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NOVEMBER 1970
Correspondent Banking
Part I: Balances and Services
. page 3
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MONTHLY R EV I EW
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are availAdditional
copies of any issue may be obtained from the
R esearch Department , Federal Reserve Bank of
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this publication.
Correspondent Banking
Part I: Balances and Services
8_1· Robert £. Knight
he recrn t grow th in b;1nk merger ;i11d hold ·0111p:111 y ,1cti \' it y ha s er ·:1t ed 11 ·w intere st i11 til e d f -c ti v ·n ess ;111d pcr fu rrnan ce of
lh e co rre ·po ndcnt ba nking sys tem. Holdin g
co mpan y a nd merge r a ppli ca ti o ns ha ve oft en
imp lied th a t th e q ua lity of se rvices prov ided
by th e correspo nde nt ba nkin g netwo rk has
deteri ora ted in rece nt yea rs a nd th a t the onl y
meth od by whi ch a sma ll ba nk ca n co ntinu e
to prov id e a full ra nge of ba nking se rvices to
it s co mmunit y is by jo ining with a la rge r ba nk
or with a group of ba nk s.
To th e ex tent it fun cti on · effecti ve ly, howeve r , th e co rres po nd ent ba nking sys tem tend s
to ove rco me ma ny of th e a lleged di sad va nt ages
of a unit ba nk ing stru cture. Littl e i · kn ow n
abo ut th e scope o f -crv ices prov id ed by co rres pond ent s or th e \'O lume of loa n pa rti cipa111,
Ma ny of th e stati sti ca l res ult s reported
thi s articl e a re deri ved fr o m a survey
of ove r 2, 100 ba nk s. The survey was
taken in Sept e mb er a nd October 1969
and includ ed ba nk s in Co lorad o, Ka n ·as,
Mi sso uri , Nebras ka, New Mex ico , O kl aho ma, and Wyo min g. /\ co mpl ete co py
of th e sur vey res ult s will soo n be ava il abl e fr o m th e Resea rch Dcpartrn ent of
th e Federal Re ·crve Ba nk of Ka nsas C it y.
li o ns rla ced . Severa l stud ies wc 1-c un der take n
durin g t li e earl
I% O' s, but no :tt te111rt was
11rncl e to deve lo p a co 11ti11ui11, fl ow or i11for111 .i ti o n and by now th e res ult s ar c rela ti ve ly da ted.
In view o f th e im po rta nce o f co rres po nd e nt
ba nking relati o nships for qu est io n · of ba nk
stru cture, th e Federa l Rese rve Ba nk of Ka nsas
C ity surveyed a ll ba nk s in th e Te nth Fed era l
Reserve Di stri ct a nd th e Federa l Reserve Ba nk
of St. Loui s se nt ba nk s in th e Mi so uri por ti o n
of th e Eighth Fed era l Rese rve Di stri ct a simil ar
qu esti o nn a ire. In additi on to Mi sso uri ba nk ' ,
th erefore, th e sur vey inclu ded a ll ba nk s in
o lo rad o, Ka nsas, Nebraska, a nd Wyo ming,
mos t in O kl a homa , a nd a bo ut ha lf the ba nk s
in New Mex ico. T he ·urvey wa s co ndu cted
durin g Se ptember a nd October 1969. /\ bout 87
per ce nt of th e ba nk s ho ldin g ove r 92 per
ce nt of tota l d epos it s return ed qu e ·ti o nn a irc ·.
(See T a bl e I.) Thi s se ri es of art icles will prese nt th e res ult s of the survey.
111
Monthly Review• November 1970
BACKGROUND
Th e pre ·cnt co rres pond ent ba nkin g system
d eri ves it s fo und a ti on from a number of so urce ·.
Pri or to th e crea ti o n of th e - ec.l eral Rese rve
Sys tem in 19 13, nati o na l ba nk s we re permitt ed
to ho ld th eir rese rves in va ult cas h or in deposit s wit h ba nk s in reserve citi c ·. Sin ce rese rve
cit y ba nk · ge nera ll y pa id int eres t o n th ese
3
Correspondent B_a 'lking
d ent ba nk s. 1 Virtu all y a ll co untry ba nk s clea r
no nl oca l ch ec ks throu gh correspond ent s. In pa rt
thi s tend ency is du e to th e fac t th a t co untry
ba nk s a rc oft en locat ed nearer to co rrespo ndent s th a n to Federa l Re se rve Ba nk s or th eir
bra nches . C lea rin g thr o ugh co rrespondent s,
th erefo re, wo uld be both qui cker a nd more
co nve ni ent. Howeve r , oth er fa cto rs a rc a lso of
signifi can ce . Sortin g requirement s a rc grn era ll y
less stringe nt a t co rres pond ent s than a l th e Fed era l Reserve. Th e Fede ra l Rese rve wi11 not
accept foreign o r nonp a r items, whil e co rrespo nd ent ba nks se ld o m impose such res tri cti ons.
Ma ny cor res po nd ent ba nk · p rov id e imm edi a te
credit for Gish it ems, but will no t permit ban k:-,
to dra w o n u11 cl) ll cc tcd d ·pos it s. Th e 1:edcr: il
acco unt s, a na ti ona l ba nk had an in centi ve to
hold as la rge a sha re of it s rese rves as was
pe rmitt ed with it s co rres pond ent s. Most sta tes
co ntinue to a ll ow no nm emb er ba nk s to co unt
ba la nces a l other ba nk s as a pa rt of rese rves,
b ut th e Federa l Rese rve req uires memb er ba nk s
to hold rese rves eith er in va ult cas h or in
non intcrcs t bea ring deposit s at th e Federa l Rese rve . Alth ough ba nk · a rc no lo nge r permitt ed
to pay int erest o n d ema nd ba lances, la rge r
ba nk s have co ntinu ed lo so li cit corres po nd e nt
acco unt s acti ve ly, a nd in return for th e ea rnin g
potenti a l of th e -c d epo ·it s, to provid e a wid e
ra nge of services to sma lle r ba nk s. Th e -c services ca n be group ed int o seve ral broad G1tego ri es: handlin g o f ·I ·;1ri11 •s, ~,ss istan ce with
loa n r a rti cip . 1ti o n~, . 1sse t ma nage ment , :111d
o th er mi sce ll a neo us service s.
Clea rin g chec ks a nd tran sit it em · is perhap s
th e mos t bas ic se rvice provid ed by co rrcspo n-
I I hr n 11 •11ll ul 1hi , a n ic k . "corrc,p,1 11 d c n1 h :1nk ," (11 r ·· c,1rre~ p ,lndcn 1, " ) ref'cr t, 1 han k, a ccc p1 in g d e p (" ih f' rorn ,1 1he r
ba n b and in re turn ,1 ffe r ing ~e r ice~ t o t he~e h.i n l,; ~. R e~ponden t~ o r bani,;, in ge ne ral arc eo n ~id e re d to b e th e
rec ip ie nt ~ of th c~c ~e n -ice~.
Table 1
PER CENT OF BANKS RESPONDING TO SURVEY
Bank Deposit Size (Millions)
Less
$5
$10
$25
$50
$100
than
to
to
to
to
$5
$10
$25
$50
$100
or
more
Banks
1255
83 .9
85.l
579
89.1
88 .9
422
91.0
91.6
107
93 .5
93 .3
36
88 .9
89.7
32
93 .8
96 .8
2431
87 .0
92.2
304
89 .8
89.9
293
92.5
92 .5
230
95.7
96 .1
63
96 .8
97 .3
29
89.7
89.9
30
96.7
98 .5
949
92.7
96.l
951
82.0
83 .l
286
85.7
85.2
192
85.4
86 .l
44
88.6
87 .9
7
85.7
88 .9
2
50.0
40 .8
1482
83.3
84.3
4
75 .0
93.7
8
75.0
74.8
18
77 .8
75.0
17
88 .2
88 .6
7
71.4
74 .3
8
75.0
88.7
62
79.0
86 .0
1251
83.9
85 .l
571
89.3
89.l
404
91.6
92.4
90
94.4
94.2
29
93 .1
93.0
24
100.0
100.0
2369
87 .2
93 .2
All
All Banks
Number of banks
Per cent of banks returning questionnaire
Per cent of total deposits in survey banks
Member Banks
Number of banks
Per cent of banks returning questionnaire
Per cent of total deposits in survey banks
Nonmember banks
Number of banks
Per cent of banks returning questionnaire
Per cent of total deposits in survey banks
Holding Company Banks
Number of banks
Per cent of banks returning questionnaire
Pe r cent of total deposits in survey banks
Nonholding Company Banks
Number of banks
Per cent of banks returning questionnaire
Per cent of total deposits in survey bank s
4
Federal Reserve Bank of Kansas City
Correspondent Bankrng
Re se rve by co mpari son gives imm ed iate, oneda y, or tw o-day deferred cred it , depending on
th e loca ti on of th e paying bank. 2 Although
large r bank s ge nerally clear mos t of th eir nonloca l checks th rough th e Federal Rese rve , special
item s arc often se nt d ircctly to corres pondent s.
i\n eq uall y import an t co rr es pondent se rvice
is participatin g in loan s. In rapidl y growin g
urban a rea s the demand for loa ns often exceed s th e dep os it s gen erat ed a nd specific loa n
requ es ts may be for a mount s in excess of a
bank 's lega l lending limit. Th e expa nsion of
capital rcquirc111cnt s in agric ulture durin g the
pos tw :1r peri od, o n the uther hand , ha · :1dd cd
gre:1tl y to th e :1\'er:1 gc si1 c of farm lo:111 s at
rnral h:111k :--. Co rrc :-- po11de11t :- 111:1y a:--s i~t h:111k s
expcric 11ci11 , lo:.111 demand ~, whi ch oth erwi se
co uld not be met directl y, by participating in
th e loa ns to th e ex tent th ey exceed th e s111allcr
bank' s lendin g limit or by purcha sing loa ns
o utri ght from the bank. Es timates suggest at
least 60 per cent of the bank s in the Tenth
Di strict have placed loan participation s with
correspo nd ents in recent year s. While mo st
loan participati o ns originate with smaller bank s,
the fl ow of fund s is by no mean s unidirecti onal.
Bank s which d o not ex peri ence stro ng or ovcr1in e loa n demand s can o ft en purcha -c loan s
or particip,1ti o 11 s in loa ns from their co rrespon dent s. The return on th ese loan s oft en exceeds
that avai labl e o n money market sec uriti es.
Co rrespondent s ge nerall y provide numerou s
se rvice s relatin g to bank asse t management.
Periodi c rep orts on ge neral bu siness condition s
a nd lik ely money market deve lopm en ts arc offered. Recommenda ti ons about which securities
to purchase or sell may be made. Correspon2 Ba n ks c learing large ca ~h le tt e rs throu g h th e Federa l
R e,-c r ve ar c req uired t u so rt and li ,, t ca,- h it e m,- by dat e
llf credit a v:1ilabilit y. Credit ror d c p o,- ih co ntainin g ca ,, h
it e 1m of mi xed a vailabilit y d :1t e~ wi ll he defe rred ror th e
lll ngc,, t ti m e p rc,--: rih cd ll n th e ,-c hcdul e nf c redit a vail abi lit y for an y ca,- h ite m in c lud ed in ~uc h d epo,- it~. Ban k "
w ith t1ll al avera g e dai ly d e pu,,ib nf no t m o re th a n .1 00
ca ,- h it e m,- m ay d ep o,- it ,- uc h it e m,- un ,,o rt cd a;, to date llf
av ailabilit y and c redit w ill be defe rred o ne bu s in c,-,- da y.
R eq uir em e nt ,- for so rtin g ;1re in th e proccs,, ur be in g rem oved. prov id e d a bank d l>C ~ llllt ha ve an avera ge dai ly
dcpo,- it n f m o re th a n 2. 000 ca,- h it e m ,- and is w illin g tn
accep t c redit defe rred o ne bu s in ess da y.
Monthly Review• November 1970
dent bank · will often execute th e tran saction s
a nd provide for sec urit y safekeep in g. If rcq ues ted, a correspondent may assist a bank
with a ge nera l portfolio rev iew a nd ana lys is.
By makin g a market in Federa l fund s and by
redu cin g th e size o f minimum tran sact io n ·,
co rrespo nd en t bank s have opened th e Federa l
fund s mark et to man y cou ntry bank s whi ch
previo usly had been exc lud ed . In add iti o n, a
cor res pondent ma y a id in po rtfoli o man agement by accepting or se llin g loa ns a nd sec urit y
participation s , or if th e need ·hould ar ise, by
lendin g directly to a bank.
Other service s o ffer ed by corres po ndent
b:1nk s cove r :1 wide ran ge. Correspo nd ·111 b:111 b
oft en ;1 ss ist h;111k ~ in :1rr;111 i11 g i11ln11 :1ti o11;tl
financial tr~1n sacti o 11 :--, o btainin g credit info rmation , dev elop in g spec iali1ed lendin g progra ms
such as equ ip111ent lea sin g, a nd furni shin g information or int erpreta ti on · of new laws and
regul ation s. Some perform annua l audit s. Many
large correspondent s ass ist in officer a nd personnel recruitment a nd are willing to train
employ ees. On occa sion , temporary help may
be furni shed bank s which have lost office rs or
employees. In rece nt yea rs many correspond ent s
have organ ized reg ional electronic d ata proccs~in g ce nt ers to as ·isl bank s with bookkeepin g
a nd portfoli o anal ys i~. Sin ce regulati o ns gov ern
th e ma x imum amo unt a ba nk ma y lend lo an
o fficer or emp loyee, cor responde nt s may be
req ucs tcd to ass ist in loan · in vo lving la rge r
amo unt s. The provi sion of se rvices, however,
is not limited stri ctl y to banking need s. Many
correspondent s assist visit in g bank ers in obtaining hotel reservation s and ticket s to ent ertainment eve nt s. One large bank rece ntly reported th at it had ju st nego tiated th e purchase
of a n a lli ga tor for th e cu ·tom cr of a mall bank.
The precedin g li st o f services i · not ex hau stive, but it d oc · show th e range of se rvices
which cons titut e th e " co rre spondent pa cka ge ."
Of th e se rvices ava il ab le, the majorit y of ba nk s
find check clea ring a nd loan participation s th e
most helpful , but so me cons id er the oth er se r1
5
Cor e po d r
t
Bonk ng
vices eq uall y impor ta nt. A ide from direct
ex pen e incurred in pro vidin g th ese se rvice
or th e fee s req uired for data process ing, corresponde nt s rarely charge custom er bank s. The
balance a bank ho ld s with it - co rrespond ent
1
ex pected to com pen ate for th e ervices. If
th e ·ervice i performed for a bank cu stomer,
however , a cha rge may be made. Critic have
often mainta in ed th a t grea ter effi ciency in th e
d istribution of banking re ources would be
promoted if co rrespond ent bank s were to ub sti tutc ex plicit charges for th e prese nt co mpensa tin g balance requirement s. Man y sma ll ba nk s,
it i · argued, have no k now lcdge of th e cos t
of prov idin g liffercnt se rvices. If th e costs
wcr· kn ow n, a bank wou ld requ es t o nl y th ose
sc rvices for which th e p tential r 'V ·nu e ju stifi ed
th e ex pense. Pri ce co mpetiti on a mo ng co rrespo nd ent ba nk s, moreove r, may be more effecti ve th a n competing on th e bas is of the qu alit y
a nd ava il abi lity of se rvices offered.
Bank s generally have been opposed to th e
introduction of a fee system. A survey conducted in 1963 found fewe r than 6 per cent
of th e bank s clearly in favor of a fee arrangement. Nonm ember bank s, which can norm a ll y
co unt corrc po nd cnt balan ces toward meeting
rese rve requirement ·, felt th a t th e use of fee ·
w uld in crease th e co ·t · of providing ·crvices
to cu ·torn crs. Other bank · a rgued that th e
prices a ttached to man y se rvices wo uld be
relatively arb itrary. The average cost of cl ea rin g
a check may be calc ul a ted with so me degree
of acc uracy, but th e cost and va lu e of a n
account referral or a request for information
would vary great ly with the specific circumsta nces.
Desp ite th ese probl ems, bank s prov iding
co rrc po nd cnt ervicc have in crca ingly beg un
to ca lcu late th e profitability of crvicing interbank acco unt · a nd to co n icier thi s profit in
th e pro vi ion of ervicc . If a particular acco unt
should cons i tcntl y result in losses, a bill may
be se nt a nd th e banker requested to in crca c
the size of hi s acco unt. The method s of account
6
a nalysis will be examined in a subsequ ent arti cle.
Neverth eless, most large r ba nk continue to
indicate a n un willin gness to pro vid e co rrespon dent se rvices sole ly for a fcc . The va lue of intcrba nk account s to corres pond ent bank s i
grea ter than th e imputed interest which can be
ea rn ed on such fund s.
T o th e ex tent it functions effecti ve ly, th e
corr e pondent banking system tend to overco me many of th e alleged di sad va nt age of a
unit banking stru cture. By tran sferring fund s
from surplu s to deficit a reas, loa n participati o ns ass ist in improvin g fund mobility. The
a mount of loa n · whi ch a particular bank ca n
sc rvicc nccd not be limit cd by its loa n limit
or by it s dcposit s. Since th , acti vit y of cor r ·spo nd ·nt bank s is not restrict ed to particul:ir
gc gra phic area s, greater op po rtuniti es for port folio diver ification a nd ri sk reduction ma y
cxi l than in ma ny branch or holding co mpa ny
orga niza tion .
The correspondent banking system tend s to
ex tend economies of cale to small er banks.
Some se rvices, such as intern a tional finan cial
tra nsactions or specia lized loa n program s, arc
exemplary in th a t small bank s ex perience relati ve ly infrequ ent lcma nd s, but mu t ge nerall y
be prepared to offer ass i ·ta nce to custo mer ·.
Return s would rarel y co mpensa te th e initial
in vestm ent required fo r ·mall ·ca le pro lucti o n
of th ese crvices. Larger ba nk ·, how ever, enco unter suffici ent dema nd from th e public and
from other co mmercial bank to pro vide th e e
serv ices both profitably and at a lower unit
cost to their cu stomers. Eco nomi es of scale
may also be of significance for portfolio management. City bank s are often able to develop
ex perti se in in vestm ent a nd sec urit y a nal ysis
du e to opportunities for di vi ·ion of labor a nd
pccia liza tion not ava il a ble lo co untry ba nk s.
By har ing th eir knowled ge a nd co nclu ion with
co untry bank , co rrc pondcnt a re a ble to
tend the c eco nomi c to other ba nk . Furthermore, by relying o n th e advice a nd a ista ncc
of ex perts in correspond ent bank , the qu ality
Federol Reserve Bank of Kansas City
Correspondent Banking
Chart l
OMFS IC INTERBANK DEMAND BALANCF.S AT LARGE COMME
r'AI
Billions of Dollors
ANK
Billi o ns of D o llar s
20
20
18
18
16
16
14
14
12
12
10
10~*
*Change in Series
8
8
0
, I, I , I, I
19 4 7
I 11 : 111 c
I
1,. I
I
I
I
I
50
I
l;J I 1 11 I
I
:J2
I
I
I
I
I
'54
I
I
I, 11 I
I
I
I
I 1 11 I, I
' 56
'58
I
I,
1,
I
I
I
I
'60
I,
I
I
I
'62
I
I,
I,
11
' 64
I
1
11
I, I
I
'6 6
I, I
I
I
I
I,
'68
I, I
' 70
O
, 11 c• l >. ,~(' ti 0 11 """" 'il y .1v(•1,1 1:P ~ o l d ,11l y l1 g 11 rc .
1, r1cl c cl .i ru,1 ~ 1e p • c~e 11 1 p ' 11 od ~ o l IJ1 1 111 . ~~
OU R E: F d , a l Rese rv e
y lcco 11 1n 1c 1,0 11 ~ n ~ d e ,g n n t ecl
by 111
N ci t, O , 1,. 1 13 1,r ,i u o l [ (.o 11 o m ,c i ?P~e1.1 , <. l i .
y ~l e m .
and range of se rvices offered by co untry ba nk s
may be improved .
BEHAVIOR AND DISTRIBUTION OF
ORRESPONDENT BALANCES
Tota l int er bank deposits in U . S. bank s
co nsist of tim e a nd de ma nd deposits du e both
dom esti c a nd for eig n bank s. H oweve r , deposits
of fo rcig n bank s a rc no t u ·ua ll y co n ·id cred a
part o f th e norm a l co rresponde nt rel a ti o nship.
Althou g h a few U. S. bank s have beg un to
hold th eir co rrespondent ba la nces in noni nt crcst
bea rin g ce rtifi cates of depo sit , by fa r th e largest
share of co rresponde nt bal a nces a rc held as
demand depo sit s. Ba nk holdin gs of ti111 e deposits are not con sid ered in thi s article. Deposit s
which are interest earning a nd would con stitute
a bank inv est111e nt ca nn ot be determin ed with
cert a int y. In a ny case, th e mag nitud e is relati ve ly sma ll. At the end of 1969, o nl y 1.7 per
ce nt o f total int erba nk depos it s were tim e
depo sits due dom es ti c ba nk s. T he a mo unt du e
foreign bank wa · 10.4 per ce nt of interb a nk
deposits.
Moveme nt s since 1947 in demand bal a nce s
of domesti c bank s a t la rge co mmercia l bank s
Monthly Rev•l'W • NovE.'llll er 1970
arc shown in C ha rt I .3 Large co mmercia l bank s
hold only 57.1 per ce nt of to ta l depo sit s in
the Unit ed States, but they acco unt for 87.6
per cent of domesti c interbank d epos it s. Th e
111ost notabl e fea ture of th e chart is that interbank deposit s g rew very littl e until 1966 . From
an average of aboL-1 t $9 billion in th e la te
1940' s, interb a nk balances ro c to aro und $ 11
bill io n in th e rnid - 1950' s a nd to a bo ut $ 12
billion in th e ea rl y I 960's. T hi s in crea se of
·li ghtl y ove r 30 per ce nt co mpa res with a
growth in tot a l depo ·it s a t a ll co mm erc ia l
ba nk s of ove r 125 per ce nt and a grow th in
total dema nd deposit s of over 60 per ce nt. The
relativ ely slow ri se in corres pon de nt balances is
probably attributabl e to several ca uses. Since
interest rate s were extremely low and since bank s
had become very liquid , th e level of interbank
deposits a ft er World Wa r If was probably a bnorm a ll y hi gh. Over th e postwar peri od , interes t
ra tes have trend ed upw ard , in creas in g the oppo rtunity co ·t o f ho ldin g nonintcrcst ea rnin g asse ts
J / F ig ures at large co mmerc ial ba nks w h ic h arc av ai lab le
w ee k ly t end t o be m o re r ep rese nt a ti ve o f t h e ave rage
leve l o f cor rc~ po n dc nt ba la nce~ th an :il l bank st a t isti c~
whi c h arc ava ilable o nly for ca ll repo rt dat es . "W ind ow
dress ing " o n ca ll r epo rt dates tend ~ t o c au ~e large t emp ora ry m ove m ent s in t he a m o unt o f in terban k d eposi ts.
7
Correspor dent Banking
Table 2
DOMESTIC INTERBANK DEMAND DEPOSITS
December 31 , 1969
Bank Deposit Si ze (Millions)
$100
Less
$5
$10
$25
$50
than
to
to
to
to
or
$10
$25
$50
$100
rno re
$5
Av erage Demand Balan ces H el d w ith Banks in the Uni ted State s in
Thousands of Dollars*
294
294
All Commercial Banks in Su rvey Ar ea
All Sur vey Bank s
1,342
1,324
2,791
2,730
5,596
5,629
13,27 4
13,059
83 .92 75 .80
68 .7 9
69 .94
28 .58
11 5.59
91 . 17 88 .43
11 3 .85
91 .13 86 .60
109 .881 136 .56 73 .26
95.38
79. 18 80 .28
124 .00 l 03 .48 98 .33
83 . 12
81 .3 9
85 .68
73 .56
96 .3 8
643
641
A ve rage D e mand Balances H e ld with Bank s in th e Unit ed Stat es per
$1 ,000 Total D eposi ts*
l 01 .89
All Commercial Banks in Unit ed St a t es
Ba nks in Region Surv e y ed
All Commercial Bank s
All Surv e y Ba nk s
A ll Ho lding Co m pa ny Ba nk s
A ll M e rnb r Bank s
A ll N o nm mb r Ban ks
Perc en tage of Survey Bank s Mai ntainin g Rec iprocal D eposi ts
8 1.78 45 .78
81 .49 43 .63
I 06. 52 36 .63
7 4 . 11 42.42
11 2.54 150 .881
6 .7
6 .8
9 .1
23 .0
43 .8
83 .3
41
59
68
121
185
4,041
l
l
2
2
12
For Banks Maintaining Re cip roca l A cc ount s
Average Amount in Thousand s of Dollars in Reciprocal Balances
Average Number of Banks with which Reciprocal Balances ore Ma intained
1
·-· Ex cl ud es bal a nces at U . S. bran c he s of foreign banks .
t Sample con tains four o r less banks .
in th e form of corre spond ent ba la nces. Ri sing
rates a lso mea nt th at th e balances required to
com pensa te co rre pond ent ba nk s did not need
to ri -c a rapidly a · th e dema nd for -crv ices.
A se lecti ve redu cti o n in th e average level, of
rese rve requirements in so me state · may al ·o
have co ntributed.
Sin ce 1966, howeve r , interb a nk d ema nd
deposit s have grown sha rpl y, in creas in g from
$ 12.4 bi llion in late 1965 to $ 18. I billi on in
ea rl y 1970. By compari son, total depo sit s of
insured co mm ercial bank s rose 31.4 per cent,
or only about two-thirds as rapid ly. The growth
in corresponde nt acco unt s is remarkabl e because
durin g thi s period intcre ·t ra tes ro se to th e
hi ghes t leve l in nea rl y a ce ntury a nd ba nk s
ex peri enced ve ry ·tro ng dema nd s for loa ns.
o ntri but in g fac to r · to th e grow th appear to
have been the in creas in g need for co rrespondent se rvices in cludin g loa n participati o ns, th e
ge nera l tend ency for cor re spondent ba nk · to
ana lyze th e profita bilit y o f indi vidu a l accoun ts
8
more clo sely, a nd th e sha rp ri se in fl oa t associated with Eurodollar tra nsaction s.
As mi ght be exp··cted, th e J \ eragc amou nt
of demand balan ces kept on dcpo ·it with oth er
bank · va ri e · direc tl y with th e siLe of th e ba nk : 1
Table 2 a lso shows, howeve r , that fo r m ·t
ba nk s th e proportio n o f total clepo ·it · held
with other ba nk s declin e · as bank size grows.
U. S. ba nk s with to ta l d epos its o f less than
$ I mill io n ma int a in a n ave ra ge in co rrespo nd ent
demand account s of $22 1 for every $ 1,000
of deposits, wherea bank s with deposit s in
excess of $ I billion average about $ 15 per
$ 1,000 of tot al depos it s. If the figur e were
ex pressed as a fr acti o n of demand deposit s onl y,
th e sa me ge nera l trend · wo uld have appeared.
ot-r e ·1 o nd ent balance · I er $ 1.000 of d emand
deposit s wo uld have declined more rap id ly a ·
th e d eposit ·ize of bank · increa -cd , refl ec t in ~
4
nl cs~ o t hcrwi~c n o ted. 1h c d ol lar a m uu nb repo rt ed in
thi s ~ec ti o n a rc ba~cd llll D ece m be r 3 1. 1969 . ca ll report
figure ~ for a ll ba nb in th e st a tes s ur \'cycd.
Federal Reserve Bank of Kansas City
Correspondent Banking
the fact that demand deposit · compri se a la rge r
sha re of total depo sit s at larger bank s.
In co ntra st with the overall ave rages, nonmember bank s a ppear to achieve eco nomi cs in
holdin gs of co rrc ·pondcnt balances only to a
to ta l deposit size o f about $50 million. Relati ve
co rrc ·pondent ba la nces of no nm embe r bank ·
with depo ·it · ove r $50 milli o n tend to increase
with bank size . Since th e fi gures for la rge
no nm ember banks a rc based on a rel ati ve ly
small sa mpl e and sin ce th e ave rage deposit
size of th ese ba nk s in th e large r deposit ca tego ri es is be low th at of member bank s, th e
fi rur-cs mu . t be interpreted with cauti on. Neve rth eless, th ey impl y that th e benefits or Federal
Rese r\'c 111 e111 I cr:-. hip incre;r :-. · sub :-. tanliall aft er
a bank ha :-. re;i chcd a sullic ienl siLe.
M ember ba nk · in a ll deposit ·izc ca tego ri es
mainta in ·ma ll cr ba la nces with co rrespo nd ent s
th a n do no nmemb ers. Thi s sys tema ti c difference
undoubt edly reflect s the fact that member bank s
are rcq uircd to hold specifi ed percentages of
th eir net d epos it s on rese rve and that the Federa l Rcsc r\'e pcrforms some services for memb ers
which mi ght ot herw i ·e be hand led by correspo ndent ·. The amo unt held by sun·cy nonmemb er banb in corresponden t ba lan ce:-. , in
additi o n to that held by rn ern ber bank s, va rie s
between 2 and 11 per crn l or to tal depos it s.
Howeve r , if the rese rves of 111 e111bcr bank ·
we re includ ed in interba nk acco unt s, member
bank · wo uld ho ld a hi gher per ce nt of th eir
fund s with other ban ks.
The average number a nd amo unt of reciprocal balances also increases sharpl y with deposi t
size . Few small bank s have accounts from
bank s wit h which th ey mai nt a in balances, but
ove r 83 per ce nt of th e survey bank s with
dcpo ·its in exec s of $ 100 milli o n ha ve reciproca l acco unt s. /\t th ese la rge bank s recip roca l
balan ce · amount to about 25 per ce nt or to tal
interb a nk ba la nce ·, indica tin g that th e amo unt ·
im olvcd a rc quite la rge.
Similar ly, th e ave rage number of bank s wi th
whic h respo nd ent · maintain correspondent reMonthly Review• November 1970
la tion s in crease with th e deposit izc of the
respondent. Most sma ll bank s keep relative ly
large ba la nces with one or tw o correspo nd ent
bank s, ge nera lly loca ted in th e nea re st regio nal
ci ty, and three or four small er acco unt s \vi th
oth er bank s. Some of th e ·c mail er acco unt s
arc based on bank creel it card or tra\·clcr
check opera ti o ns, but a notewo rth y number
arc held simply on th e ba ·i · of friend ship
and tr adi ti o n. The larges t sur vey bank s, by compa ri so n, tend to average 30 or more co rre spondent s. Th e avera ge number of corres pondent · fo r different gro up · of bank s is show n in
Table 3. In all b ut the laq.1,cst deposit size
cate l!,o ry, n1 ernhcr and no nrn crnb er ha11b appear
to mainta in :1ho ut the s,1111 · number o f corre:-.po nd enl rela ti ns. The sm aller number for 11 011mcmbcr ba nk s with depo si t · in excess of $ 100
million cou ld refl ect th e fac t th at th e a\'cragc
depo sit size of ba nks in thi s category is on ly
a bout half that of member ba nk s.
One int ere ·ting observation which eme rges
fr om the comparative fi gure s on interbank
deposits is th e amount of correspondent balances
maintained by holdin g company bank s. Hold ing
company applica ti ons have occa iona ll y argued
th at if a sma ll er bank is permitted lo join a
ho ldin g co mpan y in which the lead bank act s
a · a maJ o r co rrespond ent , th e small er bank
will be a bl e to redu ce (or a t lea st not in crease)
Table 3
AVERAGE NUMBER OF CORRESP ND ENT BANKS
Bank De posit Size (M il lions)
Less
$5
$10
$25
$50
than
to
to
to
to
$100
or
$5
$10
$25
$50
$100
more
Averag e Num ber of
Corre spond e nt Ba nks
All Surv e y Banks
5
6
8
11
13
30
M embe r Banks
5
6
9
11
13
31
N onmember Banks
5
7
8
10
12
12*
H olding Company Ban ks
2*
2
6
8
14
34
N OTE : F, g ures d e ri v d fr om s urvey banks o nly .
F, gu r b as ed on r e ponse s o f f ou r o r l ess b a nk s .
9
Correspondent Banking
its correspo nd en t acco unt a nd will still be able
to obtain th e necessa ry correspondent ervice ~
fro m th e lead ba nk . Tables 2 and 3 in icate,
however , that while smaller bank s in holdi ng
compa nies tend to maintain fewer correspondent rel ations hip · , th e average ·ize of interba nk
deposits in a ll dcp o it ca tego ri c~ eith er approx ima te · or exceed s th e average fo r al l
U. S. co mm ercia l bank s. These fi gures suggest th at holdin g com pan ies ha ve served as a
mea ns for lead ba nk s to acq uirc co rrespo nd ent
acco unt ~, but have not result ed on ave rage in
a ny overa ll rcduc ti n in ha lancc · mai nt a ined
by th e sma ll er ba nk ·.
CORRESPONDENT BANKING SERVICES
The perce nt age · of banb utili zing selec ted
co rrespondent ba nk ing se rvices arc show n in
Table 4. Th e most co mm on se rvice performed
for bank s appears to be th e initi ation of check
clearing. Over 90 per ce nt of all survey ba nks
and 87 per cent of al l member ba nk s prefer
to se nd checks drawn on nonlocal bank s to
co rre spond ents rath er th an th e Federal Reserve . Onl y bank s with deposits in excess of
$ I00 million have a decided preference for clcari ng checks directly with th e Fed ral Reserve .
Alth ough c ·tim atcs of th e perce nt age of no nloca l chec ks ·cnt to co rrespondents by ba nk s
wit h total dcpo~its less tha n $ 100 million va ry
from a bout 70 to 95 per ce nt , th ese fi gures
tend to ove rstate the net clea ring performed
by the correspond ent network . Man y correspondent bank s se nd th e check s recei ved from respondents to th e Federal Reserve. The number
of checb clea red through th e Federa l Reserve ,
co nscq uentl y, is greater than th e fi gure~ mi ght
sugges t. Howeve r , even la rge co rrespo ndent
banb clear abo ut o nc-fo unh of their check.
throu gh oth er co rrespond ent s. urpri singly a
~ign ifi ca nt d ifference doc~ no t appear t cx i t
between th e prefere nces of member and nonmember bank s in the me th ods of clearing
preferred .
10
The most impo rt a nt rea on survey bank s
Ii ted fo r choo sing to se nd check to corrc pond en ts relates to the immedia te cred it corresponden t~ offer. A notewo rthy numb er of bank s
also indica ted th at th e sav ing of so rt s a nd more
prompt clearance were advantages to cl ea rin g
throu gh cor rc ·po nd cnts. The mo t com mon
"other" reason s give n were th at bank · we re
not memb ers of the Federal Re erv c or th at
th eir clear ing pattern - were based o n trad iti o n.
The imm edi ate credit provided by co rres po ndent s appea r to be a so urce of mi und ersta nd in g. Alt ho ugh ma ny co rrc ·po nd cnt bank s
provide immed ia te credit for clearings o n th eir
boo k~, lhe acco unt ana lys is perfo rm ed by co rrespo11d e111 ~ usu·tll y makes a deducti o n fr o m
lh e av ·ra ge bahnee of a bank fo r un c llcct ed
fund in d ·termin ing the ea rning credi t. Immediate cred it , therefore , would as si st a ba nk
primarily in mee tin g state no nmember reserve
req uirem ents by increas ing th e tot al of it s
correspo nd ent accounts. Th e larger corres po ndent ba nk s reported th at th ey had been fo rced
to ca lculate th e flo a t for each respo nd ent
ba nk becau se ma ny sma ller ba nk s were attempting to sell th e un co ll ected bala nce · in th e
Fed eral fund s market.
Pcrh ap · th e second mos t important service
performed by the co rrespo nde nt banking ·ystem is loa n participa ti o ns. A majority of bank s
in a ll deposit size ca tegor ies indica ted th a t
their co rres po nd ent s had pa rti cipa ted in loa ns.
On th e other hand , a significa nt proporti on ,
which tended to ri se with th e deposit size of
th e reporting bank , indicated th at correspondents had originated loan s in which th ey had
participated. For smaller bank s, loa n parti cipation s often ari se becau se spec ifi c loan req uc ·t ·
exceed th e b·1nk ' s lega l lendin g limit. Parti cipatio ns in loan ~ 01·iginatcd by co 1Tc -p o ndcnt ~,
however, rna y occ ur for a va riet y of rea s n~.
Pa rti cipatio ns may be a rran ged for small ba nb
experienci ng weak loa n demands . Th e~c loa ns
arc norma ll y so ld o utri ght , but co rrespo ndent
banks genera ll y stan d ready to repu rchase th em
Federal Reserve Bank of Kansas C.1ty
Correspondent Banking
on demand. The return on these loans is ofte n
grea ter th an can be earned on money market
securities. The high proportion of large banks
enterin g into pa rticipa ti ons on loa ns originated
by their cor respondent · ma y be a reflection of
th e fact th at ma ny money ma rk et bank · in
recent years have not had the re ·ource · to as ·ist
larger regional bank · in loan participations.
Conseq uentl y, money mark et co rrc ·pondent ·
have often agreed to par ti cipa te in loa ns onl y
if th e originating ba nk wou ld participate in
an equ a l a mount of loan · o ri ginated by th e
money market correspondent.
Con ·id crabk diversit y ex ists amo ng th e
sur\' ·y st;ites in th e nu111b er or b;1nk s requirin, lo<1n parti cip ,1ti o 11 s. Til e proportion nl"h; 1nk s
re4uirin g I ~Ill ass istance ra11ged from a hi gh
of 82. 7 per cent in olorado to a low of 46.2
per ce nt in Mi sso uri. 5 Similarly , th e number
of re spond ent s participating in loan s origina ted
by correspondent banks va ri ed from 64.3 per
ce nt in New Mexico to 29.8 per cent in Ka nsas . 6 A detail ed a nal ys is of the types and
dollar amount of loan participations wi ll be
considered in the second article in thi s se rie s.
An additional method by which co rre spondent bank s rnay obtain loanab le funds is by
se lling re spondent ba nk::-. securities or participation · in pool · of secur·ities und er agreements
to repurcha se. Ite m · 11 (k) and (I) of Table 4
indicate that abo ut 15 per ce nt of all ·urvey
bank · ha ve entered int o such repurcha se agreemen ts. Large a nd sma ll banks a rc th e mos t
common purchasers wit h the percentage of
bank s reporting such agreement s declining for
medium-sized survey bank s. The average amount
purchased per bank rose from a low of
$257,000 for bank s with deposit s less than $5
5/ 1 he percenta ge nr hank , in o th e r , t:it e, req uiring
parti c ipatio11' from their co rrc, po11dc11h were: Kan ""·
56.4 per cen t : Ne\1 M c.\ ico. 7 1.4 per ce nt :
e hr:i,ka .
70 .9 per cen t : Oklahoma. 54.3 pe r ce nt : .ind W yo ming.
77 .6 per cen t.
6
rn-re,po nd i 11 g percentage, for o ther ~u rve y s tat e, were :
Co lorado. 4 1.8 per ce nt : Mi s,o uri. 35 .5 per ce nt : Nebra ska . 30. 1 per ce nt : Oklahoma . 49 .0 per cen t: and W yoming. 37.3 per ce nt.
Monthly R view• November 1970
million , to $ 10. 1 million for bank s with depo ·it · of $ 100 million or more. The pract ice
of sellin g sha re of in ve tment portfolios und er
ag re eme nts to rep urchase appea rs to differ consid erab ly among survey states. Over 3 1. 5 per
ce nt of th e bank s in Kan sas hold such rep urcha e agreement but no bank in New Mex ico
indicated a tra nsaction. 7 Although o nl y 7.1
per cen t of the bank s in Mi · ·ouri entered into
repurchase ag reeme nt ·, th e average amount per
purchasin g bank was $ 1.97 million , compared
with averages of $5 19,000 in Kan sas; $502 ,000
111 Co lorado; $345,000 in Oklahoma;
26 1,000
in Nebra ska ; and $ 150 ,000 in Wyoming.
;\ surpri sin ly large proportion of hanks
maint;_rin lines of cred it and borrow dire ·ti
from corn.>·pond ·nt hank s. /\l111ost 17 per ce nt
of the survey bank ~ have cred it lin e~ with corrcpondent · and over 70 per cen t of the bank::,
wi th lines have borrowed und er th em. Simi lar ly,
about 11 per cent of th e urvcy ba nk s reported
borrowing directly from corresponde nts for
short- or interm ediate-ter m purposes. Since
a large share of the borrowing for short- or
intermediate-term purposes could have been
included in borrowing und er lin e~ of credit, it
is not possib le to add t hcsc tw o amount s toge th er to determine total borrowing from corrc·pondent s. Ncve rth elc::is, item ::, 5(b) and 6(a) in
Tab le 4 indica te th at the amounts borrowed
arc quite sizabl e, part icula rl y for large banks.
Rela ti ve ly few respondent s obtained loa nabl e
fund s by se lling loans or muni cipal securities
to their co rrespondents.
Correspondent ba nk s provide numerous se rvices relating to investment and money market
management. A majority of survey bank s reported th at they had rece ived in ves tm ent advice
from corre pond cnt s, had regularl y o ld Federal
fund · th rough co rres pondents, and had regulctr ly
1
7 The percentage nf banb in th e o th er , uney ~tate ,
reporting ha\ ing purch :1,ed repurchase a g ree menh in porti on, of C<llTC~ iH> ndenh · i11\ c,t111cnt portfoli <b were: Co lora do, (i. I per ce nt : Mi "'(> uri. 7.1 per cen t : N cbra ~k a.
15.4 per ce nt: Oklah om a. 11 .8 per cen t: and W yo ming,
6. 3 per cent.
11
Table 4
PERCENTAGES OF BANKS UTILIZING SELECTED SERVICES OF CORRESPONDENT BANKS
Bank Deposit Size (Millions)
Less
than
$5
$5
to
$10
$10
to
$25
$25
to
$50
$50
to
$100
$100
or
mor e
All
Banks
90 .6
87 .8
90.7
90 .8
93.7
90 .8
90 .0
83 .6
87 .l
84 .0
22.2
19.2
90 .2
87 .0
(a) Saves Sorts
ALL SURVEY BANKS
MEMBER BANKS ONLY
20 .9
22 .5
21.9
24 .4
21. l
20 .2
18 .0
21 .3
l 0.7
9 .1
42 .9
50 .0
21.0
22 .3
(b) Im mediat e Cre dit
ALL SURVEY BANKS
MEMBER BANKS ONLY
49 .5
56 .4
51.5
54.7
49.9
58 .4
51.0
57 .4
53 .6
63 .6
-
50 .0
56 .2
(c) More Prompt Cl earance
ALL SURVEY BANKS
MEMB ER BANKS ONLY
16 .0
13 .4
12 .9
11 .7
12 . l
12.2
15.0
16 .4
2 1.4
22.7
28 .6
33 .3
14 .6
13 . 1
13 .5
7 .7
13 .8
9 .2
16 .9
9 .2
16 .0
4 .9
14 .3
4.5
28 .6
16 .7
14.4
8 .4
2. Within th e pas t 12 mo nth s wh a t p erce nt ag of th tota l do lla r am ount of
yo u, ban k' s clea rin gs of out of town checks was pr oce sse d thr o ug h y our
co rre spo nd e nts?
ALL SURVEY BANKS
MEMBER BANKS ONLY
94%
90%
93 %
92%
92 %
87 %
86 %
78 %
77 %
71 %
27 %
25%
92 %
87 %
l . Pe r ce nt of bank s preferring to clear checks drawn on banks whic h are locat ed outs id e of th e city or metropolitan area through correspondents rather
tha n th e Fed eral Rese rve .
ALL SU RVEY BANKS
MEMBER BANKS ONLY
For those banks prefe rring to cl ear through correspondents , th e pe r ce nt
l is ting t he fo llowing alternati v es a s th e most important reason :
(d) 0 th
r
ALL SURV EY BANKS
M EMB ER BANKS ONLY
3. Per ce nt of banks originating loans in which corre spondent banks participated .
54 .6
59 .3
65.9
78 .0
59.4
83 .3
59.4
4. Pe r cen t of bank s participating in any loan s which were originat ed by corresponden t banks .
28 .9
34 .3
48.7
57.6
68 .8
76.7
36.5
5. Per cen t of banks having established lines of credit with correspondent banks .
18 .6
13 .5
17 .0
17 .5
12 .9
16.7
16 .9
1
2
l
2
2
2
FOR BANKS MAINTAINING ESTABLISHED LINES OF CREDIT
(a) Avera g e numbe r of correspondents with which such agr ee ments are
mai ntained .
2*
(b) A verage larg es t a mount in thou sa nd s of borro w ing und er such ag reeme nts w it hi n th e pas t 12 mo nth s.
186
686
513
1,236
1,934*
4,620*
(c) Pe r cen t of bank s w ith credit lin es not b orrowin g .
30 .2
23 .5
36 .5
18 .8
25 .0*
20 .0
9.4
13 .8
12 .6
9.2
6 .5
6.7
271
505
1,061
1,900*
6,500*
6. Per ce nt of banks bo rrow ing w ithin th e pas t 12 month s for short - or int e rmediate-ter m pu rposes f ro m cor resp ond ent s (exc luding Fed e ral fund s) .
29 .3
11.0
(a) For banks borrow ing fr o m co rr es pond ent s, ave ra ge loan amount in
thousands.
112
7 . Per ce nt of banks ob tainin g w ithin the pastl2 months short - or intermed iateterm f und s by selling mortgages, obligations of state and political subdivi sio ns, o r con sum e r loans to correspondents .
3.0
3 .8
3.7
3 .1
9.7
3 .3
3 .4
8. Per cent of banks making new loans within the past 12 months due to referrals fro m corre spondent banks .
3 .9
7 .0
12.0
16.8
16.l
37 .0
7 .3
9
4
FO R BA N KS MAKING LOANS
4
3
4
62
51
95
4.4
l 0 .5
7
8
(a) Co rres ponden t ban ks
ALL SURVEY BANKS
MEMBER BANKS ONLY
97 .0
89 .9
(b) The Fed e ral Rese rve Sys t e m
A LL SURVEY BANKS
ME MBER BANK S ONLY
48 .6
92 .6
(a) Average numbe r of such loa ns.
(b) Av erog
a mo unt in th ousand s of such new loa ns out standin g .
9. Per cen t o f ba nks ob ta ining new deposi to rs w ithin th e pas t 12 mo nth s due
to re ferrals from cor respo nde nt ba nk s.
(a) For ban ks ob taini ng ne w deposi to rs, ave rag e numb er of deposito rs.
4
3
157
379
948
19.4
30 .5
29 .0
48 .l
l 0 .7
12
l0
12
12
10
95 .9
93 .2
95 .6
92.7
94 .0
91.8
90 .6
88 .5
89 .3
88.9
96 .1
91 .7
67 .6
93 .5
70.7
93 .9
78 .0
98 .3
90 .0
96 .0
100 .0
100 .0
60. 4
94 .0
l 0. For sa f eke ep ing of sec ur it ies , pe r ce nt of bank s using :
Table 4 (Continued )
PERCENTAGES OF BANKS UTILIZING SELECTED ERVICES OF CORRESPONDENT BANKS
Bank Deposit Size (Millions)
less
than
$5
$10
$25
$50
$100
to
to
to
to
$5
$10
$25
$50
$100
or
mo re
All
Banks
62 .4
11. Per cent of bonks receiving investm e nt and money m arke t advice and se rv ices from correspondents within t he po st 12 month s:
(o ) Received advice on investment portf o l io .
57 .8
65 .0
68 .4
71 .7
63.3
70 .0
(b ) Regularly bought Federal funds throu gh co r res pond e nt banks.
26.1
26 .8
29 .4
46 .5
68 .8
76.7
29 .2
(c) Regularly sold Fed e ral funds through co rres pond e nt banks .
36 .4
55 .8
69 .5
85.9
87 .5
80 .0
51.1
(d ) Regularly bought , sold, or exchang ed U .S. G ov e rnm e nt securit ies through
corre spond e nt banks .
82 .2
81.4
79 .2
83 .0
83 .9
80 .0
81.5
(e) Re g ularly bou g ht or sold obligati o ns of stol es a nd pol i ti ca l subd iv i sions
through correspond e nt banks .
38.6
57 .0
58 .9
59 .0
38.7
53 .3
48 .0
(f) Regularly bought o r sold comm e rcial pa pe r th ro ugh co rr e sp o nd e nt bank s.
10.2
15.5
20 .6
32 .0
48 .4
40 .0
15.4
(g ) Regula r ly bought or sold bank e r s' acce pt a nces th ro ug h corr es pond e nt banks .
0.9
0 .6
2.3
3.0
3.2
16.7
1.4
(h) Regu larly bought o r so ld neg o ti able t im e ce rti fica t es o f d ep o sit th ro ug h
corr espond e nt bonk s.
1.5
1.0
1.0
1.0
3 .2
6.7
1.3
(i ) P r ce nt o f bank s with corr esp o nd nt s w h ich tai lor n go tiab le ti m e c rtifi co t
of d p os it t o suit th in v st111 nt n d s o f ba nk s.
3.2
3 .4
3 .6
5.3
-
4.6
3 .4
23
8
4 r.
-
-
-
(k) P r ce nt of bank s o cquiring fr om a rr spe nd n t s por t i 'I o tion s und r r purcho s ogr e m nt s in ony po rt ion o f th
co rr spo nd n t' s in v stm nt
portfolio .
19.0
12.9
11.0
7.1
3.2
23 .3
(I) For bank s acquiring su ch pa r tic ipa tio ns, ov e rag e a m ount in th o usa nd s o f
participations currently held .
257
512
552
1,536
-
10,106
(a ) International banking serv ices :
Available
Used
89.2
19.5
94.7
39 .8
97 .1
60 .9
98.0
74 .2
100.0
90 .6
100.0
96 .6
92.9
37.7
(b) Bank wire :
Avai lable
Used
89.4
36.9
96 .8
56.7
98 .4
78 .9
97 .9
91.6
96 .9
96 .8
89 .7
92 .3
93 .5
54.5
(c) Coll ec tion s:
Avoilabl
Us ed
93 .6
62 .0
99 .4
79 .6
98 .7
87 .0
100.0
95 .9
100.0
96 .9
100.0
100.0
96 .5
73 .9
(d ) Advice on consum e r c redit act iviti es:
Availabl e
Used
88 .0
42 .5
92.0
46 .8
89 .9
53 .0
85 .9
47.5
83 .3
38 .5
82.1
54 .2
89.1
45.8
(e) Credi t informa t ion :
A vailable
U sed
91 .4
60 .5
95.7
75 .5
96.5
85.4
98 .0
83 .3
96.9
87 .1
96.7
100.0
94 .0
71.1
40 .8
51.4
42.4
52 .1
46 .6
53.4
55.4
67 .3
46.2
50 .0
29.2
15.4
42.9
52.4
(g ) Data processing advice or services :
A vailab le
U sed
86.4
29.1
92 .2
55 .6
96 .0
69 .1
92.9
65 .9
96 .9
32.3
81.5
52 .0
90 .1
45.7
(h) Group insuran ce or r e tir e m e nt pl a ns for bank e mploy ees :
Availabl e
U se d
56 .5
23 .8
64 .2
37 .5
66 .5
33 .9
68 .2
26 .9
58 .6
10.0
61.5
61.0
28 .8
1,053
273
516
271
384
220
100
61
32
26
30
29
toi l
U II
I
SU
I,
D '~ .
(I V
ru g• (ll11 0 Ullt
11tly h Id .
~-
15.3
12. Per cen t of banks reporting t he following banking services are mode avai lab le lo them by correspondent bank s and, if so, the per cent utilizing the
services within the post 12 months .
(f)
A bsorption of cost of currency and coin wrapping and sh ipment :
A vailable
Used
Number of Surv ey Banks
Number of Member Bank s
* Figure ba sed on res ponse of four o r le ss bank s.
-
2,115
880
rit Bnnking
bought , sold , or excha nged holdin gs of U.S.
Government securiti es with correspond ent s. A
slightl y sma ll er proportion indicat ed buying a nd
selli ng municipa l sec uriti es through co rrespo ndents. Co mmercial paper tra nsaction s a nd Federal fund s purchases were reported by a signifi ca nt fr acti on of ba nk s, but relatively few
noted tra nsacti on s with co rrespo nd ent s in bankers' accepta nces or nego ti a bl e certifi ca tes of
depo sit. Onl y 3.4 per ce nt of th e urvcy bank s
stated th at correspond ent s would tailor nego tiabl e C D 's to suit their investm ent need s.
With th e exce ption of bank holdin gs of CD' s
whi ch were conce ntra ted entirely a mo ng ·mail er- a nd medium -s ized hank s, th e perce nta ge
of bank s re ·e ivin g ass istan ce o r :1d vice 011 different type · of portfoli o tran saction s ge nerall y
tend ed to ri se with th e size of th e reporting
bank. Si nce it has ge nerall y been a sum cd th a t
large r bank s perform sec urity evaluati o ns a nd
ha ndl e portfolio management probl ems for th emsel ves and th at sma ller ba nk s require greater
ass istance in thi s area , thi s res ult is relativ ely
surpri sin g.
Nearly a ll bank s repo rted usin g correspondent s for securit y safek eeping a nd 94.0 per
ce nt of member ba nk s also repo rt ed u ·in g th e
Federal Rese rve. Th e Federa l Rese rve will
perform safekeep in g for nonm ember bank s onl y
if the sec uriti es arc pledged as co ll a tera l for
Treas ury tax a nd loan acco unt s or for oth er
spec ified purposes .
The percen tage o f bank s reporting new
loans or depo sitors as a res ult of referra ls
from co rrespond ent bank s increased with th e
size of the reporting bank. Onl y about 4 per
cen t of the bank s with total depo sits und er
$5 milli on acq uircd new cu stomers from co rrespond ent referra ls, but around 48 per ce nt of
th e largest ·ur vey bank s obtained depo sit ors
a nd abou t 37 per ce nt mad e loa ns on th e ba sis
of refer rals. Large ba nk s rece ivin g referra ls
tend ed to acq uire a la rge r number of d cposi-
14
tors a nd borrow ers th a n did sma ll bank s.
About 90 per cent of th e survey bank s
indica ted that th eir correspondents offered ass istance with internation a l banking services, collection s, ba nk wire, advice on con sum er cred it
acti vities, credit information , and electroni c
da ta processing. Over 60 per ce nt have group
in sura nce or retirement pl a ns for bank employees ava il a ble a nd 43 per ce nt indi cated that
corr espo nd ent s would abso rb th e cost of currency and co in wrapping a nd shipm ent. Of
th e survey bank s with such se rvice s ava il ab le ,
over 70 per cen t used co rrc ·pond cnt · for collecti ons and credit info rm a ti on; 55 per cen t
used th e bank wire; over 40 per cen t rece ived
ad vice 0 11 co 11 su 1n -r credit act ivit i ·s , used co rre ·pon lc111 s for ED P, and permitt ed eo rres poncl ent s to absorb cos ts in th e provisio n of curren cy and co in . Almost 38 per ce nt required
ass ista nce in intern a tion a l tran sacti ons, but only
29 per ce nt utili ze group in suran ce or retirement plan s.
CONCLUDING OBSERV~TION
In rece nt yea rs proponents of branch a nd
holdin g co mpan y banking have in crea sin gly
maintained th at th e cor respo nd ent bankin g ·ystcm i.· un able lo provide ·ati sfa ctor il y for th e
need s o f ma ny bank s. To stud y th e performa nce of cor respo nd ent bank s, a survey wa s
se nt to ove r 2,400 bank s in seve n midw es tcrn
states during September and October 1969.
The survey res ult s indi ca te th at co rres po ndent
banks have . bee n ve ry active in providing a
wid e va ri ety of services. Succeedin g articl es in
thi s series will examine the need for loa n participati ons and will co nsid er th e net fl ow s of
fund s to a nd fr o m co rrespo nd ent bank s. Co mpari sons of th e mag nitud es o r dollar fl ows
with th ose of a n ea rli er survey will be made.
Fina lly, the overall effec ti ve ness of th e correspond ent bankin g system will be co nsid ered .
Federal Reserve Bank of Kunsas Crty
t
r
By Dan M . Bechl er
A mcrican s
arc spending billi ons of dollar s
fo r o utd oo r leisure thi s yea r. Ju st how
man y billion s depend s o n what a ·ti vitics a rc
·lass ificd as lcis11r · and whic h arc co nsid ered
as "outdoor." Dra wi11 • th · li 11 ·s is 11 01 ~tl wa ys
easy. Lawn care, for ex ample , sa ti sfi ·s th e
open-a ir requ ire ment ; but not everyo ne wo uld
call it rec rea ti o n. /\ ga in , most peop le classify
pl eas ure drivin g in an a ir-co nditi o ned ca r , ca mping in a mod ern trail er, or wa tchin g a football
gam e in a covered stadium , as recreation. But
puri sts might not consider th em outdoor activiti es .
Measurement problem s, besid es definitional
ones , comp li cate a ny effort lo estimate tota l
expenditures o n outdoor rec reation. Logic uggcst · tryin g lo cl ctcrmin c h w mu ch i · -pent o n
a ll good s and se rvices used for o utd oo r lei ·urc.
But whil e one ca n readil y ob ta in some kind of
data , such as reve nu e from the sa les of hunting
and fi hing liccn cs, ce rt a in oth er kind s of
inform ation simpl y do not ex ist. No one reall y
know s, for example, how much clothing is
worn out by outdoor play.
The Departm ent of Comme rce classification
for cons um er spending on recrea tional goods
and SP. rvices total ed $36 billion in 1969. In
recent years, thi ca tego ry has cl a imed a larger
percent age of th e co nsum er budge t th a n eve r
before. · hart I show · th a t th e up wa rd trend
in the relativ e import a nce of ex penditures for
recreation has bee n interrupt ed by rccc ion s
and by war - co ndition s th at und ersta nd abl y
shift consumer spending away from lu xury item
t"\
Monthly Review• November 1970
Outdoor recrea ti o n' s share of th e househo ld
rec rea ti o n bud ge t appears to be incrca i ng.
f n 1929, co nsum ers spent 5. 1 per ce nt o f th eir
to tal rec reation ·x renditures 0 11 whee l good s,
dur;1hl · toys, sp rt s cquirm ·nt , ho:1t s, and pleasure air ·raft. Thi s perce ntage grew to 6.6
in 1939, 8.4 in 1949, a nd 11 .7 in 1959 , wh ere
it sta bilized.
Professo r Ri cha rd Kra us believes that the
Commerce Depa rtm ent estimat es recrea tion expenditures far too conse rvativcl y. 1 T o th eir
fi gure he would add , among oth er things, a
major portion of personal ex penditures on transportation - a se para te $80 billion it em in th e
C omm erce account s. He has a good case. A
rece nt nation al tra vel urvcy show s that fourfifth s o f lo nge r , o ut -o f-town trip s arc ta ken for
pl ea sure. /\net the U. . Bureau o f Outdoor
Rec rea ti o n repo rt s th a t Am eri ca ns choose driving fo r pica urc over most o th er out sid e lei urc
ac ti vities.
Specia l sur veys of co nsumer ex pend itures on
indi vidual outdoor recreati o n act iv ities give an
idea of the amount of bu siness the se acti vities
generate. The U. S. Fish a nd Wildlife Service
estimat es that 28 million person s 12 years old
and over fi shed three or mor e days during
1965 pending a lm o t $3 billion on thi s
sport. Of thi · tot a l, les · th a n 5 per ce nt went
for li ce nse fee and permit s. Eq uipm ent accoun ted for 38 per ce nt , tran sporta tion for 14
per ce nt , a nd food and lodg ing for 15 per
I/ "T he Eco no mics of R ec rea ti o n Toda y ... Park s & Recreation. Jun e 19 70 , pp. 19-2 1, 5 1-53.
15
Outdoor Rec eot1ori
Pe r Cent
Pe r Cent
7
7
6
6
5
5
Chart l
RECREATION EXPENDITURES
AS A PER CENT OF TOTAL
PERSONAL CONSUMPTION EXPENDITURES
' 35
' 40
SO Ui? E Sur ve y of Cu rr e nt Bus in ess .
cent. /\ nglcrs sr cn t th e rcs l o n ba it , guide
rec~, ri shin , 111aga/in cs, ~111d o th er 111i scc ll ,1nco us
item s. Co nserva ti ve ly cs ti111a tcd , fi shcr111 cn a nd
hunte rs wi ll s11c1H.I ·5 b ill io n thi s yea r.
Na tio na l park visit o rs spend over $6 billi o n
a yea r o n trave l, acco rd in g to o ne es tim a te. 2
at ional pa rk s a nd o ther o utdoo r rec rea ti o n
oppo rtuniti es a tt ract to urists to seve ra l sta tes .
Visitors to Co lorado, New Mex ico, a nd Wyoming spe nd hundred s o f milli o ns of do ll a rs
every year , mos tl y d uri ng the summer vaca ti o n
seaso n. O ut doo r wint er recreati on , howeve r , is
beco ming in creas in gly po pul a r , too. T he Colorado Sta te Com merce a nd Develop ment Depa rtmen t e ·ti111 a tes th a t it · ·ta tc' s skiing indu ·try
is grow in g a t a 25 pe r ce nt a nnu a l rate, a nd
that ·kiers will spe nd we ll ove r $50 milli o n in
Co lorado thi s -cason - two- th ird · of thi s
amo unt by o ut- of- ·ta ters. It is no t urpn ·in g
th at ma ny sta tes ra nk to uri sm as a maj o r
indu stry and hig hl y pri ze th eir o utdoo r recreational re so urce s. J
Fi na ll y, co nsid er golf. Th e Nati o nal Golf
Founda tion esti ma tes th a t go lfe rs will pe nd a lmo ·t $3 billi on o n cq uip mc nt a nd play in g
pri , ileges thi s yea r. A ·ub ·ta nti a ll y hig her sum
wo ul d re sult if tra n ·po rt a ti o n cos ts a nd o th er
ex pen ,e · were included.
2 Purl, .\ & lfrcrl'(lfion. March 19 69 . p. 12.
J Touri sm a n <l o u t door recrea ti on a r c no t sy n o nymo u:-- .
of co u r~c . Bu t t h e ove rlap is o f t en con~idc r ab lc.
16
on~ u11H.: r cx pcmlitur ·~ o n o ut doo r r -crc:1ti o 11 u11 dcr~t; 1t c tli · co u11try'~ o utd oo r lci~m c
bud , ·t hcca u~c mu ch park -I pc o utd oo r recrea tion is fin anced large ly b taxa ti o n. /\pp r pri a ti o ns for ·ta lc pa rk sys tems in creased 50
per ce nt betwee n 1950 a nd 1955, 60 per ce nt
be twee n 1955 a nd 1960 , and 75 per ce nt be twee n
1962 a nd 196 7. T he Burea u of Outdoo r Rccrcati o n ' s requ es t fo r $357 .4 milli o n , to ex pa nd it s
fi scal 197 I La nd a nd Water Co nse rva ti o n F und
ac ti vi ti es by 270 per cent ove r fi sca l 1970,
was approved a nd full y fund ed. Muni cipa l a nd
co unty pa rk ac reage d o ubl ed betwee n 1955 a nd
1965 , a nd preli minary da ta fo r th e 1970 Yea rbook
f th e Na ti o na l Rec rea tio n and Pa rk
/\ ssocia ti o n ·hows thi s ra te acce lera tin g. xpc nd iture · by ·talc a nd local gove rnm ent s fo r
co nstru cti o n of new pa rk a nd recrea ti on fac iliti es a rc now runnin g 40 per ce nt a bove th eir
1969 pace. Ameri ca ns a rc clea rl y pay in g to play
o utside - not j ust di rectl y o ut of th eir di scretion ary inco mes, bu t also indirectl y by fin a ncin g gove rnm ent al o ut door recrea ti o n progra ms.
PARTICIPATION
I ncreascd pa rti cip a ti o n ra tes , as we ll as
in creased expe nd itures, d oc um ent th e grow th
of o ut side leis ure ac ti vit y. Sin ce so me type · of
o ut doo r rec rea ti o n cos t less th a n o th ers , it is
no t surpri sin g th a t fa r more peo pl e choose to
wa lk o r sw im rath er th a n to rid e ho rses or
Federal Reserve Bank of Kansas City
Outdoor Recr eation
sa il , as Table I shows . Of co ur se, co nve ni ence
and ava il a bilit y of opportunit y count , too.
Th ese term s simpl y re fer to pa rt of th e timca nd -mo ney cost of th e recrea ti ona l ac ti,·it y.
For exa mpl e, na ture wa lk s a nd hik es co st th e
cit y dwe ller more th a n th e ru ra l citi ze n beca use of th e add ed tim e a nd tra nsport ati o n
i nvo lvcd .
hart 2 shows the grea t in crea ses in att enda nce a t major o utd oo r rec rea ti on a reas ove r
th e past 20 yea rs. 1n so me cases , new a nd expa nd ed a rea s bo th stimul a ted and ha ndl ed th ese
in crea ses. Arm y Co rp · of Engin ee rs rese rv oir
acrea ge , for exa mple , increa ses eve ry year . In
Chart 2
NUMBER OF VISITS TOM JOR TYPES OF
OUTDOOR RECREATION AREAS
Rat io Sc ale
Milli o n s of
8 00
V i s i ts
+,
oro I Po•
i er
UI e l J
I
l~
I
,
fl
I
l
Jf
l
111 1
2
Tobie l
PARTICIPATIO I
L
D OUTDOOR
RECREATION ACTIVITIES BY PERSONS
12 YEARS OF AGE AND OLDER
DURING THE SUMMERTIME, 1970
Percentage
Increa se
Millions Millions·
of
of
O cco Porti sions*
Walking for pleasure
Swimming
Dr iving for pleasure
Ploying outdoor games or sports
Sightseeing
Picnicking
Bicycling
Fishing
Attending outdoor sports events
Boot ing (o ther than canoeing or soiling)
Nature walks
Comping
Horseback riding
Water skiing
Hiking
Att end ing outdoor concerts o r ploys
So iling
Canoeing
in
Occasi on s
Over
ciponts
1960
130
93
350
280
260
150
130
85
80
80
88
68
80
91
25
48
48
38
22
18
13
70
10
60
56
30
25
12
18
1,300
1,300
1,200
1,200
520
51 0
510
5
5
38
153
81
83
124
35
63
64
53
117
55
79
76
107
n.o.
n.o .
NOT E: Th e 1 9 7 0 p art1 cip at1o n f ig ures r e estim ates based on
19 6 5 surv ey da ta project ed to 1 98 0 , as pu b li sh ed 111 Outd oor
Recreation Trends, Dep art m ent o f t h
Int erio r , Bur eau of
Outd oor Rec r ea ti on ( W as hing to n: U. S. Gov ern me nt Pr1nt1 ng
Offi ce , 1 96 7 ) . Th e total U . S. popu lati o n 1 2 yea r s old a nd ove r
i n 1970 Is es tim ated at 16 0 mi lli o n in " Po pul atio n Es tim at es
a nd Pr oj ect io ns, " Current Population Reports, Se ri es P-25 ,
No . 448 , Au g ust 6 , 1 9 70 , Bureau o f th e Ce n sus.
'' Sep ar ate d ays upo n wh ic h p er sons e ngage In activit y dur i ng
Jun e-Au g ust.
n. a. Not av ail ab l e.
M on thl y Review • N ovember 1970
, ~ ~ - ~ - -- ~ - -~ - - ~ - - -- - ~
19 5 0
'5 5
'6 0
' 65
'7 0
th e upp er Ka nsas-l owe r Ne bra ska drainage area
:ti one - th e maj or r ort io n of the Ka n ·as C it y
Co rp s Di ·tri ct - fo ur new Corp-, rescr\'o irs
hav e bcen opened in th e past 7 yea rs, making a
total of ·eve n sin ce th c fir st on e (Ka nopoli s)
was opcncd in 1948. To ta l 1970 public a tt enda nce a t th e e seve n rec rea ti o n areas will lik ely
exceed six milli o n visit s - we ll o,·cr twice th e
numb er who enj oyed Ka nopo li s, Harl an Co unt y,
and Tuttle Cree k Reservo irs in 1963. An exa mpl e
of growin g use of state a nd local recrea ti o n
a rea s is provid ed by La ke J acomo in Jackson
Co unt y , Mi · ·o uri , where vi ·itor , novv number
1. 3 mill io n a nnuall y - over twice th e numb er
co unt ed when th e park wa s opened 9 years ago.
FACTORS EXPLAINING THE INCREASING
DEMAND fOR OUTDOOR RECREATION
Th e de ma nd fo r rec rea ti o nal good s a nd se rvices depend s o n ma ny facto rs such as th e size
17
Ou doo
Rec ( ati r
and compositi on of the pop ulation , amou nt of
lei sure time , income, mob ilit y, tastes, a nd the
prices of oth er goods a nd services. As such
factors cha nge ove r time, so too doc s th e
demand for o utdoo r rec rea ti on.
Population
Popu la ti o n grow th exp la in s part of th e increase in de ma nd fo r o utd oo r recrea ti o n. The
number of indi vid ua ls over 11 yea rs o ld has
incrcascd by 23 per cc n t si nee 1960. Mu ch of
thi s increase has been in th e ve ry ac ti ve, yo un g
adu lt age gro up . Participation in outd oor recr eati on is known to be positi vely related to ed ucati onal leve l, a nd th e population has become
better edu ca ted ove r tim e. Urba11i n 1tio n of til e
pop ul a ti on , by decrea sin g o utd oo r wo rk and
elbow roo m , may he partly respo nsible for
stimulatin g o utd oo r recreation demand . T here
arc ma ny ot her fac tors such as th ese assoc ia ted
with shift s in th e size a nd stru cture of populati on that affect th e demand for outdoor recreati on.
More Leisure
Decreases in th e length of th e workday ,
increases in th e number o f nonw orkd ays, lo nge r
lives, and better heal th a ll mean more tim e
ava il ab le fo r outd oo r rec rea ti o n. Sched ul ed
week ly ho ur s of indu strial plant and office
workers have declined d rama ti ca ll y ove r th e
last ce ntury, a lth o ugh not signifi can tl y in recent
yea rs. The 40-hour wo rkw eek has rcma i nee! th e
no nfa rm standard for so me ti me.
While th e ind ustri a l wo rkw ee k has rema ined
relati ve ly stab le ove r th e past decade, th e incl ustri a l wo rk yea r has clecl in eel. Plant worke rs
now receive , on th e ave rage, a l111 0 t o ne paid
holid ay rnore th a n they rece ived IO yea rs ago.
In creas in g perce nt ages of emp loyees arc a lso
enjoyin g longe r pa id vaca tion s, as C hart 3
show s. I ncreascs in no nwo rkda ys provide ind ivid u;_ tl s with til e lar 1 cr block s of time often
11 ecess:1ry for parti cipation in ce rtain kind s of
o utd oo r rcc rc ._ 1ti o n.
Retireme nt mean s more leisure tim e. T he
total number of retired workers ha · tripl ed
in th e past 15 years, reflecting th e grow th
in th e older age group s as well as declines in
th e working proportions of th ese age gro up s.
[n 1955 , th e labor force includ ed 3.3 million
indi vidual s 65 yea rs old and over, or onefourth of thi s population age gro up . Today,
labo r force participants in th is age gro up still
--------------
Per Cent
100
2 wee ks or more { - - - after 3 years of
service
80
60
Chart 3
PAID VACATIONS, INDUSTRIAL WORKERS
40
3 weeks or more {
after IO yea rs of
service
20
4 weeks or more {
after 20 years of
service
- - Office Workers
- - Plant Workers
1960
'62
'64
'66
'68
0
'70 (est)
SOURCE : H andbook of La bor St ati sti cs, 1969, U . S. D e p a rtm e n t
o f Labor . Bur ea u of La b o r St a t1 s t1 cs ( W as hin g t on : U . S. Govern
m e n l Pr1nl1n g Offi ce. 1969 ). p 267 .
18
Federal Reserve Bank of Kansas City
Outdoor Recreatio n
numb er about 3.3 milli on , but represe nt o nl y
on e-six th o f th e se nior citi ze ns. 4 The increas ing
a ppea l of ea rl y retirement is refl ected in th e
d ec lin e of th e la bor force participation of 60-to
64-year-old men, fro m 8 1 per ce nt in 1960
to 76 per cent in 1970.
Illness reel uces bot h leisure a nd work. Betw een 1965 and 1968, th e average number of
cl ay s of res tric ted ac ti vity d ue to poor hea lth
feil from 16.4 to 15.3 day s per perso n. Expa nd ed medical ca re for the poo r a nd th e
aged surely has added to th e Na ti o n' s potenti al
to enjoy o ut door recrea ti on.
It sho uld be no ted th a t not a ll increases in
di sc reti o nary tim e ar c sr ent in lei sure . Sho rter
wo rk weeks ;111d lo nge r \';tca li ons arc us'd by
so me as o pp ortu nili es l'or 111 0<.rn li ghtin •. /\lso ,
more ;111d more wo men , pa rtl y eman cipated fro m
hou se ho ld ehori..:s a nd fro m d isc rim in atin g labo r
pra cti ces, a rc choos ing to jo in the labo r fo rce.
To a fami ly th a t ha opportunities fo r va rying
it s income by mo re or less work, leisure clearly
has a price. H owever, th e add ition a l in come
ma y ena bl e th e fami ly to enj oy more o utdoo r
leisure.
Higher Income
In crea ses in rea l in co me hct\'C acco mpa ni ed
in cre;1ses in lei ·urc - compa ni o n trend s 1m1 de
poss ible by produ cti vit y in crea ses. O utput pe r
ma n-ho ur increased I00 per ce nt be twee n 1947
and 1968 - a 3. 2 pe r cen t a nnu a l ra te. Rea l
co mpensa ti on per man-ho ur ma tched th is rate
of increase. Output pe r em pl oyed person , however , increased by a somew hat slowe r ave rage
annual ra te of 2.8 per cent ove r thi s period.
Thu s, a 0.4 per cent pot ential increase in
a nnual ea rnin gs wa s "spe nt " in add ition al
leisure. With- 30 per ce nt more purchas ing
power ove r 20 year · ago (C ha rt 4), th e rep4 / T he labo r fnrcc panic.: ip ati o n rat e th e per ce nt o f
th e n o nin stituti nna l popu lati o n in the lab o r fo rce - ha ~
d ec lin ed from 45.8 i n 1950 t o 27 in 1970 fo r ma les 65
yea rs a nd ove r . T h e par t ic i pa ti o n rat e of wome n i n thi s
age gro u p is n ow back at 9.6, it s 1950 leve l. b ut It ha s
flu c tu a t ed b et w ee n 9 a n d 11 in t he int eri m .
M on thly Revi ew• Nov e mb e r 1970
Chart 4
SPENDABLE AVERAGE WEEKLY EARNINGS
INDUSTRIAL WORKER WITH THREE DEPENDENTS
1947-70
Do llar s
12 O
Do ll ars
~--.--- - -.--- - -.--- - -r--- -----,
120
/
100
Curr ent Dollar s,....,..,
80
...... ---
__.
... ------
..,
'/
/
"'
100
,----
80
Dollar s
60
SO Ii ' I H a ndb oo k o f L abor St. t1~t1 c~. 1969 . lJ : lk p ,11 t 1II r•11 I
1 I <1 1>0 1. H1 11 <' ,11 1 o t 1.i1 Jo 1 s1.i1, • 11( ~ l w., ~111111 : to ,1 u s ,( Jv t •, ,1
I'll 111 I 1111l1111,
11 ,c e. I l) i9) . fl I BH
rese nt a ti ve famil y ca n a fford add iti o na l a nd more
ex pensive outdoor rec rea ti o n good s a nd se rvices.
More Mobility
Th e number of mil es o f int erstate hi ghways
open to tra ffi c has more th a n doubled sin ce
1962. States lik e Kan s·a s, Neb raska , and Okl aho ma, with th eir lo ng str etc hes o f int erstat e hi ghways , ar c ex peri encin g in creased dema nd for o ut d oo r recrea ti o n fac iliti c · as to ur i ·ts pa ss thr o ugh
in in creas in g number s. Sin ce 1960, th e pe rce nt age o f U . S. fa mili e · ow nin g two ca rs
has ri se n from 16 to 29, a nd th e numb er of
trave l tra il ers produced a nnua ll y has more th a n
tripl ed. These a nd oth er sta ti stics show an
increasingl y mobil e population - on e better
abl e to go to the location s of di stant outdoor
rec reation.
I ncreascd mob ilit y redu ces th e principal
hidd en co ·t of o utd oor rec rea ti o n - tim e. Ju st
as a fa ll in o ut -o f-pocke t cos ts o f out sid e leisure
ac ti viti es might be ex pec ted to in crea ·e qua ntit y
dema nd ed, so too sho ul d a fa ll in th e tim e
req uired for par ticipa ti o n. For thi · reaso n , fa ster
pl a nes and limit ed -access hi ghw ays, eve n th o ugh
mo re expe nsive th a n o ld er form s of tra nsporta19
Outdoor Recreation
tion , actu a ll y lowe r the cost of out door rec rea ti on
to many peop le who va lue their time highl y.
Cha nging Tastes
Much of th e grow th in outdoor rec rea ti on
demand since 1960 wa u na nti cipatcd by th e
U. S. Outdoor Recrea ti on Re o urces Rev iew
Co mmi ss ion (OR RR C). So me un accou nt ed fo r
factor · , or unfo reseen changes, ev id entl y exp la in
OR RR C's u nd eresti mate. Peop le's ta ·tes see m
to have shifted towa rd more outd oo r rec rea ti o n.
Emphas is on phys ical fitn es · - o ft en assoc iat ed
wi th o utd oo r ac ti vit y - mi ght exp la in pa rt of
thi s ·hift. In creased co nge ·ti on in urban area s
ma e ' pic1in so me o r it , too. Per haps th e new
eco lo •iea l awa reness h:1s er ·at 'd ;1 gre;1t er . ,ppreciatio n fo r na ture includin • th, desire lo
e peric nce na ture befor e it is spoi led.
On o ne ha nd , th e qua lit y of outdoor rec reation ca n be sa id to have improved. Mu ch of
the in creased demand for ca mping faciliti es,
for examp le, is sur ely du e to the adve nt of
campe rs, camp tr a il ers, a nd ot her modern equipment. On th e o th er ha nd , the qualit y of outdoor rec reation can be sa id to ha\'e declin ed
as the a ir a nd wa tPr have beco me more polluted
in so me a reas, a nd as popu la ti o n press ures
er wd more peopl e on to hi ghway · and int o
park ·.
down relative to th e price of res taura nt mea l .
Th e cost of \'isiting a public park has declined
relati ve to th e cost of go in g to a mo\ ie. Camping has beco me relati ve ly less ex pensive th a n
·tay in g in a hotel or mo tel. These a nd oth er
exa mpl es partly refl ec t the ri sing co ·t of · se rvices, and th e d -it -yo urself re ·pon se of consu mcrs. <>
SUMMARY AND CONCLUSIONS
Rclati\'c increases in th e pri ces of good s
and se n 'icc · that co n um ers rega rd as ub stitut es
for outdoor recreation may have ta ken place,
th ereby increasing th e demand for out side leisure
acti\'i ti es. The ev id ence is sparse o n thi s point.
One recent study shows th e ind ex of relat ive
rec rea ti on price · has rema ined fairly co nstant
for th e pa st 20 year s. 5 Man y type · of o utd oor
recrea ti on, however, may have d eclin ed 111
price rela ti ve to ot her kind · of leisur e acti vitic ·.
The p ri ce of picnics, for exa mpl e, has go ne
Outdoor recrea ti o n is becomin g increasi ngly
important eco no micall y. -Xpcndi tures o n goods
and se n ·ice.., u~cd in ou tc.l oo r recreation ar•..:
c lai111i 11 , a l:m.',e r ~h:1re or th e co n~u111cr bud l-!.c l ,
;111d publi · o pe11<..litu 1T'> on o utd oor rccr ·;1tio11
rc~o urcc s :1r ' :ice ·leratin g. While e~ ti111;1 tcs or
total spending o n o utdo o r recreatio n, ary wide ly,
refl ect in g definiti o nal difference · and mea surement difficulties, there is no mi taking th e
rapidl y upw ard trend . In creas ing rat es of participation in outdoor recrea tion acti vities, and
ri sing rates of park att endance, provide added
evide nce of in crea cd acti vi ty.
The incrca in g demand for o ut doo r recreati o n is largel y exp la in ed by th e growi ng populati on and it s rising standard or Ii , in u. - more
purcha ·ing power a nd more leisure. Othe r
co ntri bu ti ng factor s in clud e th e population' s
grea ter mob ility, it s increased ur banization, and
it · cha nged age compos iti on. Some of th e
grow th in demand for ou tdoo r rec rea ti on may
be att ributab le to cha nges in the rel ati ve prices
of co n um er good s and erv iccs, favor in g subtituti o n of outdoor leisure for other activ ities. In addition, ma ny goods a nd se rvices
used in o utd oor recreation have improved in
quality . No li st of fa ctor · ca n be ex hau ·ti vc,
for mu ch o f th e in crca -eel demand fo r outdoor
rec rea ti on ma y reflect cha nge · in con ·um cr
ta ·tcs, and ·uch cha nges arc la rge ly un ex pl a in able , a · arc ta ·tcs t hcmse lvc .
5 J ohn D . 0\\en. The Pri n' uf l . <'i.11ire (Mon trea l: McGill Queen's ni\ ers it y Pres~. 1970). p . 8 5.
6 1 T hi:-. respo nse is no t. o f co ur~e. limit ed to o utd oor
recreatio n. T h e mos t drama tic modern leisure develop ment
mus t be th at vo rac ious con~umer o f tim e: te levision .
Changing Prices
20
Fe d e ral Reserve Bank of Kansas City
@FedFRASER