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IN
FEDERAL
RESERVE
BANK
THIS
I SSUE
Advance Refunding
and Commercial
Bank Participation . .
2
Population and Banking
C hanges in the
Fourth District, 1 9 5 4 -6 5
18
OF
CLEVELAND
E C O N O M IC R E V IEW
ADVANCE REFUNDING AND
COMMERCIAL BANK PARTICIPATION
Along with monetary and fiscal policy,
m anagement of the public debt is an integral
part of public financial policy. As an instru
ment of public policy, the objectives of debt
m anagem ent are widely recognized: to finance
the public debt in a way that (1) contributes
to orderly growth of the economy without
inflation, (2) minimizes borrowing costs, (3)
achieves a balanced maturity structure, and
(4) retains long-term investors as customers.
In an effort to better achieve these objectives,
the Treasury introduced the advance refund
ing technique in June 1960. That technique
involves the refinancing of Treasury debt
obligations in advance of maturity, and is
intended primarily to improve the maturity
structure and ownership distribution of the
public debt.
BACKGROUND:
PUBLIC DEBT IN THE POSTWAR PERIOD 1
The bulk of the marketable public debt was
contracted during the Second World War.
1 This article is concerned only with interest-bearing
marketable public debt, which includes Treasury bills,
certificates of indebtedness, Treasury notes, and Trea
sury bonds. Guaranteed securities held outside the
Treasury Department are excluded, as is nonmarketable
debt.
2
Such debt rose from $34.4 billion at the end
of fiscal year 1940 to nearly $200 billion at
the immediate postwar peak in February 1946
—an almost sixfold increase. The total then
declined until the early 1950's, but increased
steadily after 1956 in conjunction with the
"C o ld W ar." At the end of August 1966,
when the latest advance refunding had been
completed, the volume of marketable interestbearing public debt outstanding was about
$211 billion.
M aturity Structure. With the p assage of time,
more and more of the debt issued during
World War II—chiefly bonds—has come due,
and the debt m anagers have been faced with
a shortening maturity structure of marketable
public debt. The av erage maturity declined
to four years and four months in Septem ber
1960 from just under eight years immediately
after the war. In addition to the p assage of
time, changes in the maturity structure of the
publicly-held debt have occurred because of
the nature of Treasury debt operations and
purchases by Government accounts and the
Federal Reserve System.
Chart 1 shows broad chan ges in the maturity
distribution of the marketable debt during the
postwar period. Of particular significance
was the increase between 1945 and 1960 in
JANUARY 1967
2.
MATURITY DISTRIBUTION of the
INTEREST-BEARING MARKETABLE PUBLIC DEBT*
OWNERSHIP DISTRIBUTION of the
INTEREST-BEARING MARKETABLE PUBLIC DEBT *
P ercen t
* D u e or first b e c o m i n g c a l l a b l e ; e x c l u d i n g g u a r a n t e e d
* D u e o r first b e c o m i n g c a l l a b l e ; e x c l u d i n g g u a r a n t e e d
securities
s e c u r i t i e s h e l d o u t s i d e the T r e a s u r y .
Source:
held
outside
the T re a su ry .
U.S. T r e a s u r y D e p a r t m e n t
the proportion of debt maturing in less than
five years, all of which occurred at the expense
of debt maturing in over ten years. In Table I,
the maturity distribution of the debt for selected
years during 1945-59 is illustrated in greater
detail. The table also provides a breakdown
of major holders of the debt, with holdings
taken as a percent of total marketable debt
outstanding.
At the end of 1945, 35 percent ($70.6 bil
lion) of marketable debt was due to mature in
le ss th an on e y e a r. At the end of 1959, that
is, prior to introduction of advance refundings,
the volume of short-term issues amounted to
4 7 percent ($88.7 billion) of the total. There
was a concurrent increase in the proportion
of debt maturing in one to five years—part of
the so-called intermediate maturity area. As a
result, at the end of 1959, more than 80 per
Source:
U.S. T r e a s u r y D e p a r t m e n t
cent of all marketable Government securities
were scheduled to mature in five years or less,
in contrast to 53 percent at the close of 1945.
The table shows clearly that almost all of the
debt shortening was accounted for by sharp
declines in the proportion of total issues
maturing in more than ten years.
O w n e rsh ip Distribution. C hanges in the
maturity structure of the debt were accom pa
nied by—and to some extent cau sed —sub
stantial changes in ownership, as shown in
Chart 2 and Table I. The decline in holdings
of traditional long-term investors—such as
mutual savings banks and life insurance
com panies—was partly accounted for by the
Treasury's lack of su ccess in lengthening the
debt. Immediately after World War II, these
institutions held 5 and 11 percent, respec
tively, of the marketable debt. At the end of
3
E C O N O M IC R E V IE W
TABLE I
M aturity Distribution an d O w n e rsh ip of the
Interest-Bearing M arketable Public Debt*
Percent of Total
December 31
Under
one
year
1-5
years
5-1 0
years
$198.8
10-15
years
15-20
years
O ve r 20
years
3 5 .4 %
1 7 .8 %
1 6 .6 %
1950
152.2
38.0
21.9
11.4
11.7
17.0
-0 -
1955
163.3
41.0
26.4
22.9
7.0
-0 -
2.7
1959
188.3
47.1
34.7
13.5
0.3
0.9
3.5
1945
Total Outstanding
Total
(billions
o f dollars)
Investor Group
Percent of
Total Debt
8 .7 %
9 .0 %
12 .5 %
Percent of G roup Total
4 1 .4 %
3 7 .0 %
3 0 .5 %
2 5 .4 %
4 .2 %
0 .1 %
2 .8 %
1950
36.0
36.6
44.6
13.3
0.4
5.1
-0 -
1955
32.9
21.9
43.5
30.8
3.2
-0 -
0.6
1959
27.5
31.4
54.1
13.5
0.1
0.1
0.8
1945
1945
Commercial Banks
Mutual Savings Banks
5.3
1.9
6.7
20.0
31.4
21.0
19.0
1950
6.6
2.9
6.0
20.8
41.6
28.7
—0 —
1955
4.1
4.5
14.9
61.2
13.4
-0 -
6.0
1959
3.3
11.0
52.5
25.5
1.9
1.1
8.0
10.6
1.5
5.9
10.8
9.8
39.2
32.8
1950
8.3
5.6
3.1
7.1
46.4
37.8
-0 -
1955
3.2
9.6
5.8
55.8
21.1
- 0—
7.7
1959
2.5
9.1
30.9
41.4
0.5
1.8
16.3
15.7
75.1
3.5
3.2
1.9
7.0
9.3
17.1
61.7
5.7
5.4
8.4
18.8
-0 -
1955
17.8
73.2
11.0
10.3
4.5
-0 -
1.0
1959
18.1
61.5
26.0
10.2
0.3
0.4
1.6
1945
1945
1950
Life Insurance Companies
U. S. Government and
Federal Reserve Banks
27.0
29.7
13.5
12.5
14.4
9.8
20.1
1950
32.0
42.7
13.1
11.7
10.9
21.6
-0 -
1955
42.0
48.3
22.3
15.7
9.3
-0 -
4.4
1959
48.6
55.0
26.0
12.6
0.4
1.3
4.7
1945
All Other Investors
*Prior to 1960, issues classified when due or first becoming callable; after 1960, classified by final maturity.
Source: U. S. Treasury Department
4
JANUARY 1967
1959, however, each group accounted for
only about 3 percent of the total. (See Table I.)
Mutual savings banks and life insurance
com panies historically have invested in long
term securities because their liquidity require
ments usually are less than those of other
financial institutions, such as commercial
banks. As Treasury bonds shortened in matur
ity with the p assage of time, these long-term
investors shifted their holdings to other in
vestors who preferred what had becom e short
term investments. Investment dem ands of life
insurance com panies and mutual savings
banks instead were satisfied by other types of
securities. For exam ple, life insurance com
panies turned increasingly to direct place
ments of higher-yielding, private debt obli
gations, such as corporate debentures. The
need to counteract this turn was one of the
major reasons for the Treasury's instigation
of advance refundings.
The decline in holdings of Treasury issues
by mutual savings banks and life insurance
com panies (and by commercial banks, as ex
plained later) was offset by the increased
proportions of debt in the hands of G overn
ment trust funds, Federal Reserve banks, and
the residual category, "all other investors.” 2
Holdings of the Federal Reserve banks and
Government accounts, combined, rose from
nearly 16 percent of the total at the end of
1945 to 18 percent at the end of 1959. Hold
ings of "all other investors" rose more sharply,
from 27 to nearly 49 percent of the total, re2 All other investors include savings and loan associ
ations, state and local governments, nonfinancial cor
porations, fire-casualty-marine insurance companies,
individuals, and those investors not included in the
Treasury Survey of Ownership.
fleeting primarily increased ownership by
savings and loan associations, state and local
governments, and some foreign and inter
national investors.
Immediately after World War II, the largest
single share of the marketable debt was held
by commercial banks, reflecting bank financ
ing of World War II and the p eggin g of inter
est rates until 1951. As indicated in Table I,
commercial bank holdings amounted to over
4 0 percent of the total marketable debt at the
end of December 1945, and were concen
trated in the under-ten-year area. By the end
of 1959, while commercial banks rem ained
the largest single holder of U. S. Govern
ment securities, their holdings had been re
duced to less than 28 percent of the total. In
short, the trend of bank investment in Treas
ury issues showed a long-term decline, which
caused major concern for the m anagers of the
public debt.3
AD VA N CE REFUNDINGS
The primary reasons why the Treasury
adopted the advance refunding technique can
be summarized briefly. At the close of the
Fifties, among the major problems facing debt
management were a steady shortening of the
maturity structure and substantial net sales of
3 The secular decline occurred despite the fact that
portfolio managers of commercial banks have followed
a basically countercyclical investment policy. That is,
. . commercial bank buying and selling of Govern
ment securities has followed a systematic, countercycli
cal pattern of purchases during recessions (and the
early recovery stages) and sales during economic ex
pansions." See C ycles in G ov ern m en t Securities,
D eterm in a nts o f Changes in Ownership II, Studies
in Business Economics, Number 88, National Industrial
Conference Board, New York, 1965, p. 17.
5
E C O N O M IC R E V IEW
U. S. Government securities by institutions
that formerly had been net investors. The
p assage of time alone, if not corrected, brings
im balance in the maturity and ownership
distributions of the debt. In turn, an imbal
anced maturity distribution, with a heavy con
centration of issues maturing in less than five
years, is accom panied by a shortened average
maturity of the debt. The Treasury is then
faced with the added problem of retaining
long-term investors, who tend to reduce their
holdings as securities approach maturity. As
a result, at maturity, Treasury bonds may be
held primarily by short-term investors, with
dem ands by other investors for new long-term
securities being satisfied in other capital m ar
kets. In these situations, the shortening of the
average maturity of Treasury issues tends to
becom e a never-ending circle.
In attempting to retain long-term customers,
the Treasury endeavors to offer yields that are
attractive relative to interest rates on com
parable maturities of outstanding Treasury
issues, state and local tax-exempt bonds, cor
porate bonds, and other investments. Simul
taneously, the Treasury attempts to minimize
borrowing costs. The two objectives are not
always mutually compatible. The Treasury
often can take advantage of more favorable
market conditions through advance refund
ing, rather than confining refinancing opera
tions to the maturity dates of securities.4 More
flexibility in the timing of Treasury debt re
financing also helps to reduce complications
4 The Treasury has not called any securities for redemp
tion prior to maturity since August 1962, when the last
partially tax-exempt issue outstanding, the 2% percent
bonds of December 1965/60, was called for redemption
in December 1962.
6
with monetary policy operations by the Fed
eral Reserve System.
Additional debt management problems a c
company a shortening average maturity. Fre
quent and large refunding operations not
only are costly, but can result in significant
price turbulence within money and capital
markets. Anticipation of Treasury actions can
cause instability in the highly rate-sensitive
market for Government securities, which
serves as a benchmark for other markets.
Finally, it is widely recognized that an ex ces
sive supply of highly-liquid short-term debt
is potentially inflationary. Ideally, the volume
of short-term issues should satisfy liquidity
requirements of the economy, but not to ex
cess. A balanced maturity structure implies a
"sufficient" but not ''excessive'' volume of
short-term, intermediate, and long-term secur
ities, consistent with financial and economic
conditions.
The advance refunding technique allows
the Treasury to remove issues from maturity
ranges in which securities are heavily con
centrated; it thus contributes to improved
maturity distribution and reduces the fre
quency of Treasury trips to the market to re
finance. There have been several types of
advance refundings since 1959. A ju n io r
ad v an ce re fu n d in g gives the holders of U. S.
Government securities maturing within one
to five years the opportunity to exchange for
securities due in more than five years. A
sen io r ad v an ce re fu n d in g allows holders
of issues maturing within five to twelve years
to exchange for longer term securities matur
ing in 15 years and more. In a p r e -r e fu n d
in g, owners of Treasury securities maturing
JANUARY 1967
DEFINITION OF TERMS
Types of U. S. Government securities:
Treasury bills — non-coupon obligations; sold at discount through competitive bidding;
generally having original maturities of three months, six months, and one year.
Certificates of indebtedness —obligations having original maturities of one year or less; gen
erally issued with coupons.
Treasury notes —coupon obligations having original maturities of from one to five years.
Treasury b o n d s —coupon issues having original maturities of more than five years.
Types of advance refundings (based upon the remaining maturity of U. S. Government securities eligible
for exchange):
Pre-refunding —an exchange by holders of securities maturing in less than one year for
securities of longer original maturity, usually due within ten years.
Junior —an exchange by holders of securities maturing within one to five years for issues
with original maturities of five or more years.
Senior —an exchan ge by holders of securities maturing within five to twelve years for issues
with original maturities of 15 years or longer.
P ar —technically, 100 percent; for example, a Treasury bond having a face value (principal
amount on which interest is paid) of $ 1 ,0 0 0 and sold at par, is sold for $1,000.
Prem ium —the amount by which a security is priced over par. A $ 1 ,000 bond with a market
price of $ 1 ,0 5 0 has a premium of $50.
D isco un t —the amount by which a security is priced below par, that is, the opposite of pre
mium. A $ 1 ,0 0 0 bond with a market price of $ 950 has a discount of $50.
B oot —payments by or to the Treasury that may be necessary in an advance refunding in
order to align more closely the respective values of the eligible issues and the issues offered.
R ig h ts —accruing to securities that are eligible for exchange in both regular and advance
refundings. Holders of the eligible issues may sell their rights, and the buyer is entitled to
exchange the rights for the new issue.
7
E C O N O M IC R E V IEW
in less than one year are given the oppor
tunity to extend their holdings. The maturity
area of the eligible issues determines the type
of advance refunding. There were 13 advance
refundings during the period from June 1960
through August 1966; of these, only two were
senior advance refundings, one was a com
bination junior and senior advance refund
ing, and most others were a combination of
junior and pre-refundings.
COMMERCIAL BANK PARTICIPATION
IN ADVAN CE REFUNDINGS
Com m ercial banks, as major holders of U. S.
Government securities, have been important
participants in most advance refunding opera
tions. A summary of bank participation is
presented in Table II. The 13 advance re
fundings are ranked according to the extent
of bank participation, as m easured by the
proportion of total allotments aw arded to com
m ercial banks.
A s discussed earlier, the type of advance
refunding operation is based upon the ma
turity dates of the issues involved. The table
lists the total amount of eligib le issues out
standing, including both the publicly-held
issues and those held by Government accounts
and Federal Reserve banks. The table also
shows the amount and proportion of eligible
issues held by commercial banks at the end of
the month preceding the refunding operation.
Bank response to the advance refundings
was greatest in the first operation, conducted
in June 1960. (This refunding is treated sep
arately, b ecause it was the first in the series
and investor response may not have been
typical.) In contrast, bank participation was
minimal in the advance refundings involving
8
only longer term issues, namely, those of O c
tober 1960 and Septem ber 1961.
The First A d v a n c e Refunding. In the first
operation in June 1 960—a junior advance re
funding — Treasury officials dealt with the
largest single debt issue outstanding at that
time in an effort to reduce the cum bersom e
amount that otherwise would have required
refunding at maturity. Slightly over $11 bil
lion of 2 ^ percent bonds issued during World
War II and due in November 1961 were out
standing, held mostly by the public. In turn,
about half of the publicly-held volume was in
commercial bank portfolios. Many institution
al investors had retained these securities after
the war, having been unwilling to take a
capital loss by selling them in the market.
L egislatio n p a sse d in Septem ber 1959,
which permitted the Secretary of the Treasury
to designate the exchange of one security for
another as a nontaxable exchange, removed
legal constraints that might have hindered
advance refundings.5 The Treasury proceed
ed to offer, in exchan ge for the 2 ^ percent
W ar bonds, both 3 % percent four-year notes
and 3 % percent eight-year bonds on a parfor-par basis. Holders who had purchased the
5 Title II of Public Law 86-346 states: "Generally this
means that in the exchange the value of the existing
security on the books of the investor becomes the book
value of the new security. Therefore, the exchange
causes no immediate tax consequences and investors
are n o t required to take a loss for tax purposes merely
because they exchanged. The gain or loss is deferred
until the new security is redeemed (or disposed of prior
to maturity). However, if a payment to the investor—
other than an adjustment of accrued in te r est —is in
volved (which might be the case in some advance re
fundings), the book value of the new issue would n o t be
the same as that of the existing issue and part or all of
the payment becomes immediately taxable."
JANUARY 196 7
original bonds at par and elected not to par
ticipate in the advance refunding by exchan g
ing for the 3 % percent notes of May 1964
would have had to reinvest the maturing value
for 2 j/2 years at about Ax/i percent in order to
obtain the investment return equivalent to
that offered. Holders who elected not to ex
change for the 3 % percent bonds of May
1968 would have had to reinvest at a rate of
almost 434 percent for 63^ years.
It was expected that this advance refunding
would appeal to commercial banks. Credit
conditions had becom e less restrictive in 1960.
Government securities prices had stabilized
after advancing sharply immediately follow
ing a change in the discount rate earlier, and
the market for Treasury issues appeared favor
able for the first advance refunding. In June,
market yields on three- to five-year Treasury
securities averaged 4 .0 6 percent, so that the
reinvestment equivalents offered in the re
funding were fairly generous.
As expected, commercial bank participa
tion was substantial. In fact, in terms of the
proportion of total allotments, bank response
has not been equaled since. O verall response
was apparently less than anticipated by the
Treasury—only 38 percent of the eligible is
sues were turned in —and so commercial bank
allotments, which totaled $2.7 billion, amount
ed to 64 percent of the total. Banks exchanged
almost half of their eligible holdings. Of the
two issues offered, commercial banks favored
the shorter maturity, and were allotted 66
percent of the four-year notes issued. Of the
longer issue, banks were allotted only $100
million, or 32 percent of the total. In all but
two of the subsequent advance refundings,
commercial banks favored the shorter issues,
reflecting traditional investment policies.
The first advance refunding only increased
the average maturity of the debt by less than
a month. However, with the primary objective
to alleviate future problems in refunding the
large volume of bonds maturing in November
1961, the advance refunding was considered
successful in that it reduced the amount out
standing from $11 billion to about $7 billion.
Senior A d v a n c e R efun din gs. In contrast to
the first advance refunding, bank response
was rather inconsequential in the senior ad
vance refundings in the fall of 1960 and 1961
(chronologically, the second and fourth re
fundings). Bank participation was somewhat
greater in the combined junior and senior
operation in March 1962, although markedly
less than in any of the pre-refundings, junior,
or combined pre-refunding/junior operations.
In the advance refunding of O ctober 1960,
the Treasury undertook its first major step to
lengthen the av erage maturity of the debt.
Some of the remaining issues of 2 ^ percent
W ar bonds were chosen for refunding, with
$12.5 billion ranging in maturity from seven
to nine years selected. In exchange, the Trea
sury offered several bond issues maturing in
20 to 3 8 years, all with 3 ^ percent coupons.
(See Table II.) In contrast to the previous ad
vance refunding, commercial banks did not
hold as many of the eligible issues (onequarter of the outstanding issues, as com
pared with one-half). Mutual savings banks
and insurance companies, combined, held
more of the eligible issues than commercial
banks, and the offering was designed to ap
peal to these long-term investors.
After the advance refunding in June 1960,
the discount rate had been reduced again,
9
E C O N O M IC R E V IEW
to 3 percent in August of that year. At that
time, the banking system appeared to be in a
relatively comfortable position. Interest rates
had declined throughout most of the early
part of 1960, and the lowering of the dis
count rate in August did not produce an im
mediate downward adjustment in yields on
Government securities.
In the October refunding, banks exchang
ed less than 10 percent of their eligible hold
ings. Of the $4 billion in total allotments,
commercial banks received only $267 million,
or 7 percent. Nevertheless, because overall
investor response was much greater, the Trea
sury was able to shift $4 billion into securities
maturing beyond 15 years, and thus to in
crease the average maturity of the debt from
four years and two months to four years and
nine months.
G eneral market stability prevailed prior to
the other senior advance refunding, conduct
ed in Septem ber 1961. The 23^ percent War
bonds due in 1970 and 1971 were selected
for this operation, and the Treasury reopened
the sam e issues that were offered in the pre
vious senior advance refunding, namely, the
33/2 percent bonds with maturities of 1980,
1990, and 1998. This exchange required pay
ments ("boot" payments) to adjust original
prices to the value of the new offerings.6
This operation also was designed to appeal
to long-term investors, particularly life insur
ance com panies which owned about one-third
of the eligible issues. Commercial banks held
6 See definition of boot on page 7. For example, the ex
change of 2% percent bonds of March 15, 1965/70
required holders to pay $2.25 per $100 face value (or
$22.50 per bond) to the Treasury in exchange for the
3V6 percent bonds of November 15, 1980.
10
only about $ 600 million, the smallest amount
of eligible issues held by banks in any of the
13 advance refundings in the 1960-66 period.
A total of $3.8 billion of the reopened 33^
percent bonds was issued, as all investors
turned in about half of their holdings. Com
m ercial bank allotments totaled only $192
million, or 5 percent of total allotments, es
sentially the sam e as in the preceding senior
operation.
In the first senior advance refunding, com
m ercial banks held a substantial volume of
eligible issues and elected not to exchange
many of them. In the second senior refunding,
commercial banks did not hold enough of the
securities to permit any substantial exchanges.
While prospective investors could purchase
issues carrying rights, the amount of rights
trading was small in both senior operations
and also in the subsequent junior-senior ad
vance refunding.7
In February 1962, with market conditions
apparently favorable for both types of opera
tion, the Treasury announced that a combina
tion junior-senior advance refunding would
be held in March. Markets for fixed income
securities were relatively firm at that time;
b ecause of uncertainties about the outlook
for business conditions, some investors were
lengthening portfolios in the belief that in
terest rates might fall. Bank interest was not
expected to be strong in this advance refund
ing of approximately $ 18.7 billion of selected
bond issues maturing between February and
December 1972. O ffered in exchange were
7 See Thomas R. Beard, "U . S. Treasury Advance Re
funding,” June 1960-July 1964, Board of Governors of
the Federal Reserve System, p. 28.
JANUARY 1967
four issues of 3}/2 and 4 percent bonds ma
turing from 1971 through 1998.
Commercial banks held over $ 7 billion
of the eligible issues but turned in only about
one-quarter of their holdings; bank allotments
totaled $ 1 .9 billion, or 3 6 percent of the total.
Commercial bank participation, again, was
strongest in the shortest of the two bonds with
the higher 4 percent coupon. (See Table II.)
Banks were allotted 57 percent (or $1.6 bil
lion) of the 4 percent bonds due in 1971,
about 20 percent of the 4 percent bonds due
in 1980, and only 10 and 8 percent, respec
tively, of the 3}/2 percent issues. Overall,
commercial banks turned in about the same
percent of holdings as all investors. Apparent
ly, strong market demand for rights had led
some banks into relinquishing their rights
issues. Moreover, the change in Regulation Q
in January, which raised the ceiling on interest
rates payable on time and savings deposits
at commercial banks, had stimulated bank
purchases of higher-yielding state and local
government bonds which had higher after
tax yields.
Other A d v a n c e R efundings. In the nine ad
ditional advance refundings conducted b e
tween Septem ber 1962 and 1966, the Trea
sury shifted issues out from the under-one-year
maturity range and from the one-to-five-year
maturity range into longer maturities. Five
of the operations combined pre-refundings
and junior advance refundings.
The advance refundings between June 1960
and March 1962 (already described) occurred
first w ithin an econ om ic en viron m en t of
mild recession and then of em erging business
expansion. During this period, monetary pol
icy was attempting to stimulate the economy
and accommodate the upswing in business
activity. Throughout the period covering the
later advance refundings, the economic en
vironment ranged from a leveling-off in busi
ness activity in 1962 to rapid expansion in
1965-66. Within this period, financial markets
gradually moved from a phase in which the
overall supply of investable funds exceeded
dem ands to one in which dem ands outpaced
supply. Interest rate movements, of course, re
fle c te d th ese c h a n g e s in su p p ly -d em an d
relationships in flows of funds.
Thus, the Treasury's advance refundings
were carried out under widely-different mar
ket conditions. Bank participation also was
influenced by substantial changes in the d e
mand for bank credit. The rate of expansion
in bank loans began to increase in 1963 and
climbed sharply in 1965-66. At the sam e time,
major changes in the composition of bank d e
posits prompted banks to seek out higheryielding loans and investments. Against this
background, bank participation in the ad
vance refundings during the period from Sep
tember 1962 through August 1966 showed
no apparent consistent pattern. In those re
fundings, the Treasury replaced in advance
$56.1 billion of securities, with about $31
billion of total allotments going to commercial
banks. (For details of each refunding, see
Table II.)
The total amount of securities exchanged
through the advance refunding technique
since its inception in 1960 has been over $79
billion; of the total, commercial bank allot
ments amounted to $39 billion, or 49 percent.
In general, bank participation was substantial
in each of the advance refundings with the
11
T ABLE II
Com m ercial Ban k Participation in A d v a n c e R efun d in gs
(millions of dollars)
Month of
Advance
Refunding
Maturity
Area
o f Eligible
Securities
Type
Maturity
Area of
Securities
Issued
Total
Eligible
Issues
Outstanding
Commercial
Bank
Holdings
$ 11,177
$ 5,535
26,819
9,610
5,757
2,705
June 1960
Junior
1-5 years
1-5, 5-1 0 years
September 1962
Pre-refunding
0-1
1-5, 5-10
August 1966
Pre-refunding
0-1
1-5
July 1964
Junior and
0-1, 1-5
5-10, 2 0 +
41,746
13,150
0-1, 1-5
5-10, 2 0 +
33,077
10,743
Pre-refunding
January 1965
Junior and
Pre-refunding
March 1961
Junior
1-5
5-10
19,437
10,699
March 1963
Junior and
0-1, 1-5
1-5, 5-10, 10-15,
29,046
10,454
1 2 ,5 6 1
Pre-refunding
Se p te m b e r 19 6 3
15-20
J u n io r a n d
0-1, 1-5
5-1 0 , 2 0 +
32 ,1 3 9
0-1, 1-5
5-10, 2 0 +
24,723
6,429
Pre-refunding
January 1964
Junior and
Pre-refunding
February 1 966
Pre-refunding
0-1
1-5
23,291
4,884
March 1962
Junior and
1-5, 5-10
5-10, 15-20, 2 0 +
18,740
7,3 27
12,472
3,097
7,615
59 4
$286,039
$9 7,78 8
Senior
+
October 1960
Senior
5-10
20
September 1 961
Senior
5-10
15-20, 2 0 +
e Estimated by Federal Reserve Bank
http://fraser.stlouisfed.org/
Source:
U. of
S. Treasury
Federal Reserve
Bank
St. LouisDepartment
G R A N D TOTALS:
of Cleveland
Commercial
Bank
Holdings
as Percent
of Total
4 9 .5 %
Commercial
Bank
Total
Allotments
Commercial
Bank
Allotments
Allotments
as Percent
o f Total
3 % % Notes 5-1 5-64
$ 3,893
$ 2,582
6 6 .3 %
Bonds 5-1 5-68
320
102
$ 4,213
$ 2,684
Securities Issued
3Va
35.8
3%
Notes 8-1 5-67
$ 5,282
$ 3,585
4
Bonds 8-15-72
2,579
1,146
$ 7,861
$ 4,731
31.9
6 3 .7 %
6 7 .9 %
44.4
6 0 .2 %
47.0
5'A
Notes 5-15-71
$ 1,686
$ l,0 0 0 e
6 0 .0 % e
31.5
4
Bonds 10-1 -69
$ 3,726
$ 2,392
6 4 .2 %
4 /s
Bonds 11-15-73
4,357
2,582
59.3
4'A
Bonds 8 -1 5 -8 7 /9 2
1,198
527
44.0
$ 9,281
$ 5,501
4
Bonds 2-1 5-70
$ 4,381
$ 2,883
4'A
Bonds 2-1 5-74
3,130
1,792
4 /a
Bonds 8 -1 5 -8 7 /9 2
32.5
55.0
36.0
39.1
26.0
21.0
39.1
24.8
7.8
2,254
975
$ 9,765
$ 5,650
3%
Bonds 11 -1 5-66
$ 2,438
$ 1,714
3%
Bonds 1 1-15-67
3,604
1,664
3Va
Notes 2-1 5 -6 7
3Va
5 9 .3 %
6 5 .8 %
57.3
43.3
5 7 .8 %
7 0 .3 %
46.2
$ 6,042
$ 3,378
5 5 .9 %
$ 4,287
$ 2,711
6 3 .2 %
Bonds 11-15-71
1,515
923
60.9
3Ve
Bonds 11-15-74
1,074
491
45.7
4
Bonds 2-1 5 -8 0
1,131
278
$ 8,007
$ 4,403
5 5 .0 %
$ 1,591
$
6 2 .2 %
24.6
3Ve
Bonds 11 -1 5-68
4
Bonds 8-15-73
3,894
1,998
51.3
4Va
Bonds 5-1 5-94
1,260
378
30.0
$ 6,745
$ 3,365
4
Bonds 8-1 5-70
$ 2,223
$ 1,230
4'A
Bonds 5-1 5-85
748
212
$ 2,971
$ 1,442
4 8 .5 %
4Vb
Notes 8-1 5 -6 7
$ 2,117
$
2 4 .8 %
5
Notes 11-15-70
989
524
4 9 .9 %
5 5 .3 %
28.3
7,681
3,919
$ 9,798
$ 4,443
4 5 .3 %
51.0
5 6 .7 %
4
Bonds 8-15-71
$ 2,806
$ 1,591
4
Bonds 2-1 5-80
563
116
20.6
3Zi
Bonds 2-1 5-90
900
94
10.4
3Vi
Bonds 11-15-98
933
77
$ 5,202
$ 1,878
3 6 .1 %
$
$
3'A
Bonds 11-15-80
3/2
Bonds 2-1 5-90
3 /2
Bonds 11-15-98
8.2
96
1 4 .9 %
993
54
5.4
2,343
117
5.0
643
$ 3,979
$
267
6 .7 %
$ 1,273
$
61
4 .8 %
3/2
Bonds 11-15-80
3/2
Bonds 2-1 5-90
1,298
81
6.2
3/2
Bonds 11-15-98
1,187
50
4.2
3 4 .2 %
$ 3,758
$
192
5 .1 %
$79,308
$39,034
4 9 .2 %
E C O N O M IC R E V IEW
exception of the operations in which securi
ties eligible for exchange had remaining m a
turities of over five years. In almost all cases,
banks preferred the shortest issues offered in
the refundings, and their participation di
minished with the increase in the maturity
length of the issues offered.
RECENT CHANGES IN THE PUBLIC DEBT
While it is not the purpose of this article to
evaluate advance refunding as a technique
of debt management, it is relevant to compare
various characteristics of the marketable pu b
lic debt at the end of 1959 with the debt in
1966, after 13 advance refundings. From the
end of 1959 through August 1966, the dollar
volume of publicly-held, marketable G overn
ment securities increased by $23 billion to
a level of $ 2 1 1 .4 billion. Of the total increase,
$1 3 .7 billion, or nearly three-fifths, represent
ed debt maturing within one year. In con
trast, only $1 billion was in issues due within
one to five years. In relative terms, the lessthan-one-year segment represented 43.6 per
cent of the total marketable debt on August
31, 1966, considerably less than the 47.1
percent at the end of 1959. In August, the
debt maturing in five years or less accounted
for about 73 percent of the total, down sub
stantially from 82 percent at the end of 1959
(see Table III).
Some of the dollar increase in short-term
debt in the past six years reflected the p as
sage of time. For example, in both 1961 and
1962 about $ 2 0 billion moved into the short
est maturity range. Moreover, partly for b al
ance of payments reasons, the debt m anagers
had substantially increased the supply of Trea
sury bills during 1960-64, further adding to
14
the growth of short-term debt. The fact that,
over the period, the volume of short-term
debt increased by less than $14 billion, on
balance, is one indication of the effectiveness
of advance refundings. The rise in short
maturities would have been even greater if
securities had not been removed from this
area in pre-refunding operations.
Advance refundings also were responsible
for the limited increase in the dollar volume
of one-to-five-year issues between 1959 and
August 1966. In many of the advance re
fundings, the Treasury removed debt from
this maturity range, thus reducing the net in
crease in such issues.
On the other hand, as a proportion of the
total marketable debt, securities due within
five to ten years rose from 13.5 percent at the
end of 1959 to 14.6 percent in August (after
amounting to as much as 17 percent at the
end of both 1963 and 1964). Even more
strikingly, the proportion of debt maturing
within 10 to 20 years increased by 3 percent
ag e points, while the share of very long-term
debt (due in more than 20 years) jumped by
A}/2 percentage points. It should be noted
that long-term bonds were offered in most of
the advance refundings between 1960 and
1965.
As this article has suggested, bank partici
pation in the advance refunding operations
contributed importantly to their success. The
Treasury's use of the new debt management
technique coincided with a period of excep
tional change in commercial banking. Among
the major developments affecting banking in
the past six years were: the public's increased
preference for interest-earning assets as op
posed to non-earning demand deposits; bank
JANUARY 1967
TABLE III
M aturity Distribution an d O w n e rsh ip of the
Interest-Bearing M arketable Public Debt*
Percent of Total
December 31
Total
(billions
of dollars)
Under
one
year
1-5
years
5-10
years
10-15
years
15-20
years
$188.3
Over 20
years
4 7 .1 %
3 4 .7 %
1 3 .5 %
0 .3 %
0 .9 %
3 .5 %
1962
203.0
43.0
30.4
16.7
0.6
1.7
7.6
1964
212.5
41.6
30.2
17.1
-0 -
2.9
8.2
1966 (August 31)
211.4
43.6
29.8
14.6
2.1
1.9
8.0
0 .8 %
1 959
Total Outstanding
Investor Group
1959
Percent of Group Total
2 7 .5 %
3 1 .4 %
5 4 .1 %
1 3 .5 %
0 .1 %
0 .1 %
1962
28.6
34.3
45.3
19.3
0.2
0.2
0.7
1964
25.3
34.4
43.8
20.5
-0 -
0.4
0.9
1966 (August 31)
21.3
31.1
44.2
22.7
0.4
0.5
1.1
1959
Commercial Banks
Percent of
Total Debt
3.3
11.0
52.5
25.5
1.9
1.1
8.0
1962
Mutual Savings Banks
2.8
10.5
22.8
38.6
1.8
3.5
22.8
1964
2.5
11.1
27.8
33.3
-0 -
3.7
24.1
1 966 (August 31)
2.3
13.9
30.3
27.8
3.8
2.4
21.8
1959
2.5
9.1
30.9
41.4
0.5
1.8
16.3
1962
2.4
6.2
8.3
18.8
-0 -
10.4
56.3
1964
2.2
2.2
8.7
17.4
-0 -
15.2
56.5
1966 (August 31)
1.9
2.2
9.1
11.7
13.8
8.1
55.1
1959
1962
Life Insurance Companies
U. S. Government and
Federal Reserve Banks
18.1
61.5
26.0
10.2
0.3
0.4
1.6
20.0
47.6
30.4
1 1.8
1.0
2.5
6.7
1964
23.2
47.0
32.5
10.0
-0 -
3.2
7.3
1966 (August 31)
2 6.7
51.5
31.0
6.9
2.6
1.4
6.6
4.7
1 959
48.6
55.0
26.0
12.6
0.4
1.3
1962
All Other Investors
46.2
50.2
22.7
15.9
0.6
1.7
8.9
1964
46.8
46.4
22.7
18.0
-0 -
3.4
9.5
1966 (August 31)
47.8
47.9
23.5
14.7
2.1
2.4
9.4
* Prior to 1960, issues classified when due or first becoming callable; after 1960, classified by final maturity.
Source: U. S. Treasury Department
15
E C O N O M IC R E V IEW
efforts to tap new sources of funds through
the issuance of time certificates of deposit,
among other innovations; and intensified com
petition for savings among financial institu
tions. These developments have had impor
tant effects on bank portfolio management.
For example, large inflows of savings-type
funds enabled banks to invest for a longer
term. At the sam e time, the increase in in
terest-earning deposits, as well as increased
rates paid on such deposits, pushed up bank
costs, which encouraged banks to move investable funds into assets yielding high re
turns. For these reasons, and despite some
sacrifice of liquidity, banks have tended to
lengthen Government securities portfolios in
recent years.
Within the past six years, commercial banks
first increased holdings of Government secur
ities during the 1960-61 recession, and then
steadily reduced holdings in the subsequent
economic expansion. Until recently, net sales
of Treasury issues were accom panied by
shifts of funds into other assets such as state
and local government securities—which often
carried higher after-tax yields than those on
Treasury issues. On balance, including the
intervening increase, commercial bank hold
ings of U. S. Government obligations declined
from $60 billion at the end of 1959 to $54
billion on August 31, 1966. Virtually all of
the decline reflected a substantial reduction
in holdings of issues in the one-to-five-year
maturity range. As a result of these portfolio
changes, commercial banks held only 21 per
cent of the marketable public debt at the end
of August 1966, in contrast to nearly 28 per
cent at the end of 1959. The decline in the
commercial banking system's proportion of
16
the marketable public debt was shared, on
a much smaller scale, by mutual savings
banks, life insurance companies, and all other
investors. The declines were offset by a large
increase in the percent of the debt held by
U. S. Government agencies and trust funds
and the Federal Reserve banks. Thus, slightly
less than three-fourths of the marketable debt
was held by the public on August 31, 1966,
and only half of the debt was in the hands of
the non-bank public. (See Table III.)
The effects of the advance refundings, in
combination with recent changes in invest
ment goals at most financial institutions, are
apparent from the maturity distributions of
the investor groups shown in Table III. The
proportion of securities held by commercial
banks in the one-to-five-year maturity range
declined appreciably, while the proportion
of securities due to mature in more than
five y e ars in c r e a s e d m arkedly. M utual
savings banks, like commercial banks, shifted
U. S. Government investments from the in
termediate area into longer term holdings.
Particularly noteworthy is the nearly three
fold gain in the proportion of their holdings
due in more than 20 years. Similar invest
ment shifts also occurred at life insurance
companies, and to a lesser extent, in the
holdings of "all other investors.”
CONCLUDING COMMENTS
The advance refunding method has a p
parently been successful in making progress
toward a more balanced maturity structure
of the marketable public debt and a better
distribution of holdings among long-term
holders. Perhaps the greatest contribution of
the technique has been in restructuring the
JANUARY 1967
marketable debt, as evidenced by the relative
decline in the proportion of the total debt
maturing in less than five years, matched by
the relative increase in the proportion of
longer term securities. While not all of the
improvement has been the direct result of the
advance refunding technique, the effect has
nevertheless been important. Throughout the
period under review, commercial banks play
ed a major role in Treasury operations to
refund debt obligations prior to maturity.
Each time debt extension is accomplished,
future debt management operations become
more flexible. While all the objectives of debt
management are not easily reconcilable, it
is evident that a more balanced maturity
structure of the debt, as well as a better owner
ship distribution, can be obtained through
utilization of the advance refunding method.
17
E C O N O M IC R EV IEW
POPULATION AND BANKING CHANGES
IN THE FOURTH DISTRICT, 1954-65
Two earlier articles in the E con om ic Review
traced changes in the number of banks,
branches, and banking offices in the Fourth
District during 1954-65 and com pared such
changes with the distribution of deposits at
commercial banks in the District. This article
is concerned with the relationship of popu
lation changes in the Fourth District during
1954-65 to changes in the number and type
of banking facilities and the distribution of
deposits in the District.
POPULATION AN D BANKING
STRUCTURE (BY COUNTY)
Although there is no precise relationship
between changes in population and changes
in the number of banks and banking offices,
the evidence is sufficient that population and
banking facilities tend to move together, that
is, more people, more banking facilities. Such
a relationship is not surprising in that com
m ercial banking is a service industry, and the
number of banking facilities available to the
public generally would be expected to follow
population changes. An increased number of
banking facilities does not necessarily mean
that there will be more b an k s to meet the
needs of the population; rather, that there will
be more b a n k in g offices.
18
In an earlier article, it was shown that, dur
ing 1954-65, the number of banks in the
Fourth District declined from 1,035 to 843 —
an 18.6-percent decline—while the number
of banking offices soared from 1,545 to 2 ,3 1 7
—a 50-percent increase. As Table I shows,
this pattern was by and large the sam e
throughout the areas of the four states that
lie wholly or partially within the Fourth Dis
trict, with the exception of West Virginia. The
latter is the only state in the District that has
unit banking, and was the only state to have
equivalent declines in total banks and total
banking offices during 1954-65 (no branches
are allowed under State law in West Virginia).
As Table I also shows, the areas with the
largest percen tage increases in the number
of banking offices had the largest percent
ag e increases in population. Thus, Pennsyl
vania, with an increase of 59 percent in the
number of banking offices, had a population
increase of 8.2 percent; and Ohio, with an
increase in total banking offices of 52 percent,
had a population increase of 19.6 percent. On
the other hand, Kentucky, with a 3 1 -percent
increase in total banking offices had the low
est population gain (0.2 percent), and West
Virginia, with a net decline in total banking
JANUARY 1967
TABLE I
C h an ge s in Population, N um ber of Banks,
and Ban kin g Offices, Fourth District
1954-65
Number
of Banks
Percent
Change
Number of
Banking Offices
Percent
Change
Population
Percent
Change
Fourth District
1954 ...................................
1965 . . . .
1,035
-1 8 .6 %
843
1,545
2,317
+ 5 0 .0 %
13,672.8
15,666.1
+ 1 4 .6 %
Ohio (88 counties)
1954 .
.
.
,
637
1965 .
.
.
.
542
-15.0
982
1,487
+ 52.0
8.586.8
10,269.4
+ 19.6
Pennsylvania (10 districts)
1954 .....................
212
1965 .....................
128
— 40.0
366
583
+ 5 9 .0
3.569.6
3.863.8
+
8.2
Kentucky (56 counties)
1954 ..............
161
1965 ..............
149
—
8.0
172
223
+ 31.0
1.323.6
1.325.7
+ 0.2
W e st Virginia (6 counties)
1954 .....................
25
1965 .....................
24
4.0
25
24
—
4.0
192.8
207.2
+
7.5
Sources: Sales Management, Survey of Buying Power, M a y 10, 1955 and June 10, 1966 and
Federal Reserve Bank of Cleveland
offices of 4 percent, had an increase in popu
lation of 7.5 percent.1
C h an ge s in the N um ber of Banks and Popu
lation. Within the District, a comparison of
changes in the number of banks with changes
in population shows that the two do not tend
to move closely together (see Table II). In
Ohio, 74 of the 80 counties that experienced
an increase in population during 1954-65
showed either a decline or no change in the
number of banks. In six counties, both the
number of banks and population rose, while
in eight counties where population declined,
1 The six counties of West Virginia included within the
Fourth District are not necessarily representative of the
state's economy since they include the industrial centers
of Wheeling and Weirton. Economic and demographic
changes in the six-county area were somewhat different
from state patterns during 1954-65.
the number of banks remained unchanged (7),
or fell (1). It may be noted that these eight
counties are all located in the "A ppalach ian "
region of southeastern and southern Ohio, an
area that has had little, if any, economic
growth in recent years.
In Pennsylvania the situation was mixed,
with five of the ten districts2 experiencing
2 Because Pennsylvania state law permits branch bank
ing in contiguous counties, the 19 counties of western
Pennsylvania lying within the Fourth District are lumped
into ten districts in order to better measure changes in
banking structure. The ten districts and the counties
included are (1) Erie; (2) Venango, Mercer, Clarion,
Crawford; (3) Warren; (4) Forest; (5) Jefferson; (6)
Lawrence; (7) Indiana; (8) Allegheny, Armstrong,
Butler, Beaver, Washington, and Westmoreland; (9)
Greene, Fayette; (10) Somerset. While not a "perfect"
redistricting, such a procedure more closely approxi
mates the realities of the situation than do county bound
aries.
19
E C O N O M IC R E V IEW
TABLE II
C h a n g e s in N um ber of Banks Com pared
With C h an ge s in Population, Fourth District
1954-65
Both
Up
Both
Down
Banks Up
Population Down
Banks Down
Population Up
Banks N o Change
Population Up
0-
39
35
Banks N o Change
Population Down
O H IO
(88 counties)
6
-
KENTUCKY
(56 counties)
-0 -
13
31
PEN N SY LV AN IA
(10 districts)
-0 -
-
0-
W EST V IR G IN IA
(6 counties)
1
1
-
0-
1
-
0-
Sources: Sales Managem ent, Survey of Buying Power, M a y 10, 1955 and June 10, 1966 and
Federal Reserve Bank of Cleveland
declines in the number of banks while popu
lation was increasing, and four districts show
ing no change or declines in the number of
banks while population was declining. In the
counties of West Virginia lying within the
Fourth District, the experience was essentially
similar to that of Ohio and Pennsylvania. In
marked contrast, the portion of Kentucky
lying within the Fourth District experienced
a different pattern of population and bank
changes during the 1954-65 period, centered
largely on population developments. Thus,
while 20 of the 56 counties in Fourth District
Kentucky registered population growth and
either reduction or no change in the number
of banks, 36 counties experienced declines
in population and either declines or no change
in the number of banks.
C h a n g e s in the N um ber of Ban kin g O ffices
and Population. When changes in the num
ber of banking offices are com pared with
changes in population, the results are quite
different, as su ggested earlier. For example,
66 of Ohio's 88 counties had an increase in
both banking offices and population during
20
1954-65 (see Table III). In 12 of the counties
population grew but the number of banking
offices did not change. In eight counties, d e
creases in population were associated with
mixed patterns (no change or increase) in
the number of banking offices. G enerally, the
sam e pattern prevailed for the counties within
the Fourth District portions of Pennsylvania
and West Virginia during 1954-65. Again,
however, the situation was different in Ken
tucky. There were only 19 counties in Ken
tucky in which the number of banking offices
either remained unchanged or increased while
population was increasing. In ten counties,
the number of banking offices increased while
population was declining; in 25 counties,
banking offices remained unchanged while
population was declining. In seven counties
the number of banking offices did not change
while population was increasing.
Thus, as a general matter, in most counties
of the Fourth District there were considerably
more banking offices at the end of 1965 than
in 1954, even though the number of banks
fell materially. The increase in the number of
JANUARY 1967
TABLE III
C h an ge s in the N um ber of Ban kin g O ffices Com pared
With C h an ge s in Population, Fourth District
1954-65
Both
UP
Both
Down
Banking
Offices Down
Population Up
Banking
Offices Up
Population Down
Banking Offices
N o Change
Population Down
Banking Offices
N o Change
Population Up
O H IO
(88 counties)
66
-
12
0-
KENTUCKY
(56 counties)
12
10
25
PEN N SY LV AN IA
(10 districts)
-
0-
W EST V IR G IN IA
(6 counties)
-
0-
-
0-
Sources: Sales Managem ent, Survey of Buying Power, M a y 10, 1955 and June 10, 1966 and
Federal Reserve Bank of Cleveland
banking offices tended only to be generally
associated with changes in population, with
the relationship closest in Ohio (where 66
out of 88 counties experienced increases in
both population and banking offices).
POPULATION A N D BANKING
STRUCTURE (BY SMSA)
It would be expected that, since changes
in banking facilities are closely related to
changes in population in subareas and coun
ties of the Fourth District, a similar pattern
would appear in the SM SA's of the District.
In fact, the data show an even stronger cor
relation between population growth and in
creases in banking facilities in the 19 SM SA's
of the District than that for the subareas and
counties of the District.3
As shown in Table IV, population increased
in every SM SA of the Fourth District during
3 During the first half of 1966, Richland County, Ohio,
was designated a Standard Metropolitan Statistical Area,
increasing the number of SMSA's in the Fourth District
to 20. Population and banking structure changes in
Richland County are not included in this article.
TABLE IV
Percentage C h a n g e s in Population,
N um ber of Banks,
and N um ber of B an k in g O ffices in
S M S A ’s, Fourth District
1954-65
Population
Banking
Offices
Banks
Akron
+ 2 4 .6 %
— 3 1 .3 %
+ 1 0 3 .7 %
Canton
+ 16.1
— 25.0
+
Cincinnati
+ 22.0
— 23.2
+
27.3
Cleveland
+ 2 3 .6
—
+
91.7
4.2
53.6
Columbus
+ 32.1
— 32.3
+
91.7
Dayton
+ 29.4
— 20.0
+
58.8
Erie
+ 15.9
— 35.7
+
73.9
Hamilton-Middletown
+ 32.4
— 20.0
+
47.1
Huntington-Ashland
+
9.7
no change
+ 120.0
Johnstown
—
7.0
— 31.3
+
Lexington
+ 33.6
— 16.7
+ 150.0
Lima
+ 13.8
no change
+ 100.0
Lorain-Elyria
+ 44.3
— 41.7
+ 123.5
Pittsburgh
+
7.6
— 48.3
+
Springfield
+ 13.8
— 16.7
+ 100.0
12.5
69.7
Steubenville -Weirton
+ 11.4
— 10.5
+
28.6
Toledo
+ 13.7
— 22.7
+
77.5
W heeling
+
— 19.2
no change
Youngstown-W arren
+ 2 0 .5
—
+
0.2
6.7
80.0
Sources: Sales Managem ent, Survey o f Buying Power,
M a y 10, 1955 and June 10, 1966 and
Federal Reserve Bank of Cleveland
21
TABLE V
Population Per Bank an d Per B an kin g O ffice
in S M S A 's , Fourth District
1954 an d 1965
Population
Per Bank
(thousands)
Population Per
Banking Office
(thousands)
AKRON
1954
1965
32.5
58.9
19.3
11.8
CANTON
1954
1965
15.5
23.9
11.0
8.4
CIN C IN N A T I
1954
1965
19.3
30.7
8.4
8.1
CLEVELAND
1954
1965
69.7
89.9
12.7
8.2
CO LUM BU S
1954
1965
19.9
38.9
12.9
8.9
DAYTON
1954
1965
17.3
28.0
11.9
9.7
16.7
30.1
•10.1
6.8
H A M ILT O N -M ID D LE T O W N
1954
1965
16.3
26.9
9.6
8.6
H U N T IN G T O N -A SH L A N D
1954
1965
20.4
22.4
20.4
10.2
5.1
6.9
5.1
4.1
17.8
28.5
13.3
7.1
1954
1965
13.8
15.7
10.7
6.1
LORAIN-ELYRIA
1954
1965
13.6
33.7
9.6
6.2
PITTSBURGH
1954
1965
26.0
54.1
11.3
7.1
SPRINGFIELD
1954
1965
20.2
27.6
13.4
7.7
STEUBENVILLE-W EIRTON
1954
1965
8.3
10.4
7.5
6.5
TO LEDO
1954
1965
22.3
32.8
12.2
7.8
7.4
9.2
7.1
7.1
29.9
38.6
15.0
10.0
ERIE
1954
1965
JO H NSTO W N
1954
1965
L E XIN G TO N
1954
1965
are few er banks in the m etropolitan centers.
LIMA
W H EE LIN G
1954
1965
Y O U N G S T O W N -W A R R E N
1954
1965
1954-65 with the exception of Johnstown,
Pennsylvania, which lies partly within the
District. At the sam e time, nearly all SM SA 's
showed a decline in the number of banks (ex
cept Huntington-Ashland and Lima, which
showed no change). On the other hand, the
number of banking facilities increased con
siderably in 18 of the 19 SM SA's, with the
remaining SM SA (Wheeling) showing no
change, for reasons cited earlier.
Thus, in the metropolitan centers of the
District the growth of banking offices and the
growth of population are closely related, while
population changes and changes in the num
ber of banks have a high inverse relationship.
Accordingly, with the number of banking
offices increasing faster than population in
virtually every one of the 19 metropolitan
centers, residents of those areas have more
banking facilities available even though there
The fact that there are less banks but more
banking offices does not necessarily mean
there is more banking competition in the indi
vidual SM SA's than previously, or that a wider
variety of services is available to the public.
The increased availability of banking facili
ties in SM SA's of the Fourth District can also
be seen by relating population to the number
of banks and the number of banking offices
(see Table V). In the case of number of banks,
the experience is the sam e for all 19 SM SA's
of the Fourth District: in each SM SA the num
ber of people being served by each bank has
risen, and in some cases markedly. For ex
ample, at the extreme, in Columbus, LorainElyria, and Pittsburgh, the number of people
served by each bank has doubled or more
than doubled. On the other hand, only four
Sources: Sales Managem ent, Survey of Buying Power,
and
M a y 10, 1955 and June 10, 1966
http://fraser.stlouisfed.org/
Federal Reserve Bank o f Cleveland
Federal Reserve Bank of St. Louis
JAN UARY 1967
SM SA's experienced a relative small increase
in the number of persons served per bank—
Huntington-Ashland, Johnstown, Lima, and
Wheeling.
The number of people served by each bank
ing office reveals a markedly different trend
over the period 1954-65. Through the exten
sive establishment of bank branches through
out the Fourth District, with the exception of
West Virginia, the number of banking offices
has risen to the extent that the number of
people being served by each banking office
in the metropolitan centers has fallen in 18 of
the 19 SM SA's. Indeed, in a number of cases
about half as many people were being served
by each banking office in 1965 as in 1954:
Huntington-Ashland, Lexington, and Sprin g
field. The only SM S A that did not experience
a decline in the number of people served at
each banking office during 1954-65 was
W heeling, and in that case, the number was
actually unchanged.
Additional copies of the E C O N O M IC REVIEW may
be obtained from the Research Department, Federal
Reserve Bank of Cleveland, P.O. Box 6387, Cleveland,
Ohio 44101. Permission is granted to reproduce any
material in this publication.
23
Fourth Federal Reserve District
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