Full text of Economic Review (Federal Reserve Bank of Atlanta) : September 1974, Volume 59, Number 9

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In this issue:
Edge Act Corporations: An Added Dimension to
Southeastern International Banking

Strange Happenings in the Labor Market

Banking Notes: Short-Run Reserve Borrowing

District Business Conditions




1 3 0for FRASER
Digitized


E d g e A c t C o r p o r a t io n s :
A n A d d e d D im e n s io n
to S o u th e a s t e r n
In t e r n a t io n a l B a n k in g
by John E. Leimone
The rapid upsurge in recent years of Sixth D istrict1 international b a n k in g activity
testifies to the Southeast's increasing participation in the international e c o n o m y.2
Edge A ct international b an kin g corporations have contributed substantially to
gro w in g financial transactions between the Southeast and the rest o f the w orld.
For instance, total international assets o f the District Edge A c t banks m ay equal
as m uch as one-third the total international assets o f the head offices o f District
com m ercial banks, based on the ratio o f their foreign claim s to those reported
by District com m ercial banks. M oreover, total assets o f the eight District Edge
Act banks are equal to roughly three-fourths the vo lu m e of total assets o f the
twelve foreign branches o f District com m ercial banks.
Southeastern Edge A ct banks, m ostly subsidiaries o f large m ultinational banks
headquartered in the Northeast and California, have also b ro u gh t w ith them
substantial w o rld w id e connections already established by their parent
organizations. M oreover, because o f the rather special characteristics o f Edge
Act banks, their recent concentration in the Southeast has focu sed national and
international attention on the expansion of international ba n kin g in the region.
(As of June 30,1974, the Sixth Federal Reserve District held fourth place a m o n g
the twelve districts in the total num ber o f Edge A ct corporations approved or
in operation. M oreover, a m o n g individual cities, M ia m i w as tied w ith C h ic a go
and Los A n geles for second place in total num ber o f Edge A ct corporations.)

'The Sixth Federal Reserve District consists of Alabama, Florida, Georgia, the southern halves of
Louisiana and Mississippi, and the eastern two-thirds of Tennessee. In this article, the terms Sixth
District and Southeast are used interchangeably.
2Several facets of this growth have been detailed earlier in issues of this Review. See "The Spread of
International Banking: A Regional View," Monthly Review, August 1971, pp. 142-150; and "Foreign
Branches Add to Growth," Monthly Review, July 1973, pp. 112-113.

M onthly Review, V o l. LIX, N o . 9. Free su b s c rip tio n and a d d itio n a l co p ie s a va ila ble
u p o n req uest to the Research D e p a rtm e n t, Federal R eserve Bank o f A tla n ta,
A tla n ta, G e o rg ia 30303.

S EP TEM B ER 1974, M O N T H LY R EV IEW

TA BLE 1

SIXTH DISTRICT EDGE ACT CORPORATIONS

(as of September 30, 1974)
Name
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.

C itize n s and Southern In ternational Corporation
C itize n s and Southern International B ank
F irst A tlanta In tern ation al Corporation
B ank of A m erica International of Florida
F irs t N ational C ity B a n k (In teram erica)
Irving In teram erican B ank
W ells Fargo In teram erican Bank
C itize n s and Southern intern ation al B a n k of New O rlean s
B a n k of Boston International of M iami
C h a se M anhattan International B an kin g Corporation
B a n kers T ru st International
Northern T ru st International

Location

Approved

Commenced
Business

Atlanta
M iami
Atlanta
M iami
M iami
M iami
M iami
New O rlean s
M iami
Miami
M iami
Miami

8- 3-65
12-11-68
9- 1-70
10-27-70
12-22-70
5-31-62
6-29-71
10-21-71
10-21-71
10-19-72
9-13-73
5- 3-73

10- 7-65
3-24-69
3- 1-71
3- 8-71
5- 3-71
8- 2-71
8-16-71
1- 3-72
5-15-72
1-29-73
8-19-74
9-16-74

Note: F irs t Foreign Investm en t Corporation, a s u b sid ia ry of S o utheast B a n kin g Corporation, com m enced b u sin e ss on
Feb ru ary 10, 1967, and legally ce ase d operation N ovem ber 22, 1973. T ru st Com pany of Georgia is a co-ow ner of
A llied Corporation In tern ation al, a New York-based Edge Act Corporation that w as e sta b lish e d in mid-1968. F irst
N ational B a n k of M em phis also form ed a “q u a si-E d g e ” corporation in New O rlean s in m id-1973.

D esp ite the publicity surro u nd in g the recent
form ation of Edge A ct corporations in the Sixth
District, the history o f international b an king
corporations in this area extends back to 1921 w hen
several com m ercial banks in the South and So uth ­
w est form ed the Federal International Banking
C o m p a n y o f N e w Orleans. This corporation and
tw o others in N e w York constituted the only three
Edge corporations form ed du ring the Twenties.
Unfortunately, because o f the adverse environm ent
for international b an king in the Twenties and
Thirties, the Federal International Banking C o m p a n y
w as forced to liquidate a few years after opening,
thereby sharing the fate o f m ost Edge A ct and
A greem ent corporations operating du ring this
period. (See insert for the difference between Edge
A ct and Agre em ent corporations.)
This ended the Sixth District's experience with
international b an king corporations until the m idSixties; at that time, the renewed interest in inter­
national ban king that had em erged in other parts
o f the nation a few years earlier led several large
District banks to consider international ban king
corporations as one vehicle for extending their
nascent international activities. In 1965, the Citizens
and Southern National Bank established an Atlantabased Edge A ct corporation to function as a h o ld in g
c o m p an y for investments in several ban king and
financial corporations in the Caribbean and northern
South Am erica. The fo llo w in g year, the First
N ational Bank of M ia m i established an Agreem ent
corporation to hold certain investm ents in the
Baham as. (This corporation has recently been
liquidated.) In 1970, another investm ent-oriented
Edge corporation w as form ed in Atlanta by the
First National Bank of Atlanta to hold a one-sixth
share in a London m erchant bank.

F E D ER A L R ESERV E BANK O F ATLA N TA




How ever, in the Sixth District, banking-oriented
Edge corporations have largely overshadow ed the
investm ent-oriented corporations. (See insert
for explanation of differences between b an king and
investm ent Edge corporations.) The first of the
ban king Edges in the Southeast w as established by
the Citizens and Southern National Bank in M ia m i
in early 1969.3 This event alerted large m ultinational
banks in other parts of the country to M ia m i's
potential for international b an king activity. C o n ­
sequently, the Bank o f Am erica established an Edge
corporation in M ia m i in 1971, and the num ber of
non-D istrict banks establishing such corporations in
M ia m i has continued to grow. A s of Septem ber 20,
1974, nine banks, eight of w hich are headquartered
outside the Sixth District, have established Edge
banks in M iam i.
In late 1971, N e w O rleans joined Atlanta and
M iam i in boasting an Edge ban king corporation
w hen the Citizens and Southern National Bank
o pen ed its third Edge corporation there. W h ile this
Edge bank has not yet been joined by others, the
First National Boston C orporation in early July of
1974 subm itted an application for an Edge corpora­
tion in N e w Orleans. In addition, the First National
Bank of M e m p h is form ed a so-called "q u a si-E d g e "
unit that has been operating in N e w O rleans since
July 1973. A pparently this unit functions as a
representative office with w hich international
transactions are arranged, w hile the execution of

3At about the same time, the Atlanta-based Trust Company of
Georgia became equal partners with a number of other U.S. banks
in founding Allied Bank International, an Edge Act corporation
headquartered in New York.

131

In te rn a tio n a l B a n k in g C o rp o ra tio n s

T h e c o n c e p t o f in te rn a tio n a l b a n k in g c o r p o r a ­

tio n s h a v e n o m in im u m re q u ire d c a p ita liz a t io n ,

t io n s as a fu rth e r m e a n s o f e n c o u r a g in g U. S.

a lt h o u g h p a re n t b a n k s m u s t h a v e a m in im u m

c o m m e r c ia l b a n k s to a c q u ir e an in te rn a tio n a l

c a p ita liz a t io n o f $1 m illio n . F in a lly, th e

ro le e m e r g e d s h o r t ly after th e p a s s a g e o f the

m a jo rity o f a n E d g e A c t c o r p o r a t io n 's s t o c k

F ederal R e se rv e A c t in 1913. T h e F ederal

m u s t b e o w n e d b y U . S. c itiz e n s o r le g al

R e se rv e A c t itse lf p r o v id e d s o m e in te rn a tio n a l

e n titie s c o n t r o lle d b y c itiz e n s, a n d o n ly U . S.

s t im u lu s b y a u t h o r iz in g n a tio n a l b a n k s to

c itiz e n s m a y b e d ire c to rs. T h e s e re stric tio n s d o

a c c e p t d ra fts o r b ills o f e x c h a n g e d r a w n u p o n

n o t a p p ly to A g r e e m e n t c o r p o r a t io n s . N o n e t h e ­

th e m a n d to e s ta b lis h fo r e ig n b r a n c h e s u n d e r

less, b o t h ty p e s o f c o r p o r a t io n s are q u ite

c e rtain s p e c ifie d c o n d it io n s . N e v e rth e le ss,

s im ila r in te rm s o f p e r m it te d a c tiv itie s a n d

b e c a u s e o f th e h ig h c o s t o f in itia tin g in te r­

o p e r a t io n a l s c o p e . In fact, R e g u la t io n K,

n a t io n a l ac tivitie s, S e c tio n 25 o f th e A c t w a s

t h r o u g h w h ic h th e F e d e ral R e se rv e B o a r d e x e r­

a m e n d e d in 1 91 6 to e n a b le c o m m e r c ia l b a n k s

c ise s its a u th o r ity o v e r E d g e A c t c o r p o r a t io n s ,

to jo in to g e th e r in f o r m in g in te rn a tio n a l b a n k ­

a ls o a p p lie s to A g r e e m e n t c o r p o r a t io n s . 1

in g c o r p o r a tio n s . T h is a m e n d m e n t a u th o r iz e d

In t e r n a tio n a l b a n k in g c o r p o r a t io n s d iffe r

a n y n a t io n a l b a n k w ith c a p ita l a n d s u r p lu s o f

fr o m c o m m e r c ia l b a n k s in se v e ra l im p o r ta n t

$1 m illio n o r m o r e to in v e st u p to 10 p e rc e n t o f

w a y s. F or e x a m p le , a n E d g e c o r p o r a t io n m a y

its c a p ita l a n d s u r p lu s in F e d e ra l- o r state -

b e e s ta b lis h e d in a state o th e r th a n th a t in

c h a rte re d c o r p o r a t io n s p r in c ip a lly e n g a g e d in

w h ic h its p a re n t b a n k is lo c a te d , w h e r e a s

in te rn a tio n a l o r fo r e ig n b a n k in g . S u c h c o r p o r a ­

b r a n c h e s o f U. S. b a n k s o r b a n k in g s u b s id ia r ie s

t io n s h a v e b e c o m e k n o w n as A g r e e m e n t

o f U. S. b a n k h o ld i n g c o m p a n ie s c a n n o t e x te n d

c o r p o r a t io n s , s in c e th e y m u s t e n te r in to an

a c r o s s state b o u n d a r ie s .2 H o w e v e r , th e a b ility

a g r e e m e n t w ith th e F e d e ral R e se rv e B o a r d

to c r o s s state lin e s is te m p e r e d b y th e strict

s p e c ify in g c o n d it io n s u n d e r w h ic h th e c o r p o r a ­

lim ita tio n to in t e rn a tio n a l o r fo r e ig n a c tiv itie s

tio n m a y o p e rate .

e x c e p t fo r m a n a g e m e n t o f s h o rt-te rm

B u t b e c a u s e th e 19 1 6 a m e n d m e n t fa ile d to

liq u id ity .3 Y e t th e ra n g e o f p e r m is s ib le fin a n c ia l

p r o v id e an e x p re ss m e a n s fo r g r a n t in g a

a c tiv itie s o f an in t e rn a tio n a l o r fo r e ig n n atu re

F e d e ral c h arter, S e c tio n 25(a) w a s a d d e d to

e x c e e d s th at o f U . S. c o m m e r c ia l b a n k s. In

th e A c t in 1 9 1 9 e m p o w e r in g th e B o a r d to

p a rtic u la r, E d g e c o r p o r a t io n s m a y in v e st in

c h a rte r in te rn a tio n a l b a n k in g o r g a n iz a t io n s

s to c k o f fin a n c ia l a n d n o n f in a n c ia l c o r p o r a t io n s

w ith a m in im u m c a p ita liz a t io n o f $2 m illio n .

o u t s id e th e U n it e d States, s u b je c t to c e rtain

N a t io n a l b a n k s c o u ld in v e st u p to 1 0 p e rc e n t
o f th e ir c a p ita l a n d s u r p lu s in s u c h c o r p o r a tio n s .

c o n s tra in ts .4
U n t il 1967, th e se p o w e r s g a v e E d g e A c t a n d

T h e s e c o r p o r a t io n s are k n o w n as E d g e A c t
c o r p o r a t io n s after S e n a t o r W a lt e r E d g e o f N e w
Jersey, w h o s p o n s o r e d th e S e c tio n 25(a)
le g isla tio n .
E d g e A c t a n d A g r e e m e n t c o r p o r a t io n s d iffe r
p r im a r ily in th e ir c h a rte rin g , c a p ita liz a t io n , a n d
c o n d it io n s o f o w n e r s h ip . E d g e A c t c o r p o r a t io n s
o p e r a t e u n d e r F e d e ra l c h a rte rs g r a n te d b y th e
F e d e ral R e se rv e B o a r d o f G o v e r n o r s , w h e r e a s
A g r e e m e n t c o r p o r a t io n s o p e r a t e u n d e r state
c h a rte rs w h ile s u b m it t in g to F e d e ral R e se rv e
B o a r d re g u la tio n . E d g e A c t c o r p o r a t io n s m u st
h a v e a m in im u m c a p ita liz a t io n o f $2 m illio n ;
m o r e o v e r , s in c e b a n k s c a n n o t in v e st m o r e
th an 1 0 p e rc e n t o f c a p ita l a n d s u r p lu s in su c h
c o r p o r a t io n s , th e m in im u m c a p ita liz a t io n o f a
p a re n t b a n k m u s t b e $ 2 0 m illio n u n le s s j o in e d
b y a partn e r. In co n tra st, A g r e e m e n t c o r p o r a ­

132




1Prior to the 1957 revision, Regulation K applied solely to Edge Act
corporations, whereas the Board exercised supervision of Agreement
corporations through individual agreements with these
corporations.
Nevertheless, under “grandfather" provisions of the Bank
Holding Company Act of 1956, several bank holding companies
continue to own banks across state boundaries.
‘Regulation K, Section 211.7(b) states "Funds of a Corporation not
currently employed in its international or foreign business, if
held or invested in the United States, shall be only in the form
of (1) cash, (2) deposits with banks, (3) bankers' acceptances, or
(4) obligations of, or obligations fully and unconditionally
guaranteed by, the United States, any State thereof, or any
department, agency, or establishment of, or corporation wholly
owned by, the United States."
4An Edge corporation has the general consent of the Federal Reserve
Board to invest in shares of any foreign corporation not doing
business in the United States provided that it invest not more
than $500,000 and the corporation does not hold more than 25
percent of the voting shares of the foreign corporation. If these
conditions are not met or unless stock is purchased to prevent
loss on an outstanding credit, specific Board consent is required.

SEP TEM B ER 1974, M O N T H LY R E V IE W

he R e g u la to ry F ra m e w o rk

A g r e e m e n t c o r p o r a t io n s th e sp e c ia l a d v a n ta g e

h a v e te n d e d to b e lo c a te d in the s a m e state

o f b e in g a b le to in v e st in fo r e ig n b a n k s in

a n d o fte n in the s a m e b u ild in g as th e ir p a re n t

c o u n tr ie s w h e r e lo c a l re stric tio n s p re v e n te d
U . S. b a n k s fr o m e s t a b lis h in g fo r e ig n b ra n c h e s.

b an k. O n th e o th e r h a n d , E d g e c o r p o r a t io n s
p e r fo r m in g a b a n k in g fu n c t io n te n d to lo c a te

(B o th E d g e A c t c o r p o r a t io n s a n d c o m m e r c ia l

in o th e r state s to p r o v id e o n -s ite in te rn a tio n a l

b a n k s m a y e s ta b lis h fo r e ig n b r a n c h e s w h e r e

b a n k in g se rvice s. B a n k in g E d g e c o r p o r a t io n s

lo c a l r e g u la t io n s p e rm it). H o w e v e r , an a m e n d ­

w e re in itia lly c o n c e n tr a t e d in N e w Y o rk , as

m e n t to S e c tio n 25 in th at y e a r p e rm itte d

b a n k s in o th e r p arts o f the n a tio n a tte m p te d to

n a t io n a l b a n k s w ith p rio r c o n s e n t to a c q u ir e

g a in a p re se n c e in th at la rg e in te rn a tio n a l

d ire c t in te re st in fo r e ig n b a n k s, th e re b y s u p ­

b a n k in g m a rke t. M o r e recen tly, la rg e m u lt i­

p le m e n t in g th e ir fo r e ig n b r a n c h in g p o w e rs.

n a tio n a l b a n k s in N e w Y o r k a n d o th e r m a jo r

T h e 1 9 7 0 a m e n d m e n t s to th e B a n k H o l d i n g

fin a n c ia l c e n te rs h a v e b e g u n to e s ta b lis h b a n k ­

C o m p a n y A c t o f 1 9 5 6 as im p le m e n t e d t h r o u g h

in g E d g e s in o th e r parts o f th e c o u n tr y w h e r e

R e g u la t io n Y fu rth e r r e d u c e d th e in v e st m e n t

su b s ta n tia l p o te n tia l fo r d e v e lo p in g in te rn a ­

a d v a n t a g e s o f E d g e c o r p o r a t io n s b y p e r m it tin g

tio n a l b a n k in g a c tiv itie s h a s s e e m e d a v a ila b le .

b a n k h o ld i n g c o m p a n ie s to m a k e in v e stm e n ts
o f the ty p e a llo w e d E d g e c o r p o r a tio n s .
B y v irtu e o f th e ir e x e m p tio n fr o m th e p r o ­
v is io n s o f S e c tio n 23(a) o f th e F e d e ral R e se rv e

C u rre n tly , E d g e A c t c o r p o r a t io n s m a y e n g a g e
in b o th in v e stm e n t a n d b a n k in g activities,
a lt h o u g h th e p a rtic u la r w e ig h t o f a c tiv itie s
resu lts in a d iffe re n t re g u la to ry im p a c t. A c c o r d ­

A c t, E d g e a n d A g r e e m e n t c o r p o r a t io n s n e v e r­

in g to R e g u la t io n K, an E d g e c o r p o r a t io n " i s

th e le ss retain an a d v a n t a g e o v e r b a n k h o ld i n g

'e n g a g e d in b a n k in g ' w h e n e v e r it h a s a g g r e g a te

c o m p a n ie s a n d fo r e ig n s u b s id ia r ie s o f p a re n t

d e m a n d d e p o s it s a n d a c c e p ta n c e lia b ilitie s

b a n k s. S e c tio n 23(a) in e ffe c t lim its th e a m o u n t

e x c e e d in g its c a p ita l a n d s u r p lu s ." A b a n k in g

a m e m b e r b a n k can , in th e a g g r e g a te , in v e st

c o r p o r a t io n th u s d e fin e d is lim ite d in the

in o r g ra n t c re d it to an a ffiliate o r g r a n t c re d it

a m o u n t o f c re d it it c a n g ra n t to a s in g le

a g a in s t th e c o lla te ra l o f an a ffilia te to 10

c u s t o m e r to 10 p e rc e n t o f its c a p ita l a n d

p e rc e n t o f the c a p ita l a n d s u r p lu s o f th e b a n k

su rp lu s. R e g u la t io n K s p e c ifie s a m o r e g e n e ra l

in th e c a se o f an in d iv id u a l affiliate, o r 20

p re sc rip tio n o f 50 p e rc e n t o f c a p ita l a n d

p e rc e n t fo r all affiliates.

su r p lu s fo r c o r p o r a t io n s n o t s o d e fin e d . M o r e ­

(P a re n t h o ld in g

c o m p a n ie s o f m e m b e r b a n k s are c o n s id e r e d

o ve r, a b a n k in g E d g e m a y n o t e n g a g e in u n d e r ­

to b e a ffilia te s b y th is statute.) A lt h o u g h

w ritin g , s e llin g , o r d is t r ib u t in g se c u ritie s o th e r

m e m b e r b a n k s are e ls e w h e r e lim ite d to

th an o b lig a t io n s o f th e n a tio n a l g o v e r n m e n t o f
a fo r e ig n c o u n tr y in w h ic h it h a s a b ra n c h o r

th e c a p ita l th e y m a y in v e st in E d g e A c t o r
A g r e e m e n t c o r p o r a t io n s [ S e c t io n 2 5 (a )] o r th e

tro lle r o f th e C u r r e n c y o r p r e v a ilin g state law s),

agency.
A m o n g o th e r im p o r t a n t re g u la tio n s, E d g e
c o r p o r a t io n s c a n a c c e p t d e m a n d a n d tim e
d e p o s its , b u t n o t s a v in g d e p o s its , p r o v id e d th at

s u c h lim its are to g e th e r less re strictive th a n
th e p r o v is io n s o f S e c tio n 23(a) a p p lic a b le to

fo r e ig n tra n sa c tio n s. (D e p o s it s re c e iv e d fr o m

a m o u n t o f c re d it th e y m a y g r a n t to a n y in d i­
v id u a l b o r r o w e r (b y re g u la t io n o f th e C o m p ­

su c h d e p o s it s are in c id e n ta l to in te rn a tio n a l o r

arie s o f m e m b e r b a n k s.

fo r e ig n e r s are c o n s id e r e d to b e in c id e n ta l to
in te rn a tio n a l o r fo r e ig n tra n sa c tio n s.) R e se rv e

In p ra c tic e , E d g e c o r p o r a t io n s h a v e te n d e d
to se rv e t w o d is t in c t fu n c t io n s , b o th o f w h ic h

U . S. m u s t e q u a l th o s e p r e v a ilin g fo r c o m m e r ­

b a n k h o ld i n g c o m p a n ie s a n d fo r e ig n s u b s id i­

r e q u ire m e n ts a g a in s t d e p o s it s re c e iv e d in the

are r e c o g n iz e d in R e g u la t io n K. S o m e E d g e A c t

cial b a n k s, e x c e p t th a t th e y c a n n o t fall b e lo w

c o r p o r a t io n s p e rfo rm a h o ld in g c o m p a n y ro le

1 0 p e rc e n t o f total d e p o sits . (T h e se reserve

fo r th e ir p a re n t b a n k s b y a c q u ir in g a n d h o ld ­

r e q u ire m e n ts are n o t a p p lic a b le to d e p o s its

in g s t o c k in fo r e ig n c o r p o r a tio n s . T h e 1 9 6 7

re c e iv e d a b r o a d b y b r a n c h e s o r s u b s id ia r ie s o f

a m e n d m e n t s to R e g u la t io n M a n d th e 1 97 0

E d g e c o r p o r a tio n s .) M o r e o v e r , w it h o u t p rio r

a m e n d m e n t s to R e g u la t io n Y, h o w e v e r, h a v e

B o a r d p e r m is s io n , an E d g e c o r p o r a t io n 's

p r o v id e d a lte rn a tiv e s to th is in v e s t m e n t f u n c ­

a g g r e g a t e o u t s t a n d in g lia b ilitie s m a y n o t e x c e e d

tion . E d g e in v e s t m e n t -o r ie n t e d c o r p o r a t io n s

ten tim e s its c a p ita l a n d su rp lu s.

F E D ER A L R ESER V E BANK O F ATLA N TA




133

loans and receipt of deposits are actually conducted
at the parent bank in M e m p h is.4 Its prim ary function
is to negotiate letters of credit and process foreign
collections.
In late June 1974, Atlanta becam e the third
District city to attract interest as a potential site for
an Edge ban king corporation w hen the M a n u ­
facturer's H anover Trust C o m p a n y of N ew York
applied for perm ission to establish an Edge
corporation in that city.
Factors U n d e rlyin g the Form ation of
Edge A ct C o rporatio n s in the Southeast
A variety of factors lie behind the rapid grow th in
the num ber of Edge Act corporations in the Sixth
District since the mid-Sixties. The form ation of
investm ent Edge corporations reflected a desire of
District banks involved to extend their international
activities through the acquisition of foreign financial
institutions.
The m otivation for form in g banking Edges has
been m ore com plex. The large vo lu m e of Latin
Am erican deposits gravitating to M ia m i for safe­
keeping has certainly played a prom inent role in
the establishm ent of Edge banks in that city. The
establishm ent of m any subsidiaries of m ajor U. S.
m ultinational corporations in the M ia m i area has
also been important. By locating near these
corporate subsidiaries, m any of w hich were already
custom ers of parent banks, the Edge banks hoped to
offer m ore personal service and greater efficiency
in transferring funds and in providin g financing
than could be provided from parent offices or m ore
distant affiliates. The faster-than-national grow th of
international trade through Florida and the So u th ­
east, reflecting the region's rapid eco n o m ic grow th
and proxim ity to grow th areas in the Caribbean and
Latin Am erica, has also attracted interest. The low er
cost and greater convenience of business travel
from M ia m i to the Caribbean and Latin Am erica,
associated with the large num ber of airline flights
and the shorter distance to these areas, m ust also be
m entioned. Finally, the availability of a Sp an ish ­
speaking labor force, with substantial ban king and
financial experience, is another asset.
The presence of out-of-state regional banks in
N e w O rleans for international ban king business has
received less attention than the arrival of nonFlorida banks in M iam i. A pparently the large vo lu m e
of international trade flo w in g through the Port of
N e w O rleans, only a sm all portion of w hich is
financed by local banks, has been a prim e factor

4See "Comptroller Lets FNB Memphis Form Quasi-Edge Unit in
New Orleans," Econocast World Banker, Vol. I, No. 12, December
3, 1973.

134




generating interest in this location. Safekeeping of
Latin deposits m ay have also played a role.
Establishing an Edge bank and "q u a s i-E d g e " facility
in N e w O rlean s has also helped the tw o parent
banks in strengthening regional netw orks for
c o n d u ctin g international banking.
Scope of Activities
District Edge banks have achieved their greatest
success in attracting deposits from private foreigners
for safekeeping. In addition, they have generated a
significant vo lu m e of loans to private foreigners,
and som e have also acquired a notew orthy vo lu m e
of foreign correspondent activity. In contrast, only
a few have built up a significant volu m e of im port
and export fin ancing for local m erchants and
manufacturers. Furthermore, although several M iam i
Edge banks transfer a significant vo lu m e o f funds
for local subsidiaries of m ultinational corporations,
they have been d isap pointed in the vo lu m e of loans
m ade to these organizations.
District Edge banks have m anaged to achieve a
rapid deposit grow th based on the inflow of
investable funds from Latin Am erica, despite the
com petition of local com m ercial banks, investm ent
advisory services, and real estate agents. The large
stream of Latin A m erican businessm en and tourists
to M ia m i5 has greatly facilitated the flo w of funds
to that city. M oreover, the close personal ties
between Edge bank officials and m any Latin
A m ericans and the bilin gual attributes o f Edge
em ployees enables them to provide very personal
service in receiving deposits from Latin Am erican
clients. Such factors have perm itted M iam i banks
and Edge corporations to attract large sum s for
safekeeping, even w hen U. S. time deposit rates
have fallen b e lo w Eurodollar rates. Nevertheless,
w hen custom ers so desire, local Edge banks transfer
Latin Am erican funds to affiliated institutions
operating in the Eurodollar market.
Edge bank loans to private foreigners are typically
utilized to finance the im port of goods, shipped
either from the United States or from other
countries, but are often used for sup plem e ntin g
w orkin g capital. Som e Edge banks have also becom e
involved in fin ancing overseas construction for
developm ental purposes. In tandem with such
financing, these Edges often issue stand-by letters
of credit w hich function as perform ance guarantees.
M a n y of these loans are m ade in conjunction with
Export-lm port Bank fin ancing or carry F C IA

r’Among U. S. cities, Miami ranks second to New York in the total
number of passenger arrivals from foreign countries and surpasses
New York in the number of foreign visitors arriving from South
America, Central America, and the West Indies, as of December
’31, 1972.

S EP TEM B ER 1974, M O N T H L Y R EV IEW

TABLE 2
SHARES IN TOTAL AND SELECTED COMPONENTS OF
FOREIGN LIABILITIES AND CLAIMS OF COMMERCIAL
BANKS AND EDGE CORPORATIONS IN MIAMI*
(as of December 31, 1973)
Foreign Liabilities
Total

Time Deposits of Private Nonbank
Foreigners
Demand Deposits of Private Nonbank
Foreigners
Demand Deposits of Foreign Commercial
Banks
Demand Deposits of Foreign Official
Institutions

Banks

Edges

71

29

74

26

65

35

64

36

17

83

%

%

Foreign Claims
Total

Loans to Private Nonbank Foreigners
Loans to Foreign Commercial Banks
Foreign Acceptances
Collections Outstanding

40

60

37
56
80
73

63
44
20
27

*Selected components are listed in order of decreasing
size.
Sources: Calculated from data reported to the U. S.
Treasury and the Federal Reserve

insurance. A substantial proportion carries maturities
of longer than one year.
The Edge banks that have developed extensive
foreign correspondent bank relationships not only
hold dollar w orkin g balances and provide
correspondent ban king services but also m ake loans
to their correspondents. The foreign correspondent
banks, in turn, utilize these funds to finance local
custom ers. A few Edge banks have also becom e
involved in m aking loans to foreign official
institutions.
Southeastern Edge foreign operations are over­
w h e lm in gly oriented tow ard Latin A m erica and the
Caribbean, with over 90 percent o f deposits and
other liabilities due to foreigners and over 85
percent of loans and other claim s on foreigners
derived from this area. This concentration of activity
reem phasizes the com parative advantage o f M iam i
as a center for co n d u ctin g ban king activities vis-avis the Caribbean and Latin Am erica. Reinforcing
the advantages previously m entioned are Edge
banks' ties with affiliated institutions throughout
the Caribbean and Latin Am erica. These affiliates
naturally provide business leads as well as first-hand
inform ation on local eco n o m ic and political
developm ents.
How ever, a sharp d ichoto m y exists a m o n g
Southeastern Edge banks with respect to the size of
their parent banks' regional networks of affiliates.
A b o u t half the Edge banks have access to a very
extensive netw ork throu ghou t the Caribbean and
Latin Am erica. Yet these networks form o nly part
of m uch larger w orld w id e networks of the respec­
tive parent banks. In contrast, w hile the rem aining

FE D ER A L R ESERV E BANK O F A TLAN TA




Southeastern Edges have access to a m ore limited
num ber of Caribbean and Latin Am erican affiliates,
these affiliates constitute 50 percent or m ore of
the total non-U . S. affiliates of their respective
parent banks.
Several factors have restrained the developm ent
of financing activity with U. S.-based customers,
especially for the Edge subsidiaries of out-of-D istrict
banks. These Edge banks as a rule have confined
their sales efforts to local businesses w ithout
attem pting to develop a broad netw ork of
Southeastern customers. How ever, M ia m i's relatively
sm all base of m anufacturing provides a limited
market for the grow th of export and im port financ­
ing for Edge banks in that city. M oreover, w hile
M iam i has a substantial num ber of firms en gagin g
in foreign trade, the small, undercapitalized nature
of m any of these businesses presents a significant
degree of risk and requires a substantial processing
effort for the relatively sm all volu m e of financing
activity generated. C o m petition from com m ercial
banks in M ia m i and other cities in Florida has
further inhibited the Edge banks' developm ent of
local custom ers, for w h om they cannot offer ban k­
ing services except of a strictly international
character.6 Furthermore, the Edge banks have failed
to develop correspondent relationships with local
banks that m ight refer custom ers needing interna­
tional banking services. Nevertheless, the m an age­
ments of several Edge banks are renew ing their
efforts to generate local financing business and have
called on their parent offices for assistance in these
efforts.
Local subsidiaries of m ultinational corporations
have generated an unexpectedly small volu m e of
loan dem and because few of these subsidiaries
possess the financial au tonom y to seek out sources
of funds on their own. Rather, they typically c o n ­
solidate their cash balances with those of their head
offices at banks located in large m oney market
centers and obtain financing through the efforts of
these head offices. Nevertheless, because of loca­
tional advantages and smaller, m ore personalized
staffs, a few Edge banks collect and transmit funds
for these local subsidiaries in substantial volum e.
District Edge banks engage in only a limited
am ount of foreign exchange trading. This reflects,
am o n g other things, that the currencies of the
Caribbean and Latin Am erican nations with which
the Edge banks typically deal are infrequently traded

"For example, an Edge bank may finance the import of merchandise
for a local wholesale or retail firm but may not finance the
operating expenses of such a firm, even if it deals strictly in
imported goods. Moreover, such a firm may use its checking
account with the Edge bank only for international transactions.
Thus, payment of salaries or rent cannot be made from its Edge
bank checking account.

135

in foreign exchange markets. The small volu m e of
transactions in actively traded currencies does not
justify the cost of an experienced, full-tim e foreign
exchange trader for individual District Edge banks.
These Edges hold a lim ited am o un t of investm ents
in foreign corporations.
Institutional Influences on
the Character o f O p eratio n s
A lth o u gh Edge banks com pete with the international
departm ents of com m ercial banks, differences in
organizational ties and in regulatory fram eworks
exert different influences on the w ay each initiates
and conducts an international ban king business.
These institutional factors have m ade a distinct
im print on the character of Southeastern Edge
bank operations.
Because of the generally w ell-established names
of the Edge banks' parent organizations, they have
an im portant advantage over new international
departm ents of com m ercial banks in attracting
customers. Parent corporations reinforce this
advantage by e n cou ragin g their custom ers to
utilize the ban king office, in clu d in g Edge banks,
w hich is m ost geograph ically convenient.
In fact, the concept of a netw ork o f ban king
offices providin g m axim um convenience and
flexibility is a m ajor selling point for banking
organizations with Edge facilities. Southeastern Edge
banks have benefited especially from the flo w of
e con om ic and political inform ation and business
referrals from sister institutions in the Caribbean
and Latin Am erica. T hrough these ties they have
obtained a significant am ount of business probably
not available to local com m ercial banks.
In contrast to Edge banks, com m ercial banks
newly initiating international services lack the
extensive flow of inform ation and referrals that
an international ban king netw ork can provide.
M oreover, they m ust develop expertise in providin g
international fin ancing and services, whereas
new ly-form ed Edge banks typically possess c o n ­
siderable international ban king experience. Never­
theless, because they can co m bine dom estic and
international ban king services, com m ercial banks
have an advantage over Edge banks in com petin g
for the international business of local customers.
Consequently, the prohibition against Edge banks'
pro vidin g dom estic banking services and their ties
to international ban king networks probably explain
their greater orientation tow ard foreign rather
than dom estic customers.
The regulation lim iting loans to an individual
custom er to an am oun t aggregatin g no m ore than 10
percent of their capital and surplus also exerts an
im portant influence on District Edge banks' financ­
ing activities. Because of relatively sm all capital
bases, Southeastern ban king Edges are unable, by
themselves, to fund large loans typical in inter­

136




national finance. C onsequently, they specialize in
sm aller loans, for w hich processing costs tend to
be higher per d ollar loaned. For larger loans that
the Edges generate, they sell participations to
parents and parent affiliates. In contrast, a num ber
of District com m ercial international departm ents
have larger loan limits than District Edge banks
because these limits are based on the total capital
of their respective banks, w hich exceeds that o f the
Edge banks.
O ften parent banks assist their Southeastern Edge
banks in acqu irin g earning assets by referring sm aller
loans or selling participations in prim e custom er
loans to them. Interest charged on such loans
typically is set in tandem with a com pen satin g
balance requirement. How ever, since the balances
are held with the parent bank, the spread between
cost of funds and the return on the loan is narrower
for the Edge bank than its parent.
The m anagem ents of Southeastern Edge banks
have been especially sensitive to these institutional
factors restraining them from expan ding loans at a
faster pace or w id e n in g m argins. Ironically, this
sensitivity stems from their o verw h elm in g success
in attracting foreign deposits. The high proportion
of time deposits in their total deposit mix has put
considerable pressure on District Edge banks to
acquire high return earning assets to meet the
interest costs of these deposits. Further co m plicating
this is Section 25(a) w hich stipulates that Edge banks
m ust hold a m inim um 10 percent o f their total
deposits as required reserves. Thus, Southeastern
Edge banks with a large proportion of time to total
deposits are faced with higher reserve requirements
than com m ercial banks with a sim ilar mix, since the
largest reserve requirem ent currently applicable to
com m ercial bank tim e deposits is 8 percent.
In attem pting to offset the squeeze caused by
greater grow th in time deposits than in loans,
District Edge banks have placed substantial funds
in the form of deposits and loans to affiliates of
parent ban king corporations.
In Florida, a docum entary stam p tax, applicable
to bank loans, has affected Edge bank operations
in that state. C onsequently, rather than execute a
loan in Florida, an Edge bank m ay call on its out-ofstate parent to m ake the loan. The Edge bank may
then buy a participation in the loan.
C o m p e tition Between Southeastern Edge
and C o m m e rcial Banks
The establishm ent of Edge banks in M ia m i and N e w
O rleans has generated substantial debate over their
im pact on international activities of local banks.
Sim ilar debates have arisen in other parts of the
nation as large U. S. m ultinational banks have
increasingly penetrated regional markets for
international b an king services via the establishm ent
of Edge A ct subsidiaries. So m e participants in the

SEP TEM B ER 1974, M O N T H LY R EV IEW

debate are concerned that Edge banks, because of
their sophisticated expertise and the w orld w id e ties
o f their parent banks, m ay quickly dom inate U. S.
regional markets and stunt the developm en t of
international banking business by regional banks.
This w ou ld circum scribe the potential of U. S.
regional banks to develop as strong com petitors to
the large, U. S. m ultinational banks in providin g
international ban king services. O thers respond that
Edge banks introduce an additional elem ent of
com petition that m ay spur local com m ercial banks
to im prove the quality and efficiency o f their
international services. These im provem ents thereby
redound to the benefit of local custom ers utilizing
international b an king services. M oreover, the
bro aden ing of the local market that occurs when
Edge banks obtain through affiliates business not
available to local banks m ay attract further inter­
national business in w hich Edge banks and local
com m ercial banks can share. A n exam ination of
several facets of the international ban king market
in M ia m i7 provides som e interesting, albeit tentative,
evidence bearing on the relative merits of these
arguments.
Figures collected by this Bank reveal that in a few
short years, Edge banks have acquired a substantial
share of international ban king activity in the M iam i
area. A s of D e ce m b er 31,1973, they accounted for
nearly one-third of total deposits and other liabili­
ties due to foreigners (see Table 2). However, they
only held about one-fourth of time deposits of
private n on ban k foreigners, the largest deposit
com ponent.
The Edge banks hold an even stronger position
on the asset side, accou nting for 60 percent of total
claim s on foreigners. (Nevertheless, the vo lu m e of
claim s on foreigners reported by M ia m i com m ercial
and Edge banks falls b e lo w half o f total liabilities
to foreigners.) The Edge banks' dom inan ce in claim s
on foreigners reflects their c o m m a n d in g lead in
loans to private non ban k foreigners, the largest
co m p o n e n t of assets (see Table 2). They also hold
a substantial share o f loans to foreign com m ercial
banks, the second m ost im portant asset category.
The Edge banks' shares of foreign acceptances and
collections outstanding are sm aller but nevertheless
substantial.
These shares m ust be interpreted with som e
caution, however, since they account for only a
portion of international banking activity conducted
in M iam i. For instance, these data exclude liabilities
due to and claim s on dom estic residents arising out
of international transactions. (Such data are reported

7Because New Orleans currently has only one full-fledged Edge
Act corporation, an analysis of that city is excluded in order not
to reveal confidential information.

F E D ER A L R ESERV E BANK O F A TLAN TA




TA B LE 3

GROWTH IN FOREIGN ACTIVITIES OF
MIAMI COMMERCIAL BANKS*

Foreign Claims

Dec. 1969Dec. 1971

Dec. 1971Dec. 1973

%

%

189

99

Lo an s to P rivate Nonbank Fo reigners 171
Lo an s to Foreign Com m ercial B a n k s 143
719
Foreign A ccep tan ce s
C o lle ctio n s O u tstanding
75

350
225
886
-1 1

Total

Foreign Liabilities
Total
T im e Deposits of Private
Nonbank Fo reigners
Dem and Deposits of
P rivate N onbank Fo reigners
Dem and Deposits of Foreign
C om m ercial B a n k s

50

57

60

61

13

63

16

71

‘ Se le cted com ponents are listed in order of d e crea sin g siz e
a s of D ecem ber 31, 1973.
So urce:

C alcu late d
Tre a su ry

from

data

reported

to

the

U.

S.

by Edge banks but not by com m ercial banks.)
Figures collected by this Bank suggest that c o n ­
siderably less than half of M iam i Edge banks'
c o m b in ed total of loans and acceptances involve
claim s on dom estic residents. In contrast, a survey
taken by this Bank three years ago indicated that
70 percent o f District com m ercial bank international
loans involved claim s on dom estic residents. These
results, plus recent interviews, suggest that M iam i
com m ercial banks' international ban king activity
m ay be m ore strongly oriented tow ard dom estic
rather than foreign custom ers. Thus, market shares
com pu ted solely on the basis of foreign claim s and
liabilities m ay overstate the Edge banks' total shares
in various categories of activity. Further overstate­
m ent of the Edge banks' shares results because
com m ercial banks with sm all am ounts o f inter­
national ban king activities are not included in the
totals.8 Additionally, m any loans referred by, or
purchases o f participations in loans m ade by, parent
or affiliate institutions w o u ld probably not have
been m ade by local com m ercial banks.
O n the other hand, loans m ade by Southeastern
Edge banks and participated outw ard w o u ld not
show up on their reported figures, thereby under­
stating their share of loans generated locally.
Despite these caveats, these market shares indicate
that Edge banks unquestionably constitute a potent
com petitive force for M ia m i banks.

8Banks with average liabilities due to foreigners, or average
short-term claims on foreigners, or average long-term claims on
foreigners of less than $500,000 for less than six months, do not
report these items.

137

Still, Edge banks have not seriously ham pered the
expansion of international activities at M ia m i
com m ercial banks. For example, total foreign assets
reported by M ia m i com m ercial banks do u bled
between D e ce m b er 1971 and D e ce m b e r 1973°
despite the influx of Edge banks to the city (see
Table 3). A lth o u gh this represents a deceleration in
grow th over the previous tw o years, grow th of total
foreign assets in both periods w as distorted by an
unusually large figure for "o th e r short-term
claim s on fore igners" on D e ce m b er 31,1971, w hich
subsequently reverted to a m ore norm al level.
How ever, the m ost im portant com pone nts of foreign
assets— loans to private n on ban k foreigners, loans
to foreign com m ercial banks, and foreign accept­
ances— all accelerated after 1971. In fact, a
m arked surge in these loan categories occurred
in the latter half of 1971. This surge, w hich
coincides with the arrival o f four new Edge
banks in the M ia m i area, strongly suggests that the
Edge banks introduced a significant com petitive
spur, ch allen ging M ia m i com m ercial banks to
expand their loans to foreigners so that they m ight
maintain their m uch larger base of foreign deposits.
[A m o n g im portant asset categories, only com m ercial
bank ou tstan din g collections declined after 1971.
In contrast, Edge banks experienced a m odest
grow th in this category.]
Total liabilities to foreigners reported by M iam i
com m ercial banks also continued to gro w rapidly
between D e ce m b e r 1971 and D e ce m b er 1973 and
even m oderately exceeded the rate of grow th
du ring the prior tw o years (see Table 3). D e m a n d
deposits o f foreign com m ercial banks and dem and
deposits o f private n on ban k foreigners d e m o n ­
strated a particularly sharp acceleration in grow th
du ring the latter period. Since such deposits
typically represent w ork in g balances or com pen sat­
ing balances, their accelerated expansion is probably

“Although the Citizens and Southern International Bank of Miami
was established in March 1969, no further Edge bank was opened
in Miami until 1971, when a substantial expansion occurred,
bringing the total number of Edge banks to five. Thus, December
1971 would appear to be an appropriate bench mark for marking
the beginning of a major competitive thrust from the Edge banks.

138




related to the surge in loans b e gin n in g in late 1971.
The continued high, but virtually u nchanged, rate
of grow th of time deposits of private n on ban k
foreigners suggests that the arrival of Edge banks
has not m ade a serious incursion into the ability
of M ia m i banks to attract deposits from private
n on ban k foreigners for safekeeping purposes.
The com petition between com m ercial banks and
Edge banks in M ia m i extends beyon d international
deposits and loans to com petition for skilled
personnel. Em p loyin g approxim ately 200 persons
altogether, the Edge banks account for a significant
share of skilled international b an king personnel
in M iam i. Nevertheless, it is far from clear that
Edge banks have reduced the p ool of skilled inter­
national ban king em ployees available to M iam i
com m ercial banks. For instance, Edge banks have
acquired at least part of their staff from other parts
of their parent organizations. M oreover, the atten­
tion M ia m i has received as a new ly em ergin g
international financial center, for w hich the Edge
banks have been to a large degree responsible, has
served to attract trained personnel from other parts
of the nation. In view o f the rapid w orld w id e
grow th of international b an kin g and finance in
recent years, perhaps it is inevitable that M ia m i
should share with other international ban king
centers a scarcity of skilled personnel.
Sum m ary
W ithin a relatively short period of time, Edge A ct
corporations have beco m e a m ajor force in inter­
national ban king and finance in the Southeast.
W h ile introducing a significant new com petitive
elem ent to Southeastern com m ercial banks increas­
ing their vo lu m e of international activities, Edge
banks have u nquestion ably broadened the market
for international b an king services in the Southeast.
M oreover, they have helped to strengthen ties
between the Southeast and Latin A m erica and the
Caribbean. Their presence, w hen added to the
gro w in g international activities of Southeastern
com m ercial banks and their foreign branches, are
a further sign of the gro w in g sophistication of
international financial activity in the region. ■

SEP TEM B ER 1974, M O N T H L Y R EV IEW

A u g u st 19, 1974

B a n k
A n n o u n c e m e n ts

B A N K E R S T R U S T IN T E R N A T IO N A L
( M IA M I) C O R P O R A T IO N
Miami, Florida

Opened for business. Officers: Albert C. Little, president;
Robert Stack, vice president; Louis Petri Ilo, vice president
and comptroller. Capital, $3,000,000.
A u g u s t 1, 1974
BARNETT B A N K S TRU ST C O M P A N Y ,
N A T IO N A L A S S O C IA T IO N
Jacksonville, Florida

Officers: Guy W. Botts,
chairman; Thomas E. Camp, III, president and chief execu­
tive officer; Jack R. Lowder, vice president and secretary;
Ralph L. McQuiddy, vice president and controller. Capital,
$1,000,000; surplus and other funds, $1,000,000.
Opened for business as a member.

A u g u s t 22, 1974
A M E R IC A N B A N K O F H A L L A N D A L E
Pem broke Park, Florida

Opened for business as a par-remitting nonmember. Of­
ficers: Thomas A. Thomas, chairman of the board; David
Friend, vice chairman of the board; David L. Cory, president;
Gary C. Reed, executive vice president; Berg E. Henriksen,
cashier; Phyllis R. Fine, assistant vice president. Capital,
$600,000; surplus and other funds, $600,000.

A u g u s t 1, 1974
U N IT E D S O U T H E R N B A N K O F
M O R R IS T O W N

A u g u s t 29, 1974

M orristown, Tennessee

FIRST STATE B A N K O F G IL M E R C O U N T Y

Opened for business as a par-remitting nonmember.

Ellijay, Georgia

A u g u s t 2, 1974

Opened for business as a par-remitting nonmember. Of­
ficers: Walter K. Hayes, president; Allen J. Dover, chairman
of the board. Capital, $300,000; surplus and other funds,
$300,000.

W A L T H A L L C IT IZ E N S B A N K
Tylertown, Mississippi

Opened for business as a par-remitting nonmember.

A u g u st 30,1974
FIRST N A V Y B A N K

A u g u st 9 ,1 97 4

Pensacola, Florida

FIRST P R O G R E S S IV E B A N K

Officers: Charles P. Wood­
bury, chairman; Porter F. Bedell, president; Raymond H.
Jones, vice president and cashier; Jim H. Durr, vice presi­
dent. Capital, $350,000; surplus and other funds, $153,407.

Metairie, Louisiana

Opened for business as a par-remitting nonmember.




FE D ER A L R ESERV E BANK O F A TLAN TA

Converted to a member bank.

139

S t r a n g e H a p p e n in g s
in t h e L a b o r M a r k e t
by William D. Toal

The first half of this year has been a period of general ec o n o m ic sluggishness;
indeed, m any w o u ld classify it as a recession. Real G ross National Product (that
is, G N P adjusted for higher prices) shrank in first quarter 1974 by a 7.2-percent
annual rate and dro pp ed another 1.6 percent in the secon d quarter. A t the sam e
time, one of the m ost im portant ec o n o m ic indicators, the u n em p lo ym en t rate,
has rem ained rem arkably stable (in the low 5-percent range) in the first half of
1974.
In the early stages of the five previous recessions datin g back to the late 1940's,
the u nem p loym en t rate rose sharply. W h y not this tim e? Is the recent per­
form ance of this w idely acclaim ed e co n o m ic indicator a fluke?
M o n th ly labor force or u nem p loym en t data at tim es m ay sh o w strange
aberrations, but these lessen if analyzed on a quarterly basis. Even at that, h o w ­
ever, the u nem p loym en t rate has behaved atypical ly from the past five recession
periods. In fourth quarter 1973, the u nem p loym en t rate stood at 4.7 percent.
In first quarter 1974, it jum ped to 5.2 percent; and, in the second, backed do w n
to 5.1 percent (see Table 1). In none of the five previous recessions has the
u nem p loym en t rate (on a quarterly basis) held steady or declined in the second
quarter of an ec o n o m ic dow nturn. This peculiar stability of the u nem p loym en t
rate w as also typical of m ost age, race, and sex subcategories, after ju m p in g
from the fourth to the first quarter as did the overall u n em p loym en t rate (see
Table 2). In fact, the u nem p loym en t rate for teen-agers and nonw hites actually
declined from the first to the second quarter 1974.
R easons for Stability
The u nem p loym en t rate is a tw o-sided coin. C h an ge s in it are determ ined by
changes both in e m plo ym ent and in the civilian labor force. This year these
elem ents behaved differently than norm ally w o u ld be expected in the early

140




SEP TEM B ER 1974, M O N T H LY R EV IEW

TA BLE 1
U N E M P L O Y M E N T R A T E S IN E C O N O M I C D O W N T U R N S

1973
CU RREN T

P ER IO D

1974

IV

1

II

4.7

5.2

5.1

1
4.2

II
4.7

III
5.2

IV
5.8

1
6.8

1961
II
7.0

IV
6.4

1970

1969
P A ST R E C E S S IO N S
1969-70

III
3.6

IV
3.6

1960-61

1
5.1

II
5.2

III
5.5

IV
6.3

1957-58

III
4.2

IV
4.9

1
6.3

II
7.4

III
7.3

1953-54

II
2.6

1953
III
2.7

IV
3.7

1
5.3

II
5.8

III
6.0

1948-49

1948
IV
3.8

1
4.7

II
5.9

III
6.7

IV
7.0

1950
1
6.4

1960

III
6.8

1958

1957

1954

1949

IV

5.3

So urce: U .S. Departm ent of Labor

stages o f a cyclical dow nturn. This atypical behavior
o f e m plo ym ent and the labor force is responsible
for the u nem p lo ym en t rate rem aining stable this
year. Let's look at each of these m ore closely.
Em p lo ym ent C h ange s
D id e m plo ym ent sim p ly continue to grow rapidly
and give u nem p loym en t and the u nem p loym en t
rate their apparent stability by abso rbin g w orkers?
The data do not substantiate this. W h ile jo b gains
have continued in 1974, em ploym ent grow th has
declined substantially from a fourth-quarter 1.0percent rate to first and second quarter rates of 0.2
percent. Both of these quarterly changes were
below norm al rates o f e m plo ym ent gain. However,
the recent em ploym ent perform ance is better than
that in the past five recessions. Em ploym ent in four
o f these five actually declined by the second reces­
sion quarter. But in second quarter 1974, e m p lo y ­
m ent w as still expanding, though at a less-thannorm al rate.
There are g o o d reasons for the better e m p lo y ­
ment perform ance this year. The slo w in g in job
grow th instead of an actual decline is probably
related to factors in the current slow do w n. W h ile
previous recessions have been largely related to a
d ro p -off in dem and for g o o d s and services in
general, the current slo w d o w n has been largely re­
lated to scarcities and sup ply restrictions and,
indirectly, to the A rab oil em bargo. Therefore, it
has som e features that differ from past recessions.

FE D ER A L R ESERV E BANK O F A TLAN TA




It has hit fewer industries this time. In fact,
industries such as capital go o d s continued to ex­
pand in late 1973 and early this year; as a result,
labor dem an d has rem ained unusually high in that
sector. Som e industries were actually stim ulated by
shortage condition s; for example, m in in g began to
sh o w strong 1973 em ploym ent gains w hich
continued into 1974. The d rop -off in production
and em ploym ent w as centered in only a few large
industries. These em ploym ent drop-offs cam e
suddenly and were quite sharp in m any cases. The
m ost notable were the airlines, au tom obile m an u ­
facturing, and certain tourist-related industries. But
by the second quarter 1974, m any o f those
industries particularly hard hit by shortages, either
directly or indirectly, had m anaged to adjust and
were able to hire back som e workers. Looking at
the overall m anufacturing sector, then, jobs declined
by nearly 1 percent in the first quarter but then
bou nced back in the second, increasing slightly.
These production adjustm ents and em ploym ent
recalls helped m odify w hat otherwise m ight have
been a job decline in second quarter 1974. In sum,
the atypical em ploym ent grow th in the early stages
of this e co n o m ic slo w d o w n helped m odify any rise
in the u nem p loym en t rate that m ight otherwise
have occurred. Still w hile em ploym ent did not
change as drastically as in past recessions, job
grow th has not been all that rapid in the first half
o f this year; the u nem p loym en t rate shou ld have
risen. There m ust be another explanation.

141

used quarterly data, w e shou ld have rem oved m any
of the sa m p lin g errors inherent in m onth ly figures.

TABLE 2
UNEMPLOYMENT RATES BY MAJOR CATEGORIES
1973
Total

Males 20 and over
Females 20 and over
Both sexes, 16-19
White
Nonwhite

1974

III

IV

1

II

4.9

4.7

5.2

5.1

3.3
4.8
14.7
4.4
9.0

3.0
4.7
14.3
4.2
8.6

3.5
5.1
15.3
4.7
9.3

3.5
5.1
15.1
4.7
9.0

Source: U. S. Department of Labor

C ivilian Labor Force C h ange s
If any fluke exists in the current u nem p loym en t
num bers, it is the strange behavior of the civilian
labor force— the other c o m p o n e n t that determ ines
the u nem p loym en t rate. The civilian labor force
has not been expan ding recently as m uch as
w orkin g-age pop ulation changes w o u ld dictate. It
is this lack o f labor force grow th (nearly nonexistent
from January through April 1974) w hich has put the
brakes on any rise in the u nem p loym en t rate. For
example, if the civilian labor force had grow n in the
second quarter of this year at the average rate of
the previous five quarters and all o f the additional
w orkers had been unable to find jobs, the u n e m ­
ploym ent rate in the second quarter w o u ld have
been 5.7 percent instead of the actual 5.1 percent.
A llo w in g for labor force grow th m ore in tune with
the som ew h at slow er average of the 1960's, the un­
e m plo ym ent rate w ou ld have increased to about 5.5
percent. But, in fact, the civilian labor force grew
hardly at all from January to April 1974, and second
quarter grow th w as only slightly over 0.1 percent,
or at an annual rate of 0.5 percent. This w as m uch
low er than the norm al grow th o f abou t 1.7 percent.
Furthermore, this decline in labor force grow th
seem s to be occurring for other than d em o grap h ic
reasons. Participation rates (i.e., civilian labor force
divided by civilian population) fell in second
quarter 1974 for the first tim e since 1972. Participa­
tion rates were do w n for adult males, particularly
adult m ales 55 and over, black males, and all
teen-age groups.
The stability in the second quarter's u n e m p lo y­
ment rate then lies, to a large extent, in the lack of
civilian labor force grow th brou ght about by the
decline in participation rates. W ill these d e ve lo p ­
ments continue and keep the u nem p loym en t rate
from rising for the rest o f this year and next? The
answ er is fou n d in w hy the labor force grew slowly.
Let us lo ok at four possible reasons for this slow
growth. First o f all, it could be a statistical quirk.
The u nem p loym en t and labor force num bers are
collected on a sam ple basis and are subject to
sam p lin g error. How ever, insofar as our analysis

142




An oth er possible reason for the slo w in g is an
adjustm ent to the very fast labor force grow th of
the last tw o years. O v e r this period, the civilian
labor force has increased annually in excess of 2
percent, far above the trend rate. Participation
rates also increased, particularly for adult w om en.
Therefore, the second quarter's reduced labor
force grow th m ight be partly an adjustm ent to
excessive past growth.
Still another possibility is the often-m entioned
"d isc o u ra ge d w orker effect." A s e c o n o m ic activity
slow s and jobs beco m e harder to find, m arginal
w orkers norm ally respond by d ro p p in g out o f the
labor force as they aban do n their search for gainful
em ploym ent. This w as typical o f the past five
recessions but apparently has not h appened w ide ly
through m idsum m er. Except for the teen-age group,
the slo w d o w n in labor force expansion has com e
largely from adult males, w h o generally are not
considered to be m arginal workers. The adult
fem ale civilian labor force n orm ally declines in re­
cession because of the discou raged w orker effect,
but this grou p has continued to increase in the
current period of e c o n o m ic sluggishness. In sum,
the current situation does not seem to sup port the
"d isc o u ra ge d w orker effect" as the reason for slo w
grow th in the total labor force.
A fourth possible explanation fits ec o n o m ic
theory w ell and deserves close scrutiny in the
current setting. Perhaps the unusual circum stances
of today's rapid inflation and the decline in real
spendable earnings for the average w orker may
have caused som e peop le to d ro p out o f the labor
force as the real sellin g price of their services
declined. In ec o n o m ic theory, this notion is
represented by the "u p w a rd slo p in g su p p ly curve
of lab o r"; in other w ords, as real hourly earnings
go up, m ore people offer their labor services.
D u rin g the past year and a half, inflation has forced
real spen dable earnings o f the average w orker to
decline substantially. F o llo w in g through w ith this
hypothesis, it is reasonable to expect som e groups
of w orkers to reduce the am o u n t o f services
supplied to the labor market.1 For exam ple, as real
earnings decline, teen-agers m ay decide to stay at
hom e or stay in sch ool rather than lo o k for a fu ll­
time job. O ld e r adult m ales m ay opt for early
retirement rather than continue to w ork for less
real pay. Black m ale w orkers m ay drop out o f the
labor force as their real earnings decline and their
relationship to other labor force m em bers deterio­
rates further. In fact, these are exactly the groups
JOf course, some groups may actually respond to the decline in
real earnings by offering more labor services in order to supple­
ment or maintain their real incomes. In economic theory, this is
known as the downward sloping (or backward-bending) labor
supply curve. In the current situation, these conditions would
seem to fit adult females most closely.

SEP TEM B ER 1974, M O N T H L Y R EV IEW

w hich have sh ow n little labor force grow th and a
decline in participation rates this year.
Som e data published by the U. S. Departm ent of
Labor give support to the prem ise that the drop in
real earnings has kept people out o f the labor force.
These data sh ow that not o n ly has the num ber of
w orkers staying out of the labor force increased
recently but that this increase has occurred m ainly
a m o n g those w h o no longer w ant to work. This is
contrary to previous recession experience, w hen
the increase in nonparticipants w as prim arily those
w h o did w ant w ork— in other w ords, the "d is ­
couraged w orker." The increase in labor force
nonparticipants w h o do not w ant w ork is again
concentrated in the adult m ale and black m ale
groups. These sketchy data, then, support the view
that w orkers in certain categories have w ithheld
labor services because of reduced real spendable
earnings.
It seem s reasonable that the decline in real
earning pow er this last year and a half is at least
partially responsible for the lack o f labor force
grow th d u ring m uch of 1974 and, consequently, for
the u n em p lo ym en t rate not rising in the face of
reduced e c o n o m ic activity. How ever, w hatever the
reason for slo w labor force grow th, it is unreason­
able to expect that it w ill continue m uch longer.
In fact, inform ation du ring the last several m onths
suggests that an uptick in the u n em p lo ym en t rate
and in the labor force is under way. N orm al p o p u la ­
tion increases m ost likely w ill be transmitted into
m ore norm al civilian labor force grow th d u ring the
rest o f 1974 and in 1975. C onsequently, the slo w in g
in labor force grow th shou ld be only temporary.
Furthermore, the decline in real spen dable earnings
has halted in recent m onths and, unless reversed,
sh ou ld no longer hold d o w n labor force expansion.
Labor force grow th sh ou ld then return to m ore
norm al rates.
O u tlo o k
After lo o k in g at recent e m plo ym ent and civilian
labor force conditions, w hat can w e expect the
u n em p loym en t rate to be in the near future, that is,
for the rem ainder o f 1974 and for 1975? This is a
critical question, since in the past po licy decisions
to fight inflation have been relaxed w hen the
u nem p lo ym en t rate has risen to high levels.
M o s t forecasters expect real e c o n o m ic grow th
to remain b e lo w par through next year, with little
advance, if any, this year and sluggishness in 1975.
They anticipate reduced dem and, rather than

FE D ER A L R ESER V E BANK O F A TLAN TA




S tra n g e H a p p e n in g s in th e L a b o r M a rk e t
Percent
U.S. Unemployment Rate
6

(Seas. Adj.)

5
All Workers

J

4
i

Z

i

i

i

’69

p-JSeas. Adj.)

i
*73

’71

A/
_1
Mil. of Persons
1
90

Civilian Labor Force
*i
' - 85

-----^ —

- 80

Total Employment

75
i
’69

1

1
’71

1

1
’73

llllll

shortages, to increase in im portance, h o ld in g dow n
e con om ic activity. W ith these prospects in m ind
and with labor force grow th expected to pick up
for reasons m entioned, new m em bers of the labor
force shou ld find it hard to find jobs. U n e m p lo y ­
ment and the u nem p loym en t rate shou ld then rise,
fo llo w in g a m ore typical cyclical pattern. O n e
w o u ld then expect the drop in jobs and rise in
u nem p loym en t to spread to m ore segm ents of the
econom y, but particularly to m anufacturing and
construction. (Construction has been declin in g
since 1973.)
In other w ords, the perform ance of the u nem ­
ploym ent rate in the first half of 1974 is unlikely to
be typical of w hat may transpire du ring the
rem ainder of this year and next. The stability of the
u nem ploym en t rate in the first half m ight indeed be
called a fluke; w e sh ou ld not expect such stability
in the near future. Labor force grow th will m ost
likely resume at a m ore norm al rate, in the face of
sluggish e co n o m ic activity. C onsequently, the
u nem ploym en t rate m ay well rise above 6 percent
or to rates experienced in previous recessions
(see Table 1). a

143

S IX T H

D IS T R IC T

B A N K IN G

N D TE5

S h o rt- R u n R e s e r v e B o r r o w in g
Country Banks

Reserve City Banks
Mil. $

M il. $

N.S.A.

N .S .A .

Chg. in Reserve Borrowing

200

600
Chg. in Reserve Borrowing

+
0

i._i |—
I I

400 —

T

TU

u

200

__

Loan Growth

200

Loan Growth ■

+
1

0

if1

1973

1974

1973

Note: F ig u re s are c h a n g e s from p reviou s m o n th ’s level. Re se rve b orro w ing s are c h a n g e s in m o nth ly a verag es of
daily figures; loans and d e p o sits are c h a n g e s in m o n th ly a ve rag e s of W e d n e sd ay figures.




1

Deposit Growth

Deposit Growth

200

144

JZL

200
+
0

1974

/„

400

■ +
rtl

400

W h e n a bank's loans are increasing strongly rela­
tive to its deposits, it norm ally w ill be under pres­
sure to increase its short-run reserve borro w in g.1
For m em ber banks, the tw o prim ary sources of
reserve bo rro w in g are the Federal funds market
and the Fed's discou nt w in dow . In the aggregate,
then, w e w o u ld expect co m b in e d use o f the d is­
count w in d o w and the Fed funds market to reflect
the com parative size o f loan and deposit changes.
The actual relationship between reserve b o rro w ­
ing and loan -deposit flow s becom es clearer if we
divide banks into tw o m ajor classes: large (reserve
city) banks and other (country) banks.2 Neverthe­
less, there are tw o prob lem s w hich som etim es lead
to contrary results. First, there m ay be sharp weekly
fluctuations of loans and deposits. In such cases,
intram onthly variations of loan-deposit flow s and
reserve bo rro w in g behave as expected, though not
necessarily for the m onth as a whole. A second
difficulty lies in the data itself. The reserve
b o rro w in g figures charted here are averages of daily
figures. Loan and deposit figures are m onthly aver­
ages o f each W e d n e sd a y 's total loans and deposits
outstanding. The loan and deposit figures cited
are not strictly com parable with the reserve b o rro w ­
ing data.
N otw ithstan ding these caveats, behavior at Sixth
District m em ber banks thus far in 1974 has been in
line with ou r expectations. M o re specifically, from
D e ce m b er 1973 through January of this year, de­
posits were gro w in g faster than loans. In this same
period, as a result, reserve bo rro w in g declined.
A lth o u gh reserve city banks had reacted to loan
and deposit pressure in N o ve m b e r by increasing re­
serve borrow ing, the relatively com fortable p o si­
tion o f country banks m ore than com pensated. In
February, loan grow th slow ed, but deposits actually
declined for both city and country banks, leading to
higher reserve borrow ing. In M arch, increased d e ­
posit inflow s at country banks were not m atched
at city banks. So, w hile reserve bo rro w in g at country
banks declined by $130 m illion, that for city banks
increased by $170 m illion. Large bank reserve b o r­
row in g dom inated that for the entire District.
In April both loans and deposits surged at city
and country banks alike. A lth o u gh deposits grew
m ore than loans at the city banks, their reserve
bo rro w in g increased. This contradictory behavior
w as partly precautionary reaction to the strong loan
grow th and partly a result of intram onthly m ove­
ments. M o s t o f the increase in reserve borrow in g

’Deposits, as used here, include negotiable certificates of de­
posit, which are also a longer-term source of reserves for
some banks, as are the sale of investment securities and
the use of so-called nondeposit sources of funds.
2Here “reserve city” and "country" conform to the Fed’s 1974
definitions, under which a reserve city bank is one with more
than $400 million in net demand deposits.

FE D ER A L R ESER V E BANK O F A TLAN TA




occurred in the last w eek o f April du ring an un­
usually large drop in deposits. T ho ugh country
banks also experienced a larger than norm al endof-m on th decline in deposits, their increase in re­
serve borro w in g du ring this w eek w as about
balanced by reduced bo rro w in g earlier in the
m onth; over the m onth there was virtually no
change in their reserve borrow ing.
In M ay, country banks becam e the chief influence
on District reserve borrow ing. T roubled agricultural
co nditio n s— low er farm receipts and higher feed
and fertilizer costs— set off a deposit o u t-flo w of
$430 m illion and kept loan levels high at country
banks. C au gh t in this squeeze, these sm aller banks
drastically cut their net lending in the Fed funds
market by $520 m illion and sharply increased their
discou nt w in d o w use by $30 m illion. To som e
extent, lighter city-bank reserve b orrow in g in M a y
reflected an u n w in d in g from the overb orrow ing
during A p ril's surge of loan growth. A s the chart
show s, city bank bo rro w in g decreased at a time
when deposits grew less than loans. A gain an er­
ratic w eekly pattern explains w hy these banks acted
opp osite to ou r hypothesis. D e p o sit grow th w as
stunted by a large decline in the second and fourth
weeks. O n the other hand, m ost of the decrease
in reserve bo rrow in g took place in the first and
third w eeks o f M ay, w hen deposits grew strongly
relative to loans.
In June, reserve city banks' deposits did indeed
grow m ore than loans, and their reserve borrow in g
consequently fell. A t country banks, deposit growth,
although $50 m illion belo w that of loans, increased
at a marked rate. In the first half of the month,
deposits were up $390 m illion, w hile loans in­
creased o nly $90 m illion; as a result, bo rro w in g
declined. W h e n deposits fell off in the second half
of the m onth, reserve b orro w in g then increased.
This rebound w as not enough, however, to keep
country bank reserve b o rrow in g from falling by $90
m illion for the m onth as a w hole.
In July w eak deposit grow th com bined with
stepped-up loan activity to put banks under reserve
pressure. C oun try banks increased their bo rro w in g
at the discou nt w in d o w by $20 m illion. A t the same
time, they reduced sales of Federal funds such that
their net sales position dropp ed by $90 m illion.
Reserve city banks decreased bo rrow in g by $40
m illion but raised net purchases of Fed funds by
$150 m illion. A s a result of these transactions, re­
serve bo rrow in g for the District rose $220 m illion.
In general, then, the 1974 behavior o f m em ber
banks in this District illustrates quite well the close
relationship between loan and deposit changes,
on the one hand, and reserve bo rrow in g in the
Federal funds m arket and at the discou nt w indow ,
on the other.
W . F. M A C K A R A

145

S i x t h

D i s t r i c t

S t a t i s t i c s

Seasonally Adjusted
(All data are indexes,
La te st M o n th
1 97 4

One
M onth
Ago

Tw o
M onths
A go

O ne
Year
A go
U n e m p lo y m e n t R a te :
(P e rc e n t of W o rk Fo rce ) . .
Avg. W e e k ly H rs. in M fg . (H rs.)

S IX T H D IS T R IC T
I N C O M E A N D S P E N D IN G
M a n u f a c tu r in g P a y r o lls
. . . .
F a rm C a s h R e c e i p t s ..................
C r o p s ....................................
L iv e s to c k
.............................
In s ta lm e n t C re d it at B a n k s * / ' (M il.
N e w L o a n s .............................
.........................
R e p a y m e n ts

L a te st M o n th
1 97 4

. July
June
Ju n e
June

178
174
2 32
159

179
215
2 89

175
173
188
179

166
180
189
191

J u ly
J uly

6 82
635

724r
668 r

668

686

5 79

588

. J uly
. J u ly
J u ly
J u ly
. J u ly
. J u ly
. Ju ly
. Ju ly
. Ju ly
. J u ly
. J u ly
. J u ly
. J u ly
. J u ly
. Ju ly
. J u ly
. J u ly
. J u ly
. J u ly
. J u ly
. J u ly
. J u ly
. J u ly
. J u ly
. Ju ly

132.6
117.4
114.7
104.0

132.4
118.3
115.8
104.3
112.9
113.8
113.5
129.4
110.9
121.4

132.4
117.9
115.2
105.9

130.6
118.3
115.3
102.3

112 .6

112 .8

113.1

117.3
113.6
128.1
108.1

110 .0

1 1 1 .0

128.5
113.5
130.4
157.7
111.3
137.3
143.2
126.1
138.2
147.4
150.4
102.9
137.2
81.5

129.7
112.4
131.9
156.8
110.3
137.6
145.6
127.2
137.7
147.4
149.6
104.2
136.8
84.1

, Ju ly

4.9

4.7

4.8

2.3
40.1
2 08
181
2 36
81
99
299 .4
241 .9
189.9
298.4
294.1

2.3
40.4

2 .2

1.8

40.1

40.7
24 9
291
20 8
84
115
288.5
238 .8
185.5
281 .8
286.8

200

One
M onth
A go

Two
M on th s
A go

One
Year
Ago

. J u ly
. Ju ly

4.2
40.6

4.1
41.1

4.1
40.6

3.9
40.5

. J u ly
. J u ly
. J u ly

249
208
261

2 53
205
254

251
206
260

219
190
214

. J u ly
. June

194

202

191
2 45

185
169

171
197

153.7
129.5
158.4

151.8
128.3
156.3
207 .6
113.8

F IN A N C E A N D B A N K IN G
Mem ber Bank Loans . . . . . .
M e m b e r B a n k D e p o s its
. . .
B a n k D e b i t s * * ......................

IN C O M E
E M P L O Y M E N T A N D P R O D U C T IO N
N o n fa rm E m p l o y m e n t ..................
M a n u f a c tu r in g
.........................
N o n d u r a b le G o o d s ..................
F o o d ....................................
T e x t i l e s .............................
A p p a re l
.............................
P a p e r ................................
P r in t in g a n d P u b lis h in g . .
C h e m i c a l s .........................
D u ra b le G o o d s ......................
Lbr., W ood Prods., Furn. & Fix.
Ston e , C lay, a n d G la s s . . .
P rim a ry M e t a l s ..................
F a b ric a te d M e t a l s ..............
M a c h i n e r y .........................
T ra n sp o rta tio n E q u ip m e n t
N o n m a n u f a c t u r i n g .....................
C o n s t r u c t i o n ......................
..................
T ra n sp o rta tio n
T r a d e ................................
Fin., ins., a n d real est. . . .
S e r v i c e s .............................
Fede ral G o v e rn m e n t . . . .
Sta te a n d L oca l G o v e rn m e n t
Fa rm E m p l o y m e n t .........................
U n e m p lo y m e n t Rate=
(P e rc e n t of W o rk F o rce) . . . .
In s u re d U n e m p lo y m e n t
(P e rc e n t of Cov. E m p . ) ..............
Avg. W e e k ly H rs. in M fg. (H rs.) . .
C o n s tru c tio n C o n t r a c t s * ..............
R e s i d e n t i a l ................................
All o t h e r ....................................
C otton C o n s u m p t i o n * * ..................
P e tro le u m P r o d u c t i o n * * ..............
M a n u f a c tu r in g P ro d u c tio n
. . . .
N o n d u r a b le G o o d s ......................
Food
.................................
T e x t i l e s .............................
Ap p a re l
.............................
P a p e r .................................
P r in t in g a n d P u b lis h in g . .
C h e m i c a l s .........................
D u ra b le G o o d s .........................
L u m b e r a n d W o o d ..............
F u rn it u re a n d F ix t u re s . . .
S ton e , C lay, a n d G la s s . . .
P r im a r y M e t a l s ..................
F a b ric a te d M e t a l s ..............
N o n e le c tric a l M a c h in e r y . .
Ele ctrica l M a c h in e r y
. . .
T ra n sp o rta tio n E q u ip m e n t

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

Ju ly
J u ly
J u ly
J u ly
J u ly
June
J u ly
Feb.
Feb,
Feb.
Feb.
Feb.
Feb.
Feb.
Feb.
Feb.
Feb.
Feb.
Feb.
Feb.
Feb.
Feb.
Feb.
Feb.

110 .8
11 2 .0
113.5
128.7

1 1 1 .0
120.7
110.7
130.2
112.9
131.5
156.6
108.0
137.9
142.4
126.0
138.3
147.3
150.4
103.6
138.8
87.4

202.6
156.4
311.7
368.1
207 .2
177.4
231.1
273.6
310 .9
472.7
865 .8
419 .9

112 .6
129.8
108.1
121.3

202

2 22

2 14
190
79

21 6
2 28
79

10 1

10 1

297.0
243 .4
190.0
304.5
293.0
204.5
156.0
323.5
361.3
205 .9
186.4
229.9
273 .9
310.6
468.8
855 .9
392.1

300.0
247.7
191.5
301.7
291 .9
226.9
155.9
320 .9
362.5
206.3
188.7
216.5
272.2
308.0
478 .9
835.0
416.0

1 2 2 .1
113.3
128.8

110 .0
129.3
153.0
116.5
134.9
146.9
124.1
135.8
144.8
144.6
99.1
133.9
85.5
4.1

P a y ro lls

EM PLO YM ENT

C o n s t r u c t i o n ..................
Fa rm E m p l o y m e n t ..................
U n e m p lo y m e n t R a te 2
(P e rc e n t of W o rk Fo rce) . .
Avg. W e e k ly H rs. in M fg. (H rs.)

161.7
305 .9
347 .6
199.6
190.6
207.0
231.0
283.3
435 .9
778.1
453.2

. J uly
J u ly

2 76
2 59

2 76
259

274
2 57

2 38
223

. July
. J u ly
. J uly

2 16
184
291

2 15
187
288

2 15
186
285

198
174
241

.
.
.
.

J u ly
J u ly
J u ly
J u ly

155 .4
129.4
160.3
198.6
109.0

98.8

152.7
128.4
157.7
198.7
99.1

. J u ly
. J u ly

4.9
40.5

5.1
40.4

5.3
40.1

4.0
40.8

. J u ly
. J u ly
. J u ly

3 13
248
3 11

3 15
2 47
312

309
2 46
3 01

268
230
284

165
153

170

167
181

1 64
1 74

J u ly
J u ly
J u ly
J u ly
J u ly

127.7
109.0
136.3
138.2
89.7

128.9
136.7
138.7
8 3.4

129.9
111.9
138.1
145.3
92.7

127.1
112.4
133.8
142.6
82.1

J u ly
J u ly

4.8
39.7

4.5
40.1

5.1
3 9.9

3.8
40.6

J u ly
J u ly
J u ly

270
19 5
33 0

26 9
1 96
328

26 6
1 96
32 7

239
185
261

J uly
June

1 59
1 54

1 58
162

1 57
170

1 54
159

J u ly
J u ly
J u ly
J u ly
J u ly

115.8
103.3
118 .4
87.1
71.3

115.6
103.8
118.1
84.9
6 6.4

117.2
105.4
119.7
89.7

68.1

115.0
104.8
117.1
8 7.2
74.5

J u ly
J u ly

6.8
40.0

6.7
4 0.2

6.4
40.0

5.9
41.9

J u ly
J u ly
J u ly

248
191
244

246
189
235

255
189
229

2 14
172
192

J u ly
June

20 2
186

20 3
192

198
197

20 2

129.1
130.2
128.6
124.6
7 9.9

129.4
130.7
128.9
127.5
74.0

129.6
130.2
129.4
132.4
78.8

126.2
130.2
124.4
129.8
82.6

20 1.8

F IN A N C E A N D B A N K IN G

M a n u f a c t u r in g P a y ro lls
.................. J u ly
Fa rm C a s h R e c e i p t s ......................... J u n e

222

EM PLO YM ENT
N o n fa rm E m p lo y m e n t . . . .
M a n u f a c t u r in g
..................
N o n m a n u f a c t u rin g
. . . .
C o n s t r u c t i o n ..................
Fa rm E m p lo y m e n t
...............
U n e m p lo y m e n t R a t e ;
(P e rc e n t of W o rk F o rce) . .
Avg. W e e k ly H rs. in M fg. (H rs.)

1 1 1 .6

F IN A N C E A N D B A N K IN G
M e m b e r B a n k L o a n s ..............
M e m b e r B a n k D e p o sits . . .

2 2 2 .1

F I N A N C E A N D B A N K IN G
Loans*
A ll M e m b e r B a n k s ......................
L a rg e B a n k s .............................
D e p o s its *
All M e m b e r B a n k s ......................
L a rg e B a n k s .............................
B a n k D e b it s * / * *
.........................

M a n u f a c tu r in g

EMPLOYM ENT
N o n fa rm E m p lo y m e n t . . . .
M a n u f a c t u r in g
..................
N o n m a n u f a c t u r i n g ..............
C o n s t r u c t i o n ..................
F a rm E m p l o y m e n t ..................
U n e m p lo y m e n t Ra te(P e rc e n t of W o rk F o rce) . .
Avg. W e e k ly H rs. in M fg. (H rs.)
F IN A N C E A N D B A N K IN G

ALABAM A

M IS SIS SIP P I

IN C O M E
M a n u f a c tu r in g P a y r o l l s ......................J uly
Fa rm C a s h R e c e i p t s ......................... J une

179
207

181
2 55

177
193

160
2 05

EM PLOYM ENT

N o n m a n u f a c t u r in g

146




184

EMPLOYM ENT
.
.
.
.
.

J uly
J uly
J uly
J u ly
J u ly

12 1.0
117.5
122.7
122.5
75.6

120.9
117.3
122.5
124.9
81.8

120 .2
117.3
121.5
127.8
66.7

119.7
116.7

1 2 1.0
130.6
72.4

J u ly
J u ly
J u ly
J u ly
J u ly

SEP TEM B ER 1974, M O N T H L Y R E V IE W

One
M onth
Ago

L atest M o n th
197 4

Two
M on th s
A go

O ne
Year
Ago

O ne
M o n th
Ago

Two
M on th s
A go

One
Year
A go

J u ly
Ju ly
J u ly
J u ly
J u ly

128.5
118.4
134.1
132.2
93.8

128.8
119.2
134.2
132.6
87.2

128.1
117.7
133.9
136.0
93.6

119.5
129.9
132.8
93.2

. . J u ly
. . J u ly

4.5
40.0

3.5
40.3

3.6
40.2

3.3
40.5

. . J u ly
. . J u ly
, J u ly

268
204
270

265

2 61
20 3
274

221

EM PLOYM ENT

U n e m p lo y m e n t Ra te*
(Pe rcent o f W o rk F o rce) . . . . . July
Avg. W e e k ly H rs. in M fg. (H rs.) . . . Ju ly

4.1
39.9

3.9
39.9

3.6
39.8

3.8
40.5

2 58
2 17
2 59

25 5
219
25 6

2 68
2 56

2 25
193
2 27

M a n u f a c tu rin g
......................
N o n m a n u f a c t u r i n g ..................
C o n s t r u c t i o n ......................
Fa rm E m p l o y m e n t ......................
U n e m p lo y m e n t Ra te ?
(P e rc e n t o f W o rk F o rce) . . .
Avg. W e e k ly H rs. in M fg . (H rs.) .

F IN A N C E A N D B A N K IN G
M e m b e r B a n k L o a n s * ..............
M e m b e r B a n k D e p o s it s * . . . .
B a n k D e b i t s * / * * .........................

La te st M o n th
197 4

. . J u ly
. . J u ly
. . Ju ly

221

.
.
.
.
.

.
.
.
.
.

TEN NESSEE
F IN A N C E A N D B A N K IN G
M a n u f a c t u r in g P a y r o l l s ..............
F a rm C a s h R e c e i p t s ..................

181
204

. . J u ly
. . June

177
186

181
2 77

• F o r S ix t h D ist ric t area only; o th e r to ta ls fo r e n tire s ix st a te s

M e m b e r B a n k L o a n s * ..............
M e m b e r B a n k D e p o s it s * . . . .
B a n k D e b i t s * / * * .........................

16 9

20 2

" D a i l y a v e ra g e b a s is

fP r e lim in a r y d ata

r-R e v ise d

20 1
264

18 2
191

N.A. N o t a v a ila b le

Note: Indexes for bank debits, construction contracts, cotton consumption, employment, farm cash receipts, loans, petroleum
production, and payrolls: 1967 = 100. All other indexes: 1957-59 = 100.
S o u rc e s :
M a n u f a c t u r in g p ro d u ctio n e stim a te d b y t h is B a n k ; non farm , m fg. a n d n o n m fg. em p., m fg. p a y ro lls a n d hou rs, a n d unem p., U .S. Dept, of L a b o r a n d c o o p e ra tin g
state a g e n c ie s; cotto n c o n su m p t io n , U.S. B u re a u of C e n s u s; c o n stru c tio n c ontrac ts, F . W. D o d g e Div., M c G ra w -H ill In fo rm a tio n S y s t e m s Co.; petrol, prod., U .S. B u re a u of
M in e s; fa rm c a sh re c e ip ts a n d fa rm em p., U .S.D.A. O th er in d e x e s b a se d on data colle c te d b y t h is B a n k . A ll in d e x e s c a lc u la te d b y t h is B a n k .
■Data b e n c h m a rk e d to J u n e 197 1 R e p o rt of C o n d itio n .
-U n e m p lo y m e n t ra te s fo r all D ist ric t S t a t e s except F lo rid a h a v e b een e stim a te d u s in g new t e c h n iq u e s d e ve lo p e d b y th e U. S. Dept, o f Labor. N e w se a so n a l fa c t o rs hav e
been d e ve lo p e d fo r all s ix D ist r ic t State s. T h e se new se a s. adj. rates are n ot c o m p a ra b le w ith p re v io u s ly p u b lish e d u n e m p . rates.

D e b i t s

t o

D e m a n d

D e p o s i t

A c c o u n t s

Insured Commercial Banks in the Sixth District

(In Thousands of Dollars)
P e rc e n t i Sh a n ge

P e rc e n t C h a n g e

J u ly
197 4

Ju n e
1 97 4

J u ly
197 3

Year
to
J u ly
date
197 4 7 m os.
from
197 4
from
J u ly
1973
1973

June
197 4

J u ly
1974
fro m
J u ly
1974

4,87 4,570
117,693
42 2 ,0 1 9
1,344,418
6 4 3 ,645
26 8 ,725

4,35 2,202
360 ,9 8 8
1,252,576
6 5 0 ,987
242 ,836

3,66 2,888
95,0 59
34 5 ,9 6 4
1,030,921
658 ,327
2 1 9 ,626

9 0 1 ,544
5 0 8 ,242

842 ,355
4 59,651

8 0 6 ,763
4 69 ,9 2 4

2,176,463
38 7 ,3 9 4
3 0 1 ,288
4,765,737

1,839,566
343,831
2 5 2 ,896
4,91 7,529

10 0 ,0 21

+
+
+
+
+

+33
+24

+30

+22
+22

+18
+25
+ 11
+26

+ 7
+ 11

+ 12
+ 8

+20

1,837,522
2 8 8 ,132
2 4 1 ,6 8 4
3,85 6,659

+ 18
+ 13
+ 19
- 3

+ 18
+34
+25
+24

+ 12
+26
+ 16
+39r

- 5
+ 11
+ 1
+ 5
+ 0

+ 9
+ 14
+ 1
+23
+ 4
+ 4
+ 9
+ 7

+
+
+
+
+
+
+
+

+ 9
+26
+34
+23
+55
+27

+ 11
+31
+27

B a rto w -L a ke la n d W in te r H a ve n
D a y to n a B e a c h . .
Ft. L a u d e rd a le H o lly w o o d
. .
Ft. M y e r s . . . .
G a in e s v ille
. . .
J a c k s o n v ille . . .
M e lb o u rn e T itu sville -C o c o a
M ia m i
..............
O r l a n d o ..............
P e n s a c o la . . . .
S a ra so ta
. . . .
T a lla h a s se e
. . .
T a m p a -St. Pete
W. P a lm B e a c h

.
.

4 6 6 ,202
7,97 0,664
1,580,924
5 3 7 ,924
539 ,682
893 ,096
4,28 2,274
1,315,751

4 9 1 ,293
7,208,788
1,558,489
51 1 ,8 6 0
538 ,703
734 ,797
4,09 6,729
1,218,065

427 ,911
6,97 9,296
1,566,961
437 ,2 6 2
520 ,392
855 ,923
3,93 0,396
1,234,521

+
+

A l b a n y ..............
A t l a n t a ..............
A u g u st a
. . . .
C o lu m b u s . . . .
M acon
..............
Savannah . . . .

20 4 ,415
. 19,194,081
695 ,778
528 ,969
8 3 8 ,078
68 2 ,430

2 0 7 ,486
18,999,103
591,271
47 4 ,575
77 4 ,598
625,881

187,176
15,280,487
520,411
43 1 ,5 6 9
540 ,315
537 ,783

+
+
+
+
+

A le x a n d ria
.
B a to n R o u g e
Lafayette
. .
L a k e C h a r le s
N e w O r le a n s

.

.

.
.

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

3 0 9 ,754
2,150,175
320 ,1 5 4
28 9 ,008
5,59 4,704

2 7 1 ,428
1,784,110
311 ,731
24 7 ,700
4,852,841

2 5 9 ,9 1 9
1,413,581
2 7 6 ,126
22 7 ,2 0 4
4,420,809

B ilo x i-G u lfp o rt . .
Jackson
. . . .
.

2 9 3 ,7 6 9
1,775,684

2 6 7 ,387
1,560,047

C h a tta n o o g a . . . • 1,407,906
K n o x v ille
. . . .
■ 2,311,141
N a sh v ille
. . . .
. 4,48 0,568
OTHER C EN T ERS
A n n is to n
. . . .

130,103

12
18
17
7

1
11

+22
5

8
1
1
18

11
8
9

+ 14

+30
- 2

+ 10

+ 13

10

J u ly
1 97 3

180,955
74,8 41

+ 15

+22

+25
+13

+27
+13

B ra d e n to n
. .
. .
M o n ro e C o u n ty
.
O c a lla
. . . .
.
St. A u g u st in e
St. P e t e rsb u rg . . .

21 3 ,007
93,0 54
2 0 8 ,096
62,141
1,086,211
2,14 3,173

210,668
90,5 5 4
197 ,052
46,6 65
1,006,707
2,05 1,712

186 ,613
75,1 8 8
2 0 0 ,0 8 4
44,1 87
1,097,947
1,824,456

+ 1
+ 3
+ 6
+33
+ 8
+ 4

+14
+24
+ 4
+41
- 1
+17

+17
+48
+ 3
+51
+ 5
+18

. .

1 7 2 ,004
111,007
194,851
24,6 1 0
172,675
86,5 4 6
4 2 ,7 3 4
57,571
163 ,779
119,955

159,399
106,463
1 85,923
2 4,9 26
145,385
81,7 50
60,447
59,4 70
145 ,450
108,582

164,506
102,883
166 ,700
19,4 69
141 ,130
72,2 96
39,7 93
56,7 9 0
1 4 2 ,880
91,057

+ 8
+ 4
+ 5
- 1
+19
+ 6
-2 9
- 3
+13

+ 5
+ 8
+17
+26

+ 6
+ 11

17,108
15,381
1 0 2 ,098
7 6,4 76
27,0 5 2
40,3 81

15,8 22
12,976
84,509
61,6 06
26,081
39,9 0 4

18,942
11,131
95,1 92
62,9 17
2 8,0 92
38,3 53

+ 8
+19
+24
+ 4
+ 1

+22
4
5

+20
+ 1
+ 10

. . .
.
.
.

150,875
90,7 1 6
140,320
67,1 7 9

147 ,266
79,795
124,962
55,812

137,797
76,0 5 0
137 ,548
5 3,5 15

+ 2
+ 14
+ 12

+ 9
+ 19
+ 2
+26

+ 11
+14
+ 11
+ 12

.
.

172,026
91,7 38
58,2 39

149,798
75,8 86
66,4 7 0

139,059
7 8,3 68
46,981

+ 15

+24
+ 17
+24

+ 9
+24
+30

Ath e n s
. . . .
B ru n s w ic k
. .
D a lto n
. . . .
E lb e rto n
. . .
G a in e s v ille
. .
G riffin
. . . .
L a G ra n g e
. . .
New nan . . . .
R o m e ..............
V a ld o s ta
. . .

. .
. .
.
. .
. .
.

+ 10

+22
+20

+ 9
+18
+19
+25

+ 7
+ 1
+15
+32

+21
- 8
+12

-1 0

+ 6
+25
+13

+ 15

16

10
15
16
9
13

10

+21
+53
+ 18

+21

A b b e v ille
.
B u n k ie
. .
Ham m ond .
N e w Ib e ria
P la q u e m in e
T h ib o d a u x .

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

H a t t ie s b u rg
.
L a u re l
. . . .
M e rid ia n
. .
N a tc h e z
. .
P a s c a g o u la M o s s P o in t
V ic k s b u r g . .
Y a z o o C ity
.

.
.

.
.

+ 3
+ 17
+ 15

+ 19

280 ,701
1,466,436

+ 10
+ 14

+

+

+21

1,308,253
1,929,050
3,903,072

1,286,820
949,133
3,182,193

8 + 9 + 19
+ 2 0 + 144 + 113

A la b a m a

+ 15

+41

+29

118,532

105,479

+ 10

+23

+

G e o r g i a ..............
L o u is ia n a '
. . .
M ississ ip p i1 . . .
T e n n e sse e 1
. . .

5

June
1974

196 ,279
69,2 15

+ 19
+52
+ 16
+27
+27

+21

J u ly
1973

2 2 6 ,5 9 4
84,3 22

.

S T A N D A R D M E T R O P O L IT A N
S T A T IS T IC A L A R E A S 2
B ir m in g h a m . . . .
G a d sd e n
. . . .
H u n t sv ille . . . .
M o b i l e ..............
M on tgom e ry . . .
T u s c a lo o sa
. . .

Ju n e
1 97 4

Year
to
date
7 m os.
1974
fro m
1 97 3

+39
+ 19

+21
1
+22

+

9

To ta l

+20
+21
-1 2

+38
+ 7
+

158,010
185,896
3 2 4 ,457

135 ,088
1 5 5 ,694
277 ,7 9 0

116,492
188,371
259 ,987

+ 17
+ 19
+ 17

+36
- 1
+25

+ 6
+ 6
+16

. . . . 9 3 ,5 36,824

84,5 09,559

7 4 ,9 66,722

+ 11

+25

+23

9,69 0,386
2 7 ,2 74,092
2 5 ,1 35,230
8,86 5,699
3,363,521
10,180,631

8,604,741
25,8 95,208
21,1 52,663
7,913,681
3,201,718
8,228,711

+
+
+
+
+
+

11
8

+26
+ 13
+30
+30
+ 18
+44

+24
+ 16
+28

B risto l
..............
J o h n so n C ity
.
K in g sp o rt . . . .
stric t

+21

. . . . .
.
.
.
.
.

10,8 02,160
2 9 ,3 61,252
27,5 1 5 ,9 5 4
10,262,735
3,782,011
11,8 12,712

9
16

12
16

+22
+17
+37

-C o n fo rm s to S M S A d e fin it io n s a s of D e c e m b e r 31 1972
r-R e v ise d
’
p re lim in a ry fig u re s p u b llsh e d

FE D ER
R ESERV E BANK O F ATLAN TA
Digitized
forA LFRASER


" B a n k D e b its a n d D e p o sit T u rn o v e r b y B o a rd of

147

D i s t r i c t

B u s i n e s s

C o n d i t i o n s

1957 59=100
Seas.

Adj

Mfg Production

-

Se as.

Nonfarm Employment
Unemployment Rate

Ad j

Average Weekly Hours*

Mfg. Payrolls
m

1 11

11

M

m

IM

1972

111

11

M

1 1 1 1 1 1 1 1 1 1

1973

m

11

1974

_ Farm Cash Receipts
l I I I I II I II I I I I I I I I I I I I I I I II I II I I II I
1972

1973

1974

*Seas. adj. figure; not an index
Latest plotting: July, except mfg. production, Feb., and farm cash receipts, June.

The Southeast's e c o n o m y faltered slightly as the su m m e r progressed. W e a kn e ss becam e m ore evident in
labor m arkets and contin u ed depressed condition s in residential h o u sin g low ered overall construction ac­
tivity. M e m b e r banks still face w eak consum e r tim e deposit inflow s, partly in response to higher interest rates
elsewhere. C o n su m e r sp e n d in g is sluggish. Rainfall a n d higher prices brightened the in co m e prospects of
crop farmers, w hile m any livestock farmers suffered from higher feed costs.
Labor markets softened further in July. The un­
em ploym ent rate rose to 4.9 percent from June's
4.7 percent; a year ago the rate stood at 4.1 percent.
G e o rgia's and Tennessee's u nem ploym en t rates
rose sharply in July. W h ile total nonfarm jobs
changed o n ly slightly, construction and m anufactur­
ing e m ploym ent were off substantially. The durable
m anufacturing job decline w as centered in G e o r­
gia's au to m obile assem bly plants, but job decreases
in m ost n ondurable m anufacturing industries were
scattered. Factory hours and payrolls also fell.
Constru ction activity slow ed in July. Further d e ­
clines in the residential sector brought do w n the
value of total construction contracts. C onstruction
e m plo ym ent w as d o w n in four of the region's six
states and in the region as a whole. Rates on hom e
m ortgages continued to rise partly because savings
and loan associations suffered deposit o u tflow s and
cut back com m itm ents.
Bank len ding continues to expand at a m oderate
pace. Large banks extended additional credit to
construction firms, manufacturers, service b u si­
nesses, and n on ban k financial institutions; w h o le ­
sale and retail trade firms paid do w n som e bank
lines. W e a k deposit gains have caused som e banks
to rely heavily on borrow in gs at the discou nt
w in d o w and in the Federal funds market and on the
sale of securities for funds. W h ile the prim e rate
N ote:

D ata on w h ic h s t a t e m e n t s a r e b a s e d

1 4for
8 FRASER
Digitized


h a v e b e e n a d ju s t e d

in A u gu st rem ained unch anged at 12 percent, m any
bankers are review ing credit requests under m ore
restrictive gu idelines in order to curtail new loans.
C o n su m e r indicators w ere m ixed at m id-sum m er.
C o nsum e rs continued to m ake o nly m oderate use
o f bank instalm ent credit in July. Loans to purchase
non au tom otive co nsum e r g o o d s grew m oderately,
as did loans in m ost other categories. W e akn e ss w as
again concentrated in autos, although this sector
sh ow ed m ore strength than in any previous m onth
this year. U nit sales o f autos im proved du ring a
norm ally slo w sales period. N o n au to m o tiv e retail
sales declined, after the effects of inflation are
removed.
Late sum m er rains significantly brightened in­
com e prospects for crop farm ers by im p ro vin g in d i­
cated yields w hile dry w eather elsew here in the
country contributed to sharply higher crop prices.
The o u tlo o k continues bleak, however, for m any
livestock producers w h o face soarin g feed prices.
Fading hopes for covering costs have caused som e
herd liquidations and reductions in chick place­
ments. T ob acco sales have produ ced record-high
prices and incom es. A large farm credit agency
recently an n ou n ce d an additional hike in interest
rates, reflecting the rapid rise in average cost of
funds. How ever, a brisk dem an d for agricultural
credit continued at m any bank and n on b an k credit
sources.
w h e n e v e r p o s s ib le to e lim in a t e s e a s o n a l in f lu e n c e s .

S EP TEM B ER 1974, M O N T H L Y R E V IE W