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March - April
1964
.
. page 3
Financial Institutions in
Tenth District States, 1952-1962 .
. page 9
Sugar : A New Ero Begins
.
.
.
FEDERAL RESERVE BANK
OF KANSAS CITY
Subscriptions to the MONTHLY R EVIEW are available to the public without charge. Additional
co pies of any issue may be obtained from the
Research Department, Federal Reserve Bank of
Kansas City, Kansas City , Missouri 64106. Permission is granted to reproduce any material in
this publication.
SUGAR:
F
A NeYI
Era Begins
jn the United States are raisjng
more sugar beets and sugarcane than
ever before, in response to a reversal in th e
world suga r situation that began about 1960.
The xtr me turn about from a ituation of
xc ss world su ',H stocks and low pri cs i
traced to a sharp d clin in sugar pr duction
in uba- for year th e world's Jargc t producer
- and to poor sugar beet crops in Western Europe, due to unfavorable weather, in both 1961
and 19 62. At the same time, world sugar
consumption has continued to rise, so that
world stocks have declined. Expansion of domestic sugar production is being encouraged to
help alleviate the global deficit.
U. S. farms are increasing output of beets
and ca ne, since direct acreage alJotments are
not in effect currently, but production is not
entirely unrestrained. Many farmers would
like to increase th ei r acreages further and others would like to begin production because
suga r i generally a profi table enterprise.
Acreage allotments fo r sugar beets were in
effect until the spri ng of 1960, but have not
been since and wi ll not be through 1965.
Neither are allotments in effect in 1964 in the
U. S. mainland sugarcane area-Louisiana and
Florida. However, expansion of domestic
suga r output is limited , indirectly. P articularly
for suga r beets, ac reage i limited by capacity
of th e nearest proce ing plant. Beets are
grow n under contract with proce ors, who ordin arily Jet contracts for no large r acreages
than can be handled adequ ately. Quotas allocated by the Government to "persons who marARMERS
Monthly Review • March-April 1964
ket suga r" place a restraint, too, by limiting the
qu antity that processors can market for food
use. Proce sor may increase inventory stocks
or sell xcess upp lie as Jive tock fe d, at substanti all y lowe r pri ce , but th ey he itate to
co ntract fo r la rge r ac r ag s without s m assurnn
that the r suitin g yield ca n be marketed profitably. In g neral, thi s latter restraint
is less important th an the limited plant capacity, because production has not kept pace with
the increased quotas for domestic areas.
THE U. S. SUGAR SYSTEM
Authority for controlling domestic sugar
suppli es is vested in the Sugar Act, which provides a broad fram ework of regulations. By
rigidly controlling supplies, the U . S. Gove rnm ent aims to protect domestic sugar producers and consumers from vo lat ile fluctuations in world suga r prices . FolJowing World
War I, world output of both cane and beet
suga r increased rapidly and wholesale prices
of suga r in the world market declined sharply.
During the worldwide depression which began
in the fall of 1929, the pressure was for a
further decline in sugar prices. The effect on
sugar producers was devastating.
Following the limited success of previous
ag reements, 21 major sugar importing and
ex portin g countries, including the United
State , n goti a ted the International Sugar
Agreement of 1937. The chief objectives were
to limit further expansion of both sugar beet
and suga rca ne acreage, to establish import and
ex port quotas, and to stabilize prices and in3
Chart 1
AVERAGE PRICES, RAW CANE SUGAR
Cent s Per Po und
12
r
Ce nt s Per Pound
1
- , - .. 12
I\
I
\
10
10
Domes t ic
., ,, ' '
,.,
,______
II
I '
' \ ",......,
__ _
Wo r ld
0
1950
I
I
' 52
'54
' 56
' 58
I
' Q
I ,
'62
,
0
J F M A M J J A S0 N D
I
3
SOURCE : U. S. Departm ent o f Agr ic ulture .
ternational trade in suga r. The main features
of the Agreement were implemented in th e
U. S. Sugar Act of 1937 and retained in subsequent revisions of the Act.
Despite the International Sugar Agreement,
the period between World War II and 1960
was characterized by surplus world supplies
and low prices of sugar, although U. S. consumers and producers were largely insulated
from the price effects through administration
of the Sugar Act. However, world production
has fallen short of consumption for the past
2 to 3 years, and in 1963 th e U. S. market
was drawn out of its isolation as the world
price of sugar skyrocketed past the high levels
previously maintained in the United States.
World prices rose from a disastrously low level
of around 2 cents per pound for raw sugar in
January 1962 to more than 10 cents in May
1963.
U. S. sugar legislation contains a formula
that establishes about 6.6 cents per pound
as the domestic price objective. Domestic
suga r prices have been controlled by restricting U. S. sugar imports and domestic production to th ose quantities which will keep prices
at the desired level. When the world price is
below the domestic price, no difficulty is encountered. But with the unusual set of circum4
stances culminating in 1963, the market reacted "nervously. " Despite repeated assurance
by U. S. Department of Agriculture officials
that domestic sugar needs would be met, the
ratio of world supplies to consumption was at
the lowest level since the mid-1920's. With
such a tight balance, and with the longer transportation time needed to obtain foreign supplies, the market reacted sharply to every indication of severe shortage.
The Sugar Act apportions the U. S. sugar
market between domestic and foreign suppliers-currently about 60 per cent to domestic
and 40 per cent to foreign . The domestic
sha re is, in turn , apportioned among the beet
sugar areas , th e mainland cane a rea (Louisi;mc.1 and I. . lo ri la ), and th e thre offshor produ cing areas- the state of Hawaii , the ommonwealth of Puerto Rico, and the Virgin
islands. The foreign share is allocated partly
by specific quotas assigned to about 25 countries and partly by a " global" quota. The global
quota is an amount reserved for Cuba when,
and if, normal diplomatic and economic relations with that country are resumed. Until
such time, this global quota is made available
to other foreign countries on a first-come-fi rstserved bas is, with a preference for Western
Hemi sphere countries and countries that purchase U. S. agricultural commodities.
In December of each yea r, the Secretary of
Agriculture announces a national "consumption estimate" for the following year-setting
the total amount to be apportioned under the
quota system. The total consumption estimate
is determined by multiplying projected increases in population times average per capita
consumption, and then adjusting for anticipated changes in inventory stocks. Per capita
sugar consumption in th e United States has
averaged about 103 pounds, raw value, each
year since sugar rationing was terminated in
194 7. However, distribution for consumption
varies somewhat, depending on whether inventory stocks are increased or decreased during
A New Era Begins
Table 1
TOTAL CONSUMPTION ESTIMATES AND APPORTIONED
MARKETING QUOTAS FOR SUGAR
Continental United States
Quota for Calendar Year
1963
1964
Initial
Revised
Initial
estimate
estimate
estimate
(Short tons, raw value)
Source of Supply
Domestic
Beet sugar area
Mainland cane area
Hawaii
Puerto Rico
Virgin Islands
Subtotal, Domestic
Foreign
25 quota countries
Global quota
Subtotal, Foreign
Grand Total
2,698,590
911,410
1,110,000
1,140,000
15,000
5,875,000
2,698,590
1,009,873
1,070,000
870,000
15,000
5,663,463
2,698,590
911,410
1,110,000
965,000
15,832
5,700,832
2,420,659
1,504,341
3,925,000
9,800,000
3,010,879
1,725,658
4,736,537
10,400,000
2,595,307
1,503,861
4,099,168
9,800,000
SOURCE : U. S. Oepa rtm nt of Agri culture.
th y a r. Anti cipa ting inventory change is
th mo t difficult part in determining the consumpti on estimates on which marketing quotas
are based. Determining the estimates as closely
as possible is important because a high estimate
will res ult in depressed domestic sugar prices,
which makes U. S. sugar producers unhappy.
Conversely, if the estimate is low, sugar prices
rise and consumers are displeased.
Jn December 1962, the Secretary of Agriculture announ ced a total con umption estimate for 1963 of 9.8 million ton s (Table 1) .
This action recogni zed a probable consumption of 9.85 miJlion ton s and a probable refiners' Joss of 50,000 tons. Against this total
projected need of 9.9 million tons, 100,000
tons could have been met by working down
inventories believed to have accumulated in
1962, leaving a total quota of 9.8 million tons
to be apportioned.
Early in 1963 it became apparent that invisible inventories were being increased further,
rathe r than worked down , due to fear of a
evere sugar shortage. On May 6, 1963 , the
total quota wa revi ed to 10.4 million tons,
to provide for additional stockpiling.
The Sugar Act contains a formu la by which
domestic and foreign suppliers are to share
Monthly Review • March -April 1964
in increased quota . However, for some areas
it was determined that additional production
would not be forthcoming in 1963 to meet
an increased quota . The domestic beet sugar
a rea's share of th e increase- 291 ,537 tonswas not exp ected in May to be forthcoming in
1963 , and was reallocated to other area . Quotas of H awaii a nd Pue rto Rico were actually
pos ibiJities
redu ced , beca use production
seemed to warrant it. (The increased quotas
remained ava il a ble to th ese a reas, in case production ultimately was such that delivery could
be made.) The net re ult of th e revised
quota s- whi ch w re sub cribecl within a short
tim e- is summari z d in Table I, which also
oiv ·s th initi a l ·o nsumpti on stim at of 9 .8
millio n to ns f r 19 4.
AREAS OF U S. SUGAR SUPPLY
Histo ri ca lly, th e United States has not been
self-s uffici e nt in suga r. R elative to certain other
countries, the United States has been a highcost producer of sugar. The policy of maintaining a domestic price which has ordinarily
been above the world price, together with a
system of Government payments to domestic
growers, has enabl ed the growth of an industry th a t this country would not otherwi se have
had . The m aintenance of sub tantial domestic
suga r production has been d emed important
Chart 2
AREAS OF U. S SUGAR SUPPLY
M dl,o n s o f To n s
M ,11 , o n s o f To ns
12
12
10
0
19 4 5
0
"47
'4 9
' 51
'53
' 55
'57
'5 9
'6 1
"63
SOURCE : U. S. Department of Agriculture .
5
Chart 3
ACREAGE HARVESTED FOR SUGAR, 1963
=
=
Black dot
10 000 acres sugar beets .
10,000 acres sugarcane.
Color dot
SOURCE : U. S. Department of Agriculture .
to reduce the impact of war shortages or
blockades.
With high enough prices and no re traints,
U. S. farmers and processo rs probably would
have produced enough sugar to meet domestic
needs. However, it is to the consumer's interest to obtain sugar as cheaply as possible.
Under normal circumstances, sugar could have
been obtained more cheaply from foreign countries that have a comparative advantage in producing sugar. But complete dependence on
foreign supplies would have subjected the Nation even more strongly to the hazards associated with fluctuating world supplies and prices.
The system that has evolved is a compromi se. Since World War II, domestic sources
and foreign countries each have supplied roughly half of requirements. Following the Cuban
crisis, the domestic share was increased to 60
6
per cent. Amendments to the Sugar Act in 1962
revised the quota distribution form ul a to give
dome tic area an even larger hare of the U . S.
market. They ar ass igned a ba e of 5.81
million ton s, plus 65 per cent of req uirement
in excess of 9.7 million tons. Increases a re
shared by th e dom estic beet sugar area and the
mainland cane sugar area in proportion to
their basic quotas, or approximately on a threeto-one basis, respectively.
Prior to 1960, Cuba and the Philippines together supplied well over 90 per cent of U. S.
imports, with ome 10 to 12 other countries
upplying th e ba lance ( ha rt 2). Since suspension of ub an trade, the United States has
spread its forei gn share of the market to a
much larger number of suppliers- about 25with the Philippines being by far the most important.
A New Era Begins
Table 2
COMMITMENTS OF N ATIONA L SUGAR BEET ACREAGE RESERVE
Location of
Year to Begin
Acreage
Estimated Tons
New Plant
Operation
Commitment
of Sugar
Commitments Following Public Hearing, September 1962
Mendota, California
1963
19,000
45,700
Hereford, Texas
1964
24,730
50,000
Phoen ix, Arizona*
1964 *
20,000 *
50,000*
Drayton, South Dakota
1965
31 ,000
50,000
Southeastern Sou th Dakota *
1965 *
19,000 *
34,000*
Commitment Following Public Hearing, December 1963**
Auburn , New York
1965
29,500
50,000
* Commitment subs equently revoked .
** Two other locatio ns are to be announ ce d for 1966.
MAINLAND PRODUCTION INCREASING
Sugar beets are produced in about 20 states
and sugarcane in two mainland tates ( Chart
3). M ainla nd suga rcane production has ri en
sha rply, particularly in Florida wh re harvested
acreag r s from 46,400 acr s in 1959 to
149,200 ac res in 1963 . In Loui si·rn a, th harve ted a r age increased during the same period
from 250,000 acres to 299 ,000 acres. Output
of sugarcane in Florida increased from 1.8 million ton s in 1959 to 5.0 million tons in 1963,
while Louisiana's output increased from 5 .1
million tons to 8.4.
Mainland sugarcane is turned into raw sugar
by about 80 local processing factories and mills
in Florida and Lou isiana. The raw sugar is
furth er proces ed in some 25 refi neri es in a
dozen sta tes. M any cane ugar refineries process raw suga r from offshore areas.
Output of th e N atio n's 25 ,000 sugar beet
growers increa ed from 16. 8 million tons of
beets in 1959 to 23.2 million tons in 1963.
Beets are processed by about 60 sugar fac tories. Because beets are bulky to transport, their
production is localized around the processing
factories .
Following the crisis that shut off the Cuban
supply, Congress voted to authorize exp ansion
of domestic beet suga r production in new areas.
Prior to th at, increas d production was h andl ed
by increa ing th e ca pac ity of ex isting factorie
in establi hed sugar beet areas. No new factori es had been built since 1954.
The new provi sions of the Suga r Act direct
the Secretary of Agriculture to reserve for new
Monthly Review • March-April 1964
growers enou gh acreage annua lly to produce
65 ,000 tons of beet sugar. New production
areas and processing plants are auth orized
initi ally to produce abou t 50,000 tons of suga r
an nu a lly.
The I partmcnt of Agricultur held an inf rmal h aring in eptember 1962 to receive
reque ts for commitments of ac reage for the
cro p year through 1965. Subseq uent to the
hearing, five commitments of acreage were
made to new growers (Table 2). Two of the
five commitments were revoked in October
1963-the proposed plants at Phoenix and in
southeastern South Dakota-because construction of the facilities and the contracting for
processing of sugar beets did not proceed "in
substanti al accorda nce with the representations
made as a bas is fo r the Secretary's determinati on of di stribution of the suga rbeet acreage
re erve." In at least one case th e reason for not
having proceeded with pl ant construction was
a lack of capital financing.
T he demand by fa rmers fo r production allotments in new areas seems greater than th at by
sugar companies to build plants. A second informal hearing was held in December 1963 to
receive requests for production allotments, at
which 24 would-be growers' associations vied
for a11otments to upport only three new beet
proces ing fac to ri e . Reque ts included applications from Main , Washington, Texas, the
Dakotas, Ohio, Indiana, Illinois, Kansas, and
Mi ouri . One of the ob tacles for the associati on i to find a sugar company that is willing
and able to commit capital for new facilities.
7
Sugar: A New Era Begins
Plants under construction and proposed for
construction range in cost from $16 million to
well over $20 million, which must be amortized
over many years.
One major sugar producing company made
a study of the advisability of constructing a new
factory in a new area. The conclusion reached ,
on the basis of the study, was " . . . current
hi gh construction costs of a new and efficient
beet factory would result in a very high investment per bag of probable output. We are continuing our analysis but, up to the present, believe that a wiser course lies in the continued
improvement of the capacity and efficiency of
ex isting pl ants and fac ilities ."
In addition to the long-term commitment of
a relatively large ca pital outlay for a new pl ant,
compa nies contemplating a new operation must
consider: ( 1) the suitability of the new area for
growing sugar beets, about which knowledge
may be limited ; (2) the continued feasibility of
growing sugar beets, including evidence of interest of farmers in continuing production of
sugar beets; and (3) the possibility of adjustments in domestic production requirements if
normal relations with Cuba are resumed.
Although some companies have been hesitant, others have shown willingness to buiJd
in new areas. Authorization was recently given
for a new plant near Auburn, New York, where
8
suga r beets have been grown up to now only
on an experimental basis, but with apparent
success.
LOOKING AHEAD
It seems reasonable th at consumption of
sugar in the United States will continue to increase at about the same rate as population
growth. onsumption in the r st of the world is
likely to increa e faster th an popul ation growth ,
as per capita incomes rise in developing countri e . Barring extremely unfavora ble weather,
world production of sugar is likely to increase,
too, in response to hi gh ugar prices. But, at
best, the voyage back to an era of plenty is
apt to be slow. Sugarca ne, from which th e bulk
of th world 's sugar comes, matur s slowly .
Ha rvest comes 18 to 24 months a fter planting.
Even if such a potenti ally important producer
as Cuba should make strides soon toward its
former position as the world's leading sugar
producer, which does not seem likely at this
juncture, considerable time would elapse before
its race would be won.
The probability that world sugar supplies
will not soon become bountiful, buttressed by
recent substantial gains in technological effi ciency in domestic sugar production, indicates
that an increasing amount of the Nation's suga r
is likely to be produced on U. S. fa rms.
Financial Institutions in
Tenth District States, 1952-1962
producing financial servicescommercial banking as well as nonbank
financial intermedi aries- have undergone rapid
ch ange since the end of World War II . New
markets and institution have been created,
while others have been eclipsed. Some industries that were of secondary importance have
experi enced remarkable growth . For example,
the rap id postwar growth of savings and loan
associations, credit unions, and personal Joa n
companies may be related to the release of
p nt-up demand fo r housin g and oth er co nsum er durabl es. O n the othe r hand, th e dramatic decline of the Postal Savings System was
a concom itant of the persistent and increasing
disparity between its interest rates and those
of other financial intermediaries. In addition,
pension funds , life insurance companies, and
mutual investment funds have grown in response to increased and/ or altered patterns of
demand for financial assets.
Commercial banking has been called upon
to di splay a hi gh degree of adaptability as a
res ult of rapid changes in demography and per
capita income. Ri sing pop ul ation and income
have increased the demand for banking services. Accordin gly, bankers have placed unprecedented emphas is on servicing the accounts
of individual customers. In addition, the mass
suburbanization of prospective bank customers
has required accommodating adjustments by
commercial banks. In short, banks have been
called upon to demonstrate a high degree of
fl ex ibility with respect to innovation , expansion, and relocation. A in other industries,
the e adj u tm ents are generally difficult, expen ive, and time consuming. The ex ten ive
public regulation of commercial banking can
furth er complicate the problems of rapid adjustment. Since numerous regulatory preroga-
I
NDUSTRI ES
Month ly Review • March -April 1964
tives are exercised on a state Jevel, regional
differences in patterns of change are discernible.
This article describes selected aspects of
changes in the size and number of commercial
banks in the seven Tenth Federal R eserve District states during the 10 years ending in 1962.
For purposes of comparison, observed changes
a re related to changes in corresponding nationwide aggregates. The experience of commerci al
bank s is th en compared with that of savings
and loa n associati ons and credit union ·. ommercial banking is co nsidered an industry by
itse lf as well a an integral part of th at gro up
of indu tries producing fin ancial services. Savings and loan association s and credit unions
were selected as repre entatives of all nonbank
financial intermediaries.
In principle, the production and consumption of commercial bank services is strictly
analogous to the production and consumption
of other goods, such as television repair services or autos. In ex plaining the number of firm s
and output of a particular industry, the economi st generally refe r to factors classified under demand- relative prices, income, and tastes
- and costs of production. These factors are
equally relevant to the explanation of bank
output. However, the facility and speed of
adjustment to altered demand conditions can
be particularly important in affecting the size
and structure of the banking industry, or any
other industry.
When increases in demand for an industry's
output a re not quickly met with increased offers
of output at or near ex isting prices, consumers
are encouraged to seek ubstitutes. Hence,
delay in reaction by an industry may serve
to spawn and nurture the growth of industries
produci ng similar services or goods. This type
of industrial interdependence establishes the
9
Fina ncia I Institutions in
Table 1
GROWTH OF POPULATION AND PERSONAL INCOME,
1952-1962
Colorado
Kansa s
Nebraska
New Mexico
Oklahoma
Wyoming
Missouri
Seven states
United States
Population
Personal Income
1952
1962
Change
1952
1962
Change
On thousands)
(per cent)
On millions)
(per cent)
1,378
1,907
38.4 $ 2,468
$ 4,520
83.1
1,972
2,219
12.5
3,382
4,856
43.6
1,305
1,484
13.7
2,179
3,369
54.6
747
1,020
36.5
1,005
1,860
85.1
2,183
2,448
12.1
3,060
4,664
52.4
297
365
22.9
543
790
45 .5
4,010
4,346
8.4
6,660
10,362
55.6
11 ,892
13,789
16.0 $ 19,297
$ 30,421
57.6
156,472
185,822
18.8 $270,399
$439,661
62 .6
SOURCE : Personal Income : Survey of Current Business, Augu st 1956 and Augu st 1963.
Popu lat ion: Statistical Abstract of the United States , 1963.
im portance of analyzing the growth of commercial banks as part of th e develop ment of
all indu stri es engaged in th e prod ucti on of fi na ncial se rvi ces.
ECONOMIC GROWTH
AND COMMERCIAL BANKS
During the 10-year period ending in 1962,
U . S. population grew 18. 8 per cent. During
the same period , Tenth District states experienced a 16 per cent population growth. If Missouri is omitted, the rate of population growth
in the remaining District states is 19. 8 per
cent. Although the range of experience among
individual District states stretches from 8.4 per
cent in Mi sso uri to 38.4 per cent in Colorado,
the agg rega te is not strikingly differe nt from
the nationwide experience.
T he same impress ion is obtained by comparing rates of growth in person al income. While
New Mexico enjoyed an 85. 1 per cent expansion, Kansas' growth was limited to 43 .6 per
cent. By aggregating the experience of the
seven District states it is found that personal
income rose 57.6 per cent. U . S. growth during
the same period was 62.6 p er cent. 1
l U sing 1952 as the base period for inco me comparisons betwee n t he region a nd th e N a ti o n m ay be somewhat mislead ing in that ag ri cu ltu ra l inco m e was e pecially volatile in th e early 1950 's due to drou ght a nd
co nditions ste mming from the Korean e pisode. If
195 3- 1962 comp a ri so ns are substitu ted, regio nal
growth amou nted to 55. l per cent whil e th e na ti o nal
growth r a te was 54.5 per cent.
10
Still other economic meas ures document the
overall similarity of patterns of change in District states and in the Nation. H ence, changes
in th e size and structure of the commercial
banking industry in District sta tes may be expected to parallel those of the N ation. However, th e regional prevalence of unit banking
may profoundly influence th e p attern of change
among co mmercial banks in Di strict states as
compared with th e Nation. All District states
except New Mexico fo rbid multi-office b anking.:! In cont rast, th e majority of states in the
Nation permit some form of multi-office b anking. ompa ri so ns between regional and nati o nal develop ment a rc fo unded o n an overalJ
similarit y in inco m · a nd po pul ati o n growth a nd
a diffc rcn c in ba nkin g stru cture. It sho uld be
emph as ized th at interstate co mpa ri son , between certain pairs of Tenth Di strict states,
are based on simila r banking regulations but
strikin gly divergent pattern s of growth in income and population. It is therefore necessary
to interpret observed diffe rences among states
in a different light from those between regional
and national aggregates . The one exception to
thi s generali zation is found in comparing New
Mex ico and Colorado. These two states displ ayed simil a r pattern s of growth in income
a nd population , but New Mexico permits multioffi ce banking a nd olorado is a unit banking
state.
In the 10 years, the number of commercial
banks in th e United States fell 4 .5 per cent
(from 14,617 to 13,953) while the number of
commercial banks in District states rose 3.8
per cent. Kansas was the only state in the Tenth
Di strict with a reduction in the number of commercial banks. Colorado registered the largest
ga in with a net additi on of 45 commercial
:! Mis ouri , Ka nsas, N e braska, a nd Okl a ho m a ex plicitl y
pe rmit the es tab li shm e nt of o ne limited -fun ction
o ffi ce per ba nk to provide drive-in fac ilitie . Colo rado
p rohibits branch ba nkin g without provi sion for anci llary faci litie whil e W yo min g law m a kes no mention
of branch banking a nd thi s silence has bee n interpreted as a prohibition.
Tenth District States
Table 2
ASPECTS OF COMMERCIAL BANK GROWTH, 1952-1962
Year-End Data
Numb er of
Commercial Banks
Change
1952
1962
(per cent )
Colorado
Kansas
Nebraska
New Mexico
Oklahoma
Wyoming
Missouri
Seven states
United States
160
205 28.1
609
593 - 2.6
417
426
2.2
51
60 17.6
385
392
1.8
52
56
7.7
598
627
4.8
2,272 2,359
3.8
14,617 13,953 - 4.5
Number of
Commercial Bank Offices *
1952
1962 Change
(per cent)
165
212
611
631
419
445
74
129
387
424
52
57
599
671
2,307 2,569
20,450 27,029
28.5
3.3
6.2
74.3
9.6
9.6
12.0
11.4
32.2
Commer cia l Bank Asse ts
I 1962 Change I
(In billions) {per cent)
1952
Assets Per Commercial Bank
Change
1952
I 1962
(In millions)
per cent)
$ 1.51 $ 2.63 74.1 $ 9.45 $ 12.84 35.9
2.09
3.07 47.1
3.43
5.18 51.0
3.92
1.63
2.13 30.5
5.01 27.8
9.21
0.47
0.88 87.1
14.65 59.1
2.16
3.35 55.0
5.62
8.55 52.1
0.33
0.52 55.2
6.42
9.26 44.2
5.42
7.63 40.9
9.06
12.17 34.3
$ 13.62 $ 20.22 48.5 $ 5.99 $ 8.57 43.1
$214.83 $344.28 60.3 $ 14.70 $ 24.67 67.8
w1ncludes limited-function offices , su ch as dr i ve-in facilities se para ted fro m t h e b a nk' s p r em1ses .
NOTE: The above aggregates include indu strial and Morris Plan banks which are of some importance in Colorad o.
SOURCE : Annual Report of the Federal Depos it Insurance Corporation, 1953-1963.
bank s. In th remainin g states net add itions of
comm ' rcia l banks rang d from 4 in Wyoming
to 29 in Mi ssouri. Morcov r, toward the end
of th p ri d and into 1963 , there appeared to
be an acce leration in the growth of number of
commercial banks, especially in Colorado, New
Mexico, and Oklahoma. In addition, the trend
toward fewer banks in Kansas reversed itself
in 1961.
The contrast between District and national
experience, with respect to changes in number
of banks, should be considered in light of differences in banking structure. In a unit banking environment, the demand for new banking
faci lities is ati sfied exclu sively through the establishment of new banking firms. Where multioffice banking is permitted, new facilities can
be provided without an increase in the number
of commercial banking firms. In addition,
mergers may be more attractive where absorbed
banks can be operated as branches. These
considerations may affect changes in number
of banks as well as changes in their average
size. The structure of banking prevalent in an
area m ay influence the ease with which the
industry ca n adjust the number of banking
facilities.
During the 10-year period, commercial banking offices in Di strict states were increased 11.4
per cent while the number of offices throughout th e United States rose 32.2 per cent. DifMonthly Review • March-April 1964
ferences in banking tructure may also account
for th e ontrast in th gr wth of banking fac iliti s in New Mex ico and olorado. While b th
states xpc ri nc d npid econ mi c growth in
th e same order of m agnitude, the number of
banking offices in New Mexico increased 74.3
per cent, while Colorado's rose 28.5 per cent.
The growth of banking offices in the remaining District states ranged from 3.3 per cent in
Kansas to 12 per cent in Missouri.
Although data on the growth of bank assets
do not offer the striking contrasts manifest by
the firms and fac ilities data, discernible differences do emerge. Total asset of commercial
banks in th e seven Tenth Di strict states rose
48.5 per cent (from $ 13.6 billion to $20.2
billion) from 1952 to 1962_ This compares
with a 60.3 per cent growth of total assets in
all U. S. commercial banks. In comparing New
Mexico and Colorado, it is observed that the
former had a higher rate of growth in commercial bank assets ( 87 .1 per cent versus 7 4.1
per cent) despite a marked similarity in personal income growth ( 85 .1 per cent in New
Mex ico versus 83.1 per cent in Colorado).
Th e facts also may be expre sed in terms
of the growth of assets per commercial bank.
At the end of 1952, commercial banks in the
Tenth Di trict states had $5.99 million of
assets per bank while the nationwide average
stood at $14.70 million. This size disparity is
11
Financial Institutions in
attributable to differences in population density
and the absence of money market centers in
the T enth District, as well as differences in
public policy with respect to multi-office banking. More significant, perh ap s, is the finding
th at over the 10 years following 195 2 the average size di sparity was increased in both absolute and relative term s. Although assets per
bank in District states grew 43.1 per cent to
$8 .6 miJlion , the nationwide average rose 67.8
per cent to $24.7 million.
Individu al states experienced considerable
diversity in rates of growth of asset size per
bank in th e 10 years. Nebras ka banks had a
growth in ave rage asset size of 27.8 per cent
while New Mex ico ba nk s, which grew mos t
rapidly , expa nded 59. I pe r cent. rowth ra tes
of average bank ize in K ansas a nd Okl ahoma
were both sli ghtly in excess of 50 per cent
but considerably greater th an those experienced
in Wyoming, Colorado, and Missouri.
The wide disparities among growth rates in
average bank size may lead to the conjecture
that these differences are explainable in terms
of some factor such as average bank size at the
outset of the period , or perhaps the increase
in number of banks over th e period. A s it
turns out, the information a t ha nd will not
support either hypothesis. Jt appea rs more likely
th at growth in average bank size is determined
by a complex of interrelated fac tors including
changes in demography, size and structure of
the local economy, and institutional arrangements pertaining to the commercial banking
industry.
THE GROWTH OF NONBANK
FINANCIAL INTERMEDIARIES
Commercial banks have been aptly termed
depa rtment stores of fin ance. Indeed, th ey stand
alone in performing a wide variety of financial
services. However, this uniqueness does not insul ate commerci al banks from the competition
of more narrowly speci ali zed fi nancial intermediaries . For example, savings and loan shares
12
are commonly likened to savings deposits at
commerci al banks, despite obvious differences.
Likewise, the homeowner may be indifferent as
to wheth er hi s mortgage is obtained from an
insurance company, a savings and loan association, or a comme rcia l bank. P ersonal loan companies and credit unions, as well as commercial
banks, o ffer consumer instalment loans. The
li st o f examples ca n be easily ex tended. Despite
the unique role o f commercial banks in m aintaining the pay ments mechanism, close substitutes for most commercial bank services are
produced by nonbank financial intermedi aries.
T he recognition of inter-indu stry competi ti on leads to th e hypo th esis th at th e growth of
·ommcrcial ba nk s is affec ted by, and in turn
a ffects, th e grow th o f oth er fin ancial in stituti ons. T hu s, it is illumin ating to re late the
growth perfo rm ance of nonbank financial interm edi aries to th at of commercial banks. Because of data scarcity, conceptual difficulties,
and space limitations, the following discussion
is limited to the experience of the savings and
loan industry and credit unions. However, these
two types of institutions are rather widely developed, and there is no obvious reason to
ex pect their growth experi ence to be strikingly
diffe rent fro m most other nonbank fin ancial
inte rmedi aries.
SAVINGS AND LOAN ASSOCIATIONS
T he number o f savings and loan associations
in Te nth Di strict states rose from 455 to 468,
or 2. 9 per cent, during th e 10 years. In the
same interval, the number of savings and loan
associations in the Nation rose from 5,941 to
6,31 2, a 6.2 per cent increase. Underlying the
District aggregate is the finding that Kansas,
Nebraska, and Missouri experi enced net decreases in number of sa vin gs and loan associati ons. Aside from New M ex ico, where th e number of savin gs and loan assoc iation s rose from
20 to 34, none of th e Tenth Di strict states
add ed more th an 2 associations during the 10year interval being considered.
Tenth District States
Table 3
ASPECTS OF SAVINGS AND LOAN ASSOCIATION GROWTH, 1952-1962
Year-End Data
-Colorado
Kansas
Nebraska
New Mexico
Oklahoma
Wyoming
Missouri
Seven states
United States
Nu mber of
Sa vi ngs and Loan Assns .
1952
1962
Chan ge
{per cent)
53
104
56
20
60
10
152
455
_5,941
55
3.8
103 - 1.0
53 - 5.4
34
70.0
60
0
12
20.0
151 - 0.7
468
2.9
6,312 -- 6.2
Numb er of Savi ngs
and Loan Ass n. Offi ces
1962
Change
1953
(per ce nt)
61
106
56
22
64
10
157
476
6,362
113
133
67
44
71
12
207
647
8,491
85.2
25.5
19.6
100.0
10.9
20.0
31.8
35.9
33.5
As sets of
Savings and Loan Assns .
I 1962
Change
1952
( In billions )
{per cent)
$ 0.207 $ 1.171
0.273
1.107
0.157
0.640
0.048
0.244
0.267
0.920
0.028
0.110
0.43 7
2.254
$ 1.419 $ 6.445
$22.667 $93.756
465.7
305.5
307.6
408.3
244.6
292.9
415.8
354.2
313.6
Assets Per
Savings and Loan Assn .
1962 Change
1952 I
{per cent)
(In mill ion s)
$ 3.913 $21.285 444.0
2.628 10.746 308.9
2.805 12.079 330.6
2.408
7.175 298.0
4.455 15.328 244.1
2.816
9.203 226.8
2.875 14.926 419.2
$ 3.118 $13.772 341.7
$ 3.815 $14.854 289.4
SOURC E: Annals of the United States Savings and Loan League, 1953 and 1963.
H owever, the growth of saving· and loan
offices in District states more tha n kept abreast
of grow th throughout the Nation. nlike commercial bank s, savi ngs and Joan association
in Di tri ct states common ly operate more than
one office. A s of 1962, all Di strict states except
Wyom ing had savings and loan branches. From
the end of 1953 through 1962 the number of
savings and loan branches in the seven District
states rose from 22 to 179.?. Thus, despite a
relatively slow growth in number of savings
and loan associations, these facilities in Tenth
District states rose 35.9 per cent as compared
with 33.5 per cent in the Nation.
Th importance f th e branching privil ge
in affecting th e exp ansion of savings and loan
facilities is clearly reflected in the 1953- 1962
experience of individual states . For example,
the number of savings and loan associations in
Missouri fell from 153 to 151, but the number
of savings and loan branches rose from 4 to 56.
In Colorado the number of associations rose
from 52 to 55 , while the number of savings and
loan branches rose fro m 9 to 5 8. Nebraska had
14 savings and loan branches at the end of
1962 whereas it had none in 1953. During th e
same period , the number of savin gs and loan
associati ons in Nebraska was reduced from 56
3The number of sav ings a nd loa n offices in operation
in 195 2 was not asce rt ai nable at the time the a rticl e
was written.
Monthly Review •
March-April 1964
to 53. New Mex ico was th e only District state
whe re th ' auditi on o f new savings and loan
associations was as impo rtant as th e addition
of bra nches in the ge neral expansion o f savings
and loan fac ilities.
Asset growth at regional savings and loan
associati ons surpassed the nation al growth rate.
Savings and loan association assets in Tenth
District states rose from $1.42 billion at the
end of 1952 to $6.45 billion in 1962. The
District states' growth rate of 354 per cent
compares with a national growth rate of 314
per cent. Among individu al states, Colorado,
Mi so uri , and New Mex ico led in savings and
loa n asset growth ( 466 per cent, 416 per cent,
and 408 per ce nt, respectively ), while Oklahoma displayed th e slowest growth rate (245
per cent ). It should be emphasized that a complete evaluation of interstate and interregional
disparities in savings and loan asset growth requires a thorough analysis of local mortgage
markets, interest rate differences among various assets, saving habits, location and number
of various types of financial institutions, as
well as bas ic growth characteristics. The obse rved di sp arities cannot be adequ ately expl ained in term s of any single generalization.
Hence, these obse rvation s should be interpreted
with ext reme ca uti on. At best, observed differences may be considered suggestive of certain types of underlying conditions.
13
Financial Institutions in
Table 4
ASPECTS OF CREDIT UNION GROWTH, 1952- 1962
Year-End Data
Number of Cred it Unions
Change
1962
(per cent)
Credit Union Assets
I 1962
Change
(In millions)
(per cent)
1952
Colorado
Kansas
Nebraska
New Mexico
Oklahoma
Wyoming
Missouri
Seven states
United States
151
177
112
37
91
22
439
1,029
12,291
315
301
168
108
161
61
610
1,724
21,032
108.6
70.1
50.0
191.9
76.9
177.3
39.0
67.5
71.1
1952
18.06
14.15
9.66
1.59
11.94
0.95
42.86
$ 99.21
$1,516.1 2
$
$ 122.67
84.57
47.59
35.09
73.49
10.48
170.86
$ 544.76
$7,114.09
579.2
497.7
392.5
2,106.9
515.7
998.3
298.7
449.1
369.2
Assets Per Credit Union
I 1962
Change
(In thousands)
(per cent)
1952
$119.6
79.9
86.3
43.0
131.2
43.4
97.6
$ 96.4
$123.4
$389.4
281.0
283.3
324.9
456.4
171.8
280.1
$316.0
$338.3
22 5.6
251.5
228.3
656.1
248.0
296.1
186.9
22 7.7
174.2
SO URC E: Report of Operations Federal Credit Un ions, 1953; Social Security Bulletin, November 1954; and International Credit Union
Yearbook, 1963.
T he findin gs with rega rd to changes in the
number and asset size of savings and Joan
associations are also readi ly expressible in
terms of the average asset size of the e institutions. From this viewpoint, the growth of
savings and loan assoc iations provides an interesting contrast with the growth of commercial banks. The average asset size of savings and loan associations in the Tenth District
states rose from $3 .12 million to $13. 77 million
or 342 per cent from 1952 to 1962. At the
outset of the period, savings and loan associati ons were barely more than one half th e asset
size of commercial banks. By the close of 1962,
the assets per savings and loan associa tion in
the region were half again the size of the average commercial bank in Tenth Dis trict states,
while on a nationwide basis savings and loan
associations remained markedly smaller than
commercial banks. It should be remembered,
however, that commercial banks in Tenth District states were five times as numerous as savings and loan associations as of the end of
1962. In th e process of surpassing commercial
banks in ave rage size, savings and loan associati ons in Tenth District states achieved a rate
of growth in average asset size exceeding that
of all savings and loan associations in the
United States (342 per cent versus 289 per
cent) .
14
CREDIT UNIONS
' r dit union s ar typi ca ll y far sma ll r th an
commercia l bank s and savings and loan associati ons. Howeve r, during th e I. 0-year period , they
enj oyed a most remarkable rate of growth in
th e District as well as in th e N ation. In District
states their number was increased from 1,029
to 1,724, or 67 .5 per cent. In the Nation,
there was a net addition of 8,741 credit unions
which represented a 71.1 per cent increase.
Except for Kansas, Missouri , and Nebraska,
where credit union s were relatively numerous
at th e outset of the period , every state in the
Tenth Di stri ct exceeded th e national growth
rate in net additi ons to the number of credit
unions. Co lorado, Kansas, and Mi ssouri each
added more than 100 new credit unions in the
10-yea r period studied . On th e other hand,
New Mexico and Wyoming added far fewer
new credit unions, but displayed the most dramatic rates of growth ( 192 per cent and 177
per cent, respectively) .
Moreover, the growth rate of credit unions
in District states, in terms of total assets, exceeded that of all cred it unions in th e Nation .
The a sets of credit unions in the 7-state area
rose from $99 million in 1952 to $545 million
in l 962. T he 449 per cent regional growth rate
compares with a national growth rate of 369
per cent. New Mexico, outstanding among indi-
Tenth District Sta tes
vidual states, di splayed a 2,107 per cent increase in credit union assets over the 10-year
period . However, all states except Missouri
di splayed asset growth rates in excess of the
national rate.
During the 10 yea rs , the average asset size
of c redit unions in District states rose from
$96,000 to $316,000. Although District credit
uni ons remain somewh a t mailer than those
throu gho ut the Nat io n, they grew 228 per cent
in av rage asset ize as compared with a n ationwid e growth of 174 per cent. Credit unions in
eve ry state in the T enth Di strict experienced a
fa ste r grow th rate in average as et size than did
tho e in th N ati n as a whole. Mi s ouri , wh ere
c redit union s grew mos t slowly , r giste red a
187 per ce nt inc rease (fro m $98,000 to
$280,000) . At th e o the r cx tr me, New Mexico
expc ri nc d a 656 pe r cent increase in the average size of its c redit unions.
SUMMARY
Commercial banks are unique among financial institutions in size, scope of activities, and
maintenance of th e payments mechanism. However, for some purposes it is useful to think of
commerci al banks as one among many types
of in titution s producing fi nancial services. Alth o ugh nonb ank financi a l in stituti ons a rc genera lly more specialized, many of th ese institution s produce servi ces similar to ome of those
of commercial ba nk . As a conseq uence, interinstitution al competition takes on substanti al
importance, and th e development of any given
type of financial institution can affect the
growth of alternative types of institutions.
With thi s supposition as a starting point,
Tenth District commercial bank growth, in the
period of 195 2- 1962, was evaluated in terms
of the exp ri enee of all banks in the N ation. It
wa found th at th e commercial banking industry in T enth Di stri ct states, measured in terms
of total assets, assets per bank, and number of
offices, grew mo re slowly th an the industry
througho ut the Nation. Lest too much signifiMonthly Review • March-April 1964
ASSET GROWTH OF FINANCIAL INSTITUTIONS
IN TENTH DISTRICT STATES
In Terms of National Asset Growth Rates
Pe r Cen t
Per Ce n t
20
20
Credit U ni o n s
15
15
10
--,,,,,_.,...,,..-----
- - - - - - - - - - - - 10
Savings and Lo on
A ssoc.
0
0
-5
-5
- 10
1952
'53
'5 4
' 55
'56
'57
' 58
' 59
'60
'61
- 10
'62
NOTE: Th
tim e se rie s are obtain ed by dividing r egional ass e t
growth rnt es by co rrc pondin g nat i onal growth rat es. Fo r example,
in J 96 2 ass I s of r egi on al r dl t union s wer 5'19 per ce nt of
lll Ir .1 952 valu . By dividin g 5'19 p r enl by th e nation al grow th
in r edi t un io n as t from 1952 l o J 96? ('169 per cent), and ub•
trac lin g 100 per c nt , th e p lott ed 1962 valu e for credi t union s
(17 per ce nt ) i s obt ained .
ca nce be attrib uted to thi s fi nding, two points
should be emph asized : ( l ) the nationwide experience cannot be used as an infallible standard of compari son, a nd ( 2) the District aggrega tes represent generali zations of highly diverse
exp eriences of individual states. Nevertheless,
it may be significant th at while commercial
banks in Tenth D istrict states grew more slowly
th an all banks in th e U nited State , savings and
loan assoc iations and c redit union grew more
rap idly in Di stri ct sta tes than throu ghout the
N ation. Thi s findin g i summarized in the
cha rt, which shows th e as et growth rates of
Di strict sta te ' commerci al banks, savings and
loan associations, and credit unions relative to
th eir respective national growth rates.
While the above evidence is by no means
compelling, it is noteworthy that observed differences in industry growth tend to support the
idea th at the grow th pe rformance of various
types of financial in titutions may be interrelated. Under th se circumstances the promptnes with which a given type of financial instituti on adapts to new conditions will influence
th e growth a nd development of alternative
institutions.
15
@FedFRASER