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Prefatory Note The attached document represents the most complete and accurate version available based on original copies culled from the files of the FOMC Secretariat at the Board of Governors of the Federal Reserve System. This electronic document was created through a comprehensive digitization process which included identifying the bestpreserved paper copies, scanning those copies, 1 and then making the scanned versions text-searchable. 2 Though a stringent quality assurance process was employed, some imperfections may remain. Please note that this document may contain occasional gaps in the text. These gaps are the result of a redaction process that removed information obtained on a confidential basis. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act. 1 In some cases, original copies needed to be photocopied before being scanned into electronic format. All scanned images were deskewed (to remove the effects of printer- and scanner-introduced tilting) and lightly cleaned (to remove dark spots caused by staple holes, hole punches, and other blemishes caused after initial printing). 2 A two-step process was used. An advanced optimal character recognition computer program (OCR) first created electronic text from the document image. Where the OCR results were inconclusive, staff checked and corrected the text as necessary. Please note that the numbers and text in charts and tables were not reliably recognized by the OCR process and were not checked or corrected by staff. CONFIDENTIAL (FR) CLASS III - FOMC August 17, 1990 SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System TABLE OF CONTENTS THE DOMESTIC NONFINANCIAL ECONOMY Consumer prices. . . . . . . . . . . . . . Housing starts . . . . . . . . . . . . . . Estimated revisions to second-quarter GNP. . . . . . . . . . .. . . . . . . . . . . . . . . . . 2 2 1 2 2 Table Private housing activity . . . . . . . . . . . .. . . . 4 Chart 4 Private housing starts . . . . . . . . . . . . . . . . . . THE FINANCIAL ECONOMY The August 1990 senior loan officer opinion survey on bank lending practices . . . . . . . . . . . . . . . . . . . 5 Tables Percent of domestic respondent banks reporting tightening lending standards/terms on nonmerger-related business lending in the May-August period . . . . . . . . . . . . Outstanding loans sold or participated to others by domestic LPS respondents as of June 30, 1990 . . . . . . Senior loan officer opinion survey on bank lending practices at selected large banks in the United States Senior loan officer opinion survey on bank lending practices at selected branches and agencies of foreign banks in the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monetary aggregates Commercial bank credit and short- and . . . . . . . . . . . intermediate-term business credit Selected financial market quotations . . . . . . . . . . . THE INTERNATIONAL ECONOMY U.S. merchandise trade . . . . . . . . . . . .. . 28 Table Merchandise trade: ERRATA . . . . . . . . . Census-based data. . . . . . . . . . . . . . . . . . . . . . 30 SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Consumer Prices The consumer price index rose 0.4 percent in July, as an acceleration in prices of items other than food and energy was only partly offset by a 0.7 percent decline in energy prices. July's 0.6 percent increase in the CPI excluding food and energy was about 0.1 percentage point more than the average monthly pace in the first half of the year. The pickup was attributable to the 0.7 percent rise in prices of services other than energy, which were boosted by a 0.7 percent increase in owners' equivalent rent and a 5.1 percent increase in the cost of lodging while out of town. Other than energy and shelter, prices of services increased 0.5 percent in July, about the average monthly pace in the first half of the year; the cost of medical services continued to move up sharply, and auto registration fees jumped 10-1/2 percent. Prices of commodities other than food and energy increased 0.3 percent in July; further slight discounting of car and apparel prices partly offset another sharp increase in prices of tobacco products. Food prices increased 0.4 percent in July: Prices of a few fresh fruits and vegetables were up sharply, but there was a slight decline in prices of pork and a sizable drop in the price of eggs. Among energy items, prices of natural gas and heating oil each fell a bit more than 1-1/4 percent in July, and the price of electricity moved down 3/4 percent. Gasoline prices edged down 0.3 percent last month. Retail gasoline margins -2- had remained relatively high through June as stocks of gasoline were tight, but in July the retail margin appears to have narrowed a bit. Housing Starts Total private housing starts declined an additional 3 percent in July to 1.15 million units at a seasonally adjusted annual rate. Starts have fallen in each of the past six months and, since April, have been at their lowest levels since 1982. Most of the decline in starts recorded in July was in the multifamily segment of the market. Between 1985:Q4 and May-July of 1990, multifamily starts fell about 60 percent. In the single-family segment of the market, starts edged down in July to 873,000 units at an annual rate. Construction of these units has fallen proportionately less than in the multifamily sector; nonetheless, single-family homebuilding is at the lowest level of the current expansion. Sales of new homes have been trending down since late last year, despite ample inventories, suggesting that most of the decline in homebuilding has resulted from reduced demand rather than from credit market constraints on supply. Estimated Revisions to Second-Quarter GNP Since the Commerce Department (BEA) published its advance estimate of second-quarter GNP on July 27, we have received several pieces of new information on spending in the second quarter. As discussed in the Greenbook, retail sales for May and June were revised up, construction put in place for nonresidential structures in June was stronger than BEA had been assuming, and investment in nonfarm inventories (excluding autos) during June was much smaller, on a current-cost basis, than assumed by BEA. Moreover, the June merchandise trade data released today (discussed later in this supplement) were considerably stronger than BEA had assumed. Our translation of the available information suggests that, if all other spending categories were left unchanged, the new data would add about $5 billion to the level of real GNP in the second quarter, or roughly 1/2 percentage point to the annualized growth rate. However, when the revised GNP data are published on August 24, the figures could be significantly different from the estimates implied by our translation exercise. In particular, BEA also could revise many of the categories for which we have not received new or revised information such as the inventory valuation adjustment, oil inventories held in pipelines and tank farms, and components of expenditures on consumer services, among others. 1. In addition, construction put in place by state and local governments was slightly lower than BEA had assumed. -4PRIVATE HOUSING ACTIVITY (Seasonally adjusted annual rates; millions of units) 1989 1989 Annual Q4 Q1 1.34 1.38 1.38 1.35 Single-family units Permits .93 Starts 1.00 All units Permits Starts Sales New homes Existing homes Multifamily units Permits Starts Vacancy rate Rental units Owned units 1990 1990 Q2 P May r June r July p 1.42 1.45 1.09 1.20 1.07 1.21 1.11 1.18 1.08 1.15 .98 .99 .96 1.08 .80 .89 .80 .90 .80 .89 .78 .87 .65 3.44 .65 3.54 .59 3.44 .55 3.32 .54 3.30 .58 3.34 n.a. n.a. .41 .37 .41 .36 .47 .37 .29 .31 .26 .31 .31 .29 .30 .28 9.4 7.6 8.5 7.9 9.3 7.1 8.8 6.8 n.a. n.a. n.a. n.a. n.a. n.a. 1. Percent. Owned units consist mainly of condominiums. All vacancy rate data are revised. n.a. Not available. p Preliminary. r Revised estimates. PRIVATE HOUSING STARTS (Seasonally adjusted annual rate) Millions of units 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 THE FINANCIAL ECONOMY The August 1990 Senior Loan Officer Opinion Survey on Bank Lending Practices The August Senior Loan Officer Opinion Survey on Bank Lending Practices (LPS) examined changes in bank business lending policies since May. The results, along with those from the May 1990 LPS, suggest that the weakness in growth of commercial and industrial (C&I) loans this year owes in some part to a reduced willingness on the part of banks to lend. The August survey also addressed recent developments in the market for business loan sales, the fifth annual survey of this market. The responses indicate that earlier very rapid growth in this market has moderated and that some loan quality problems have emerged. Commencing with this survey, 18 U.S. branches and agencies of foreign banks have joined 60 domestically chartered banks as LPS respondents. Changes in Banks' Lending Practices Since May Business lending. Domestic respondent banks indicated that since May they have further tightened lending standards and terms with respect to nonmerger-related business loans. 1 The tighter stance was particularly noticeable for lending to middle market firms but was significant for larger and smaller firms as well. With respect to approving loan applications for nonmerger-related purposes, 43 percent of respondents indicated that they had established more stringent standards for their middle market customers and over a third reported tighter standards for both large and small customer firms. As for terms on loans respondents actually are making, the 1. Changes in banks' willingness to make merger-related loans were addressed in the January 1990 Senior Loan Officer Opinion Survey. At that time over 70 percent of respondents indicated that they had tightened their credit standards for approving loan applications related to mergers and acquisitions compared to six months earlier. most noticeable area of tightening was with respect to loan covenants: 53 percent of domestic LPS banks reported tightening covenants for their middle market customers and well over a third did so for their large borrowers. A significant number of domestic respondents tightened in other ways as well, including reducing the maximum size of credit lines and increasing their cost, raising spreads of loan rates over base rates, and increasing collateral requirements. These actions applied to borrowers of all sizes, but again were somewhat more commonly reported for banks' middle market customers. As shown in table 1, for middle market and small firms, the tightening of lending standards and terms over the last three months followed a similar reported tightening over the early months of the year. Branches and agencies of foreign banks reported that, on balance, they too have moved to restrict the availability of business credit. Sixty percent of these institutions reported that they had raised their standards for approving nonmerger-related credit applications in the six months ending with August. These banks also reported that they had tightened terms on nonmerger-related C&I loans in the last six months. Over a quarter restricted the maximum size of credit lines and between 40 and 50 percent acted to increase the cost of credit lines, to raise loan rates relative to base rates, to tighten covenants, and to increase collateral requirements (table 1). By far the most important reasons domestic respondents gave for tightening their credit standards in the last three months were a less 1. See the May 1990 Senior Loan Officer Opinion Survey; this survey did not address changes in bank lending practices with respect to respondents' large customers. However, the January Senior Loan Officer Opinion Survey revealed that very few banks at that time had moved to restrict nonmergerrelated credit to their investment-grade customers. favorable economic outlook and industry specific problems. Also important were current pressures on banks' capital positions and capital pressures anticipated to result from a deterioration in the quality of their loan portfolios. Many banks also mentioned regulatory pressures. (Domestic respondents provided similar motivations for the tightening that occurred earlier in the year.) As for the tightening of lending standards at branches and agencies of foreign banks, the reasons given were similar to those provided by domestic reporters, although only one branch and agency cited regulatory pressures. Commercial real estate lending. As in the May survey, a large majority of domestic respondents indicated that they had tightened their credit standards for commercial real estate lending. About three-quarters of respondents reported that they had imposed tighter credit standards for applications to finance commercial office buildings in the last three months, compared to 80 percent of banks that reported tightening in this area in the May LPS. In both surveys, a large number of respondents reported tightening "considerably." Almost two-thirds of respondents to the August LPS indicated tighter standards for loans secured by industrial structures and for other commercial mortgages, and three-quarters reported tightening standards for approving applications for construction and land development loans. A large majority of branches and agency respondents also reported a reduced willingness to make commercial real estate loans. Compared to six months ago, three-quarters of these banks had tightened standards with 1. By contrast, there is only a little evidence of reduced willingness to make residential mortgages. Six LPS respondents indicated they had tightened somewhat standards for approving applications from individuals for residential mortgages over the last three months, while one respondent indicated it had eased its standards. respect to construction and land development loans and 60 percent for mortgages secured by office buildings. The Loan Sales Market After about half a decade of rapid expansion, growth of the loan sales market appears to have moderated in the last year. As shown in table 2, domestic respondents reported an aggregate of $80 billion in outstanding C&I loans sold or participated to others as of June 30, 1990, an increase of $8 billion from a year earlier. This increase was about evenly split between nine money center banks and other domestic respondents. By contrast, outstandings rose about $20 billion in the year ending in June 1989. Perhaps reflecting purchasers' concerns about credit quality, the share of outstanding loans sold that represented obligations of investment-grade borrowers rose to 44 percent, up from about 35 percent a year earlier. Merger-related loans continued to constitute an important source of loans sold, but with merger activity off since late last year, their share of outstanding loans sold in June was about 37 percent, down from around 45 percent a year earlier. 1 Although their holdings were down noticeably from last year, branches and agencies of foreign banks continued to be the largest purchasers of these loans. Smaller domestic banks significantly increased their holdings in the year ending June 30. The share of outstanding loans sold that were nonperforming rose to 31/2 percent as of June 30, 1990, up from 1 percent a year earlier. This mainly reflected a deterioration in loans sold by LPS respondents other than the nine money center banks. A smaller percentage of the loans sold by 1. Merger-related loans represented approximately 16-3/4 percent of the C&I loans on domestic LPS respondents' books as of June 30, 1990. -9- these banks represents the obligations of investment-grade borrowers than is the case for the money center banks. U.S. branches and agencies of foreign banks are active as both buyers and sellers of C&I loans. As of June 30, the 18 branch and agency respondents reported just over $7 billion of loans sold outstanding and an almost equal amount of loans purchased on their books. Of their loans sold, only about 23 percent represented obligations of investment-grade borrowers, well below the share at domestically chartered banks. The share accounted for by merger-related loans was similar, however, at 36 percent. Of the C&I loans purchased by branch and agency respondents, about one-third were obligations of investment-grade borrowers and 30 percent were mergerrelated.1 Lending to Households As in recent surveys, several more banks reported that they had become more willing to extend consumer installment credit than had become less willing, although most respondent banks indicated no change in their willingness to extend consumer credit in the three months ending with the survey date. 2 Respondents also continued to indicate that they had become more willing on balance to extend consumer credit defined more broadly to include home equity loans. In this case, however, the margin by which banks indicating greater willingness to lend exceeded the number indicating a 1. Merger-related loans represented approximately 22 percent of C&I loans on the books of branches and agency respondents as of June 30, 1990. 2. For some banks, willingness to extend consumer credit has probably been increased by their ability to securitize consumer receivables. The 16 LPS respondents that have used their credit card receivables as collateral for securities indicated, however, that they had not changed their approval standards for credit cards in order to make the associated receivables more suitable as collateral. -10- reduced willingness was smaller than for consumer credit more narrowly defined. The three preceding surveys also had suggested that banks' preference for lending to consumers has shifted away from home equity loans. A different picture had been found in the results from most of the surveys taken in the 1987 to mid-1989 period, when enthusiasm for making consumer loans defined to include home equity lines exceeded that for the narrower class of loans. This apparent relative de-emphasis of home equity lending, which is consistent with the cessation of promotional programs associated with this market, may be attributable to a number of factors, including some recent slowing in the appreciation of home prices and increases in delinquency rates on home equity lines of credit. -11Table 1 Percent of Domestic Respondent Banks Reporting Tightening Lending Standards/Terms on Nonmerger-Related Business Lending in the May-August Period 1 Size of customer Large firms Middle market firms Standards for approving loan applications 36 43 (58) Maximum size of credit lines 25 27 (29) Cost of credit lines 22 30 Spreads of loan over base rates 25 35 Covenants Collateral requirements Criterion Small businesses Memo: Branches & agencies of foreign banks 3 34 (54) 9 (5) 61 28 18 39 (31) 21 (19) 39 37 53 (57) 43 (43) 39 25 45 (53) 40 (52) 50 1. The middle market is often categorized as consisting of firms with annual sales between $50 and $250 million. "Large" firms are those larger than middle market firms and "small" businesses are those that are smaller. Not all respondents used the same criteria to distinguish among size of customers. 2. For U. S. branches and agencies of foreign banks, responses refer to tightening over the six-month period February to August. 3. Numbers in parentheses refer to the percent of respondents that tightened in the period from late 1989 to early May, as reported in the May 1990 Senior Loan Officer Opinion Survey. -12- Table 2 Outstanding Loans Sold or Participated to Others by Domestic LPS Respondents as of June 30, 1990 (Billions of dollars) By Purchaser All LPS respondents 1. 80.1 (72.2) All purchasers 2. Large domestic banks 3. Other domestic banks 4. Branches and agencies of foreign banks By Seller Nine money I center banks Other banks 55.4 (51.5) 24.7 (20.7) 20.3 (22.2) 6.4 (13.0) 13.9 (9.2) (2.4) 7.8 (1.4) 1.7 (1.0) 19.4 (23.8) 6.5 (6.3) 3 5. 6. 9.5 25.9 (30.1) Foreign offices of foreign banks 4.8 (2.5) 4.2 (1.5) .6 (1.0) Nonfinancial corporations 6.6 (4.8) 5.9 (3.8) .7 (1.0) 13.0 (9.9) 11.6 (8.0) 1.4 (1.9) 44.1 (34.8) 52.9 (36.8) 24.5 (29.7) 36.5 (44.5) 33.4 (47.4) 40.7 (37.2) All other Memoranda Percent of outstanding loans sold that: a) were obligations of investmentgrade borrowers b) represented financings for mergers and acquisitions c) were nonperforming 3.5 (1.0) 2.4 (1.1) 5.5 ( .7) Data in parentheses refer to outstandings on June 30, 1989, and are taken from the Note: August 1989 LPS. A few banks reporting outstanding loans sold were unable to provide information on the purchasers of these loans. For purposes of this table, loans sold by these banks were assigned to purchasers according to the average sales distribution reported by all other respondents. 1. Citibank, Bank of America, Chase Manhattan, Morgan Guaranty, Manufacturers Hanover, Chemical Bank, Bankers Trust, Security Pacific, and First National Bank of Chicago. This somewhat arbitrary grouping of banks has been used in other LPS and other Federal Reserve publications. Not all of these banks were among the most active participants in the loan sales market. The Federal Reserve System regards individual bank reports as confidential. 2. Because of some minor panel changes, outstandings at other banks as of June 30, 1990, are not strictly comparable to outstandings at this group of banks as of June 30, 1989. 3. For purposes of this survey, large banks were defined as those with $2 billion or more in total assets. -13- Table 3 SENIOR LOAN OFFICER OPINION SURVEY ON BANK LENDING PRACTICES AT SELECTED LARGE BANKS IN THE UNITED STATES (Status of policy as of August 1990) (Number of banks and percent of banks answering question) (By volume of total domestic assets, in $ billions, as of June 27, 1990)1 (By type of bank)2 1. Approximately what was the dollar volume of commercial and industrial loans outstanding on June 30, 1990 that your bank had originated and then sold to others through participations or assignments? (Exclude sales and participations of any C&I loans that for purposes of the Call Report were retained on your books because, for example, they were sold with recourse.) Over $1 $101-250 $251-500 $501 mil.$0-100 mil. bil. mil. mil $1 bil. ----------- ----------- ----------- ----------- ----------Banks Pet Banks Pet Banks Pct Banks Pct Banks Pct 25.0 All Respondents Nine money center Ibanks 14 0 0 Other 14 29.8 10 0 12 17.9 0 0 0 10 21.3 12 21.4 4 7.1 4 8.5 0 16 80.1 28.6 9 100.0 00 25.5 Total Amount ($ bil.) 7 14.9 9 55.4 47 24.7 Of the outstanding C&I loans that were sold or participated to others as reported in question 1. 2. (Percentages should add to 100.) a. please indicate the approximate percentage distribution of these loans by purchasers. Domestic Commercial Banks with Assets greater than $2 billion Domestic Commercial Banks with Assets less than $2 billion 3 Banks All Respondents Smoney center s -r Mean pet 4 Amount ($ bil.) Banks Mean pet Foreign Banks Agencies and Branches Amount ($ bil.) Banks Mean pet 4 Amount ($ bil.) 11.8 8.6 48 25.4 18.6 36 32.4 23.7 17 6.0 4.4 6 38 14.1 7.3 6.9 1.8 7 41 11.6 52.6 5.6 12.9 8 28 35.1 27.2 17.1 6.7 7 10 7.6 2.8 3.7 0.7 Banks 2 Amount ($ bil.) 44 Nonfinancial Corp. 1 Mean pct Banks Foreign Offices Mean pet Other 4 Amount ($ bil.) Mean Banks 3 Amount 4 pct ($ bil.) All Respondents 2 8.2 6.0 24 16.2 11.8 Nine money center banks Other 1 1 10.7 3.1 5.2 0.8 7 17 20.9 7.0 10.2 1.7 Amount ($ bil.) 73.1 8 45 48.6 24.5 As of June 27, 1990, 30 respondents had domestic assets of $10 billion or more; combined assets of these banks for all totaled $765 billion, compared to $964 billion for the entire panel of 60 banks, and $2.94 trillion domestically chartered federally insured commercial banks. Money center banks are Citibank, Bank of America, Chase Manhattan, Morgan Guaranty, Manufactures Hanover, Chemical Bank, Bankers Trust, Security Pacific, and First National Bank of Chicago. This is a somewhat arbitrary Not all of these banks were among the most grouping which has been used in other Federal Reserve publications. active sellers. The Federal Reserve System regards individual bank responses to this survey as confidential. 'ghted by amount reported in question 1. als reported percentage times the amount reported in question 1. Components may not add due to rounding. -14b. About what percent of these loans were nonperforming? 0% .01-2.5% ----------Banks Pet ----------Banks Pet ----------Banks Pet All Respondents Nine money center banks Other 2.5-5% 6-10% Over 10% ---------------------Banks Pet Banks Mean pet Pet Total Banks 24 45.3 6 11.3 8 15.1 10 18.9 5 9.4 3.5 53 2 22 25.0 48.9 3 3 37.5 6.7 2 6 25.0 13.3 1 9 12.5 20.0 0 5 0 11.1 2.4 5.5 8 45 c. About what percent of these loans represented lending to publicly rated, investment-grade borrowers? 41-60% 61-80% Pet ---------Banks Pet ---------Banks Pet ----------Banks Pet 21-40% 0-20% --------Banks Pet -------Banks Total 80-100% Mean pet 5 Amount (S bil.) ------------------ All Respondents Nine money center banks Other d. 30 61.2 10 20.4 5 10.2 3 6.1 1 2.0 44.1 1 29 14.3 69.0 2 8 28.6 19.0 1 4 14.3 9.5 2 1 28.6 2.4 1 0 14.3 0 52.9 24.5 26.6 22.0 4.6 7 42 Around what percent of these loans represented financings for mergers and acquisitions? (Note: Merger-related loans include those made to finance leveraged buyouts, other mergers and acquisitions, and defensive restructurings--such as equity or debt buybacks--related to mergers and acquisitions.) 0-20% -----Banks Pet 21-40% 41-60% ------- -----Banks Pet Banks 61-80% Pet Total 80-100% ----Banks Pet -------Banks Pet Mean pet Total Amount Banks ($ bil.) --- --- -- -- --- --- All Respondents Nine money center banks Other 23 45.1 12 23.5 12 2 21 28.6 47.7 2 10 28.6 22.7 3 9 the total C&I loans on your books as of June 30, re defined in question 2.d.) Banks All Respondents $10.0 and Over Under $10.0 4. 12 3 9 18 10 8 21.4 10.7 32.1 0 0 0 0 2 4.5 2 4.5 42.9 20.5 51 20.8 33.4 7 11.0 40.7 44 9.7 36.5 roughly what percent was merger related? (Merger-related loans 1990, Banks Pet 2 2 11-15% ------ 6-10% ------ 0-5% ------- 3.9 3.9 23.5 Pet Banks 32.1 35.7 28.6 9 3 6 Pet 16.1 10.7 21.4 16-20% ------Banks 9 6 3 Over 20% ------Banks Pet 8 6 2 16.1 21.4 10.7 Mean 6 Pet pet 14.3 21.4 7.1 16.8 18.8 10.1 In the last three months, how have your bank's credit standards for approving applications for C&I loans or credit lines--other than those to be used to finance mergers and acquisitions--from large corporate, middle market and small business customers changed: (Please report changes in enforcement of existing standards as changes in standards. The middle market been categorized as consisting of firms with annual sales of between $50 and $250 million; in answering this question, refer either to this definition or to any other that may be employed at your bank; please indicate the definition used if it is other than the "Large" borrowers would then be those larger than middle market customers and "small" one suggested. borrowers those that are smaller.) a. for large firms Tightened Eased Basically considerab- Tightened somewhat somewhat unchanged ly ----------- ----------- ----------- ----------Banks All Respondents $10.0 and Over Under $10.0 4 3 2 1 Pet 5.1 6.9 3.3 Banks 18 8 10 Pet 30.5 27.6 33.3 Banks Pet Eased considerably ----------- Total Banks Pet Banks 0 0 0.0 0.0 0 0 0.0 0.0 59 29 0 0.0 0 0.0 30 ghted by amount reported in question 1. ghted by volume of comercial and industrial loans to domestic addressees as of June 27, 1990. b. for middle market firms Tightened considerably Banks All Respondents $10.0 and Over Under $10.0 5 3 2 Pct 8.3 10.0 6.7 Tightened somewhat Banks 21 10 11 Pet 35.0 33.3 36.7 Basically unchanged Banks 34 17 17 Pet 56.7 56.7 56.7 Eased considerably Eased somewhat Banks 0 0 0 Pct 0.0 0.0 0.0 c. for small businesses Tightened considerably Banks Pet All Respondents $10.0 and Over Under $10.0 5.a. Tightened somewhat Banks 15 7 8 Pct 25.4 24.1 26.7 Basically unchanged Banks Pet Eased considerably Eased somewhat Banks Pet 39 20 19 If your bank's credit standards for approving applications for C&I loans or credit lines from large corporate firms--other than those to be used to finance mergers and acquisitions--have been tightened in (Please rank.) to question 4.a) what were the main reasons? the last three months (answers i. or ii. Pressures Deterioration in quality of loan portfolio Less favorable economic outlook on bank's capital position ------- ---- ----------Banks Mean Banks Mean Banks Mean All Respondents $10.0 and Over Under $10.0 5 3 2 1.5 1.8 1.0 4 1 3 1.8 1.0 2.0 19 9 10 Industry specific problems Banks Mean Regulatory pressures Increased attractiveness of other assets ----------- ---------- Banks Mean Banks 2.6 2.5 2.8 1.7 1.8 1.5 Other ---------Banks Mean 2 2 0 5 3 2 1.4 1.7 1.0 Total Banks 22 10 12 5.b. If your bank's credit standards for approving applications for C&I loans or credit lines from middle market firms--other than those to be used to finance mergers and acquisitions-have been tightened in the last three months (answers i. or ii. to question 4.b) what were the main reasons? (Please rank.) Deterioration in on bank's quality of loan capital position portfolio ----------- -- -------Pressures All Respondents $10.0 and Over Under $10.0 Banks Mean Banks Mean 6 3 3 6 2 4 1.4 1.8 1.0 2.2 2.0 2.3 Increased Less attractivefavorable Industry ness of economic specific Regulatory other problems Other pressures outlook assets ------ _ ----------- -------------------Banks Mean Banks Mean Banks Mean Banks Mean Banks Mean 25 13 12 1.5 1.6 1.5 14 8 6 2.4 2.7 2.0 11 6 5 2.3 1.9 2.8 3 1 2 2.0 3.0 1.5 Total Banks 27 13 14 5.c. If your bank's credit standards for approving applications for C&I loans and credit lines from small businesses have been tightened in the last three months (answers i. or ii. to question 4.c) what were the main reasons? (Please rank.) All Respondents $10.0 and Over Under $10.0 Pressures on bank's capital position Deterioration in quality of loan portfolio Less favorable economic outlook Banks Mean Banks Mean Banks Mean 4 2 2 5 1 4 1.3 1.5 1.0 2.2 1.0 2.5 20 10 10 1.6 1.7 1.5 Industry specific problems Regulatory pressures Increased attractiveness of other assets Banks Mean Banks Mean Banks Mean Banks Mean 9 5 4 9 5 4 1 1 0 1 0 1 2.4 2.8 2.0 2.0 1.8 2.3 6.0 6.0 0 Other 1.0 0 1.0 -16- 6. With respect to applications for C&I loans or credit lines--other than those to be used to finance mergers and acquisitions--from large corporate firms that your bank currently is willing to approve, please indicate how terms ive changed in the last three months with respect to: a. maximum size of credit lines Decreased considerably All Respondents $10.0 and Over Under $10.0 b. Decreased somewhat Basically unchanged Increased somewhat Banks Pet Banks Pet Banks Pet Banks - ----- -.-. --- .--. -. --- . - .--- -. -- --- .4 5 8.3 10 16.7 3 5 16.7 3.3 1 1 5 16.7 4 13.3 Increased considerably Pet 6.7 10.0 3.3 costs of credit lines Increased considerably Banks All Respondents $10.0 and Over Under $10.0 Pet Increased somewhat Banks Pet Basically unchanged Banks Pct Decreased somewhat Banks 3 44 73.3 12 20.0 1 1.7 2 21 70.0 7 23.3 0.0 0 1 23 76.7 5 16.7 3.3 1 - --. -- - - . .---- . -- -- -.-. ---. --. -. - - - . .- Pet Decreased considerably Pet Banks 5.0 6.7 3.3 -. .- -- .- 0.0 0 0 0.0 0 0.0 - .-- .- c. spreads of loan rates over base rates Increased considerably Increased somewhat Basically unchanged Decreased somewhat Decreased considerably Tightened considerably Tightened somewhat Basically unchanged Eased somewhat Eased considerably Basically unchanged Eased somewhat Eased considerably All Respondents $10.0 and Over Under $10.0 d. loan covenants Banks All Respondents $10.0 and Over Under $10.0 1 0 1 Pet 1.7 0.0 3.3 Banks 21 12 9 e. collateralization requirements Tightened considerably Banks All Respondents $10.0 and Over Under $10.0 1 0 1 Pot 1.7 0.0 3.3 Tightened somewhat Banks 14 8 6 Pet 23.3 26.7 20.0 Banks 45 22 23 Pet 75.0 73.3 76.7 Banks 0 0 0 Pet 0.0 0.0 0.0 Banks 0 0 0 Pet 0.0 0.0 0.0 -177. With respect to applications for C&I loans or credit lines--other than those to be used to finance -ergers and acquisitions--from middle market firms that your bank currently is willing to approve, please dicate how terms have changed in the last three months with respect to: a. maximum size of credit lines Decreased considerably Banks 3 0 3 All Respondents $10.0 and Over Under $10.0 Pct 5.0 0.0 10.0 Decreased somewhat Banks Basically unchanged Banks Pot Increased somewhat Increased considerably Banks 13 4 9 b. costs of credit lines Increased considerably Banks All Respondents $10.0 and Over Under $10.0 2 1 1 Increased somewhat Basically unchanged Decreased somewhat Decreased considerably Increased somewhat Basically unchanged Decreased somewhat Decreased considerably Basically unchanged Decreased somewhat Decreased considerably Pet 3.3 3.3 3.3 c. spreads of loan rates over base rates Increased considerably Banks All Respondents $10.0 and Over Under $10.0 d. 2 1 1 Pet 3.3 3.3 3.3 Banks 19 10 9 Pet 31.7 33.3 30.0 loan covenants Increased considerably Banks All Respondents $10.0 and Over Under $10.0 e. collateralization 2 1 1 Pet 3.3 3.3 3.3 Increased somewhat Banks Pet 30 15 15 50.0 50.0 50.0 Banks Pet Pet 0.0 0.0 0.0 Banks 0 0 0 Pet 0.0 0.0 0.0 requirements Tightened considerably Banks All Respondents $10.0 and Over Under $10.0 2 1 1 Pet 3.3 3.3 3.3 Tightened somewhat Banks 25 13 12 Pet 41.7 43.3 40.0 Basically unchanged Banks 33 16 17 Pet Eased somewhat Banks Pet Eased considerably Banks 0 0 0 Pet 0.0 0.0 0.0 -188 with respect to applications for C&I loans or credit lines from small businesses that your bank currently is rove, please indicate how terms have changed in the last three months with respect to: a. maximum size of credit lines Decreased considerably Banks 1 0 1 All Respondents $10.0 and Over Under $10.0 b. Increased somewhat Increased considerably Banks 0 0 0 1.7 0.0 3.3 Pet 0.0 0.0 0.0 costs of credit lines Banks 2 1 1 All Respondents $10.0 and Over Under $10.0 Pet 3.4 3.6 3.3 Increased Basically somewhat unchanged --------------------Banks Pet Banks Pet 8 3 5 13.8 10.7 16.7 47 24 23 81.0 85.7 76.7 Decreased somewhat ------Banks Pet 1 0 1 1.7 0.0 3.3 Decreased considerably -----Banks Pet 0 0 0 0.0 0.0 0.0 Total Banks 58 28 30 spreads of loan rates over base rates Increased considerably Banks All Respondents $10.0 and Over Under $10.0 d. Basically unchanged Pet Increased considerably c. Decreased somewhat 2 1 1 Pet 3.4 3.6 3.3 Decreased considerably ----------- ----------- ----------- ---------Total Banks Pet Banks Pet Banks Pet Banks Increased somewhat 10 6 4 17.2 21.4 13.3 Basically unchanged 44 20 24 Decreased somewhat 0 0 0 75.9 71.4 80.0 0.0 0.0 0.0 58 28 30 loan covenants Tightened considerably Banks Pet Tightened somewhat Banks Pct Basically unchanged Banks Pet Eased somewhat Banks Eased considerably Pet All Respondents $10.0 and Over Under $10.0 e. collateralization requirements Tightened considerably Banks All Respondents $10.0 and Over Under $10.0 2 1 1 Pet 3.4 3.6 3.3 Eased considerabTightened Basically Eased somewhat unchanged somewhat ly ----------- ----------- ----------- ---------- Total Banks Pet Banks Banks Pet 21 10 11 36.2 35.7 36.7 0 0 0 0.0 0.0 0.0 58 28 30 willing to -19- 9 In the last three months, how have your bank's credit standards changed for approving applications for construction velopment loans? (Please report changes in enforcement of existing standards as changes in standards.) Tightened considerably --------------Banks Pet All Respondents $10.0 and Over Under $10.0 10. 20 6 14 33.9 20.7 46.7 Tightened Essentially Eased somewhat unchanged somewhat ----------- --------------------Banks Pet Banks Pct Banks Pet 24 17 7 40.7 58.6 23.3 15 6 9 25.4 20.7 30.0 0 0 0 0.0 0.0 0.0 Eased considerably ----------Banks Pet 0 0 0 0.0 0.0 0.0 and land Total Banks 59 29 30 Apart from construction and land development loans, in the last three months, how have your bank's credit standards changed for approving applications for nonfarm nonresidential real estate loans used to finance: (Please report changes in enforcement of existing standards as changes in standards.) a. commercial office buildings Tightened considerably --------Banks Pet All Respondents $10.0 and Over Under $10.0 b. 18 8 10 31.0 27.6 34.5 Tightened Basically somewhat unchanged ------- ----------------Banks Pet Banks Pet 25 15 10 43.1 51.7 34.5 15 6 9 25.9 20.7 31.0 Eased somewhat --------Banks Pet 0 0 0 0.0 0.0 0.0 Eased considerably ----------- Total Banks Pet Banks 0 0 0 0.0 0.0 0.0 58 29 29 industrial structures Tightened considerably ----------- Banks All Respondents $10.0 and Over Under $10.0 11 5 6 Tightened somewhat ---------- Pet 18.6 17.2 20.0 Banks 26 16 10 Basically unchanged ----------- Pet 44.1 55.2 33.3 Banks 22 8 14 Eased somewhat ----------- Pet 37.3 27.6 46.7 Banks 0 0 0 Eased considerably ----------- Pet 0.0 0.0 0.0 Banks 0 0 0 Total Pet Banks 0.0 0.0 0.0 59 29 30 Eased considerably --------Banks Pot Total Banks c. other nonfarm nonresidential purposes Tightened considerabTightened Basically ly somewhat unchanged -------------------Banks Pet Banks Pot Banks Pet All Respondents $10.0 and Over Under $10.0 11. 12 6 6 20.3 20.7 20.0 27 15 12 45.8 51.7 40.0 20 8 12 33.9 27.6 40.0 Eased somewhat ----------Banks Pet 0 0 0 0.0 0.0 0.0 0 0 0 0.0 0.0 0.0 59 29 30 In the last three months, how have your bank's credit standards changed for approving mortgage applications from (Please report changes in enforcement of existing standards as changes in standards.) individuals to purchase homes? All Respondents $10.0 and Over Under $10.0 Tightened considerabTightened Basically ly somewhat unchanged -------------------------------Banks Pet Banks Pet Banks Pet Eased somewhat ----------Banks Pet 6 4 2 1 1 0 0 0 0 0.0 0.0 0.0 10.5 14.3 6.9 50 23 27 87.7 82.1 93.1 1.8 3.6 0.0 Eased considerably ----------- Total Banks Pet Banks 0 0 0 0.0 0.0 0.0 57 28 29 -2012.a. Please indicate your bank's willingness to make general purpose loans to individuals now as opposed to three months ago. "Loans to individuals" here include standard consumer installment loans plus loans taken down under home equity lines of credit. Much More --------Banks Pct All Respondents $10.0 and Over Under $10.0 12.b. 0 0 0 ---- -.-. About Unchanged ----------Banks Pct Please indicate your bank's willingness to make consumer installment All Respondents $10.0 and Over Under $10.0 1 1 0 Somewhat Less ----------Banks Pet 0.0 6 10.2 50 84.7 0.0 2 6.9 24 82.8 0.0 4 13.3 26 86.7 --- . --. -.- --. - .- ---. --- -- .- Much More ----Banks Pct 13. Somewhat More ---------Banks Pet 1.7 3.4 0.0 Somewhat More --------Banks Pet 7 2 11.9 6.9 Total Banks 3 5.1 0 0.0 59 3 10.3 0 0.0 29 0 0.0 0 0.0 30 --. -. - -- .- .- -.-- -. - .--- . loans now as opposed to three months ago? About Unchanged ----------Banks Pet 49 24 Much Less --------Banks Pet 83.1 82.8 83.3 Somewhat Less ----------Banks Pct Much Less ----------Banks Pet 2 2 0 0 0 0 3.4 6.9 0.0 0.0 0.0 0.0 Total Banks 59 29 30 If your bank has used its credit card receivables as collateral for credit card backed securities, has this caused you to change your approval standards for credit cards in order to make them more suitable as collateral? If so, please indicate what these changes have been. No ---------Banks Pet All Respondents $10.0 and Over Under $10.0 18 100.0 10 100.0 8 100.0 Total Banks 18 10 8 -21Table 4 SENIOR LOAN OFFICER OPINION SURVEY ON BANK LENDING PRACTICES AT SELECTED BRANCHES AND AGENCIES OF FOREIGN BANKS IN THE UNITED STATES (Status of policy as of August 1990) (Number of banks and percent of banks answering question) (By volume of total assets, in $ billions, as of June 27, 1990)1 Approximately what was the dollar volume of commercial and industrial loans outstanding on June 30, 1990 that your bank had (Exclude sales and participations of any C&I originated and then sold to others through participations or assignments? loans that for purposes of the Call Report were retained on your books because, for example, they were sold with recourse.) 1. $101-250 mil. $0-100 mil. ----------- ----------Banks Pet Banks Pct 6 All Respondents 33.3 5 $251-500 mil ---------Banks Pet 1 27.8 $501 mil.Over $1 bil. $1 bil. --------------Banks Pet Banks Pct 5.6 4 Of the outstanding C&I loans that were sold or participated to others as reported in 2. 11.1 2 22.2 Total Total Amount Banks ($ bil.) 18 7.3 question 1: a. About what percent of these loans represented lending to publicly rated, investment-grade borrowers? 0-20% 12 All Respondents --------Banks 1 75.0 ----------Banks Pet Pet 2 6.3 Total 80-100% 61-80% 41-60% ---------Banks Pot --------Banks 1 12.5 Mean pot Pet 6.3 22 3 Total Amount Banks ($ bil.) 23.1 1.7 16 b. Around what percent of these loans represented financings for mergers and acquisitions? (Note: Merger-related loans include those made to finance leveraged buyouts, other mergers and acquisitions, and defensive restructurings--such as equity or debt buybacks-- related to mergers and acquisitions.) 0-20% All Respondents 7 ------------------Banks Pet Banks 43.8 3 18.8 2 80-100% 61-80% 41-60% 21-40% ----------Banks Pot Pet ------------Banks Pet 12.5 1 Total 2 ----------- Mean2 pet Banks Pet Amount ($ bil.) 18.8 2.6 6.3 3 36.0 Approximately what was the dollar volume of commercial and industrial loans on the books of your bank as of June 30, 3. 1990 that your bank had not originated but had purchased from other banks through participations or assignments? $0-100 mil. ------ Banks 2 All Respondents --- Banks 4 11.1 --- Pet --- Banks 6 22.2 Total $1 bil. mil mil. Pet ------ Total Banks Pet 6 33.3 Amount Banks ($ bil.) 7.1 18 33.3 had purchased from other banks through participations or assignments as of Of your bank's outstanding C&I loans that it June 30, as reported in question 3: 4. Pet --- a. About what percent of these loans represented lending to publicly rated, investment-grade borrowers? 0-20% Banks All Respondents 8 21-40% -- ----------- Pet 44.4 Banks 5 41-60% ----------- ------- Pet 27.8 Banks 2 Pet 11.1 Total 61-80% ----------Banks Pet 3 16.7 Mean pct 32.0 4 Total Amount Banks ($ bil.) 18 2.3 As of June 27, 1990, respondents had combined assets of $86 billion, compared to $358 billion for all foreign related banking institutions in the United States. ghted by amount reported in question 1. Components may not add due to rounding. als reported percentage times the amount reported in question 1. 4 .eighted by amount reported in question 3. Components may not add due to rounding. 5 Equals reported percentage times the amount reported in question 3. l -22b. Around what percent of these loans represented financings for mergers and acquisitions? in question 2.b.) 0-20% Banks 4 Of the total of C&I loans on your books as of June 30, are defined in question 2.b.) 1990, 0-5% All Respondents 4 6-10% 2 1 Pet 3 16.7 Mean pet 16.7 4 Total Banks Amount (S bil.) 18 29.8 2.1 roughly what percent was merger related? (Merger-related loans 16-20% ----------Banks Pet 11.1 --------Banks 5.6 2 Over 20% Pet -------Banks Pet 11.1 9 Mean pot 50.0 Total Banks 21.7 18 In the last six months, how have your bank's credit standards for approving applications for C&I loans or credit (Merger-related loans are defined in lines--other than those to be used to finance mergers and aquisitions--changed? question 2.b; please report changes in enforcement of existing standards as changes in standards.) Tightened considerably Banks Pet Tightened somewhat Banks Pet All Respondents 1 5.6 10 55.6 ------------------ ----- ----- ----- ----7. 3 5.6 Total 80-100% --------------Pet Banks Banks 11-15% ----------Banks Pet 22.2 61-80% ----------Banks Pet 1 38.9 ---------Banks Pet 6. 41-60% ----------Banks Pet 22.2 7 All Respondents 5. 21-40% --Pot (Merger-related loans are defined Basically unchanged Banks Pet 7 38.9 ----- ----- Eased somewhat Banks 0 Pot Eased considerably Banks 0.0 0 Pet 0.0 18 If your bank's credit standards for approving applications for C&I loans or credit lines--other than those to be used to to question 6) what were finance mergers and acquisitions--have been tightened in the last six months (answers i. or ii. the main reasons? (Please rank.) Pressures on bank's capital position ----------Banks Mean All Respondents 5 2.4 Deterioration in quality of loan portfol ----------Banks Mean 2 3.5 Less favorable economic outlook Increased attractiveness of oti ass ets Industry specific problems Regulatory pressures Banks Mean Banks Mean Banks Mean Banks Mean 8 6 1 1 Other ----------- ----------- ----------- ----- ------ ---------1.3 1.5 3.0 5.0 Banks Mean 2 2.5 Total Banks 11 With respect to applications for C&I loans or credit lines--other than those to be used to finance mergers and acquisitions--that your bank currently is willing to approve, please indicate how terms have changed in the last six months with respect to: 8. a. maximum size of credit lines Decreased Increased Increased considerabBasically considerab- Decreased somewhat unchanged somewhat ly ly ----------- ----------- ----------- ----------- ---------Total Banks Pet Banks Pet Banks Pet Banks Pet Banks All Respondents 1 13 5.6 72.2 0 0 0.0 0.0 18 b. costs of credit lines Decreased Increased considerably Increased Basically Decreased considerabsomewhat unchanged somewhat ly ----------- ----------- ----------- ----------- ---------Total Banks Pet Banks Pet Banks Pet Banks Pet Banks All Respondents 6 1 5.6 6 33.3 11 61.1 Weighted by volume of commercial and industrial loans to domestic addressees as of June 27, 0 0.0 1990. 18 -23c. spreads of loan rates over base rates Decreased Increased Decreased considerabBasically considerab- Increased ly somewhat unchanged somewhat ly ----------- ----------- ----------- ----------- ----------- Total Banks Banks Pet Banks Pet Banks Pet Banks Pet Banks Pet All Respondents 1 5.6 6 33.3 11 61.1 0 0.0 0 0.0 18 d. loan covenants Tightened considerably ---------Banks Pet All Respondents 0 Tightened somewhat ---------Banks Pet 7 0.0 38.9 Basically unchanged ---------Banks Pet 11 61.1 Eased somewhat ----------Banks Pet 0 0.0 Eased considerably ---------Total Banks Banks Pet 0 0.0 18 e. collateralization requirements Tightened considerably All Respondents 9. Tightened somewhat Basically unchanged Eased somewhat Eased considerably ----------- ----------- ----------- ----------- ----------- Total Banks Banks Banks Pet 0 0.0 9 Pet 50.0 Pet 9 50.0 Banks 0 Pet 0.0 Banks 0 Pet 0.0 Banks 18 In the last six months, how have your bank's credit standards changed for approving applications for construction and land development loans? (Please report changes in enforcement of existing standards as changes in standards.) Eased Eased considerabTightened Essentially somewhat unchanged somewhat ly ----------- ----------- ----------- ----------- ----------- Total Banks Pet Banks Pet Banks Pet Banks Pet Banks Pet Banks Tightened considerably All Respondents 10. 5 9 27.8 50.0 4 22.2 0 0.0 0 0.0 18 Apart from construction and land development loans, in the last six months, how have your bank's credit standards changed for approving applications for nonfarm nonresidential real estate loans used to finance: (Please report changes in enforcement of existing standards as changes in standards.) a. commercial office buildings Tightened considerably S------ Banks All Respondents 3 Pet 16.7 Tightened somewhat Banks 8 Pet 44.4 Basically unchanged - Banks 7 Eased somewhat ----- ---------- Pet 38.9 Banks 0 Pet 0.0 Eased considerably ---------- Banks 0 Total Pet 0.0 Banks 18 b. industrial structures Tightened considerab- Tightened ly somewhat ----------- ----------Banks Pet Banks Pet All Respondents 1 6.7 4 26.7 Eased Basically Eased considerabunchanged somewhat ly ----------- ----------- ----------- Total Banks Pet Banks Pet Banks Pet Banks 10 66.7 0 0.0 0 0.0 15 c. other nonfarm nonresidential purposes Tightened considerably Banks All Respondents 3 Pct 16.7 Tightened somewhat Basically unchanged Banks Pct Banks 8 44.4 7 Pct 38.9 Eased somewhat Banks 0 Pet 0.0 Eased considerably Banks 0 Pct 0.0 -25MONETARY AGGREGATES (based on seasonally adjusted data unless otherwise noted) 1990 19891 91 1990 Q2 1990 May 1990 Jun 1990 Jul p Growth 04 89Jul 90p ------------ Percent change at annual rates--------------------- ----------- Percent change at annual Levels bil. $ Jul 90p rates---------- Selected components 4. 5. 6. Ml-A Currency Demand deposits 0.4 4.2 4.8 -2.8 10.3 -0.9 1.6 5.6 518.0 9.3 0.0 10.3 1.3 235.4 274.8 -3.7 291.2 7. Other checkable deposits 1.0 5.9 7.1 -1.2 9.5 -10.6 8. M2 minus M1 2 5.9 6.8 2.6 -2.1 1.5 1.7 -8.6 33.1 -2.9 58.6 -24.4 0.0 82.0 17. M3 minus M2 4 -1.2 -10.6 -7.6 -2.9 -6.7 -2.1 787.6 18. 19. 20. 21. 4.2 9.9 -7.8 -8.3 -1.6 -24.7 5.6 10.1 31.0 0.0 35.1 -56.8 17.9 -18.3 -26.1 9. 10. 11. 12. 13. 14. 5. 1. 22. 23. Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money market mutual fund shares Commercial banks 3 Savings deposits plus MMDAs Small time deposits Thrift institutions 3 Savings deposits plus MMDAs Small time deposits Large time deposits 5 At commercial banks, net At thrift institutions Institution-only money market mutual fund shares Term RPs, NSA Term Eurodollars, NSA 2471.6 ----- Average monthly change in billions of dollars---MEMORANDA: 6 24. Managed liabilities at commercial banks (25+26) 25. Large time deposits, gross 26. Nondeposit funds Net due to related foreign 27. institutions 7 Other 28. 29. U.S. government deposits at commercial banks 8 6.1 2.6 3.5 2.5 -2.3 4.8 -0.1 -1.5 1.4 2.6 -0.4 3.0 1.6 -2.0 3.6 13.8 1.3 12.5 742.6 454.0 288.6 0.2 3.3 3.3 1.5 -0.9 2.3 7.8 -4.9 -9.8 13.3 2.0 10.5 16.7 271.8 -5.5 14.9 -0.3 -0.6 0.4 -2.6 1.8 1. Amounts shown are from fourth quarter to fourth quarter. 2. Nontransactions M2 is seasonally adjusted as a whole. 3. Commercial bank savings deposits excluding MMDAs grew during June and July at rates of 9.3 percent and 3.7 percent, respectively. At thrift institutions, savings deposits excluding MMDAs grew during June and July at rates of -3.8 percent and -1.1 percent, respectively. 4. The non-M2 component of M3 is seasonally adjusted as a whole. 5. Net of large denomination time deposits held by money market mutual funds and thrift institutions. 6. Dollar amounts shown under memoranda are calculated on an end-month-of-quarter basis. 7. Consists of borrowing from other than commercial banks in the form of federal funds purchased, securities sold under agreements to repurchase, and other liabilities for borrowed money (including borrowing from the Federal Reserve and unaffiliated foreign banks, loan RPs and other minor items). Data are partially estimated. 8. Consists of Treasury demand deposits and note balances at commercial banks. p - preliminary -26COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data) 1988:Q4 to 1989:Q4 Levels 1990 Q1 Q2 May June r July p bil.$ July p ---- ------------------- Commercial Bank Credit - -------------------Total loans and securities 1. 2. at banks 7.2 6.8 5.2 3.3 Securities 3.9 16.8 9.3 3.4 7.1 5.9 2670.9 15.7 4.7 615.5 24.5 7.5 437.4 3. U.S. government securities 9.7 24.6 15.1 9.4 4. Other securities 6.9 -.2 -3.8 -10.6 -4.7 -2.0 178.2 8.1 3.9 4.0 3.2 4.5 6.3 2055.4 5.2 -.6 6.1 -2.4 649.9 9.4 11.3 801.2 -4.1 -5.1 376.3 40.0 5. Total loans 6. Business loans 7. Real estate loans 8. 6.8 .6 1. 2.9 10.1 10.0 12.5 Consumer loans 6.3 3.7 -1.4 4.4 9. Security loans 3.8 -18.2 -23.0 -42.2 13.4 129.6 .0. Other loans -5.0 -9.0 -5.1 -15.8 14.2 .6 ------ 11. 188.0 hort- and Intermediate-Term Business Credit---------- Business loans net of bankers acceptances S Loans at foreign branches Sum of lines 11 & 12 14. Conmmercial paper issued by nonfinancial firms 24.5 9.3 4.4 5.9 -19.8 -9.8 -15.1 Line 15 plus bankers acceptances: U.S. trade related 5.2 -6.3 18. Finance company loans to business' 15.4 11.9 19. Total short- and intermediateterm business credit (sum of lines 17 & 18) 15. Sum of lines 13 & 14 16. Bankers acceptances: related ' 17. 1. 2. 3. 4. U.S. trade 6.1 9.9 3.7 7.6 -1.8 n.a. 1112.65 Average of Wednesdays. Loans at foreign branches are loans made to U.S. firms by foreign branches of domestically chartered banks. Based on average of data for current and preceding ends of month. Consists of acceptances that finance U.S. imports, U.S. exports, and domestic shipment and storage of goods. 5. June data. p--preliminary. n.a.--not available -27SELECTED FINANCIAL MARKET QUOTATIONS (percent) 1987 1989 2 March highs Oct 16 Short-term rates 3 Federal funds 1990 Dec lows 9.85 8.45 9.09 9.11 9.05 7.53 7.29 7.11 10.05 10.15 8.51 8.22 FOMC Jul 3 Change from: Aug 16 Mar 89 highs 8.05 -1.80 -.40 -.23 7.48 7.43 7.29 -1.61 -1.68 -1.76 -.05 .14 .18 -.22 -.16 -.16 8.03 7.86 -2.02 -2.29 -.48 -.36 -.19 -.26 8.01 7.98 7.97 -2.06 -2.34 -2.11 8.28 Dec 89 FOMC Jul 3 lows 4 Treasury bills 3-month 6-month 1-year Commercial paper 1-month 3-month 7.94 8.65 8.22 8.12 Large negotiable CDs 1-month 3-month 6-month 5 Eurodollar deposits 1-month 3-month 8.00 9.06 10.19 10.50 8.38 8.25 8.19 8.19 7.94 7.88 -2.25 -2.62 -.44 -.37 -.25 -.31 Bank prime rate 9.25 11.50 10.50 10.00 10.00 -1.50 -.50 .00 U.S. Treasury (constant maturity) 9.88 3-year 9.52 9.53 10-year 10.23 30-year 10.24 9.31 7.69 7.77 7.83 8.28 8.40 8.40 8.23 8.76 8.91 -1.65 -.77 -.40 Municipal revenue (Bond Buyer) Intermediate- and long-term rates Corporate--A utility recently offered 9.59 7.95 7.28 7.48 7.53 -.42 .25 .05 11.50 10.47 9.29 9.92 10.16 -.31 .87 .24 11.58 8.45 11.22 9.31 9.69 8.34 10.15 8.45 10.08 8.39 -1.14 -.92 .39 .05 -.07 -.06 7 Home mortgage rates S&L fixed-rate S&L ARM, 1-yr. 1989 Record highs Date Lows Jan 3 1990 FOMC Jul 3 Aug 16 Percent change from: Record highs 1989 lows FOMC Jul 3 25.03 17.91 10.35 6.26 16.43 -7.91 -7.06 -6.61 -12.88 -8.02 Stock prices Dow-Jones Industrial 2999.75 201.13 NYSE Composite 397.03 AMEX Composite 485.73 NASDAQ (OTC) Wilshire 3523.47 7/16/90 2144.64 2911.63 2681.44 154.98 196.61 182.73 7/16/90 10/10/89 305.24 360.67 336.83 378.56 461.76 402.27 10/9/89 10/9/89 2718.59 3441.27 3165.32 1/ One-day quotes except as noted. 2/ Last business day prior to stock market decline on Monday Oct. 19, 1987. 3/ Average for two-week reserve maintenance period closest to date shown. Last observation is average for the maintenance period ending August 8, 1990. -10.61 -9.15 -15.16 -17.18 -10.16 4/ Secondary market. 5/ Bid rates for Eurodollar deposits at 11 a.m. London time. 6/ Based on one-day Thursday quotes and futures market index changes. 7/ Quotes for week ending Friday closest to date shown. -28- THE INTERNATIONAL ECONOMY U.S. Merchandise Trade Preliminary data for June indicate that the deficit for U.S. merchandise trade narrowed to $5.1 billion (seasonally adjusted, Census basis) from a deficit in May of $7.8 billion (revised). For the second quarter, the deficit was substantially less than in the first quarter, and was the lowest quarterly average recorded since 1983. The value of exports rose nearly 5 percent in June from the May level, with most of the increase in civilian aircraft and parts, consumer goods, and agricultural products. For the second quarter as a whole, exports increased 3 percent (not at an annual rate)--the third consecutive strong quarterly gain. Nearly all of the increase in the second quarter was in consumer goods, capital goods, and automotive products; the value of agricultural exports declined. strong in the first half. Exports to Western Europe were particularly Exports to Mexico also expanded at a strong rate. The value of imports declined in June, with about half of the decrease in oil (about equally split between price and quantity) and the remainder spread among a broad range of categories. declined 2 percent. For the second quarter, imports Most of the drop was in oil imports, as prices fell by more than $3.75 per barrel reflecting strong OPEC production in the face of a marginal increase in world demand, and the quantity imported decreased by 5 percent. Non-oil imports rose 1 percent in the second quarter; declines in food, consumer goods, computers and semiconductors, were more than offset by increases in automotive products (primarily from Canada), and industrial supplies. -29August 17, 1990 Merchandise Trade: Census-Based Data (in billions of dollars, seasonally adjusted) ----------Total 1988 1989 Exports----------------------Imports-------Agri.XX Nonagri. Total 322.4 363.8 37.7 42.2 284.7 321.6 Oil 441.0 473.2 38.5 48.9 Non-Oil 402.5 424.3 Balance -118.5 -109.4 Quarters at annual rates: 1989 Qtr 1 2 3 4 350.4 370.7 360.9 373.3 1990 Qtr 1 2 384.9 396.5 -111.5 -106.0 -112.7 -107.4 307.1 327.3 320.4 331.6 43.0 40.8 341.8 355.7 487.5 477.1 61.3 47.0 426.2 430.0 -102.7 -80.6 Monthly Rates: 1988 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -10.5 -12.6 -9.3 -9.0 -8.4 -11.0 -8.9 -10.4 -9.0 -8.7 -10.2 -10.7 1989 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -9.1 -9.8 -9.0 -8.3 -10.3 -8.0 -9.1 -10.3 -8.8 -10.2 -9.9 -6.8 1990 Jan Feb Mar Apr May-R Jun-P R/ revised preliminary P/ ** Seasonally adjusted using BOP-basis seasonal factors. Source: U.S. Department of Commerce, Bureau of the Census, Customs Valuation. -30- ERRATA 1. The first paragraph on page I-12 of the Greenbook should have read: "The current account deficit in the alternative scenario is about $10 billion greater in the second quarter of 1991 than shown in the current Greenbook forecast. However, this difference diminishes after mid-1991 as the level of GNP in the alternative scenario continues to fall below the Greenbook path and reduces demand for imports." 2. The first sentence of the Domestic Financial Developments section of Part 1 should have read: "Short-term interest rates fell during July in response to the announcement of a possible System easing and the subsequent 1/4 percentage point drop in the federal funds rate on July 13."
@FedFRASER