in h o w b a n k s

d e v e l o p m e n t of t h e g e o g r a p h i c restraints, d i s c u s s e s

a n d thrifts v i e w N O W s a n d s p e c u l a t e s o n w h e t h e r t h e

t h e m a j o r i s s u e s in t h e c u r r e n t d e b a t e , a n d a s s e s s e s

d i s p a r i t y will p e r s i s t

minimum

disparity

b a l a n c e s for

NOWs?

p r o s p e c t s for f u t u r e r e l a x a t i o n of t h e b a r r i e r s .

Working Paper Review

S u p p l y - S i d e E f f e c t s of F i s c a l P o l i c y :
S o m e Historical Perspectives

2 ®

Will a c u t in tax r a t e s result in i n c r e a s e d d e m a n d a n d
m o r e i n f l a t i o n ? Is t h e s u p p l y - s i d e a p p r o a c h

(which

a d v o c a t e s tax r a t e c u t s ) a n u n t e s t e d f a d ? In a W o r k i n g

Index for 1 9 8 0 . . . .

i s s u e , V o l u m e LXVI, N u m b e r 1 (1981 ) c o n t a i n s t h e i n d e x
for V o l u m e LXV.

P a p e r r e v i e w e d h e r e , R o b e r t K e l e h e r a n d W i l l i a m Orz e c h o w s k i t r a c e t h e r o o t s of t h e s u p p l y - s i d e v i e w to t h e
f i s c a l o r t h o d o x y of t h e n i n e t e e n t h c e n t u r y

Director of Research: Donald L. K o c h
Associate Director: William N. Cox
Business Editor: Gary W. Tapp
Production and Graphics:
Susan F. Taylor and Eddie W. Lee, Jr.

V O L U M E LXVI, N O . 1

Note: V o l u m e LXV ( 1 9 8 0 ) c o n t a i n e d five issues. T h i s

A Primer on Financial
Institutions in the
Sixth District States
by B. Frank

King

Savings and loan associations, mutual savings
banks and credit unions are gaining significant
new powers to serve customers. When they
gain these powers, they will be able to begin
competing with commercial banks for several
new kinds of consumer business. More importantly, they will be able to offer a broad line
of consumer services, formerly the exclusive
province of commercial banks.

New Powers
The Depository Institutions Deregulation and
Monetary Control Act, signed in March 1980,
did much to provide the opportunity for four
distinct types of financial institutions to offer
virtually identical services to consumers. All
depository institutions in all parts of the
country were granted powers to offer N O W
accounts to individuals (see Table 1). Federally
insured credit unions were allowed to offer
share drafts. These powers complement each
type of institution's already existing powers to
offer time and savings deposits or their
equivalent.
O n the lending side, Federally chartered
savings and loan associations received new
powers to offer second mortgages, credit
cards, and consumer instalment credit—direct
and indirect, secured and unsecured. They
were also allowed to offer trust services and
operate remote automated service facilities.
Many states are changing their laws to give
state chartered thrift institutions comparable
powers. Federally insured credit unions had
earlier been empowered to offer long-term
residential mortgages. Thus, commercial
banks, savings and loan associations, mutual
savings banks and credit unions will have
4

parallel powers in consumer lending and
peripheral services as well as parallel
consumer deposit powers.
At least the early development and
implications of this new competition among
banks, thrift institutions and credit unions will
be influenced by what these institutions,
individually and collectively, look like today.
Information on these institutions may be
found in various places; the problem in
making comparisons is that the pertinent
details for all three types of institutions are

Table 1. C h a n g i n g Powers of Depository
Institutions Under Federal Regulations
Institution
Banks

Power
Transactions

S&Ls

Credit
Unions

Accounts

Time and Savings Accounts
Consumer Instalment
Second

Loans

Mortgages

Credit Cards
Long-Term
Residential
Trust

Mortgages

Powers

Remote ATMs
|

existing power
new power

•rr

'Already allowed in New England, New York and New Jersey
Permanent authority

F E B R U A R Y 1981, E C O N O M I C R E V I E W

Savings and loan associations, credit unions, and commercial banks will have
parallel consumer deposit and consumer lending powers beginning in 1981. The
dimensions and early development of the new competition in the Sixth District
will be influenced by the comparative size, structure, and powers of these
institutions before deregulation.

seldom presented in one place. To facilitate
such comparisons, this article presents in
tabular form the basic structural elements of
these institutions in the Sixth Federal Reserve
District states. In addition, it outlines some of
the outstanding features and differences in
the structures of those institutions.

Areas of Competition
Although banks offer a broader line of
consumer financial services than either savings
and loan associations or credit unions, they
already compete with them for some types of
consumer business (see Table 2).1 O n the
'Since no mutual savings banks have headquarters in the region, they wil
be ignored in the presentation.

deposit side, a few savings and loan
associations offer telephone bill payment
systems that are at least partial substitutes for
demand deposit balances at commercial
banks. In addition, 144 of the region's 2,673
credit unions currently offer share drafts,
which are also a demand deposit substitute.
Nevertheless, banks still hold the predominant
volume of transaction account business done
by the three types of institutions.
The story differs, however, when we consider
consumer time and savings accounts. All three
institutions offer these, and in three
southeastern states, savings and loans and
credit unions combined hold a majority. In
Florida they hold 70 percent.
Lending competition also exists among the
three types of institutions, but it is done on a

Table 2. Percentage of Various Types of Consumer Business in Savings and Loan Associations,
Credit Unions and C o m m e r c i a l B a n k s (December 31,1979)
Total Deposits
and
Share
Accounts

Consumer
Savings

Time and
Deposits

Consumer

Single-Family
Residential
Mortgages

Loans

S&Ls

Credit
Unions

CBs

S&Ls

Credit
Unions

CBs

S&Ls

Credit
Unions

CBs

S&Ls

Credit
Unions

CBs

Alabama

n.a.

Florida

n.a.

Georgia

n.a.

Louisiana

n.a.

Mississippi

n.a.

Tennessee

n.a.

"Estimated.

F E D E R A L RESERVE B A N K O F A T L A N T A 5

more specialized basis. Credit unions, with
very small contributions by savings and loan
associations, hold at least 13 percent of the
consumer loans on the books of the three
types of institutions in each state in the region
and as much as a quarter of those loans in
Alabama and Florida. Savings and loan
associations, with negligible contributions by
credit unions, hold at least four-fifths of the
single family residential mortgages made by
the three types of institutions in each state of
the region.

Comparative Size and Structure
The region has a combined total of 4,957
banking organizations, savings and loan
associations and credit unions (see Tables 3, 4
and 5).2 A majority of these institutions are
credit unions: banks make up the second
largest of the three groups. Tennessee,
Louisiana and Florida have particularly large
numbers of credit unions relative to the other
institutions. The credit unions do not typically
operate branch offices, while the banks and
savings and loan associations generally do.
Thus, these latter institutions are found in
many more places in the region. Banks overall
have greater office density, with up to five
times as many offices as savings and loans, as
in Tennessee, and not less than one and onethird times as many offices, as in Florida.
Though credit unions are most numerous,
they take a back seat to both other types of
institutions in both aggregate and individual
size. In the aggregate, banks exceed the other
institutions in deposits in each state in the
region except Florida. There, savings and loan
associations have a higher total. Banks have
the largest edge in Mississippi. Credit unions
bulk small, accounting for less than 3 percent
of total deposit and share liabilities of the
three types of institutions in each state except
Alabama.
When we observe individual institutions,
banks' dominance in size largely disappears.
The median savings and loan association
exceeds the median banking organization in
total deposits in four of the region's six states.
2

Each multibank holding company is considered a single banking organization although it owns more than one bank. Groups of institutions under
the same noncorporate ownership are considered to be individual
institutions because we lack complete information on this form of organization. (Since Tables 3, 4 and 5 contain much more detailed information
than the discussion in the text, they are presented separately at the end
of this article.)

In Florida and Georgia the race is not close.
The median savings and loan association is
more than seven times larger than the median
banking organization in Florida, almost three
times larger in Georgia. In addition, savings
and loan associations are among the ten
largest depository financial institutions in each
state but Louisiana. Individual credit unions,
on the other hand, are generally quite small.
The median union has share accounts of
considerably less than $1 million in each of
the region's states.
Institutions with lower population and
personal income per office generally offer
more convenience to persons and institutions
that demand their services. In a more dynamic
context, these lower numbers may identify the
institutions that have taken most advantage of
their expansion potential. Generally, banks
have lower population and personal income
per office figures than savings and loans and
credit unions. Savings and loan associations
generally rank next-to-lowest.
Credit unions and savings and loan associations are much more concentrated in
metropolitan areas than are commercial
banks. Only Mississippi—the District state with
the least population in metropolitan areas—
has a majority of credit unions headquartered
outside standard metropolitan statistical areas
(SMSAs). The volume of credit union shares is
even more concentrated in metropolitan
areas. Savings and loan associations are almost
as concentrated in the metropolitan areas as
are credit unions. Again, only in Mississippi
are a majority of these institutions, their
offices and their deposits located outside
metropolitan areas.
Banks are much less concentrated in the
cities. A majority of banks in each of the six
states have offices outside of SMSAs. Although
a majority of bank offices and deposits are in
metropolitan areas in each state except
Mississippi, the banks' percentages are
generally much lower than those of credit
unions or savings and loans.
Commercial banks may organize multibank
holding companies in Alabama, Florida,
Georgia and Tennessee. Savings and loan
associations and credit unions may not join
multi-institution organizations; however,
savings and loans may engage in statewide
branching. Although only Florida has even
close to a majority of its banks in multibank
companies, a majority of bank deposits in
F E B R U A R Y 1981, E C O N O M I C R E V I E W

10 Largest Depository Financial Insitutions by State

Organization
•

Georgia

Tennessee

Mississippi
Deposit Guaranty National Bank,
Jackson

M- «
1,132

First National Bank of Jackson

Unifirst Federal Savings and Loan

1,009

Association, Jackson
•

Grenada Bank

First Mississippi National Bank,

Organization

Deposits

492
391

Hattiesburg

328

•

Bank of Mississippi, Tupelo

293

•

Hancock Bank, Gulfport

283
258

Mississippi Bank, Jackson

•

First
Federal Savings
andMagnolia
Loan Association,
Hattiesburg

236

•

Peoples Bank and Trust, Tupelo

181

Deposits
(mil. S)
2,145

•
*

*
4
«

Deposits
(mil. S)
3,030

Trust Company of Georgia,
Atlanta

2,067

First Atlanta Corporation

1,974

•

Tennessee Valley Bancorp,
Nashville

First American Corporation,
Nashville

1,500

Third National Corporation,
Nashville

[~~| Georgia Federal Savings and Loan
Association, Atlanta

1,429

I
H

1,513

1,286

Fulton Federal Savings and Loan
Association, Atlanta

894
865

Union Planters National Bank,
Memphis

765

Leader Federal Savings and Loan
Association, Memphis

1 1 Decatur Federal Savings and Loan
Association

760

Ancorp Bancshares, Chattanooga

644

The Fulton National Corporation,
Atlanta

806

National Bank of Commerce,
Memphis

First Railroad and Banking
Company, Augusta

481

United American Bank
in Knoxville

National Bank of Georgia, Atlanta

348

CB&T Bancshares, Columbus

340

567
473
410

Commercial Banking Organization

•

Savings and Loan Association

Alabama

Louisiana

The Citizens and Southern
National Bank, Savannah

First Tennessee National
Corporation, Memphis

f i Home Federal Savings and Loan
Association, Knoxville

•
•
•
•
•
•
•
•
•
•

Organization
H

Organization
Whitney National Bank of
New Orleans

Deposits
(mil. S)
1,354

Hibernia National Bank in
New Orleans

737

First National Bank of Commerce,
New Orleans

713

First National Bank, Shreveport

577

Commercial National Bank in
Shreveport

542

Louisiana National Bank of
Baton Rouge

530

American Bank and Trust
Company, Baton Rouge

465

Bank of New Orleans and Trust
Company

443

Calcasieu Marine National Bank,
Lake Charles

429

Fidelity National Bank of
Baton Rouge

405

Organization

(December 31, 1979)

F E D E R A L RESERVE B A N K O F A T L A N T A

Deposits
(mil. S)
2,128

Bancorporation,
• Alabama
Birmingham
Alabama Bancshares,
• FirstMontgomery
Bancorporation of
• Southern
Alabama, Birmingham
Bancshares of the South,
• Central
Birmingham
• First Bancgroup-Alabama,
Mobile
Bancorporation,
• Southland
Mobile
• City Federal Savings and Loan
Association, Birmingham
Federal Savings
• FirstandSouthern
Loan Association, Mobile
Federal Savings and
• Jefferson
Loan Association, BirminghamI
Savings and Loan
• Guaranty
Association, Birmingham

1,529
1,518
1,456
658
606
476
451
375
236

Organization

Deposits
(mil. S)
3,873

•
•

Southeast Banking Corporation,
Miami
Barnett Banks of Florida,
Jacksonville

3,287

•
•
•
•

Sun Banks of Florida, Orlando

2,553

Amerifirst Federal Savings and
and Loan Association, Miami

2,056

Florida National Banks of Florida,
Jacksonville

1,873

First Federal Savings and Loan
Association of Broward County

1,824

•

Flagship Banks, Miami Beach

1,601

Atlantic Bancorporation,
Jacksonville

1,538

Dade Savings and Loan
Association

1,466

Florida Federal Savings and Loan
Association, St. Petersburg

1,390

•
•
•

}

Alabama, Florida and Georgia are held by
banks in multibank companies.
Comparing the data on median size of
institutions in each state with the sizes shown
on our listing of each state's ten largest
depository institutions (see page 7) indicates
a considerable size disparity within both banks
and savings and loan associations. Credit
unions share the size disparity. With few
exceptions, the three largest of each type of
institution in each state hold more than a
quarter of that type of institution's business in
the state, the five largest hold more than 35
percent, the ten largest hold more than 45
percent and the twenty largest hold more
than 60 percent.
Taken together, these pieces of information
on commercial banks, savings and loan
associations and credit unions present a broad

outline of the structure of these institutions.
In this region, these three types of financial
institutions are already active in each state. In
some lines of consumer business, and in some
states, commercial banks already hold smaller
shares of markets for consumer financial
services than savings and loan associations.
When aggregated, banks are generally the
largest institutions; however, individually,
savings and loan associations are more often
than not larger than commercial banking
institutions. Credit unions are generally quite
small. Within each type of institution,
however, size disparity is very large.
Commercial banks have a substantially
greater number of offices than do savings and
loan associations or credit unions (compare
Tables 3, 4 and 5). The banks, however, are
much less concentrated in metropolitan areas
than the credit unions and savings and loans. IE]

Table 3. Commercial Banks, Sixth District States (December 31,1979)
Alabama

Florida

Georgia

Louisiana Mississippi Tennessee

Banking Organizations

247

328

399

256

183

307

Bank O f f i c e s

895

1,540

1,280

1,025

851

1,351

Banks

317

586

439

258

183

352

Deposits of A l l B a n k s ($ billion)

13.5

36.1

17.3

18.5

9.2

18.5

D e p o s i t s of M e d i a n B a n k i n g
O r g a n i z a t i o n ($ m i l l i o n )

18.1

21.0

15.6

35.3

23.3

19.6

4.1

5.8

4.0

3.9

2.9

3.2

Personal I n c o m e per B a n k O f f i c e
($ m i l l i o n per a n n u a l 1979)

29.3

49.2

30.5

29.3

17.6

23.8

P e r c e n t a g e of B a n k s H e a d q u a r t e r e d
in S M S A s

37.9

76.5

26.2

35.6

15.9

31.8

P e r c e n t a g e of Bank O f f i c e s in S M S A s

58.4

82.7

53.8

53.4

21.3

55.2

P e r c e n t a g e of Bank D e p o s i t s in S M S A s

64.7

87.7

64.3

69.2

36.1

67.3

P e r c e n t a g e of B a n k s in M u l t i b a n k
Holding Companies

24.9

48.6

12.3

1.2

0.0

15.3

P e r c e n t a g e of D e p o s i t s in M u l t i b a n k
Holding Companies

60.1

69.3

53.6

0.4

0.0

42.1

P e r c e n t a g e of Deposits H e l d by:
3 Largest O r g a n i z a t i o n s
5 Largest O r g a n i z a t i o n s
10 Largest O r g a n i z a t i o n s
20 Largest O r g a n i z a t i o n s

38.5
54.1
63.7
68.9

26.9
36.6
52.9
66.5

40.8
48.3
55.8
61.6

15.1
21.1
33.5
48.6

27.2
34.8
45.7
56.5

28.1
39.7
52.1
60.4

P o p u l a t i o n per Bank O f f i c e ( t h o u s a n d )

F E B R U A R Y 1981, E C O N O M I C R E V I E W

Table 4. Savings and Loan Associations, Sixth District States (December 31,1979)
Alabama
Associations

Florida

Georgia

Louisiana Mississippi

Tennessee

122

125

Association Offices

240'

1,137*

392*

315

201

270

Savings Capital ($ billion)

4.1

39.6

8.6

6.6

2.3

5.5

Savings Capital at Median Associations
($ million)

31.4

156.0

42.9

24.5

18.3

23.6

Population per Office (thousand)

15.3

7.8

13.1

12.8

12.1

16.2

109.5

66.5

98.1

95.4

74.5

118.4

54.8

75.4

37.8

60.0

23.7

41.8

Personal Income per Office ($ million)

Percentage of Associations
Headquartered in SMSAs
Percentage of Offices in SMSAs

69.2

78.5

65.3

74.9

42.3

66.7

Percentage of Deposits in SMSAs

80.4

92.5

72.0

80.1

45.0

80.4

Percentage of Savings Capital Held by:
3 Largest Organizations
5 Largest Organizations
10 Largest Organizations
20 Largest Organizations

32.1
42.8
60.2
77.7

13.7
20.8
34.7
54.7

35.4
41.9
53.1
67.2

12.0
19.4
32.4
53.2

38.5
47.4
64.0
80.8

28.0
38.6
56.6
73.8

"As of September 30, 1979

Table 5. Credit Unions, Sixth District States (December 31,1979)
Louisiana Mississippi

Tennessee

Alabama

Florida

Georgia

303

384

342

491

234

231

Share A c c o u n t s at All Federally
Insured Associations ($ billion)

1.8

Share A c c o u n t s at Median Federally
Insured Associations ($ million)

Population per Credit Union (thousands)

12.1

23,1

15.0

8.2

10.4

19.0

Personal Income per Credit Union
($ million)

86.6

197.1

114.2

62.0

64.1

139.2

Percentage of Federally Insured Credit
Unions in SMSAs

70.6

88.3

63.2

75.8

39.3

61.0

Percentage of Shares of Federally
Insured Credit Unions in SMSAs

85.0

90.6

82.6

85.6

68.2

87.2

29.8

23.5

29.1

12.8

34.8

25.2

38.0

31.8

36.4

17.3

42.4

38.4

49.4

43.8

48.1

26.2

57.6

53.6

65.7

60.0

60.6

39.2

70.6

68.7

238

124

326

Federally Insured Credit Unions

Percentage of Shares Held by:
3 Largest Federally Insured
Credit Unions
5 Largest Federally Insured
Credit Unions
10 Largest Federally Insured
Credit Unions
20 Largest Federally Insured
Credit Unions

State Insured Credit Unions

Southeastern Farmers
Face Bleak Prospects
by Gene D.

Sullivan

Although all the 1980 farm crops may not be
marketed until well into 1981, it is already
apparent that southeastern farmers will have
sustained a sharp loss in gross income in 1980,
resulting from a combination of several factors. The most widely recognized source of
difficulty is the prolonged drought and
record-breaking high temperatures that
plagued most of the area from early June
through September. Although prices
advanced as the extent of potential crop
shortages became recognized, the combination of extreme heat and moisture deficiency
reduced crop yields severely enough to cut
into prospective crop income.

Livestock producers also encountered problems from the drought, but their major
difficulties occurred before the onset of dry,
hot weather when a large increase in output
depressed prices of products and caused
producers, especially of hogs and broilers, to
chalk up substantial losses during the first half
of the year. Those low returns were then
aggravated by the dry weather which shortened feed supplies and raised costs of
livestock rations when returns were already depressed. In addition, extreme heat
increased animal stress and resulted in slower
rates of gain and/or reduced productivity.
Death losses also rose, shrinking further the

Table 1. Planted Acreages of Selected Crops in 1980 and Indicated Changes from 1979.
Southeastern

farmers

expanded

acres

planted

tor

crops.

Sixth District States
Planted Acreage
1980
(000 acres)
Soybeans

15,375

Corn

3,624

Cotton

2,486

Wheat

1,970

Increase or Decrease
from 1979
(000 acres)

(000 acres)

Increase or Decrease
from 1979
(000 acres)

70,280

- 1,306

83,478

+ 3,467

+ 238

+ 943

+ 110

80,925

1,545

815

Rice

805

Oats, Barley, and Rye

736

- 101

Grain S o r g h u m

357

26,168

Planted Acreage
1980

+ 315

Peanuts

Total

United States

14,338

3,310

24,106

15,844

+ 1,479

293,826

390

+ 9,367
+

5
310

+ 13
-

+ 10

- 1,177

445

+ 11,491

Source: USDA, Acreage, June 1980

F E B R U A R Y 1981, E C O N O M I C R E V I E W

When all the returns for 1980 are in, southeastern farmers will have suffered
heavy financial losses. A long drought and blistering temperatures reduced
yields, while higher energy and interest costs pushed overall production costs
sharply higher. Price increases for most crops were not enough to make up for
the losses in revenue.
Southeastern farmers had planned to
expand significantly output of several crops
during 1980. Although some price declines
early in the year were attributed to the
embargo on exports to Russia, prospective
returns remained sufficiently high to more
than cover variable costs of production, so
farmers expanded 1980 plantings of soybeans,
cotton, rice, and grain sorghum. (U. S. farmers
differed mainly by reducing soybean and
expanding corn acreage. See Table 1.) Wheat
acreage had already been expanded dramatically during the fall of 1979 in response to
the unusually attractive prices existing during
the planting season. Fortunately, the wheat

volume of livestock products that southern
farmers had for sale during the summer.
Production Costs U p Sharply
At the same time that drought was reducing
income, other factors contributed to a rapid
escalation of production costs during 1980.
The abrupt rise in energy costs spread to a
broad range of farm inputs. In addition,
interest costs reached unusually high levels
during the spring when farmers typically
borrow heavily to purchase inputs for the
upcoming season's crop production.

Table 2. Acreage of Selected Crops for Harvest in 1980 and Changes from Acreage Planted.
After the drought,

acres harvested

dropped

sharply In the Southeast

and

nation.

United States

Sixth District States
Acreage
for Harvest
1980

Soybeans

Increase or Decrease
from Acreage Planted

Acreage
for Harvest
1980

(000 acres)

67,307

- 24

71,193

- 12,285

- 15

- 3

13,287

1,051

9,298

- 11

(000 acres)

14,165

- 1,210

- 8

867

Increase or Decrease
from Acreage Planted

2,973

Corn

2,757

Cotton

2,415

Wheat

1,635

335

- 17

71,627

Peanuts

789

- 3

1,495

Rice

857

+ 1

2,869

441

- 13

Oats, Barley, a n d R y e

212

524

- 71

16,928

7,178

- 30

Grain S o r g h u m

186

171

- 48

12,147

3,697

- 23

- 3,152

- 12

256,853

- 36,973

- 13

Total

23,016

Source: USDA, Acreage, June 1980, and Crop Production, October 1980
FEDERAL RESERVE B A N K O F A T L A N T A

crop was largely mature before the onset of
the drought, and it escaped the yield reductions suffered by summer-growing crops.
But even before the planting season had
been completed, dry weather was already
beginning to impact major crops other than
wheat. Soybeans that were to be planted
following the wheat crop either did not
emerge to a stand or were never planted
because of a lack of moisture. The corn crop
was rapidly withering during the crucial
fruiting stage, and considerable acreage was
either cut for silage or was abandoned.
Acreages of other crops were abandoned as
well, so that the October 1980 survey of crop
production revealed that acres for harvest
were 12 percent lower than the planted
acreage reported in June. (U. S. acreage
dropped by 13 percent — see Table 2.) Corn
acreage in District states was down by 867,000
acres in October, and soybeans were 1,210,000
acres below the plantings reported in June.

If yields in 1980 had reached the average
level of the previous three years and if crop
prices had remained at their spring-time
levels, southeastern farmers would have realized substantially higher incomes from most
crops in 1980 than in 1979.
But the drought that grew progressively
more severe as the summer unfolded sharply
reduced crop production prospects.
Abandonment of planted acreages combined
with sharp yield reductions on remaining
acreages to reduce production of most crops
both from expected levels at planting time
and from levels obtained in 1979 when fewer
acres were planted.
Final figures for 1980 yields, as well as
incomes, will not be available until 1981, but
yields of District soybeans are estimated to be
down about one-third from 1979's level, and
total 1980 production in District states is off by
slightly more than a third in spite of an
increase in acreage planted (see Table 3). U. S.

Table 3. Production of Selected Crops in 1979 and Indications for 1980.
The drought

severely

cut production

of most

Sixth District States
Indicated
October 1980

1979

crops;

of wheat

crop

was mature

before

drought's

onset.

United States
Increase or
Decrease from
1979 to 1980

(000 units)
S o y b e a n s (bu.)
407,472

much

1979

Indicated
October 1980

Increase or
Decrease from
1979 to 1980

(000 units)

260,560

2,267,647

1,757,272

121,684

7,763,771

6,466,622

2,778

2,138

14,629

11,589

22,536

54,630

+ 142

2,141,732

2,361,621

2,495,385

1,409,660

3,980,440

2,500,860

29,027

30,495

136,667

142,808

229,075

241,686

1,526,682

1,788,823

7,042

814,308

547,060

C o r n (bu.)
209,846
C o t t o n (bales)

W h e a t (bu.)

P e a n u t s (it>.>

R i c e (cwt.)

T o b a c c o (ib.)

G r a i n S o r g h u m (bu.
6,562

Source: USDA, Crop Production, October 1980.

F E B R U A R Y 1981, E C O N O M I C R E V I E W

production was reduced by about one-fourth,
part of which reflected a reduction in acreage.
The corn crop, damaged most severely in
the Southeast, suffered a one-third reduction
in average yields per acre in District states and
a 42-percent reduction in total output from
1979's level. Planted acreage was nearly the
same as a year ago, but abandonment was
heavy, so that acreage to be harvested for
grain dropped 10 percent from a year ago.
Total U. S. production is estimated to be 17
percent below a year earlier in spite of a
4-percent increase in plantings.
Cotton yields were down 30 percent in
District states, and total production fell by 23
percent from 1979's level, even though
acreage harvested was 13 percent above a
year ago. It is estimated that total U. S.
production will fall by about the same
proportion, reflecting heavy damage to the
crop in the major producing areas of the
Plains states.
Peanut production was cut by about 40
percent in both the District and the nation,
and through October average prices had not
risen enou h to offset much of the lossJ Gross
income in the District is indicated to be down
nearly $225 million from 1979's level. Damage
was also inflicted on yields of rice, tobacco,
grain sorghum, and hay crops, but so far,
these reductions do not appear to be as large
or as consequential as those for corn, cotton,
peanuts, and soybeans.

wheat, rice, tobacco, and peanuts registered
relatively small changes from a year ago.
Since production losses were substantially
greater than price increases for both soybeans
and corn, indicated income reductions from
1979's levels for those two crops alone exceed
$670 million (see Table 5). But the price gain
for cotton nearly offset the production decline,
so income losses were not so large. Large
production gains and relatively stable
prices for wheat raised indicated income for
that traditionally rather insignificant crop by
$136 million. In total, however, cash receipts
from eight major District crops fell by an
estimated $760 million in 1980, which compares with a much smaller decline expected at
planting time and a gain of nearly $1.0 billion
from 1978 to 1979.
The outlook for net returns of southeastern
crop farmers is considerably bleaker than that
for total returns. Expenditures for 1980 crops
rose sharply not only because of the increase
in acreage planted but also because of a brisk
rise in costs of production items from early
1979's levels. Fuel costs in March of 1980 were
nearly double the level of a year ago, and all
costs were up an estimated 20 percent or

Table 4. Average Prices Received for Selected
Crops, Sixth District States.
Most prices rose after drought,
reductions
caused by lower

P r o d u c t i o n Costs Exceed Returns
for Most C r o p s

t
«

The ultimate damage to growers from
reduced output depends upon what happens
to prices received and the income from the
sale of the crop. Prices for nearly all southeastern crops rose after the onset of the
drought, and these increases offset some of
the indicated reductions in income that would
otherwise have occurred (see Table 4). The
price of soybeans increased 26 percent from
its seasonal average level during 1979. Several
other crops also had large price increases: 22
percent for grain sorghum, 23 percent for
cotton, and 22 percent for corn. Prices of

Season
Average
1979

F E D E R A L RESERVE B A N K O F A T L A N T A

Harvest*
1980

Income

Increase
or Decrease
from 1979 to
Harvest 1980

($ per unit)

S o y b e a n s (bu.)

6.28

7.92

+ 26.1

G r a i n S o r g h u m (cwt.)

4.28

5.24

+ 22.4

W h e a t (bu.)

3.86

4.09

C o t t o n (ib.)

.64

.79

+ 23.4

C o r n (bu.)

2.85

3.47

+ 21.8

R i c e (cwt.)

11.00

10.45

5.0

T o b a c c o (ib.)

1.418

1.483

4.6

.207

.209

1.0

P e a n u t s (ib.)

' Brisk increases in peanut prices were reported in late November, but industry
spokesmen state that most of 1980's crop was marketed under contracts
arranged in advance of the price upturn.

partially offsetting
production.

6.0

"The average of prices received during September and October.
Source: USDA, Agricultural Prices, various months, 1980.

more from the comparable year-earlier
period. Thus, the reduction in total crop
revenue is combined with a sharp increase in
production expenditures, resulting in net
losses for most of the major crops grown in
1980.
Based on recent price levels and yield
projections, southeastern tobacco producers
can expect a positive net return in 1980, but
losses face producers of seven other crops
(see Table 6). The major losses will be suffered
by producers of soybeans, corn, cotton, and
peanuts. The deficits will range from $180
million to $410 million per crop, although the
impact is more severe for producers of
peanuts and cotton since their relative
numbers are fewer. Altogether, producers of

eight major crops will incur losses estimated at
$1.2 billion from their production efforts in
1980. In other words, projected revenue from
crop production will fail to cover 20 percent
of total costs (with land costs excluded).
The picture is different for U.S. farmers,
primarily because yield reductions for most
crops have been proportionately less than
price increases for crops. Although cotton,
peanut, and grain sorghum producers will
incur heavy losses, corn and soybean producers will realize substantial net returns over
cost because of the large increase in prices in
response to the proportionately smaller decline in production. Producers of wheat,
tobacco, and rice will also realize profits. For

Table 5. Prospective Income from Selected C r o p s in 1980 (estimated in October) compared
with 1979 Levels.
Price increases
October.

were not enough

to keep prospective

Income

for most

crops

from dropping

between

June

and

Sixth District

United States
Actual
1979

June
1980

Prospective
October
1980

($ mil)

Increase or Decrease
from 1979
to June 1980

Increase or Decrease
from 1979
to 1980

($ mil.)

Soybeans
2,559
14,037

2,138
12,252

2,064
13,531

- 420
- 1,785

17
13

495
506

19
4

598
18,569

548
19,959

422
19,529

- 50
+ 1,390

8
8

176
960

29
5

853
4,108

1,014
4,176

811
4,417

+
+

19
2

42
309

5
8

87
8,181

210
6,679

223
9,659

516
822

468
813

295
528

319
1,503

368
1,628

319
1,492

326
2,174

373
2,575

30
2,114

Corn

Cotton
+

160
+ 68

Wheat
+ 123
- 1,502

+ 142
18

+ 136
+ 1,478

+ 156
+ 18

Peanuts
-

47
9

9
1

+ 48
125

+
+

15
8

358
2,653

+ 47
+ 401

+
+

14
19

21
1,602

+ 116
+ 11

221
294

43
36

0
- 11

0
1

+ 32
479

+
+

10
22

+ 7
295

+
-

50
16

Rice

Tobacco

Grain

Sorghum
14
1,897

16
216

Sources: USDA, Field Crops, Production, Disposition, Value, 1978-1979, April, 1980; Acreage, June 1980; and Crop Production, October 1980.

F E B R U A R Y 1981, E C O N O M I C R E V I E W

Table 6. Projected Total Costs and Returns,
Selected Crops, 1980.

the eight crops in total, the aggregate net return is estimated to be $6.2 billion, equivalent
to nearly 13 percent of total production costs
(land excluded).

All District
for

crops shown

except

tobacco

face net

Sixth District States

Livestock I n c o m e Depressed

Total*
Cost

Through the first half of 1980 at least, incomes
of southeastern livestock producers have also
been depressed. Cash receipts from livestock
dropped 4 percent below the comparable
year-ago level, after growing by 16 percent in
1979. Producers in Alabama, Georgia, and
Mississippi (states most heavily dependent on
swine and broiler production) suffered the
greatest income losses.
The major reason for falling incomes can be
traced to price declines in response to large
increases in production (see Tables 7 and 8).
Red meat production during the first three
quarters in District states grew by 8 percent
(with increased hog production offsetting the
drop in cattle) over the comparable period in
1979. Prices of hogs and calves averaged 16 percent lower during the same period. Cumulative
broiler production and average prices held

losses

1980.

United States

Total**
Return

Total*
Cost

Total**
Return

($ mil.)

(S mil.)

($ mil.)

2,476.0

2,063.6

9,727.5

13,531.0

813.3

477.2

17,958.6

19,529.2

1,150.8

810.7

5,152.1

4,416.8

Wheat

224,2

223.4

8,084.0

9,659.0

Peanuts

474.8

294.6

811.6

527.7

Rice

333.2

318.7

1,294.4

1,492.3

Tobacco

256.5

358.4

1,830.9

2,652.8

Sorghum

56.7

20.7

2,362.5

1,602.2

5,785.5

4,567.3

47,221.6

53,411.0

Soybeans
Corn
Cotton

Total

"Excluding land cost.
"Average price at harvest times indicated production.
Sources. USDA, Acreage, June 1980, and U.S. Senate Committee on
Agriculture, Nutrition and Forestry, Committee Print 63-5970, July 1980.

Table 7. Production of Livestock and Products Hog production

led livestock

Increases.

Sixth District States
Increase or
Jan. - Sept. Jan. - Sept. Decrease from
1979
1980
1979 to 1980
(Total Live Weight, except when indicated)
(1,000 pounds)

United States
Jan. - Sept.
1979

Increase or
Jan. - Sept. Decrease from
1979 to 1980
1980

(Total Live Weight, except when indicated)
(1,000 pounds)

Hog Slaughter
1,314,652

1,554,979

Commercial Cattle Slaughter
954,240

+ 18

15,393,796

17,198,807

+ 12

908,488

26,610,653

26,746,229

4,215,198

11,428,821

11,581,620

14,027,260

14,358,129

Young Chicken Slaughter
4,182,916
Total Poultry
*

E g g s (Mil. Dozen)
973.0

944.5

4,255.6

4,313.8

5,966

6,044

93,797

97,174

M i l k P r o d u c t i o n (Mil. lbs.)

Sources. USDA, Livestock Slaughter; Poultry Slaughter; Eggs, Chicken, and Turkeys; and Milk Production, various months, 1980
•District data not available.

F E D E R A L RESERVE B A N K O F A T L A N T A

about even with a year ago, although prices
sagged sharply in response to heavy production
during the spring.
Precise cost data are not available for
livestock producers, but it is certain that
production costs increased with the expansion
in output. Prices paid for production items
averaged 10 percent or more above the
year-ago level throughout the first half of
1980. Spokesmen for the swine and broiler
production industries verify that producers
were incurring heavy losses during the first
half of the year.
Gross estimates indicate that, when the final
figures are in, total income from broilers,
eggs, and cattle, accounting for two-thirds of
total income from livestock, will be down by
10 percent in 1980. Receipts from hogs will
show little or no gain in spite of a large

Table 8. Average Prices Received for Livestock
and Products, Sixth District States.
Most prices

fell In response

to production

Jan.-Sept.
1979

Jan.-Sept.
1980

Increases.
I n c r e a s e or
Decrease
1979 to 1 9 8 0

(average price)

B r o i l e r s (<t per it>.)

26.3

26.4

C a l v e s ($ per cwt.)

90.89

76.12

- 16

H o g s ($ per cwt.)

42.91

36.14

- 16

E g g s (® per doz.)

62.96

59.12

M i l k ($ per cwt.)

12.76

13.92

Source: USDA, Agriculture Prices, various months, 1980.

increase in output. Income to milk producers,
about 15 percent of total livestock income, is
protected by government price guarantees,
and it will rise by 10 percent in 1980 due
mostly to an increase in prices. O n balance,
total receipts from the livestock sector are
estimated to be down 5 percent or more from
1979's level.
1980 Losses are Heavy
In summary, southeastern farmers experienced a year of heavy financial losses in 1980.
Crop production was cut sharply by the
extended period of drought, and price
increases for crops were not sufficient to
make up for the losses in revenue. Livestock
producers were already suffering economic
adversity resulting from overproduction and
low prices before the advent of the drought.
With the dry weather, feed supplies were
reduced, costs were raised, and livestock
growth rates were retarded.
In addition to increased expenditures
incurred to expand production of both crops
and livestock, costs were also increased by a
sharp jump in prices of farm inputs. Unless
prices should increase by a substantially
greater margin before all the output is marketed, farmers in the Southeast will experience rather large net losses from 1980's
production. It now appears that loan carryovers from 1980 will be large because of
insufficient cash receipts to repay money borrowed for the 1980 production season. Without special assistance, some farmers are likely
to be unable to continue their operations into
another year because indebtedness will
exceed the value of assets available for
securing loans.
SR]
F E B R U A R Y 1981, E C O N O M I C R E V I E W

Deregulation: T h e Attack
on Geographic Barriers
with John M.

Godfrey

Geographic restrictions seriously affect banks' ability to compete with S&Ls and
nondepositôry institutions. In response to questions, Research Officer John M.
Godfrey explains how the restrictions evolved and how banks were able to
partially circumvent the barriers. He also outlines the timing and direction of
the changes most likely to be made in the geographic restraints.

"Deregulation" has become a focus
of controversy in banking recently.
Some observers think the recent
egislation has not gone far enough, while
others believe it may have gone too far. What
is the basic thrust of "deregulation" in the
banking industry?
The primary aim of deregulation in
any industry is to establish a "level
playing field" for all competitors.
The recent deregulation of the transportation
industry, for example, created more competition on the basis of price and service and
reduced geographic restraints. Legislative deregulation came to transportation, however,
only after many barriers had already crumbled
or had been circumvented by aggressive firms.
Now, with the phasing out of restrictions on
consumer services and other products, deregulation is occurring for depository institutions. Recognizing that many of the distinctions between depository institutions have
been reduced in recent years, Congress passed the Depository Institutions Deregulation
and Monetary Control Act of 1980. This Act
is a first step toward establishing a "level playing field" for regulated depository institutions.
FEDERAL RESERVE B A N K O F A T L A N T A

But the Act still does not address a growing
problem in the financial industry: There are
still many nonregulated firms, such as finance
companies, money market mutual funds, and
financial service companies. In other words, the
Act puts domestic commercial banks on a more
"level playing field," but it still does not free
them to play on the entire field. A variety of
restrictions contribute to this problem, the
most significant of which are the geographic
restraints.
This topic is especially germane now because the International Banking Act of 1978
required President Carter, after consulting
with the Attorney General, the Secretary of
the Treasury and the three bank regulatory
agencies, to report to Congress his recommendations on the relevance of geographic
restrictions on banking. The White House
report was initially due in September 1979 and
was transmitted to Congress in January 1981.
Whatever the President's recommendations
and the subsequent actions by Congress, they
will have important implications for banks and
bankers. Banks have the technology and the
incentive to compete. But a major restraint is
legislatively imposed geographic barriers set
by the federal and state governments.
17

What is the relationship between federal and state geographic restraints
on banking, and how did these restraints develop in the first place?

Historically, federal regulators have
deferred to state branching regulations. The present federal restrictions have been in place for more than 50
years, with only slight modification. Initially,
national banks were prohibited from operating more than one full-service office. Many
state-chartered banks were free to branch
according to state regulations. With a more
dispersed society in the 1920's, national
banks operated at an increasing disadvantage
relative to the full-service branch operations
of state banks in some areas. Increasingly, national banks began to convert to state charters.
The McFadden Act of 1927 partially rectified this
competitive imbalance by permitting national
banks to operate branches within their
respective city limits if state law allowed state
banks this freedom. And the Banking Act of
1933 allowed national banks to branch to the
same extent permitted to state banks by
state law. Since 1927, however, McFadden
has led to more restrictions on banks
because it defines a branch as "any
place of business...at which deposits are received, or checks paid, or money lent."
Accordingly, the courts have limited sites for
bank automatic teller machines (ATMs) to
branch locations. And while national banks
may operate interstate loan production offices
(LPOs), they cannot actually "make" a loan
or dispense the funds from that LPO. As a
result of McFadden, all national banks are
restrained by the various branching laws of
the 50 states.

State branching regulations, then, are the
controlling factor in bank branching. These
state regulations range from statewide branching—in 22 states—to unit banking—in 11
states. The remaining states allow only some
form of limited branching. In addition, the
multibank holding company is prohibited in
10 states, generally the same states that prohibit branching. There has been some liberalization at the state level over the last twenty years.
For example, Florida, a unit banking state,
moved to county-wide branching in 1977 and
statewide branching in 1980. Geographic expansion, however, remains limited. As a result, of
the 14,700 banks in this country nearly 5,800 are
located in the 11 unit banking states.
Interstate banking was effectively curtailed
in 1956 by the Douglas Amendment to the
Bank Holding Company Act. The Act prohibited the acquisition of a bank in any but a
bank holding company's home state unless
expressly authorized by state law. Twelve interstate banking operations were "grandfathered." Several, like California-based
Western Bancorporation, with 22 banks in 11
western states and over $21 billion in deposits,
have significant interstate operations. Currently, Iowa allows new acquisitions by one out of
state bank holding company, and Maine
allows bank holding company acquisitions
from states that allow acquisitions by Maine
bank holding companies.

F E B R U A R Y 1981, E C O N O M I C R E V I E W

Earlier, you mentioned that banks
are not "playing on the whole
field/' How serious is this problem
for banks?
These restrictions are quite severe
when you consider that present
geographic restrictions on the
bank's major competitors are generally much
lighter or nonexistent. Federal savings
and loan associations can branch statewide,

Despite these handicaps, some
banks seem to be operating across
geographic boundaries. How are
they managing to get around the restraints?

Since the McFadden definition of a
branch has effectively prohibited
banks from establishing out-of-state
deposit-gathering facilities, interstate bank
expansion has focused mainly on lending.
Major bank holding companies have established or acquired mortgage lending and commercial and consumer finance companies that
operate in many states. Banks, for example,
have established loan production offices to
serve their corporate loan customers. Generally, however, these actions have resulted in
more expensive and less efficient ways of
serving customers than full-service operations.
More recently, the International Banking
Act of 1978 expanded the banks' ability to
establish branches of Edge Act corporations

FEDERAL RESERVE B A N K O F A T L A N T A

even in states that limit banks to a single
office or limited facilities. This disadvantage may not have seemed so crucial to banks
previously, but it will when S&Ls begin to
offer N O W accounts. Banks located in unit or
limited branching states will operate at a considerable competitive disadvantage vis-a-vis
S&Ls. And banks are even more handicapped
in competing with those nondepository institutions that are not regulated as to geographic
expansion, such as finance companies, money
market mutual funds, and brokerage firms.

through which they can serve the international credit and deposit needs of domestic
and foreign customers at many U.S. locations.
As a result, despite the aforementioned restrictions, the banking industry has found a
variety of methods to expand toward nationwide proportions. Two major bank holding
companies, for example, have achieved extensive national coverage. Each has about 400
offices that are located in roughly 40 states.
So, interstate banking has already arrived for
some domestic banking organizations, and
they will have a head start when interstate
restrictions are removed.
Foreign banks, too, have extensive operations, although the recent International Banking Act limits their ability to operate and
expand interstate under more favorable conditions than domestically chartered banks. The
ability of foreign banks to operate across
state boundaries in ways prohibited to domestic banks has highlighted the need to revise
the interstate banking regulations, especially
in emergency situations.

Not all bankers seem to favor deregulation. What are the major
issues in the discussion?

Many bankers fear that if the restrictions were lifted, they would
lose their protected markets. The
results, they feel, would be damaging not only
to local bankers but to the communities they
serve. Other observers, however, argue that
lifting the barriers would result in greater
competition and, therefore, greater public
benefits. Research into these issues, unfortunately, has not yet produced conclusive results. The debate and the research go on, but
the trend toward lowering geographic barriers—in banking as in other industries—seems
to be inevitable.
I can't examine in detail here all the issues
raised by geographic deregulation, but let me
review several of the most often cited issues.
For example, when banking organizations
enter a new market, there are likely to be
short-term price benefits for the public. And,

What are the chances of that happening in the U.S.?

If the experience in such longstanding statewide branching states
as California and North Carolina is
a guide, community banks can successfully
compete. More recently, when New York and
Virginia relaxed their branching laws, smaller
banks still remained. A reasonable balance
might be possible where our banking
structure could evolve into a number of large
nationwide organizations and a large number
of strong regional and local banks.
Even the often cited fear that branching
will eliminate the independent bank and
deprive the local community of adequate
funds seems unfounded by past experience.
Bank costs decline only slightly as size increases. Therefore, large banks do not necessarily have significantly lower costs than most

generally speaking, a relaxation of restrictions
results in an increase in the number of banking offices and a wider variety of banking
services.
O n the other side of the fence, some argue
against relaxing these restrictions on the
grounds that it would lead to a concentration
of banking resources. Of course, it is true that
"measured" concentrations would increase at
the state levels. But there are adequate public
policy safeguards to prevent undue or excess
concentration, and increased statewide concentration does not preclude meaningful
competition in local markets.
Underlying all of this debate is the fact that,
because of our longstanding restrictions, we
have far more banks than other countries
have. Unless the present restrictions are
phased out in an orderly manner, there could
be a sharp contraction in the number of
independently operated banks. This would
not be entirely desirable. We would probably
want to avoid the situation where, as in Canada, West Germany, and the United Kingdom,
commercial banking is dominated by a handful of large banks.

banks, although the very smallest banks quite
likely do have higher costs. And the various
"High Performance Banking" studies show that
banks in the $25-100 million size range earn significantly higher profit margins than the larger
urban banks. Therefore, unless large banks
adopt predatory prices, well-run and reasonably
able independentbank managers should be able
to remain competitive with adequate earnings.
In the event a community bank is acquired by a
holding company, past acquisitions show that
these banks continue to service local borrowers and generally lend out a higher proportion of their funds.
Despite the evidence that points to increased public benefits of liberalizing geographic barriers, the task will not be easy.
We must recognize that a large number of
independent banks and bankers have long
operated under a protective umbrella of
geographic restraints. They have strong
views on this subject and many legitimate
concerns. These concerns must be reconciled
in any political discussion.
F E B R U A R Y 1981, E C O N O M I C R E V I E W

Keeping in mind that there are political issues as well as regional
and local controversies involved, what might we realistically expect
to see in the way of relaxation of these geographic restraints?

I see us moving toward three basic
changes, which, taken together,
seem to promise a reasonable compromise between completely eliminating all
geographic barriers and maintaining the
status quo.
First, I believe we will see bank holding
company acquisitions across state lines. This
most likely will come in three directions because of the potential for excessive concentration if all restraints were immediately relaxed.
1.
2.

Allowing interstate acquisitions in
contiguous states or within a region.
Allowing the largest bank holding
companies to enter only the larger
metropolitan markets and only by
de novo entry or acquisitions of the
smaller banks in such markets.
Allowing domestic and foreign
banking organizations to bid for
financially troubled or failing banks.

Second, I look for some changes aimed at
improving retail banking services within
metropolitan areas by relaxing these geographic restraints in two steps.

FEDERAL RESERVE B A N K O F A T L A N T A

Instead of classifying ATM/EFTS as
branches, Congress could allow
these services within "natural" market areas at first—including crossing
local and state political boundaries,
then within a region—and, finally,
nationwide.
Banks might later be allowed to establish full-service branches
throughout their "natural" market
areas. This would be the most controversial change, since it would
directly raise the issue of states'
control of bank branching.

Finally, I think Congress may permit nationwide wholesale banking by allowing loan production offices to "make" business loans on
site.
The removal of these barriers will not be
easy, nor will they all come quickly. They all
involve the removal of a protective barrier
for some banks and bankers, and this is an
important consideration. But the trend toward
relaxation of geographic restraints seems inevitable, and the changes I have outlined
suggest the direction in which public policy
seems to be moving.

Commentary

NOW Pricing:
Perspectives and Objectives
by William N.

Cox

Banks tend to see NOW accounts as an old product
with a new feature and thus seek to maintain
the traditional profitability of the
checking account. Thrift institutions, on the
other hand, see NOWs as a new product
which will allow them to become full-service
financial institutions. Thus, S&Ls may
price NOWs as a loss leader in hopes that NOWs
will bring along other business from new customers.
It has been fascinating, these past few months,
to watch southeastern bankers and S&L executives prepare for N O W accounts. Almost all of
them admit without hesitation that they have
decided to offer N O W accounts just as soon
as NOWs become legal at the beginning of
1981.1
Ask about the terms of their N O W
accounts, however, and the answers have
sometimes turned vague. "We're going to
price NOWs so we don't lose money on the
deal," say many bankers. " N O W s are a chance
for us to diversify into the retail banking
business," say some of the S&Ls. Beyond such
generalities, even those who have decided
how they plan to price have been likely to
say, "we're considering several options,"or
"we aren't sure yet."
From our own conversations, however, we
have an idea of what the cards will look like
when everyone shows his hand. Commercial
banks in urban markets generally will
offer charge-free N O W accounts to

'A December survey of Sixth District depository institutions indicates that
more than 90 percent of both savings and loan associations and banks
will offer NOW accounts in early 1981.

customers maintaining minimum balances of
at least $1,000, sometimes in the $1,200 to
$1,500 range, and sometimes even higher.
Savings and loan association minimums in
urban markets, on the other hand, will often
be $500 or less, and sometimes in the $250 to
$300 area, but sometimes less. Some will offer
the alternative of charge- free checking with a
substantial balance, typically $2,000 or $3,000,
in a savings account. These minimum balance
levels required for the charge-free checking
will probably be the principal dimension of
bank-thrift competition. Banks and thrifts alike
will pay their customers 5 1/4 percent—the
highest interest rate permitted by the Depository Institutions Deregulation Committee. The
balances on which this rate will be paid will
be tabulated in various ways, however. All will
deduct service charges from below-minimum
accounts—charges such as 15 cents a check or
$4 a month.
This is an interesting situation. Banks and
thrift institutions will be offering similar, if not
identical, products, yet from what we hear,
banks will typically be requiring minimum
balances of $1,000 or more, (for charge free
checking), while the thrifts will be saying
F E B R U A R Y 1981, E C O N O M I C R E V I E W

,
*

$500, typically. Presumably, they can't both
be right. Let's examine the disparity more
closely, trying to see why it exists and whether
it will persist. The differences, as we shall see,
basically reflect different perspectives and
objectives.

**
"
*
i
n

i
^

*
^
*
^
,

The Banks' View
To the banker, a N O W account is nothing
more than a checking account with an
additional wrinkle: It pays interest. It is the
same product at a higher cost—the cost of
paying interest. So the banker, in figuring how
to operate in the N O W environment, tends to
focus his attention on the cost elements of the
checking account product and to look for
ways to offer NOWs just as profitably as
checking accounts. 2 The interest-bearing
NOW account should be worth more to the
customer than an ordinary checking account,
so he should be willing to pay more for it,
either by meeting a higher minimum-balance
requirement, paying higher service charges, or
both.
Pursuing this profit-maintenance objective,
many banks have analyzed their traditional
checking account business in terms of size of
balances held and number of checks written.
As a representative example, suppose a bank
figures it can earn 10 percent after satisfying
reserve requirements, by relending the money
held in checking accounts. Many bankers are
figuring, in addition, that the average household checking account costs the bank about
$60 a year to operate. 3 If the banker finds his
checking account balances average about $800
and if he can earn about 10 percent on those
balances by relending them, then he nets
about $20 a year on the account: $80 of
interest revenue less $60 of costs.
When he looks at NOWs, he says something
like, "How can I continue to earn $20 per
account if a customer converts to a N O W
account?" His operating costs will probably
still average about $60 a year. He expects to
clear only 4 3/4 percent of the assumed 10
percent now, however, since he has to pay
the N O W customer 5 1/4 percent. So he

figures that to cover his $60 cost and keep a
$20 profit, his N O W account balances must
average about $1,830.4 Then he has to decide
how to set a minimum balance level (for free
checking) that will attract that average balance
of about $1,830. This is a question of judgment, but the chances are our banker will
filter out the low-balance accounts by picking
a minimum balance of at least $1,000. Below
such a balance, the banker will require his
customer to defray some of the costs of
servicing the account by paying explicit
service charges.
Looking at his $1,000-plus minimum balance
requirement, our representative banker
expects that many of his high-balance checking accounts will be converted to NOWs, but
he feels he has priced them dearly enough to
maintain his profit. He fully recognizes and
expects that some of his lower-balance
accounts will move to the S&L across the
street, but he accepts this prospect because
he feels he cannot profitably convert them to
N O W accounts.
This perspective represents fairly typically
the thinking of many bankers around the
District: (1) NOWs are viewed as an old
product with an additional feature, (2) the
focus of price-setting is on the N O W account
rather than the N O W customer, and (3) the
objective of pricing is to maintain the profitability traditionally associated with checking
accounts.

The S&Ls' View
Many savings and loan associations view the
N O W pricing problem quite differently. To all
of them, NOWs are unfamiliar. To many, they
are a very attractive product, since S&Ls have
never been permitted to offer checking
accounts in the Southeast. NOWs present an
opportunity to become full-service family
financial institutions, allowing them to diversify from their traditional savings-andmortgage orientation.
Many savings and loan association executives, accordingly, are inclined to focus on the
N O W banking customer. They view NOWs as
the most important element in a bundle of

»
!

For an example, see Michele Fernstein, "Advice from Northeast: You C a n
Live with NOWs Profitably," A B A Banking Journal, August, 1980.
From Federal Reserve functional cost accounting data. Account
maintenance costs vary principally with the number of accounts, rather
than the level of balances or the number of checks written.

FEDERAL RESERVE B A N K O F A T L A N T A

'Net return is 10% minus 5 1/4% = 4 3/4%. If we assume a reserve
requirement of .08, 92 percent of the average balance needs to yield $80.
$80/( 0475 x .92) = $1,830.66.

family financial services offered to the customer, including not only savings instruments,
mortgages and NOWs, but also consumer
loans, second mortgages, charge cards, travelers' checks, and perhaps even trust services.
Recent legislation has broadened the ability of
thrifts to offer such functions. 5
In focusing on the retail banking customer
and figuring how to lure him away, many S&L
people are inclined to agree with their banker
friends about one thing: Banking relationships
generally involve a great deal of customer
loyalty.6 Most customers who change banks
do so because they are unhappy with the
service, but they will remain loyal even
though they realize another bank is offering
the same services a bit more cheaply. People
tend to regard banking as a professional
relationship, like their relationships with their
doctors or lawyers.
Customer loyalty implies three things to
S&Ls about N O W pricing. First, if an S&L
wants to pull accounts out of banks, it will
have to price NOWs much more attractively
than banks. Slightly more attractive pricing
will not overcome customer loyalty enough to
move any checking accounts out of banks.
Second, customer loyalty implies that S&Ls can
gain if they can differentiate their NOW
product image from N O W accounts offered at
banks, particularly if that image appears more

B. Frank King, "A Primer on Financial Institutions in the Sixth District
States," this issue.
Most of the NOW accounts opened at S & L s will come from bank checking
customers. Murphy found that NOW customers at thrift institutions were
similar in many characteristics (education, income, etc.) to bank checking
customers and that about four-fifths of them had had bank checking
accounts previously. (Neil B. Murphy and Lewis Mandell, "Reforming the
Structure and Regulation of Financial Institutions: The Evidence from the
State of Maine," Journal of Bank Research, October 1979.)

modern or convenient. Customers are more
likely to move, many S&L planners are saying
to themselves, if their customers think they
are offering something the banks aren't. This
is why S&Ls have been generally more
interested than banks in offering features like
debit cards and check truncation with NOWs,
whereas banks tend to want their NOWs to
look like traditional checking accounts.
The third implication of customer loyalty is
that if S&Ls are able to attract bank customers
with attractively priced NOWs, those customers may bring their loan business, savings
accounts, safe deposit boxes, and other business along to the new institution. Many S&Ls,
therefore, are inclined to price NOWs aggressively on a break-even basis, or even as a loss
leader, thinking that they will profit from the
other business NOWs may bring along.
The contrast is sharp. Whereas the typical
bank will price NOWs to maintain the
profitability associated with traditional checking accounts, the S&L has a different objective. Instead of seeking to clear (in our
example) $80 a year in total cost plus profits
per account, it might seek to offset only
variable costs, which it estimates at about $35,
expecting NOWs to make no initial contribution to fixed costs or profits.7 If the S&L hopes
that the variable costs of N O W accounts will
average only $35 a year, it will conclude (using

'For a more detailed analysis of costs from the standpoint of the savings
and loan association, see Kenneth E. Reich, "How to Evaluate Conflicting
Views on NOW Accounts," Savings and Loan News, May 1980.

F E B R U A R Y 1981, E C O N O M I C

REVIEW

the same kind of average-balance calculations
we did earlier for the bank) that its N O W
balances must average about $800.8 Shooting
aggressively for that average balance might
lead an S&L to charge a minimum balance of
$500.

What Then?
Such a wide difference in pricing cannot
persist for long in a competitive economy.
That's what economic theory tells us, anyhow.
The gap should close. Because of customer
loyalty, however, it will not close entirely.
Theories aside, there are a good many
reasons to expect S&Ls eventually to raise
their minimum balance requirements on
NOW accounts. Aggressive S&Ls are likely to
find their estimates of variable costs were too
optimistic—partly because of unexpected
start-up costs, partly because of inflation, and
partly because banks and thrifts are bidding
against each other for the people and
machines to process checks and maintain
records. The 5 1/4-percent rate ceiling will
probably go up too as the deregulation
process proceeds. S&L managers will eventually want N O W accounts to make some
contribution to overhead and profits. But S&L
minimum balance requirements will probably
not need to match those at the banks, since

$35/(.0475 x .92) = $800.92, assuming an 8 percent reserve requirement. It
is also possible that thrifts' costs will be lower if banks have already
invested heavily in customer service enhancements (such as additional
branches or automatic teller machines) as a substitute for explicit interest
payments and must continue to amortize those investments, whereas the
thrifts can design their implicit-plus-explicit interest capabilities from
scratch in a NOW environment. Presumably, these earlier investments in
implicit services by banks are worth something to the customer, who
should be willing to hold a higher minimum balance because of it. (See P
Lloyd-Davies, "The Effect of Deposit Ceilings Upon the Diversity of Bank
Locations," Bank Structure and Competition, Federal Reserve Bank of
Chicago, 1976). As Michael R. Asay ("Effects of NOW Accounts on
Earnings and Competition in Commercial Banking: A Review of Theory
and Financial Economics, Board of Governors, Federal Reserve System,
April 1979) points out, however, the customer may even prefer implicit
interest in the form of services because such interest is not taxable

FEDERAL RESERVE B A N K O F A T L A N T A

many thrift institutions in New England have
remained profitable while offering cheap
N O W accounts.
O n the other side of the gap, banks may
eventually find they want to cut their minimum balance requirements, but not by
much. Most banks are under pressure from
regulators to maintain capital-to-asset ratios. It
is difficult to raise capital by issuing new stock
in today's market, so the only remaining way
to produce the capital additions necessary for
asset growth is through the retention of
profits. Nonmember banks, moreover, will
generally face rising reserve requirements
over an eight-year phase-in period. 9 The costs
of maintaining checking and N O W accounts
are rising. So for all these reasons, banks will
probably cut their minimum balance requirements some, but not much.
How much they cut them will depend
largely on how many customers they lose to
S&Ls, and some of these customers will
represent the loss of profitable business other
than N O W accounts. Most banks are not set
up to analyze in advance how much other
business the loss of lower-balance N O W
accounts will cost, but the results will be
available in a few months.10 If this related loss
in business is substantial, minimum balances
will come down and the gap will narrow from
the bank side as well.

'Unlike most other accounts, NOWs will be subject to a full reserve
requirement immediately. However, in light of the overall phase-in of
reserve requirements, vault cash will likely exceed reserve requirements
for several years at most nonmember banks and thrifts.
'"Some bankers point to the NOW experience in states like Connecticut and
New York, where banks have been successful with high minimum
balances. In these states, unlike all the Sixth District states except
Florida, banks and thrifts also compete with noninterest-bearing checking
accounts. Thrifts there do not have to use NOWs as the primary means of
enticing bank customers. (See William N. Cox, "Now Accounts: Applying
the Northeast's Experience to the Southeast," September/October issue
of this Review.)

W o r k i n g Paper
Review
The following article is a staff review of a more complete study in the
Federal Reserve Bank of Atlanta Working Paper series.

Robert E. Keleher
William P. Orzechotuski
Supply-Side Effects of
Fiscal Policy: S o m e
Historical Perspectives
In a previous Research Paper (reviewed in the
September/October 1980 Review) Robert Keleher outlined the basic principles of the supplyside view and suggested how that view applies to
fiscal policy. In a new Working Paper reviewed
here, Keleher and William P. Orzechowski respond to suggestions that the supply-side view is
a novel, untested theory by showing that the
approach actually represents a return to classical principles of public finance, developed and
implemented in the nineteenth century.
A fundamental premise of "supply-side" economics is that changes in fiscal policy, and especially changes in tax rates, have important
effects on incentives, aggregate supply, and
economic growth. While the supply-side approach is having a significant impact on current
policy discussion, it has nevertheless been seen
by many economists as a new, untested idea or as
a temporary fad. In this lengthy Working Paper,
Robert E. Keleher, Senior Financial Economist,
Federal Reserve Bank of Atlanta, and William P.
Orzechowski, Assistant Professor of Economics,
George Mason University, show through an extensive review of economic doctrine that the
supply-side view is neither novel nor a fad. The
authors demonstrate, in fact, that supply-side
economics is essentially a return to the fiscal
orthodoxy of the nineteenth century. Supplyside principles, which originated with the
26

attacks of the physiocrats, Hume, Smith and
other economists on mercantilism, were explicitly endorsed and utilized by most important
public finance scholars for over a century before
the Great Depression.
In contrast to much conventional macroeconomic analysis, which focuses primarily on
the aggregate demand impacts of changes in fiscal policy, supply-side proponents emphasize
that tax rate changes have important repercussions on the incentives of individuals to supply
labor and capital to the market. Keleher and
others have described the fundamental assumptions of the supply-side view in previous Working Papers; in thisstudy,the authorsfocuson the
historical development of that view.
The supply-side view originated in the
eighteenth century with the attacks of the
French physiocrats against mercantilism. The
mercantilists, whose principal goal was a strong
nation state (including, in their view, a large
stock of precious metals), endorsed policies to
effect a trade surplus. They subsidized exports,
for example, and taxed imports. They also believed that higher tax rates, by lowering (after
tax) wages, would stimulate work effort and consequently contribute to the production of exports and hence a trade surplus. High tax rates,
then, were not at all inimical to the mercantilist
view.
Although both the physiocrats and David
Hume identified important elements of the
supply-side view, neither developed a complete, fully consistent set of supply-side principles. Adam Smith, writing in 1776, was the first
to articulate a supply-side theory fully removed
from vestiges of mercantilist thought. To increase wealth, Smith believed, a country must
emphasize production, aggregate supply and
growth, not the money supply or aggregate demand. Accordingly, Smith advocated positive
incentives (including tax policies) to stimulate
the supply of capital and labor into the production process. Smith called high direct taxes on
F E B R U A R Y 1981, E C O N O M I C R E V I E W

wages "absurd and destructive/' since they led
to decreased employment and decreased production.
The authors show that Smith also recognized
that as tax rates rise from low levels, output
initially increases because efficiency gains
stemming from the provision of public goods
outweigh the adverse effects of these tax rate
increases. As tax rates continue to increase, however, the balance shifts in favor of the disincentive effects of high tax rates, and output
begins to decline. Moreover, because of Smith's
subsequent influence, his supply-side fiscal
principles became the orthodox view for nineteenth century economists and, as such, can
scarcely be accused today of being radical or
novel.
Building on and refining the arguments of the
physiocrats, Smith, and others, J. B. Say and
James Mill developed Say's Law, which, as J. J.
Spengler notes, "dominated economic thinking
until...World War I." A central theme of Say's
Law is that it is production and aggregate supply
(not the growth of the money supply) that create
wealth and economic growth. Thus, the Law
places emphasis on the stimulation of production and aggregate supply and on the encouragement of factor supplies—not on stimulating demand or consumption. Some of the
most significant implications of Say's Law relate
to governmental fiscal and especially tax policy.
Given that Say's Law indicates that it is production and aggregate supply rather than demand
and expenditure that create growth and wealth,
the tax (and expenditure) policies in harmony
with the law are those which foster aggregate
supply (rather than aggregate demand). If taxes
adversely affect aggregate supply or factor inputs, for example, supporters of Say's Law indicate that these taxes should be either eliminated
or minimized. Since advocates of Say's Law
recognized that high tax rates would work to
destroy the incentives to work, save, and invest,
and hence would adversely affect supplies of
factors of production, they often recommend a
lowering of these tax rates. Such a lowering of
tax rates was often identified with increases in
aggregate production and increases in tax
revenues.
After identifying Say's Law as a cornerstone of
the supply-side view, Keleher and Orzechowski
discuss the contributionstosupply-side thinking
of some later economists, including John Stuart
Mill, J. R. McCulloch, and Sir Henry Parnell.
These nineteenth century writers, for example,
FEDERAL RESERVE B A N K O F A T L A N T A

documented many historical cases where tax
rate increases were associated with tax revenue
decreases. Interestingly, McCulloch suggested
that one sure way to recognize when tax rates
are excessive is to identify when a great deal fo
circumvention activities (smuggling, evasion,
fraud) is taking place. (Today, this activity is associated with the growth of the so-called underground economy.)
Although supply-side principles were often
stated in the literature, politicians normally did
not embrace these concepts. The administration
of William Gladstone in Great Britain (from the
1840's to the 1890's), however, was an exception.
This administration was one of the first examples
of the formal application of supply-side principles. Gladstone's program was successful; it
included large reductions in tax rates, rapid economic growth, and the elimination of budget
deficits. Not only were these principles implemented as early as the mid-nineteenth century,
but they were recognized (as the authors show)
as the dominant view of fiscal policy in economics textbooks in the late nineteenth and
early twentieth centuries.
Events in the interwar period disrupted the
century-long dominance of the supply-side
view. The collapse of aggregate demand in
America in the 1930's led many economists to
reject Say's Law and to adopt positions "which
classical economists would have labeled as mercantilist." The Keynesian Revolution encompassed a dramatic shift from encouraging supply
to stimulating demand, and from long-run economic growth to short-run stabilization of the
business cycle. Taxation was seen, not as a means
of funding government spending, but as a
method of ensuring general economic and
monetary stability. "What would appear as
heresy in 1910," the authors conclude, "had become orthodoxy and was embraced by the new
economics."
An example of the subordination of supplyside principles appears in the "modern" discussion of saving. Since proponents of the "new
economics" considered saving a leakage to the
income-expenditure flow, they (like the mercantilists centuries earlier) came to view savings
as adversely affecting the level of economic activity. Consequently, they often endorsed
government policies which were oriented toward the stimulation of consumption and discouragement of saving.
In their concluding section, Keleher and
Orzechowski point out the similarities of the
27

1970's to those conditions of the mercantilist era
which led classical economists to reject the
demand-oriented framework of mercantilist
writers. Both periods saw high and increasing
tax rates, government regulation and intervention into the economy, a growing underground
sector, and low rates of productivity and growth.
The result has been the revival of the long dormant supply-side view. In order to foster growth,
its proponents argue, work, saving, investment,
and honesty should be encouraged instead of
nonwork, consumption, and tax avoidance.
Hardly a new approach or an untested fad, the
supply-side view is well-rooted in classical
macroeconomic analysis. In fact, the authors
show that it actually represents a return to the
classical principles of public finance.

Supply-Side Effects of Fiscal Policy: Some Historical Perspectives, by Robert E. Keleher and
William P. Orzechowski, August 1980, 68 pp.
Bibliography.
A copy of this study is available upon request
to the Research Department, Federal Reserve
Bank of Atlanta, P.O. Box 1731, Atlanta, Georgia 30301.

Other Federal Reserve Bank of Atlanta
Working Papers Available:
Estimating Sixth District Consumer Spending
by Brian D. Dittenhafer
Changes in Seller Concentration in Banking Markets
by B. Frank King
Regional Impacts of Monetary and Fiscal Policies in the Postwar Period: Some Initial Tests
by William D. Toal
A Framework for Examining the Small, Open Regional Economy: An Application of the
Macroeconomics of Open Systems
by Robert E. Keleher
Southern Banks and the Confederate Monetary Expansion
by John M. Godfrey
An Empirical Test of the Linked Oligopoly Theory: An Analysis of Florida Holding Companies
by David D. Whitehead
Of Money and Prices: Some Historical Perspectives
by Robert W. Keleher
Regional Credit Market Integration: A Survey and Empirical Examination
by Robert E. Keleher
Entry, Exit, and Market Structure Change in Banking
by B. Frank King
Future Holding Company Lead Banks: Federal Reserve Standards and Record
by B. Frank King
Money-Income Causality at the State-Regional Level
by Robert E. Keleher and Charles J . Haulk
The Influence of Selected Factors on the Slowdown in Southeastern Manufacturing Productivity
by Charlie Carter
1919-1939 Reassessed: Unemployment and Nominal Wage Rigidity in the U.K.
by Barbara Henneberry, Robert E. Keleher, and James G. Witte
Home Office Pricing: The Evidence from Florida
by David D. Whitehead
28

F E B R U A R Y 1981, E C O N O M I C R E V I E W

Index
for
1980
AGRICULTURE
Basic Questions on Food Prices
Gene D. Sullivan, March/April, 16
Rising Energy Costs Hit Southeast Crop
Production
Gene D. Sullivan, July/August, 16

BANKING
Banking Act Makes Major Changes
March/April, 4
Credit Controls: Reinforcing Monetary Restraint
John M. Godfrey, May/June, 15
Future Holding Company Lead Banks: The
Federal Reserve's Standards and Record
B. Frank King, January/February, 30
Home Office Pricing: The Evidence from Florida
David D. Whitehead, July/August, 30
NOW Accounts: Applying the Northeast's
Experience to the Southeast
William N. Cox III, September/October, 4
NOW Accounts Co Nationwide
William N. Cox III, May/June, 10
Relevant Geographic Banking Markets: How
Should They Be Defined?
David D. Whitehead, January/February, 20
U.S. Banks Expand Offshore Banking in
Caribbean Basin
Stuart G. Hoffman, July/August, 22

FEDERAL RESERVE B A N K O F A T L A N T A

ENERGY
Inflation: Still Our Number One Problem
Harry Brandt, September/October, 16
Rising Energy Costs Hit Southeast Crop
Production
Gene D. Sullivan, July/August, 16

FISCAL POLICY
Credit Controls: Reinforcing Monetary Restraint
John M. Godfrey, May/June, 15
Inflation: Still Our Number One Problem
Harry Brandt, September/October, 16
The Shape of the Recovery
Charles J. Haulk, September/October, 11
Supply-Side Effects of Fiscal Policy: Some
Preliminary Hypotheses
Robert E. Keleher, September/October, 28

HOUSING
Home Building in the Early 1980s
B. Frank King, March/April, 12

INFLATION
Credit Controls: Reinforcing Monetary Restraint
John M. Godfrey, May/June, 15
Inflation: Still Our Number One Problem
Harry Brandt, September/October ,16

INFLATION c o n t i n u e d
Interest Rates and Inflation: What Drives What?
William N. Cox III, May/June, 20
The Meaning of the 1980 Monetary Targets:
Excerpts from Testimony before the House
Banking Committee
Paul A. Volcker, January/February, 12
Questions and Answers on Monetary Policy
Stuart G. Hoffman, January/February, 14
The Recession: How Bad Will It Be?
Harry Brandt and Charles J. Haulk,
July/August, 4
The Shape of the Recovery
Charles J. Haulk, September/October, 11
LIVESTOCK
Basic Questions on Food Prices
Gene D. Sullivan, March/April, 16
MONETARY POLICY
Credit Controls: Reinforcing Monetary Restraint
John M. Godfrey, May/June, 15
The Discount Rate Under the Federal Reserve's
New Operating Strategy
Harry Brandt, March/April, 6
Inflation: Still Our Number One Problem
Harry Brandt, September/October, 16
The Meaning of the 1980 Monetary Targets:
Excerpts from Testimony before the House
Banking Committee
Paul A. Volcker, January/February, 12
Monetary Policy and Interest Rates
Robert E. Keleher, July/August, 26
Questions and Answers on Monetary Policy
Stuart G. Hoffman, January/February, 14

MONEY SUPPLY
The Meaning of the 1980 Monetary Targets:
Excerpts from Testimony before the House
Banking Committee
Paul A. Volcker, January/February, 12
Money-Income Causality at the State-Regional
Level
Robert E. Keleher and Charles J. Haulk,
January/February, 32
U.S. Banks Expand Offshore Banking in
Caribbean Basin
Stuart G. Hoffman, July/August, 22

NATIONAL E C O N O M I C CONDITIONS
Credit Controls: Reinforcing Monetary Restraint
John M. Godfrey, May/June, 15
The Recession: How Bad Will It Be?
Harry Brandt and Charles J. Haulk,
July/August, 4
The Shape of the Recovery
Charles J. Haulk, September/October, 11
Thoughts on the Underground Economy
Charles J. Haulk, March/April, 23
NOW A C C O U N T S
NOW Accounts: Applying the Northeast's
Experience to the Southeast
William N. Cox III, September/October, 4
NOW Accounts Go Nationwide
William N. Cox III, May/June, 10
PRODUCTIVITY
Inflation: Still Our Number One Problem
Harry Brandt, September/October, 16

F E B R U A R Y 1981, E C O N O M I C R E V I E W

PRODUCTIVITY c o n t i n u e d
Southeastern Manufacturing Labor Productivity:
Why the Slowdown?
Charlie Carter, May/June, 4
Thoughts on the Underground Economy
Charles J. Haulk, March/April, 23

REGULATION
Banking Act Makes Major Changes
March/April, 4
Inflation: Still Our Number One Problem
Harry Brandt, September/October, 16
NOW Accounts: Applying the Northeast's
Experience to the Southeast
William N. Cox III, September/October, 4
NOW Accounts Go Nationwide
William N. Cox III, May/June, 10
Southeastern Manufacturing Labor Productivity:
Why the SlowdownÌ
Charlie Carter, May/June, 15

SOUTHEASTERN ECONOMY
NOW Accounts: Applying the Northeast's
Experience to the Southeast
William N. Cox III, September/October, 4
Southeastern Manufacturing Labor Productivity:
Why the Slowdown?
Charlie Carter, May/June, 4
The Southeast's Economy: Review and Outlook
Charles J. Haulk, January/February, 4

FEDERAL RESERVE B A N K O F A T L A N T A

UNDERGROUND E C O N O M Y
Thoughts on the Underground Economy
Charles J. Haulk, March/April, 23
UNEMPLOYMENT
Questions and Answers on Unemployment
Charlie Carter, July/August, 12
7979-7939 Reassessed: Unemployment and
Nominal Wage Rigidity in the United Kingdom
Barbara Henneberry, Robert E. Keleher and
James G. Witte, September/October, 26

USURY
Banking Act Makes Major Changes
March/April, 4
WORKING PAPER REVIEWS
Future Holding Company Lead Banks: The
Federal Reserve's Standards and Record
B. Frank King, January/February, 30
Home Office Pricing: The Evidence from Florida
David D. Whitehead, July/August, 30
Money-Income Causality at the State-Regional
Level
Robert E. Keleher and Charles J. Haulk,
January/February, 32
1919-39 Reassessed: Unemployment and
Nominal Wage Rigidity in the United Kindgom
Barbara Henneberry, Robert E. Keleher and
James G. Witte, September/October, 26
Supply-Side Effects of Fiscal Policy: Some
Preliminary Hypotheses
Robert E. Keleher, September/October, 28

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Full text of Economic Review (Federal Reserve Bank of Atlanta) : February 1981, Volume 66, Number 1

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